Hospital-Physician Compensation and the Employment Safe Harbor

Hospital-Physician Compensation and the Employment Safe Harbor at a Glance

Hospital-physician compensation arrangements are subject to strict legal scrutiny under the Anti-Kickback Statute (AKS) and Stark Law. The Employment Safe Harbor provides a specific exception to the AKS for certain employment arrangements between hospitals and physicians, provided the compensation aligns with fair market value and does not involve any financial relationships that could influence referrals. This framework aims to ensure that compensation is purely for professional services and does not incentivize improper referrals.

The Legal Framework

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), prohibits the offer, payment, solicitation, or receipt of remuneration to induce or reward referrals of items or services payable by a federal health care program. This prohibition extends to any arrangement that could reasonably be expected to affect the referral of such services. The statute is a criminal law with severe penalties, including fines and imprisonment.

The safe harbor regulations, 42 C.F.R. § 1001.952, provide specific exceptions to the AKS, including the Employment Safe Harbor, which applies to compensation arrangements that meet certain criteria, such as being consistent with fair market value and not involving any financial relationships that could influence referrals. These safe harbors help providers navigate the legal landscape by defining permissible arrangements.

The Stark Law, 42 U.S.C. § 1395nn, imposes additional restrictions on physician self-referrals for designated health services to entities with which the physician has a financial relationship. Unlike the AKS, the Stark Law is a civil statute administered by CMS and includes exceptions for certain arrangements, such as employment, that meet specific criteria.

Enforcement and Cases

In United States v. Greber, 760 F.2d 68 (3d Cir. 1985), the Third Circuit held that if payments were intended to induce a physician to use a payor's services, the AKS is violated even if the payments were also intended to compensate for legitimate professional services. This case established the "one-purpose test," meaning that a payment can still violate the AKS if one purpose is to induce referrals, regardless of other legitimate purposes.

The Federal Overlay

The federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), makes it a felony to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward referrals of items or services payable by a federal health care program. The Stark Law, 42 U.S.C. § 1395nn, separately prohibits physician self-referrals for designated health services payable by Medicare or Medicaid, on strict-liability terms. Both regimes carry safe harbors and exceptions published at 42 C.F.R. § 1001.952. State referral and fee-splitting statutes operate alongside these federal prohibitions and can apply even where no federal program payment is involved.

Reading the Research Desk

For more in-depth analysis, see the following research pages: Practice Areas, The Anti-Kickback Statute Explained, Safe Harbors Under the Anti-Kickback Statute, AKS and Stark Law Overlap, Recent Anti-Kickback Statute Decisions, and FAQ.