On June 9, 2015, the Office of Inspector General of the Department of Health and Human Services (OIG) issued a new fraud alert concerning physician compensation arrangements and compliance with the federal Anti-Kickback Statute (AKS). While the fraud alert itself does not break new ground interpreting the AKS, it signals OIG’s steadily increasing scrutiny and enforcement activity of physicians and physician arrangements.

The fraud alert encourages physicians who enter into compensation arrangements, such as medical directorships, to “ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide” by “carefully consider[ing] the terms and conditions of medical directorships and other compensation arrangements before entering into them.” Payments that take into account the volume or value of referrals, do not reflect fair market value for the services performed, or compensate the physician in ways that are unrelated to providing services—such as subsidizing office staff costs—raise compliance risks, according to the OIG. Similarly, not providing the services called for under the arrangement can also create liability issues.

Rather than provide new or updated AKS guidance to the health care community, however, this fraud alert’s purpose appears to be to publicize a series of 12 settlements under the OIG’s Civil Monetary Penalties Law (CMPL) authorities obtained over the past two years with individual physicians who had medical director arrangements with Fairmont Diagnostic Center and Open MRI Inc. (Fairmont), an imaging facility in Houston owned and operated by Dr. Jack L. Baker. In 2012, Dr. Baker and Fairmont entered into a $650,000 False Claims Act settlement concerning allegations that Dr. Baker and Fairmont paid illegal compensation to physicians through medical director agreements to induce patient referrals. As part of the settlement, Dr. Baker agreed to be excluded from federal health care programs for six years. Following the settlement, OIG pursued “spin-off” CMPL cases against some of the physicians who had these suspect medical director agreements. In total, the OIG collected over $1.4 million in penalties from 11 physicians and excluded one physician for three years. The settlement amounts ranged from $50,000 to $195,016.

The fraud alert highlights that the OIG is stepping up its own administrative enforcement activities of physicians separate from the government’s more traditional False Claims Act efforts. With a large budget increase this year, the OIG is able to hire more lawyers who can investigate and bring CMPL cases. The OIG has displayed additional signs of interest in physicians, including a ramped-up issuance of guidance. After a somewhat lengthy span without issuing much guidance, the OIG has issued a new fraud alert specifically addressing physician issues each year for the past three years. In 2013, the OIG warned the industry about its concerns with physician-owned distributors and other joint ventures. In 2014, the OIG cautioned labs and physicians about labs making certain suspect specimen collection and other payments to physicians.

We should expect to see more OIG scrutiny of physicians and their financial arrangements with the recipients of their referrals. To avoid this scrutiny, health care entities should consider examining their compliance program’s policies and systems regarding

Review and approval of physician arrangements, including The physician selection process The business justification for the arrangement An appropriate internal and legal review process Making fair market value determinations Monitoring physician performance of the services provided for in the arrangement Contract management to avoid potential technical Stark Law issues