Welcome to the new Outpatient Surgery website! Check out our login FAQs.
Legal Update: Are You Paying Your Medical Director Fairly?
The feds are clamping down on physician compensation arrangements.
John Fanburg, Lani Dornfeld
Publish Date: October 5, 2015   |  Tags:   Medical Malpractice-Legal
reward referrals OUT OF BOUNDS The federal government is cracking down on medical director arrangements that reward referrals.

The federal government is clamping down on physician compensation arrangements such as medical directorships, paying particular attention to whether surgical facilities are compensating physicians for their past or future referrals of federal healthcare program business. Basing pay on the number of referrals may violate the Anti-Kickback Statute.

In a rare fraud alert, the Department of Health and Human Services' Office of Inspector General urged surgical centers and other healthcare providers to scrutinize their medical director arrangements for compliance with fraud and abuse laws and to report non-compliant arrangements to federal authorities (osmag.net/sQQQn8). "Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide," reads the alert, which was issued in June. So if it's been a while since you examined how you're paying your medical director, now might be a good time to do so to make sure the arrangement is above board.

Questionable quid pro quo
The alert was triggered by the OIG's recent settlements with 12 physicians who had entered into "questionable medical directorship and office staff arrangements." The OIG alleged the arrangements represented improper remuneration under the federal Anti-Kickback Statute because:

  • the payments to the physicians took the volume or value of patient referrals into account and did not reflect fair market value for the services to be performed, and
  • the physicians did not provide the services required under the arrangements.

The OIG further alleged that, in some of the arrangements, the healthcare facility or system with which the physicians were affiliated paid their office staffs' salaries, which was seen as a violation as it "relieved the physicians of a financial burden they otherwise would have incurred."

While the OIG determined that "the physicians were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law," its future investigations and sanctions are likely to hold facilities that hire medical directors or enter into other compensation arrangements with physicians liable if warranted.

About the Anti-Kickback Statute

The federal Anti-Kickback Statute prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate federal healthcare program business. An arrangement may violate this law if even one of its purposes is to compensate a physician for past or future Medicare referrals.

  • Criminal penalties. Include fines and imprisonment of up to 5 years.
  • Civil and administrative penalties. Include fines (which can be assessed at up to 3 times the amount of the kickback), exclusion from federal healthcare programs and prosecution under the federal False Claims Act.

Drawing the line
In light of the recent alert, surgical facilities and their member physicians are strongly advised to review all existing and future medical directorships and other financial arrangements between the facility and the physicians. This legal compliance review should ensure that legitimate services are consistently being provided at fair market value. When possible, try to fit the arrangement into a safe harbor under the Anti-Kickback Statute.

The review should, at minimum, address the following questions:

  • Are the services to be provided under the arrangement legitimately needed?
  • Is the arrangement established in a written agreement between the parties?
  • Is the term of the arrangement set forth in the agreement, and is it for a duration of at least 1 year?
  • Does the agreement detail all of the services to be provided under the arrangement? If the review is of an existing arrangement, have all of the services been provided in strict accordance with the terms of the written agreement?
  • Are time records required? If the review is of an existing arrangement, have the time records been accurately and consistently kept and provided to the other contracting party?
  • Is the rate of compensation consistent with fair market value in an arm's-length transaction (that is, one in which unaffiliated parties are acting independently)? Did the parties utilize national compensation surveys, a compensation appraisal expert, or some other reliable and substantiated method of determining fair market value?
  • Did the parties to the arrangement ensure that none of the compensation, in any way, in whole or in part, is based on the volume or value of any referrals or business generated between them for which payment may be made, in whole or in part, by federal healthcare programs?

Keep your leadership legal
Similarly, you should perform a legal compliance review for any other arrangement between or among a surgical facility, its physicians and any other facility or provider. This includes office staffing arrangements. If the result of any arrangement is to transfer financial risk to the other contracting party, the arrangement may be non-compliant. Although the OIG's fraud alert focused on Anti-Kickback Statute compliance (see "About the Anti-Kickback Statute"), these types of financial arrangements may implicate other anti-fraud and anti-abuse laws, including the federal Stark Law against self-referrals, the federal False Claims Act and their respective state counterparts. As always, consult with your legal counsel or an attorney experienced in healthcare business law for a full overview.