By: Christopher Parrella, Esq., CPC, CHC, CPCO
Parrella Health Law, Boston, Ma.
A Health Care Provider Defense and Compliance Firm

In a landmark healthcare compliance case, Bridgeport Hospital and Northeast Medical Group, Inc. (NMG) agreed to pay $10.78 million to settle claims brought by the Office of Inspector General (OIG) over alleged violations involving medical director agreements and physician assistant services. The case underscores the critical need for healthcare organizations to ensure that payments for physician services are both commercially reasonable and well-documented.

What Went Wrong?

According to OIG’s allegations:

• Excessive and Unnecessary Payments: The hospital allegedly paid an independent physician group for medical director services that were unnecessary, excessive, or even not provided at all.
• Improper Use of Physician Assistants (PAs): Hospital-employed PAs reportedly performed post-operative visits for the physician group without charge, even though the physicians were not employed by the hospital or NMG.

These practices triggered violations under the Civil Monetary Penalties Law (CMPL), which prohibits payments intended to induce referrals or present claims for services provided under prohibited financial arrangements.

Compliance Lessons: Keeping Medical Director Agreements Above Board

Healthcare organizations should take these steps to avoid similar legal troubles:

1. Evaluate Commercial Reasonableness Regularly:
   • Agreements must be commercially reasonable at inception and throughout their duration.
   • Adjust service agreements as needs evolve, reducing or terminating services when they are no longer necessary.
2. Document Physician Services Accurately:
   • Time sheets should reflect actual work performed and must be reviewed regularly.
   • Ensure that service-line managers and compliance officers review and validate time sheets before processing payments.
3. Conduct Two- or Three-Step Reviews:
   • First, service-line managers verify time sheets based on actual services performed.
   • Next, compliance or legal teams validate service records against contract terms.
   • For added oversight, senior leadership, such as the CEO, can approve high-value contracts.
4. Self-Disclose Compliance Issues:
   • In this case, Bridgeport Hospital and NMG self-disclosed the potential violations, mitigating harsher penalties.
   • A proactive compliance program can help identify and address problems before they escalate.

The Bigger Picture: Managing Risk in Physician Contracts

The settlement demonstrates that commercial reasonableness extends beyond fair market value. CMS defines it as whether the agreement furthers a legitimate business purpose, even if it doesn’t generate profit. This qualitative assessment means healthcare organizations must continuously reassess contracts, ensuring services are both necessary and compliant with federal law.

Need Help Managing Physician Contracts?

Parrella Health Law specializes in healthcare compliance, fraud prevention, and regulatory risk management. If your organization needs assistance reviewing physician agreements or strengthening compliance oversight, our experienced team can help.

Contact Parrella Health Law at 857.328.0382 or email Chris directly at cparrella@parrellahealthlaw.com.