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The Stark Facts of Marketing to Physicians

Stephen E. Rothenberg, JD, and Michael N. Abrams, MA, for HealthLeaders Media, January 22, 2008
Relationships between hospitals and physicians exist in such a tightly-regulated environment that even the simple act of a hospital providing a lab coat to a doctor has implications under the physician self-referral law known as Stark. With new Phase III regulations now in effect, it is worthwhile to briefly review Stark and its new implementing regulations, particularly to illustrate the boundaries in marketing hospital services to doctors.

Stark prohibits physicians from referring Medicare patients to an entity for the furnishing of "designated health services" when the physician or an immediate family member of the referring physician has a "financial relationship" with the entity. Designated health services include a range of services-clinical laboratory services, physical, occupational, or other therapies, equipment or supplies, prescription drugs, and inpatient and outpatient hospital services.

A "financial relationship" includes a direct or indirect ownership or investment in the entity, or a direct or indirect compensation arrangement with the entity, unless an exception applies. Stark also prohibits hospitals from billing Medicare for services rendered as a result of a referral prohibited by the statute.

The overall picture is complex, and the regulations implementing Stark have evolved.

According to CMS, the new Phase III regulations will "simplify the rules" and "reduce any undue burden on the regulated community." It adds that the Phase III final rule "addresses the entire regulatory scheme" but that "phases I, II, and III of this rulemaking are intended to be read together as a unified whole."

Without going into detail on all aspects of the regulations, the new rules have a number of implications for hospitals and their arrangements with doctors, especially given the serious financial penalties for violations. The Stark Law is a "strict liability" statute, which means that even an innocently conducted activity that violates Stark results in liability; bad intent is not required. Under these circumstances, hospitals are understandably cautious about their economic relationships with doctors. Simply stated, if a doctor receives anything of value from a hospital to which Medicare or Medicaid patients are referred, both doctor and hospital must be sure their relationship falls under one of the detailed exceptions.

Phase III did not introduce any large-scale changes to existing prohibitions. Instead, it refined the requirements of a number of existing exceptions. For example, certain types of arrangements between health care providers and physician groups (such as those regarding lease arrangements), which previously were allowed as indirect compensation, are now considered direct compensation and require a written agreement. Also, compensation arrangements between hospitals and physician groups, previously considered to be a form of indirect compensation for physicians not requiring a written agreement requirement, are now subject to a "stand in the shoes provision" which treats these arrangements as if they are directly with the group's referring physicians, requiring a written agreement.

Rules regarding physician recruitment have changed in a number of ways. Some of the changes include allowing allow rural hospitals more flexibility in recruiting doctors and relaxing the definition of geographic area, but restricting cross-town recruiting and allowing reasonable non-compete agreements. In addition, it is fair to say that under Phase III, a hospital cannot sell anything to a physician, such as supplies or drugs from the hospital's pharmacy, without a written agreement. The exceptions are detailed and require careful examination. Although a review of all exceptions and Phase III changes is well beyond the scope of this article, from a brief review of just these general points, it is clear hospitals must examine their existing relationships with physicians to ensure compliance.

Marketing to physicians
The most pertinent sections of Stark that relate to hospital marketing to doctors involve compensation arrangements.

  • Hospital marketing to physicians would most likely invoke the direct or indirect compensation prohibition. A hospital may provide incidental benefits to referring physicians, such as parking, cafeteria meals, lab coats, laundry or internet access, if the value of each benefit is less than $28, but only while the physician is on hospital grounds and engaged in services that benefit the hospital.
  • Physicians also may receive non-monetary compensation from hospitals they refer to, currently capped at $329 for a calendar year, as long as such compensation is in the form of items or services rather than cash, and so long as it is not based on the value or volume of referrals and does not otherwise violate the Anti-Kickback statue. And with Phase III, one local medical staff appreciation event (i.e., holiday party) is allowed per year.
  • In addition, hospitals may provide compliance training about the requirements of federal health care programs to physicians who practice in the hospital's local community or service area. Under Phase III rules, compliance training that involves CME credit are allowed, as long as the focus or primary purpose of the CME is on compliance training.
With all these restrictions in mind, how can hospitals successfully market to doctors? It may be that the most successful hospital marketing has nothing to do with Stark concerns such as non-monetary compensation or incidental benefits. It has more to do with hospitals understanding and responding to issues that are important to doctors to create strong relationships. Given that hospitals need to examine physician relationships in order to insure compliance with Stark, it is a good time to review hospital-physician relationships overall.

While the focus of many commentators is on hospitals making operational or tactical improvements that help physician satisfaction rates, more is required for long-term physician loyalty. A strategic approach involves taking steps to win the "hearts and minds" of physicians.

Improving physician relations could start with hospitals treating physicians as customers and developing a system to proactively manage these relationships. Borrowing from business-to-business models to create proactive management of physician accounts can provide benefits. For example, hospitals can create a liaison or relationship manager to at the very least help improve communications with physicians about their concerns. This type of approach recognizes the importance doctors place on being able to effectively communicate with hospital administrators. Good communication by a hospital means not just considering but acting on the needs of doctors who practice there, and the role of a liaison could be an important resource for doctors. Ultimately, a long-term integrated approach to hospital-physician relations is required.

A systematic approach to physician relations could include not only a liaison but other methods of improving hospital (and administrator) responsiveness. These methods could include involving physicians in certain hospital decision-making and referral tracking and management. As in any other business-to-business relationship, customer satisfaction leads to increased business, and physicians who are satisfied with their hospital relationship will refer patients to their hospital, and these methods of managing physician relations help reach the "hearts and minds" of doctors. Treating doctors as customers as part of a physician relationship management system not only improves communication and addresses doctor concerns, but helps improve quality of care. It is that type of hospital-physician relationship that creates attachment and loyalty-and referrals.


Stephen E. Rothenberg, JD, is a business analyst, and Michael N. Abrams, MA, is managing partner at Numerof & Associates, Inc., a strategic management consulting firm located in St. Louis, MO. For more information, contact NAI at 314.997.1587, or info@nai-consulting.com .

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