How to Wear the Investor Hat When Physicians Are the Revenue Generators

Engaging in management and investor conversations about maintaining and growing a business is critical, no matter the industry. Whether you’re discussing normal business sustainability, organic growth, or contemplating a sale, these discussions become more complex when practicing physicians are the business’s revenue generators. These conversations must be handled carefully to comply with the spirit and letter of healthcare’s strict fraud and abuse laws. To ensure these discussions are both productive and compliant, it’s essential to navigate these complex regulations effectively.

Why It Matters

Stark Law Compliance: The Stark Law prevents physicians from referring patients for certain designated health services payable by Medicare to an entity with which they (or an immediate family member) have a financial relationship, unless specific exceptions apply. One key requirement is that any transaction must be at “fair market value” and not take into account the volume or value of referrals. The transaction must also be commercially reasonable and must not intend to induce referrals. Understanding and adhering to these rules is critical to avoid severe penalties.

Anti-Kickback Statute Compliance: The Federal Anti-Kickback Statute (AKS) prohibits offering, paying, soliciting, or receiving any form of remuneration in exchange for referrals or to induce the generation of business. This statute ensures that financial incentives don’t influence medical decisions, keeping the focus on patient care rather than financial gain. Any suggestion that the value of a healthcare entity is tied to referral patterns could be viewed as a violation of the AKS, leading to potential criminal and civil penalties.

How to Stay Compliant

1. Stick to Fair Market Value: In any transaction context, ensure that all business terms are based on objective metrics such as earnings, comparable transactions, and industry benchmarks. Avoid any suggestion that the value of the transaction depends on or will change based on the volume or value of expected referrals from the physician owners.
2. Document Valuation Processes: Keep thorough documentation of how fair market value was determined, including the methodology and sources used. This documentation should clearly show that no referral-based considerations influenced the transaction and that all parties acted in compliance with both Stark Law and AKS requirements.
3. Be Intentional with All Communications: Be formal and thoughtful when communicating the financial performance of the business and its affiliated physicians. These communications should come from management and follow normal communication channels. Avoid singling out individual physicians for not meeting financial targets, as this could be seen as pressuring them to increase referrals. Instead, focus on group-level performance and metrics unrelated to referrals.
4. Use Compliant Language: When discussing financial performance or providing updates intended to motivate behavior, always use language that aligns with regulatory requirements. Focus on objective performance metrics, such as patient satisfaction, clinical outcomes, and operational efficiency, rather than referral volumes.

Read the rest of the article at: https://www.healthcarelawinsights.com/2024/08/how-to-wear-the-investor-hat-when-physicians-are-the-revenue-generators/