Home care providers of all types have often expressed concerns about hospitals that put pressure on physicians, especially those they employ or with whom they contract, to make referrals within the hospital system. Hospitals often view these activities in terms of prevention of “patient leakage.” Are hospitals allowed to require physicians to direct referrals to designated providers?

Stark Laws

The so-called Stark law and regulations permit hospitals that employ physicians or contract with them to require referrals of patients to particular providers as a condition of employment or independent contractor relationships. Effective on January 19, 2021, new regulations related to the Stark laws expanded and underscored the ability of hospitals to require physicians to send referrals to particular providers. These new regulations also make it clear that providers can monitor and enforce requirements to direct referrals to designated providers.

Direct Referral Requirements

From a practical point of view, here are key issues with regard to requirements for direct referrals:

Directed referral requirements must be in writing and signed by both parties. This requirement can be met by including requirements to direct referrals in physicians’ employment or independent contractor agreements. If employed physicians do not enter into contracts with their employers, providers may also meet this requirement by asking physicians to sign an agreement that addresses issues related to directed referrals.
Despite requirements to direct referrals, physicians should be free to refer to other than designated providers if:

  1. patients express preferences to other providers;
  2. patients’ insurers determine that payment is contingent upon care from certain providers; or
  3. physicians determine that referrals are not in the best interests of patients.

Provider and Physician Agreements

Agreements between providers and physicians should include specific provisions about how compliance with referral requirements will be monitored.

Targets for directed referrals should be established based on a percentage or ratio of referrals. Targets cannot, however, be based on the number of referrals physicians direct as required. Targets also cannot take into account the value of referrals directed by physicians.

Establish bonuses or other financial incentives to encourage compliance with requirements to make directed referrals. Hospitals must make certain, however, that bonuses and other financial incentives do not take into account the volume or value of referrals or other business generated by physicians.

If physicians do not comply with provisions regarding directed referrals, agreements with them may be terminated. As indicated above, however, termination may not be based on the value or number of referrals made.

Although home care providers may oppose relationships between hospitals and physicians that require physicians to direct referrals to designated providers, such relationships will “pass muster” if applicable requirements are met.

©2021 Elizabeth E. Hogue, Esq. All rights reserved.
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