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This June marked a year since the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued its fraud alert about physician compensation arrangements. The purpose of this article is to review what effect the alert had on the industry, what the industry has learned about referral-based arrangements, and how some have reacted (or not reacted) to the declaration from the OIG that physician compensation arrangements may result in “significant liability” if certain protections are not in place.


On June 9, 2015, HHS issued a fraud alert titled “Physician Compensation Arrangements May Result in Significant Liability.” The announcement targeted physicians and directed that all compensation arrangements reflect a fair market value and payment for bona fide services that have been provided. Furthermore, the alert stated that if any purpose of such an arrangement was to compensate a physician for past or future referrals, the potential exists for the determination of a violation of the anti-kickback statute, which could result in possible criminal, civil, and administrative sanctions, including but not limited to exclusion from the federal healthcare programs and potential draconian penalties via the False Claims Act.

Why Pay Attention?

In the past four years, the OIG has only averaged one fraud alert per year; in fact, since this issuance in June 2015, the OIG has not published any others. In other words, when the OIG issues a fraud alert, it should attract the attention of providers’ compliance, audit, and governance leadership, who should ensure that appropriate proactive initiatives are in place to minimize risk. Physicians and physician practice executives should make sure that all arrangements with organizations to whom they refer patients (and from whom they receive referrals) are compliant with the myriad of requirements.

Numerous hospitals have been subject to compliance investigations by various oversight organizations because of physician compensation arrangements. Some have been able to defend accusations of violations of the Stark Law or anti-kickback statute. Others have not been as fortunate and have been subject to steep fines and penalties related to False Claims Act settlement agreements, and several have been ordered to exhibit mandated compliance behaviors for five years via a corporate integrity agreement related to their conduct and the subsequent investigations.

Due to certain proposed changes to our healthcare delivery system, including a greater focus on population-based medicine with more associated providers, we anticipate activity related to arrangements and contracted relationships between physicians and hospitals to increase. Healthcare organizations will employ more physicians and have more contracted provider relationships in the future. Healthcare organizations will need to manage these relationships while focusing closely on the compliance requirements in order to make sure that the relationships are not influencing referrals. The conclusion that many in the compliance arena, including myself, have reached is that we have a high-risk area in our hospitals, and physician and focus arrangements should be crafted, managed, and monitored with the utmost attention and concern.

More Reason to Take This Seriously

It is important to note that many times, common regulatory sanctions such as fines, penalties, corporate integrity agreements, etc. have nothing to do with “intentional” actions. Rather, they are put into place due to a lack of established best-practice business processes designed to mitigate risk. The arguments that an organization didn’t know about the risk or didn’t have the resources to adequately address the risk are not advisable.

The BNA 2016 Health Care Fraud Report listed the following as the No. 1 issue on the mind of hospital executives regarding fraud risk: “(an) increase in False Claims Act cases related to the Stark law and anti-kickback statute.”

Aggressive enforcement of healthcare fraud and abuse cases began in the mid-1990s with the application of the False Claims Act to inappropriate payments from Medicare and Medicaid, which occurred with a pattern or practice of behavior among some providers. The impetus for this was that the initiative focuses on the preservation of the Medicare trust fund. The latest estimates are that as of June 2016, the Medicare trust fund faces insolvency in 12 years, or by 2028. Thus, we do not anticipate the pressure to have large settlements (see Stark, anti-kickback, and False Claim violations), which result in huge amounts of money being repaid partially to the Medicare trust fund, to subside. In fact, compliance veterans such as myself anticipate more focus and energy by investigators and whistleblowers to uncover and investigate inappropriate relationships.

Common Risk Areas in Arrangement Relationships

Areas frequently at risk for fraud in these arrangements include:

  • False or inaccurate reporting of time and effort spent rendering services.
  • Charges of persons not contracted to work and unadjusted payments.
  • Work described in a contract yet not performed.
  • Inadequate or substandard accounting policies and practices.
  • Pay without a contract or valid documentation of time and effort.
  • Contracts that never accurately represented services to be performed.
  • Payments tied to referrals.
  • Undisclosed conflicts of interest.
  • Inability to substantiate contracting efforts due to lack of documentation or inability to produce historical documentation.
  • Contracts that never make it completely through the hospital review process.

In future articles, we will frame some best practices to ensure the implementation of good compliance processes in this high-risk area.

About the Author

A veteran in healthcare compliance (since 1997), Bissey has served as SVP and chief ethics compliance officer at UMDNJ in Northern New Jersey. The author of the Compliance Officer’s Handbook, he has been a thought leader and popular speaker at industry conferences/meetings, with over 30 years of diversified healthcare management, operations, consulting, and compliance experience.


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