Question of the Week


We want to enter into a medical director agreement with a medical staff member as an independent contractor, but don’t know which Stark exception applies.  Could you shed some light on this for us?


The Stark Law provides that a physician cannot (1) refer patients to an entity (2) for the furnishing of “designated health services” (“DHS”) specified in the law and regulations thereunder (3) if there is a financial relationship between the physician (or an immediate family member) and the entity (4) unless the financial relationship fits within a specific exception in the Stark Law or regulations.  Entities are prohibited from billing Medicare or Medicaid for any services furnished under a prohibited referral.  This is a strict liability statute and billing for prohibited referrals can form the basis of a recoupment action by CMS and/or an action under the False Claims Act against the hospital and the physicians.

Inpatient and outpatient hospital services are included within the definition of DHS for the purposes of the Stark Law.  Thus, any transaction between the hospital and a physician on its Medical Staff or physician group would prohibit referrals to the hospital of any Medicare and fee-for-service Medicaid beneficiaries for any inpatient or outpatient service by those physicians unless the relationship fits within one of the statutory or regulatory exceptions.

The Stark Law and regulations thereunder contain an exception for personal services arrangements, which would include medical director agreements.  The relevant requirements of this exception are set forth at 42 C.F.R. §411.357(d) as follows:

(i)         Each arrangement is set out in writing, is signed by the parties, and specifies the services covered by the arrangement.

(ii)        The arrangement(s) covers all of the services to be furnished by the physician (or an immediate family member of the physician) to the entity.  This requirement is met if all separate arrangements between the entity and the physician and the entity and any family members incorporate each other by reference or if they cross-reference a master list of contracts that is maintained and updated centrally and is available for review by the Secretary upon request.  The master list must be maintained in a manner that preserves the historical record of contracts….

(iii)       The aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement(s).

(iv)       The term of each arrangement is for at least 1 year….

(v)        The compensation to be paid over the term of each arrangement is set in advance, does not exceed fair market value, and, except in the case of a physician incentive plan (as defined at §411.351), is not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties.

(vi)       The services to be furnished under each arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates any Federal or state law.

(vii)      A holdover personal service arrangement for up to 6 months following the expiration of an agreement of at least 1 year that met the conditions of paragraph (d) of this section satisfies the requirements of paragraph (d) of this section, provided that the holdover personal service arrangement is on the same terms and conditions as the immediately preceding agreement.

All of these requirements must be met in order for the personal services exception to apply.

To help you understand financial arrangements between hospitals and physicians, on November 6 HortySpringer attorneys Dan Mulholland and Nick Calabrese will explain what options you have and what is at stake. Join them for the audio conference Money Talks: Financial Arrangements between Doctors and Hospitals.