OIG advisory on physician consultations

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Sept. 6, 2004.

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If you are thinking about signing an agreement with a group practice for the provision of professional services, you should be aware of a recent advisory opinion of the Office of Inspector General. The opinion approves a geriatric group practice's proposal to employ certain primary care physicians as consultants for the group's nursing home patients. The OIG determined that such an arrangement would not generate prohibited remuneration under the Anti-Kickback Statute.

The OIG advisory opinion stated that because the Internal Revenue Service had deemed the consulting physicians bona fide employees of the geriatric group, the proposed arrangement fell within the statutory exception and regulatory safe harbor for employee compensation.

But the OIG cautioned that this opinion is contingent on the consulting physicians meeting the IRS definition of a bona fide employee. A similar arrangement with independent contractor physicians would raise additional fraud and abuse concerns, as would any similar payment arrangement with a nursing home.

The group practice is a professional service corporation comprised of physicians specializing in treating nursing home residents. It had difficulty obtaining complete and accurate patient histories and essential patient information, such as past treatments, tests, and responses or reactions to medications, for its nursing home patients. The group practice sought to employ the primary care physicians who treated the residents before admission to the nursing home.

Under the consulting arrangement, the primary care physicians agree to be on call and available for telephone consultation 24 hours per day, seven days a week to respond to the group practice's requests for medical consultation about a particular patient.

The contract caps the consulting physician's monthly compensation at $750 for 15 hours of service for 20 or more patients. None of the costs incurred by the group practice for consulting services would be billed to any federal health care program or to any patient or other third-party payer.

The geriatric group practice provided the OIG with a private letter ruling issued by the IRS indicating that the consulting physicians qualify as bona fide employees of the group practice.

The Anti-Kickback Statute exempts any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in provision of covered items or services. Under OIG safe harbor regulations, the term "remuneration," as used in the Anti-Kickback Statute, does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment can be made in whole or in part under Medicare or a state health care program.

The OIG's advisory opinion indicated that the Anti-Kickback Statute disfavors payment structures that tie compensation, even for legitimate services, to patients referred by the compensated party. Where such payments are made through an employment relationship specifically deemed bona fide by the IRS, the arrangement is protected despite the risk it otherwise presents of fraud and abuse.

If you are an independent contractor or are in a group practice seeking to contract for the provision of professional services, you should consider the following tasks before signing your contract:

  • Request a private letter ruling from the IRS to determine whether the independent contractor physician qualifies as a bona fide employee of the group practice.
  • Confirm that the remuneration paid by the group practice to the independent contractor physician is consistent with fair market value and does not take into consideration the volume or value of patient referrals.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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