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Structuring Healthcare Provider Agreements for Compliance

On June 23rd, the Healthcare Law Blog discussed the Fraud Alert recently issued by the Office of Inspector General of the United States Department of Health and Human Services regarding physician compensation arrangements which telegraphed the Office of Inspector General’s intention to increase scrutiny of financial arrangements between physicians and providers to whom physicians make referrals. In today’s post, we examine the steps physicians and other healthcare providers should take to ensure that any financial relationships are in compliance with federal statutes and regulations.

The first fundamental task to determine if an arrangement is compliant with applicable laws is to review the written agreement between the parties to determine if its terms are in keeping with regulatory requirements. The following questions should be asked:

  • What are the services to be performed under the agreement?
  • Are the services to be performed needed and is the arrangement commercially reasonable?
  • Is the compensation for the services consistent with fair market value and how was fair market value determined?
  • Does the compensation take into account, in any manner, the volume or value of referrals made by the physician?
  • Is the physician carefully documenting the services that are being performed by keeping time sheets or similar documentation and submitting that documentation to the healthcare entity in a timely manner to justify the compensation being paid?

While the Anti-Kickback Statute prohibits many types of arrangements that result in prohibited referrals, Congress created statutory exceptions to the Anti-Kickback Statute prohibition. The statute does not apply to certain payment practices as specified by the Secretary of the United States Department of Health and Human Services. Pursuant to this Congressional authorization, the Secretary of Health and Human Services issued Safe Harbor Regulations to set forth certain legitimate arrangements which are categorically protected from prosecution or the imposition of sanctions under the Anti-Kickback Statute if all the elements of a Safe Harbor are satisfied.

Business - meeting in an office; lawyers or attorneys (only handThe Safe Harbor that is best suited to medical directorship arrangements between a physician and another healthcare provider is the Safe Harbor for personal services and management contracts. This Safe Harbor exempts from the definition of “remuneration” under the Anti-Kickback Statute any payment made as compensation between a principal and an agent for the services of the agent if all the elements of the Safe Harbor are met. The Safe Harbor for personal services and management contracts is set forth by regulation at 42 C.F.R. § 1001.952(d). Physicians and other healthcare providers should examine any medical directorship or similar arrangements in light of this particular Safe Harbor regulation to determine if its requirements are satisfied.

The Stark Statute prohibits referrals to and the filing of claims for “designated health services” where Medicare is the payment source if the referring physician has a direct or indirect financial relationship with the entity providing the designated health service. However, the Stark Statute and implementing regulations set forth exceptions to the general prohibition against referrals where a financial relationship exists between the parties.

The Stark exception that is best suited to medical directorship arrangements between a physician and another healthcare provider is the regulatory exception for personal services arrangements between a physician and an entity in which the physician is to provide specified services to the entity. The regulatory exception for personal services arrangements is set forth by regulation at 42 C.F.R. § 411.357(d). Physicians and other healthcare providers should examine any medical directorship or similar arrangements in light of this regulation and ensure that all of the required elements of the exception are satisfied and properly documented.

With the Office of Inspector General intending to focus its enforcement scrutiny on physician compensation arrangements, physicians and other healthcare providers would be well-advised to conduct their own self-examination of any and all existing arrangements through their compliance program or through their counsel in order to be prepared for any investigation by the Office of Inspector General and to demonstrate the legality of the arrangements.

Chris ShaughnessyChristopher 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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