Joseph Rugg's Health Law Blog

In CMS Advisory Opinion AO-2011-01, the Centers for Medicare & Medicaid Services issued an advisory opinion permitting a group to include a covenant not to compete in its employment agreement with a physician whose recruitment to the group was funded by a local hospital. 

In its advisory opinion, CMS stated that the the physician recruitment exception to the Stark law “requires that the physician practice not impose additional practice restrictions on the recruited physician other than the conditions related to quality of care.”  However, CMS acknowledged that, in its commentary to the Phase III Stark rulemaking, it had concluded “that non-competition provisions should not be categorically prohibited from recruitment arrangements.”

In determining that this particular noncompetition covenant did not impose practice restrictions that “unreasonably restrict the [p]hysician’s ability to practice medicine in the geographic area served by the [h]ospital,” CMS looked at the following factors:

• The time period restriction of one year was reasonable.
• The distance requirement of 25 miles was reasonable based on the geographic area served by the hospital.
• Even with the time period and distance restrictions, the physician would still be permitted to practice at certain hospitals both within and outside of the recruiting hospital’s geographic service area within the one year time period.
• The hospital had certified that the noncompetition covenat complied with applicable state and local laws. 

As with all such advisory opinions, it is issued only to the requesting party and cannot be relied upon by any other individual or entity.

Nevertheless, this advisory opinion provides guidance for the first time on how CMS will analyze the language of the statute, the regualtions, and its own commentary in specific physician recruitment fact situations.