Newsletters

The Health Law Advisor - Winter 2007

LEGAL ISSUES IMPACTING PHYSICIAN RECRUITMENT RELATIONSHIPS

Physician recruitment is a highly regulated activity and thus physicians involved in recruitment arrangements should understand the legal issues involved. This article addresses two primary laws governing physician recruitment generally, but it does not cover all regulations governing physician recruitment (such as the tax regulations impacting the hospital). Therefore this article should not be relied upon as a substitute for legal counsel, should your entity choose to engage in physician recruitment activities. Two of the primary laws applicable to recruitment arrangements are: (1) the Federal "Stark" law, and (2) the Federal Anti-kickback law and the accompanying safe harbor for physician recruitment.

The Stark II ban on physician self-referral generally makes it unlawful for a physician to refer Medicare or Medicaid patients for designated health services (‚DHS‛) to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. An exception exists for physician recruitment. Under Stark, a hospital is permitted to pay a physician to relocate to the hospital's geographic area in order for the physician to be a member of the hospital's medical staff.

To meet the Stark exception, the recruitment arrangement must meet the following requirements:

1. The arrangement must be set out in writing and signed by both parties;
2. The arrangement cannot be conditioned on the physician's referrals;
3. The amount of remuneration under the agreement may not be determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the physician; and
4. The physician must be allowed to establish staff privileges at any other hospital and to refer business to other entities.

As part of a recruitment arrangement, a hospital is permitted to pay a physician to relocate to the hospital's geographic area.

In order to meet the relocation requirement, the physician must:

1. Relocate his or her practice a minimum of 25 miles; or
2. At least 75 percent of the physician's revenues must come from care provided to new patients.

Note, however, the Stark regulations afford special treatment to residents and to physicians who have been in practice less than one year. These physicians will be eligible for the physician recruitment exception regardless of whether they actually move their practices.

With regard to the geographic area, the 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 percent of its inpatients. The geographic area requirement dictates both the area from which the hospital may not recruit established physicians, and also as an area within which the recruited physician must relocate his or her practice.

The Stark regulations add additional conditions when a recruitment payment is made (1) indirectly through another physician or group practice or (2) directly to a physician who is joining an existing physician or group practice. To meet these additional conditions, the following requirements must be met:

1. The arrangement between the hospital and physician practice is in writing and signed by the parties: in a situation where a physician joins a host practice, the recruitment contract will be a three- party agreement signed by the hospital, recruited physician and host PC or PLLC;
2. The remuneration is passed directly through to, or remains with, the recruited physician (except for actual costs incurred by the practice in recruiting the new physician);
3. In the case of an income guarantee made by the hospital to a physician who joins a local physician practice, costs allocated by the physician practice to the recruited physician may not exceed the actual additional incremental costs to the practice attributable to the recruited physician;
4. The new physician must establish a medical practice in the hospital's geographic area and join the hospital's medical staff;
5. The practice's arrangement with the recruited physician must be set out in writing and signed by the parties;
6. The new physician may not be required to refer patients to the hospital and is allowed to establish staff privileges at any other hospital and to refer business to other entities;
7. The remuneration from the hospital is not determined in any manner that takes into account (directly or indirectly) the volume or value of any referrals (actual or anticipated) by the recruited physician or by the physician practice receiving the direct payments from the hospital (or any physician affiliated with that physician practice;
8. The physician practice receiving the hospital payments may not impose additional practice restrictions on the recruited physician (e.g., a covenant not to compete), but may impose conditions related solely to quality considerations; and
9. The arrangement must not violate the anti-kickback statute and must comply with all relevant billing laws and regulations.

Under the Federal Anti-kickback law, a person is prohibited from knowingly and willfully soliciting or receiving, offering or paying any remuneration in return for referring or inducing referrals for goods and services paid for under federal government programs. However, there is a regulatory safe harbor that protects physician recruitment payments. Of note, however, is that unlike Stark, the Federal Anti-kickback safe harbor applies to recruitment payments to induce recruitment into a health care professional shortage area ("HPSA"). The safe harbor does not protect recruitment payments in connection with recruitment into areas that are not designated as HPSAs. The recruitment safe harbor applies to payments by an entity in order to induce a practitioner who has been practicing within his or her current specialty for less than one year to locate, or to induce any other practitioner to relocate, his or her primary place of practice into a HPSA for his or her specialty area that is served by the entity, as long as the following requirements are met:

• The arrangement is set forth in a written agreement signed by the parties that specifies the benefits provided by the entity, the terms under which the benefits are to be provided, and the obligation of each party.
• If a practitioner is leaving an established practice, at least 75 percent of the revenues of the new practice must be generated from new patients not previously seen by the practitioner at his or her former practice.
• The benefits are provided by the entity for a period not in excess of 3 years, and the terms of the agreement are not renegotiated during this 3-year period in any substantial aspect; provided, however, that if the HPSA to which the practitioner was recruited ceases to be a HPSA during the term of the written agreement, the payments made under the written agreement will continue to satisfy this paragraph for the duration of the written agreement (not to exceed 3 years).
• There is no requirement that the practitioner make referrals to, be in a position to make or influence referrals to, or otherwise generate business for the entity as a condition for receiving the benefits; provided, however, that for purpose of this paragraph, the entity may require as a condition for receiving benefits that the practitioner maintain staff privileges at the entity.
• The practitioner is not restricted from establishing staff privileges at, referring any service to, or otherwise generating any business for any other entity of his or her choosing.
• The amount or value of the benefits provided by the entity may not vary (or be adjusted or renegotiated) in any manner based on the volume or value of any expected referrals to or business otherwise generated for the entity by the practitioner for which payment may be made in whole or in party under Medicare, Medicaid or nay other Federal health care programs.
• The practitioner agrees to treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner.
• At least 75 percent of the revenues of the new practice must be generated from patients residing in a HPSA or a Medically Underserved Area ("MUA") or who part of a Medically Underserved Population ("MUP"), all are as defined in paragraph (a) of this section.
• The payment or exchange of anything of value may not directly or indirectly benefit any person (other than the practitioner being recruited) or entity in a position to make or influence referrals to the entity providing the recruitment payments or benefits of items or services payable by a Federal health care program.

Notably, the Anti-kickback statute is an intent based statue, which is broadly worded and has been interpreted to include any arrangement where only one purpose is to induce referrals. The safe harbor regulations define practices that are not subject to the Anti-kickback statute. However, failure to comply with a safe harbor does not make an arrangement per se illegal. Instead, the particular facts and circumstances surrounding the arrangement must be carefully scrutinized. In this regard, although there is not a safe harbor that applies to recruitment payments outside of the HPSA context, it may reduce risk if all of the other requirements of the safe harbor, which do not involve HPSA issues, are met.

COMPLIANCE CORNER

Laser Treatment for Dermatological Purposes:
Who can perform these procedures in Michigan?

Laser treatment has been utilized with limited frequency for certain dermatological applications such as the removal of tattoos, acne scars, port wine stains, and skin blemishes for over a decade. However, in recent years, laser treatment for hair removal and wrinkle treatment has grown significantly in popularity, which has subsequently increased the demand for providers of laser treatment. Since state law governs the issue of who can perform these procedures, it is important for all current and prospective providers of laser treatment to be familiar with Michigan law regarding the use of lasers for dermatological purposes, including the Michigan Public Health Code delegation provision. In addition, on December 5, 2005, the Michigan Department of Community Health ("MDCH") released a position statement regarding the use of laser equipment by health professionals, which clarifies the relevant law on the subject.

According to MDCH's position statement, laser treatment falls within the Michigan Public Health Code's definition of the practice of medicine because the treatment involves the "diagnosis, treatment, prevention, cure, or relieving of a human disease, ailment, defect, complaint, or other physical or mental condition by attendance, advice, device, diagnostic test, or other means..." Thus, generally speaking, dermatological laser procedures should be performed by a licensed physician. However, MCLA 333.16276 permits a "licensee, registrant, or other individual" to perform laser procedures for dermatological purposes as long as the procedure is performed under the supervision of a licensed physician. Notably, delegation will not be permitted unless the patient involved has knowledge and consents to the laser treatment procedure being performed by a non-physician. This delegation provision further permits physician's assistants and nurse practitioners to perform these laser procedures without supervision, as long as the procedure is performed in a healthcare facility as narrowly defined by the Michigan Public Health Code (e.g., a hospital). It should also be noted that the delegation provision does not permit physician's assistants and nurse practitioners to delegate the authority to perform these laser procedures to someone else.

The key aspect of this delegation authority for laser procedures, as noted and clarified in MDCH's position statement, is the definition of "supervision," as all providers of laser treatment should be aware that the ultimate responsibility for the tasks and duties performed by any delegated individual falls on the licensed physician. Supervision entails the overseeing of, or participation in, the work of another individual by a licensed health professional in circumstances where at least all of the following conditions are met:

• Acknowledgement by the physician that the delegated individual has the appropriate education, training or experience to properly use lasers.
• Continuous availability of direct communication in person, or by radio, telephone or other telecommunication, between the physician and the delegated individual.
• Regularly scheduled availability of the physician to consult, educate, and review the records and practice of the delegated individual in laser use.
• Development by the physician of written procedures and protocols to guide the delegated individual's laser use.

These conditions demonstrate the high level of care a licensed physician must exert when delegating authority to perform laser treatment. The licensed physician is not only ultimately responsible for the outcome of the procedure, but is also required to be readily available to assist (in person or by telephone or radio) the delegated individual at all times.

The delegation provision at MCLA 333.16276 is limited in application to the use of lasers for "dermatological purposes." This entails any purposes relating to the diagnosis and treatment of medically necessary and cosmetic conditions of the skin, hair, and nails by various surgical, reconstructive, cosmetic, and non-surgical methods. Therefore, this provision permits the delegation of such procedures as laser hair removal or acne scar removal, but it does not permit the delegation of other laser procedures unrelated to the practice of dermatology such as laser eye surgery.

A licensed physician who is considering delegating the authority to use laser treatment for dermatological purposes should address the issue in a prudent and thorough manner, as Michigan's law on the issue is stringent. Specifically, utmost care must be taken when determining whether an individual has the appropriate qualifications and training to perform the laser procedures. This compliance corner provides two tips to assist licensed physicians contemplating this delegation.

Pursuant to MDCH's position statement, a delegated individual can be a licensed or unlicensed individual. With that said, it is recommended the licensed physician perform extensive research on the background, education, and training of any prospective delegated individual to ensure the individual is duly qualified, as it is reasonable to assume in practice "appropriate education or training" may entail at least a certification in laser treatment. The licensed physician should maintain a personnel file on each delegate that includes any and all certificates and other documentary evidence of training in laser treatments. In short, licensed physicians are well advised to err on the side of "over-qualified" when selecting a delegated individual, as the licensed physician must keep in mind that he or she is ultimately responsible for the outcome of any delegated procedure.

A physician should provide a delegated individual with extensive hands-on training regarding the laser treatment to be delegated. Additionally, a physician must create a detailed written procedure or protocol to assist the delegated individual. This protocol can be in the form of a manual, with step-by-step instruction to guide the individual. The required duties and tasks of the delegated individual should be clearly elaborated in this written protocol.

Further, the performance of the delegated individual should be regularly reviewed and evaluated. The delegated individual should maintain detailed records of all laser procedures performed under the supervision of a licensed physician. These records should also be reviewed by the licensed physician on a regular basis. It is vital that delegated individuals not only possess appropriate background qualifications, but also maintain a satisfactory work record performing these laser procedures.

RECENT AND UPCOMING EVENTS AT WACHLER & ASSOCIATES, P.C.

Susan H. Patton, Esq. Joins Wachler and Associates, P.C.

Wachler & Associates, P.C. is pleased to announce the addition of Susan H. Patton to our firm. Ms. Patton practices in all areas of health care law, including but not limited to the following areas of law: corporate; regulatory; tax-exempt and for profit entities; mergers; joint ventures; sales and acquisitions; physician contracting; Medicare and other third party payor audits; and fraud and abuse analysis.

Ms. Patton graduated with honors from the University of Michigan in 1973, and she graduated with honors from Wayne State University Law School in 1979. While in law school, Ms. Patton was a member of the Wayne Law Review Editorial Board as the Articles Editor. She also served as a judicial intern to the Honorable James P. Churchill, United States District Court, Eastern District of Michigan and to the Honorable Cornelia G. Kennedy, United States Court of Appeals, Sixth Judicial Circuit. After her clerkships, Ms. Patton spent a year and a half as Associate Counsel at the University of Michigan Medical Center. Ms. Patton was an associate and then partner at the law firm of Miller, Canfield, Paddock & Stone for twelve years where she specialized in health care law, non-profit corporations and tax-exempt entities. For the ten years prior to joining Wachler & Associates, Ms. Patton was Assistant General Counsel at Trinity Health Corporation, the nation's third largest Catholic health care system.

Recent and Upcoming Speaking Engagements:

• Abby Pendleton presented on Fraud and Abuse Compliance Issues to the United Communications Group Physicians National Summit on September 14-16, 2006.
• Andrew Wachler presented on the new Medicare appeals process at the Annual Meeting of the Health Care Compliance Association on October 1-3, 2006.
• Abby Pendleton presented on the new Medicare appeals process at the Annual Meeting of the Medical Group Management Association (MGMA) on October 25, 2006.
• Andrew Wachler presented on the new Medicare appeals process at the Annual Meeting of the American Academy of Ophthalmology on November 11-24, 2006.
• Abby Pendleton presented an audio conference on November 27, 2006 regarding compliance in the field of anesthesia.
• Abby Pendleton presented at the annual meeting of the Society of Pain Practice Management on January 20-21, 2007.
• Andrew Wachler and Robert Iwrey presented to Michigan physicians as part of a Fifth Third Bank series of presentations in January 2007.
• Andrew Wachler will speak on the Medicare appeals process at the American Health Lawyers Association 2007 Annual Physicians and Physicians Organizations Law Institute in February 2007.
• Andrew Wachler will speak on the new Medicare appeals process at the Annual Meeting of the American Society of Abdominal Surgeons on March 3-4, 2007.
• Abby Pendleton will speak on a number of healthcare topics at the Society of Pain Practice Management in March 2007 in Arizona.
• Andrew Wachler will speak on the Medicare appeals process at the Annual Meeting of the American Society of Addiction Medicine in April 2007.
• Andrew Wachler will speak on the topic of New Developments in Third Party Payor Audits at the 2007 Radiology Summit of Radiology Business Management Association (RBMA) in May 2007.
• Andrew Wachler will speak on the topic of Healthcare Legal Issues Impacting Radiology Providers at the 2007 Annual Meeting of the American Healthcare Radiology Administrators in July 2007.

For questions regarding any of the information contained in this newsletter, or if we can assist you with any of your legal needs, please contact the attorneys at Wachler & Associates, P.C. at (248) 544-0888:

For more information, please visit our website at www.wachler.com.