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A Roadmap for New Physicians
II. Physician Relationships With Fellow Providers: Physicians, Hospitals, Nursing Homes, Etc.

Any time a health care business offers something to you for free or at below fair market value, you always should ask yourself, "Why?" For example, if a DME supplier offers to give you cash or to pay for your summer vacation, you should suspect that the supplier is trying to induce you to refer your patients to that vendor. If a laboratory offers to decorate your patient waiting room, you should suspect that it is trying to induce you to send your lab business its way.

Physician Investments in Health Care Business Ventures

Some have observed that physicians who invest in health care business ventures with outside parties (e.g., imaging centers, labs, equipment vendors, or physical therapy clinics) refer more patients for the services provided by those parties than physicians who do not invest. Maybe this disproportionate utilization partly reflects the physicians' belief in the value of the services or technology, prompting the investments in the first place. However, there also is a risk that the physicians' belief in the value of the services or technology is less a cause than an effect of the investment interest. The physician investors' disproportionate utilization may be motivated partly by the physicians' ability to profit from the use of the ancillary services. These business relationships can sometimes unduly influence or distort physician decisionmaking and result in the improper steering of a patient to a particular therapy or source of services in which a physician has a financial interest. Excessive and medically unnecessary referrals waste Government and beneficiary money and can expose beneficiaries to harm from unnecessary services. Many of these investment relationships have serious legal risks under the AKS and Stark law.

X-ray of a person's hand

If you are invited to invest in a health care business whose products you might order or to which you might refer your patients, you should ask the following questions. If the answer is "yes" to any of them, you should consider carefully whether you are investing for legitimate reasons.

  • Are you being offered an investment interest for a nominal capital contribution?
  • Will your ownership share be larger than your share of the aggregate capital contributions made to the venture?
  • Is the venture promising you high rates of return for little or no financial risk?
  • Is the venture or any potential business partner offering to loan you the money to make your capital contribution?
  • Are you being asked to promise or guarantee that you will refer patients or order items or services from the venture?
  • Do you believe you will be more likely to refer more patients for the items and
  • services provided by the venture if you make the investment?
  • Do you believe you will be more likely to refer to the venture just because you made the investment?
  • Will the venture have sufficient capital from other sources to fund its ongoing operations?
Case Examples

 Involving Kickbacks for Referrals and Self-Referrals

  • Nine cardiologists paid the Government over $3.2 million for allegedly engaging in a kickback scheme. The cardiologists received salaries under clinical faculty services agreements with a hospital under which, the Government alleged, they did not provide some or any of the services. In exchange, the cardiologists referred their patients to the hospital for cardiology services. Two of the physicians also pled guilty to criminal embezzlement charges involving the same conduct.
  • A physician paid the Government $203,000 to settle allegations that he violated the physician self-referral prohibition in the Stark law for routinely referring Medicare patients to an oxygen supply company he owned.

Physician Recruitment

Photo of an oxygen tank

A hospital will sometimes provide a physician with a recruitment incentive to induce the physician to relocate to the hospital's geographic area, become a member of its medical staff, and establish a practice that helps serve that community's medical needs. Often, such recruitment efforts are legitimately designed to fill a "clinical gap" in a medically underserved area to which it may be difficult to attract physicians in the absence of financial incentives. However, as you begin planning your professional future and perhaps receiving recruitment offers, you need to be aware that in some communities, especially ones with multiple hospitals, the competition for patients can be fierce. Some hospitals may offer illegal inducements to you, or to the established physician practice you join in the hospital's community, to gain referrals. This means that the competition for your loyalty can cross the line into illegal arrangements for which both you and the hospital can be liable.

Recruitment arrangements are of special interest to graduating residents and fellows. Within very specific parameters specified in the Stark law and subject to compliance with the AKS, hospitals may provide relocation assistance and practice support under a properly structured recruitment arrangement to assist you in establishing a practice in the hospital's community. Alternatively, a hospital may pay you a fair market value salary as an employee or pay you fair market value for specific services you render to the hospital as an independent contractor. However, the hospital may not offer you money, provide you free or below-market rent for your medical office, or engage in similar activities designed to influence your referral decisions. You should admit your patients to the hospital best suited to care for their particular medical conditions or to the hospital your patient selects based on his or her preference or insurance coverage. As noted, if a hospital or physician practice seperately or jointly is recruiting you as a new physician to the community, you may be offered a recruitment package. But, you may not negotiate for benefits in exchange for a promise-implicit or explicit-that you will admit your patients to a specific hospital or practice setting unless you are a hospital employee. You should seek knowledgeable legal counsel if someone with whom you are entering into a relationship requires you to admit patients to a specific hospital or practice group.

Photo of a doctor holding a clipoard that reads 'Help Wanted' Case Examples

of Medical Directorship Issues

  • A physician group practice paid the Government $1 million and entered into a 5-year Corporate Integrity Agreement to settle alleged violations of the AKS, FCA, and Stark law related to medical directorships with a medical center. Allegedly, the agreements were not in writing, the physicians were paid more than fair market value for the services they rendered, and the payment amounts were based on the value of referrals the physicians sent to the medical center.
  • Two orthopedic surgeons paid $450,000 and $250,000 to settle allegations related to improper medical directorships with a company that operated a diagnostic imaging center, a rehabilitation facility, and an ambulatory surgery center. The company allegedly provided the physicians with valuable compensation, including free use of the corporate jet, under the medical directorship agreements, which required the physicians to render limited services in return. The agreements with the physicians allegedly called for redundant services and served to encourage the physicians to refer their patients to the facilities operated by the company.

Tips for Medical Directors

If you choose to accept a medical directorship at a nursing home or other facility, you must be prepared to assume substantial professional responsibility for the care delivered at the facility. As medical director, patients (both your own patients and the patients of other attending physicians) and their families count on you, and State and Federal authorities may hold you accountable as well. To do this job well, you should:

  • actively oversee clinical care in the facility;
  • lead the medical staff to meet the standard of care;
  • ensure proper training, education, and oversight for physicians, nurses, and other
  • staff members; and
  • identify and address quality problems.

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