Fraud Risk Connected with Medical Directorships

On June 9, 2015, the Office of the Inspector General (OIG) issued a fraud alert to physicians warning them of physician compensation arrangements that may result in significant liability. In particular, the OIG warned physicians entering into compensation arrangements, such as medical directorships, to ensure that those arrangements reflect fair market value for bonafide services that physicians actually provide. The OIG further reminded physicians that if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of federal healthcare program business, the statute will be violated.

As I have discussed in this blog before, any financial relationship into which physicians enter when they are in a position to either generate or receive federal patient referrals from the other party, must meet certain requirements. Using the OIG's example, a physician entering into a medical director arrangement with a hospital or other type of entity that does business with a federal healthcare program should generally meet the following requirements under the Anti-Kickback Statute (AKS):

1. The services agreement must be in writing and signed by the parties.

2. The agreement must specify the services to be provided by the doctor. If the services are to be provided on a less than full-time basis, the agreement must specify when the services will be provided, for how long and the exact charge for each service interval.

3. The term of the agreement must be for at least one (1) year.

4. The aggregate compensation to be paid to the physician over the term of the agreement must be set in advance, be consistent with fair market value in an arms-length transaction, and not be determined in a manner that takes into account the volume or value of any patient referrals or other business generated between the parties for which payment is made by the Medicare or Medicaid programs.

5. The services to be performed must not involve the counseling or promotion of a business arrangement or activity that violates any federal or state law.

While no violation of the statute occurs for failure to meet a safe harbor, the arrangement will be open to greater scrutiny for failure to meet the requirements.

In establishing compensation arrangements, such as medical director agreements, physicians must also always look for red flags. Is the compensation fair market value? While there is no precise definition of fair market value, generally a fee greater than $150 to $250 per hour is suspect (in my opinion). Additionally, how many medical directors are there? Multiple medical directors can also be evidence of a suspect arrangement when they all take on mostly identical responsibilities and are all in a position to refer patients.

In its fraud alert, the OIG specifically pointed out that it had recently reached settlements with twelve (12) individual physicians who entered into questionable medical directorship and office staff arrangements. The OIG alleged the compensation paid to physicians under these arrangements was improper remuneration under the AKS for a variety of reasons, such as the payments took into account the physician's volume or value of referrals, the payments did not reflect fair market value, or because the physicians never actually performed the services required under the agreement. The OIG further alleged that some of those twelve (12) physicians entered into arrangements where an affiliated healthcare entity paid the salaries of the physician's front-office staff, thus relieving the physicians of a financial burden they otherwise would have incurred. In addition to violating the AKS, which applies to both direct and indirect arrangements, such schemes were also subject to liability under the Civil Monetary Penalties law.

Although most physicians are well aware of the AKS, many have incorrectly assumed that the government is interested only in the entities with which they do business, which are viewed as larger targets with deeper pockets. This fraud alert clarifies that physicians should expect increased scrutiny of all financial arrangements into which they enter going forward. Consequently, if you are a physician, there is no time like the present to consult with counsel to make sure your financial relationships with referral sources are all in order.