Physician compensation arrangements, especially medical director arrangements, are under increased scrutiny for Anti-Kickback Statute, False Claims Act, and Stark Law violations.
Enforcement agencies, such as the Department of Health and Human Services Office of Inspector General (OIG) and the Department of Justice (DOJ), are on the lookout for these red flags:
- Payments made to physicians are based in part on the physicians’ volume or value of referrals or downstream revenue (facility fees, laboratory tests, and other hospital charges ancillary to the physician’s services);
- Payments, including productivity incentives, gifts, or perks, do not reflect fair market value for the services performed;
- Physicians do not actually provide the medical directorship services or academic duties called for under the agreements; and
- Medical director agreements are not in writing.
Recent enforcement actions should serve as a reminder to practice groups and health systems to review internal compliance policies and physician compensation arrangements for Stark Law, Anti-Kickback Statute, and other regulatory risks.
Document Medical Director Performance to Reduce Stark Law Risks
In October 2024, the DOJ announced a $5.3 million settlement with the CEO of a Rockdale, Texas hospital to resolve allegations involving illegal kickbacks disguised as medical director fees. The hospital, Little River Healthcare, paid the physician $2,000 per month, even though Little River did not receive any genuine medical director services from him.
In guidance for physicians, the OIG explains that a medical director salary should be supported by the following services:
- Actively overseeing clinical care in the facility;
- Leading the medical staff to meet the standard of care;
- Ensuring proper training, education, and oversight for physicians, nurses, and other staff members; and
- Identifying and addressing quality problems.
While neither the Anti-Kickback Statute nor the Stark Law explicitly require time sheets, accurate records can provide evidence of legitimate medical director services. Without such evidence, it may be argued that your medical director’s compensation was made in consideration of the volume or value of your referrals rather than the performance of administrative services.
Detailed documentation – such as employment agreements, meeting minutes, quality metric reviews, time sheets, compensation surveys, and performance evaluations – collectively help demonstrate that the medical directorship is needed for a legitimate business purpose, and the compensation is set in advance and consistent with fair market value.
Establish Formal Reviews of Physician Compensation Arrangements for Stark Law Compliance
On July 26, 2024, the United States filed a complaint against the Erlanger Health System, a county-owned public health system located in Tennessee, and its affiliated Erlanger Western Carolina Hospital, alleging, among other things, that the defendants paid large medical director and academic salaries to physicians to induce referrals for inpatient hospital services.
The government alleges that medical director salaries were paid without requiring the physicians to document time spent on medical director duties and without ensuring that administrative work was performed to justify payment.
Several healthcare compensation and billing consultants warned the Erlanger defendants that they were paying salaries that were not properly supported and/or exceeded fair market value. The complaint further alleges that the Erlanger Health System ignored and overrode objections of its chief compliance officer to sign the problematic medical director agreements.
The Stark Law is a strict liability statute, which means that a violation can occur without any intent to break the law. Unlike Stark, the False Claims Act requires the government to prove that a defendant acted “knowingly.” A person who knowingly submits or causes claims to be submitted to Medicare in violation of the Stark Law also violates the False Claims Act.
When you establish oversight and controls over physician compensation arrangements, you must comply with those controls to ensure that your company does not violate Stark Law or the False Claims Act. Ignoring compliance policies and/or advice from consultants, compliance officers, or other staff members provides enforcement agencies with proof that you acted knowingly in violation of the False Claims Act.
Document the approval process for physician contracts, including:
- The business rationale for the position (supported by patient volume data, coverage gaps, call coverage needs, or a community needs assessment);
- A fair market value assessment; and
- Legal and compliance approval.
Review Medical Director Arrangements with Texas Healthcare Compliance Attorneys
Recent DOJ enforcement actions demonstrate that medical director arrangements continue to face intense regulatory scrutiny.
Don't wait for a DOJ investigation to review your medical director arrangements. Our healthcare compliance attorneys can help evaluate your contracts, documentation practices, and review procedures to identify and address potential regulatory risks.
Contact us today to schedule a consultation about your medical director arrangements and physician compensation compliance program.
