In June 2015, the Office of Inspector General (OIG), an agency of the U.S. Department of Health and Human Services, issued a fraud alert titled, “Physician Compensation Arrangements May Result in Significant Liability.” This publication is widely believed to be the first such warning communication by the OIG directed specifically to physicians; the burden of ensuring that compensation arrangements reflect fair market value for services provided by physicians has largely been seen as a responsibility of the hospital or health system employing or contracting with the physician.

“OIG encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.” – Fraud alert, June 9, 2015

The fraud alert describes settlements with 12 individual physicians relating to compensation paid under medical directorship and office staff arrangements deemed improper for a number of reasons, including that the payments did not reflect fair market value for the services performed. In the case described, the OIG determined the physicians were an “integral part of the scheme” and subject to liability.

Interestingly, some of the questioned arrangements involved payment of salary expenses for the physicians’ office staff, rather than compensation paid directly to the physicians. This type of scrutiny highlights the need to consider all financial relationships between contracting parties when analyzing the fair market value of a physician compensation arrangement.

In recent years, the increase in physician employment by hospitals and health systems has somewhat subsided as other continuity of care alignment models such as medical directorships and clinical co-management arrangements have increased in popularity. The physician compensation experts at LBMC led by Josh Brummett specialize in assisting healthcare stakeholders in analyzing fair market value consideration under traditional and emerging types of arrangements.