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OIG Fraud Alert – Both Hospitals and Physicians Should Examine Compensation Arrangements

on Friday, 17 July 2015 in Health Law Advisory: Zachary J. Buxton, Editor

On June 9, 2015, the OIG issued a Fraud Alert addressing physician compensation arrangements. While brief, the Fraud Alert provides an important reminder that financial arrangements between physicians and providers are targets of the OIG’s enforcement efforts. The Fraud Alert is clearly intended to emphasize that, in addition to hospitals, physicians need to pay attention to their compensation arrangements and make sure that such arrangements are compliant with the law. It must be noted that while hospitals often bear the brunt of Stark non-compliance, both physicians and providers have potential liability for impermissible arrangements under the federal anti-kickback statute. To that end, the OIG noted that it had recently reached anti-kickback settlements with 12 physicians who entered into questionable medical directorship and office staffing arrangements.

The Fraud Alert highlights the following principles:

  • Medical directorship and other professional arrangements between providers and physicians must be commercially reasonable and serve legitimate business purposes.
  • Physicians engaged to provide medical director and other services must actually provide the services called for in the agreement. The agreements may not be for phantom services or serve as a way to give physicians extra funds as rewards for referrals.
  • Compensation must be fair market value for services actually rendered. This means that medical directorship arrangements paying physicians a flat monthly or yearly fee regardless of work effort are at risk of non-compliance. Such arrangements should be avoided or, at the very least, a minimum work commitment should be included in the contract that results in the fee being fair market value.
  • Physicians should not be selected for participation in such arrangements based upon their referrals to the provider.

The Fraud Alert serves as a reminder that providers should always be wary of entering into financial relationships with referral sources, especially physicians. Any arrangement between a provider and a physician should be scrutinized based on the above factors. It must be structured to fit within a Stark exception and should conform to an anti-kickback safe harbor if at all possible.

Andrew D. Kloeckner

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