6 Ways Hospitals Can Legally Provide Financial Support to Physicians

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As reimbursements continue to decline, physicians may look to hospitals for financial support beyond the compensation they receive for clinical services. According to Wayne Miller, JD, of Compliance Law Group, hospitals and physicians considering financial support arrangements "always have to be concerned about it being interpreted as an improper payment to induce referrals." He says the bottom line is that whatever financial support the hospital provides, it has to pass the standards of the Stark law and fraud and abuse laws that prohibit physician referrals to hospitals with which they have a financial relationship. Here he discusses six legal arrangements that allow hospitals to provide financial support to physicians to offset declining reimbursements.

1. Payment for bona fide services. Hospitals can legally compensate physicians for taking on roles in addition to their clinical practices, such as medical directorship, consulting or co-management of a service line. In that case, a physician would divide his or her time between clinical duties — where compensation would be affected by declining reimbursements — and non-clinical duties, where compensation would be decided by the hospital.

2. Recruitment. Hospitals can financially assist a physician in creating a new practice, as long as the physician is new to the practice of medicine (i.e. just out of residency or a graduate program) or new to the geographic area. "That would fall under the category of recruitment," Mr. Miller says. "But if a doctor is well-established, a hospital really can't rely on a recruitment exception to help their practice." Hospitals can use the recruitment exception for physicians who have never had an active practice or have moved 25 miles to set up a new practice location.  

In the case of recruitment, hospitals can compensate physicians in a number of ways: guaranteeing income for a period of time, paying for some of the costs of the practice or paying the physician's moving costs. According to Mr. Miller, laws generally prohibit hospitals from providing compensation for more than three years, and hospitals concerned about liability often limit the time period to one year.

Recruitment arrangements generally include an obligation for the physician to remain in the area and practice their specialty for a certain period of time — generally three years, Mr. Miller says.

3. Loans to physicians. According to Mr. Miller, both Stark Law and the fraud and abuse law allow hospitals to give loans to physicians, assuming they are commercially reasonable. "The hospital has to act like a bank, and they have to get a guarantee for repayment," he says. "For many doctors, a loan may need to be an option because credit is so tight from regular commercial sources."

4. Paying for coverage. More and more, Mr. Miller says hospitals are expected to pay to make sure uninsured and under-insured patients are taken care of in the ER. "In the past, hospitals didn't have to pay doctors to provide coverage, but particularly in specialties nowadays, they have to," he says. "That is a reaction to the reductions in payment, because it's those very reductions that have led doctors to say they're not going to cover [for free]."

While paying for coverage is still legal, Mr. Miller advises hospitals to ensure payment for coverage is fair market value. "That really requires a hospital to get a third-party evaluation of the market," he says. "When you do those studies, you see a lot of hospitals pay for coverage, so you can easily value how much should be paid." He says the future may see a "crackdown" on payment for coverage, but for now, the critical legal issue is evaluating fair market value.

5. Involvement in ACOs.
According to Mr. Miller, the construction of ACOs will allow hospitals to reward physicians financially for ratcheting down the cost of care. He predicts hospitals will create annual budgets and set a standard cost per patient. At the end of the year, the hospital will look at billing and compare the actual cost per patient to the standard set at the beginning of the year. Physicians would be compensated a percentage of the difference between the expected cost and the actual cost — in other words, the cost savings.

The percentage of the difference physicians receive would also be determined in advance, possibly from 20-50 percent of the savings. This arrangement would both offset declining reimbursements and reward physicians for contributing to cost-cutting within the hospital, Mr. Miller says.

6. Financial support for EHR implementation. Under the Stark law and fraud and abuse law, Mr. Miller says there are exceptions that allow hospitals to provide support to physicians who want to set up EHR. The standards include provisions such as:

• The physician must pay for at least 15 percent of the cost — possibly more, based on the hospital.
• The hospital may not limit interoperability by only allowing the physician to choose a system that works with the hospital's system.
• The hospital may not base any financial support on referrals or relationships with the hospital (i.e. saying the physician can't practice at the hospital unless he or she implements a certain system).

According to Mr. Miller, the financial support for EHR only includes hardware, software and support necessarily to get the system up and running. The physician must pay for maintenance and continuing support without the hospital's support.

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