The Department of Health and Human Services (HHS)’ Office of Inspector General (OIG) recently warned physicians and facilities against so-called “sham” medical directorships and other compensation issues. This “Fraud Alert” entitled “Physician Compensation Arrangements may result in significant liability” notes that the OIG recently reached settlements with 12 individual physicians who had entered into questionable medical director agreements and office staff arrangements.
The Federal Anti-Kickback Statute is a criminal law that prohibits the exchange of anything of value in an effort to induce referrals for business under federal health care programs. This very broad statute establishes penalties for individuals on both sides of the prohibited transaction and may result in fines of up to $25,000.00 per violation and imprisonment for up to five years. Additional penalties may include exclusion from participation in federal health care programs.
There is a “safe harbor” available for medical directorships known as the “personal services safe harbor,” which includes specifically enumerated requirements. 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.
In the Fraud Alert, the OIG claimed that the compensation paid to those physicians took into account the physicians’ volume or value of referrals and compensation and that they did not reflect fair market value from the services performed. It also noted that there were violations as the physicians did not actually provide the services called for under the agreements (“sham” medical directorships).
This fraud alert should be interpreted as a signal of increased in prosecutions regarding not only medical directorships, but of other arrangements under the personal services safe harbor including management agreements.
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