Medical Directors: Can't Live With Them, Can't Live Without Them

Episode Date: November 15, 2023

In this episode of Stark Integrity, Bob Wade (“Captain Integrity”) takes on one of the most common—and high-risk—physician arrangements under the Stark Law:

Medical directorships.

As the title suggests, these arrangements are everywhere in healthcare—but they also present significant compliance challenges if not structured and monitored properly.

Why Medical Director Arrangements Matter

Medical directors play an important role in:

• Overseeing clinical quality
• Supporting operations and service lines
• Providing administrative leadership

But from a compliance standpoint, they also create a key risk:

You are paying referring physicians for non-clinical services.

That combination puts these arrangements squarely under regulatory scrutiny.

A High-Risk Area for Enforcement

Medical director agreements have been a consistent focus for regulators because they can easily be misused.

Common enforcement concerns include:

• Paying physicians above Fair Market Value (FMV)
• Compensation tied (directly or indirectly) to referrals
• Lack of evidence that services were actually performed
• Vague or missing documentation of duties

In some cases, payments labeled as “medical director fees” have been challenged as disguised compensation for referrals.

The Core Issue: Proving the Work

A central theme in this episode is simple:

It’s not enough to have a contract—you have to prove the services.

Regulators increasingly expect:

• Clearly defined duties
• Evidence those duties were actually performed
• Documentation tying compensation to real work

Without that, organizations risk the argument that:

• Payments are not for services
• They are instead tied to referral value

Recent cases even highlight issues like:

• Missing or inaccurate timesheets
• Payments not matching actual hours worked
• Duplicate or unnecessary roles

FMV Alone Is Not Enough

Another important takeaway:

An FMV opinion does not guarantee compliance.

While compensation must be:

• Set in advance
• Consistent with FMV
• Commercially reasonable

That is only part of the equation.

Organizations must also demonstrate:

• A legitimate business need
• That services are actually delivered
• That compensation is tied to those services—not referrals

The Documentation Gap

Most problems in this area come down to execution, not intent.

Common pitfalls include:

• Vague job descriptions (“administrative support”)
• Lack of activity logs or meeting records
• Fixed monthly payments with no validation of work performed
• Expired agreements that continue operationally

These gaps make it difficult to defend arrangements during an audit—even if the underlying intent was appropriate.

Practical Takeaways

This episode reinforces several key principles:

• Medical director arrangements are inherently high risk
• Compensation must reflect actual, documented services
• Duties must be specific, measurable, and necessary
• FMV analysis is necessary—but not sufficient
• Documentation (timesheets, reports, deliverables) is critical

Final Thoughts

Medical director arrangements are a classic Stark Law reality:

You can’t live without them—but you can’t manage them casually.

As Bob Wade highlights, the real issue is not whether you have these arrangements—it’s whether you can prove they are legitimate.

Because under the Stark Law, the question is never just:
“Did you have a contract?”

It’s:
“Can you show what was actually done—and why you paid for it?”

Click here to listen to this Stark Integrity Podcast Episode:
https://podcasts.apple.com/us/podcast/medical-directors-cant-live-with-them-cant-live/id1588939373?i=1000634860164&l=fr-FR