OIG Fraud Alert: Physician Compensation & Indirect Benefits

Published by Compliance Today The most recent Office of Inspector General fraud alert (OIG Fraud Alert), published June 9, 2015, cautioned referring physicians that entering into fraudulent medical directorship and office staff arrangements could result in criminal, civil, and administrative sanctions.1 The alert was aimed specifically at referring physicians, but there are compliance implications for hospitals and health systems as well, because these entities often drive the structure and terms of physician compensation agreements.

Back Ground and Alleged Violations

The alert noted that the OIG reached settlements with 12 individual physicians who had entered into questionable medical directorship and office staff arrangements. The compensation paid through the medical directorship arrangements was investigated due to alleged improper remuneration under the Anti-Kickback Statue (AKS). Allegedly, the compensation paid to the physicians took into account the volume or value of the physicians’ referrals and did not reflect fair market value for the services. In some cases, the physicians may not have actually provided the services called for under the agreements. Additionally, the OIG alert noted that some of the 12 flagged physicians had entered into arrangements under which the salaries of their front office staff were covered by the contracting entity.


The OIG alert did not specifically note the parties involved, but the settlements were likely with physicians formerly associated with Fairmont Diagnostic Center and Open MRI Inc., an imaging facility in Houston, Texas (Fairmont). This case was originally investigated in 2012, resulting in a $650,000 False Claims Act settlement with Fairmont and its owner and operator, Dr. Jack L. Baker.2 Following the settlement, the OIG filed OIG Civil Monetary Penalties Law (CMPL) cases against 12 associated physicians, eventually collecting over $1.4 million in penalties ranging $50,000 to $195,016 per physician.3

Healthcare Compliance Tips

Several lessons can be learned from the latest OIG alert from a compliance perspective. When entering into medical directorship arrangements, hospitals and physicians should carefully consider the following:
  • The business justification, commercial reasonableness, and necessity of the subject services should be discussed and documented. Typically, medical director services are required to facilitate efficient operations of the hospital and increase quality of care to better serve the community.
  • The services outlined in the medical directorship agreement should match the services actually provided by the physician.
  • There should be no unexplained overlap of medical director services provided by multiple physicians. If there are multiple physicians filling the same administrative role, the hospital should document why the overlap is necessary.
  • Physicians should keep time sheets for the hours they spend providing medical director services.
  • Physicians should not be billing, collecting, or performing procedural work during any hours logged under a medical directorship, because this could create a double payment.
  • Physicians should bear the cost of any expense that directly benefits their practice, such as front office staff, rent, and equipment expenses.
  • Payments made for medical directorships and/or benefits received (i.e., office staff) should be set at fair market value and should not be determined based on the value or volume of referrals.


With its 41% budget increase over the past two years (from $295 million in 2014 to $417 million in 2016),4 the OIG is likely to step up its enforcement of the Stark Law and Anti- Kickback Statute. With this increased scrutiny, vigilance in compliance efforts is as important as ever for hospitals and physicians.