The Centers for Medicare and Medicaid Services (“CMS”) recently issued an advisory opinion on November 6, 2006 regarding the physician recruitment exception in the federal physician self-referral law, commonly know as the Stark Law. CMS specifically addressed whether a physician who would spend up to 20% of their time practicing outside of the recruiting hospital’s geographic service area would meet the relocation requirement of the physician recruitment exception to the Stark Law.

Under the proposed recruitment arrangement, the recruiting hospital would provide the following loans to the physician directly:

(1)      A loan for the payment of the physicians moving and relocation expenses, which would be forgiven after 1 year;

(2)      A loan equal to the physicians first year medical malpractice premium not to exceed $10,000.00, which would be forgivable over 3 years; and

(3)      A loan to repay the physicians medical school loans, which would be forgivable over a 3 year period.

The recruiting hospital would provide no other compensation that either the practice to the physician is joining or to the physician in connection with the proposed recruitment arrangement. In addition, the forgiveness of the loans would be based on the physician meeting certain service and other commitments.

A physician’s recruitment arrangement with a hospital must meet all of the conditions of the physician recruitment exception to the Stark Law; otherwise, the recruited physician would be prohibited from referring Medicare or Medicaid beneficiaries to the recruiting hospital for any health care service subject to the Stark Law.

The statutory language of the Stark Law and the regulations adopted by CMS both contain an exception for certain remuneration paid by a hospital to induce a physician to relocate his or her medical practice to the geographic area served by the hospital. The Stark Law regulations define the geographic area served by the hospital as the area composed of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients. The physician recruitment exception to the Stark Laws contains the following conditions:

(1)      The recruitment arrangement must be set out in writing and signed by the parties, including the party to whom the payments are made directly (e.g. physicians practice if applicable);

(2)      The recruitment arrangement is not conditioned on the physicians referral of patients to the recruiting hospital;

(3)      The remuneration from the recruiting hospital is not determined in a manner that takes into account “directly or indirectly” the volume or value of any actual or anticipated referrals by the recruited physician or by the physician’s practice (or any physician affiliated with the physician’s practice) receiving the direct payments or any other business generated between the parties; and

(4)      The recruited physician is allowed to establish staff privileges at other hospitals and refer business to any other entities. The recruitment exception also contains certain conditions if a hospital is also providing an income guaranty to the recruited physician.

In the proposed recruiting arrangement, a hospital and practice would jointly recruit a physician to provide services to patients at three locations of the practice, and one of the locations is not within the boundary of the geographic area served by the hospital as defined in the Stark Law regulations.

CMS commented that “there is no explicit requirement in the physician recruitment exception of the Stark Law that the recruited physician spend 100% of his or her medical practice time in the geographic area served by the hospital.” However, CMS emphasized that they may reach a different conclusion if the time spent by the recruited physician outside of the geographic area would be more substantial than under the proposed arrangement (i.e., 20%).

A potential message to take from this advisory opinion is that a recruited physician does not have to spend 100% of his or her medical practice time in the geographic area served by the recruiting hospital. However, CMS made it clear that an arrangement may not meet the physician recruitment exception if the recruited physician practices medicine greater than 20% of his or her time outside of the recruiting hospital’s service area.