Health care organizations and physicians must be cautious in structuring physician compensation arrangements so that they do not violate the Anti-Kickback Statute.

The U.S. Department of Health and Human Services Office of Inspector General (OIG) issued a Fraud Alert (Alert) on June 9 focusing on physicians who enter into compensation arrangements, such as medical directorships. Such arrangements may violate the Anti-Kickback Statute (AKS) if not carefully structured. To avoid an AKS violation, OIG encourages physicians to consider the terms of these type of arrangements and ensure that the compensation reflects fair market value for bona fide services.

The AKS is a criminal statute that prohibits the knowing and willful solicitation, offer, payment or acceptance of any remuneration directly or indirectly, overtly or covertly, in cash or in kind (1) for referring an individual for a service or item covered by a federal health care program or (2) for the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, service or item reimbursable under a federal health care program. 42 U.S.C. § 1320a-7b(b). A violation of the AKS is a felony offense that carries with it penalties of imprisonment of up to five years, fines and mandatory exclusion from federal health care programs. Id.A violation of the AKS can also lead to the imposition of additional large monetary penalties under the Civil Monetary Penalties Law (CMPL). 42 U.S.C. § 1320a-7a.

The Alert focuses on the recently reached settlements with twelve physicians who entered into medical directorship and office staff arrangements. Regarding the medical directorship arrangements, OIG alleged that the compensation paid to the physicians constituted improper remuneration under the AKS. The bases for the AKS violation included (1) compensation that took into account the physicians’ volume or value of referrals, (2) compensation that did not reflect fair market value for the services, and (3) failure of the physicians to actually provide the services contracted for. The Alert also focused on the fact that some of the physicians had entered into arrangements under which the salaries of office staff were paid for by an affiliated entity. OIG alleged that the payment of office staff salaries by an affiliated health care entity constituted improper remuneration to the physicians because it relieved the physicians of expenses they would otherwise have incurred. In addition, OIG found that the physicians were subject to individual financial penalties under the CMPL for their involvement in those arrangements.

Although OIG acknowledged that many of these types of arrangements are legitimate, if even one of the purposes of the arrangement is to compensate a physician for referrals, then the arrangement may violate the AKS. All health care organizations and physicians need to be extremely cautious in structuring these arrangements to fit squarely within an AKS safe harbor or otherwise not violate the AKS.