Physicians: Be Cautious When Taking on a Medical Director Role

Here is a question from a reader:

Q: Our medical practice refers out a lot of patients for sleep testing. Most patients are uninsured or covered by private insurance and tend to be in an industry where their employers seek out annual certification regarding their health (i.e. truck drivers). My partner and I have been offered the position of medical directors at a sleep center and we intend to send our patients there. Would this be acceptable?

A: There are many red flags that go up for me when I am asked this type of question. Even if I assume that no federal patients are involved, I have to ask, why are multiple medical directors needed? Are there other physicians who are also playing the role of medical director for this sleep center other than the physicians asking me the question?

When multiple physicians, particularly those in a position to refer, are offered the role of medical director, this can be a scheme to compensate referring physicians and anyone offered such a position should be cautious. Except for a facility with multiple departments or complex activities, one should always question why multiple directors are needed.

Another important consideration for anyone offered a medical director position is director compensation? Physicians should avoid percentage arrangements, payments based on their referrals, or other compensation that seems “too good to be true.” Even if the fee offered is a flat, hourly amount, it’s important to question how it was determined and whether legitimate services are being provided for the fee. Where there is more than one director and few services to perform, the fees being paid likely exceed fair market value for the minimal work being shared by multiple people. Typically, medical directors also are required to turn in monthly forms outlining the specific hours of work performed. To the extent that directors are paid without any need for such documentation, this is a concern.

If the medical director will be in a position to refer to or receive federal patients from the entity for which it holds the director position, it’s important that the arrangement between the parties comply with federal law. While sleep testing generally is not covered by Stark, the DME generated by sleep test studies are covered, as well as related diagnostic testing that may be ordered.

A physician serving as a medical director for a home health agency or a hospital, for example, must be certain to meet an exception to the Stark law if the physician is in a position to generate referrals, since home health services and in-patient hospital services are both considered designated health services under Stark. Typically, hospitals and home health agencies rely on an employment exception to Stark or use the “Personal Services Exception” which, among other requirements, demands that there be a written agreement between the parties for a term of not less than one (1) year. In addition, the exception mandates that the director’s compensation be set at a fair market value and the schedule to be worked (if less than full time) and the services to be provided must be specified. Fair market value is a key component of a legal arrangement, particularly if the director is a physician in a position to refer. An hourly rate set at more than fair market value could be considered payment to the physician for his or her referrals. The Anti-Kickback provides a similar exception, except that the aggregate compensation must be set in advance and, of course, there can be no remuneration paid to the medical director for the volume or value of any referrals made.

When asked to serve as a medical director at any facility, it’s recommended that you have healthcare counsel review the document to make sure it’s compliant. Although it’s always nice to earn these extra fees by serving as a director, the cost of non-compliance is significant and outweighs any possible benefit of taking on such a position.

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