Monitor Provider Compensation Arrangements to Maintain Compliance

Track provider time and activities to prevent Anti-Kickback Statute and Stark Law violations.

Track provider time and activities to prevent Anti-Kickback Statute and Stark Law violations.

Are you paying attention to your provider compensation arrangements? The Office of the Inspector General (OIG) is. In its Fraud Alert—Physician Compensation Arrangements May Result in Significant Liability—the OIG stated, “Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.” The OIG reached settlements with 12 physicians whose medical directorship compensation constituted improper remuneration under the Anti-Kickback Statute because the payments took into account the physicians’ volume or value of referrals and did not reflect FMV for the services to be performed and because the physicians did not actually provide the services called for under the agreements.

Provider compensation is closely regulated by federal fraud and abuse laws, including the Anti-Kickback Statute (AKS) and Stark Law.  If a Medicare or Medicaid claim results from a kickback or is made in violation of the Stark Law, that claim may be false or fraudulent, creating liability under the civil False Claims Act as well as the AKS or Stark Law. Penalties for violating these laws are steep, in terms of monetary fines, prison time, exclusion from participation in Centers for Medicare & Medicaid Services (CMS) programs, and reputational damage.

The Anti-Kickback Statute (AKS) is a criminal law that prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business for any item or service payable by federal healthcare programs (e.g., drugs, supplies, or healthcare services for Medicare or Medicaid patients). Remuneration includes anything of value, such as cash, free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies. Safe harbors protect certain payment and business practices (such as payments to bona fide employees) from criminal and civil prosecution. Criminal penalties and administrative sanctions for violating the AKS include fines, jail terms, and exclusion from participation in federal healthcare programs. Under the Civil Monetary Penalties Law, physicians who pay or accept kickbacks also face penalties of up to $50,000 per kickback plus three times the amount of the remuneration.

The Physician Self-Referral Law, commonly referred to as the Stark Law, prohibits physicians from referring patients to receive “designated health services” (e.g., laboratory, imaging, inpatient and outpatient hospital services, and outpatient prescription drugs) payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both ownership/investment interests and compensation arrangements. Penalties for providers who violate the Stark Law include civil fines (up to $15,000 per violation, plus $100,000 for willful circumvention) and exclusion from participation in federal healthcare programs.

A West Virginia acute care hospital recently agreed to pay $50 million to resolve claims that it violated the False Claims Act by knowingly submitting claims to the Medicare program that resulted from violations of the Stark Law and the Anti‑Kickback Statute. Between 2007 and 2020, Wheeling Hospital allegedly violated the Stark Law and Anti-Kickback Statute by knowingly paying improper compensation to referring physicians that was based on the volume or value of the physicians’ referrals or was above fair market value (FMV).

A Pennsylvania hospital and physician group paid $20.75 million to settle a lawsuit alleging that the hospital violated the Stark Law by creating sham medical directorships for cardiologists to incentivize referrals for heart procedures. The medical directorships allegedly lacked the written agreements required to meet an exception under the Stark Law.

To comply with the AKS and Stark Law, provider compensation for clinical and administrative activities must be consistent with FMV and not take into consideration the value or volume of referrals the provider brings to the healthcare organization.

Document medical directorship arrangements. To prevent compliance violations, you must demonstrate that the provider is delivering actual, legitimate services under the medical directorship. Include medical directorship arrangements in the provider contract, outlining the specific services the provider is to perform and the compensation for those services.

Analyze provider compensation, including medical directorship and administrative duties, to ensure compliance with FMV. Healthcare organizations often use an hourly compensation arrangement for medical directorship and other administrative activities. When the provider contract specifies an aggregate amount, you must be sure the compensation is consistent with the amount of services and time provided, to avoid excessive compensation that may be construed as kickbacks. For example, if a provider is paid $40,000 per year for medical director services, and the FMV rate for those services is $200 per hour, the provider should be spending about 200 hours per year engaged in medical director activities.

Document and verify the services performed and time spent on them. Providers must record all clinical and administrative activities, including medical directorship services, using timesheets. Ask providers to submit a timesheet at least monthly in order to be paid. Compare the providers’ timesheets to their contracts to confirm that they are providing the services and hours specified in the contract. Doing so prevents paying the provider for undocumented or unsupported services.

Use a provider time tracking app. Handwritten, paper timesheets are often incomplete and/or illegible, creating compliance issues and requiring staff to track down the provider to supply the missing information. If your compliance team is using paper spreadsheets or outdated software to track hundreds of providers performing dozens of services, they may miss potential compliance violations. A time tracking app automates the tracking of provider time and activities, simplifying reporting and creating an electronic audit trail that promotes regulatory compliance.

TractManager’s Compliance Suite includes several automated solutions that help you identify and resolve potential compliance problems before they happen. A TractManager client combined our integrated Compliance Suite with our Contract Analytics to help reduce legal exposure and avoid $4.4 million in fines.

TractManager’s Provider Time Tracking is an easy-to-use, online timesheet solution that generates custom timesheets based on contract terms and conditions to ensure that your contracted workforce is providing the agreed-upon services in a way that complies with federal regulations. Provider Time Tracking gives you full report-writing capabilities to create an electronic audit trail. Provider Time Tracking also has an easy-to-use mobile app. For more information on maintaining your healthcare contracting compliance, check out TractManager’s Compliance Suite.


Brooke Brown, RN, BSN

Vice President of Product Management

Brooke Brown joined TractManager’s Contract Management division in 2017


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