URMC Compliance Program Policy Manual:
Group Practice Acquisition

To improve the delivery of health care services, the URMC entities may, from time to time, acquire physician practices. These acquisitions require special care to comply with applicable law because they have implications under the anti-kickback laws, the Stark law, and the IRS rules governing organizations' tax-exempt status.

Anti-Kickback Laws

As discussed above, federal law makes it illegal to provide or accept "remuneration" in exchange for referrals of patients covered by Medicare or Medicaid. Acquisitions of physician practices may implicate the anti-kickback laws because they may constitute illegal payments to induce the referral of Medicare or Medicaid patients.

Generally, acquisitions will comply with federal law when the amounts paid reflect the fair market value of the acquired practice. Fair market value should be determined through an independent appraisal. Payments in excess of fair market value may violate the anti-kickback laws, particularly when there is an ongoing relationship between the Medical Center and the acquired practice. Several specific types of payment are subject to scrutiny:

  • Payment of goodwill
  • Payment for value of ongoing business unit
  • Payment for covenants not to compete
  • Payment for exclusive dealing agreements
  • Payment for patient lists
  • Payment for patient records

The "safe harbor" protections discussed above may also apply to a particular acquisition. Employees should not, however, make unilateral judgments on the availability of a safe harbor. Any questions should be directed to legal counsel, and any proposed acquisition of a physician practice must be reported to the Compliance Officer.

Violation of the anti-kickback laws is a felony, punishable by a $25,000 fine or imprisonment for up to five years, or both. Violation of the law could also mean that a System entity and/or physicians are excluded from participating in the Medicare and Medicaid programs for up to five years.

Stark Law

Physician practice acquisitions also implicate the Stark law discussed earlier. Because the law is particularly complex, all transactions must be reviewed by the Compliance Officer and legal counsel to ensure compliance.

IRS Scrutiny

The IRS retains authority to audit the activities of tax-exempt organizations. In particular, the IRS may revoke an organization's tax-exempt status if payments for the acquisition of group practices are deemed "excessive." The IRS can also impose monetary penalties, known as "intermediate sanctions," for such conduct. While current, independent appraisals are important, equally important are the rationale and support for the reasonableness of the assumptions on which the valuation is based. Any questions should be directed to the Compliance Officer for review with legal counsel.