Medical Directors Remain in Enforcers’ Crosshairs

The Department of Justice (DOJ) recently filed a complaint against Erlanger Health System based on alleged violations of the Stark law.? Specifically, the DOJ claims that Erlanger employed and received referrals from physicians that did not meet the requirements of any exception to the Stark law.

A focus of the complaint is that Erlanger used medical directorships to attract and reward high revenue-generating physicians.? The complaint also alleges that the health system did not require physicians to document the time spent in order to substantiate payments were made to physicians for services they actually provided.

This recent enforcement action reminds us that medical directors are indeed in enforcers’ crosshairs.

In the meanwhile, marketing strategies utilized by post-acute providers are generating fierce competition for referrals, especially Medicare beneficiaries!? As a result, providers are appropriately committing more and more resources to marketing activities. Providers, for example, are entering into agreements with referring physicians to provide consulting services to their organizations.? These legitimate relationships may easily be misunderstood by enforcers.

First, it is important to acknowledge that post-acute providers need consulting physicians’ services.? Examples of services that are genuinely needed, from a business perspective, may include the following:

• Consultation regarding clinically complex cases
• Assistance with the development and maintenance of specialty programs
• Communication with physicians who provide inappropriate orders for care, do not return signed orders on time, or are unresponsive to staff members who are seeking modifications to treatment plans

As providers know, however, these types of arrangements raise important legal issues related to potential violations of the federal anti-kickback statute (AKS), the federal so-called Stark laws, and state statutes that are probably similar to these federal statutes.?

Providers are likely to avoid violations if they meet the requirements of the personal services “safe harbor” under the AKS and the contractual exception under the Stark laws.? The safe harbor and exception generally require providers to pay consulting physicians who also make referrals to them based upon written agreements that require payments at fair market value for services actually rendered without regard to the volume or value of referrals received.

From a practical point of view, providers should:

1. Pay physicians who also make referrals on an hourly basis, not a set monthly amount.
2. Develop standardized agreements and use them consistently with all referring physicians who receive consulting fees from them.? Providers cannot afford to use a variety of different agreements that may not meet applicable requirements.? Staff must understand that they can use only the standard approved agreement and cannot modify it without advance written approval from a designated, knowledgeable individual.
3. Document services rendered and the amount of time spent on these activities.? Documentation is crucial.? Providers should develop and implement policies and procedures that permit payments to physicians only after appropriate documentation to support payments has been received and reviewed, including dates on which services were performed, descriptions of activities, and the amount of time spent on each activity.
4. Avoid agreements for consulting services with physicians whose services they do not actually use, even if they make no payments to them.? Providers should terminate these agreements if they do not need the services covered by them.? Otherwise, it may appear that the only purpose for the agreements is to induce referrals, as opposed to a documented need for services.
5. Avoid having numerous consulting physicians/medical directors. Although there are usually no limits on the number of consulting physicians/medical directors that providers can have at any given time, a very large number is likely to invite scrutiny by regulators and should be avoided.? How many is too many?? The number should certainly bear some relationship to the size of the provider organization and the geographic area served.? Beyond this general guideline, common sense must prevail.? The bottom line is: does the provider have legitimate work for every consulting physician?
6. Avoid asking consulting physicians to perform commercially reasonable services that are related to the volume and value of referrals made.? Providers cannot, for example, ask referring physicians to assist with quality assurance activities that entail their review of charts of patients whom they referred to the provider; so that the more referrals made, the more money consulting physicians make.

Providers are more likely to avoid enforcement activities when they follow these practical guidelines.? Violations hurt providers and referral sources alike.? In view of the possible adverse consequences, expenditures of financial and other resources to get it right are certainly justified.

?2024 Elizabeth E. Hogue, Esq.? All rights reserved.

No portion of this material may be duplicated by any means without the advance written permission of the author.