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Complex and burdensome Stark physician self-referral law restrictions make physician recruitment a risky business for health care providers. Heightening the risk is the federal government's recent fraud and abuse enforcement emphasis on hospital financial support for physician recruitment. For example, there have been recent criminal prosecutions of hospitals and their management team, civil settlements, and exclusion of a hospital provider from participation in federal health care programs.

The Centers for Medicare and Medicaid Services ("CMS") recently issued an advisory opinion (Advisory Opinion No. CMS-AO-2006-01) regarding the Stark Law physician recruitment exception. In the proposed recruiting arrangement, a hospital and medical group practice would jointly recruit a physician to provide services to patients at three locations of the practice, and one of the locations is not within the boundary of the geographic area served by the hospital as defined in the Stark Law regulations. The CMS advisory opinion specifically addressed whether a physician who would spend up to 20% of their time practicing outside of the recruiting hospital's geographic service area would meet the "relocation requirement" of the physician recruitment exception to the Stark Law.

The hospital and medical group proposed to joint recruit a primary care physician to their area. They each agreed to pay one-half of a recruitment firm's fee if it identified a suitable physician who was willing to relocate. In addition, to induce a physician to move to the rural area, the hospital would provide forgivable loans (over a three year period) to pay the physician's moving and relocation expenses, the first year of medical malpractice premiums, and to repay the physician's medical school loans. The medical group practice maintained three offices, one of which was outside the hospital's geographic service area. The recruited physician would practice 10 percent to 20 percent of the time in the office outside of the service area. The recruiting hospital would provide no other compensation to the medical group practice the physician is joining or to the physician in connection with the proposed recruitment arrangement. In addition, the forgiveness of the loans would be based on the physician meeting certain service and other commitments.

A physician's recruitment arrangement with a hospital must meet all of the conditions of the physician recruitment exception to the Stark Law; otherwise, the recruited physician would be prohibited from referring Medicare or Medicaid beneficiaries to the recruiting hospital for any health care service subject to the Stark Law. The statutory language of the Stark Law and the regulations adopted by CMS both contain an exception for certain remuneration paid by a hospital to induce a physician to relocate his or her medical practice to the geographic area served by the hospital. The Stark Law regulations define the geographic area served by the hospital as the area composed of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients. The physician recruitment exception to the Stark Laws contains the following conditions:

• The recruitment arrangement must be set out in writing and signed by the parties, including the party to whom the payments are made directly (e.g. physicians practice if applicable)
• The recruitment arrangement is not conditioned on the physicians' referral of patients to the recruiting hospital
• The remuneration from the recruiting hospital is not determined in a manner that takes into account "directly or indirectly" the volume or value of any actual or anticipated referrals by the recruited physician or by the physician's practice (or any physician affiliated with the physician's practice) receiving the direct payments or any other business generated between the parties
• The recruited physician is allowed to establish staff privileges at other hospitals and refer business to any other entities
• The recruitment exception contains certain conditions that are applicable if a hospital is also providing an income guaranty to the recruited physician.

The parties certified that the proposed arrangement met all of the conditions of the Stark Law recruitment exception. CMS commented that "there is no explicit requirement in the physician recruitment exception of the Stark Law that the recruited physician spend 100% of his or her medical practice time in the geographic area served by the hospital." However, CMS emphasized that they may reach a different conclusion if the time spent by the recruited physician outside of the geographic area would be more substantial than under the proposed arrangement (i.e., 20%).

Conclusion

A potential message to take from this advisory opinion is the willingness on the part of CMS to provide more meaningful guidance through the Advisory Opinion process than it has in the past. CMS indicates that a physician may spend up to 20% of his or her time rendering services outside of the Hospital's service area, however any percentage over 20% may be deemed too much by CMS. The physician recruitment rules and exceptions are highly technical and violations can result in civil fines and substantial penalties. Therefore, health care providers are advised to structure their arrangements carefully and seek expert advice if they have questions or concerns about the legality of particular recruitment proposals.

Our firm has assisted numerous hospitals and physicians with the drafting and negotiation of physician recruitment arrangements. We can assist you in developing best practices for minimizing risks and facilitating physician recruitment within the boundaries of complex legal restrictions. If you require our assistance or have any questions please contact Michael Dowell at mdowell@tocounsel.com or the lawyer in the firm who generally handles your health care law legal matters.