HHS Issues Fraud Alert on Medical Directorship Relationships

AlertHospitals and Physicians Need to Review Agreements to Prevent a Violation Under the Anti-Kickback Statute
By Sara Noel and Laura Nelson

On June 9, 2015, the U.S. Department of Health and Human Services Office of the Inspector General (OIG) released a Fraud Alert regarding recent settlements with 12 individual physicians who were party to questionable medical directorship and office staff arrangements. The OIG noted that while many medical directorship relationships are legitimate, a compensation arrangement may violate the federal Anti-Kickback Statute if even one purpose of the arrangement is to compensate a physician for his past or future referrals of federal health care program business. As a result, any comment made regarding referrals by either a hospital or a physician in the course of arranging a medical directorship creates a genuine risk of tainting an otherwise lawful arrangement.

In connection with these settlements, the OIG alleged that the compensation paid to the physicians constituted improper remuneration under the federal Anti-Kickback Statute for several reasons, including that the payments took into account the physicians’ volume or value of referrals, the payments were not fair market value for the services performed and the physicians did not actually perform the services specified in the agreements. OIG also alleged that some physicians received improper remuneration from affiliated health care entities which paid the salaries of the physician’s front office staff. Because the physicians were an integral part of the payment scheme, the OIG determined the individual physicians were subject to liability under the Civil Monetary Penalties Law.

This Fraud Alert demonstrates that while in many cases payment for medical directorship services is legitimate, both hospitals and individual physicians bear the responsibility to ensure that medical directorship relationships reflect fair market value compensation for bona fide services actually performed by the physician.

Hospitals and physicians should document such arrangements in a written agreement that clearly specifies the duties to be performed by the physician and the fair market value compensation to be paid based on the time spent performing those duties. Fair market value compensation should be ascertained by reference to physician compensation surveys and other appropriate sources. The agreement should also require, as a condition for payment, that the physician record his time spent performing medical director duties and submit those logs to the hospital as documentation of the services actually provided by the physician in the event the legitimacy of the medical directorship arrangement is questioned.


If you would like to discuss physician compensation arrangements or other health law issues, please contact Sara Noel or your regular Stinson Leonard Street attorney.

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