Avoid hot water over physician agreements

A hospital can violate the Stark Law if it pays physicians more than fair market value compensation. The law, which targets illegal kickbacks, prohibits payments based on the volume and value of referrals.

Westerly Hospital in Rhode Island has agreed to pay $500,000 triggered by a federal fraud investigation into its relationship with 50 physicians. According to a report in the Westerly Sun, the settlement involves potential violations of the Stark Act, which prohibits doctors from referring patients to a facility at which they have a financial interest. The investigation found, among other things, that one practice was allowed to run the hospital's gastroenterology department in return for agreeing not to compete with the hospital.

Under the settlement, neither the doctors nor the hospital admit to any wrongdoing.

What to do: Hospitals should do a thorough valuation of all physician compensation arrangements to make sure they are on safe ground. Long-term arrangements should be reviewed periodically for compliance. For new agreements, fair market value and “commercial reasonableness” should be established prior to putting the arrangement into effect.

Learn more: Increased government scrutiny on financial arrangements between providers and physicians prompted BVR to host a recent webinar, Commercial Reasonableness and Fair Market Value in Healthcare Valuation. Click here to listen to an archived version.