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Physician Community Needs Assessments:?Lies, Damn Lies and Statistics??Part I of II.
By Greg Piche'
The line between a hospital?s medical staff competitive development activities and its community medical support endeavors is hazy, but one that has important regulatory and legal implications. The luring of certain physician specialists to a hospital?s market is often a key component in the competitive strategic plan of the hospital, yet the offering of "anything of value" to induce physician referrals is illegal under Federal law, without the demonstration of an independent "community need" for the physician. Alan Coleman, Vice President for Business Development at Tri City Medical Center in Oceanside California underscored the necessity of recruiting specialists that have an effect on a hospital?s bottom line.
We went and looked at the number of neurosurgery cases that are occurring in our market and what percentage of the market we were capturing here at Tri-City, and it was dramatically lower than all of the other surgeries.
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We have to have profitable service lines to cover unprofitable service lines like pediatrics and mental health.
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We go after those just to keep the doors open for all services.
Sisson, Paul "Local Hospitals Turn To Cash Incentives To Lure Doctors," North Country Times (August 14, 2004).
Failure to comply with Federal compliance requirements in a physician recruitment program can lead to devastating results. On July 17, 2003, then U.S. Attorney Carol C. Lam, brought a 17 count indictment against Tenet owned Alvarado Hospital and Medical Center and its CEO, Barry Weinbaum alleging conspiracy and kickbacks in Alvarado?s physician recruitment program. The potential penalties included 5 years imprisonment and a $25,000.00 fine for each count. Following two mistrials in the criminal case Tenet entered into a civil settlement with the Justice Department whereby it agreed to pay a $21,000,000.00 fine and divest the hospital if it wished to avoid Federal program exclusion.
In hospital physician recruitment, the difference between compliance with onerous Federal law and regulations of the healthcare and civil and criminal exposure for prohibited financial inducements to physicians to make referrals can turn on a hospital?s "objective evidence" of need for a particular physician?s specialty in its geographic market area "GSA".
A tax exempt hospital is also at risk for the potential loss of its tax exempt status if it recruits a physician to its market with financial incentives without a bona fide needs analysis demonstrating a shortage of physician services in the recruited specialty. See Rev. Rule 97-21, 1997-1 C.B. 121.
All hospitals face exposure to mandatory criminal and Federal program exclusion sanctions under the Federal Anti-kickback Statute, Section 1128 of the Social Security Act.
Existing case law interprets the anti-kickback statute to apply to any transaction where remuneration is provided to a physician and one purpose was to obtain referrals or induce future referrals of patients. United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Greber, 760 F.2d 68 (3rd Cir.), cert. den., 474 U.S. 988 (1985).
It constitutes a felony to violate the anti-kickback statute with potential punishment of a $25,000.00 fine and/or imprisonment up to five years and automatic exclusion from Federal healthcare programs.
There is an anti-kickback statute "safe harbor" covering physician recruitment that protects hospital efforts to recruit physicians to a health professional shortage area ("HPSA") or a medically underserved area ("MUA"). See 42 C.F.R. §1001.952(n). HPSA?s are areas designated by the Federal government as having shortages in primary medical care, dental, mental health, vision care, pediatric, pharmacy and veterinary. See 42 C.F.R. pt. 5 app. A. MUA?s measure shortages of healthcare services generally. See 64 Fed. Reg 63, 518, 63, 542 (Nov. 19, 1999).
Most physician recruitment efforts occur outside of HPSA?s and MUA?s and are outside of the safe harbor.
The existence of a community needs assessment documenting a need for a particular physician specialty in a market can provide an umbrella of protection if not a safe harbor for hospital recruitment activities.
Generally, recruitment activities based upon documented evidence of an objective need for the practitioner?s services are less suspect than recruitment activities used to attract a practitioner to an area which has no practitioner shortages for his or her specialty.
OIG Advisory Opinion No. 01-4, posted May 10, 2001, p. 8.
The OIG in its Supplemental Compliance Program Guidance for Hospitals underscored the importance of community need evidence in its assessment of hospital recruiting activities.
The need for recruitment. Is the recruited physician?s specialty necessary to provide adequate access to medically necessary care for patients in the community? Do patients already have reasonable access to comparable services from other providers or practitioners in or near the community? An assessment of community need based wholly or partially on the competitive interests of the recruiting hospital or existing physician practices would subject the recruitment payments to heightened scrutiny under the anti-kickback statute.
See70 Fed. Reg., No. 19, 4858, 4868 (January 31, 2005).
A minor industry has arisen over the objective documentation of need in a hospital?s Geographic Service Area ("GSA"). A hospital?s GSA is defined under an exception to the Stark statute for physician recruiting incorporated into federal regulations at 42 C.F.R. § 411.357(e) (the lowest number of contiguous zip codes from which the hospital draws at least 75 percent of its inpatients, with some exceptions added by the Stark Phase III Regulations). External healthcare consultants and inside hospital administrators and analysts have directed their energies and resources to compiling objective data to support (and protect) hospital recruiting activities. Their products are generally identified as community needs assessments ("CNAs") There are no universal standards for compiling objective data for this purpose and the accuracy of the result is frequently questionable. Many rely exclusively on publicly available statistics and surveys reflecting physician to population ratios, or some combination of statistical data with anecdotal support from community services. Others rely on community surveys of patient satisfaction, physician office wait times, physician practice limitations and other factors. Still others not much more than the bald, unverified opinions of the CNA compiler. Since the development of evidence of objective need is the gateway to regulatory compliance and the ability of hospitals to recruit new physicians to its GSA, there is a premium benefit to finding "holes" in the market for physician specialties that may substantially contribute to patient admissions with positive bottom line financial impacts for a hospital. The artful selection of particular ratios or data to support a desired conclusion is not unknown in the consulting world.
Although CNA?s are designed to provide regulatory cover, many hospitals and hospital systems are using them as "sales" documents to induce physicians to move to their GSA to start up a new practice. A start up practice in a new and unknown market location is an extremely risky venture for a physician, and hospital recruiters frequently pull out a copy of the hospital?s CNA to ameliorate concerns over the existence of demand for medical start-up services and the likelihood of success for the new venture. Physicians understandably rely on a hospital?s knowledge of its market and the practice opportunities contained in them ? often to their peril.
Hospital physician recruitment packages generally involve a guaranteed income or income and expense support for a start-up practice for a year. The hospital pays the income for the year, adds the practice expenses and then subtracts the physician?s earnings to arrive at its total obligation to the physician for the year. The physician then executes a promissory note to the hospital for the total subsidy amount plus any signing bonuses and moving expenses and the amount of the note is forgiven by the hospital over a three-year period in which the physician is obligated to maintain his or her practice in the hospital?s GSA. If the physician packs up and leaves the market before the forgiveness period is complete the physician remains indebted to the hospital for all or part of the obligation.
What if the CNA was wrong and the physician finds the market intensely competitive, with little or no pent up demand for his or her services and ends up unable to even cover the expenses of the practice during the three-year commitment?
Physician lawsuits related to fraud in the inducement to enter into recruiting agreements are on the rise and new scrutiny is focused on the accuracy of CNA?s that might ultimately lead to greater regulatory interest as well.
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