$3.8 Million Settlement Related to Improper SNF Medical Director Payments

Medical director arrangements at skilled nursing facilities (“SNF(s)”) have been under federal scrutiny for the past few years (2021 blog article). In June 2023, Alta Vista Healthcare & Wellness Centre, LLC (Alta Vista), a 99-bed SNF located in Riverside, California, and its management company, Rockport Healthcare Services (Rockport), reached a settlement with the Department of Justice (“DOJ”) to resolve allegations of false claims to Medicare and Medicaid related to physician kickbacks.[1] Alta Vista and Rockport have agreed to enter into a Corporate Integrity Agreement with HHS-OIG and to pay the United States and California a total of $3.825 million, an amount negotiated based on Alta Vista’s and Rockport’s lack of ability to pay. Whistleblower Neyirys Orozco, a former Alta Vista accounting employee, will receive $581,094 of the federal government’s portion of the total recovery. The settlement resolves false claims liability stemming from the alleged actions of Alta Vista, under the direction of Rockport, described below.

According to the DOJ press release, over ten years (2009 – 2019), Alta Vista allegedly compensated referring physicians with “extravagant gifts, including expensive dinners for the physicians and their spouses, golf trips, limousine rides, massages, e-reader tablets, and gift cards worth up to $1,000.” Additionally, physicians contracted as medical directors for the SNF were allegedly paid monthly stipends of $2,500 to $4,000. The DOJ announcement stated, “At least one purpose of these gifts and payments was to induce these physicians to refer patients to Alta Vista.”

Fair Market Value Takeaways

The settlement reviews the importance of ensuring that medical director compensation is fair market value. The fair market value requirement includes all forms of compensation – not just cash compensation. Travel, sports tickets, and other gifts or benefits provided to a physician are forms of compensation.

Moreover, it's not enough to set rates at a fair market level. It's also important to monitor and examine arrangements for commercial reasonableness and meeting the volume or value standard, i.e., to ensure physicians are paid only for services actually provided and that physician services are only purchased when a legitimate business purpose — not related to referrals — exists for buying them.

Many healthcare organizations face complicating factors because they commonly contract with multiple physicians for administrative services. Even if a single physician is designated to be the medical director, it's often necessary to contract with additional attending physicians who provide backup to the medical director. These physicians may only provide a few hours of service each week or month to the facility and usually have outside responsibilities in other healthcare settings. In an effort to avoid inappropriate compensation relationships, some facilities opt to pay physicians for administrative services rendered on an hourly basis instead of paying a monthly stipend (as in the Alta Vista scenario). While it can be difficult to get busy physicians to maintain documentation of their services and to submit time records, requiring documentation before remitting payment helps safeguard the parties.

BFMV has reviewed and consulted on medical director and call coverage arrangements for skilled nursing and rehabilitation facilities, hospice and home health agencies, health systems, and physician practices nationwide. Contact us for more information. For additional information pertaining to medical director compensation, check out our free ebook on compensation philosophies for home health and hospice medical directors.

[1] The case is captioned United States of America ex rel. Neyiris Orozco v. Shlomo Rechnitz et al., No. 15-cv-6177 (C.D. Cal.).