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Stark Law Settlement – Physician Compensation Case

Physician Compensation Stark Law Settlement

stark law physician compensation settlementA settlement has been reached in the most visible Stark Law case since the infamous Toumey case was decided a few years ago.   Halifax Hospital in Florida is reported to have agreed to a Stark Law settlement to avert further proceedings challenging compensation to come of its physicians. The Federal Court hearing the case had previously issued a ruling that the compensation structure at issue violated the Stark Law.

In order to assess the implications of this case, it is necessary to zero in on the precise compensation formula that was being challenged by the government. Allegedly, Halifax was paying six employed physician a production bonus based upon revenues from services that went beyond their own professional service revenues and included revenues generated by the Hospital for “designated health services” as defined under the Stark Law.

Under the Halifax compensation structure, designated health service revenue generated by all of the subject physician was placed in a compensation pool and divided among the physicians based on a proportion of their personally performed professional services. The Hospital was attempting to argue that this manner of dividing designated health service revenues between the physicians was not based on the “volume or value” of referrals for designated health services.

Those that are familiar with physician compensation structures and the Stark Law will understand that it is generally permissible for an independent physician group to compensation group practice physicians based on designated health service revenues in this manner. However, different rules and exceptions apply in the case of hospital employed physicians. This distinction in compensation structure between hospital-employed and group practice employed physicians has been well delineated in the Stark Law regulations and regulatory comments.

Given the regulatory history of this issue, the outcome in Halifax does not seem to be particularly surprising. Halifax put forth a potentially legitimate argument.  However, CMS has made it clear over time that hospital employed physicians cannot be compensated for their designated health services or services that are billed “incident to” their physician services. Hospital employed physicians can be compensated based on personal production from their own professional services; but even that compensation structure has limits. The Halifax outcome should enforce the concepts that we already know from the Stark Law; Hospitals cannot pay their employed or contracted physicians based on the technical component flowing from their services.

The other lesson to be reinforced by the Halifax case is that the cost of settling these cases, even if you believe there is an argument supporting your compensation structure, can be extremely high; in this case $35 Million (with 6 zeros). Unless you have this kind of money hanging around, it pays to structure compensation to employed physicians without inclusion of designated health service revenues as part of the consideration.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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