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OIG Fraud Alert Targets Physician Compensation Arrangements

It bears repeating so much that even the Office of Inspector General of the Department of Health and Human Services just issued a Fraud Alert on it – physician compensation arrangements are fraught with potential violations of the Anti-Kickback Statute (“AKS”) as well as the Stark Statute and regulations. The AKS is a large enough trap that it catches even the most above-board agreements in its net, and physicians should be wary of the implications. Likewise, the Stark Statute and regulations are broad and are strict liability laws: if you do not meet a Stark exception, the referral and the resulting claim are tainted and the money received based upon the tainted claim must be repaid to the government.

Fraud Background Conceptual Design.The OIG alert announced that the office had reached settlements with 12 physicians in questionable medical directorship or office staff arrangements. Under these directorships, the payments took into account the volume of referrals, and the physicians did not perform the services that the agreements contemplated. Some of these arrangements provided that an affiliated health care entity paid for the front office staff of the physicians, which also relieved the physicians of the burden of paying for those staff and thus qualified as a form of remuneration. The important takeaway from this particular alert is that the arrangements in question did not reflect fair market value for the bona fide services provided by the physicians. Even if one purpose of the arrangement is to compensate the physician for past or future referrals, the agreement will run afoul of the AKS. These fraud alerts don’t have the force of law, but they do provide guidance as to how the OIG views provider agreements - a form of “heads-up” as to where the OIG sees the signs of fraud. In the wake of the recent Fraud Alert, Modern Healthcare has reported that officials have announced that the Office of Inspector General will be hiring additional attorneys to examine these relationships and pursue actions against physicians where warranted.

In its most basic form, the AKS prohibits giving or receiving anything of value to induce referrals that generate any business that is compensable by a federal healthcare program. The AKS isn’t the only prohibition on such arrangements, though. The Stark law also prohibits physicians from referring Medicare or Medicaid patients to an entity with which the physician has any kind of financial relationship, unless the financial relationship fits within an exception set forth in the statute or regulations. Even more potentially disturbing is that the definition of “referral” has been given an even more expansive definition in some federal courts, casting the net even further.

Both laws can snare even basic, boilerplate arrangements between physicians and others. As healthcare laws and regulations grow to encourage new forms of provider arrangements and clinical integration, providers should become increasingly aware of how these arrangements may interact with or trigger antifraud laws and carefully draft agreements and structure arrangements with antifraud laws in mind.

For more information on how to create physician agreements that don’t violate federal antifraud laws, please come back for Thursday’s post.

Chris Shaughnessy Christopher J. Shaughnessy is an attorney at McBrayer, McGinnis, Leslie & Kirkland, PLLC.  Mr. Shaughnessy concentrates his practice area in health care law and is located in the firm’s Lexington office.  He can be reached at cshaughnessy@mmlk.com or at (859) 231-8780. 

This article is intended as a summary of federal and state law activities and does not constitute legal advice.

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