A Friendly Warning to Doctors about the Dangers of Federal Regulation

A Friendly Warning to Doctors about the Dangers of Federal Regulation

Article by Joseph Colvin & Robert Bennett

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Joe Colvin

Attorney Robert S. Bennett

Robert “Bob” Bennett

Mixing business and medicine in a world of regulation can be dangerous both to your pocketbook and to your person.  The unique position of medical doctors in today’s society has prompted the federal government to lay down significant and often times confusing laws and regulations. These restrictions on the way medical doctors may practice medicine are often and sometimes exclusively prompted by concerns for Medicare and Medicaid and the possibility of abuse.  In many of these statutes, Congress moved to restrict benign business transactions between doctors for fear that they would veil backroom dealings and under the table kickbacks. Unfortunately, this means that doctors must tread carefully when they decide to enter into any number of mundane business transactions with other doctors and healthcare facilities.

     As an example, imagine a lease agreement between Dr. X who owns a small healthcare facility, and Dr. Y who is looking for office space from which to practice. Dr. X and Dr. Y have known each other for many years and have great mutual respect. They do not practice in the same field of medicine and often refer patients to each other. Dr. Y leaves his medical group and decides to open his own office; because his friend Dr. X owns space suited for a doctor’s office he calls his old friend. Since they know each other they come to a gentleman’s agreement and do not memorialize their agreement in writing. Business goes on as normal and they occasionally refer each other patients.

     Dr. X and Dr. Y have just violated federal law, quite innocently and unknowingly, but a violation nonetheless. They will both be subjected to civil penalties under sections of the Social Security Act (commonly known as the Stark laws) and will be investigated for violations of the Anti-Kickback Statutes if any of their patients have coverage under Medicare or Medicaid.

     How could this be a violation? Well, the Stark laws generally prohibit business transactions between doctors and health providers who also refer patients to one another. These Stark laws have a general rule and a few limited exceptions. This is only the civil side of the law. There is another criminal statute specifically aimed at these transactions as well. While at the end of the day neither Dr. X nor Dr. Y should be criminally liable under the statute, do either of them really want to have to defend this kind of a case? Now, of course, the idea behind these laws was to stop healthcare providers who may be gaming the federal welfare system and disguising their “illegal remunerations,” in the language of the statute, as legitimate business transactions. The trouble being that often the innocent and well meaning doctor can find themselves in an unpleasant position.

     How then can a doctor protect themselves? Well the statute also provides for specific allowed exceptions to the general rule. In our example of a lease for office space, the doctors could have fallen into an exception if they had reduced their agreement to writing, signed it, specified the area to be let, that the lease agreement was for at least a one year period, and if the rent was set in a commercially reasonable manner which did not depend on the volume or value of any referrals. But that is only how Dr. X would protect himself in his particular situation. There is something else Dr. X could have done when Dr. Y approached him about the office space that would have protected him as well. That is, consult with an attorney.

     Before a doctor contemplates any business transaction they should consult with an attorney even if just briefly. First, if there are any potential legal issues they will be able to identify them for you. Second, they will be able to structure your transaction so that, unlike Dr. X, you will not be violating Federal law. Finally, time and money spent with a lawyer before a transaction will translate into time and money saved if you have to deal with this situation after the fact. Speaking with an attorney before hand is like preventative medicine, it may be a bit unpleasant now but it will save you a lot of pain in the future.