MEDICAL DIRECTOR PAYMENTS AS STARK LAW VIOLATIONS

The relatively recent case serves as a reminder of the potential exposure to Stark Law liability arising from payments to medical directors.  Let me immediately clarify that not all payments to directors who perform legitimate services that are appropriately documents raise compliance concerns. However, where medical director payments are not properly supported by documentation of effort involved, or where payments are well in excess of fair market value for legitimate services, compliance concerns exist and potential penalties can be quite substantial.

The case of United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (Jan. 2011) is is just one example of a case that found medical director payments to be abusive. The Campbell case involved an effort by a University of Medicine and Dentistry program to increase referrals of cardiothoracic patients by entering agreements with local cardiologists.  The hospital entered into clinical assistant professor (“CAP”) agreements with a number of cardiologists which purported to require the physicians to perform a variety of teaching-related services.  Physicians were paid between $50,000 and $180,000 per year under these contracts.

The Federal government viewed these CAP Agreements as being little more than a sham to encourage the referral of cardiology patients. Although there were services described in the agreement, there was little indication that many of these services were ever actually performed. The court hearing the case found that the Stark Law was violated because the physician was not compensated at fair market value, and the arrangement was not commercially reasonable.  In order to comply with Stark Law requirements, compensation must meeting both fair market value and commercial reasonableness requirements. The Campbell Court found that the payments made to medical directors that were above fair market value amounted to impermissible payments in violation of the Stark Law.

The Campbell case is just one of a number of cases that have been brought challenging payments to medical directors. As a result, payment to medical directors has become a central compliance issue to many healthcare providers. The scrutiny of medical director arrangements require providers to set strict compliance standards for these arrangements.

Some elements of a medical director compliance standards might include:

• An express requirement that these agreements be in writing and meet the elements of an applicable exception from the Stark Law and a Safe Harbor under the Anti-kickback Statute. A written agreement should always be in place and the term of the agreement should be monitored to assure that no payments are made on expired or unsigned agreements.
• The agreement should include a detailed description of the services to be performed along with a system to track the performance of services in fulfillment of the Agreement. There are many details that can cause problems when creating these tracking systems. Make sure to get appropriate guidance and be detailed about the process and requirements for documenting time spent on individual contract tasks. General statements about time spent on medical director duties in general will not be sufficient to support payments under the Stark Law. This is an area where to be pays to be a stickler. Regular reports should be required to be submitted. Some providers are now requiring time reports to be submitted daily because this requires the director to contemporaneously document the time and specific tasks. Generally, more frequent time submissions will be more credible evidence of the tasks performed and will be more defensible from a regulatory standpoint.
• Monitoring should take place to assure that the services are actually being performed as indicated by the medical director.
• In all cases, the institution should document the commercial reasonableness and necessity of the medical director arrangement.  Paying a medical director for services that are not required by the institution will likely be characterized as a regulatory violation.
• There should always be backup in the file that clearly indicates that the fair market value of the services to be performed was assessed and that a reasonable judgement about the value of the service was made. It is normally recommended that there be an independent fair market value opinion that is credible and considers all factors relevant to value. Even if there is a fair market value opinion, there should be evidence that the organization’s reliance on the opinion was reasonable. Errors in fair market value determinations can be made on either side of the equation. Opinions can be too high or they can be too low. The assessment must be reasonably supported. Although we generally focus on whether payments to the medical director are excessive, the referral flow often flow both directions. Remuneration paid from the physician to the hospital could potentially be viewed as remuneration for referrals from the hospital (or its employees) to the physician. Therefore, it is important that the compensation be correct rather than conservatively low. Many providers miss this factor when determining fair market value of physician compensation arrangements. An extremely conservative approach from one perspective could possibly constitute a kickback from another perspective.

For more information on medical director agreements, Stark Law, fair market value of physician compensation arrangements, contact John Fisher at Ruder Ware through the contact information on this web site.  Health Care Attorney Contact