January 24, 2019

QUESTION:        Is there anything new on physician retention arrangements?


ANSWER:            Unfortunately, no.  However, we have asked both the OIG and CMS to consider updating their respective positions on physician retention arrangements in response to the OIG’s and CMS’s requests for information on whether the Antikickback Statute and/or the Stark Law are creating barriers to improving quality care and achieving clinical and/or financial integration.

We urged CMS to consider changes to its exception for physician retention arrangements, 42 C.F.R. § 411.357(t), that will permit any hospital, regardless of its location, to use this exception and not limit this exception to instances where there is a firm, written recruitment offer.

There is no rational basis or business justification to continue to limit this exception to hospitals that are located in a rural area or HPSA (42 C.F.R. § 411.357(t)(3)(i)(A)) or where the physician’s patients reside in a medically underserved area or are members of a medically underserved population (42 C.F.R. § 411.357(t)(3)(i)(B)).

In our experience, hospitals, regardless of their location, would benefit from the ability to assist a physician in an existing independent practice to remain independent.  We are aware of clients that have been approached by a group of physicians who want to remain independent.  However, between the charity care they provide, their Medicaid patient population, and the amounts that were being paid to the physicians by Medicaid, Medicare and other third-party payors for their professional services, the group could not generate a sufficient amount of professional reimbursement to allow the group to compensate the physicians at a reasonable fair market rate and precluded the group from expanding the practice even though there was a need for additional physician services.

The hospital could have employed the physicians.  However, the physicians preferred to remain independent and the hospital determined that it would lose more money if the hospital employed the physicians than it would if the hospital provided a guarantee-like payment that would allow the physicians to remain independent.  While such a compensation arrangement might be able to be structured to comply with the Anti-Kickback Statute, there is no safe harbor that will protect such a retention arrangement.  Of greater concern is that currently there is no exception to the Stark Law that would permit this type of retention assistance in most hospitals.

One of the other problems with the Stark retention exception is that a hospital must wait until a physician has a written offer from a third party before it can offer retention assistance.  42 C.F.R. §411.357(t)(2).  By the time a physician has such a firm, written offer, he/she has often decided to leave the area and the permitted retention benefit is of little practical benefit.  We urged CMS to change the exception so that any hospital will be permitted to be proactive and has the ability to offer retention assistance to independent practicing physicians as long as the hospital has a good faith belief that the community served by the hospital would benefit from retention assistance, the amount of the financial assistance is reasonable, and the compensation arrangement complies with the other requirements set forth in this exception.

Whether CMS or the OIG listens to these concerns remains to be seen.