April 2009

President's Message

Documentation of how community benefit was estimated must be a key component of any hospital’s physician recruitment activities.  In addition, recruitment incentives must be provided based on what is reasonable, and recruitment agreements must be in writing and approved by the hospital’s Board.

Defining a Hospital’s Community

Although the IRS has provided guidance for demonstrating community benefit, it has remained silent on how to define a hospital’s community for purposes of recruitment.  Is a hospital’s community its home county or primary service area?  Can secondary and tertiary services assume a broader geography?  To answer these questions hospitals should rely on the definition in the “Stark” legislation.  Named for Congressman Pete Stark (D-CA), this legislation became effective in 1992 with the primary purpose of governing physician self-referral for Medicare and Medicaid patients.  This legislation, which has been updated multiple times, explicitly defines the geographic area served by the hospital as the following:

During its recent update, which became effective December 4, 2007, Stark provided an alternative test for determining the geographic service area of rural hospitals:  

Not only is it critical that an assessment of community need be based on this service area, but to comply with Stark regulations any physician that is recruited using financial recruitment assistance must relocate his or her practice to this service area and either move the practice a minimum of 25 miles or derive 75 percent of future practice revenues from new patients who live in that geography.

Preparing a Compliant Community Physician Needs Assessment

While the recruiting priorities for most hospitals relate to clinical program growth, that driver must be balanced with a formal Community Physician Needs Assessment to protect against inurement.  This document should incorporate an objective and systematic approach to identifying need and illustrate an effort to comply with recruiting regulations.  At a minimum, such an assessment should incorporate the following steps

• Determine the hospital’s community (defined by Stark) by reviewing inpatient origin annually;

• Research total community provider supply, and account for specialty, office locations, and age (adjustments can be made for anticipated retirements based on age);

• Estimate the total physician demand of your community.  Although physician-to-population ratios have historically been the standard, many of those benchmarks have become dated.  Contemporary physician demand models more closely match the population’s actual needs based on its demographic profile and expected utilization of health care services;

• Conduct surveys of area practices to determine time to first appointment and potential access issues related to insurance status;

• Determine where community shortages exist by specialty; and,

• Should a hospital offer recruitment incentives to a physician in a shortage specialty, two final steps should be taken:

• Per recent Stark updates, an attempt should be made to update the above analyses as close as possible to the signing of the recruiting agreement; and,

• Have final agreements reviewed by legal counsel and approved by the hospital Board.

Completing these steps will help to ensure compliance and should represent a critical piece of any hospital’s medical staff plan.  While a complete medical staff plan must also take into account a hospital’s institutional needs, such as succession priorities, clinical growth objectives, and new market expansion opportunities, the community needs assessment will demonstrate the hospital’s commitment to its community, while safeguarding against future regulatory scrutiny.

Brian Ackerman is a managing consultant at Health Planning Source located in the Research Triangle area of North Carolina.  Brian is currently a member of the North Carolina HFMA Chapter.  If you have questions about this article, or medical staff planning in general, Brian can be reached by calling 919.403.3300, or by email, BrianAckerman@HealthPlanningSource.com.

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