June 15, 2015

Note: ABC encourages all anesthesiology groups to participate in ASA’s 13th survey of commercial payment rates, launched on June 9th.  The results will be published in the ASA Newsletter later this year and obviously they will be more meaningful if there are many responses.  For further information go to http://www.asahq.org/advocacy/fda-and-washington-alerts/washington-alerts/2015/06/please-participate-in-2015-survey-of-commercial-payment-rates.

Many anesthesiologists serve as the paid medical director of their operating room suite or ambulatory surgical center (ASC).  Many others would like to receive compensation for medical director services.  The Health and Human Services Office of the Inspector General (OIG) has just issued a Fraud Alert entitled Physician Compensation Arrangements May Result in Significant Liability, of which they should all be aware.

The Anti-Kickback Statute

As the OIG has stated in numerous Advisory Opinions,

The anti-kickback statute makes it a criminal offense knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program.  See section 1128B(b) of the Act.  Where remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program, the anti-kickback statute is violated.  By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible “kickback” transaction.  For purposes of the anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.

The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals.

Compensation arrangements including payment for medical directorships can be perfectly legitimate—or they can violate the statute if any part of their purpose is to reward a physician for referring Medicare or other federally-insured patients.  As we know, anesthesiologists traditionally do not refer patients to the hospital or ASC; the facility refers patients to the anesthesiologists.  If the group also performs pain management services, however, the pain specialists may be referring those patients to the facility, and any payments denominated “medical director fees” could be seen, potentially, as intended to induce referrals of pain patients.  Similarly, anesthesiologists who order pre-operative tests may be “referring” for those services.  Although past OIG enforcement activity has focused heavily on hospital and other institutional provider liability, the new Fraud Alert places physicians on notice that their medical director arrangements may entail potential personal exposure.

Although the Fraud Alert only addresses the federal anti-kickback statute, liability may also arise for physician compensation arrangements under the Stark rules on self-referral as well as under a plethora of similar state laws.  That is why it is imperative to work with knowledgeable counsel before finalizing any agreement for a paid medical directorship.

The Fraud Alert:  How to Protect Your Medical Director Arrangements

The Fraud Alert notes that the OIG “recently reached settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements.”  (The office staff arrangements were problematic because the health care entity to which the physicians made referrals were paying or subsidizing the physicians’ employees’ salaries, a form of “remuneration.”)  From the very brief summary in the Alert, it appears that the questionable arrangements ran afoul of the anti-kickback statute because of the following factors:

• The payments did not reflect fair market value for the medical director services to be performed;
• The payments took into account the physicians’ volume or value of referrals, and
• The physicians did not actually provide the services called for under the agreements.

Anesthesiologists who are in a position to refer patients to the facility, e.g., for pain management procedures or for pre-operative testing, should take care, therefore, to structure all their compensation arrangements (not just medical directorships) so as to maintain consistency with fair market value and to avoid inferences that the payments are kickbacks for referrals.

The OIG has created a number of “safe harbors” that define the circumstances under which certain financial arrangements will be considered not to involve prohibited “remuneration.”  Although an arrangement does not have to satisfy the conditions of any of the safe harbors in order to pass anti-kickback muster—the absence of unlawful intent to reward or induce referrals can be established in other ways—it is worth considering the safe harbor for personal services and management contracts.  Structuring a medical directorship to comply with the safe harbor is the surest way to immunize the arrangement from an adverse determination and heavy fines and penalties.  Under the applicable regulation (42 C.F.R. § 1001.952(d)), the safe harbor will apply if all of the following seven standards are met:

1. The agency [personal services] agreement is set out in writing and signed by the parties.
2. The agency agreement covers all of the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent.
3. If the agency agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a full-time basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.
4. The term of the agreement is for not less than one year.
5. The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.
6. The services performed under the agreement do not involve the counselling or promotion of a business arrangement or other activity that violates any State or Federal law.
7. The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

Thus a written agreement for a term of at least one year that sets fair-market value compensation in advance should ideally be behind any arrangement in which an anesthesiologist receives a payment or any other financial benefit for serving as medical director.  Note, in particular, that the agreement must “specify exactly” the amount of time that a part-time medical director (which will include most anesthesiologists in the role) will devote to the responsibilities of the position, as well as its associated charge.  It is advisable for the part-time medical director to document the hours spent and in fact many contracts require such documentation.

A Few Words about Fair Market Value

Determining fair market value is key, and it can be quite difficult.  There are no published legal standards or formulas for physician compensation valuations.  Typically the quest for a plausible number starts with survey data.  In anesthesiology, most surveys suffer from small numbers of participants.  MGMA’s Medical Directorship and On-Call Compensation Survey:  2012 Report Based on 2011 Data, for example, included responses from 57 anesthesiologists representing 33 practices.  These respondents reported a mean annual directorship compensation of $46,108, with a standard deviation of $38,357.   These numbers may have changed in either direction in later surveys, which should be consulted along with other published survey reports.

The fair market value analysis should consider all factors relevant to the specific medical director arrangement, such as the value of the individual physician’s time based in part on his or her hourly earnings from clinical practice, calculated hourly rates prevailing in the community (opportunity cost) based on salary survey data, and the cost to the hospital if it were to obtain comparable services elsewhere.  When there is a serious issue as to whether the medical director compensation is intended to induce or reward referrals, it will often be wise to obtain an expert third-party assessment.  Many hospitals will require such expert assessment before entering into medical director contracts.

The Fraud Alert Also Shows That Compensation May Be Lawful

The recent Fraud Alert points toward factors that would tend to make payments for medical director services lawful under the anti-kickback statute—consistency with fair market value, not basing the amount on the value or volume of referrals, actual provision of the services—even in situations where the anesthesiology practice involves referrals of Federally-insured patients to the facility.  In most circumstances, anesthesiologists do not refer.  Yet requests for compensation for work on behalf of their hospitals, such as medical director services, are often rejected, incorrectly, on the grounds that the anti-kickback statute prohibits such compensation.  Anesthesiologists facing an argument that compensation would violate the Anti-Kickback rules have a new tool at their disposal in the form of a Fraud Alert that demonstrates clearly that certain physician compensation arrangements may well not result in significant liability.

With best wishes,

Tony Mira
President and CEO