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Fraud Alert to Physicians: Tread Carefully with Compensation Arrangements

WASHINGTON, DC – Physicians be warned: A compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for past or future referrals of federal healthcare program business.

That’s according to a fraud alert issued by the Department of Health and Human Service’s Office of Inspector General, which states, “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.”

In a brief comment on the alert, the law firm King & Spalding notes that, “Although the OIG’s enforcement of physician compensation arrangements, including medical director agreements, under the Anti-Kickback Statute (AKS) is not new, OIG’s clear emphasis in the Fraud Alert on its prosecution of physicians who enter into such problematic arrangements is notable.”

In an item appearing on the JDSupra website, the law firm points out that, while AKS criminalizes the conduct of both parties to an arrangement, “OIG’s enforcement of physician compensation arrangements has traditionally focused on the party contracting with the physician.”

The HHS alert recounts how the OIG recently reached settlements with 12 physicians who entered into questionable medical directorship and office staff arrangements.

Why did the OIG allege that compensation received by the physicians was improper under the anti-kickback statute? Federal investigators took that position because:

  • the payments took into account the physicians’ volume or value of referrals
  • the payments did not reflect fair market value for the services to be performed, and
  • the physicians did not actually provide the services called for under the agreements.

Another issue was that, under the arrangements with some of the physicians, an affiliated health care entity paid the salaries of their front office staff. OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians because they relieved the physicians of a financial burden they otherwise would have incurred.

Because the inspector general’s office determined that the physicians were an integral part of the scheme, they became subject to liability under the Civil Monetary Penalties Law.

“Those who commit fraud involving federal healthcare programs are subject to possible criminal, civil, and administrative sanctions,” the HHS alert warns.

King & Spalding suggests the Fraud Alert “could signal the beginning of a new enforcement trend focused on physician culpability under the AKS. Physician practices, both large and small, should certainly heed OIG’s message and take this opportunity to examine their compensation arrangements and carefully consider all new arrangements before they fall under government scrutiny.”

A blog post from the law firm Fitzpatrick, Lentz & Bubba, meanwhile, describes a “safe harbor” available for medical directorships, including that the “aggregate compensation paid to the physician must be set in advance and be consistent with fair market value and arm’s length transactions, and not be take into account the volume or value of referrals or business generated between the parties.”

“Problematic arrangements under this requirement include medical director agreements which compensate the physician based on a percentage of facility revenues,” the firm adds.