Can a Texas hospital pay doctors a flat fee to be on call to admit ER patients?

Plain-English summary

The Hidalgo County Criminal District Attorney asked whether the Edinburg Hospital Authority could pay physicians a flat fee or per diem to be on call to admit emergency room patients, without running afoul of section 161.091 of the Health and Safety Code. That statute makes it a crime for a state-licensed health care professional to pay or accept money, directly or indirectly, for securing or soliciting patients. The setup was practical: the hospital had contracted with a local medical firm to staff the ER, but those ER physicians were not on the hospital's active medical staff and so could not admit patients. Some ER patients already had a doctor on the active staff who could admit them; others did not. To cover the patients with no existing relationship, the hospital needed to recruit active-staff physicians to be available to admit them, and wanted to pay those doctors to be on call.

The Attorney General concluded the arrangement could be lawful, but framed the answer conditionally rather than blessing the specific contracts. Section 161.091 contains two relevant exceptions. Subsection (f) says the section does not prohibit any payment that is not prohibited by 42 U.S.C. § 1320a-7b(b), the federal anti-kickback statute covering Medicare and federally funded state health care programs, or by the regulations issued under it. Subsection (e) says the section does not prohibit remuneration for services provided to secure or solicit patients as long as the pay is set in advance, is consistent with fair market value, and is not based on the volume or value of patient referrals or business generated between the parties.

The federal regulations matter because the Office of Inspector General of the U.S. Department of Health and Human Services has created "safe harbors" that exempt certain payment practices from the federal anti-kickback law's criminal penalties. One of them, the personal-services safe harbor at 42 C.F.R. § 1001.952(d), protects compensation paid by a principal to an agent if six standards are met: the agreement is written and signed; it specifies the services; it specifies the schedule and the charges; its term is at least one year; the aggregate compensation is set in advance, reflects fair market value in an arms-length deal, and does not take referral volume or value into account; and the services do not involve promoting any activity that violates state or federal law. The DA represented that the hospital's contracts would be written and signed, would specify the services and the delivery schedule, would run at least a year, and would pay a flat fee or per diem reflecting fair market value, so they presumably would not turn on the volume or value of admissions. On those assumptions, the opinion reasoned that payments under such contracts would be exempt from federal criminal liability under the OIG regulations, and therefore exempt from section 161.091 by virtue of subsection (f), and would independently fit subsection (e) as well. The AG added the standard caveat that it is beyond the opinion process to examine particular contracts and decide whether they meet specific statutory requirements; that determination was left to the parties.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. Both the state statute (section 161.091) and the federal anti-kickback statute and its safe-harbor regulations (42 U.S.C. § 1320a-7b(b); 42 C.F.R. § 1001.952) have been amended since 1992, so confirm the current text of each before relying on anything described here.

Background and statutory framework

Section 161.091 of the Health and Safety Code provided, in subsection (a), that "[a] person licensed, certified, or registered by a health care regulatory agency of this state commits an offense if the person intentionally or knowingly offers to pay or agrees to accept any remuneration directly or indirectly, overtly or covertly, in cash or in kind to or from any person, firm, association of persons, partnership, or corporation for securing or soliciting patients or patronage." The Code Construction Act defines "person" to include a "corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity." Gov't Code § 311.005(2).

The statute carried two exceptions central to the question. Subsection (e) provided that the section "shall not be construed to prohibit remuneration for advertising, marketing, or other services that are provided for the purpose of securing or soliciting patients provided the remuneration is set in advance, is consistent with the fair market value of the services, and is not based on the volume or value of any patient referrals or business otherwise generated between the parties." Subsection (f) provided that the section "shall not be construed to prohibit any payment, business arrangements, or payments practice not prohibited by 42 U.S.C. Section 1320a-7b(b) or any regulations promulgated pursuant thereto."

Section 1320a-7b(b) of title 42 of the United States Code generally criminalizes kickbacks in Medicare and federally-funded state health care programs. Acting under statutory authority, the Office of Inspector General of the U.S. Department of Health and Human Services issued regulations exempting certain payment practices from those criminal penalties. See 42 C.F.R. §§ 1001.951, 1001.952. Those regulations provide that remuneration paid by a principal to an agent as compensation for the agent's services is not subject to criminal liability as long as six standards are met: (1) the agreement is written and signed by the parties; (2) it specifies the services to be provided by the agent; (3) it specifies the exact schedule of time intervals for the services and the charges; (4) the term is not less than one year; (5) the aggregate compensation over the term is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made under Medicare or a federally-funded state health care program; and (6) the services do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law. 42 C.F.R. § 1001.952(d).

The DA represented that the hospital's personal service contracts with the physicians would be in writing and signed; would specify the services to be provided; would specify the schedule for delivery of those services; would cover a period of not less than one year; and would pay a flat fee or per diem reflecting fair market value, so the contract presumably would not take into account the volume or value of patients admitted. The opinion observed that it is beyond the purview of the opinion process to review particular contracts and decide whether they satisfy specific statutory requirements. But assuming the contracts were as described and did not involve the counseling or promotion of any business arrangement or activity that violates state or federal law, see 42 C.F.R. § 1001.952(d)(6), persons making payments under them would be exempt from criminal liability under 42 U.S.C. § 1320a-7b(b) by virtue of the OIG regulations. Payments under such contracts would therefore be exempt from section 161.091 under subsection (f), and the opinion concluded they would also be exempt under subsection (e), because the pay would be set in advance, consistent with fair market value, and not based on the volume or value of patient referrals or business generated between the parties.

Common questions

Does paying a doctor to be on call count as paying for patient referrals?
Not necessarily, under this opinion. The Attorney General concluded that if the on-call pay is set in advance, reflects fair market value, and does not turn on the volume or value of admissions, it fits the statutory exceptions in section 161.091 rather than the prohibition on paying for patients.

What made the arrangement potentially lawful here?
The two exceptions built into section 161.091. The opinion relied on subsection (f), which excludes payments not prohibited by the federal anti-kickback statute or its regulations, and subsection (e), which excludes fair-market-value service payments not tied to referral volume.

What is the federal "safe harbor" the opinion leaned on?
The personal-services safe harbor in 42 C.F.R. § 1001.952(d). It protects agent compensation that is in a written, signed, year-long contract specifying the services and schedule, with total pay set in advance at fair market value and not based on referrals, and services that do not promote unlawful activity.

Did the Attorney General approve the hospital's actual contracts?
No. The opinion said reviewing particular contracts for compliance is beyond the opinion process. It answered only conditionally: if the contracts met the federal safe-harbor criteria as described, the payments would not violate section 161.091.

Citations

• Health & Safety Code § 161.091(a), (e), (f)
• 42 U.S.C. § 1320a-7b(b)
• 42 C.F.R. §§ 1001.951, 1001.952(d), 1001.952(d)(6)
• Gov't Code § 311.005(2) (Code Construction Act)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0138
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0138.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

July 8, 1992

Honorable Rene Guerra
Criminal District Attorney
Hidalgo County Courthouse
Edinburg, Texas 78539

Opinion No. DM-138

Re: Whether the Edinburg Hospital Authority may pay physicians a flat fee or per diem to be on call to admit emergency room patients to the hospital without violating section 161.091 of the Health and Safety Code, which prohibits remuneration for securing or soliciting patients (RQ-301)

Dear Mr. Guerra:

You ask whether the Edinburg Hospital Authority (the "hospital") may pay physicians on a flat fee or per diem basis to be on call to admit emergency room patients to the hospital without violating section 161.091 of the Health and Safety Code, which prohibits health care professionals from accepting remuneration for securing or soliciting patients or patronage. You explain that the hospital has contracted with a local medical firm to provide physicians to staff the emergency room. These physicians are not on the hospital's active medical staff and are therefore unable to admit patients to the hospital. Although some emergency room patients have an ongoing relationship with a member of the active medical staff who can admit them to the hospital, other patients do not. As a result, the hospital must recruit physicians from its active medical staff to be available at the emergency room for the sole purpose of admitting those patients who have no ongoing relationship with a member of the medical staff.

Section 161.091 of the Health and Safety Code provides in pertinent part:

  (a) A person[1] licensed, certified, or registered by a health care regulatory agency of this state commits an offense if the person intentionally or knowingly offers to pay or agrees to accept any remuneration directly or indirectly, overtly or covertly, in cash or in kind to or from any person, firm, association of persons, partnership, or corporation for securing or soliciting patients or patronage.

  . . . .

  (e) This section shall not be construed to prohibit remuneration for advertising, marketing, or other services that are provided for the purpose of securing or soliciting patients provided the remuneration is set in advance, is consistent with the fair market value of the services, and is not based on the volume or value of any patient referrals or business otherwise generated between the parties.

  (f) This section shall not be construed to prohibit any payment, business arrangements, or payments practice not prohibited by 42 U.S.C. Section 1320a-7b(b) or any regulations promulgated pursuant thereto. [Footnotes added.]

[Footnote 1: The Code Construction Act defines the term "person" to include a "corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity." Gov't Code § 311.005(2).]

Section 1320a-7b(b) of title 42 of the United States Code generally criminalizes kickbacks in Medicare and federally-funded state health care programs. Pursuant to its statutory authority, the Office of the Inspector General of the United States Department of Health (the "OIG") has issued regulations which exempt certain payment practices from those criminal penalties. See 42 C.F.R. §§ 1001.951, 1001.952. Those regulations provide that remuneration made by a principal to an agent as compensation for services of the agent is not subject to criminal liability, as long as the following six standards are met: (1) The agreement must be written and signed by the parties; (2) the agreement must specify the services to be provided by the agent; (3) the agreement must specify the exact schedule of the time intervals for which services are to be provided and the charges therefor; (4) the term of the agreement must be for not less than one year; (5) the aggregate compensation paid to the agent over the term of the agreement must be set in advance, be consistent with fair market value in arms-length transactions, and not be determined in a manner which takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare or a federally-funded state health care program; and (6) the services performed under the agreement must not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law. Id. § 1001.952(d).

You state that the hospital's personal service contracts with the physicians will be set out in writing and signed by the parties; will specify the services to be provided by the physician; will specify the schedule for delivery of such services; and will cover a period of not less than one year. You also state that the physicians will be paid on a flat fee or per diem basis that will reflect the fair market value for the services to be performed. Presumably, therefore, the contract will not take into account the volume or value of the patients admitted to the hospital.

It is beyond the purview of the opinion process to review particular contracts and to determine whether they satisfy specific statutory requirements. Assuming, however, that the contracts are as you describe them, and that they do not "involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law," 42 C.F.R. § 1001.952(d)(6), then persons making payments under such contracts are exempted from criminal liability under section 1320a-7b(b) of title 42 of the United States Code by the regulations promulgated by the OIG. Therefore, the payments made pursuant to such contracts are also exempted from section 161.091 of the Health and Safety Code by virtue of subsection (f) which provides that section 161.091 "shall not be construed to prohibit any payment . . . not prohibited by 42 U.S.C. Section 1320a-7b(b) or any regulations promulgated pursuant thereto." We also conclude that such payments would be exempted from section 161.091 by virtue of subsection (e) which provides that "[t]his section shall not be construed to prohibit remuneration for . . . services that are provided for the purpose of securing or soliciting patients provided the remuneration is set in advance, is consistent with the fair market value of the services, and is not based on the volume or value of any patient referrals or business otherwise generated between the parties."

                               SUMMARY

      Assuming that the Edinburg Hospital Authority's contracts with physicians for the purposes of admitting emergency room patients to the hospital conform with the criteria set forth in section 1001.952(d) of title 42 of the Code of Federal Regulations, payments made under such contracts would not be prohibited by section 161.091 of the Health and Safety Code.

                                            DAN MORALES
                                            Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General