Arrangement between independent contractor and practice

Are percentage arrangements the best solution for independent contractors?

Issue: March 1, 2005

ByAlan E. Reider, JD, MPH

Facts

Vision Plus, a busy general ophthalmology practice, decides that in order to provide a more complete package of services to its patients, it will arrange for a retinal specialist to provide services at its offices 1 day a week. The retina physician also will perform surgery 1 day a month at a nearby ambulatory surgical center (ASC). Neither Vision Plus nor the physicians there own the ASC. It is totally independent.

The payment arrangement calls for the specialist to be paid 30% of net collections for the services she performs.

Is the percentage arrangement legal?

Whenever a practice pays a percentage of revenue generated to an independent contractor, a potential kickback issue is triggered. Unlike payments made to employees, payments to independent contractors are protected under the safe harbors to the kickback statute only if they are, among other requirements, a fixed annual salary set in advance and reflect fair market value.

Alan E. Reider

The first issue to be addressed, therefore, is whether there is a risk that the proposed arrangement violates the anti-kickback statute. While the anti-kickback statute is dependent upon the intent of the parties, the government will look to the facts and the circumstances of the arrangement in an effort to identify potential issues. Here, the critical question is whether the retention of 70% of revenue by the medical practice and payment of 30% to the retina physician reflects the fair market value of the services provided. If not, there could be a risk that a portion of the revenue retained by the practice is for the referral made to the retina physician.

A second issue relates to the application of the Medicare prohibition against reassignment. Under the reassignment rule, only the individual or entity that performed the service may bill for the services provided. There are, however, exceptions to this rule, and a recent loosening of the reassignment limitations as a result of the 2003 Medicare amendments allows the practice to bill for services rendered by independent contractors both within the clinical setting, as well as for services performed in an ASC or hospital. Prior to the 2003 amendments, services could be billed for an independent contractor only if they were performed within the clinic setting.

Finally, even though there is no longer a reassignment problem, and even if one assumes that the payment reflects fair market value so that the anti-kickback risks have been eliminated, this arrangement likely would reflect a violation of certain state fee split prohibitions. Physicians contemplating bringing in independent contractors and paying them on a percentage basis should be alert to review their state medical practice acts to assure that such an arrangement does not violate that state's fee split prohibition.

For Your Information:

Alan E. Reider, JD, can be reached at Arent Fox PLLC, 1050 Connecticut Ave. NW, Washington, DC 20036; 202-857-6462; fax: 202-857-6395; e-mail: ReiderA@ArentFox.com.