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Healthcare Alert: False Claims Act: Potential liability for independent contractors

A February 8, 2012 Alert issued by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services points out important issues under the Federal False Claims Act for any physician or other healthcare provider who “reassigns” his or her right to receive payment to another entity for which the physician provides services as an “independent contractor.” The Alert announced a financial settlement which the OIG reached with eight physicians. Those physicians had entered into independent contractor medical directorship agreements with various physical medicine companies. Those companies billed for services they claimed were performed or directly supervised by the physicians. In fact, the services were performed by unqualified “technicians” without physician supervision. 

The extent to which the physicians were aware of what was going on is not made clear in the Alert, although the OIG determined that they were an “integral part of the scheme.”

Under the Medicare program, the proper recipient of payment for services rendered is the provider who personally rendered the service. However, a provider, such as an individual physician, can “reassign” his or her right to receive payment. A typical example would be a “reassignment” by a physician-employee of a professional corporation to the employer. Physicians are also permitted to reassign their entitlement to receive payment to entities for which they provide services as independent contractors rather than as employees.

Certain requirements must be met in order for an employee or an independent contractor to reassign payment. Where the relationship between the parties is that of employer-employee, Medicare regulations require there to be an agreement between the employee and the employer pursuant to which a condition of employment is that the employee must turn over the fees for his or her services to the employer.

Similarly, the Medicare regulations require that in order for an entity to bill Medicare for the services of an independent contractor there must be an agreement between the entity and the contractor which provides for the entity’s right to bill. The contractor must have unrestricted access to the claims submitted by the entity for the services provided by the contractor. Both the entity and the contractor are jointly and severally liable for any Medicare overpayment. This liability on the part of the contractor would exist regardless of whether the contractor had personal culpability for the overpayment.

Regardless of whether the physician is an employee or independent contractor, the CMS 855R form must be filed.

If you are a provider who has an independent contractor relationship with an entity and you provide services paid for by Medicare, you need to be aware that you have joint and several liability for overpayments. In addition, you should confirm the following:

  1. That you provide services only to entities with which you have great confidence in their ability to comply with all requirements for proper billing.
  2. That you have full access to Medicare claims submitted for services you rendered.
  3. That should you become aware of any billing related issues that you insist prompt action be taken to resolve the matter.

While an independent contractor would have heightened concern about proper billing practices due to the possibility of joint and several liability, a physician employed by a medical practice entity should be alerted to billing improprieties and errors by the employer as well. Employed physicians should insist that their employers have systems in place to prevent billing errors, and that any detected errors are promptly and properly resolved.

Over the years we have seen numerous instances in which individual physicians have, in effect, chosen an independent contractor-principal relationship rather than that of an employer-employee in order to maximize perceived fringe benefit advantages, or for tax planning purposes. If you are a physician who has an independent contractor relationship with a medical practice, you should examine that relationship in light of the potential for joint and several liability for overpayments.

If you have any questions, please contact:

John T. Mulligan

Jane Pine Wood

Rick L. Hindmand

Rachel Yaffe

Healthcare Practice

McDonald Hopkins has a large and diverse healthcare practice, which is national in scope. The firm represents a wide variety of healthcare providers, facilities, vendors, technology companies and associations. Our diverse experience enables us to give our clients a unique perspective on the issues that may confront them in the rapidly evolving healthcare environment.

Carl J. Grassi, President
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© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.