Paying physicians for charity care

The Internal Revenue Service's (IRS's) Announcement 95-25 gives important new legal support to the practice of compensating physicians for providing charity care. The announcement describes a situation in which tax-exempt hospitals may compensate non-employee physicians who are members of their staffs for providing charity care--a practice that in the past has had only indirect legal support. Before creating arrangements to compensate physicians for charity care, however, healthcare executives first must establish guidelines that ensure the arrangements comply with IRS rules and Federal antikickback laws. Careful planning on the part of healthcare executives can ensure that an important community service is provided without jeopardizing the hospital's tax-exempt status or exposing it to monetary penalties.