On June 9, 2015, the Office of Inspector General of the U.S. Department of Health and Human Services (the “OIG”) released a fraud alert entitled “Physician Compensation Arrangements May Result in Significant Liability”1 (the “Alert”). The Alert is part of the OIG’s continuing effort to put physicians, and the healthcare industry at large, on notice that the OIG is expanding its focus on compliance with the Federal Anti-Kickback Statute (the “AKS”) past its traditional focus on the facility-side of an arrangement and onto the individual physicians involved. While the Alert does not represent any new analysis or policy, but is rather a reminder of what hospitals and physicians should already be scrutinizing, it serves as a strong warning to physicians that the OIG will hold them accountable for participating in arrangements that the OIG views as shams intended to disguise kickbacks.

In the Alert, the OIG draws specific attention to arrangements such as medical directorships between institutional providers and their referral-source physicians. The OIG encourages physicians to independently ensure that their compensation arrangements reflect fair market value for bona fide services actually performed. The OIG emphasizes again, as it has before, that “…a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.” [emphasis added.]

The Alert further highlights the OIG’s intention to pursue enforcement actions against individual physicians by referencing recent settlement agreements related to improper directorship arrangements with a dozen separate physicians. While the Alert does not include identifying information, it alleges that the terms of the arrangements were suspect as a result of payments:

  • Taking into account the volume or value of referrals made by such physicians;
  • Failing to reflect the fair market value of the services being performed;
  • Involving situations where the physicians did not actually provide the contracted services; and
  • Having the effect of relieving physicians of the financial burden of paying the salaries of their office staff.

The details provided in the Alert are consistent with recent OIG settlements related to arrangements with Fairmont Diagnostic Center and Open MRI Inc. (“Fairmont”), an imaging facility in Houston, and it is widely discussed that these 12 settlements are likely to be the settlements referenced in the Alert.2 Specifically, during the past two years, the OIG has entered into settlements with 12 individual physicians who were involved in suspicious arrangements involving medical director positions and office staffing with Fairmont, where the settlements range from $50,000 to $195,016.3& The OIG alleged that the physicians serving as medical directors violated the AKS because the physicians received payments based on the physicians’ level of referrals, instead of the fair market value of the services provided under the agreements. The OIG further alleged some of the physicians were paid for services they never provided. The allegations included charges that Fairmont paid the salary of a referral coordinator on the staff of four of the 12 physicians, and thus relieved these physicians from the financial burden of that salary.

As a part of these settlements, one family practice physician agreed to a three-year exclusion from participating in federal healthcare programs. This voluntary exclusion resulted specifically from the OIG’s allegations that the physician’s medical director compensation took into account the value and volume of referrals made to Fairmont, and the fact that the physician admitted to the Texas Medical Board that his medical practice fell below the standard of care for eight patients. Two other physicians, whose settlements each totaled $195,016, were alleged to have entered into agreements where their respective medical director positions and compensation were based on the volume and value of referrals each sent to Fairmont.

These individual settlements follow the July 2012 settlement with Jack L. Baker, the individual owner and operator of Fairmont. In 2012, Baker reached a $650,000 settlement with the government over numerous allegations including that he had prohibited physician relationships including: (1) sham personal services contracts (Medical Directorships) that took into account the value of referrals from the Medical Directors; and (2) contracts to pay the salaries of employees in physicians’ offices that took into account the value of referrals from those physicians. Baker also was excluded from participating in federal healthcare programs for six years.

On June 16, 2015, the U.S. Department of Justice (the “DOJ”) announced additional settlements that demonstrates the government’s intention to increase enforcement against individuals. Specifically, the DOJ announced that it had reached a settlement agreement with Hebrew Homes Health Network Inc., also known as Plaza Health Network (“Hebrew Homes”), its operating affiliates and its former president and executive director.4 Pursuant to the settlement, Hebrew Homes agreed to pay $17 million to resolve allegations that it had improperly paid physicians for referrals of Medicare patients through a sophisticated kickback scheme. Hebrew Homes operated seven rehabilitation and skilled nursing facilities in Miami-Dade County, Florida. This is the largest settlement involving alleged violations of the AKS by skilled nursing facilities in the U.S.

This intricate scheme allegedly involved Hebrew Homes hiring numerous physicians ostensibly as medical directors pursuant to contracts that included job duties and hourly requirements. The DOJ asserts that various Hebrew Homes facilities had several medical directors under contract at any one time and paid each several thousand dollars per month. Similar to the Fairmont settlements, allegations included that these medical director positions were in reality “ghost” positions because the physicians performed few, if any, of their contracted job duties. The DOJ specifically noted that the physician referrals increased exponentially once each of the medical directors was put on Hebrew Homes’ payroll.

As part of the DOJ’s press release, DOJ Assistant Attorney General Benjamin C. Mizer made clear that “[i]llegal inducements paid to physicians in exchange for patient referrals will not be tolerated.”5 Providers and physicians should stay tuned to see how, over coming years, the OIG reaches settlement agreements with the individual physicians involved in the Hebrew Homes scheme.

Last week, Lisa Re, chief of the OIG’s Administrative and Civil Remedies Branch, announced the OIG’s creation of a special litigation team during her presentation to the American Health Lawyers Association’s annual meeting. The OIG intends for this new team to focus solely on cases involving fraud schemes punishable by civil monetary penalties and exclusion from the Medicare and Medicaid programs. It is reported that Re predicted that this team will frequently target kickback schemes that allegedly taint medical judgment. According to Re, the OIG hopes increased enforcement will lead to increased compliance. Following on the heels of the Alert and settlements, this is yet another action highlighting a heightened enforcement environment facing physicians and their partner institutions.


Although hospitals and other institutional providers have traditionally borne the brunt of AKS enforcement actions, the June 2015 alert along with recent developments discussed above signals that the OIG and DOJ intends to bring a new focus to a physician’s role in alleged kickback schemes by expanding the OIG’s scrutiny to include those the physicians involved in questionable arrangements. For providers frustrated by physician disinterest in their compliance programs, the Alert and physician settlements may well be useful for achieving physician buy-in with their compliance program efforts.

As part of those efforts, both institutional providers and physicians would be well advised to review their existing medical director relationships and ensure that each arrangement meets the requirements of the AKS. Providers and physicians should carefully consider whether administrative services arrangements fit within the applicable safe harbors to the AKS. The Alert presents an opportunity to revisit existing relationships and policies and ensure that both parties are comfortable with the structure and compensation.

1 OIG Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability (June 9, 2015), last accessed June 23, 2015.

2 2015 OIG Report, page 32.

3 OIG Kickback and Physician Self-Referral, available at https://oig.hhs.gov/fraud/enforcement/cmp/psds.asp (last accessed June 23, 2015); and OIG, Semiannual Report to Congress, October 1, 2014- March 31, 2015 (“2015 OIG Report”), available at https://oig.hhs.gov/reports-and-publications/archives/semiannual/index.asp (last accessed June 23, 2015).

4 DOJ, Office of Public Affairs, “Florida Skilled Nursing Facility Agrees to Pay $17 Million to Resolve False Claims Act Allegations,” (June 16, 2015), available at http://www.justice.gov/opa/pr/florida-skilled-nursing-facility-agrees-pay-17-million-resolve-false-claims-act-allegations (last accessed June 23, 2015).

5 Id.