If you have begun to develop a regional referral strategy, committed specialty physicians are a key component of your plan. When you decide to partner with your orthopedic group to earn the referrals of rural hospitals and physicians, you may be entering dangerous territory from a legal and regulatory perspective. You should recognize federal laws and regulations that may impact your choices when contemplating any business arrangement with individuals or entities that refer business to you or receive benefits from you. These guidelines are intended to assist you in avoiding prohibited arrangements. When transactions raise any of these concerns, legal review will be necessary to ensure compliance.
 
IRS Guidelines
A tax-exempt hospital cannot give any “private benefit” (money, office space, free staff services or anything else of value) to “insiders” without receiving reasonable compensation in return. The definition of “insider” will usually include physicians, directors and officers who are in a position to influence the business decisions of your organization. 

What if a member of the orthopedic group suggests that you provide the free use of the hospital van and a driver so that the physician and staff can travel to a rural hospital twice a month for a new clinic? That service would be a private benefit unless the orthopedic group pays the hospital the fair market value for the employee and vehicle. Not only does the IRS prohibit such practices, but they can also be considered evidence of Medicare/Medicaid fraud and abuse. Any private benefit to an insider can be viewed as a kickback for referring patients to the hospital.
 
Anti-Kickback Rules
The anti-kickback regulations prohibit offering, paying, soliciting or receiving and remuneration to induce business that Medicare or Medicaid programs will reimburse. “Remuneration” includes cash, discounts, rebates, gifts supplies, equipment or any other benefit to induce the referral of patients or purchase of services paid for by these federal programs. There are criminal penalties for individuals or entities that knowingly or willfully participate in any of these arrangements. Because the language in these regulations is so broad, the Office of the Inspector General has set up safe harbor provisions that permit many non-abusive arrangements. 

The orthopedic group decides that it will need to recruit another physician to meet the demand of traveling to the rural referral sites. The group asks your hospital to share the cost to recruit the new physician. They remind you that orthopedic emergencies at the rural hospital will mean patient transfers to your tertiary hospital. 

Joint recruiting arrangements can be a cost-effective and efficient means of bringing needed practitioners to an underserved community, but they can also be used to disguise payment for referrals from the group practice to the hospital. Careful planning with legal counsel will focus on arrangements consistent with fair market value for the services rendered and demonstrating the medical need for the specialty in the region.
 
Stark Self-Referral
The Stark rules prohibit physicians or their immediate family members from referring Medicare or Medicaid patients for “designated health services” to hospitals with which they have a financial relationship unless they fit within a specific exception. All Stark exceptions require that the arrangements be for fair market value and do not take into account the volume or value of referrals for designated health services. Since there are many specific exceptions and highly technical restrictions to the self-referral rules, legal review is also recommended for situations where the referring physicians have ownership or investment interests in the designated health service. 

The definition of designated health services lists a number of specific services, including physical and occupational therapy. So an orthopedic specialist that refers patients to your physical therapy department could raise Stark concerns if the physician has a financial relationship with your hospital. If you have entered into a joint physician recruitment agreement with the physician group, it will need to meet the physician recruitment exception to Stark as well as the anti-kickback guidance.

The one theme that repeats itself with all of these regulations is the requirement that payment be based on the fair market value of the service, and the evaluation must take place at the time the agreement is drafted. If you plan carefully, many arrangements can pass regulatory muster, but all of these rules must be considered as part of you planning a new regional referral strategy. 

Kathy Zeitz is the Vice President and Corporate Compliance Officer for Methodist Health System in Omaha, Nebraska.

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