Contracts with hospitals present potential partnership and revenue opportunities; however, financial and state regulations apply to these payments, and if you run afoul of the law, the consequences can be disastrous.

Before contracting with a hospital for services like ED call coverage or medical directorships, protect yourself and your practice by learning more about regulations that govern physician payments and how to determine fair market value for those services. Poorly drafted contracts, or unreasonable payment requests, put you, your medical group, and your partner hospital at risk.

It’s critical to understand that physician arrangements differ from other business contracts. Business practices in other industries are sometimes illegal in the healthcare industry. For example, real estate agents & financial advisors are often rewarded with gifts, trips, or bonuses for selling homes, selling financial products, or bringing in new clients. For physicians working with hospitals, financial rewards or incentives that are the norm in other industries may be illegal if they are tied to volume or referrals. While incentives for quality and even efficiency are becoming the norm in health care, the metrics should be crafted carefully to avoid any suggestion that they could influence a physician’s professional judgment, lessen the quality of care, or result in the overutilization of tests, procedures, and other services.

The two federal regulations all physicians must know about are the Stark Law and the Anti-Kickback statute. Stark Law’s goal is to disconnect payments and physician referrals. A physician (or a physician’s immediate family member) who has a direct or indirect financial relationship with an entity that provides “Designated Health Services” (DHS), cannot refer patients (Medicare/Medicaid) to that entity for DHS, and the entity cannot submit a claim for services unless the financial relationship is within a Stark exception. Although it is a civil statute hence a violation doesn’t result in prison time, as a civil statute intent to break the law doesn’t have to be proven. Hefty fines and a ban from participation in Medicare/Medicaid are the penalties. Earlier this year, the DOJ announced that 33 Texas physicians were forced to pay nearly three million to settle allegations of Stark fraud, as well as violating the Anti-Kickback statute (Fifteen Texas Doctors Agree to Pay over $2.8 Million to Settle Kickback Allegations; June 2022, The United States Department of Justice; https://www.justice.gov/opa/pr/fifteen-texas-doctors-agree-pay-over-28-million-settle-kickback-allegations).

The Anti-Kickback statute (AKS) on the other hand forbids offering, incentivizing, paying, soliciting, or receiving anything of value to induce referrals. This applies across all federal programs, not just Medicare/Medicaid. Because it’s a criminal statute, intent must be proven but repercussions are higher (including potential prison time). In 2021 the federal government levied over $900 million in fines for False Claims Act violations related to Stark and AKS violations (Molly B. Knobler, Lessons from 2021: Expect Aggressive Enforcement of Stark and AKS to Continue; January 2022; https://www.complianceandethics.org/lessons-from-2021-expect-aggressive-enforcement-of-stark-and-aks-to-continue/).

How do you protect your practice from violating these laws? Understanding the prohibitions is the first step, followed by adopting practice policies and guidelines for arrangements with hospitals. When reviewing a contract, review any terms related to payment to ensure no direct or indirect payments are is tied to referrals.

The other aspects of both sets of statutes and regulations are the concepts of commercial reasonableness and fair market value (FMV), both of which are required for provider contracts. Many organizations use well-vetted market data as the foundation of any fair market value (FMV) documentation process. Generally speaking, payments under the 75th percentile of a respected compensation survey such as MD Ranger, MGMA, Sullivan Cotter, ECG, or AMGA fall within a reasonable range though it does depend on the situation. While not common, significant differences between surveys happen when sample sizes differ, so it is important for your group to understand how you compare relative to productivity and collections as well as total compensation.

Benchmarks exist for call coverage, administrative services, and numerous other paid arrangements. Proper documentation of a contract’s commercial reasonableness and fair market value is required of hospitals, but a group should understand the benchmarks before entering negotiations. Not infrequently, we see groups that undercut themselves by not understanding how their group compares to benchmarks. Underpayments can undercut recruitment and retention efforts that could be hard to overcome if you sign a multi-year contract. Seeking help from a consultant knowledgeable in your specialty often pays off, despite the initial ‘sticker shock’ of their hourly rates!

If you are negotiating a complex arrangement, using a consultant or attorney knowledgeable in contract terms and health law can be useful but it is you shouldn’t need the support of counsel for every hospital contract. Many hospitals have standard contract templates that they are reluctant to change. Furthermore, all hospitals should require time records before payment (we heard that groan!).

In summary, here are steps you should take today to protect your practice:

  1. Understand Stark Law and AKS; educate members of your practice on what is and is not permissible under the regulations
  2. Understand how your group compares to market benchmarks for payment terms, productivity, and collections.
  3. Develop internal policies that clearly define limits on payment terms related to referrals and volume.
  4. Consider consulting an attorney or consultant with physician contracting expertise in complex situations.
  5. Train physicians on proper documentation, such as time tracking for administrative arrangements

Allison Pullins
VP, Chief Strategy and Operating Officer
MD Ranger, Inc.

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