Article by Capehart Scatchard

In a June 9, 2015 Fraud Alert issued by the Office of Inspector General of the United States Department of Health and Human Services (the “OIG”) entitled “Physician Compensation Arrangements May Result in Significant Liability” the OIG reiterated its longstanding position that physicians who enter into “compensation arrangements . . . must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.” (emphasis added).

The Fraud Alert makes it clear that the Department of Justice and OIG continue to focus not only on the large healthcare institutions, but that federal investigators are scrutinizing individual physicians’ compensation arrangements.  The Fraud Alert follows twelve recent settlements between the OIG and physicians, involving medical director and office staff arrangements, in which the OIG alleged that compensation paid to the physician under the medical directorship arrangements constituted improper remuneration under the anti-kickback statute for a number of reasons, including:

1. The compensation took into account the physicians’ volume or value of referrals;
2. The compensation did not reflect fair market value for the services performed;
3. The physicians did not actually provide the contracted services; and
4. An affiliated health care entity paid the salaries of the physicians’ front office staff thereby relieving the physicians of a financial burden they otherwise would have incurred.

With regard to the twelve settlements, the OIG determined that the physicians involved were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law.

The OIG noted that although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.

Again, and importantly, the intended audience of the Fraud Alert are individual physicians and small practice groups[1] which the OIG encourages “to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”

Ultimately, the June 9th Fraud Alert emphasizes the need for healthcare institutions to continually ensure that their physician compensation arrangements reflect the fair market value for bona fide services that the physicians actually provide and that the vigilance required of larger healthcare institutions likewise applies to small practices and individual physicians.

[1] The OIG likewise provides links to guides it publishes entitled “Compliance Program Guidance for Individual and Small Group Physician Practices” and “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse,” further underscoring that the instant alert was intended for individual physicians and small practices.

Questions regarding this article may be sent to Publications@Capehart.com.