Posted by: Robert Markette
September 05, 2006

I was reading an article in Home Health Line about medical director relationships and home health agencies. I thought it was an excellent article, but I dont think it emphasized a couple of key points. Obviously, whenever a home health agency or hospice hires or retains a medical director, the first question you have to ask is whether the director makes any referrals to your agency or hospice. In most cases, the answer is yes. This creates a very real fraud and abuse and/or Stark issue.

That is why it is so important to make sure you relationship with your medical director satisfies the safe harbors to fraud and abuse or Stark. There are two ways to do this. One way is to have the Medical Director be a bonafide employee of the agency/hospice. The other way is to have a properly drafted contract outlining the personal/management services relationship with the physician, (You could, perhaps arrange to never receive referrals from the physician, but you would still want a contract with the physician, so why not just take the steps necessary to meet the safe harbors.)

Whether an individual is a bonafide employee or independent contractor is governed by the test used by the IRS. You should be sure to see how this test applies to your relationship, before you determine which safe harbor applies. (Also to be sure you dont mistakenly fail to withhold employment taxes, etc.) For most home health agencies and hospices, the Medial Director is under contract and treated like an independent contractor.

If the Medical Director is in fact an employee, you will be limited in the circumstances under which you can refuse to pay him. (For more on this topic, I refer you to the homecareemploymentlawblog.com) If he is a contractor, the contract can define the terms of when the Director gets paid.

Most agencies and hospices will determine the Medical Director is an independent contractor. If so, you will need to meet the personal services safe harbor. There are many reasons to have a written contract with the Medical Director, but for this safe harbor to apply, you must have a written contract. The written contract must contain specific terms required by the safe harbor. There are a number of additional terms that a well written contract will include, beyond the basic safe harbor provisions.

Beyond the requirements of the safe harbor, it is always a good idea to have a written contract in this kind of professional services relationship, even if your Medical Director is an employee. There are so many things that can become a problem and the contract is supposed to provide avenues for addressing or preventing those problems. If the Medical Director is an employee, you will want to be sure the contract does not alter the employment at will status of the employee, amongst other things.

Another issue that comes up in these situations is what to pay the Medical Director. The HHL article made a good point about checking what other agencies pay. The safe harbor always looks to fair market value, which is the rate that two parties would reach at an arms length transaction. One way to check fair market value, is to actually check the market. If you have a written contract, but are overpaying the Medical Director, you can lose the protection of the safe harbor. (I say can, because you may have legitimate reasons to overpay, unrelated to referrals, the point is fair market value is a key consideration in avoiding fraud and abuse)

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