OIG Fraud Alert Highlights Risks In Physician Compensation Arrangements

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By James Swann

June 9 — Certain physician compensation arrangements, including medical directorships, may run a high risk of violating the anti-kickback statute, according to a fraud alert released June 9 by a federal oversight agency.

The Department of Health and Human Services Office of Inspector General's fraud alert said that while many physician 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.”

Medical directors are generally employed by hospitals or other health-care entities and provide guidance and oversight for the medical staff

To prevent anti-kickback statute (AKS) violations, physician compensation arrangements must provide a fair market value price for the actual services the physicians provide, the OIG said. The office also said it “encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”

Compensation Scrutiny

Lewis Morris, an attorney with LeClairRyan in Annapolis, Md. and former chief counsel at the OIG, told Bloomberg BNA that physicians should be scrutinizing their compensation arrangement, though he said many may not be.

“Whenever the OIG issues a fraud alert, it's usually a signal that the agency has more work coming out on an issue, so if you haven't been scrutinizing your compensation arrangements, now's a good time to start,” Morris said.

In addition, Morris said that increased funding for the OIG has led to the renewed hiring of attorneys at the agency, which means the OIG will have the skill set and resources to increase prosecutions under the civil monetary penalties law (CMPL).

Kirk Ogrosky, an attorney with Arnold & Porter in Washington, also agreed that providers should be aware of the enforcement risks entailed in physician compensation arrangements, but told Bloomberg BNA that “a lot of these arrangements are required by rules and regulations that mandate the use of medical directors.”

Ogrosky said that “entire industries of consultants, valuators and lawyers focus on assessing fair market value and making sure that arrangements do not take into account the value or volume of referrals,” which can help physicians and health-care organizations avoid trouble.

Physician Focus

While the OIG's fraud alert may not be breaking any new ground, Tony Maida, an attorney with McDermott Will & Emery LLP in New York and former deputy chief of the OIG's administrative and civil remedies branch, said it represents a new focus on physicians.

“What it's doing is highlighting that the OIG is stepping up its own administrative enforcement of questionable compensation arrangement, specifically on the physician side,” Maida said.

Physicians should be mindful when they become medical directors that they're doing the work that's specified in their agreement, Maida said.

“They should also be mindful that there will be government scrutiny of their arrangement,” Maida said.

Physician compensation agreements should be clear that their purpose isn't to award physicians for referrals.

Jana Kolarik Anderson, an attorney with Foley & Lardner LLP in Jacksonville, Fla., also told Bloomberg BNA that the alert targets both health-care entities and individual physicians.

Anderson said that in the past, the OIG has gone after health-care entities (such as hospitals, device companies and home-health agencies) that have medical directorships that violate the AKS.

“In this alert, the OIG is signaling that it will go after the physicians as well,” Anderson said.

“As a health care entity, in light of this, I would take a careful look at my medical director arrangements, but the physicians should also look at their arrangements with entities,” Anderson said.

Industry Reminder

Kevin G. McAnaney, an attorney with the Law Offices of Kevin G. McAnaney, New York, told Bloomberg BNA that the OIG fraud alert isn't saying anything new, but is more of reminder to the health-care industry to scrutinize physician compensation arrangements.

McAnaney said that the Stark law already requires medical directorships and other physician compensation arrangements to be at fair market value and to be isolated from the level of referrals. “So any good hospital is already screening these arrangements for compensation,” McAnaney said.

The Stark law bars most Medicare self-referrals, which occur when a provider refers Medicare patients to entities with which the provider or his or her immediate family members have a financial relationship

McAnaney said the other activities mentioned in the fraud alert (payment for services not provided and hospitals paying for physician office staff) “are long time no-nos, especially under the AKS.”

“So I think this is like the recent fraud alert on lab payments to physicians that also plowed old ground, more a reminder than anything else,” McAnaney said.

Kirk Nahra, an attorney with Wiley Rein in Washington, told Bloomberg BNA that the fraud alert is a warning to the health-care industry about an area where the OIG is seeing issues, and he said it should be a red flag for compliance officers.

Nahra said the alert is “something that providers should pay close attention to and, at a minimum, evaluate what is going on in this area within a provider’s operations and be comfortable and confident in supporting any ongoing programs like this.”

Recent Settlements 

Over the past two years, the OIG reached settlements under the civil monetary penalties law with 12 individual physicians who were involved in suspicious arrangements involving medical director positions and office staffing.

All 12 of the settlements involved physicians who entered into compensation arrangements with Fairmont Diagnostic Center and Open MRI, Inc., an imaging facility in Houston, and ranged from $50,000 to $195,016.

The OIG alleged that the physicians serving as medical directors violated the AKS by receiving improper remunerations, such as payments that reflected the physicians' level of referrals rather than the fair market value of the services provided. In some cases, the OIG alleged the physicians were paid for services they never provided.

As for the staffing allegations, four of the 12 physicians benefited from a referral coordinator on their staff whose salary was paid for by Fairmont.

One physician, Scott Hung, agreed to a three-year exclusion from participating in federal health-care programs, and the OIG alleged that Hung told the Texas Medical Board that his medical practice fell below the standard of care for eight patients and that he provided controlled substances for patients without an appropriate treatment plan.

Another physician, Mary Campbell-Fox, reached a $195,016 settlement over allegations that her medical director position was based on the volume and value of referrals she sent to Fairmont.

The settlement also said Campbell-Fox received improper remuneration in the form of a referral coordinator whose salary was paid for by Fairmont.

“Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians,” the fraud alert said.

Fairmont is owned and operated by Jack L. Baker, who reached a $650,000 settlement with the government in 2012 over allegations that he paid illegal compensation to physicians to induce them to refer patients to Fairmont.

As a result of the 2012 settlement, Baker was excluded from participating in federal health-care programs for six years.

To contact the reporter on this story: James Swann in Washington at jswann1@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

The OIG fraud alert is at http://oig.hhs.gov/compliance/alerts/guidance/Fraud_Alert_Physician_Compensation_06092015.pdf.