Last week, CMS posted on its website a statement clarifying an issue that has been much discussed in the industry -- physician recruitment agreements that predate the July 26, 2004, effective date of the Stark II, Phase II regulations (the "Regulations") must comply with the Regulations as of that date. This will impact agreements that involve physician recruits who have joined existing groups. CMS indicated that, for example, as of July 26th, those recruits cannot be subject to a noncompetition restriction in any employment or other arrangement they have with the groups they joined. In addition, as required by the Regulations, expense reimbursement components of income guarantees must be limited to actual additional incremental expenses incurred by the group to support the recruit. Fortunately, CMS also clarified that, with respect to the legality of arrangements prior to July 26th, hospitals must have complied with a "reasonable interpretation of the statute" since regulations had not yet been published. Thus, CMS noted that, as long as this was the case, past payments under an income guarantee need not be recalculated. We recommend that all hospitals that engage in physician recruitment immediately review the status of their existing physician recruitment agreements, both those currently under an income guarantee and in the forgiveness period, to determine what changes may be required.
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