Hospital Answering Services Could Be Risky

By Mike Wilson, JD
July/August 2004

Hospitals that provide answering services to physicians at below fair market value (FMV) may risk violating federal or state law – with serious consequences.  "Stark II" is a federal law to discourage doctors from referring Medicare and Medicaid patients to entities with which they have a financial relationship, which can include indirect compensation in the form of benefits.  For example, hospitals that rent office space to physicians below FMV may violate Stark.  Possible penalties include denial of Medicare and Medicaid payments, reimbursement of past payments, and exclusion from Medicare or Medicaid in the future, as well as civil penalties of up to $100,000.

The federal Anti-Kickback Statute prohibits physicians from receiving compensation for referral of patients covered under Medicare, Medicaid, and other federal health programs.  Again, compensation could include indirect benefits such as below FMV office leases.  Unlike Stark, Anti-Kickback also requires proof of intent to induce referrals.  The Anti-Kickback Statute has potential criminal penalties, civil penalties of up to $50,000, treble damages, and exclusion from federal health programs.  Some states also have laws similar to Stark or Anti-Kickback.

Language in the Stark regulations suggests that free meals for doctors in the hospital cafeteria, for example, are subject to Stark.  Concerns then may be, are free or heavily discounted answering services for doctors a kind of "compensation" subject to Stark?  If so, the arrangement would fall under one of the exceptions in the regulation or it would be a violation.  For example, if the "compensation" does not exceed $300 per year (and meets other requirements) or is provided at fair market value (and meets other requirements), there is no Stark violation.  However, the exception most likely to apply to answering services is the "medical staff incidental benefits" exception. 

Medical Staff Incidental Benefits: This exception has eight requirements, ALL of which must be met (when reading the quotes from the regulation below, substitute "answering service" for "compensation"):

1. "The compensation is offered to all members of the medical staff without regard to the volume or value of referrals or other business generated between the parties."

2. "The compensation is offered only (emphasis added) during periods when the medical staff members are making rounds or performing other duties that benefit the hospital or its patients."

3. "The compensation is provided by the hospital and used by the medical staff members only on the hospital's campus (emphasis added)."

4. "The compensation is reasonably related to the provision of, or designed to facilitate directly or indirectly the delivery of, medical services at the hospital (emphasis added)."

5. "The compensation is consistent with the types of benefits offered to medical staff members by other hospitals."

6. "The compensation is worth less than $25 per occurrence of the benefit."

7. "The compensation doesn't take into account the value or volume of referrals or business generated."

8. "The compensation arrangement does not violate the Federal anti-kickback statute." 

Third Party Enforcement:  Many courts have held that third parties can bring an action against violators of Stark or the Anti-Kickback Statute under the False Claims Act.  This act allows "whistleblowers" to sue violators and be compensated with a percentage of the recovery.  The False Claims Act has its own set of penalties, including treble damages and attorney fees.

This article is not intended to give legal advice.  This is a highly specialized area of law and litigation over Stark has yet to generate much case law for guidance.  In addition, further regulations are to be issued in the near future.  Given the potential exposure, prudent hospitals will seek sound legal advice before offering professional answering services to physicians.

Mike Wilson is an attorney and author.  He teaches at Sullivan University in Lexington, Kentucky.

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