CMS Provides Guidance on Stark Physician Recruitment Exception

July 26, 2011, 7:47 AM

The physician recruitment exception to the Stark Law allows a hospital to provide certain financial incentives to a physician group practice to induce a physician to relocate his practice to a location within the hospitals service area. In order to comply with the physician recruitment exception, the financial arrangement must comply with a number of criteria. Among these criteria, the exception requires that the physician group practice to which the physician is recruited may not impose practice restrictions that unreasonably restrict the physicians ability to practice medicine in the geographic area served by the hospital. Until recently, the Centers for Medicare & Medicaid Services (CMS) has declined to provide any guidance regarding what types of practice restrictions CMS would consider to be unreasonable.

In January of 2011, CMS finally addressed this reasonableness standard and issued an advisory opinion, CMS-AO-2011-01, finding permissible a physician recruitment arrangement between a hospital and a pediatric orthopedic surgeon that included a non-competition clause. In its advisory opinion, CMS examined the recruitment arrangement which contained a provision that prevented the physician from practicing medicine at any health care facility within twenty-five (25) miles of the hospital for one (1) year following the physicians termination of employment. CMS stated that both the time and geographic restrictions were reasonable based on the large geographic area the hospital serves. CMS also found persuasive that, during the one year restriction period, the physician would be able to practice at a hospital outside the twenty-five (25) mile radius, but still within the general geographic area of the hospital. Additionally, during the restricted year the surgeon could work at three hospitals that were technically outside of the hospitals geographic area, but were still located within sixty (60) miles of the hospital. CMS stated in its opinion that after evaluating the totality of the circumstances relating to the factors set forth in the physician recruitment exception, the non-competition provision did not constitute an unreasonable restriction on the physicians ability to practice medicine in the geographic area of the hospital. Although CMS did not provide a separate analysis of state law, CMS did rely on the hospitals representation that such an arrangement complied with state laws regarding restrictions on competition.

Although this advisory opinion cannot be relied upon by another individual or entity, it is the first time CMS has provided guidance as to how CMS interprets the physician recruitment exceptions requirement that a group practice not unreasonably restrict a recruited physicians ability to practice medicine in the hospitals geographic service area. This advisory opinion should provide group practices that are considering a recruitment arrangement with a new physician with valuable guidance concerning what CMS is likely to consider reasonable in terms of restrictions on competition. To read the full Advisory Opinion issued by CMS, click here. -Aaron J. Ambrose