Impact of New Stark Regulations on Provider Compensation Arrangements
The Stark law has a significant impact on how physicians structure their business arrangements. The new Stark regulations interpret a number of Stark exceptions for compensation arrangements involving physicians, including exceptions for space and equipment rentals, employment relationships, personal services arrangements and physician recruitment. The new regulations also provide new exceptions to Stark. The new regulations are effective July 26, 2004.
In general, physician compensation arrangements may not take into account the volume or value or referrals or business otherwise generated between the parties. "Business otherwise generated" does not include personally performed services, but does include the technical component of a personally performed service.
The new Stark regulations help answer the following compensation questions:
Q: Can a physician receive a productivity bonus?
A: Yes. The new regulations make it clear that physician employees may be paid bonuses based on their personally performed services (but not referrals for ancillary services). Physicians in a "group practice" may be paid a share of overall profits of the group and/or productivity bonus based on services personally performed or services "incident to" such personally performed services. The compensation methodology must be reasonable and verifiable and not directly related to the volume or value of referrals. The regulations provide examples of acceptable methodologies for the distribution of productivity bonuses.
Q: Can a physician be compensated on an hourly basis?
A: Yes. The new regulations contain a new safe harbor that deems certain hourly payments to physicians to be consistent with fair market value, a key requirement for most Stark compensation arrangement exceptions. Hourly payments to physicians should be established through either of the following methodologies:
1) Hourly rate is less than or equal to the average hourly rate for an emergency room physician in the relevant market (must have 3 hospitals with emergency rooms in market); or
2) Hourly rate is determined by averaging the 50th percentile national compensation level for physicians with same physician specialty (or general practice if a particular specialty is not identified in the survey) in the 4 surveys specified in the regulations.
Q: Are percentage compensation arrangements permitted?
A: Yes. A new definition for the statutory language "set in advance" permits certain common percentage compensation arrangements. A physician can be paid based on the percentage of revenues or collections for personally performed services as long as the compensation formula is: (i) established with specificity prospectively, (ii) objectively verifiable.; and (iii) not changed over course of the agreement based on volume or value of referrals or other business generated.
Q: Can physicians be required to refer to particular designated health service entities?
A: Yes. The new Stark regulations allow compensation arrangements that require physicians to refer to a particular entity providing designated health services (i.e. laboratory, bone density center, x-ray facility) where: (i) compensation is set in advance; (ii) compensation is consistent with fair market value; (iii) patient choice in ensured; (iv) insurer's choice is ensured; and (v) the required referral relates solely to physician's services covered under the arrangement and the referral requirement is reasonably necessary to effectuate the legitimate purpose of the compensation relationship.
Q: How have the new regulations affected a hospital's ability to make recruitment payments to a physician?
A: The new regulations substantially modify the proposed recruitment regulations in several respects. The new regulations focus on relocation of the recruited physician's medical practice, rather than on the physician's residence. The regulations also permit cross-town recruitment of residents and physicians who have been in practice for less than one year without regard to change in location, because they are deemed to not have an established practice.
Q: Can a hospital make a recruitment payment indirectly through a group practice?
A: Yes, if conditions specified in the regulations are met. Records of actual costs and passed through amounts must be maintained for at least 5 years.
Q: What new exceptions related to compensation arrangements are included in the new regulations?
A: The new regulations contain the following new exceptions related to compensation arrangements:
• Isolated Transaction Exception
• Remuneration Unrelated to Provision of Designated Health Service
• Payments Made By Physician for Items and Services
• Charitable Donations by Physician
• Non-Monetary Compensation Up to $300
• Medical Staff Incidental Benefits
• Compliance Training
• Professional Courtesy
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