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Medical Director Agreements – Compliance Issues – Fair Market Value

Medical Director Agreements – Stark Law Compliance

The recent case of the United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (Jan. 2011) is one of the more recent reminders of the potential exposure to Stark Law liability arising through medical director arrangements.  The Campbell case involved an effort on behalf of the University of Medicine and Dentistry of New Jersey to increase referrals of cardiothoracic patients.  This effort resulted in the hospital entering into clinical assistant professor (“CAP”) agreements with a number of cardiologists.  These clinical assistant professor agreements purported to require the physicians to perform a variety of teaching-related services.  Physicians were paid between $50,000 and $180,000 per year under these contracts. 

The United States contended that the primary service performed under the CAP agreements was the referral of patients for private cardiology services to the hospital.  Although there were services described in the agreement, there was little indication that many of these services were ever actually performed. 

The court found that the Stark Law was violated because the physician was not compensated at fair market value, and the arrangement was not commercially reasonable.  Both fair market value compensation and commercial reasonableness are requirements in order to comply with the Stark Law.  The court pointed out that there is no requirement to actually perform the duties that were listed in the agreement and that any excess compensation over fair market value was considered impermissible payments in violation of the Stark Law.

Although this case involves an agreement that was defined as a critical assistant professor agreement, the analogy to a medical director agreement is obvious.  There have been a long line of cases and settlements with the Office of Inspector General involving medical director agreements.  Some of these applicable cases include the following:

1)  The San Jacinto Methodist Hospital in Texas agreed to pay over $21,000 in civil monetary penalties for a physician medical director who occupied hospital space for private use and utilized hospital personnel for clerical assistance, presumably while performing medical director services to the hospital.

 2)  Jewish Hospital and St. Mary’s Health Care in Kentucky paid $130,000 in civil monetary penalties for allegedly paying the medical director compensation in excess of his medical director agreement and providing free nurse services to the medical director’s private practice.

 3) Cushing Memorial Hospital paid $50,000 in civil monetary penalties related to a cardiologist who was medical director of a cardiac rehabilitation unit and was paid without the agreement having been signed.

 It is worthy of note that the above three described cases involved self-disclosure to the Office of Inspector General and likely the self-disclosure mitigated the amount of penalties that were paid by the reporting providers.

These cases and the Campbell case raise a number of compliance issues relative to the medical director agreements.  First, the medical director agreement should be in writing, and the agreement should be signed.  The agreement should include a detailed description of the services to be performed and should also set forth in detail the qualifications of the specific physician to provide the medical director services.  There should be follow-up to be certain that the services are actually performed.  The physician should be required to submit regular time records documenting the services.  In all cases, the institution should document the commercial reasonableness and necessity of the medical director arrangement.  The compensation should always be at fair market value and should be supported by a fair market value opinion that is credible and considers all factors relevant to the specific medical director arrangement.

Finally, the organization should monitor the terms of each medical director agreement to be certain that there is no termination of the agreement at a time when compensation continues.  There must always be a writtten medical director agreement in place in order to justify even fair market value compensation for the services performed by the medical director.

For more information on medical director agreements, Stark Law, compliance in the fair market value  of physician compensation arrangements, contact John Fisher at Ruder Ware.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

Ruder Ware is a member of Meritas Law Firms Worldwide

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