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Newly Released OIG Fraud Alert Reiterates Physician Compensation Risks

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Newly Released OIG Fraud Alert Reiterates Physician Compensation Risks

In June 2015, the Office of Inspector General (“OIG”) released a Fraud Alert to give notice to physicians that they may be subject to civil, criminal or administrative sanctions if they enter into medical directorship or other compensation arrangements that do not reflect “fair market value for bona fide services [the] physicians actually provide.” Hospitals and other payors of compensation to physician-referrers have received similar warnings from OIG in the past, so this Fraud Alert, which is directed to physicians, is perhaps to underscore the applicability of the Federal Anti-Kickback Statute to parties on both sides of a prohibited transaction, and to indicate the OIG’s willingness and priority to take action against whatever parties may have violated this anti-fraud law.

The Fraud Alert states that the OIG recently reached settlements with 12 individual physicians who entered into questionable medical directorship and offices staff arrangements. The OIG cites three reasons for its allegations that payments under the referenced medical directorship arrangements were improper remuneration:

(1) the payments took into account the physicians’ volume or value of referrals;

(2) the payments did not reflect fair market value for the services to be performed; and

(3) the physicians did not actually provide the services called for under the agreements. The OIG states that the questioned office staff arrangements involved an affiliated health care entity making payments for the salaries of the physicians’ front office staff. The OIG characterized these payments as improper remuneration on the basis that they relieved the physicians of a “financial burden they otherwise would have incurred.”

FMV Pitfall

In our observations, properly structured medical directorship agreements are generally viewed as fairly low risk arrangements, and the pitfalls pointed out by the OIG may be fairly obvious to those familiar with healthcare regulations. However, we caution that there are more subtle pitfalls to be aware of, particularly in an increasing environment of qui tam relator claims. In structuring medical director arrangements, consideration should be given to issues such as:

  • Are the medical director duties legitimately needed, and for the specific number of hours?
  • Are co-medical directors or multiple medical directors within a single service line actually needed?
  • Are the time sheets submitted by the physicians compelling (or do they simply appear as identical photocopies from one month to the next)?
  • Is the rate of payment consistent with FMV?

The OIG encourages parties to carefully consider the terms of medical directorship and other compensation arrangements before entering into them. Careful consideration reasonably includes examination of whether the contemplated nature, scope and performance terms of the services in those arrangements make sense in light of industry practices and compensation data.