Barely a week after the U.S. Department of Health & Human Services Office of Inspector General (OIG) issued a new fraud alert about Anti-Kickback Statute compliance risks with medical director arrangements, the U.S. Department of Justice (DOJ) announced a $17 million False Claims Act settlement with a nursing home for alleged kickback violations concerning medical director arrangements.

Hebrew Homes Health Network, Inc., a Miami-Dade County nursing home network, and its former president and executive director, William Zubkoff, agreed on June 16, 2015, to settle the qui tam suit brought by Hebrew Homes’ former CFO. According to DOJ, this is the largest False Claims Act settlement for a nursing home allegedly violating the Anti-Kickback Statute.

In the settlement agreement, the government alleged that Zubkoff and Hebrew Homes devised a scheme that, from 2006 to 2013, involved hiring numerous physicians as “sham” medical directors who performed few or no actual services as a way to compensate the physicians for their Medicare referrals.

The government contended in the settlement that the following alleged facts served as “evidence proving” the alleged violations:

• Hebrew Homes drafted and provided the medical directors with uniform contracts that detailed numerous job duties for the medical director position.

• As corroborated by statements made by certain of the medical directors to the United States, the medical directors performed none, or almost none, of the job duties listed in their contracts, but nonetheless were paid the salaries provided in their contracts.

• The medical directors’ patient referrals, without exception, increased exponentially once the medical director contract and payments began.

• Hebrew Home employees recommended via e-mail increasing the salary of various medical directors because of their high number of patient referrals, and recommended decreasing the salary of, or terminating, medical directors for their lack of patient referrals.

The relator makes other allegations in the complaint to support his case, such as facilities having multiple medical directors simultaneously, the failure to require or request time records of performing services, and examples of internal communications to support the theory that directorships were used as a way to increase referrals.

As part of the settlement, Zubkoff agreed to resign as an employee of Hebrew Homes on March 23, 2015. OIG expressly reserved its exclusion rights against Zubkoff, which is an indication that OIG is considering pursuing an exclusion case against him. Hebrew Homes also agreed to enter into a five-year Corporate Integrity Agreement (CIA) with OIG, which involves OIG monitoring Hebrew Homes’ arrangements with referral sources. The CIA also requires the board of directors to hire a compliance expert to review and report on the compliance program.

The physicians who had the medical directorships were not a party to the settlement, and their potential liability was not released by the settlement. In light of OIG’s fraud alert, it remains to be seen whether OIG will pursue spin-off investigations of some physicians.