On October 3, 2007, the Centers for Medicare and Medicaid Services (CMS) issued Advisory Opinion CMS – AO – 2007 – 01 denying permission to the hospital and physician to revise a physician recruitment agreement. The proposed amendment would have deleted and “excess receipts provision, which is a standard provision providing that physician or practice receipts in excess of the amount necessary to cover the expenses and compensation guarantee would be paid to the hospital to reduce the debt recreated by the arrangement.

The hospital, physician and medical practice entered into a recruitment agreement in 2004. That  recruitment agreement was later amended to comply with Stark II, which added a requirement that recruitment agreements could guarantee or reimburse physicians and medical practices only for the actual incremental expenses associated with the recruitment. The parties then sought to amend the existing agreement to eliminate the excess receipts provision. 

CMS concluded as follows:

“The purpose of the physician recruitment exception is to permit certain compensation arrangements to induce a physician to relocate his or her medical practice to the geographic area served by a hospital in order to become a member of the hospital’s medical staff. We do not believe that the parties should now be able to amend the arrangement to provide for additional (or potentially additional) compensation to the physician. Because the physician has already relocated his practice, the additional compensation is not for the purpose of inducing relocation and may directly or indirectly reflect the volume of value of the recruited physicians actual or potential referrals.”

The complete text of the Advisory Opinion is available at the link below. Note that this is a CMS/Stark Advisory Opinion, of which only five have been issued since 1998, rather than an OIG Advisory Opinion on the fraud and abuse safe harbors, which are issued on a much more frequent basis.