On November 15, 2023, the U.S Department of Justice (DOJ) announced a $45.6 million consent judgment (Settlement) with six skilled nursing facilities (SNFs), as well as the owner of the SNFs and its management company which managed the SNFs, to resolve alleged violations of the False Claims Act (FCA) tied to medical director arrangements violating the Anti-Kickback Statute (AKS). The Settlement is notable for its inclusion of the owner and the management company in addition to the SNFs, which indicates DOJ’s interest in scrutinizing the actions of individuals and management entities in connection with problematic arrangements under federal fraud and abuse laws.

DOJ explains that the intent of the AKS is “to ensure that medical decision-making is based on the best interests of patients and is not compromised by improper financial incentives to providers.” With this aim in mind, the AKS “prohibits offering or paying remuneration to induce the referral of items or services covered by Medicare, Medicaid, and other federally funded health care programs.”

In this matter, DOJ determined that between 2009 and2021, the SNFs, under the guidance and control of the owner and management company, entered into medical directorship agreements with physicians that purportedly addressed compensation for administrative services furnished to the SNFs. However, DOJ alleged that these agreements were simply vehicles for payment of kickbacks to incentivize physicians to refer patients to the SNFs. DOJ claimed that evidence shows the SNFs “hired physicians who promised in advance to refer a large number of patients to the SNFs, paid physicians in proportion to the number of expected referrals and terminated physicians who did not refer enough patients.”

DOJ alleged, as examples, that there were instances where a management company employee told the owner that physicians were being hired because they promised at least ten patients for $2,000 per month, instances where employees admitted to not paying physicians when they did not send enough patients, and instances where the owner expressed concerns that if employees did not pay medical directors promptly every month, the doctors would not send patients. These alleged violations of the AKS resulted in the defendants submitting and causing false claims to be submitted to the government for reimbursement of SNF services.

Under the terms of the Settlement, the defendants agreed to make payments of at least $385,000 over the next five years, a negotiated amount determined based on the defendants’ ability to pay, in addition to the $46.5 million consent judgment. The defendants also entered into a five-year corporate integrity agreement with the Department of Health and Human Services Office of Inspector General, which will require an Independent Review Organization to review the defendants’ physician relationships, along with additional compliance obligations.

This enforcement action of DOJ is a timely reminder of the government’s continued scrutiny of medical director arrangements as potentially suspect under the AKS and FCA, particularly in the post-acute care industry. It is also a timely warning to individual owners and management companies of the government’s increased scrutiny of individuals and managers in connection with potentially suspect arrangements under federal fraud and abuse laws.