Medical directorships are contractual arrangements where a physician oversees certain clinical or administrative operations within a health care facility, such as a hospital, nursing home or outpatient clinic. In exchange for these “oversight” services, the physician is compensated, typically through a fixed fee or salary.
Medical directorships can be legitimate when the services provided are necessary to the core health care model and the compensation is fair market value. However, when structured improperly, medical directorships may violate both the federal Anti-Kickback Statute (AKS) and the Massachusetts Anti-Kickback Statute.
The Federal and Massachusetts Anti-Kickback Statutes
The federal AKS
1 is a broad prohibition against offering, soliciting, or receiving anything of value in exchange for referrals or services reimbursable under federal health care programs, such as Medicare and Medicaid. The law criminalizes conduct that improperly influences medical decision-making, even if the exchange benefits the patient. Violations can result in fines, imprisonment, and exclusion from federal health care programs.
The Massachusetts Anti-Kickback Statute
2 mirrors the federal AKS but extends beyond government-funded health care, such as Medicare and Medicaid. It prohibits any person from offering or accepting remuneration in return for the referral of services or goods covered by an insurer. Penalties include fines up to $10,000 and potential imprisonment.
Both statutes aim to safeguard health care integrity by preventing financial incentives from compromising medical judgment, but the Massachusetts Anti-Kickback Statute expands enforcement beyond federal programs to include commercial insurance.
Hypothetical Scenario
Dr. Smith’s Medical Directorship Agreement
Dr. Smith, an internist, is hired as a medical director for Sunshine Rehabilitation Center, a fictional entity. Under the Medical Director Agreement, Dr. Smith is required to:
- Provide clinical oversight for patient care policies;
- Attend monthly administrative meetings; and
- Conduct peer reviews quarterly.
Sunshine Rehabilitation compensates Dr. Smith $10,000 per month. However, an investigation reveals:
- Dr. Smith rarely attends meetings;
- Dr. Smith rarely, if ever, documents the peer reviews Dr. Smith purportedly conducts;
- The compensation exceeds fair market value for similar services in the area; and
- Dr. Smith refers a highly unusual number of patients to Sunshine Rehabilitation.
Does this medical directorship violate the AKS?
To determine whether this arrangement violates the AKS, the following factors are most often analyzed:
1. Legitimate Need for Services
Sunshine Rehabilitation must demonstrate a
legitimate need for a medical director. If the position exists merely to incentivize referrals from Dr. Smith to Sunshine Rehabilitation, it will likely be viewed as a significant red flag and thus violative of the AKS.
2. Fair Market Value Compensation
Compensation paid to Dr. Smith should align with the fair market value for the services rendered. Excessive medical directorship payments may suggest an intent to induce referrals from Dr. Smith, especially if they are disproportionate to the work actually performed by Dr. Smith.
3. Documented Performance of Duties
Dr. Smith’s lack of documentation and minimal involvement in his contracted duties could suggest a “sham” arrangement, where payments may serve as a veiled referral inducement from Dr. Smith to Sunshine Rehabilitation.
4. Intent
Under the AKS, intent is key. Even if Dr. Smith’s medical directorship services are rendered, if payments are made by Sunshine Rehabilitation to Dr. Smith with the intent to induce referrals, the arrangement may be unlawful as violative of the AKS.
Practical considerations for compliance
Attorneys and their clients must exercise caution when structuring medical directorships. Below are essential steps to ensure compliance with the AKS:
1. Conduct a Needs Assessment
Clearly document the true need, legal or otherwise, for a medical director and define their specific roles and responsibilities.
2. Ensure Fair Market Value Compensation
Engage third-party valuation experts, such as a certified valuation analyst, to determine appropriate fair market value compensation for the services provided.
3. Document Duties and Performance
Maintain detailed records of all activities performed by the medical director under the agreement, including meeting attendance and reports prepared.
4. Regularly Audit Arrangements
Periodically review medical directorship agreements to confirm that the terms are being adhered to and services are being performed.
While medical directorships are not explicitly listed as a safe harbor under the federal AKS, it is best practice to structure these agreements in alignment with the Personal Services Safe Harbor at 42 CFR 1001.952(d). Coupled with a totality-of-circumstances analysis, this approach helps minimize compliance risks and strengthens the defensibility of the arrangement.
Conclusion
Medical directorships play a critical role in health care operations but must be carefully structured to comply with the federal and state Anti-Kickback statutes. By understanding the risks and implementing safeguards, health care providers and attorneys can protect their organizations from enforcement actions and preserve the integrity of their operations.
Christopher Parella, ESQ., CPC, CHC, CPC, is the principal of Parrella Health Law, a health care provider defense and compliance firm in Boston. With extensive experience in health care law, he provides robust legal support in areas including regulatory compliance, audits, health care fraud defense and reimbursement disputes. Parella emphasizes client-centered advocacy, offering one-on-one consultations for personalized guidance. His proactive approach helps clients navigate complex health care regulations, ensuring compliant operations and defending against government investigations, audits and overpayment demands. He can be reached at cparrella@parrellahealthlaw.com or at 857-328-0382. 1. 42 U.S.C. 1320a-7b(b).
2. (M.G.L. c. 175H §3).