News Release

Health Care Fraud Prevention and Enforcement Efforts Result in Record-Breaking Recoveries Totaling Nearly $4.1 Billion

Largest Sum Ever Recovered in Single Year

WASHINGTON –Attorney General Eric Holder and Department of Health and Human Services (HHS) Secretary Kathleen Sebelius today released a new report showing that the government’s health care fraud prevention and enforcement efforts recovered nearly $4.1 billion in taxpayer dollars in Fiscal Year (FY) 2011.  This is the highest annual amount ever recovered from individuals and companies who attempted to defraud seniors and taxpayers or who sought payments to which they were not entitled.

These findings, released today, in the annual Health Care Fraud and Abuse Control Program (HCFAC) report, are a result of President Obama making the elimination of fraud, waste and abuse a top priority in his administration.  The success of this joint Department of Justice and HHS effort would not have been possible without the Health Care Fraud Prevention & Enforcement Action Team (HEAT), created in 2009 to prevent fraud, waste and abuse in the Medicare and Medicaid programs, and to crack down on the fraud perpetrators who are abusing the system and costing American taxpayers billions of dollars.  These efforts to reduce fraud will continue to improve with the new tools and resources provided by the Affordable Care Act.

“This report reflects unprecedented successes by the Departments of Justice and Health and Human Services in aggressively preventing and combating health care fraud, safeguarding precious taxpayer dollars and ensuring the strength of our essential health care programs,” said Attorney General Holder.  “We can all be proud of what’s been achieved in the last fiscal year by the Department’s prosecutors, analysts and investigators – and by our partners at HHS.  These efforts reflect a strong, ongoing commitment to fiscal accountability and to helping the American people at a time when budgets are tight.”

“Fighting fraud is one of our top priorities and we have recovered an unprecedented number of taxpayer dollars,” said Secretary Sebelius.  “Our efforts strengthen the integrity of our health care programs, and meet the President’s call for a return to American values that ensure everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules.”

Approximately $4.1 billion stolen or otherwise improperly obtained from federal health care programs was recovered and returned to the Medicare Trust Funds, the Treasury and others in FY 2011.  This is an unprecedented achievement for HCFAC, a joint effort of the two departments to coordinate federal, state and local law enforcement activities to fight health care fraud and abuse.

The recently-enacted Affordable Care Act provides additional tools and resources to help fight fraud that will help boost these efforts, including an additional $350 million for HCFAC activities.  The administration is already using tools authorized by the Affordable Care Act, including enhanced screenings and enrollment requirements, increased data sharing across government, expanded overpayment recovery efforts and greater oversight of private insurance abuses.

Since 2009, the Departments of Justice and HHS have enhanced their coordination through HEAT and have increased the number of Medicare Fraud Strike Force teams.  During FY 2011, HEAT and the Medicare Fraud Strike Force expanded local partnerships and helped educate Medicare beneficiaries about how to protect themselves against fraud.  The departments hosted a series of regional fraud prevention summits around the country, provided free compliance training for providers and other stakeholders and sent letters to state attorneys general urging them to work with HHS and federal, state and local law enforcement officials to mount a substantial outreach campaign to educate seniors and other Medicare beneficiaries about how to prevent scams and fraud.

In FY 2011, the total number of cities with strike force prosecution teams was increased to nine, all of which have teams of investigators and prosecutors from the Justice Department, the FBI, and the HHS Office of Inspector General, dedicated to fighting fraud.  The strike force teams use advanced data analysis techniques to identify high-billing levels in health care fraud hot spots so that interagency teams can target emerging or migrating schemes along with chronic fraud by criminals masquerading as health care providers or suppliers.  In FY 2011, strike force operations charged a record number of 323 defendants, who allegedly collectively billed the Medicare program more than $1 billion.  Strike force teams secured 172 guilty pleas, convicted 26 defendants at trial and sentenced 175 defendants to prison.  The average prison sentence in strike force cases in FY 2011 was more than 47 months.

Including strike force matters, federal prosecutors filed criminal charges against a total of 1,430 defendants for health care fraud related crimes.  This is the highest number of health care fraud defendants charged in a single year in the department’s history.  Including strike force matters, a total of 743 defendants were convicted for health care fraud-related crimes during the year.

In criminal matters involving the pharmaceutical and device manufacturing industry, the department obtained 21 criminal convictions and $1.3 billion in criminal fines, forfeitures, restitution and disgorgement under the Food, Drug and Cosmetic Act.  These matters included the illegal marketing of medical devices and pharmaceutical products for uses not approved by the Food and Drug Administration (FDA) or the distribution of products that failed to conform to the strength, purity or quality required by the FDA.

The departments also continued their successes in civil health care fraud enforcement during FY 2011.  Approximately $2.4 billion was recovered through civil health care fraud cases brought under the False Claims Act (FCA).  These matters included unlawful pricing by pharmaceutical manufacturers, illegal marketing of medical devices and pharmaceutical products for uses not approved by the FDA, Medicare fraud by hospitals and other institutional providers, and violations of laws against self-referrals and kickbacks.  This marked the second year in a row that more than $2 billion has been recovered in FCA health care matters and, since January 2009, the department has used the False Claims Act to recover more than $6.6 billion in federal health care dollars.

The fraud prevention and enforcement report announced today coincides with the announcement of a proposed rule from the Centers for Medicare and Medicaid Services aimed at recollecting overpayments in the Medicare program. Before the Affordable Care Act, providers and suppliers did not face a deadline for returning taxpayers’ money. Thanks to the Affordable Care Act, there will be a specific timeframe by which self-identified overpayments must be returned. The Obama Administration has made prevention and recollection of overpayments a government-wide priority. These announcements today are just the latest in a series of steps that the administration is taking to protect taxpayer dollars and keep money in the pockets of Americans.

The HCFAC annual report can be found here, oig.hhs.gov/publications/hcfac.asp.  For more information on the joint DOJ-HHS Strike Force activities, visit: www.StopMedicareFraud.gov/.

No. 10-6034

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT UNITED STATES OF AMERICA, Plaintiff – Appellee, v. DANIEL FEARNOW, Defendant – Appellant. ______________________________ ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNITED  STATES  DISTRICT COURT  FOR  THE  WESTERN DISTRICT OF TENNESSEE OPINION Before:  MCKEAGUE and WHITE, Circuit Judges; BARRETT, District Judge. * HELENE N. WHITE, Circuit Judge.

Defendant-Appellant Dr. Daniel Fearnow appeals his 262-month sentence imposed after he pleaded guilty of intentionally distributing controlled substances  and  conspiracy to distribute  controlled substances.  21 U.S.C. §§ 841(a)(1) & 846.  We AFFIRM.

I.

In late 2008, Drug Enforcement Agency (“DEA”)investigators received information that Fearnow, a doctor working at Wickman Family Medical Care Center (“Wickman” or “the  clinic”)  in  Shelby County,  Tennessee,  was  issuing  prescriptions  to  “patients” in exchange for cash.  The DEA solicited confidential informants to engage in audio- and video-recorded transactions with Fearnow from February to October 2009, during which The Honorable Michael R. Barrett, United States District Judge for the Southern * District of Ohio, sitting by designation.Fearnow prescribed controlled substances for no apparent medical purpose. On October 28, 2009, the government charged Fearnow with one count of conspiracy to distribute controlled substances and eleven counts of intentionally distributing controlled substances.  21 U.S.C. §§ 846, 841(a)(1).  On February 12, 2010, Fearnow pleaded guilty to all counts.

According to the Pre-Sentence Report (“PSR”), a patient typically provided Fearnow a list of names of persons who were not present – sometimes with as many as thirty different names – and Fearnow would write prescriptions for the persons named.  In exchange, the patient would pay Fearnow a fee, usually between $100 to $150. The patient would then resell the drugs or prescriptions. The investigation revealed that approximately seventy-five percent of Fearnow’s “patients” purchased fraudulent prescriptions, resulting in a total of over 25,000 fraudulent prescriptions.

In the usual case, a prescription-seeking patient would enter the clinic and inform a receptionist or nurse that he or she wished to see Fearnow, and the Wickman staff would collect a co-pay for the visit. Fearnow admitted that he sometimes used nurses and student 1 interns to assist him, for example, by taking the list of names from the patient and, after Fearnow had  written  the  prescriptions,  exchanging  the  prescriptions for  cash.  One confidential source explained that on one occasion, April, a woman appearing to be a nurse, advised that Fearnow was not seeing “that type of patient face-to-face because the police had been heavy in the area.” Likewise, a medical assistant explained that he was aware Fearnow Fearnow explained that Nancy Wickman, co-owner of the clinic, or other staff, 1 collected the co-pay fees.  Fearnow did not receive any money from the co-pay fees. 2was writing illegal prescriptions and that almost everyone in the office had knowledge of or assisted Fearnow with his illegal activity.

The sentencing hearing was held on August 5, 2010. The PSR recommended a fourlevel enhancement pursuant to United States Sentencing Guidelines (“U.S.S.G”) § 3B1.1(a) based  on  Fearnow’s status  as  an  organizer  or leader  of the  criminal  conspiracy.  Over Fearnow’s objection, the district court found the enhancement applicable.  Fearnow argued for a downward departure based on alleged sentencing entrapment, which the district court rejected. The  district  court  likewise rejected several  other  arguments for  a  downward departure.  The district court then considered the § 3553(a) factors.  After application of the §3B1.1(a)  enhancement for Fearnow’s role  and a three-level  downward  adjustment for acceptance  of responsibility, the Guidelines recommended  a range of  262-327 months’ imprisonment.  The district court opted for the lowest Guidelines-range sentence – 262 months.  This appeal followed.

II.

Fearnow contends the district court erred by imposing a four-level enhancement pursuant to U.S.S.G. § 3B1.1(a).  This court has struggled over whether to review a district court’s application of §3B1.1 deferentially or de novo.  United States v. Young, 553 F.3d 1035, 1039 (6th Cir. 2009) (noting confusion).  Because the district court did not err under either standard, we join prior panels and decline to resolve this issue. See, e.g., United States v. Walls, 546 F.3d 728, 734 (6th Cir. 2008).

U.S.S.G. § 3B1.1(a) provides for a four-level enhancement “[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was 3otherwise extensive.” In order for this enhancement to apply, the government must prove by a preponderance of the evidence Fearnow’s role as a leader or organizer.  United States v.  Bennett,  291  F.3d  888, 897  (6th  Cir.  2002).  In  considering the  applicability of  an enhancement pursuant to § 3B1.1, courts weigh the following factors:

the exercise of decision making authority, the nature of participation in the commission of the offense, the recruitment of accomplices, the claimed right to  a larger share of the fruits of the  crime, the degree of participation in planning or organizing the offense, the nature and scope of the illegal activity, and the degree of control and authority exercised over others.”

United States v. Lalonde, 509 F.3d 750, 765 (6th Cir. 2008); see also U.S.S.G. § 3B1.1, cmt., app. n. 4. This court has explained that “a defendant must have exerted control over at least one  individual  within  a  criminal  organization  for  the  enhancement  of  §3B1.1  to  be warranted.”  Lalonde, 509 F.3d at 765.  Hence, “[m]erely playing an essential role in the offense is not equivalent to exercising managerial control over other participants and/or the assets of a criminal enterprise.”  Id. (citation omitted).

Although Fearnow’s case is somewhat atypical insofar as he did not have any control over the drugs after he issued the prescriptions, United States v. Swanberg, 370 F.3d 622 (6th Cir. 2004), the district court did not err in applying the enhancement.  A defendant does not need to satisfy each factor in order for the enhancement to be appropriate.  United States v. Gates, 461 F.3d 703, 709 (6th Cir. 2006).  Fearnow does not dispute that his  criminal conduct involved at least five participants. U.S.S.G. § 3B1.1 cmt., app. n.1 (explaining that a “participant” does not need to have been convicted).  Additionally, Fearnow exercised managerial authorityover staff members at Wickman, including nursing student interns, who assisted him in accomplishing the offenses.  See United States v. Baker, 559 F.3d 443, 449 4(6th Cir. 2009) (noting “a defendant whose sentence is enhanced under § 3B1.1(a) need only supervise or manage one of the five or more other participants”) (citation omitted).  As the district court explained at the sentencing hearing:

Within this clinic where the doctor was working were various people who were employees of the clinic but who were nevertheless, accommodating the doctor by taking money, assigning patients, and so forth. . . .

Now, he doesn’t have to employ these individuals himself.  He doesn’t have to have been the manager of the clinic as such; but they were accommodating him  and  serving him  within  the  clinic  is  my reading  of  the  facts, the uncontested facts, of the presentence report. . . .

He managed to get [the staff] to do his work for him which is set out in quite a number of places in the presentence report. I’ve pointed to several of them. And one of the disturbing things is it apparently also includes some medical interns who showed up and were roped into this enterprise as well.

Tr. at 20-28. Although this is not the typical drug-distribution case, Fearnow’s argument that he exercised no managerial control is unavailing, and the enhancement nonetheless applies. Finally, contrary to his assertion, Fearnow is not equally or less culpable than the recipients of the prescriptions.

The district court did not err in applying the § 3B1.1(a) enhancement.

III.

Fearnow next  argues  that  the  district  court  erred  by not  granting a  downward departure based on alleged sentencing entrapment or sentencing manipulation.  This court generally does not review a refusal to grant a downward departure unless “the district court (1) improperly computed the guideline range; (2) was unaware of its discretion to depart downward from the guideline range; or (3) imposed the sentence in violation of law or as a result of the incorrect application of the Sentencing Guidelines.”  United States v. May, 399 5F.3d 817, 827 (6th Cir. 2005) (quotation marks and citation omitted). Fearnow contends that although the government had enough evidence to arrest and convict him early on in the investigation, the DEA continued to conduct controlled buys for the sole purpose of boosting the quantity and type of prescriptions Fearnow sold and thereby increase his sentence.

Assuming such arguments are cognizable in this circuit, see, e.g.,  United States v. Guest,  564  F.3d  777,  781  (6th  Cir.  2009)  (“The Sixth  Circuit  has  already addressed sentencing entrapment and sentence manipulation . . . and reaffirmed that the Sixth Circuit does  not recognize  either  defense.”),  the facts  of this  case do  not support  a finding of sentencing enhancement or entrapment. As the district court explained, Fearnow’s will was not overcome by outrageous government conduct:

There’s no proof of any bad faith in this record by the Government.  What you’re asking me to do is infer from the lapse of time, the eight months, that there must have been entrapment.  Well, “entrapment” is probably not the right word for it;  but there must  have been  a  piling  on  or  an  attempt to exacerbate the offense on the part of the Government by letting this crime go on.

An  equally fair or perhaps more reasonable inference was that, first, the government didn’t feel it had enough proof in this matter of this sort.  We have  hindsight  now.  We  know Dr. Fearnow immediately confessed  his crime, pretty much, and we know he pled guilty to an indictment in this case, but, you know, when you’re sitting out there in the field, you have no idea of that.

The second reasonable inference was the Government wanted to know the scope of what was going on and who was involved.  So, it carried out an extensive investigation over time . . . .

As far as entrapment was concerned, on this record there’s no proof that anybody needed  to  entrap  Dr.  Fearnow.  He  willingly,  he readily wrote prescriptions at the drop of a hat for money.  Anybody could walk in without examination, it appears to me, and get a prescription written for somebody else and extensively, for multiple other people who were never examined. 6I don’t want to beat that point to death except to say it certainly doesn’t look like entrapment to me.

The  first  response to  entrapment  is  that  it’s  not  a  factor  for  downward departure.

My second response is this isn’t a case of entrapment.

Tr. at 40-41. See generally Sosa v. Jones, 389 F.3d 644, 648-49 (6th Cir. 2004) (“Under this theory, ‘sentencing entrapment occurs where outrageous government conduct overcomes the will of a defendant predisposed to deal only in small quantities of drugs, for the purpose of increasing the amount of drugs and the resulting sentence imposed against that defendant.’”) (citation omitted).

Fearnow provides no persuasive support for the proposition that the government’s conduct here constitutes sentencing entrapment or manipulation, and his arguments are therefore unavailing.  We find no error in the district court’s refusal to depart.

IV.

Lastly, Fearnowchallenges the substantive reasonableness of the 262-month sentence the district court imposed. In reviewing for substantive reasonableness, this court considers the  totality of  the  circumstances and inquires  whether a  district  court  has  abused  its discretion.  United  States  v.  Tristan-Madrigal,  601  F.3d  629,  633 (6th Cir.  2010).  A sentence is substantively unreasonable if a district court “selects a sentence arbitrarily, bases the sentence on impermissible factors, fails to consider relevant sentencing factors, or gives an unreasonable amount of weight to any pertinent factor.” United States v. Baker, 559 F.3d 443, 448 (6th Cir. 2009).

The crux of Fearnow’s argument is that the district court did not adequately consider and explain the § 3553(a) factors in imposing the sentence.  More specifically, Fearnow contends the district court did not give due consideration to his history and characteristics, including that he was raped when he was a young child and his “unblemished employment record as a physician.”  Fearnow emphasizes – and the district court noted – he is no longer a threat to society and imprisonment will not benefit him  and, further, that Fearnow is unusually susceptible to abuse in prison.

Because Fearnow’s sentence is within the advisory range of the Guidelines, this court affords it a rebuttable presumption of reasonableness.  See United States v. Christman, 607 F.3d 1110, 1117 (6th Cir. 2010).  A review of the sentencing hearing transcript reveals that the district court considered each of Fearnow’s arguments and explained its rationale for rejecting them.  The district court also carefully considered the § 3553(a) factors, including the seriousness of the offense and the history and characteristics of the defendant.  United States v. Richardson, 437 F.3d 550, 554 (6th Cir. 2006) (internal quotation marks omitted); 18 U.S.C. § 3553(a).

The district court stated that “these are extraordinarily serious offenses for drug crimes. They are among the most serious I have seen.” Tr. at 106. The district court further emphasized the deleterious effect of Fearnow’s crimes on the public, noting the number of prescriptions Fearnow sold.  Id. at 110.  The district court also specifically discussed some of Fearnow’s positive qualities.  Although the district court acknowledged that there would be no benefit to Fearnow from imprisonment and that Fearnow posed no danger to society, the district court also recognized a “strong need for deterrence in this case, which is to say 8there is  a  need  to  prevent  others from  engaging  in  this sort of  conduct.” Id. at  117. Ultimately, the  district  court  concluded that the lowest within-Guidelines sentence was appropriate.  The district court did not abuse its discretion.

V.

For the foregoing reasons, we AFFIRM Fearnow’s sentence.

The US Attorney’s Office for the Southern District of Ohio in Cincinnati released the following press release:

Today OIG issues the 7th of 11 free videos and audio podcasts, entitled “Compliance Program Basics.”  Access the new video and audio here: http://go.usa.gov/RvQ

These 11 videos cover major health care fraud and abuse laws, the basics of health care compliance programs, and what to do when a compliance issue arises. These video installments are the latest from OIG’s award-winning Health Care Fraud Prevention and Enforcement Action Team (HEAT) Provider Compliance Training initiative.

Department of Justice

The Seventh Circuit did not agree and joined the Third, Fifth, Ninth, and Tenth Circuits in adopting the “one purpose” test first articulated in United States v. Greber, holding that if one purpose of the payment was to obtain money for the referral of services or to induce further referrals, the Anti-Kickback Statute has been violated.

With regard to Dr. Borrasi’s argument that the remuneration was protected by the employment exception and safe harbor, the Seventh Circuit found that the statutory employment exception and/or the regulatory safe harbor do not provide unrestricted protection under the Statute.  The court said that the statutory exception and regulatory safe harbor protect only amounts paid to a bona fide employee for services rendered. They do not protect employment compensation which is not for “bona fide” services. Therefore, criminal liability may attach if there is improper intent. The employment exception and the safe harbor were never intended to protect sham arrangements. Consequently, care must be taken that the employment arrangement is for valid services that are actually performed.

The facts of Borrasi paint a vivid picture of how not to structure an arrangement. According to the court, the psychiatric hospital paid bribes to a group of physicians to obtain their referrals to the hospital. The bribes were concealed by placing the physicians “on the [hospital] payroll, giving them false titles and false job descriptions, and asking them to submit false time sheets.” According to testimony at trial, the physicians were not expected to, and did not perform the duties listed on their job descriptions; they did, however, occasionally attend various committee meetings.

Contracts between physicians and their employers are for the purpose of formalizing new or preexisting relationship, regardless of whether the employer is a hospital or a physician practice. The needs and goals of the parties must shape the negotiations and the agreement’s terms. The agreement should not dictate or lead to goals or results that neither party wants.

Formal written contracts establish the legal relationship between the parties; they state the terms and conditions of that relationship and the rights and obligations of each party. They confirm the intentions and relationships of the parties as they enter into this relationship, and they eliminate uncertainties regarding mutual rights, obligations, and relationships. If everything remained as it is at the time the agreement is signed, there would be little need for formal documents. However, the agreement serves to protect against future disputes. Therefore, it should include as precise language as possible. Ambiguous terms in agreements are of little effect when disputes occur over the meaning of a party’s rights or obligations.

Corporate Practice of Medicine. One of the first issues that should be considered by both parties in negotiating an employment agreement is whether there is a corporate practice of medicine problem in the potential employment relationship. In many states, such as Ohio, if the agreement is with a hospital or another organization that is not a professional association, partnership, or limited liability company, this may be a problem.

Historically, many states prohibit the corporate practice of medicine. Established in the nineteenth century, the purpose of that doctrine was to end corporate involvement in medicine, which had become popular in the United States. The net result of corporate involvement was that lay persons exercised significant control over the provision of health care services by physicians. To curtail corporate involvement, the American Medical Association promulgated ethical restrictions upon it.

This doctrine is codified in many states through licensing and corporate statutes. For instance, the Ohio Revised Code requires that incorporated medical practices have only licensed physicians as shareholders and prohibits the practice of medicine without a license from the Ohio Medical Board. Physicians may be subjected to disciplinary action for engaging in certain prohibited conduct including, among other things, any division of fees or charges or any arrangement to share fees or charges between a physician and any other person.

However, the corporate practice of medicine doctrine is at odds with a number of modern medical practices. Rising health care costs have changed the emphasis from prevention of commercialization of the practice of medicine to emphasis on techniques designed to make medical practice more efficient and to curb the rising cost of medical care.

I have seen little if any enforcement of this doctrine in the courts. But the risk remains for physicians, and there is the possibility of disciplinary action of various degrees, with the most severe sanction revocation of the medical certificate.

However, given the lack of enforcement of the corporate practice doctrine and the refocus toward reducing costs and increasing efficiency, I believe that the risk level is minimal that the doctrine would be enforced against physicians. Nevertheless the physician shuld be fully informed when he or she makes a decision in this matter.

Assuming that the physician desires to proceed with the agreement, there are several provisions of the employment agreement that have particular implications for the physician’s employment and practice. Let me address those that are usually the most problematic.

Term and Termination. The term of employment is usually for a fixed term of a number of years. However, the termination and renewal provisions are particularly important. Most agreements are terminable for any or no reason by giving a certain number of days written notice, either at any time or before the termination date of the then existing agreement. This means that a physician could find him/herself out of a job on short notice, even after having relocated. Pay particular attention to the reasons why an agreement can be terminated and the notice requirements of the agreement.

Most agreements are also “evergreen,” meaning that they will renew automatically, usually on a year to year basis, unless some action is taken in accordance with the termination provisions to prevent the renewal. This could be a problem is there is a long notice period, and the physician wants to leave to pursue other opportunities.

Termination for Cause. Most of these provisions are also standard; however, they should be reviewed carefully. Typical provisions include:

(a) Suspension, revocation or cancellation of the physician’s license in the State of Ohio, or the placing or imposing of any restrictions, limitations or conditions on physician by any governmental authority or duly constituted board or committee having jurisdiction over Physician.

(b) Physician is not granted or loses full and unrestricted privileges to render the professional services at any hospital.

(c) Physician has any restrictions, limitation or any condition placed on his or her privileges at any hospital.

(d) Physician fails or refuses to comply with terms of the agreement or with policies, standards and regulations of the employer regarding the operation of the practice after receiving written notice from the employer of the failure and without correcting the failure or refusal within a specified time of that written notice. [This is a problem; it gives unfettered discretion to the employer to hold the physician to policies over which he or she has no control or input.]

(e) Physician is unable to fulfill the essential provisions of the agreement because of death or because of a disability that prevents the physician, with or without reasonable accommodation, from performing the professional services called for under the agreement for a specified period.

(f) Physician is indicted, convicted, pleads no contest or pleads guilty to any felony, or, in employer’s sole determination and discretion, is involved in or associated with any act of moral turpitude. [This is also a problem; it gives too much discretion to the employer.]

Severance Pay. Usually some type of severance pay is provided in case of termination by the employer, unless the termination is for cause. This is particularly important in the case of physician employees in high risk administrative positions.

Provision Allowing Physician to Termination for Cause. There should be a section that allows the physician to terminate if the employer dissolves, becomes bankrupt, breaches the agreement, or if the agreement becomes the justification or foundation to investigate the physician’s license to practice. Please note the discussion on the corporate practice of medicine at the beginning of this article. There is also the consideration of a violation of the Medicare anti-kickback statute or the physician anti-referral laws.

Duties of Physician.

Standards for the Provision of Professional Services. Most agreements will have a provision that either specifies professional performance or refers to some other document that does. If such a provision is not in the agreement, it should be. However, if the provision refers to another document or gives the employer the authority to establish practice guidelines which the physician must follow, there should be some limiting language. Otherwise, the physician is agreeing to abide by whatever rules the employer makes. This means is that he or she agrees to incorporate into the agreement any practice guidelines that the employer may change at will, without the physician’s concurrence. Although this may seem innocuous at first blush, it would allow the employer to promulgate practice guidelines that may be unacceptable to the physician, and if the physician should violate them, it gives the employer grounds to terminate the physician for cause.

Call. Most physician employment agreements specify that the physician take call. There should be provisions in the agreement that specify that call will be rotated with other medical professional personnel. Such a provision could provide:

Physician shall share equally with other physicians and health care providers in the employ of [the employer] the workload for providing patient care. This shall include “on duty” and “on call” assignments at night, Sundays, and holidays, which shall be rotated in a reasonable manner and shared equally with other physician employees of [the employer].

Referral to Hospital. Most hospital physician employment agreements require the physician to use his or her best efforts to utilize the employer’s hospital for all appropriate inpatient and outpatient services. So long as the employment agreement is with the hospital itself, there should not be a problem. However, many agreements are with a professional practice that is owned either directly or indirectly by the hospital. In these cases, there is a potential Medicare Fraud and Abuse Anti-Kickback problem. This statute provides that the offer or payment, as well as the solicitation or receipt of “any remuneration” in exchange for referrals of any good, facility, service, or item for which payment may be made in whole or in part under Medicare/Medicaid is prohibited. The prohibited activity is a two way street, and both the payer and the receiver are equally culpable.

There is an exception to this statute allowing an employer to pay an employee to solicit business. However, this “safe harbor” applies only to bona fide employer-employee relationships. Since the agreement is to be with a separate entity and not with the hospital, it is highly doubtful that this protection would extend to the hospital. Therefore, such a referral requirement is probably illegal and should be removed.

Some agreements require the physician to refer within an “integrated health network,” a healthcare system combining the hospital, physicians and other healthcare activities. While this is an unsettled area, it is consistent with national trends and should not be a problem.

Education. Most agreements will provide that the physician agree to obtain sufficient continuing medical education (“CME”) and allow the physician to take time off, usually no more than one week, and will agree to pay expenses up to a specified amount.

Reports and Records. The agreement usually provides that medical records are the property of the employer and will remain so after the physician terminates employment. There should be provisions that allow access to these records for specific reasons such as malpractice actions and board certification.

Notice. In many agreements, there is a requirement that the physician agree to notify the employer, within a specified period after the physician becomes aware of them, any potential problems with regard to malpractice insurance, potential claims, potential adverse actions regarding medical staff privileges or license, or problems with any third party payor. This is not unrealistic so long as the time period is reasonable and the wording a “without just cause” is included.

Community Benefits. Many agreements require the physician to provide various services to the community free of charge as part of the physician’s duties under the agreement. This is not unreasonable, but the physician should be aware of this requirement and actively agree to it.

Compensation. There are a number of compensation arrangements that may be utilized. These include but are not limited to:

• Payment of a fixed fee for professional and administrative services.

• Payment of a fixed fee for administrative services, with the physician billing separately for professional services.

• Payment of a fixed fee for professional and administrative services plus a percentage of gross or net revenues above a specified amount.

• Fee-for-service.

• Physician leased department.

These last two methods are usually employed where the physician has independent contractor status, rather than employee status. Whatever method is chosen, there should be provisions providing for periodic increases, either by a specified amount or by merit. If by merit, the methodology should be defined.

Exclusive Services. Most agreements provide that all professional fees belong to the employer. Some allow the physician to keep book and article revenues.

Benefits. Benefits should be specifically defined in the agreement and not left to the whim of the employer. Following is a delineation of common benefits, but this is by no means an exclusive list:

• Health Insurance. Health insurance for employee, for the spouse, and for the children of the employee under employer’s health insurance plan for its physicians.

• Malpractice Insurance. Malpractice insurance, but be sure the amount is specified. There should also be provisions for employer to pay for “tail” coverage if the physician is terminated.

• Dues. Dues, license renewal fees, DEA license fees, costs of subscriptions to or purchase of medical publications and journals, and memberships to medical societies. Many agreements provide for some approval mechanism and, if so, language should be added so that such approval shall not be unreasonably withheld.

• Medical Education. Tuition, transportation and room and board for medical education trips. Usually provided as a not to exceed figure.

• Life and Disability Insurance. Group term life and disability insurance under the Employer’s group term insurance plan for its physicians. Disability should be defined.

• Business Entertainment Expenses. Appropriate amounts of business entertainment expense reimbursement as may be approved in advance by the employer and properly documented by the employee.

• Pension and Profit Sharing Plans. Coverage under employer’s pension and/or profit sharing plans in accordance with the eligibility rules for all of Employer’s employees under such plans.

• Vacation. Time off with pay that will be allowed should be specific, whether in terms of vacation and holidays or paid time off.

• Disability. There should be provisions in the agreement for disability pay, including a definitive definition of what constitutes disability. Determination should not be left to discretion of the employer.

Non-Compete Clause. Non-compete clauses are common in physician employment agreements. These typically restrict practice in a specific competing geographical area for a definitive period of time. The weight of authority holds that reasonable covenants not to compete after termination of employment entered into between physicians and their employers are enforceable. So long as the physician’s hospital practice is not affected, the freedom of choice of his/her patients is not infringed. The physician is simply required to move his/her office outside the restricted area. However, the area should be reasonable to protect the employer’s business. This provision should also allow a continuation of the physician’s hospital privileges and practice.

Injunctive Relief. There is usually a provision allowing the employer to go to court and obtain an injunction prohibiting the physician from practicing within the restricted area.

Costs and Fees. There is also usually a provision where the physician agrees to pay the employer’s legal fees and costs for enforcing the provisions of the non-compete provision.

Miscellaneous. The typical provisions found in most contracts will also be found in physician employment agreements. These include:

• Additional Documents. An agreement to execute, acknowledge and deliver to the other party further instruments that may be reasonably necessary to give full force and effect to the provisions of the agreement.

• Assignment. Agreement by the parties not to assign or delegate any of their rights or obligations under the agreement without the consent of the other party.

• Modification. Agreement that the contract may be modified only in writing, signed by the parties.

• Waiver. The failure of either party to insist upon the strict performance of any obligations in the agreement, or the failure of either party to execute any option reserved to it, will not be construed as a relinquishment of that obligation or option.

• Exclusive Remedies. No right, remedy or election under the agreement is exclusive but shall be cumulative with all other remedies.

• Governing Law. The agreement is construed according to the laws of the state in which the practice is located. However, with large interstate practices or corporations, the state may be different from the state of practice. If this is the case, the physician should consult his attorney regarding how this may affect his/her rights.

• Entire Agreement. Any representation, inducements, promises, negotiations or agreements, oral or written, that are not included in the agreement, are of no force or effect.

• Enforceability of Remainder of Agreement. If any term, provision, covenant, or condition of the agreement is held or could be held by a court of competent jurisdiction to be invalid or void, or unenforceable, or would violate the fraud and abuse laws, then that term, provision, covenant or condition shall be reformed or rescinded as ordered by the court, or to the extent the employer in good faith believes is necessary to reasonably assure compliance. However, the remainder of the agreement remains in full force and effect and is not affected.