Medical Director Contracts

The term “Medical Director” is something of an imprecise term. Although many Health and Human Services (HHS) and Center for Medicaid and Medicare Services (CMS) rules require an entity employ a physician “Medical Director,” many, if not most Medical Director Contracts come with a host of ancillary agreements which call into consideration multiple provisions of Stark Law, the Anti-Kickback Statute, the Civil Monetary Penalties Statute and the Exclusionary Statute.  Violation of any one of these rules may result in a determination that each bill submitted for payment is in fact a violation of the False Claims Act.

Perhaps for this reason, there is no specific “Medical Director” safe harbor. Instead CMS and the Office of Inspector General will audit contracts and break them down into their component parts. For example, in OIG Advisory Opinion No. 01-17, The OIG determined that a Medical Director agreement between a Hospital and ASC contained multiple ancillary agreements including the rental of office space, the sharing of common reception areas, and implicated the  Safe Harbors for “personal services” and “management contracts” under 42 C.F.R. §1001.952(d)(3), (d) (5).

In other words, there is normally no single Safe Harbor, but instead, the facts of any arrangement must be deconstructed into component parts with multiple Safe Harbor requirements, each of which must be met in strict accordance with federal regulations, if the Medical Director agreement is to be considered immune from prosecution.

This would all seem somewhat straightforward, albeit straightforwardly complicated, if it were not for the “uneasy” (some would term “Schizophrenic”) relationship between the government  and a health care industry operating under a free-market, free- enterprise system.  It is normal   for capitalistic enterprises to seek to capture a stream of referrals which guarantees the highest profits. For example, because CMS rules require that a Hospice facility hire a physician medical director, it makes sense for a hospice care facility to hire a part-time medical director who is either a medical director or owner of a nearby nursing home. The idea being the medical director could refer patients. Whether or not this arrangement is lawful depends upon examination of each and every fact surrounding the transaction. 

Martin Merritt maintains a searchable database of medical director agreements, as well as OIG letter opinions, reports, audits, and pronouncements on the requirements of 42 C.F.R. §1001.952, et seq. as applied to Medical Director agreements.




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