CMS Issues Stark Advisory Opinion, Allows Non-Competition Clause in Proposed Agreement to Meet Requirements of Stark Physician Recruitment Exception

The most recent advisory opinion released by the Centers for Medicare & Medicaid Services (“CMS”), Advisory Opinion No. CMS-AO-2011-01, analyzes the acceptability of a non-competition clause in a proposed physician agreement (“Proposed Agreement”) in light of the Stark Physician Recruitment Exception (42 C.F.R. 411.357(e)). Specifically, the Requestor (or “the Hospital”) inquires whether the Proposed Agreement satisfies the criteria set forth at 42 C.F.R. 411.357(e)(4)(vi) which states that the “physician practice may not impose on the recruited physician practice restrictions that unreasonably restrict physician’s ability to practice medicine in the geographic area served by the hospital.”

In the situation presented, the Requestor and the Practice would like to execute a Proposed Agreement meant to persuade a pediatric orthopedic surgeon to relocate to the Requestor’s geographic service area. The need for this physician exists because the sole orthopedic surgeon who practiced in the geographic area retired and no new pediatric orthopedic surgeons plan to move to the geographic service as far as the Requestor is aware. The Proposed Agreement would provide the Physician income guarantee and moving expense loans with repayment and forgiveness provisions in order to encourage the Physician to relocate and fulfill the need of the community. Under the Proposed Agreement, the Practice would impose a non-competition provision on the Physician which would restrict him or her “from establishing, operating, or providing professional medical services at any medical office, clinic, or other health care facility at any location within a 25-mile radius of the Hospital for a period of one year following the earlier of the termination or expiration of the Proposed Agreement.” According to the Requestor, the Physician would not be restricted from practicing at one hospital within the geographic service area, three other known hospitals also exist within approximately 35 to 60 miles of the Hospital, and the non-competition provision would not violate applicable state laws.

In its analysis, the advisory opinion looks to the revised policy and conclusion reached in the Phase III rulemaking, 75 FR 51054 (Sept. 5, 2007), which revised the earlier conclusion reached in the preamble of the Phase II rulemaking, 69 Fed. Reg. 16094, 16096-97 (Mar. 26, 2004) (prohibiting all non-competition provisions from being placed on recruited physicians). The Phase III rulemaking states that non-competition provisions should not be entirely prohibited from recruitment arrangements because a categorical prohibition could have “the unintended effect of making it more difficult for hospitals to recruit physicians.” Instead, such non-competition provisions are evaluated for reasonableness of the restriction. Based on the totality of the evaluated factors surrounding the non-competition provision (time period, distance, ability of the Physician to practice at hospitals within and outside the geographic service area, and compliance with state and local laws), the advisory opinion concludes that the provision does not “unreasonably restrict the Physician’s ability to practice medicine.” As such, the advisory opinion concludes that based on the certifications presented by the Requestor, the Proposed Agreement meets the requirements presented by the Stark Physician Recruitment Exception.

Although this advisory opinion provides some guidance regarding non-competition provisions in relation to the Stark Physician Recruitment Exception, it is limited to the specific situation presented by the Requestor. The full text of the Stark advisory opinion may be found here.

For more information regarding the Stark Law, healthcare transactions or the Anti-kickback Statute, please contact Adrienne Dresevic, Esq. or Carey F. Kalmowitz, Esq. at (248) 996-8510 or (212) 734-0128. More information may also be obtained at the HLP website.