OIG Warns: "Physician Compensation Arrangements May Result in Significant Liability"

On June 9, 2015, the Office of Inspector General (OIG) of the Department of Health and Human Services issued a Fraud Alert warning that physicians who enter into compensation arrangements must ensure those arrangements reflect fair market value for bona fide services that the physicians actually provide. While focusing on physicians, hospitals have received similar warnings from OIG in the past, and the notice should be taken to heart by any payor of compensation to physicians. Those who violate the Federal Anti-Kickback Statute or other anti-fraud laws involving federal health care programs are potentially subject to criminal, civil and administrative sanctions, including exclusion from participating in the federal health care program.

The OIG recently reached settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements. The OIG alleged that the compensation paid to these physicians under the medical directorship arrangements constituted improper remuneration under the Anti-Kickback Statute for a number of reasons, including that the payments took into account the physicians’ volume or value of referrals and did not reflect fair market value for the services to be performed, and because the physicians did not actually provide the services called for under the agreements. The OIG also alleged that some of the 12 physicians had entered into arrangements under which an affiliated health care entity paid the salaries of the physicians’ front office staff. Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, the OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians. The OIG determined that the physicians were an "integral part of the scheme" and subject to liability under the Civil Monetary Penalties (CNP) Law. The Fraud Alert underscores the importance of documenting fair market value to support the amount of remuneration to be paid as consideration for the underlying transaction and ongoing compliance to assure that the services paid for are actually provided and properly documented.

From time-to-time, the OIG issues Fraud Alerts commenting on practices that it believes may violate the Anti-Kickback Statute. Fraud Alerts are not binding as law but express the OIG’s view of the application of the Anti-Kickback Statute to particular practices. Nevertheless, Fraud Alerts are highly informative about the OIG’s positions and regulatory concerns about specific business practices and should not be taken lightly, particularly in an increasing environment of qui tam relator claims under the Federal Civil False Claims Act.