OIG on hospital and physician relations

By Jeffrey B. Miller, Esq.

Hospitals and physicians across our nation strive to provide the highest quality health care services to the communities and clientele that they serve. Both federal and state agencies strive in this same effort, further seeking to ensure that individuals and public payment programs are protected from abusive practices and fraudulent schemes perpetrated by a few misinformed or ill-intended providers.

As part of its effort, the federal Department of Health and Human Services, Office of Inspector General (OIG) has publicly issued a series of “compliance program guidance” documents designed to assist providers in voluntarily establishing effective internal controls and monitoring procedures that identify, correct and prevent abusive or fraudulent activities. Among those issued are the Compliance Program Guidance for Hospitals (in 1998), and the Compliance Program Guidance for Individual and Small Group Physician Practices (in 2000). On June 8, 2004 the OIG issued a draft Supplemental Compliance Program Guidance for the Hospital Industry, detailing additional requirements for hospitals, and providing significant additional guidelines that directly affect physicians’ relationships with hospitals (Guidance).

Perhaps most affected are physicians’ employment and contractual relationships with hospitals. In the Guidance the OIG urges hospitals to diligently review all financial relationships with physicians for compliance with the recent changes in the Ethics in Patient Referral Act (i.e., the Stark law). As part of this effort, hospitals are to implement systems that ensure that all legal conditions are satisfied. As a result of this precept, physicians can expect hospitals to be more insistent than ever in obtaining signed, written agreements prior to physicians beginning agreed-upon work, and to obtaining timely written renewals or extensions to existing arrangements.

While the Stark law does contain an exception for temporary non-compliance with its requirements, including that written, signed agreements exist, this exception is not applicable to initial agreements, only lasts for 90 days after agreements lapse and may only be used occasionally. Physicians should keep these requirements in mind when negotiating starting dates and renewal dates for their arrangements.

The Guidance also instructs hospitals to ensure that they pay “fair market value” for “commercially reasonable” physician services. In essence, this means that hospitals should carefully define the physician services they contract for, ensure that those services provide measurable value (without regard to referrals, if any) and that the compensation paid is reasonable is relation to the market for those services. Physicians should expect hospitals to require meaningful, detailed descriptions of their services, and to conduct valuations on their proposed compensation for same. To some extent, physicians can perform their own valuations through a number of publicly available resources available on the Internet. Because the Guidance also points to legal requirements that physician services be adequately documented, physician may also incur requirements for the submission of written records and/or affidavits of the time spent providing their services, perhaps in the form of a time sheet, as a condition of payment.

Finally, the Guidance recommends that hospitals carefully review their policies and practices relating to non-monetary remuneration provided to physicians, including medical staff incidental benefits and professional courtesy. As a result, physicians may experience hospitals restructuring their medical staff benefits and professional courtesy practices in order to, among other things, ensure that medical staff benefits are provided on-campus (or for on-campus-related purposes only), that the medical staff benefits do not exceed $25 in each instance, and that notice of the waiver of any co-pays or deductibles as a professional courtesy are reported to the physicians’ insurance carriers.

In addition to Stark concerns, the Guidance also addresses the federal Anti-kickback Statute (Statute). Specific areas of concern include hospital-physician joint ventures and physician recruitment and retention arrangements. In the joint venture context the OIG advises hospitals of its “long standing concern” that joint ventures disguise payments for past or future referrals through dividends, profit distributions or other economic benefits for their participants. The OIG advises hospitals to avoid joint ventures with physicians where participants are selected based upon past or expected referral patterns, or to structure ventures to benefit their participants based upon referrals. Among other actions, the OIG recommends that, where strict compliance with the Statute’s applicable safe harbor cannot be achieved, hospitals bar their employed physicians (other than physician participants in the joint venture) from referring to these joint ventures, take definable steps to ensure that members of their medical staffs are not encouraged to refer to the joint ventures, and disclose all financial interests in the joint ventures to their patients.

For physician recruitment and retention arrangements, the OIG provides some helpful guidance that clarifies its viewpoint under the Statute on such arrangements, making the Statute’s standards for these arrangements easier to envision. The OIG explains that, where safe harbor status cannot be achieved, it considers four factors in its determination as to whether an arrangement is legal, including: (1) whether the benefit is reasonably necessary to recruit or retain the physician; (2) whether to total pay-out is three years or less; (3) whether the recruit has an existing stream of referrals that he or she could divert to the hospital; and (4) whether there is a community need for the recruit.

Where malpractice insurance subsidies are envisioned, the OIG describes six factors, none of which are determinative, including: (1) whether subsidies are provided on short-term, interim bases to address severe insurance crises that negatively affect quality and access to care; (2) whether the subsidies are offered to physicians with few or no established patients, or to physicians currently on the hospitals’ active medical staffs; (3) whether the criteria for offering or structuring the subsidies are unrelated to referrals; (4) whether the subsidies only cover the increase in insurance premiums for the given periods; (5) whether the insurance is available to the physicians regardless of their location of practice; and (6) whether the physicians are required to purchase the insurance for fair market value, whether in cash or in kind.

Regardless of these factors under the Statute, the OIG notes that physicians must also comply with Stark requirements, which can be substantially more restrictive. As a result, guidance from skilled and experienced health care counsel is important.

In addition to the above issues, the OIG provides its thoughts on a number of other issues affecting hospital-physician relationships, including gainsharing arrangements, the Emergency Medical Treatment and Active Labor Act, claims submission and quality of care.

Jeffrey B. Miller, Esq., is Associate Corporate Counsel for Mercy Health System of Southeastern Pennsylvania. His office is located in Conshohocken, Pa.