United States: OIG Cautions Physicians To Consider Compensation Arrangements Carefully

The Department of Health and Human Services, Office of Inspector General ("OIG") recently released a fraud alert cautioning physicians who enter into medical directorships and other compensation arrangements, recommending that they consider whether the terms and conditions of such arrangements may implicate the Anti-Kickback Statute ("AKS"). While not the first time the OIG has reminded physicians that parties on both sides of an arrangement prohibited by the AKS can be held liable,¹ the June 9, 2015 alert, "Physician Compensation Arrangements May Result in Significant Liability," signals the OIG's increasing willingness to levy penalties against individuals for improper arrangements.

This fraud alert follows a series of enforcement actions initiated by the OIG under the Civil Monetary Penalties Law,² which resulted in settlements with 12 individual physicians regarding their "questionable medical directorship and office staff arrangements" with a diagnostic center and imaging facility in Texas. The settlements ranged from $50,000 to nearly $200,000, and one family practice physician agreed to a three-year period of exclusion from participation in federal health care programs.³ The arrangements at issue included medical director agreements and benefits received under referral coordinator contracts. According to the OIG, these arrangements were not based on fair market value for the services rendered and took into account the volume or value of referrals from the physicians or, in some cases, were sham agreements that provided compensation for services not actually provided. Some of the arrangements were alleged to have included compensation for employees in the physicians' offices, relieving the physicians of a financial burden they otherwise would have incurred. The OIG described these arrangements as part of a broader scheme, which was outlined in a qui tam lawsuit filed in 2010 by two Texas physicians against the Texas facility and its founder and primary radiologist.⁴ The parties settled in 2012, with the radiologist agreeing to pay $650,000 in addition to a six-year exclusion from participation in federal health care programs.

The OIG pursued a similar action against a physician in New Jersey, who was recently ordered to pay $52,280 for allegedly receiving payments from a diagnostic testing facility in exchange for patient referrals. That action was prompted by the government's criminal investigation of the facility, resulting in 17 convictions to date, including 15 physicians.⁵ These cases illustrate the range of sanctions available—whether criminal, civil, or administrative—and the government's willingness to impose sanctions against each individual implicated on either side of an improper arrangement.

With this continued movement toward holding physicians accountable, the OIG is signaling that physicians are also responsible for carefully vetting proposed arrangements and should not rely solely on the analysis of the entities seeking to engage them. It is recommended that physicians take an active role in verifying that proposed compensation arrangements are documented in a written agreement, consistent with fair market value, and independent of referral value or volume, and that there is a reasonable need for the services to be provided and the physician is appropriately qualified to provide such services. In addition, physicians should document in a meaningful way the scope and type of services provided, avoiding potential pitfalls such as pre-filled time sheets or invoices. Should the need for services change during the course of the agreement, the parties should consider whether the compensation should be adjusted accordingly, subject to complying with any minimum term requirements for Stark Law⁶ purposes.

Footnotes

[1] See, e.g., "Special Fraud Alert: Laboratory Payments to Referring Physicians," Office of Inspector General of the Department of Health and Human Services, reprinted at 79 Fed. Reg. 40115 (July 11, 2014); "Special Fraud Alert: Physician-Owned Entities," Office of Inspector General of the Department of Health and Human Services, reprinted at 78 Fed. Reg. 19271 (Mar. 29, 2013).

[2] 42 U.S.C. § 1320a-7a.

[3] In this instance, the OIG further alleged that the physician failed to meet the applicable standard of care in the treatment of eight patients and provided controlled substances to the patients without appropriate documentation.

[4] See United States ex rel. Blum v. Baker, No. 4:10cv2595 (S.D. Tex. filed July 22, 2010).

[5] See Press Release, "Morris County, N.J., Doctor Sentenced to Prison, Fined for Taking Cash Kickbacks for Patient Referrals," Department of Justice (May 16, 2014).

[6] 42 U.S.C. § 1395nn.

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