0. GEORGIA HOSPITAL ASSOCIATION CENTER FOR RURAL HEALTH AND LONG TERM CARE FACILITIES ANNUAL SUMMER MEETING HOSPITAL-PHYSICIAN INTEGRATION STRATEGIES DANIEL J. MOHAN MORRIS, MANNING & MARTIN, LLP August 8, 2013

1. TRENDS Trend is towards rapid horizontal and vertical consolidation
Hospitals and hospital systems are merging, stronger systems acquiring weaker systems, affiliations
Vertical
Hospitals acquiring physician practices
Hospitals acquiring/developing post-acute care lines of business
Healthcare institutions are branching out into insurance market

2. HOSPITAL/PHYSICIAN INTEGRATION MODELS
Full Integration
Partial Integration
Minimal (CONTRACTUAL) Integration

3. HOSPITAL/PHYSICIAN INTEGRATION MODELS
Full Integration
Physician Practice Acquisition
Full-Time Employment
Direct Employment
Employment through “captive” physician group practice
Part-Time Employment
Partial Integration
Physician-Hospital Organization (“PHO”)
Hospital-Physician Joint Ventures
Hospital Acquisition of Physician Group Ancillary Service Line
Practice Asset Acquisition/Lease, Professional Services Agreement (“PSA”)

4. HOSPITAL/PHYSICIAN INTEGRATION MODELS
Minimal (Contractual) Integration
Physician Recruitment
Personal Services Arrangements
Medical Director
Department Staffing
Call Coverage
Administrative/Management Services
Service Line Management or “Co-Management” Arrangements
Space/Equipment Leasing Arrangements

5. WHY IS IT IMPORTANT TO DO IT RIGHT?
Each of these arrangements implicate a variety of federal and state laws and regulations, including:
Federal Anti-Kickback Statute
Federal Ethics in Patient Self-Referral Law (commonly known as the “Stark Law”)
State Fraud and Abuse and Self-Referral Statutes
State and Federal Anti-Trust Laws
Failure to comply with these laws and regulations could trigger significant repayment obligations, civil penalties and fines, including liability under False Claims Act and Civil Monetary Penalties statute.

6. SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS ARISING OUT OF ALLEGED IMPROPER HOSPITAL CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Covenant Medical Center, Waterloo, Iowa (2009)
366 bed acute care hospital in Waterloo, Iowa
Entered into full-time employment agreements with five specialists (2 orthopedic surgeons, 2 neurosurgeons, 1 gastroenterologist)
Government alleged that arrangements violated Stark Law because did not meet applicable exceptions: compensation paid exceeded FMV, and arrangements were not “commercially reasonable”
Evidence indicated that compensation at very top percentile of compensation paid to physicians in comparable specialty nationally, and more than 3x compensation paid to physicians in Waterloo
Evidence further indicated that some of the physicians not working at full capacity, filling time engaged in less specialized practice, performing administrative functions
Hospitals settled FLA and CMP claims for $4.5 million

7. SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS ARISING OUT OF ALLEGED IMPROPER HOSPITAL CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Singh v. Bradford Regional Medical Center (2010)
Bradford Regional Medical Center, 107 bed community nonprofit hospital in Bradford, PA
Two local cardiologists considering acquisition of nuclear camera and performing imaging through practice
Negotiations over possible arrangements to avert action unsuccessful
Physicians bought camera, hospital took actions adversely affected physicians
Hospital ultimately agreed to sublease camera from physicians
Sublease Agreement provided for rental rate of ten percent (10%) of hospital collections from tests performed using camera
Court determined arrangement did not meet applicable Stark exception because fee paid to physicians under Sublease Agreement took into account, at least partially, “volume or value” of referrals from doctors

8. SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS ARISING OUT OF ALLEGED IMPROPER HOSPITAL CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Drakeford v. Tuomey Healthcare System (2013)
Tuomey Healthcare System entered into part-time employment arrangements with 19 area physicians
“Exclusive” part-time arrangements, effect of which was to preserve referrals of all outpatient services from employed physicians to Tuomey
Compensation paid under each employment agreement consisted of the following:
Guaranteed base salary, plus
Productivity bonus equal to eighty percent (80%) of amounts collected by hospital for personally performed services, plus
Additional incentive bonus of up to seven percent (7%) of productivity bonus amount if physician meets specified performance targets
Government alleged arrangements violated Stark: compensation greatly exceeded FMV and arrangements not “commercially reasonable”
Case went to trial, jury agreed with government
Subject to up to $357 million in civil fines and penalties

9. STARK SELF-DISCLOSURES UNDER CMS SELF-DISCLOSURE PROTOCOL
CMS instituted “Self-Disclosure Protocol” in 2011
Total of twenty-nine (29) self-disclosures through 06/20/2013
Twenty-four (24) self-disclosures involved disclosure of contractual arrangements with physicians that violated Stark because did not meet applicable exception
Settlements between $22,000 and $585,000

10. HOSPITAL-PHYSICIAN INTEGRATION STRATEGY
Decision to embark on physician integration strategy, and specific integration arrangements to pursue, influenced by a variety of factors, including:
Hospital long-term strategic plan
Competition in market
Size and make-up of physician community
Availability of capital
Availability of other resources necessary to consummate and manage integration arrangements

11. PHYSICIAN INTEGRATION STRATEGIES
Various surveys and studies list the following as common drivers of physician integration activities:
Build/maintain competitive advantage
Physician recruitment strategy
Product/service diversification
Increase and diversify revenue sources
Improve quality and efficiency of services
Position facility to respond to changing reimbursement environment

12. FULL INTEGRATION MODELS

13. HOSPITAL ACQUISITION OF PHYSICIAN PRACTICES
According to a recent study
Fifty-two percent (52%) of U.S. hospitals plan to acquire physician practices in 2013 (compared to forty-four percent (44%) in 2012)
“Opportunity” rather than “strategy” is the primary reason hospitals consider acquiring physician practices (i.e., physician groups initiate process)
Moody’s report dated January 22, 2013 indicated that nonprofit hospitals are buying physician practices to stabilize market share and improve bottom line
Valuation company VMG Health recently determined that approximately twenty percent (20%) of U.S. physicians are employed by hospitals or health care systems

14. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL $
PHYSICIAN PRACTICE
HOSPITAL OR HOSPSUB
Assets
Doctor
Doctor
Doctor
Employment Agreements
Doctor

15. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
“CAPTIVE” PHYSICIAN GROUP EMPLOYMENT MODEL $
PHYSICIAN PRACTICE
HOSPITAL
Assets
Doctor
Doctor
Doctor
HOSPITAL PHYSICIAN GROUP
Doctor
Employment Agreements

16. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
ACQUISITION TRANSACTION
Typically asset acquisition
Must meet all criteria of Stark “isolated transactions” exception, including:
Purchase price is consistent with FMV
Purchase price does not take into account volume or value of referrals by selling physicians
Transaction is “commercially reasonable” to the hospital even if physician makes no referrals to the hospital

17. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL
Employment arrangement directly between the hospital and physician, must meet all criteria of Stark “bona fide employment relationships” exception
Compensation paid to physician must be
Consistent with FMV, and
Not determined in a manner that takes into account volume or value of referrals from physician
The employment arrangement is “commercially reasonable” even if no referrals were made to the hospital
May pay bonuses based only on “personally performed” services

18. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL
Compensation typically mix of base or “guaranteed” salary, and productivity bonus
If base compensation consistent with previous compensation, set minimum productivity level which physician must meet in order to earn base compensation
Productivity bonuses if physician exceeds bonus threshold (wRVUs, minimum collections, other measures of productivity)
Note, cannot compensate physician based on profitability of his/her “practice,” allow physician to share in ancillary services revenues produced in “practice,” etc.

19. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
EMPLOYMENT UNDER “CAPTIVE” GROUP PRACTICE
Many hospital systems employing physicians choose to do so through a “captive” physician organization that meets definition of a “group practice” under Stark.
Advantages:
1. Greater flexibility in compensation model
Can create group compensation model, encourages group productivity and cohesiveness
Allow group to share in positive net income of practice
If ancillaries stay in practice, physicians can share in positive net revenue for ancillary services
Physician participation/input into “governance” of group
Seamless transition to hospital umbrella

20. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
EMPLOYMENT UNDER “CAPTIVE” GROUP PRACTICE
“Group practice” definition under Stark:
Single Legal Entity.
Physicians. Must have at least two doctors who are members of the group.
Range of Care. Each physician member of the group must furnish substantially the full range of care through the group.
Services Furnished Through Group. Each member of the group must furnish at least seventy-five (75%) of patient care services through the group.
Distribution of Expenses and Income. Must be calculated and distributed in accordance with formulas determined prior to receipt of income.
Unified Business. Must be a “unified business” which has a “centralized decision-making body,” and consolidated billing, accounting and financial reporting.
Volume or Value of Referrals. Compensation paid to physician members of the group may not be based on volume or value of referrals.
Physician-Patient Encounters. Members of the group must conduct not less than seventy- five percent (75%) of physician-patient encounters in the group.

21. PHYSICIAN PRACTICE ACQUISITION AND EMPLOYMENT MODELS
PART-TIME EMPLOYMENT ARRANGEMENT
Part-time employment arrangements are rare, and potential risky
Potential part-time employment arrangements:
Departmental staffing arrangements
Physician clinic staffing arrangement
Call coverage arrangement

22. DIRECT EMPLOYMENT MODEL
PART-TIME EMPLOYMENT ARRANGEMENTS
Reasons for structuring arrangements as part-time employment arrangements:
1. Greater control over work performed as employee
Eliminate tax risks associated with reclassification
Allow hospital to provide benefits to physicians consistent with part-time employee status

23. DIRECT EMPLOYMENT MODEL
PART-TIME EMPLOYMENT ARRANGEMENTS
Must meet all of criteria of Stark “bona fide employment relationships” exception, including:
1. The employment is for identifiable services
2. Compensation paid to physician is
Consistent with FMV, and
Not determined in a way that takes into account the volume or value of referrals
3. The overall arrangement is “commercially reasonable” even if the physician made no referrals to the hospital

24. PARTIAL INTEGRATION MODELS

25. PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
What is it?
Single legal entity having a hospital (or hospitals) and physicians, individually or via an Independent Physician Association (“IPA”), as co-owners.

26. PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
Local Hospital, Inc.
Local Physician IPA, LLC $ $
LLC Ownership Interest
LLC Ownership Interest
Mega Physician-Hospital Organization, LLC
Managed care contracting
Vehicle to participate in “bundled” reimbursement programs, similar reimbursement programs
Develop and administer QI programs, clinical protocols, measure outcomes (improve quality, etc.)

27. PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
Legal Issues:
Will not implicate Stark unless PHO itself is “provider” of DHS
Anti-Kickback Statute:
Hospital(s) and physicians capitalize the PHO commensurate with ownership interests
Hospital may not loan funds to physicians to purchase ownership interests
Additional capital requirements of the PHO must be funded pro-rata by owners
Distributions of net capital (if any) made pro rata
Separate arrangements between PHO and hospital (space lease, etc.) and PHO and doctors should meet applicable safe harbor
Anti-Trust:
Minimum level of financial integration (capitalization of PHO; pool reimbursement and/or withholds, bonuses based on formula; not pure “pass through”)
Minimum level of clinical integration

28. HOSPITAL-PHYSICIAN JOINT VENTURES
PARTIAL INTEGRATION
HOSPITAL-PHYSICIAN JOINT VENTURES
Clinical Services Joint Ventures
Non-DHS services
Outpatient surgery centers
Sleep labs
Urgent care centers
DHS services under Stark “rural provider” exception
Non-Clinical Services Joint Ventures
Medical office buildings or other real estate
Equipment leasing companies
Facility leasing company

29. HOSPITAL-PHYSICIAN JOINT VENTURES
PARTIAL INTEGRATION
HOSPITAL-PHYSICIAN JOINT VENTURES
Stark “rural provider” exception: an entity that furnishes at least seventy-five percent (75%) of DHS to residents of a “rural” (i.e., non-urban) area
Anti-Kickback Statute Safe Harbor:
Terms of offer of investment interest are same for all investors
Terms of offer to potential investors who are referral sources are not related to previous or future referrals
No requirement that investors make referrals to joint venture
Joint venture may not market or provide items or services to investors differently than to non-investors
May not loan funds to potential investor in position to make referrals to, furnish items or services to, or otherwise generate business for joint venture if investor uses funds to purchase ownership interest
Payments in return for investment interest directly proportional to amount of capital invested
Additional safe harbor requirements for surgery centers

30. HOSPITAL ACQUISITION OF PHYSICIAN GROUP
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Physician group operates very profitable ancillary services line within group (chemo; imaging; physical therapy; sleep lab).
Group not ready for sale of practice (wish to remain independent), but may be interested in monetizing ancillary service line through sale.

31. HOSPITAL ACQUISITION OF PHYSICIAN GROUP ANCILLARY SERVICE LINE
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP ANCILLARY SERVICE LINE
Physician Group
Professional services
Diagnostic imaging
Lab
$ - purchase imaging service
Space lease or sublease?
Imaging Center
Hospital

32. HOSPITAL ACQUISITION OF PHYSICIAN GROUP
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Why would hospital buy?
Offensive - establish new or enhance existing outpatient service
Revenue enhancement -- hospital based service
Defensive - eliminate competitor and/or prevent competing hospital from picking up service
Why would physicians sell?
Time is right – declining reimbursement for practice-based ancillary services
Provide partial liquidation event (generate cash) while continuing independent practice

33. HOSPITAL ACQUISITION OF PHYSICIAN GROUP
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Stark “Isolated Transactions” exception:
Purchase Price
Must be consistent with FMV, and
May not take into account, in any manner, volume or value of referrals from selling physician
FMV opinion from experienced, reputable valuation company is essential.
Do not rely on “in-house” valuation.
Income approach vs. asset valuation.

34. HOSPITAL ACQUISITION OF PHYSICIAN GROUP
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Stark “Isolated Transactions” exception:
The overall transaction must be “commercially reasonable” even if the selling physicians made no referrals to the purchaser.
Minimum, conduct internal “commercial reasonableness” analysis. Controversial deals, consider outside “commercial reasonableness” opinion or report.

35. HOSPITAL ACQUISITION OF PHYSICIAN GROUP
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Other legal issues:
Operate as “provider-based” outpatient department of hospital, must meet Medicare “provider-based rules”
Must be in separate and distinct space from physician group
Lease or sublease space from group, meet Stark exception and Anti-Kickback Statute safe harbor for space leases
Employees providing service must be hospital employees

36. PRACTICE ACQUISITION, PROFESSIONAL SERVICES AGREEMENT
PARTIAL INTEGRATION
PRACTICE ACQUISITION, PROFESSIONAL SERVICES AGREEMENT
Hospital leases or acquires all or substantially all practice assets (exclude cash, A/R, certain other assets), employs practice non-clinical employees, assumes leases, etc., and operates practice as hospital- owned medical practice.
Rather than employ physicians, hospital enters into professional services agreement with P.C., under which P.C. makes all doctors and para-professionals available to hospital to provide professional services in practice.
Hospital bills for physician services, pays P.C. fee for clinical services provided by P.C. employees.

37. PRACTICE ACQUISITION, PROFESSIONAL SERVICES AGREEMENT
PARTIAL INTEGRATION
PRACTICE ACQUISITION, PROFESSIONAL SERVICES AGREEMENT
Physician Group, P.C.
$ - Purchase Price or Lease Payments
Professional Services Agreement
Practice Assets
Clinical Services
$ - Fees
Contract for professional services
Sale or Lease
Hospital

38. PARTIAL INTEGRATION PSA MODEL Practice Acquisition/Lease:
If acquisition, “isolated transactions” exception
If lease, meet all requirements of applicable Stark exception(s) and AKS safe harbor
Professional Services Agreement:
Practice agrees to provide specifically identified physicians and para-professionals to hospital to provide services in acquired practice
New physicians added only with hospital approval
Hospital bills for services
Hospital pays fee sufficient to cover P.C. fixed expenses, bonus if group hits pre- established criteria
Productivity/Incentive compensation
Quality, efficiency, patient satisfaction
Administrative/medical director services separately compensated, at FMV hourly rate
Must meet all criteria of Stark “personal services arrangements” exception

39. PARTIAL INTEGRATION PSA MODEL Why physicians like it:
Nice option for coverage of remote office
Allows doctors to retain some autonomy
Internal compensation
Internal governance
Income certainty, remove collection risk and declining reimbursement rates
“Date before you marry”
Allows for “unwind” and return to private practice if relationship not working
Why hospitals like it:
Because physicians do

40. MINIMAL (CONTRACTUAL) INTEGRATION

41. CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Hospitals are permitted to offer physicians a variety of incentives to induce physician to relocate his/her practice to hospital service area.
Common recruitment incentives include:
Headhunter fees
Relocation expense reimbursement
Income support payments
School loan repayments
“Signing bonus”
Short-term housing assistance
Line of credit loans
Recruit physician to establish own practice, or to join established practice in hospital’s service area.

42. CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Stark “physician recruitment” exception:
1. Physician must “relocate” his or her practice (with some exceptions) to the “geographic area served by the hospital”
Relocate means physician’s practice is outside of hospital GSA, and either moves practice more than twenty-five (25) miles into hospital GSA, or moves practice to hospital GSA and at least seventy-five percent (75%) of revenue in new practice from patients not seen in old practice
Hospital Geographic Service Area lowest number of contiguous zip codes from which hospital draws at least seventy-five percent (75%) of inpatients
Recruitment agreement must be in writing and signed by parties
Remuneration paid to doctor under agreement not determined based on volume or value of referrals
Physician may establish privileges at other hospitals and refer patients to other hospitals

43. CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Additional requirements affecting recruitment to an existing group practice:
1. Hospital, physician and group practice must sign the agreement
Except for actual costs incurred by group in recruiting doctor, payments are “passed directly through” to doctor or “remain with” recruited doctor
If income guarantee, costs allocated by group to new doctor are limited to “actual additional incremental costs attributable to the recruited physician”
Must maintain records for five (5) years
Remuneration paid under the agreement does not take into account volume or value of referrals
Practice may not impose on new doctor “practice restrictions that unreasonably restrict the recruited physician’s ability to practice medicine” in the hospital’s GSA

44. CONTRACTUAL INTEGRATION
PERSONAL SERVICES ARRANGEMENTS
1. Medical Director Arrangements
Department Staffing Arrangements
Call Coverage Arrangements
Physician Clinic Staffing Arrangements
Administrative/Management Services

45. CONTRACTUAL INTEGRATION
PERSONAL SERVICES ARRANGEMENTS
Stark “personal services arrangements” exception:
1. Arrangement is in writing, signed by parties, and specifies services covered by arrangement
The agreement covers all of the services furnished by the physician to the entity
The aggregate services contracted for do not exceed what is reasonable and necessary for legitimate business purposes of arrangement
The term of arrangement is at least one (1) year
Compensation paid under arrangement is set in advance, does not exceed FMV, and is not determined in way takes into account volume or value of referrals

46. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
A “service line” management or co-management arrangement is one where hospital contracts with a group of physicians to provide management services to a hospital department or service line.
Under a management arrangement, hospital contracts with a single physician group practice, or with group of unaffiliated physicians of same specialty organized under new legal entity
Under “co-management” arrangement, hospital and group of physicians form a new joint venture management company to provide services

47. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
Management Arrangement
Co-Management Arrangement
Variety of Services
Hospital
Physician ManageCo
Management Agreement
Management and Incentive Fees
Hospital
Physicians
Invest
Management Agreement
Invest
Fees
Co-Management Company
Services

48. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
Management Agreement
Describe services provided by physicians
Department policies and procedures; medical director; staffing; budgeting; supply chain; clinical protocols; scheduling
Create “governance” structure consisting of committee or several committees, hospital and physician representation
Establish “reporting” structure
Management fees paid under agreement typically consist of “fixed” fee and incentive fee components
Fixed fee covers all administrative and management services provided under agreement
Incentive fee is triggered by department meeting or exceeding specified “benchmarks” relating to improvements in quality or efficiency, and/or cost reductions
Incentive fee may not be tied to percentage of departmental revenue, net income or profit, or increases in departmental revenue or net income

49. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
Examples of clinical “benchmarks” or “metrics” that may generate incentive fees under the management agreement:
Reduction in post-surgical infection rates
Reduced re-admissions
On-time surgical starts
Reduced turn-around time between cases
Pre- and post-surgical use of antibiotics
Supply cost reductions
Patent satisfaction scores

50. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
Legal Issues:
Depending on how fee is structured and precise party acting as manager, Stark may or may not be implicated
In any event, fee should not exceed FMV, and should not take into account volume or value of referrals
FMV nature of fee should be confirmed by FMV appraisal by experienced H/C appraisal firm
If Stark is implicated, meet all criteria of “personal services arrangements” exception
If “co-management” arrangement, ManageCo joint venture should be organized and operated consistent with requirements of other hospital-physician joint ventures

51. CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND CO-MANAGEMENT ARRANGEMENTS
Business Issues:
Doctors must provide legitimate services to earn fee
Commitment of time and energy; not appealing to doctors with busy practice
Caveat, may be attractive if arrangement is a vehicle to provide doctors with compensation for services already provided
Doctors may be disappointed by what valuation company will approve as FMV “base” fee
Ditto for FMV incentive fee
Depending on make-up of MANAGECO, achieving some of benchmarks to earn incentive comp will depend on altering behavior of people who have no economic incentive to do so
May also depend on circumstances outside of control of physician managers
All that being said, a thoughtfully structured arrangement with significant physician “buy-in” can drive significant positive change in service line performance and provide appropriate financial reward for doctors in connection with their efforts to effect change

52. CONTRACTUAL INTEGRATION
SPACE/EQUIPMENT LEASES
Physician group, or lessor entity in which physicians hold investment interests, leases space or equipment to hospital.
Must meet all criteria of “rental of office space” or “rental of equipment” Stark exception, if lessor is physician group.
If lessor entity includes physician investors, Stark may or may not be implicated, but AKS definitely is.
Critical issue, lease payments should be FMV, and not based on percentage of revenues, percentage of profits, or any other percentage-based formula; and, if equipment lease, no “per click” or “per use” fee structure if physician investor is in position to make referrals to machine.

53. WRAP-UP
Accelerating pace of hospital/physician integration – trend that is here to stay
“Train has left the station,” “horse is out of the barn”
Various models “tools in the tool box”
Not every tool is right for every hospital
Not every hospital will use every tool, but probably use more than one
Exact tools depend on unique facts apply to your institution and market in which operate