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Health Law Blog: Court's Decision Another Reminder to Hospitals To Use Caution in Calculating Physician Productivity Bonuses - January 13, 2014

In November, a federal district court granted partial summary judgment for the Department of Justice in U.S. ex. Rel. Baklid-Kunz v. Halifax Medical Center, ruling that productivity bonuses paid to employed physicians violated the Stark Law. The productivity bonuses at issue provided for an incentive bonus to six employed oncologists equal to 15% of the operating margin for the hospital’s medical oncology program and included revenue from services that were not personally performed by the medical oncologists, such as fees for chemotherapy administration. The hospital argued the Stark exception for bona fide employment relationships applied even though non-personally performed services were included in the bonus pool because the division of the pool among the oncologists was based on each oncologist’s personal production. The court disagreed ruling in favor of the Department of Justice and finding that the bonus was not “based on services personally performed” by the oncologists as required and the size of the pool could be increased by generating referrals for non-personally performed services. The Department of Justice is seeking over $27 million in damages for the Stark violation.

The Halifax decision is another illustration of why hospitals must use caution when negotiating physician employment agreements. Hospitals should ensure physician employment agreements are drafted or reviewed by health care counsel. In addition, hospitals should periodically review the implementation of physician productivity bonuses to ensure that only personally performed services are included in the bonus calculation.