Category Archives: Post

By: James D. Wall, Esq.

Generally, the physician’s self-referral law (often referred to as “Stark”) prohibits a physician from referring a patient whose services may be reimbursed by a government payor (e.g., Medicare) for certain “Designated Health Services” (“DHS”) to an entity in which the physician or immediate family member of the physician has a financial relationship, unless an exception applies. “Designated Health Services” is defined to be ancillary goods or services reimbursed by Medicare, and include (i) clinical laboratory services, (ii) physical and occupational therapy services, (iii) radiology and other imaging services, and (iv) durable medical equipment. Stark defines DHS by reference to certain CPT codes, a list of which is published each year and can be found at https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral.

Physician practices that provide DHS implicate the Stark prohibitions because the physicians in the practice order tests, goods or services to be performed or provided by the practice. For example, if a physician orders lab tests to be performed by a laboratory that is owned by the practice, the Stark law is implicated. Same would be true for a cardiologist ordering imaging services to be done in-house, or an orthopedist ordering physical therapy services. In these examples, physicians would be referring tests to an entity (i.e., their practice) in which the physician owns an interest.

Like many regulatory paradigms, the prohibition is broadly defined, but exceptions carve out behavior that the government does not want to prohibit. While a deep dive into each exception is beyond the scope of this article, a prevalent exception for referrals within the same practice is the In-Office Ancillary Services Exception (IOASE). In order to rely on IOASE, a practice must meet the definition of a “group practice” under Stark. IOASE protects the in-office provision of certain DHS that are ancillary to the medical services provided by the physician practice. IOASE requires services to be personally provided by the referring physician, a physician-member of the same group practice as the referring physician, an individual who is supervised by the referring physician, or if the referring physician is a group practice, by another physician in the group practice, provided the supervision complies with all Medicare care payment/coverage rules for the services.

Second, IOASE requires that services be furnished in the same or centralized building. There are three alternative tests for this location requirement, but only one must be met. All three tests require the referring physician to have offices in the building that are open to patients a minimum number of hours per week and the physician must regularly practice medicine and furnish physician services for a minimum number of hours per week in that office. Additionally, IOASE requires the DHS to be billed by the physician group practice performing and supervising the services, or by an entity fully owned by the physician or the physician’s group practice (or by an independent third-party billing company acting as an agent for the group practice).

Compensation Arrangements

Regulations promulgated under Stark prohibit physicians from being paid based on the “volume or value” of their referrals of DHS. This has generally prohibited group practices from paying physicians based upon the specific orders or prescriptions for DHS provided by the group practice. Additionally, Stark regulations allow practices to split profits from DHS either on a share and share-alike basis, or based on the physician’s production excluding DHS compared to the production (excluding DHS) of other participating physicians in the practice.

New Regulations Clarify Physician Compensation

New regulations promulgated effective January 1, 2022 require compensation arrangements to meet certain criteria in order for the practice to enjoy the designation of a “group practice” under Stark.

The requirements for a group practice can be summarized as follows:
 

• Practices should not pay physicians for DHS the physicians order, either by counting the revenues or profits from the referrals in the physician’s production or using the revenues or profits to calculate a productivity bonus.
• A practice may pay a productivity bonus based solely on a physician’s personally performed services (these services are not “referrals” because they are personally performed by the physician).
• A practice can distribute profits from DHS and not be deemed to be paying physicians based on the “volume or value of referrals” by distributing the profits in one of the following manners: (i) per capita; or (ii) based on distributions of the group’s revenues attributed to services that are not DHS and would not be considered DHS if the service had been paid by Medicare even if the service was paid by a private payer.
• A practice may use certain criteria to pay productivity bonuses to ensure that the bonus is not based on the “volume or value of referrals” of DHS: (i) the productivity bonus is based on the physician’s total patient encounters or the RVUs personally performed by the physician; or (ii) the services on which the productivity bonus is based are not DHS and would not be considered DHS if they were payable by Medicare.
• Practices may have an exemption from these rules if revenues derived from DHS constitute less than 5 percent of the group’s total revenues, and the portion of those revenues attributed to each physician in the group constitutes 5 percent or less of his or her total compensation from the group.

Notably, the oft-used method of carving out government payer business does not work. In order to enjoy the designation of a “group practice” under Stark, the services on which the productivity bonus is based cannot be DHS nor can they be DHS if they were payable under Medicare. Thus, pay plans that may once have been compliant may have fallen out of compliance.

By: Jan Yarborough

Contractual Indemnity clauses have no place in participating provider contracts. This is not news. Managed Care / Health Law continuing legal education presentations, position statements, and blog posts have been warning providers about this issue for decades.

For example, this February 10, 2012 Position Statement of American Academy of Emergency Physicians (“AAEM”):

Indemnification Clause in Emergency Medicine

Emergency physician contracts should not include indemnification or “hold harmless” agreements regarding the hospital or practice site. These agreements unfairly shift risk to emergency physicians and this risk is not generally insurable.

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Liability Coverage Policies Exclude CONTRACTUAL Indemnity Obligations

The “not generally insurable” phrase in the AAEM’s 2012 position statement reflects the fact that medical malpractice coverage policies expressly exclude coverage for contractual indemnity clauses. In discussions about this exclusion, liability carriers indicated that the exclusion does not apply to indemnity obligations enforced by common law (rather than under a contractual indemnity clause), so long as the coverage applied to the activity.

Not many years ago, managed care payors fully understood this issue facing providers and routinely deleted or allowed edits to the indemnity clause in their participation agreements upon request. Increasingly, however, payors react with horror and disbelief if the provider requests removal of contractual indemnity clauses. This growing reluctance appears to be because payors believe “indemnity” is a synonym for “damages” in a future breach of contract dispute. This belief is uninformed.

Indemnity Does NOT Mean Damages for Breach of Contract

If a party breaches its obligations outlined under a contract, courts assess damages for that breach of contract. This means that if a provider breaches a term in a participating provider contract, the payor may seek monetary or other relief for the damages to the payor resulting from the breach. This rule applies regardless of whether the contract includes an obligation for the provider to indemnify the payor.

Independent Actors Should Remain Responsible for Their Own Actions or Omissions

Participation agreements are neither agency nor employment agreements (and most of these agreements affirmatively so declare). Rather, these agreements require each party to meet its own obligations and responsibilities.

The common law of indemnity generally applies when parties are in unique relationships such as agent and principle, joint venturers, or employer and employee. The common law of indemnity does not apply to arrangements, where independent parties each have their own obligations. Participation agreements do not create the unique relationships where common law of indemnity routinely applies. In fact, those agreements routinely declare the providers to be independent contractors of, and not the agent of, the payor.

Public policy favors not shifting risk from one actor to another in circumstances when each party has its own obligations; each party will thus endure the consequences of failure to correctly perform its obligations. If a participating provider agreement obligates the provider to indemnify the payor, that means the provider essentially insures the payor’s risk for the payor’s own wrongful actions or omissions. Liability policies rightfully exclude contractual indemnity provisions to avoid covering the wrongful actions of a third party the carrier has never met and vetted.

Note, mutual indemnity clauses typically create, without clearly resolving, confusion between which party is actually assuming a given risk. A typical indemnity clause in a participation agreement likely will broadly obligate the provider to indemnity the payor for losses related to the provider’s “actions or omissions.” (Notably, this common language holds the provider responsible for any action or omission without regard to whether or not the action or omission is otherwise wrongful or negligent). Whether or not the contract also requires the payor to indemnify the provider for the payor’s actions or omissions, the provider’s liability coverage policy’s exclusion clause still applies. Furthermore, adding a mutual indemnity clause in these types of agreements – where each party has its own tasks under the contract and neither is agent of the other – leaves many questions as to how to apply the indemnity clause to shift risk between independent contractors.

Possible Tools

Commentary and articles consulted in the preparation of this article are unanimous in alerting providers to the unreasonable risk of contractual indemnity clauses. However, the several payors with these clauses in their participation agreements remain unconcerned (or unconvinced). Many payors claim (maybe correctly) that thousands of providers in North Carolina have voiced no objection to the clauses. Thus, if an informed provider requests complete deletion of the clause, the payor may accuse the provider of being an unreasonable, uninformed outlier.

Alternative approaches may be more effective. The provider could request his or her med mal carrier to review and provide a statement to the carrier outlining the unreasonable risk to the provider for contractual indemnity clauses. Alternative language deleting the indemnity clause, while stating that each party is responsible for its own actions or omissions may be accepted by the payor, especially if followed by a provision that states that either party may seek indemnification as available under North Carolina law.

Conclusion

Expenses and liability related to contractual indemnity clauses are expressly excluded in liability insurance policies such as medical malpractice coverage. This means attorneys’ fees and damages must be paid out of the provider’s own assets in the event of a dispute under contractual indemnity clause in a participating provider agreement.