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

The federal government just delivered another very clear warning shot to health care providers that rely on medical directorships and service-line agreements to drive referrals. New York-Presbyterian Hudson Valley Hospital has agreed to pay $6.8 million to resolve allegations that it paid millions of dollars to a Westchester oncology practice in exchange for patient referrals, all while billing Medicare and Medicaid for the resulting services. This was not a case about blatantly illegal contracts on their face. The agreements looked familiar. Medical directorships. Service-line development. Management and marketing services. The problem was execution, oversight, and intent. According to the government, the oncology practice routinely failed to perform the core services required under the agreements, failed to document time and work and in some cases never delivered the services at all. Despite this, the hospital continued paying fees year after year while referrals flowed in and federal healthcare dollars followed.

That combination is toxic. When money moves and referrals move with it, the government does not need an email saying “this is a kickback.” They look at whether the services were real, whether the compensation was justified, whether the work was performed and whether the hospital knew or should have known it wasn’t. In this case, federal prosecutors allege the hospital knew by 2016 that the services were not being performed as required, yet continued paying through 2019. That alone was enough to convert a bad contract management problem into an Anti-Kickback Statute, Stark Law, and False Claims Act nightmare. What makes this case especially dangerous for providers is how common these arrangements are. Hospitals routinely enter into medical directorship. Management services agreements are used to justify payments for development, marketing, integration and clinical leadership. None of that is inherently illegal. But every one of these arrangements becomes indefensible the moment services are not actually performed, not documented or not consistent with fair market value.

The government’s theory here is straightforward and aggressive. Paying for services that are not performed is remuneration. Remuneration tied to referral-generating physicians is an inducement. Claims submitted as a result are false claims. Add a whistleblower to the mix, and what starts as sloppy compliance ends with a multimillion-dollar settlement, public admissions, and years of scrutiny. This case also underscores a point many providers still underestimate. Stark and Anti-Kickback exposure is not limited to the term of the contract. Here, the agreements expired in 2016, but payments continued for years afterward. Continuing to pay after expiration without a valid agreement, documented services or oversight is practically an invitation for enforcement.

Here is the call to action. If your organization has any medical directorships, co-management agreements, service-line development agreements or professional services arrangements with referral sources, you should be reviewing them now. Confirm that services are actually being performed. Confirm that time is being tracked contemporaneously. Confirm that compensation matches fair market value and commercial reasonableness. Confirm that agreements are current, signed and not operating on autopilot after expiration. And if services have changed, update the agreement or stop the payments.

Providers should also be auditing legacy agreements that have been quietly rolling forward for years without scrutiny. These are exactly the arrangements whistleblowers target, because they often look fine on paper but fall apart under document requests. If you have any questions or comments about the subject of this blog or want a proactive review of your medical directorships or service-line agreements, please contact Parrella Health Law at 857.328.0382 or Chris directly at cparrella@parrellahealthlaw.com.