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BUSINESS OF
MEDICINE
FRAUD ALERTphysician Compensation Arrangements
By Pamela C. Smith, Ph.D.
Several months ago you read my article on whether your bonus agency also states that it reached settlements with twelve physi-
is ‘reasonable’ compensation. I focused on a Tax Court case where cians for questionable arrangements. These cases alleged the pay-
a medical practice could not deduct a bonus paid to its physi- ments to the physicians were not based on fair market value and
cian/owner. The premise of that article was to ensure you should the physicians did not actually provide the services outlined in
never ignore the reasonableness of your compensation. the agreements.
This concept of reasonable compensation is not merely a tax You may be telling yourself that this has no impact on your
issue — it’s also a personal liability issue. As you are aware, the personal situation. Keep in mind that this OIG Fraud Alert has
Anti-Kickback Statute may impose criminal penalties for efforts caught the attention of hospital officials. Some industry consult-
to induce or reward patient referrals covered by federal health in- ants are reporting that this Alert can be a useful tool for hospital
surance programs. Over the years, certain ‘safe harbors’ have been Chief Financial Officers (CFOs) in negotiating compensation
issued to allow providers alternatives to ensure compliance. The arrangements with physicians. You are now asking “why would
Office of the Inspector General (OIG) states “the ‘safe harbor’ CFOs want to use this in negotiations?” Answer: the Fraud Alert
regulations describe various payment and business practices that, speaks to negotiations — “OIG encourages physicians to carefully
although they potentially implicate the Federal anti-kickback consider the terms and conditions of medical directorships and
statute, are not treated as offenses under the statute”.1 other compensation arrangements before entering into them”. 3
Even though the Fraud Alert mentions physicians directly, hos-
One such safe harbor is the ‘personal services and management pitals and other providers are taking notice, and may even go back
exception’ — whereby providers (i.e. hospitals) can make com- to review existing arrangements to ensure compliance.
pensation payments to physicians who can or do make patient
referrals. Certain criteria are necessary for this safe harbor provi- This OIG Fraud Alert served as a catalyst for discussion of what
sion, including the payment must be based on the fair market is deemed reasonable compensation. The agency is also looking
value of the services, and the payment is not based on the volume to hire more attorneys to investigate the issue. It is possible that
of the referrals. more action will be taken against individual physicians, rather
than organizations. Investigations of compensation arrangements
Given these established provisions in the law, what is new will not go away, so physicians and health care providers must be
about this topic of compensation? Back in June 2015 the OIG proactive and aware to ensure the arrangements are compliant.
issued a fraud alert, “Physician Compensation Arrangements May
Result in Significant Liability”. This is one of the first OIG fraud rEFErENCES
alerts issued that directly impact physicians. What makes this
OIG Fraud Alert unique is that it serves as notice for health care 1 http://oig.hhs.gov/compliance/safe-harbor-regulations/
facilities and physicians to scrutinize compensation arrangements. 2 http://oig.hhs.gov/compliance/alerts/guidance/Fraud_Alert_Physician_Com-
pensation_06092015.pdf
The Fraud Alert states “physicians who enter into compensa- 3 Ibid.
tion arrangements such as medical directorships must ensure that
those arrangements reflect the fair market value for bona fide Pamela C. Smith, PhD, is a professor in the depart-
services the physicians actually provide.” 2 The government ment of accounting at the University of Texas at San
Antonio.
26 San Antonio Medicine • April 2016
