Healthcare: Is Physician Employment Still the Future?

12.01.10

The Anti-Kickback Statute and the Stark Law prohibit healthcare providers from benefiting monetarily for referrals for healthcare services that may be reimbursed by the Medicare, Medicaid or other federal healthcare payment programs. It is not illegal if certain conditions are met and if the compensation is paid by a healthcare provider to a bona fide employee. This is referred to as the Employee Exception and this is one of the main reasons so many physicians are now employed by hospitals and other health care providers. However, a March 29, 2010 jury verdict places healthcare providers in the precarious position of not knowing the extent of protection offered by the Employee Exception.

In United States of America, ex rel., Michael K. Drakeford, M.D., v. Tuomey d/b/a Tuomey Healthcare System, Inc., C.A. No. 3:05-CV-2858-MJP (N.C. 2008), the jury ordered Tuomey Healthcare System to pay the Plaintiffs $44 Million. Tuomey employed eighteen part-time physicians in the hospital's outpatient surgery center. Dr. Drakeford refused to enter into such an arrangement and brought a qui tam lawsuit. This is a piggyback lawsuit whereby an individual can benefit from the Government's right to bring False Claims Act violations against a healthcare provider and receive part of the proceeds from a victory. The Federal Government and Dr. Drakeford claimed Tuomey violated the Stark Law in addition to the False Claims Act. Since this case was a jury verdict, the ultimate precedential value is unclear. However, the case demonstrates the Federal Government's interpretation of the Employee Exception.

The Government alleged that compensation paid to the physicians exceeded fair market value because the physicians' average income was greater than their net collections, so that Tuomey was subsidizing the physicians. Tuomey claimed it had to pay a premium for adequate physician coverage because it was situated in a health professional shortage area. Further, the Government did not think it was relevant that the physicians were foregoing revenue from ancillary services when they agreed to work for Tuomey's outpatient surgery center.

Employment of physicians has historically been a safe way to ensure that the Anti-Kickback Statute and the Stark Law are not being violated. What is clear from the Tuomey decision is that employed physician arrangements are not immune from review or prosecution. The fair market value of those arrangements is critical and must be assessed. It is now questionable whether compensation can be increased as a result of the value of ancillary revenues the physicians are foregoing. This discussion raises the question of whether healthcare providers will be able to legally offer a salary that is satisfactory to an employed physician. It should also make healthcare providers aware that any physician who claims a compensation arrangement is legally inappropriate, could be their next plaintiff!

The author, Elise Dunitz Brennan, may be contacted at ebrennan@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
litigation and counsels clients regarding everyday employment matters. 

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