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Federal Regulations and the Risk to Physicians

July 2015

Recent actions by the OIG make it clear that they are investigating physicians as well as hospitals when they suspect a physician contract violates Stark, Anti-Kickback, or False Claims Act regulations. The OIG recently published a Fraud Alert, which warns physicians that they could take on personal risk under the Anti-Kickback Statute for noncompliant compensation arrangements. This debunks the common misconception that the government only prosecutes hospitals for noncompliant contracts.

From a business standpoint, if physicians are not employed by the hospital, the IRS considers them to be independent businesses that enter into contracts with hospitals. Much like when you sign a contract with a contractor to remodel your house, there are negotiations on price—you want the cheapest price for the highest quality work and the contractor wants the most money, but also wants to be hired for the job. However, when you hire the contractor to do the remodel, the government does not have anything to say about how much you pay the contractor. In the hospital business, they do because the government has a vested interest in the hospital either as a payer (Medicare, Medicaid), as the grantor of a tax exemption, and a protector of consumers from kickbacks, price-fixing, and inurement.

Although most health care executives understand FMV restrictions imposed by the Stark regulations, Anti-Kickback statutes and False Claims Act, many physicians do not. Hence it is often important to come to a negotiation armed with market data to support or help structure a discussion on payment rates as well as other regulatory requirements such as prohibitions on payments tied to volume, signed agreements set in advance, and limitations on contract length.

The new OIG advisory “encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”1 If the OIG finds that a physician is violating Stark or the Anti-Kickback Statute, the settlement and associated legal fees could have severe financial implications for the physician.

In 2014, 12 Texas physicians settled with the OIG for $50,000 to $195,000, or exclusion from Medicare, to resolve allegations that they entered into medical directorship agreements with Fairmont Diagnostic Center and Open MRI, Inc. The government alleges that these medical directorship payments took into account the volume or value of referrals.2

An essential part of any negotiation should be educating the parties about the risks of noncompliance for both the facility and physicians as well as the behaviors that the OIG has targeted. Understanding the gravity – and reality – of these risks may help as you explain why you cannot pay whatever is asked—and why they can’t accept a payment that doesn’t meet the test of fair market value.

To read more about the topic, here are some helpful analyses:

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