Health Care Client Alert - Federal Government Issues Fraud Alert on Medical Directorships

On June 9, 2015, the Office of Inspector General (OIG), within the United States Department of Health and Human Services, released a Fraud Alert regarding physician compensation arrangements, with a specific focus on payments made to physicians under medical directorship agreements. The fraud alert warns physicians of how a compensation arrangement may violate the federal anti-kickback statute (AKS) even if only one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care business.

The Fraud Alert describes how the OIG recently entered into settlements with twelve physicians who entered into questionable medical directorship arrangements with a medical diagnostic and MRI center in Texas. OIG alleged that the physicians received improper remuneration under the medical directorship and office staff arrangements. Specifically, OIG alleged that (1) a portion of the payments took into consideration the volume and/or value of the physicians' referrals, (2) the payments to the physicians did not reflect fair market value for the services performed, and (3) in some instances, the physicians did not actually provide the services required to be provided by them under the written agreements. These recent settlements also demonstrate how illegal kickbacks can take forms other than an inflated medical director's salary. For example, in some of these settlements, the illegal remuneration took the form of inflated salaries paid to members of a physician's office staff.

This most recent alert is the OIG's third report in three years involving physicians. As you may recall, the OIG issued a fraud alert about physician-owned device distributorships in 2013 and issued a fraud alert about laboratory payments to physicians in 2014. This recent focus on physician compensation arrangements may reflect OIG's renewed focus on pursuing fraud and abuse allegations against individual doctors, as opposed to the hospitals and organizations that pay the physicians.

Violations of the AKS may result in significant criminal penalties, with fines up to $25,000 per violation and imprisonment for up to five years. Additionally, violating the AKS may give rise to liability under the False Claims Act and/or Civil Monetary Penalties Law, both of which impose significant financial penalties.

This Fraud Alert serves as a not-so-subtle reminder by the federal government that physicians need to carefully scrutinize all of their compensation arrangements. Please contact the members of our Health Care Practice Group with any questions or concerns about a physician compensation arrangement or how the federal and state fraud and abuse laws may affect your practice.

1DEPARTMENT OF HEALTH & HUMAN SERVICES, OFFICE OF INSPECTOR GENERAL, Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability (June 9, 2015), https://oig.hhs.gov/compliance/alerts/guidance/Fraud_Alert_Physician_Compensation_06092015.pdf.