HOSPITAL PHYSICIAN AGREEMENTS AND STARK

Recent cases and some HHS guidance indicate that the traditional STARK Law analysis of hospital physician compensation agreements must be upgraded and updated.

Some cases, like recent cases where a physician or physician group was paid more than 100% of collected revenue seem, in retrospect, to be obvious violations.  However, it is still possible to fashion an argument that in some limited cases, such arrangements may be acceptable.  Possible circumstances could include extreme scarcity of necessary physicians in a specialty or geographic area, and similar arrangements which may make commercial sense and be prudent from the perspective of the parties involved in the particular contract.

While “commercially reasonable”, an arrangement may be superficially commercially absurd or unreasonable, for example: where the payments to the physicians exceed the revenues generated by the physicians, and this will certainly be the initial review by CMS and HCFA.  I do not believe that this primary and superficial review is necessarily the final answer, especially in extraordinary circumstances.  What recent cases do tell us, and guidance from the various HHS entities, is that if the arrangement, on its face, appears unusual or unreasonable, the hospital and physician need to have clear and preexisting documentation on why the transaction makes prudent business sense in the particular situation, and with these particular parties.

This is even more important where a hospital subsidizes any affiliate’s cash flow shortfalls, or a practice or practice group cash flow shortfall where any material DHS referrals are made to the hospital.

One other question that is generating significant discussion is where the arrangement involving referrals by hospital paid or based physicians cross the line to impermissible compensation.  There appears to be inconsistent statements by HHS entities and the Justice Department about the location of this line.  Typically, CMS has stated that referred DHS work by physicians which is person performed by those physicians is not considered a referral under STARK Law.  However, in the recent Tuomey and Halifax Hospital cases, Justice is arguing that physician compensation arrangements cannot qualify as fair market value relationships where a hospital service normally occurs accompanied by a physician’s professional services, and the physician is compensated by the hospital based upon his or her personal productivity.

At some point, both HHS/CMS and the Justice Department need to come not only to similar conclusions, but there needs to be a clearly annunciated rule for what are acceptable referral relationships and unacceptable referral relationships.

If “fair market value” and “commercially reasonable” are standards to be utilized in determining whether physician compensation agreements are lawful, then the revenue streams created by personally performed physician services, and the cash flow effect of referrals must be taken into account or it will truly not be fair market value or commercially reasonable based compensation.

PRIVACY CLAIM IMMEDIATE HARM REQUIREMENT

Courts continue to struggle with claims made by victims of privacy breaches, whether HIPAA based, or large scale commercial breaches like the Target breach.  Victims of these breaches have real and understandable concerns that their lives are being impacted not only by the fear of what harm may come, but the need to change credit cards, monitor credit status and take similar actions that probably would not have been necessary in the absence of the breach.

The companies who have committed these breaches, generally in clear violation of existing regulations and statues, argue that because no harm has yet occurred, customers and consumers have no right of action about feared, future harm.

This is a situation where a classic legal principle that harm is necessary to recover damages runs head long into new technology and new problems.  I predict a legislative solution to these actions that will provide a base per violation amount which will be payable by breaching companies without further proof of harm.  This is similar to what has been done for some credit and collection violations and similar actions.

KENTUCKY NURSE PRACTITIONERS

Starting on July 15^th, Kentucky allows nurse practitioners who meet certain requirements to prescribe routine medications.  The primary difference is that no collaborative arrangement with the doctor is required, as in Indiana.  It will be interesting to watch this experiment as pressure continues to build for finding new, cost effective ways to provide routine medical care.

This newsletter is edited by Paul Wallace of Jones • Wallace, LLC, a member of the American Bar Association Healthcare Law Section and the American Health Lawyers Association who has been representing physicians and healthcare practices for over 25 years.  Mr. Wallace assists physicians in health practices in contract items, federal legal compliance, creation of practice entities, estate and wealth planning and similar issues.  Please feel free to call if you have any questions on this newsletter or legal matters at (812) 402-1600 or pwallace@joneswallace.com.