In its June 9, 2015 Fraud Alert, the OIG cautions that physician compensation arrangements must reflect only the fair market value for bona fide services that physicians actually provide. Even legitimate compensation arrangements may violate the anti-kickback statute if “one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.”

The OIG reported recent settlements with 12 individual physicians whose medical directorship compensation arrangements constituted improper remuneration under the anti-kickback statute.  Common indicators of improper financial relationships cited were:

  • (i) payments took into account the physicians’ volume or value of referrals;
  • (ii) payments did not reflect fair market value for the contracted services; and
  • (iii) physicians did not actually provide the contracted services.

Additionally, the OIG noted that in some of the arrangements, payment was included for the physicians’ front office staff salaries. According to the OIG, because the staff salaries were a financial burden the physicians would have otherwise incurred but for the medical directorship compensation arrangements, the salaries paid to the staff constituted improper remuneration to those physicians. As such, the physicians were subject to potential criminal, civil and administrative sanctions under the Civil Monetary Penalties law.

As explained in the OIG’s 2000 “Compliance Program Guidance for Individual and Small Group Physician Practices,” “[r]emuneration for referrals is illegal because it can distort medical decision-making, cause overutilization of services or supplies, increase costs to Federal health care programs, and result in unfair competition by shutting out competitors who are unwilling to pay for referrals. . . [and] can also affect the quality of patient care by encouraging physicians to order services or supplies based on profit rather than the patients’ best medical interests.”

For more information on physician relationships, the OIG refers to its booklet entitled “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse” that provides information about the Federal fraud and abuse laws as well as links to a range of CMS’s online resources.