United States: An Apple A Day Keeps The OIG Away: Practical Guidelines For Structuring Physician Compensation Arrangements To Avoid Kickback Allegations

Last Updated: June 16 2015
Article by Elizabeth B. Carder-Thompson, Nancy Bonifant Halstead, Julia Krebs-Markrich and Karl A. Thallner

Most Read Contributor in United States, October 2017

On June 9, 2015, the Office of the Inspector General of the Department of Health and Human Services (OIG) released a fraud alert warning physicians to scrutinize carefully the conditions and terms of any medical director or other compensation arrangement they enter into with potential recipients of Federal health care program business. The risks associated with these arrangements under the anti-kickback statute are not new. However, the fraud alert signals  the OIG's current focus on physicians, which reportedly has also included hiring additional attorneys to handle investigative and enforcement activity involving physicians. Moreover, the government now has access to unprecedented amounts of data regarding financial arrangements between physicians and drug and device manufacturers.

The fraud alert follows on the heels of a dozen recent settlements between the OIG and individual physicians who allegedly received kickbacks disguised as medical directorships and other office staff arrangements. In those settlements, the OIG determined the physicians played an integral role in the schemes and specifically alleged that the agreements:

  • Took into account the physicians' volume or value of referrals;
  • Did not reflect fair market value (FMV) for the services to be performed;
  • Involved contracted-for services not performed by the physicians; and
  • Relieved the physicians of the financial burden of paying salaries to their office staff.

Separately, the OIG's mid-year update to its FY 2015 work plan adds a new financial review project directed at the Center for Medicare & Medicaid Services' (CMS) Open Payments Program (sometimes called the "Sunshine Act" provisions). In addition to reviewing CMS' oversight of the program generally, the OIG intends to determine the number and nature of financial interests reported to CMS. Under the Open Payments Program, manufacturers and group purchasing organizations (GPOs) must report certain payments and transfers of value made to physicians and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family members.  While this data is limited to payments made to physicians from manufacturers and GPOs, it does offer the OIG new insight into the scope and nature of the compensation arrangements entered into by physicians and potential referral recipients as well as possible evidence for fraud and abuse enforcement activities.

To stay out from under the OIG's lens and demonstrate a prudent approach to compliance with the anti-kickback provisions – both federal and state – physicians and the health care providers, suppliers and manufacturers that engage them should consider certain practical guidelines before entering into a medical directorship or other compensation arrangement:

  1. Identify and articulate the specific services to be rendered. 
  2. Obtain a signed written agreement;
  3.  Identify, document, and follow a sound methodology for determining FMV, or – preferably - obtain a third party FMV assessment, which should be related to the specific services to be rendered and not to the volume or value of referrals between the parties;
  4.  Despite the administrative burden, require that the physician contemporaneously document records of services, and sign and turn in those records before payments are made (e.g., time cards or certifications). If the documentation is not provided or is inadequate, do not hesitate to withhold payment from the physician;
  5. Some entities have chosen to avoid "evergreen" clauses, providing for automatic contract termination at year end. An advantage to an automatic renewal/evergreen provision is that it can reduce the risk that the financial relationship continues without a written agreement, resulting in a Stark statute problem.  A provision providing for automatic renewals unless either party exercises a termination right would permit reevaluation/renegotiation of compensation (to ensure conformity to FMV), but prevent the possibility that, due to lack of vigilant monitoring of the agreement's termination date, the parties find themselves without an agreement in place.  In any event, contract terms need to be monitored carefully to assure that the services rendered and the price paid for them are consistent with legal requirements (both the anti-kickback and Stark statute provisions);
  6. Assess and document each year whether the services to be paid for are necessary, reasonable, excessive, or insufficient; and
  7. Carefully scrutinize any payments set forth in the agreement that are unrelated to the services to be rendered to avoid allegations that the payments are intended to subsidize the physicians' normal operating expenses (e.g., front office staff, billing staff, etc.).

Of course, adherence to industry codes, if any, and other applicable OIG Compliance Program Guidance, is highly advisable as well. Finally, health care entities should evaluate each year their physician compensation arrangements generally and determine whether the work provided under each is necessary and not simply a means to create work to justify the underlying payments. 

This article is presented for informational purposes only and is not intended to constitute legal advice.

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Nancy Bonifant Halstead
 
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