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Advising Physicians:

Preventative Medicine to Help Doctors Cope

By: Alan S. Goldberg

I. Communication between Attorneys and Physicians

A. Lawyering versus the Practice of Medicine
Lawyers and physicians often have difficulties interacting successfully with each other. This is in part due to differences in how they perceive the world around them, how they most often approach and work through problems, and their basic training and background. To provide effective counsel to physicians, it is important to understand these differences so that you may enhance communication and foster a constructive dynamic relationship.

B. Generally Different Approaches to the World

The following table illustrates some of the differences that seem to exist more often than not in the orientation of attorneys versus physicians (general observations may not be the case in every instance):

C. Some Suggestions to Communicate More Effectively with Each Other

1. Basic but important to remember - be more self aware of your use of technical legal terms. Be conscious of when you intend a word or phrase to mean something specific, or as shorthand that triggers for you a number of associated concepts. You should be sure that you and your client are on the same "wavelength," and if you are not, either explain the concepts that go with the label or do not use the term in that way. Most attorneys do not understand the significance or ramifications of technical medical language, unless someone explains it to us. Likewise, physicians lack an understanding of technical legal terms. In addition, the health care industry is replete with acronyms and buzzwords. Remember that a phrase or acronym may mean different things to your client than to you.

2. Package information in a form that is more "physician friendly." For example, provide "roadmaps" for action or analysis that are akin to flowcharts or treatment protocols.

3. Explain theories behind a legal approach or principle that differ from more scientific oriented approaches.

4. Illustrate using concrete examples and analogies (hypothetical or real), in the clinical context if possible. Physicians spend less of their time thinking in the abstract, and should generally find it much easier to digest abstract legal principles if the attorney illustrates using clinical analogs.

5. Remember that most physicians think of their profession somewhat differently than other professionals, and that the health care industry is perceived by many to have different ethical, moral and economic characteristics than a typical widget industry.

D. Preventative Medicine

The best way to assist physicians is to ensure that they seek counsel at the appropriate time. Physicians, more than some other clients, tend to wait longer before seeking help from their lawyers. This frequently impairs the lawyer’s ability to provide effective assistance. Physicians often incorporate their profession into their sense of identity, and any threat of enforcement action is generally perceived as an attack against the person, not the activity that is alleged to violate certain laws or regulations. As a result, physicians often have a difficult time confronting the issues. Also, medicine is going through a very tumultuous period, and many physicians feel that the traditional role for which they were trained and their sense of purpose is threatened. The economic forces of managed care, laws designed to penalize the "bad doctors," unclear regulatory frameworks and the uncertainty of health care reform, are overwhelming, threatening and frustrating to doctors. It is not surprising that many physicians react to a litany of decisions to be made or a threat of enforcement with a defensive posture and a sense of denial. The best way to help doctors is to provide them with a menu of the choices available and a blueprint of the legal "minefields," so that they can decide which route will best take them where they want to go. In that spirit, this outline is designed to be less of a comprehensive reference tome than a document that illustrates some of the options and danger zones. Armed with the right "maps" and the assistance of their legal counselors, physicians can cope with the many hard decisions to be made in the changing world of health care.

II. Licensure, credentialing and other privileges

Becoming licensed and credentialed, and obtaining medical staff privileges can be a complex, often frustrating experience. Legal counsel can be of assistance to the physician during this process.

A. State Licensure and Adverse Licensure Actions

1. Unauthorized Practice of Medicine
Physicians generally may not practice medicine in a given state unless licensed to do so or there is some exception under the applicable licensure statute (e.g. limited or temporary licensure), and there is usually statutory provision for penalties for the unauthorized practice of medicine. Years ago, this was a fairly easy principle to understand and follow. However, in this era of extensive national and international travel and collaboration, and with recent technological advances, it may not be obvious to a physician when she is "practicing medicine" and needs to be aware of licensing issues.

a) "Consultation" versus practice of medicine. Many state licensing statutes provide for a consultation exception. In Massachusetts, licensing requirements do not apply to a physician or surgeon who resides and is a licensed practitioner in another state "when in actual consultation with a legal practitioner of this commonwealth." While the term "consultation" remains officially undefined, the Massachusetts licensure board has unofficially stated that it understands "consultation" to mean a consult between physicians within the same specialty. Thus, in Massachusetts, a physician from another state may provide a Massachusetts patient with a consultation (telephonic, electronic or otherwise) if the foreign physician is consulting with a Massachusetts physician of the same specialty.

b) Technology, telemedicine and the Internet. With the growing development and use of telemedicine and other technological medical advances, physicians and their legal advisors face a range of new unanswered questions particularly in the area of licensing (see Appendix A for a discussion of other legal issues arising in telemedicine). When telemedicine is practiced the patient and physician are often each in a different jurisdiction. Given the current state of licensing law, this raises new questions, such as:

(1) Local Initiatives. A number of states recognize the special licensing issues created by telemedicine and have begun to address them. The Kansas legislature has passed a law specifically aimed at telemedicine, requiring any physician who treats, prescribes, practices, or diagnoses a condition, illness, ailment, etc. of an individual who is located in Kansas to obtain a Kansas medical license. Several states, such as Alaska, Colorado, Oregon and Wyoming have pending legislation on licensure in this regard.

(2) National Initiatives. In October 1995, the Board of Directors of the Federation of State Medical Boards endorsed proposed Model Legislation Regarding Licensure (the "Model Act"). The Model Act addresses the licensure of health practitioners who practice interstate medicine by proposing to create a special "license limited to the practice of medicine across states lines." The Model Act has received a fair amount of criticism identifying the Model Act’s broad language as its greatest weakness.

2. Compliance with Licensure Requirements
Licensure criteria vary somewhat from state to state, and physicians may sometimes obtain useful assistance from their lawyers when seeking admission in a new jurisdiction. Attorneys are most helpful when a physician seeks admission without having fully satisfied all technical requirements for a given jurisdiction, but may be able to obtain a waiver or exception to certain licensure requirements (particularly costly, redundant or burdensome requirements). Legal counsel is also particularly important when seeking admission to a new jurisdiction where there is a history of disciplinary action (licensure, medical staff or otherwise), as licensure applications will require disclosure of such action (see discussion at II.C. below).

3. Complaints/Investigations/Disciplinary Action
Statutory provisions and common law guidance will vary some among jurisdictions, but actions of a licensing board relative to complaints, investigation and discipline will always involve some aspect of procedural due process. Effective legal counsel should not only preserve what procedural protections are available for physicians, but ensure that all negotiations involve consideration of the potential "domino" effects of any adverse actions as well.

a)"Hot Areas" for Licensure Enforcement Action. Although there are generally many grounds for disciplinary action under the respective state statutes, certain areas seem to attract most of the attention:

(1) Physician-Patient Sexual Involvement. Incidents involving sexual activity between health care providers and their patients has received significant attention in the last few years, and related licensure board enforcement actions are increasingly frequent. Sexual activity with patients is often considered a ground for disciplinary action; some states have statutory language that so provides specifically. In fact, certain states have criminal statutes that apply. Psychiatrists and other physicians treating patients in psychotherapeutic contexts are frequent targets of enforcement actions arising out of sexual activity.

(2) Improperly Prescribing Controlled Substances. Prescription practices and drug-related activity is another focus of recent enforcement action in many jurisdictions. In addition to the obvious grounds for discipline when illegal sales of prescription drugs "on the street" are involved, most states have prohibitions against self-prescribing certain controlled substances, and some states have provisions banning prescription of certain substances by a physician to her family members. The doctor with drug or alcohol abuse issues does, of course, attract the attention of licensure boards. However, most jurisdicitons offer more lenient treatment to offending physicians where the misconduct arises from an alcohol or sustance abuse problem, as discussed under section III of this outline. The Massachusetts licensure board has pursued a number of cases in the last couple of years focusing on improper prescription violations outside of the context of substance abuse. Because many doctors write occasional prescriptions for themselves or their families and are unaware of these prohibitions, otherwise "good citizen" physicians may find themselves facing discipline as a result.

(3) Incompetence/Negligence. These are traditional and surviving areas of attention, particularly due to recent media attention. Reports of serious patient incidents and allegations of gross incompetence or negligence should be taken seriously, and legal counsel should help the physician explore the basis for allegations and prepare a thorough defense. With negligence allegations, it is often advisable to coordinate representation before licensure boards with malpractice defense endeavors, if appropriate.

b) Licensure Board Actions Reportable to the National Practitioner Data Bank.
When dealing with licensure board actions and negotiating compromises such as consent orders, it is important to keep in mind ramifications for reporting to the NPDB. (See II.C.2. below)

B. Credentialing, Staff Privileges and Peer Review

As decisions regarding quality and access increasingly involve elements of cost control and utilization, the credentialing, peer review, and staff privileges processes are drawing more attention. New pressures drive these processes and entities have become more restrictive.

1. General
Hospitals and other health care entities are required by the federal Health Care Quality Improvement Act of 1986, as amended ("HCQIA"), to perform certain minimum credentialing procedures. States often provide for additional credentialing requirements, and some states may have specific provision for review of adverse credentialing decisions. Some state laws and regulations require hospitals to engage in peer review of medical staff members, in addition to the mandates of accreditation agencies such as the Joint Commission on the Accreditation of Healthcare Organizations ("JCAHO") to adopt and implement procedures for peer review. Like the licensure disciplinary process, the process by which staff privileges are removed, restricted or otherwise contracted in any way involves certain due process protections and procedures. Medical staff bylaws generally contain internal procedural protections for physicians, including provisions for notice, hearing and appeals relating to privileges. If a medical staff does not follow its bylaws, a physician may be successful in suing the hospital. Before challenging adverse privilege actions, a physician generally needs to exhaust her internal remedies.

2. When Physician is the Subject of Adverse Credentialing or Privilege Actions
When a physician faces adverse privilege actions or negative credentialling determinations, he may in some circumstances be able to successfully challenge the medical staff’s decision. However, it is often more prudent to focus on a resolution of the situation that is most beneficial to all parties involved as quickly as possible. As a general rule, a physician will have to live with the ramifications of a negative credentialling or privilege decision while pursuing legal action. From a practical perspective, an adversarial approach may be much more detrimental to the physician’s ability to obtain other privileges and employment than negotiation of more expeditious and mutually acceptable solutions. There are many levels of privileges and degrees of adverse actions with which to negotiate in most situations. Legal counsel can play an important role in negotiating constructive compromises, while keeping an eye toward the reporting and other ripple effects of the alternatives available (see discussion of reporting under II.C. below).

3. Challenges against a Participant in the Decision-Making Process
Physicians have on occasion successfully challenged the validity or legality of medical staffs’ credentialling procedures and adverse privilege actions. Generally, exposure to a defendant physician is greatest in the context of antitrust exposure for excluding a competitor.

a) Immunity under the Health Care Quality Improvement Act. The HCQIA does provide relatively broad immunity to participants in the peer review process from claims for monetary damage, including antitrust actions, subject to certain qualifications. This often protects physicians who, for example, remove the privileges of a peer after taking appropriate actions under staff bylaws that are consistent with the statutory criteria to qualify for immunity.

b) Antitrust Exposure for the "Excluders". Although the greatest exposure of medical staff members for making adverse decisions against a physician is in the area of antitrust, of the many antitrust suits brought over the last decade or so, only a handful have been successful. Physicians have also found themselves defending against antitrust attacks on preferred provider organizations and other managed care structures that have closed physician panels. Again, it appears that such claims will be successful in very limited instances. Some helpful tips to avoid antitrust exposure:

(c) Economic credentialing. Managed care entities are increasingly employing "economic credentialing" to make decisions based on a physician’s ability to meet cost containment objectives, and courts are recognizing such criteria as valid and not necessarily anti-competitive. Again, it is helpful for medical staff members to avoid making decisions to exclude unless there are objective quality or cost criteria that are determined with input by individuals who are not actual or potential competitors of the excluded physician.

C. Reporting Obligations and Ramifications

1. Reporting to the Licensure Board

a) Reporting Events to State Licensure Boards. There generally are state statutory and/or regulatory requirements to report violations of licensure regulations and certain types of events to the medical licensure board, such as unexpected outcomes or patient deaths. Some reporting is required directly of physicians, while other reports affect physicians but may be generated by another entity (such as a hospital). It is important that doctors know when they are obligated to make such reports. Whether reports are filed by the physician or by another entity, legal counsel should be involved whenever possible before any such reports affecting the physician are filed. This is particularly important because reports to state licensure boards often result in reports to the NPDB (see discussion at II.C.2 below).

b) Reporting Disciplinary Action by One Licensing Board to Boards in Other States. In most states, initial or renewal applications for licensure will require physicians to disclose any disciplinary actions taken by other state licensing boards. In addition, many states impose an affirmative obligation on physicians to report any disciplinary action taken in another state (often within 30 or 60 days of such action) in addition to disclosure on renewal applications. In fact, failure to report disciplinary action that occurred in another jurisdiction is a ground for sanction in some states. Whether or not these disclosures are made by the physician, licensure boards have access to reports of disciplinary action taken by other boards through the NPDB (see below), and documentation of disciplinary action (such as statements of allegations, consent orders, etc.) is generally contained in public documents of which they can obtain copies through the Federation of State Medical Boards or otherwise. Counsel can be very helpful in determining when to notify boards in other states and by interacting with the licensure enforcement authorities on behalf of the physician if reports are made. (See sample chart summarizing reporting requirements at Appendix B.)

2. National Practitioner Data Bank (NPDB) Reporting
Certain reports regarding physicians and other health care providers are required to be made to the NPDB, created under the HCQIA.

a) NPDB Requirements Affecting Physicians. State licensing boards, hospitals and other health care entities, professional societies and medical malpractice payers must all make certain reports to the NPDB that could adversely affect a physician. In addition, hospitals and other heath care entities must query the NPDB in connection with the consideration for, granting or expansion of medical staff privileges, and query every two years for doctors on staff or with clinical privileges, and other organizations have access to the information on an optional basis. See Appendix C to this outline for a table summarizing NPDB requirements affecting physicians.

b) Assistance from Counsel. Again, a physician should consult an attorney whenever possible before a report is filed, to protect the physician. Instances where an attorney can be helpful include:

(1) Reporting Medical Malpractice Payments. Physicians often must report to the NPDB and the relevant licensing board any malpractice payments their practice makes on behalf of themselves or other physicians. The attorney can review or help prepare the report to ensure compliance with the reporting requirements and possibly minimize the negative impact on the physician who is the subject of the report. Also, the definition of medical malpractice claim for NPDB reporting purposes is quite broad, and a physician may need assistance from counsel to determine whether a report should be filed. Individual practitioners, as compared to professional corporations or other business entities comprised of a sole practitioner, are not required to report payments made on their own behalf to the NPDB.

(2) Inaccurate reports. Inaccurate reports can be devastating to a physician’s career, and correcting inaccurate reports can be a burdensome and frustrating process with which his attorney can be helpful. A physician may dispute the accuracy of information in the NPDB by filing within 60 days from the date the Secretary of Health and Human Services mails the report in question.

(3) Preventative intervention and reporting of "adverse actions". When negotiating resolution of issues in either the licensure or medical staff privileges context, it is important to keep NPDB reporting and ramifications in mind. Whether or not a report must be filed with the NPDB may be an important factor in considering various alternatives. A doctor should always be aware of the implications of certain events on her NPDB profile, as the information will be available to hospitals, professional societies, state licensing boards, and sometimes plaintiff’s attorneys. If a report ultimately must be filed, the attorney may often play a meaningful role by negotiating for language that satisfies the reporting entity’s obligations while minimizing unnecessary negative impact on the physician. Refer to Appendix C for material illustrating the types of adverse actions regarding clinical privileges that are considered reportable versus non-reportable to the NPDB.

III. Substance Abuse and Oversight - Representing the Impaired Physician

A. The Problem

Physicians are not immune to substance abuse. Indeed one 1992 study concluded that physicians are more likely to use alcohol and prescription substances, such as benzodiazepines and prescription opiates, than their age and gender peers in the general population. The ready accessibility of controlled substances in their practices renders anesthesiologists and family physicians particularly vulnerable to substance abuse. With substance abuse frequently comes a host of problems, both personal and professional. According to the Federation of State Medical Boards, in 1994 state medical boards across the nation took more disciplinary actions against physicians, and disciplined a higher number of physicians, than ever before. The most common cause of such disciplinary actions was substance abuse. In response to this problem, over the past twenty years physician impairment programs have been established in all fifty states.

B. Proceedings Before State Medical Boards

In every jurisdiction, it is deemed unprofessional conduct for a physician to be addicted to alcohol or drugs and/or to treat patients while under the influence of these substances. However, at least where there has been no patient harm, most jurisdictions afford physicians with a substance abuse problem the opportunity to address the problem in a non-public manner with a view toward preserving the physician’s licensed status. Many state medical boards have formed cooperative relationships with treatment programs, some of which are sponsored by state medical societies. In such instances, formal, public disciplinary action frequently is not pursued so long as the physician complies with terms set forth in treatment and follow-up monitoring. Obviously, a physician suffering from substance abuse will be afforded the option for treatment if she is willing to admit to having a problem. Denial is commonly associated with substance abuse. As a result, often the most challenging obstacles facing the lawyer representing such a physician are (i) identifying the substance abuse problem and (ii) getting the client to admit to it. Accordingly, in addition to an analysis of the legal aspects of the physician’s predicament, the lawyer should be alert to clues to the substance abuse problem. These often can be gleaned from interviews with potential witnesses, such as the physician’s colleagues and family members. They include:

By being attentive to more than just the legal aspects of the case, a lawyer can sometimes identify a substance abuse problem and thereby increase the potential for a successful personal and professional resolution to the present difficulty.

C. The Drug Enforcement Administration

1. The Registration Requirement

In order to dispense controlled substances, a physician must be registered with the Drug Enforcement Administration ("DEA"). A physician may register to dispense if she is authorized to dispense controlled substances under the law of the state in which she practices. A physician must obtain a separate registration number for each principal place of business or professional practice where the physician dispenses controlled substances.

2. Record Keeping and Inspections

Authorization to dispense controlled substances is accompanied by record keeping requirements relating to the ordering of such substances. Physicians must retain for a period of two years duplicate copies of forms issued by the Attorney General for this purpose, and must make these forms available for inspection and copying by appropriate federal and state authorities. Physicians are exempt from more stringent inventory requirements with respect to schedule II-V controlled substances if they are prescribed "in the lawful course of their professional practice." This exemption does not apply to controlled substances prescribed in the course of maintenance or detoxification treatment.

The DEA, by authority delegated from the United States Attorney General, is authorized to inspect the establishment of each registrant in accordance with regulations promulgated by the Attorney General. In aid of this authority, the Attorney General is authorized to issue administrative subpoena for the production of witnesses, and records, and to obtain administrative search warrants.

3. Suspension or Revocation of DEA Registration

DEA registration may be revoked upon a finding that a physician:

4. Enforcement Proceedings

A physician with a substance abuse problem, particularly if the problem involves controlled substance, will almost invariably run afoul of DEA requirements, either by self-prescribing for non-therapeutic purposes, or by failing to maintain adequate records. The DEA can become aware of the physician’s problem through a referral from a state medical board, by routine inspection, or from a tip received from a dissatisfied patient or concerned colleague.

The formal procedures to be followed by the DEA in seeking to suspend or revoke a physician’s registration are governed by regulation and the Administrative Procedures Act. However, in most instances, an informal resolution is preferred. DEA regulations specifically allow the Special Agent in Charge of the appropriate DEA office to grant a registrant’s request for a meeting "to present his views and his proposals for bringing the alleged violations into compliance with the law." Such a meeting is particularly advantageous if the physician has already negotiated a resolution with the state medical board involving admission to an impaired physician program.

IV. Antifraud and abuse prevention

A. Fraud and Abuse

1. Federal

a) General Prohibition. The federal Fraud and Abuse statute (the "FFA") prohibits the solicitation or receipt, offer or payment of "any remuneration" by any provider of covered services in exchange for:

(1) referring an individual to a person for the purposes of receiving any item or service which will be paid in whole or in part by Medicare or Medicaid; or

(2) "purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing or ordering any good, facility, service or item" which will be paid for in whole or in part by Medicare or Medicaid.

Violation of this statute is a felony and could lead to imprisonment and fines of up to $25,000, and/or exclusion from Medicare and Medicaid programs. The prohibition applies to both sides of every transaction--the physician and the contracting entity.

b) Statutory Exceptions. Certain transactions and arrangements raise concerns for physicians under the FFA because these transactions can potentially involve the exchange of valuable consideration (or "remuneration") for the stream of referrals that comprise the bulk of the value in a physician’s practice. However, the FFA specifically exempts certain transactions or arrangements. The FFA does not apply to:

(1) discounts obtained by a provider of services or other entity that are properly disclosed and reflected in the cost claim for reimbursement made by the provider;

(2) compensation paid by an employer to a bona fide employee;

(3) provider group purchasing arrangements, between group purchasing agents and vendors of goods and services, established by written contract and fully disclosed; or

(4) any payment practice described in the safe harbor regulations (see Section IV.A. below).

c) Safe Harbors. The Office of the Inspector General (the "OIG"), realizing that the FFA has been interpreted so broadly that it might discourage otherwise legitimate transactions, has issued "safe harbor" regulations that identify payment practices that are permitted under the FFA. The potential for liability under the FFA turns on whether an exemption or regulatory "safe harbor" shields the transaction, or whether, in the absence of an exemption or safe harbor, a court would find the practice violative of the FFA. Safe harbors commonly relied on in physician related transactions include those involving space and equipment rental arrangements and personal service contracts. To receive protection from these safe harbors, leases or service contracts must meet a number of standards. The most significant standards include: aggregate payment (e.g. rent, compensation) set in advance, consistent with fair market value in arms length transactions, and the lease or service agreement must not take into account the volume or the value of any referrals between parties. Yet another safe harbor protects the sale of a physician’s practice from the FFA prohibition. This safe harbor, however, is limited to the sale of a practice by a physician to a physician and does not protect the practice from acquisition by a hospital. Other safe harbors include: referral services; warranties; discounts; employees; group purchasing organizations; waivers of coinsurance and deductibles amounts; increased coverage, reduced cost sharing amounts, or reduced premium amounts offered by health plans and price reductions offered to health plans.,

d) Application. Although the FFA is intended to prohibit rebates, bribes and kickbacks, a literal interpretation of the FFA appears to prohibit may types of transactions. Thus, other sources of law are valuable tools in interpreting the statute.

(1) The FFA does not define "illegal remuneration." Therefore, the FFA is best understood if read with federal court decisions addressing the general scope of the FFA. Important federal cases include:

(a) U.S. v. Greber, 760 f. 2d 68, 69 (3rd Cir. 1985)(violation if only one of the purposes of compensation is to induce referrals);

(b) U.S. v. Kats, 871 F. 2d 105, 108 (9th Cir. 1989) (violation if one of the "material purposes" is to induce referrals);

(c) U.S. v. Bay State Ambulance, 874, F. 2d 20, 29-30 (1st Cir. 1989), (court determined that the defendants could only be found guilty if the payments were made "primarily" as inducements);

(d) The Hanlester Network v. Shalala, 51 F. 3d 1390, (Ninth Cir. 1995)( the court held that a person can only be found in violation of the FFA if(i) he/she knew that the FFA prohibits offering or paying remuneration to induce referrals, and (ii) he/she engaged in the prohibited conduct with the specific intent to avoid the law).

(2) From time to time, the OIG has released special fraud alerts. These fraud alerts have included: (a) warnings against incentive programs in which providers invest and then refer patients for special gains; (b) incentives offered by hospitals to physicians to admit patients; and (c) provider waivers of co-payments and deductibles under Medicare Part B as illegal inducements to attract business.

2. State
In addition to federal law, many state legislatures have passed fraud and abuse statutes modeled on the FFA. Many states, like Massachusetts for example, have statutes that extend much further than the FFA and prohibit remuneration involving any health care insurer, not just the Medicare and Medicaid Programs. Because of the broad scope of the prohibition, theses statutes may pose a significant potential burden on providers for they could, in theory, prohibit any investor from ever making a referral to, or conducting business with, an entity in which it invests. Enforcement of state statutes varies from state to state. Consequently, one should consult with local legal counsel to determine the impact of state fraud and abuse laws on relevant transactions.

3. Practice Tips
The following is a list of "rules of thumb" to follow to avoid the fraud and abuse transaction pitfalls created by the FFA:

a) If a safe harbor regulation exits, comply with as many of the standards of the applicable safe harbor as is possible. If no safe harbor exists, or if the criteria can not be satisfied, consult with a legal expert in the area. Whenever possible, comply with other guidelines such as case law, comments to the regulations and other OIG publications;

b) Avoid linking compensation for services to admissions, referrals or exclusivity arrangements;

c) Document the valid business reasons and effect on quality of care of any arrangement;

d) Document the way in which the parties determined the compensation and other financial arrangements to be reasonable;

e) During business negotiations, be careful not to make any offers prohibited by the FFA. The FFA prohibits all offers and any witness present at the negotiating table could be brought to testify in court.

B. The Stark Law

The interplay between the Stark Law and the FFA creates a constant challenge for physicians involved in a variety of transactions and arrangements. The FFA applies to all Medicaid and Medicare services, the Stark Law, however, prohibits only physician referrals. The intent aspect of the fraud and abuse prohibition is absent from the Stark Law. The Stark Law applies to a transaction regardless of the intent of the parties involved, thus, compliance is critical. (A sample chart outlining both a Stark and FFA analysis can be found at Appendix D).

1. General Prohibition
The Stark Law provides that if a physician has a "financial relationship" with an entity:

a) the physician may not refer patients to the entity for any "Designated Health Services" reimbursed by Medicare or Medicaid; and

b) the entity may not bill for services rendered pursuant to a prohibited referral.

No payment may be made under the statute for a designated health service in violation of the law. Recoupment of overpayments will be made with Medicare and/or Medicaid programs. A civil monetary penalty of up to $15,000 may be imposed for each service. Any physician or other entity entering into a cross referral arrangement can be subject to a civil penalty fine of not more than $100,000 each.

2. Financial Relationship
"Financial relationship" under the Stark Law includes an ownership or investment interest of the physician in the entity or a compensation arrangement between the physician and the entity. The term "compensation arrangement" generally means any arrangement involving remuneration between a physician and an entity other than certain excluded types of remuneration.

3. Designated Health Services
The term "Designated Health Services" means any of the following items or services:

a) clinical laboratory services;

b) physical therapy services;

c) occupational therapy services;

d) radiology and other diagnostic services;

e) radiation therapy services;

f) durable medical equipment;

g) parenteral and enteral nutrients, equipment and supplies;

h) prosthetics, orthotics and prosthetic devices;

i) home health services;

j) outpatient prescription drugs; and

k) inpatient and outpatient hospital services.

4. General Exceptions
The exceptions to the Stark Law fall into three categories: (1) exceptions relating to both ownership or investment and compensation arrangements, (2) exceptions related only to ownership or investment arrangements,and (3) exceptions relating only to compensation arrangements.

a) Exceptions To Both Ownership or Investment And Compensation Arrangements.

(1) Physician Services. The physician services exception permits services provided personally or supervised by another physician in the same group as the referring physician.

(2) In-Office Ancillaries. The in-office ancillaries exception permits referrals for Designated Health Services so long as:

(a) no referrals are made for durable medical equipment (excluding infusion pumps) and for parenteral and enteral nutrients, equipment and supplies; and

(b) the services are furnished either by the referring physician, personally by a physician who is a member of the same group practice as the referring physician or by another physician in the group practice; and

(c) the services are furnished [either] (i) in a building in which the referring physician (or another physician who is a member of the same group practice) furnishes physicians’ services unrelated to the furnishing of Designated Health Services, or ...(ii) in another building which is used by the group practice either for the provision of ... the group’s clinical laboratory services, or for the centralized provision of the group’s Designated Health Services (other than clinical laboratory services); and

(d) the services are billed either by the physician who performs or supervises the services, by the physician’s group practice using the group practice’s billing number, or by any entity wholly-owned either by the physician or the group practice.

(3) Prepaid Plans. The prepaid plan exception exempts from the Stark Law prohibitions any referrals for Designated Health Services so long as the services are provided by certain prepaid plans, including HMOs, to the subscribers of such plans.

b) Exceptions Related Only To Ownership or Investment Arrangements. A physician may make a referral to an entity with which he or she has an ownership or investment arrangements if:

(1) the interest is in the publicly traded securities of a corporation that had stockholder equity exceeding $75 million or an ownership interest in an investment company has with assets exceeding $75 million;

(2) the entity is a hospital in Puerto Rico;

(3) the entity is a rural provider providing substantially all of the services to residents of that rural area;

(4) the entity is a hospital and:

(a) the referring physician has hospital privileges, and

(b) the ownership or investment interest is in the hospital itself and not merely a subdivision of the hospital.

c) Exceptions Relating Only To Compensation Arrangements. The Stark Law creates numerous exceptions relating to Compensation Arrangements. Briefly stated they are:

(1) rental of office space and equipment;

(2) bona fide employment relationships;

(3) personal service arrangements;

(4) physician incentive plan exceptions;

(5) remuneration unrelated to the provision of designated health services;

(6) physician recruitment;

(7) isolated transactions;

(8) certain group practice arrangement with a hospital; and

(9) payment made by a physician for items or services.

d) Reporting Requirement. In addition to the prohibitions, the Stark Law requires that each Medicare provider report to the Secretary of the United States Department of Health and Human Services information concerning the entity’s ownership arrangements; including, the covered items and services provided by the entity and the names and provider numbers of physicians who are interested investors or immediate relatives of interested investors. Any person who is required but fails to meet a reporting requirement is subject to a civil money penalty of not more than $10,000 for each day he or she did not report.

V. Practice Integration, sales and relationships

A. Models for Integration among Physicians

One of the most frustrating and exciting aspects of the market’s move toward physician practice integration is that there are so many options from which to choose. Legal counsel can be helpful in identifying for physicians the structural options available, and some of the legal risks and advantages of the different alternatives. See Appendix E for a useful description of the various alternative organizational and legal structures available to physicians who wish to affiliate with each other.

B. Potential Anti-fraud and Abuse and Stark Enforcement Issues

When physician groups come together, through the sale and purchase of practices or in looser types of collaborations, there are often anti-fraud and abuse and Stark implications. See discussion of sales of physician practices and referrals among loosely integrated entities above at Section IV above.

C. Practice of Medicine Issues

Growing trends in health care include "turn-key" physician office arrangements where corporate entities are becoming increasingly involved in what traditionally was considered the practice of medicine, and managed care strategies involving various "physician extenders." Physicians should approach these types of ventures with caution, and seek the advice of counsel to avoid unexpected licensure violations. Licensure boards may, in some cases, discipline physician licensees for assisting unlicensed individual or entities engaging in the unauthorized practice of medicine.

D. Avoiding Antitrust Enforcement.

The basic policies underlying antitrust law are to preserve competition, thereby enabling efficiencies, new and better products and lower prices to be passed on to consumers. Generally, physician practice integration is a procompetitive force, but physicians must be careful when seeking to enhance market share and/or power that they do not run afoul of the antitrust laws.

1. Generally
Statutory sources for antitrust enforcement relevant to the health care market include: Sections 1 and 2 of the Sherman Act, Sections 2, 3 and 7 of the Clayton Act,and Section 5 of the Federal Trade Commission Act, as well as many state antitrust statutes which are for the most part patterned upon the federal antitrust laws. There is also some guidance regarding antitrust issues that is specific to health care, such as policy statements issued jointly by the Department of Justice and the Federal Trade Commission, and a number of advisory opinions and business review letters issued since 1993.

2. Enforcement Agencies
The federal antitrust laws are enforced by the United States Department of Justice ("DOJ") and the Federal Trade Commission ("FTC"), and state antitrust enforcement actions are generally brought by a state’s Attorney General. State Attorneys General often coordinate investigations with federal agencies, or with other states’ Attorney General offices where the impact of activity spans state boundaries.

3. "Safety Zones" relevant to Physician Integration and Business Combinations
The jointly issued DOJ/FTC Policy Statements issued within the last five years provide some guidance specific to provider networks. Of particular note to physicians considering integration are the following "safety zones" described in the Policy Statements:

a) Exclusive Integrated Provider Networks. Where physicians sufficiently share "substantial financial risk," the agencies will not challenge exclusive physician networks comprising 20% or less of the physicians with the relevant specialty who have active hospital staff privileges and practice in the relevant geographic market.

b) Non-Exclusive Integrated Provider Networks. Where physicians sufficiently share "substantial financial risk," the agencies will not challenge non-exclusive physician networks comprising 30% or less of the physicians with the relevant specialty who have active hospital staff privileges and practice in the relevant geographic market.

4. Risky Business for Physicians under Antitrust Law.
The following are common examples of integration and related cooperative activities among physicians that may attract attention from enforcement agencies:

a) Fee Schedules or other Price Agreements among Competitors. Any agreement relating to price among actual or potential horizontal competitors (which are not sufficiently integrated) is considered per se illegal, including fee schedules agreed to by members of a professional organization. Unless a group of physicians is sufficiently integrated (see discussion of safety zones in V.D.3. above), physicians should seek advice from counsel before engaging in any discussions regarding price, even in the context of joint ventures that do not fall within the safety zones.

b) "Messenger Model." The "messenger model" is a structure that federal regulators consider acceptable for competitors that are not economically integrated to use to negotiate price and other contract terms with payors. In order to protect against agency scrutiny, it is imperative to adhere strictly to the model and that a messenger’s conduct fall within the narrow limits of the information that a messenger may permissibly convey. Although certain court decisions indicate a willingness to be more flexible, the DOJ’s recent enforcement actions demonstrate that it accepts only "pure" messenger model systems where the messenger functions primarily as a delivery agent between individual physicians and a payor, and anything less is considered illegal price-fixing. Unless the physicians are willing to significantly involve their attorney initially and on an ongoing basis, using the messenger model can be dangerous.

c) Boycotts/Concerted Refusal to Deal. In this era of managed care, many physicians feel compelled to join forces to protect patient, quality of care, or other interests. It is never a good idea for competing physicians to agree to boycott or refuse to deal, without obtaining the advice of counsel, no matter what the motivation. Group boycotts are often determined to be illegal.

d) Exclusive Dealings. Physicians are sometimes asked to enter into exclusive agreements with hospitals, health maintenance organizations, and other non-physician entities. Although generally less problematic than the types of "horizontal" activity described in a) through c) above, these types of "vertical restraints" may be scrutinized under the intermediate "rule of reason" level of scrutiny.

5. Recent Federal Legislative Activity
On February 1, 1996, a bill (HR 2925) was introduced that is designed to ensure application of rule of reason analysis, an intermediate level of scrutiny under the antitrust laws, for the conduct of certain provider networks. At the end of February, the FTC Chairman suggested to the committee that flexible and regularly adjusted FTC guidelines would be more appropriate than statutory criteria to respond to providers’ needs in this area, and asked the committee to put the legislation on hold pending the release of revised FTC guidelines

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Copyright © 1996, Alan S. Goldberg, All Rights Reserved. This is an edited version of an article published by the National Health Lawyers Association and reflects the valued contributions of Jack Eiferman, Denis King, and Chris Ditunno.

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Last revised: 1/8/98