physician contracts
TRANSCRIPT
Practitioner Contracts
Kim C. Stanger(3/13)
Preliminaries
Written materials.– .ppt slides– Stanger, Physician and Practitioner Contracts– Stanger, Health Care Transactions: Beware Stark,
Kickbacks, and More– Sample physician employment agreement
Presentation will be recorded and available for download at www.hhhealthlawblog.com.
If you have questions, please submit them using chat line or e-mail me at [email protected].
Preliminaries
This program provides an overview of the relevant laws. I’ll move through early slides quickly. State or local laws may also apply, e.g.,
– Corporate Practice of Medicine– Restrictive Covenants– Midlevel Supervision– Others
Consult with qualified experts when applying information to your particular circumstances.
This program does not constitute the giving of legal advice. This program does not establish an attorney-client
relationship.
Practitioner Contracts
Physician Employment Trends
Dramatic rise in physician employment by health systems.– Since 2000, physician employment by health systems up 36%.– Since 2000, independent physicians dropped from 57% to 39%.
Causes– Decreasing reimbursement– Increasing costs, e.g., technology, EMR, etc.– Regulatory burdens– Healthcare reform uncertainty– Healthcare reform incentives for integration, e.g., accountable care
organizations (“ACO”)– Healthcare systems capturing referrals– Healthcare systems increasing bargaining power– Practitioner lifestyle preferences
Déjà vu?
Déjà vu? In 1990s, trend for hospitals to hire physicians
– Reaction to managed care and competition.– Cost-based reimbursement for RHCs.– Acquired primary care physician practices and
established hospital-owned clinics. Paid inflated amounts for physician assets and
practices, including “good will”. Paid long-term, guaranteed salaries, often based
on historical income that failed to distinguish between hospital and practice.
Result
Hospitals lost lots of money.
Studies report average losses of $97,000 to $110,000 per physician.
Hospitals divested physician practices in 2000’s.
The 1990s:Reasons for Problems Hospitals over-valued and overpaid physician. Physicians lacked incentive to remain productive and/or
control costs. Hospitals lacked expertise to understand and manage the
physician and/or practice.– Billing and reimbursement– Practice expenses– Operations
Fewer regulations to check compensation paid to physician.
The 1990s:Lessons Learned
Carefully evaluate practitioner and practice.– Need for services in community.– Specialties v. primary care.– Anticipated income and expenses.
Ensure transaction makes business sense.– Limit amount paid for practice acquisition.– Limit time and amount of guaranteed salary.
Maintain physician productivity.– Productivity-based compensation formula.– Manage physician.
Ensure you have resources to properly manage practice. For good or bad, recent regulations generally require
careful evaluation of practitioner contracts…
Consider using
qualified consultant
Remember…
“Those who cannot learn from history are doomed to repeat it.” --George Santayana
Some Applicable Laws
Laws unique to healthcare industry or of which you should be aware when contracting with practitioners:– Corporate Practice of Medicine– Anti-Kickback Statute– Ethics in Patient Referrals Act (“Stark”)– Tax-Exempt Status– Civil Monetary Penalties Law– State laws
Corporate Practice of Medicine
In some states, corporations or non-practitioners may not employ practitioners.– Against public policy since non-practitioner may
interfere with practitioner’s independent judgment.– Fee splitting.
Usually subject to exceptions, e.g.,– Professional corporations or PLLCs– Hospitals– Managed care organizations– Independent contractors– Others?
Check your state law.
Anti-Kickback Statute (“AKS”)
Cannot solicit, offer, pay, or receive remuneration in exchange for referring an individual for items or services covered by govt health care programs unless fit within a regulatory exception.
“One purpose” test. Penalties
– 5 years in prison + $25,000 fine– 3x damages + $50,000 per violation– Automatic False Claims Act violation– Repayment of amounts paid– Exclusion from Medicare and Medicaid
(42 USC 1320a-7b; 42 USC 1320a-7a)
Anti-Kickback Statute:Bona Fide Employee Exception AKS does not apply to amounts paid by employer to bona
fide employee for employment in furnishing any item or service for which payment may be made under any federal health care program.
(42 CFR 1001.952(i)) Exception may not apply to—
– Excess payments that presumptively are for referrals, not “furnishing items or service.” (see OIG Letter dated 12/22/92, fn.2).
– Administrative or other non-clinical services?
Anti-Kickback Statute:Personal Services Exception Written agreement signed by the parties. Agreement specifies the services to be provided. If services provided on periodic basis rather than fulltime,
agreement specifies schedule, precise length, and charges. Term is not less than one year. Aggregate compensation is:
– set in advance– consistent with fair market value– not determined in a manner that takes into account the
volume or value of referrals for federal program business Aggregate services do not exceed those that are reasonable
to accomplish commercially reasonable purpose.(42 CFR 1001.952(d))
Ethics in Patient Referrals Act (“Stark”) Physician cannot refer patient to entity with which
physician (or his/her family) has financial relationship for designated health services (“DHS”) payable by Medicare unless fit within regulatory exception.
Entities cannot submit a bill for payment for DHS rendered pursuant to a proscribed referral.
Penalties– Denial of payment.– Repayment of amounts improperly billed.– $15,000 per service or $100,000 per scheme.– Possible False Claims Act violation.
Knowingly submitting noncompliant claim. Failure to repay if know about improper claim.
(42 USC 1395nn; 42 CFR 411.353)
Stark:Employment Exception Bona fide employment relationship with physician or
member of physician’s family. Employment is for identifiable services. Compensation is:
– Consistent with fair market value (“FMV”).– Not determined in a manner that takes into account the
volume or value of referrals. Commercially reasonable even if no referrals made. May pay productivity bonus for personally performed
services.– Not ancillary or “incident to” services.
(42 CFR 411.357(c))
Beware:Drakeford v. Tuomey Health Facts: Physicians threatened to take surgeries to ASC.
Hospital hires 19 physicians part-time with 10-year contract. Physicians required to perform procedures at hospital. Physician brings qui tam suit claiming that compensation exceeds fair market value, was not commercially reasonable, and “took into account referrals.”
Held: violated Stark– Ordered to repay $45,000,000– Govt seeks $200,000,000 in retrial
Beware factoring in future referrals when negotiating compensation.
Stark: Personal Services and FMV Exceptions Written current contract signed by parties. Specify services provided. No revisions during first year, especially compensation. Services are reasonable and necessary for legitimate
business purposes. Compensation is:
– Consistent with FMV.– Set in advance.– Does not take into account volume or value of referrals
or other business generated between the parties. May pay based on personally performed services.
– Not ancillary or “incident to” services.(42 CFR 411.357(d), (l))
Stark and AKS:Commercially Reasonable “Commercially reasonable” means “that an
arrangement appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”
(63 FR 1700; see also 69 FR 16093)
Stark:Group CompensationTo qualify as “group practice”, must satisfy criteria, including: Operate as a single group. Perform and bill 75% of services through group. Method of distributing income and expenses determined in
advance. Compensation not based on referrals for DHS.
– May pay per capita sharing of profits. Not based on pods of less than 5 physicians. Limits ability to use separate cost or profit centers.
– May pay for productivity based on personally performed services and “incident to” services. Not based on ancillary services.
– Other methodology unrelated to referrals for DHS.(42 CFR 411.352)
Civil Monetary Penalties Law
Hospitals and CAHs cannot pay physicians to induce the physicians to reduce or limit services covered by Medicare or Medicaid (e.g., no “gainsharing”).
Penalties– $2000 for each individual with respect to whom payment
made.– Any other penalty allowed by law.
(42 USC 1320a-7a(b)(1); 42 CFR 1003.102) Recently, OIG has allowed some gainsharing programs
under AKS and CMP. No Stark exception for gainsharing, although CMS is
considering proposal.
Civil Monetary Penalties Law
“[A]ny hospital incentive plan that encourages physicians through payments to reduce or limit clinical services directly or indirectly violates the statute.” – Payment need not be tied to actual diminution in care so
long as the hospital knows that the payment may influence physician to reduce or limit services.
– No requirement that payment be tied to a specific patient or a reduction in medically necessary care.
(OIG Bulletin, Gainsharing Arrangements) Does not apply Medicare or Medicaid risk-based managed
care contracts and Medicare Advantage plans, which are governed by different statute.(Adv. Op. 12-22 at n.20)
501(c)(3) Tax Exempt Status:Private Inurement To qualify for tax exemption, no part of an organization’s net
earnings shall inure in whole or part to the benefit of private individuals.– Applies to “insiders”, i.e., those with power exercise
control or influence over the organization.– May extend to physicians employed by organization.
Penalties– Loss of tax exempt status– Intermediate sanctions
501(c)(3) Tax Exempt Status:Intermediate Sanctions “Disqualified persons” are subject to penalties if they are
paid excessive economic benefits:– Return of the excess benefit.– 25% of the excess benefit.– 200% of the excess benefit if not corrected within time.
“Disqualified persons = those in a position to exercise substantial influence over organization, including physicians who exert influence or control due to position.”
“Excess benefit occurs when the value of the benefit provided by the organization exceeds the value of the services received. Fair market value is the benchmark used to determine value.”
(IRS Health Care Provider Reference Guide at 6 (2004))
501(c)(3) Tax Exempt Status:Intermediate Sanctions Managers who participate in excess benefit
transaction may also be subject to penalties.– 10% of the excess benefit– $10,000 per transaction
Taxpayer generally has the burden of establishing no “excess benefit transaction”, i.e., fair market value.
501(c)(3) Tax Exempt Status:Intermediate Sanctions Rebuttable presumption of FMV if—
– Disinterested board or committee reviews transaction before it is finalized to evaluate FMV.
– Review based on comparable data typically generated by outside party, e.g., valuation consultant.
– Board bases determination on the comparable data.– Decisions documented in minutes, including rationale
that supports a value higher than the consultant may have generated.
Fair Market Value
Most important factor for compliance. FMV standards differ.
– IRS: agreed value of transaction between willing and informed buyer and seller, including good will, value of ongoing business, stream of referrals, etc.
– Stark and AKS: “FMV means … the compensation that would be included in a service agreement as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party….” (42 CFR 411.351)
Pay for services performed, not referrals.
Fair market value
Fair market value is a range. Dependent on individual
circumstances. May use any commercially
reasonable method to establish FMV.– Be consistent.– Exclude comparables that are in
referral relationship. Safer if stay around 50% of
published surveys for comparable circumstances.
FMV
Fair Market Value:Surveys MGMA, Merritt Hawkins, others?
– No more safe harbor for “per hour” arrangements Try to stay in 50%-75% zone Beware deficiencies and differences
– Type of practice or services– Physician productivity– Hours– Additional services (e.g., call, administrative, etc.)– Payor mix– Experience– Time that has passed since survey– National v. regional
Fair Market Value:Independent Valuators Not required, but govt prefers it. Helps obtain “rebuttable presumption” under IRS
intermediate sanction regulations. Consider for:
– Riskier transactions (e.g., compensation > 90% of surveys).
– Practitioner has existing referral streams.– Acquire practice or assets.
* Cautions– Make sure valuator understands special Stark and AKS
standards.– Be careful what you ask for.– Good faith reliance on valuator is no guarantee of
protection.
Fair Market Value
Evaluate total compensation, including—– Salary and bonuses– Fringe benefits– Insurance– Pension plans– Deferred compensation– Other?
FMV may differ between clinical and administrative services. (72 FR 51016)
Correlate compensation to services performed. (IRS Health Care Provider Reference Guide at 18 (2004))
Document that services provided.
Other Transactions
Beware other transactions related to practitioner’s contract that may implicate Stark and AKS, e.g.,– Acquisition of physician’s practice.– Rent space or equipment from physician.– Recruitment or retention.– Other?
Such transactions should be structured to fit within Stark and, if possible, AKS safe harbor, e.g.,– Sale of practice / isolated transactions– Rental of space or equipment– Recruitment or retention
(42 CFR 411.357 and 1001.952)
ACO Waivers
CMS/OIG issued interim rules waiving AKS, Stark, and CPML for ACOs participating in Medicare Shared Savings Program (“MSSP”).– ACO pre-participation waiver– ACO participation waiver– Shared savings distribution waiver– Compliance with Stark, AKS, and Gainsharing CMPL
waiver– Patient incentives wavier
Each waiver requires compliance with certain conditions.(76 FR 67992)
Contract Terms
Contract Terms
Good contract = preventative medicine– Confirms regulatory compliance.– Avoids misunderstanding and disputes between
the parties.– Provides protection if the relationship goes
south.
Employee v. Independent ContractorEmployee Employer control Employer liable for conduct Entitled to employee
benefits, e.g., insurance, 401k, workers comp, etc.
Employer withholds taxes. Protected by employment
laws, e.g., ADA, FMLA Easier to satisfy regulatory
requirements.
Independent Contractor Not subject to direct control Principal not liable for conduct. Not entitled to employee
benefits Usually must provide own
insurance, equipment, etc Liable for own taxes; employer
may be liable if IRS determines employment relationship exists
May claim some tax deductions Additional requirements for
Stark, AKS, reassignment, etc.
Parties
Confirm proper legal parties, i.e., the entities who are going to actually perform.– Individual– Corporation or PC– LLC or PLLC
If contract with practitioner’s corporation or LLC, confirm who will perform services.– Identified practitioners– Others subject to employer’s approval– Employer retains right to disapprove.
Recitals or Background
Not necessary But may be helpful
– Explains parties’ intent and purpose for transaction– May help satisfy regulatory concerns, e.g., document
community need.
Services
Identify services to be provided– Clinical (e.g., within usual and customary services provided
by practitioner in same specialty)– Administrative (e.g., peer review, marketing, education, etc.)– Call coverage (e.g., availability, response time)– “As reasonably requested by employer”
Schedule + right to modify– Full-time or part-time– Hours, weekends, holidays– Call coverage
Location + right to modify– Specified location– Other locations
Performance Standards
Confirm practitioner’s right to exercise independent professional judgment.
Specify certain performance standards:– Compliance with applicable laws, regulations, policies– Timely and accurate completion of medical records– Professional, non-disruptive manner– Support compliance, quality, public relations activities– Promptly notify group of acts or omissions that may give
rise to liability– Other?
Indemnification for violations of law, e.g., billing and coding, substandard care, etc.
Exclusivity
Confirm whether practitioner is exclusive provider. Moonlighting
– Teaching, lecturing, expert witness, research, etc.?– Providing services for another entity, including
competitors.– Prohibit conduct that interferes with services to
employer.Beware when practitioner not acting for you– Not covered by group’s malpractice insurance.– Require insurance coverage.– Prohibit actions that create agency relationship.– Watch out for confidentiality concerns.
Confirm that income from services performed within scope of agreement belong to employer.
Base salary or wages Productivity bonus or incentive compensation.
– Basis Net income, collections, billings, etc. wRVUs Patient encounters Quality indicators or benchmarks Other?
– Trigger for bonus or productivity component.– Beware ways to game system.– Cap on maximum income.– Confirm when bonus earned and whether payable upon
termination.
Compensation
May vary over
contract term but
set in advance
Compensation
* Run the numbers before you agree on terms!
Additional compensation, e.g., signing bonus, loan repayments, relocation reimbursement, etc.– Require repayment if terminate early.– Authorize set off to any amount owed to practitioner.– Obtain or require promissory note.
Benefits, e.g., insurance, retirement, PTO, CME, license fees, journals, phone, tablet, etc.– Reserve right to amend plans at anytime.
Deferred compensation.– Check with tax advisor.
Reimbursement for business expenses.– Reserve right to recoup if business expense disallowed.
Total all compensation and benefits in evaluating FMV.
Compensation
Compensation
Include time and method of payment.– State laws usually require bi-monthly or monthly pay to
employees. Confirm practitioner is exempt employee for purposes of
overtime under wage and hour laws. Monitor and document services and compensation,
especially for independent contractors, med directors, etc.– Practitioner is actually providing services.– Consider modifying compensation or services as
appropriate, but beware regulatory limits on amendments during the first year.
Compensation
May condition compensation on referrals if:– Expressly set forth in contract;– Referrals related solely to physician’s services
performed per agreement; and– Does not apply if:
Patient decides to go elsewhere. Managed care payor determines where patient
receives services. Care not in best interest of patient.
(42 CFR 411.354(d))
Professional Fees and Payors Employer retains right to determine amount of
professional fees for services to patient. Assignment of right to bill and collect for services.
– Payments for services within scope of agreement belong to employer.
– Cooperation in billing and collecting. Third party payors.
– Authority to contract with third party payors.– Participation in third party payor programs.– Credentialing with third party payors.– Compliance with third party payor requirements.
Insurance
Factor for independent contractor v. employee Professional liability insurance
– Typically $1 mil / $3 mil.– Subject to reasonable or typical exceptions and limits.– Limited to work within course of employment.
Tail insurance: subject to negotiation– Employer pays if employee stays for certain period of time.– Employer pays if it terminates without cause.– Employer does not pay if:
Practitioner terminates without cause. Employer terminates with cause.
Consider other insurance, e.g., auto, umbrella, etc.
Qualifications
Condition employer’s contract obligations on practitioner continuously satisfying qualifications:– Not excluded from Medicare, Medicaid or other relevant
payor programs– Unrestricted license and DEA registration– Board certified or board eligible– Medical staff membership with applicable privileges– Insurable at appropriate cost– Education, competency, and ability to provide services– Not subject to contract or other restriction that would
adversely affect performance or subject group to liability
Credentialing Employment subject to usual credentialing process;
no guarantee of medical staff membership or privileges. Consider automatic termination of medical staff
membership or privileges if employment terminates.– No right to fair hearing process.– May give fair hearing process if want HCQIA immunity.
If contract or bylaws conflict, confirm which prevails.
Representations and Warranties Satisfy qualifications. Education, licensure, experience, and qualifications. Licensure and controlled substance registration. Medical staff membership and privileges. Participation in payor programs or third party contracts. No exclusion from Medicare/Medicaid. No criminal convictions. No undisclosed malpractice claims or adverse actions. No restrictions on ability to enter contract. Insurability. Require notice of change in any of foregoing.
At Will v. Term
At Will Employment may be
terminated at anytime for any reason (except illegal reason).
“At will” presumed. Limits damages for
termination. May lose investment.
Term For definite term (e.g., 2 or 3
years). Allows certainty and security. Damages for early
termination. Subject to early termination
clauses. Include automatic renewal
(“evergreen clause”), at least for independent contractors.
Termination Consider hybrid approach.
– Probationary period during initial period (e.g., 6 months). During period, employment is at will. After period, termination limited.
– Guaranteed employment for certain period. After period, termination at will or with cause upon
notice. Include appropriate early termination provisions.
Termination Termination without cause upon notice
– Usually 90 days Termination with cause upon notice and chance to cure
– Usually 30 days Immediate termination upon notice, e.g.,
– Failure to satisfy Qualifications, e.g., loss of license, program exclusion, privileges, insurance, accreditation in key programs, etc.
– Repeated failure to satisfy Performance Standards.– Drug or alcohol abuse.– Conviction or commission of a crime or similar misconduct.– Conduct that exposes employer to liability.– Other?
Effect of Termination
Employer’s right to terminate early and/or suspend duties so long as pay any required notice amount.
Effect of termination on bonus or other unpaid comp.– Post-termination payouts.– May be subject to state law.
Effect of termination on medical staff membership or privileges.– Automatic termination.– No fair hearing right, or fair hearing only if professional
conduct involved. Negotiate severance agreement to obtain release. Notice to patients of termination.
Records
Medical records– Confirm group owns records.– Require return of records.– Require compliance with HIPAA.
Obtain meaningful use assignment Confidentiality
– Important protection even if restrictive covenant not allowed.
– Define confidential information to include trade secrets and other proprietary information.
– Ensure it survives termination of agreement.
Intellectual Property
Items produced within scope of agreement belong to employer.
Practitioner authorizes use of practitioner’s information by employer for operations such as marketing, e.g.,– Name– Image– Professional information
Restrictive Covenants / Non-Competes Restrictive covenant may limit—
– Ability to work for others in area.– Ability to contact or solicit employer’s patients,
employees or vendors. Must be reasonable in scope, time, and geography. May be unenforceable if it limits needed services.
– Check state law. Include remedies
– Injunction without bond and award of attorneys fees.– Liquidated damages.
Court may allow suit for damages if not injunction. May modify, e.g., no non-compete if practitioner remains
for period of time.
Regulatory Compliance Require regulatory compliance.
– Confirm contract based on FMV.– For long term agreement, allow for periodic review of
FMV.– Not based on volume or value of referrals.– Interpret to comply with regulations as amended.– Renegotiate in good faith if party determines it does not
comply.– Allow termination if party determines in good faith that it
does not comply. Illegal contract is void as matter of public policy.
Dispute Resolution
Governing law and venue.– Usually county where employer resides.
Alternative dispute resolution.– Mediation.– Arbitration.
Employee policies apply in lieu of fair hearing process in bylaws.
Prevailing party may recover costs and attorneys fees. Cooperation if there is third party action. Indemnification.
Relation to Operating Agreement, Bylaws In event of conflict, contract should control. For owners, ensure contract coordinates with the operating
agreement or bylaws, e.g., – Termination events.– Automatic termination if withdraw from ownership.– Compensation.
Avoid guaranteeing partnership / ownership opportunity– May refer to future consideration, but no guarantee.– Confirm that offer, if any, is subject to then applicable
terms and decisions.
“Miscellaneous”
Notice Integration / entire agreement Waiver Amendments Survival Construction Etc.
Independent Contractor:Additional Terms Confirm independent contractor relationship.
– No authority to bind employer.– Not liable for contractor’s acts or omissions.
Affirm no benefits or withholdings for contractor.– Require contractor to pay taxes.– Require indemnification if deemed employee.
Require contractor to maintain workers comp or confirm exception to workers comp.– Require indemnification if fail to do so.
Must include required provision that:– Requires contractor to maintain records for 4 years.– Allows HHS to access the records.
Additional Resources
Resources
OIG Supplemental Compliance Guidance for Hospitals (70 FR 4866)– List of questions to help you evaluate your
compensation arrangements with physicians. IRS Health Care Provider Reference Guide
(2004) AMA Annotated Model Physician Employment
Agreement (2008), available at http://www.ama-assn.org/ama1/pub/upload/mm/395/employment_agreement.pdf.
Additional Holland & Hart Resources Future webinars
– Health Law Basics monthly webinar series 4/11 HIPAA 5/9 EMTALA 6/13 Antitrust 7/11 Discrimination Statutes 8/8 Interpreters and Translators 9/12 Credentialing, Corrective Action, and NPDB
Healthcare Update and Health Law Blog– Under “Publications” at www.hollandhart.com.– E-mail me at [email protected].
