While not an entirely new topic, there has been a significant increase in the amount of attention focused on the subject of medical director compensation arrangements. On June 9th, the OIG issued a Fraud Alert on physician compensation arrangements, in which it emphasized the importance of “ensuring that those arrangements reflect the fair market value for bona fide services the physicians actually provide.” OIG issued the alert after reaching settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements. As the business relationships between physicians, health care systems, and other health care entities continue to change and evolve, it is important to pay close attention to medical director compensation arrangements and structure them in such a way so as to comply with all applicable laws and regulations to avoid any potential liability.
Applicable Laws
Questionable medical director arrangements may run afoul of the Anti-Kickback Statute and the Stark Law. Under the Anti-Kickback Statute (AKS), it is a criminal offense to knowingly and willfully exchange any remuneration to induce or reward referrals of items or services payable under a Federal health care program. Remuneration includes anything of value such as money, discounts, free office space, or payment for expenses. The AKS applies to any entity that can receive payment from Federal health care programs including pharmacies, physicians, and hospitals. The AKS, however, has specific safe harbors under which arrangements can meet specific requirements and be immune from prosecution under the AKS.
The Stark Law, which is a strict liability law and does not require proof of intent to violate the law, prohibits any type of financial relationship between physicians and entities to which physicians make referrals for designated health services. Designated health services include outpatient prescription drugs, inpatient hospital services, laboratory services, physical therapy services, diagnostic imaging, among others. Similar to the AKS safe harbors, the Stark Law has a number of exceptions which, if all the criteria of one of these exceptions are met, can ensure that the arrangement does not violate the statute. The medical directorship compensation arrangement must meet all the requirements of an AKS safe harbor or Stark Law exception in order for it to be covered under the safe harbor or exception.
Compliance Tips
The OIG is on the lookout for “sham” arrangements, where the medical director position is just a cover to disguise otherwise illegal payments for referrals. However, it is perfectly legitimate to pay a medical director who is providing genuinely necessary services. There are some key points to keep in mind in order to comply with the safe harbor or exception requirements described above. These points are relevant for any physician and entity entering into a medical directorship arrangement, including pharmacies and hospitals, where the medial director may refer his or her patients to the entity. First, the entity hiring the medical director must make sure it is paying fair market value for the work the medical director is performing. In order to do this, a fair market valuation of the services the medical director is supposed to perform should be obtained. Second, the services the medical director provides must be documented and must be commercially reasonable (meaning the director must be performing legitimate services on behalf of the employer, and not duplicative or other unnecessary work). Third, the medical director must submit time sheets (or other documentation the medical director uses to track the services performed) to the employer at least monthly as a condition of payment. The medical director should use a time sheet or other document to track the date that he/she provided services, provide a description of the services performed, and note the amount of time spent on each activity. Making the submission of timesheets a condition to payment prevents payment for services never actually performed. Finally, the employer must execute a contract with the medical director in writing, and both parties must sign, with a minimum term of one year. The agreement should cover all the services that the medical director will perform for the term of the agreement. It should also set the aggregate compensation for the services to be performed, and this compensation must be consistent with the fair market value of the services performed. By complying with these guidelines and requirements, medical directors and their employers can avoid potential violations of these key statutes.
If you have questions or need help regarding medical director compensation arrangements, contact Frier Levitt today.
