Physician Employee v. Independent Contractor Status - Why It Matters
By: Jennifer Kirschenbaum
It is a common misapprehension that the choice of being an employee or an independent contractor is driven by decisions involving tax deductions and withholding issues. This designation is actually critical in determining if your medical practice is in compliance with many facets of billing for the practice’s services.
Billing for DHS Services
The Stark Law prohibits physicians from making referrals for designated health services (DHS) payable by Medicare to an entity with which the physician has a financial relationship unless an exception applies. Under the in-office ancillary services exception, a practice may make a referral1 to a member of the group if the medical practice meets the definition of a “group practice”.
In order for a medical practice to constitute a group practice, the Stark Law requires that two or more members of the practice perform “substantially all” of the patient care services rendered by a group practice (that is, at least seventy five percent (75%) of the total patient care services of the practice) be furnished through the group and billed under a billing number assigned to the group, and that the amounts received are treated as receipts of the group.2 Under the Stark Law, members of a group practice include physician employees, locum tenens physicians, and on-call physicians (while the physician is providing on-call services for members of the group practice).3 Importantly, independent contractors are not included under the definition of a group practice physician.
Whether a physician is an independent contractor or an employee is a question of fact, not a determination to be made by the practice group. According to the IRS, an individual is an independent contractor if the person (or practice) for whom the services are performed has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. In the context of a medical practice, the following factors will be considered (but other factors may also be considered): (i) whose patients are being treated, (ii) who owns the equipment being used, (iii) whether the practice exercises any control or discretion over the physician or his work methods, (iv) whether the physician is free to provide similar services to others, (v) who determines scheduling, (vi) how the physician is compensated, and (vii) what, if any, benefits the physician receives from the practice.
A physician working in a practice on a part-time employment basis may, in fact, be an independent contractor if the following factors are present: (i) the physician brings his own equipment, (ii) the practice does not exercise any control or discretion over the part-time physician or his work methods, (iii) the part-time physician is free to provide similar services elsewhere, (iv) the part-time physician is paid only for services rendered, (v) the part-time physician does not receive any employee benefits from the practice, and (vi) the part-time physician controls his own schedule.
If your practice engages physicians on a full-time or part-time basis, it is important to exam whether those physicians are employees or independent contractors. As a management matter, it is good practice to have a written agreement for all engaged physicians (independent contractor agreements or employment agreements) in order to protect the practice and make clear the responsibilities and liabilities between the practice and physicians. It is also critical as a compliance matter to ensure that the practice’s physicians are properly categorized as employees or independent contractors, especially if your practice intends to quality as a “group practice.”
If your practice engages independent contractor physicians and bills for self-referred DHS, it is critical that you review whether you constitute a group practice based on the 75% test described above. In conjunction with that analysis, you should review the criteria for the designations of employees and independent contractors to make sure that your engaged physicians are appropriately categorized based on how they perform services for the practice.
Receiving Payment for Services Provided by Independent Contractors
A second reason to review the status of engaged physicians is that, under the new Medicare Claims Processing Manual, a medical practice may only bill for employees of the medical practice unless specific steps are taken to notify Medicare and other third party payors of the independent contractor affiliation. Medical practices may not bill Medicare or other third party payors and collect monies for independent contractors working on behalf of the medical practice unless:
(i) the medical practice has a written contractual relationship with the independent contractor; and
(ii) the medical practice receiving payment and the physician that furnished the service are both subject to the following program integrity safeguard requirements: (a) that the entity receiving payment and the person that furnished the service are jointly and severally responsible for any Medicare overpayment to that entity, and (b) that the person furnishing the service has unrestricted access to claims submitted by an entity for services provided by that person.
If you have questions regarding correct employee categorization, or require assistance with contracting with employees or independent contractors contact Jennifer Kirschenbaum at (516) 747-6700 or Jennifer@kirschenbaumesq.com.
1 Except durable medical equipment and parenteral and enteral nutrients, equipment, and supplies.
2 42 C.F.R. 411.352
3 42 C.F.R. 411.351