Share this article on:

Stark III Changes to Recruitment Rules


doi: 10.1097/01.NT.0000335589.88901.8e

You're a neurologist, or part of a group, considering hiring a new partner for your practice. You're probably thinking about issues like prior experience, patient base, specialty training, and rapport with partners. But you may not be thinking about two words that can have an important effect on physician recruitment: Stark III.

The Stark law — or physician self-referral law — prohibits physicians from referring Medicare patients for certain health services to an entity with which the physician or a member of the physician's immediate family has a financial relationship — unless an exception applies. It also prohibits an entity from presenting or causing to be presented a bill or claim to anyone for a DHS furnished as a result of a prohibited referral

Phased in incrementally, the latest updates to the law, in effect since December 2007, pertain to physician recruitment. The new regulations are extensive and complex, and can lead to major penalties if ignored.



Stark III makes some major modifications — mostly positive, from the recruiting practice's point of view — to the rules regarding physician recruitment.

“When Stark first came out, there wasn't any ability for a hospital to work with a group to provide recruitment benefits that would entice a physician to relocate. That situation changed in later iterations. Now, the recruitment exception covers remuneration paid by a hospital to recruit a physician to the area,” said Albert Shay, a partner in the firm of Sonnenschein, Nath and Rosenthal, which represents hospitals, single and multispecialty physician groups, and other health-care providers.

“If no hospital is involved in your recruitment of a physician, the Stark III provisions will likely not directly apply.”

Back to Top | Article Outline


For the most part, Stark III makes life a little easier when it comes to recruitment, relaxing previous regulations when it comes to issues such as geographic service area, income guarantee restrictions, and permitted practice restrictions.

For example, Stark III permits hospitals to offer financial remuneration to physicians in an effort to induce them to relocate their practice to the hospital's geographic service area in order to join the hospital's medical staff. But there are some conditions that must be met — for example, the remuneration offered cannot be based on the volume or value of anticipated referrals to the physician.

Stark III also makes clarifications and modifications to rules about how group practices can accept a hospital or health system's economic assistance for recruiting a new physician.

“Income guarantees from a hospital to a newly recruited physician serve as a safety net, and have been used for many years to compensate for the expectation that for several months after a move, a doctor's full-income potential won't be realized,” explained Shay. “Stark III clarifies how that income guarantee may be structured: it can only take into account actual incremental additional expenses incurred in recruiting and employing the doctor.”

For example, if your group works with your local hospital to recruit and employ Dr. Smith, paying him $200,000 as an employee and $50,000 in malpractice insurance, those are actual additional costs that you will incur in employing this physician. Costs that are not actual additional costs include, for example, the costs of an unused exam room if Dr. Smith's practice is not up to full speed and she's not using it yet.

“The practice cannot say that the square footage allocation expense of this office is an additional incremental cost that I am going to incur to employ this physician,” said Shay. “You already incur the cost.”

Back to Top | Article Outline


Stark III also allows certain practice restrictions on newly recruited physicians that were barred under Stark II. “Stark II contained a requirement that told group practices that they could not impose practice restrictions that ‘unreasonably restricted’ the doctor's ability to practice in the geographic service area if they leave the group,” Shay said. “The point was that the overall intent of the recruiting provisions of Stark was to relocate physicians into the community to provide it with a needed specialty service. To allow a group to say, in essence, if things don't work out we can prevent you from practicing in this area — that was inconsistent.”

But such a blanket prohibition on things such as non-compete agreements raised many concerns, concerns that have in many cases been addressed with this latest iteration of the regulations. With Stark III, the Centers for Medicare and Medicaid Services clarified that the only restrictions it intended to ban were those that “would have a substantial effect on the recruited physician's ability to remain and practice medicine in the hospital's geographic service area after leaving the physician practice or group practice.”

For example, Stark III now allows:

  • “Reasonable” non-compete provisions.
  • Restrictions on moonlighting.
  • Non-solicitation provisions directed at both patients and employees.
  • Requirements that the physician treat Medicaid and indigent patients.
  • Requirements that the physician not use confidential information about the practice he or she is leaving.
  • Provisions requiring that the physician repay the practice's losses that are not made up for by hospital recruitment payments.
  • “Reasonable” liquidated damages if the physician leaves the practice and remains in the community.

The final rule in published online in the Federal Register:

©2008 American Academy of Neurology