Phased and Confused

Rick Johnson, for HealthLeaders News , August 30, 2007

With all the rules and regulations that can have a direct impact on a physician's bottom line, it's no wonder that many doctors are opting out of the hassles of ownership and choosing hospital employment.

Although the government has a duty to regulate, it must be challenging to run a business in which today's acceptable practices could be ruled illegal tomorrow.

Just this week, Medicare released Stark II Phase III. As you are probably aware, the Stark rule deals with physician self-referrals. In other businesses, referring customers to your additional service lines or associated organizations is called "synergy," but for doctors it requires 500-plus pages of legalese.

If you have insomnia patients, I highly recommend "Physicians' Referrals to Health Care Entities With Which They Have Financial Relationships (Phase III)." But the rest of us likely will need a lawyer to translate.

Overall, physicians should be pleased with the rule, says Nora Liggett, a partner with Waller Lansden Dortch & Davis. "Despite the fears that Phase III would drastically alter the landscape for physician-hospital relationships, the revisions are for the most part positive," she says. That's because the rule should allow more physicians to qualify for hospital recruitment and retention assistance.

It also significantly loosens the prior rule against groups imposing practice restrictions on new physicians who receive hospital recruitment assistance. "Phase III now prohibits only unreasonable practice restrictions," says Liggett. And the revision allows hospitals to provide annual staff appreciation events for hospitals' staff and physicians without counting the cost of the party as remuneration to the physicians.

On the downside, physicians who have relied heavily on the indirect compensation exception need to review those relationships, says Michelle Bellamy Marsh, also a partner with Waller Lansden Dortch & Davis. "In light of the new rule, more of these arrangements will be considered direct compensation arrangements," she says.

"The most interesting part of Phase III is what it doesn't say. New rules CMS has proposed that would make many current under arrangements, per-click leases, and percentage compensation contracts illegal were not mentioned at all, leaving physicians and hospitals with unanswered questions," says Marsh. "Providers should be prepared for CMS to issue follow-up regulations addressing some of those areas."

At least insomniacs can look forward to new reading material.

Rick Johnson is a senior editor with HealthLeaders Media. He can be reached at

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