How to Comply with the Stark Law when Recruiting a Physician

Do you work for a hospital that needs to recruit more physicians to your area? This overview spotlights key details about avoiding federal Stark Law violations.

If the physician will not be joining a local physician practice:

  1. Pay the recruitment money directly to the physician
  2. The physician must relocate the physician’s practice into the hospital’s geographic service area
    • The move must be at least 25 miles to be considered a relocation
    • Residential relocations do not count (only practice relocations do)
    • Exceptions for: 1) residents, 2) immediately preceding employment with certain federal or state agencies, 3) hospitals located in rural areas
  3. The physician cannot already be a member of the hospital’s medical staff
  4. The hospital and the physician must both sign a written recruitment agreement
    • Cannot condition arrangement on the physician’s referrals to the hospital
    • The amount paid cannot be determined in any manner that takes into account the volume or value of actual or anticipated referrals or other business generated by the physician for the hospital
    • Unless the hospital is going to employ or contract with the physician under an arrangement that meets the bona fide employment arrangement or personal services exceptions, the physician must be allowed to establish staff privileges at another hospital and refer business to other entities

If the physician will be joining a local practice:

In addition to the above requirements:

  1. The written agreement must also be signed by the physician practice (note, this is in addition to, not instead of, the recruited physician’s signature) if the money will be paid to the physician practice and the practice will retain any of it
    • This is a recent change to the law
    • If the hospital enters into a lot of recruitment arrangements, best practice would be to always have the practice sign, regardless of how the money flows
  2. The only money the physician practice may keep is reimbursement for actual costs incurred by it in recruiting the new physician, otherwise all recruitment money must be passed on to the physician
  3. If the hospital is making an income guarantee of any type to the physician, the practice may only allocate actual additional incremental costs to the physician for calculating the income guarantee
    • There are exceptions for practices located in rural areas or Health Professional Shortage Areas (HPSAs)
    • Best practice is for the hospital to request a detailed budget from the practice that describes the actual additional incremental costs
  4. The hospital, the practice or both must maintain records of the actual costs incurred and the passed through amounts for at least six years
  5. The amount paid also cannot be determined in any manner that takes into account the volume or value of actual or anticipated referrals or other business generated by the practice for the hospital
  6. The practice cannot impose on the physician a restriction that unreasonably restricts the physician’s ability to practice medicine in the geographic service area
    • Best practice is for the hospital to review and approve the employment agreement between the practice and the physician

Additional Frequently Asked Questions and Answers Regarding Physician Recruitment Under the Stark Law

Can we amend the agreement later to change compensation?
No, the Centers for Medicare and Medicaid Services has said parties cannot amend the recruitment agreement to provide for additional compensation to the physician because the purpose was to induce the physician to relocate. Any additional amount agreed to after relocation would not serve this purpose.

Can the hospital make the practice or the recruited physician sign a guarantee?
A hospital can make the practice sign a guarantee. But if the hospital makes the practice sign a guarantee, they have to be willing to actually collect on it if necessary. Also, the recruited physician must remain liable.

Does the recruited physician have to spend all of his or her time practicing in the hospital’s geographic service area?
No, but there is no bright line rule regarding what percentage of time a physician must practice in the geographic service area. Based on guidance, it should be at least 80%.

Is it forbidden to require the recruited physician to sign a non-compete?
No, but the restrictions in the non-compete cannot unreasonably restrict the physician’s ability to practice medicine in the geographic service area.

Can a hospital use the physician recruitment exception to help a local practice recruit non-physician providers?
No, the physician recruitment exception applies only to physicians. However, the assistance to compensate a non-physician practitioner exception may be used to protect payments made from a hospital to a practice for recruitment of a non-physician practitioner.