Introduction������������������������������������������������������������������������������������������������������������� 2

Fraud and Abuse Laws�������������������������������������������������������������������������������������������� 3

False Claims Act [31 U.S.C. §§ 3729–3733]������������������������������������������������������

Anti-Kickback Statute [42 U.S.C. § 1320a-7b(b)]����������������������������������������������

Physician Self-Referral Law [42 U.S.C. § 1395nn]��������������������������������������������

Exclusion Statute [42 U.S.C. § 1320a-7]������������������������������������������������������������

Civil Monetary Penalties Law [42 U.S.C. § 1320a-7a] ��������������������������������������

I. Physician Relationships With Payers���������������������������������������������������������������������� 

Accurate Coding and Billing�������������������������������������������������������������������������������� 9

Physician Documentation ���������������������������������������������������������������������������������� 12

Enrolling as a Medicare and Medicaid Provider With CMS ����������������������������� 12

Prescription Authority���������������������������������������������������������������������������������������� 13

Assignment Issues in Medicare Reimbursement ����������������������������������������������� 14

II. Physician Relationships With Fellow Providers: Physicians,

Hospitals, Nursing Homes, Etc.���������������������������������������������������������������������������� 1

Physician Investments in Health Care Business Ventures��������������������������������� 16

Physician Recruitment ��������������������������������������������������������������������������������������� 19

Tips for Medical Directors��������������������������������������������������������������������������������� 20

III. Physician Relationships With Vendors���������������������������������������������������������������� 2

Free Samples������������������������������������������������������������������������������������������������������ 21

Relationships With the Pharmaceutical and Medical Device Industries������������ 22

Transparency in Physician-Industry Relationships�������������������������������������������� 24

Conflict-of-Interest Disclosures������������������������������������������������������������������������� 24

Continuing Medical Education �������������������������������������������������������������������������� 25

Compliance Programs for Physicians������������������������������������������������������������������� 26

Where To Go for Help ������������������������������������������������������������������������������������������ 26

What To Do If You Think You Have a Problem ������������������������������������������������������� 28

What To Do If You Have Information About Fraud and 

Abuse Against Federal Health Care Programs������������������������������������������������������ 29

Table of Contents
Introduction

Most physicians strive to work ethically, render high-quality medical care to their 

patients, and submit proper claims for payment. Society places enormous trust in 

physicians, and rightly so. Trust is at the core of the physician-patient relationship. 

When our health is at its most vulnerable, we rely on physicians to use their expert 

medical training to put us on the road to a healthy recovery.

The Federal Government also places enormous trust in physicians. Medicare, Medicaid, 

and other Federal health care programs rely on physicians’ medical judgment to treat 

beneficiaries with appropriate services. When reimbursing physicians 

and hospitals for services provided to program beneficiaries, the 

Federal Government relies on physicians to submit accurate 

and truthful claims information.

The presence of some dishonest health care providers 

who exploit the health care system for illegal personal 

gain has created the need for laws that combat fraud and 

abuse and ensure appropriate quality medical care. This 

brochure assists physicians in understanding how to comply 

with these Federal laws by identifying “red flags” that could lead 

to potential liability in law enforcement and administrative actions. The information 

is organized around three types of relationships that physicians frequently encounter 

in their careers: 

I. Relationships with payers,

II. Relationships with fellow physicians and other providers, and

III. Relationships with vendors.

The key issues addressed in this brochure are relevant to all physicians, regardless 

of specialty or practice setting.

CAUTION

2
Fraud and Abuse Laws

The five most important Federal fraud and abuse laws that apply to physicians are the 

False Claims Act (FCA), the Anti-Kickback Statute (AKS), the Physician Self-Referral 

Law (Stark law), the Exclusion Authorities, and the Civil Monetary Penalties Law 

(CMPL). Government agencies, including the Department of Justice, the Department 

of Health & Human Services Office of Inspector General (OIG), and the Centers for 

Medicare & Medicaid Services (CMS), are charged with enforcing these laws. As you 

begin your career, it is crucial to understand these laws not only because following 

them is the right thing to do, but also because violating them could result in criminal 

penalties, civil fines, exclusion from the Federal health care programs, or loss of your 

medical license from your State medical board. 

False Claims Act [31 U.S.C. §§ 3729–3733]

The civil FCA protects the Government from being overcharged or sold shoddy 

goods or services. It is illegal to submit claims for payment to Medicare or 

Medicaid that you know or should know are false or fraudulent. Filing false 

claims may result in fines of up to three times the programs’ loss plus $11,000 per claim 

filed. Under the civil FCA, each instance of an item or a service billed to Medicare or 

Medicaid counts as a claim, so fines can add up quickly. The fact that a claim results 

from a kickback or is made in violation of the Stark law also may render it false or 

fraudulent, creating liability under the civil FCA as well as the AKS or Stark law.

Under the civil FCA, no specific intent to defraud is required. The civil FCA defines 

“knowing” to include not only actual knowledge but also instances in which the 

person acted in deliberate ignorance or reckless disregard of the truth or falsity of 

the information. Further, the civil FCA contains a whistleblower provision that allows 

a private individual to file a lawsuit on behalf of the United States and entitles that 

whistleblower to a percentage of any recoveries. Whistleblowers could be current or 

ex-business partners, hospital or office staff, patients, or competitors.

There also is a criminal FCA (18 U.S.C. § 287). Criminal penalties for submitting false 

claims include imprisonment and criminal fines. Physicians have gone to prison for 

submitting false health care claims. OIG also may impose administrative civil monetary 

penalties for false or fraudulent claims, as discussed below.

3
Anti-Kickback Statute [42 U.S.C. § 1320a-7b(b)]

The AKS is a criminal law that prohibits the knowing and willful payment of 

“remuneration” to induce or reward patient referrals or the generation of business 

involving any item or service payable by the Federal health care programs (e.g., drugs, 

supplies, or health care services for Medicare or Medicaid patients). Remuneration 

includes anything of value and can take many forms besides cash, such as free 

rent, expensive hotel stays and meals, and excessive compensation for medical 

directorships or consultancies. In some industries, it is acceptable to 

reward those who refer business to you. However, in the 

Federal health care programs, paying for 

referrals is a crime. The statute covers the payers 

of kickbacks—those who offer or pay remuneration—

as well as the recipients of kickbacks—those who 

solicit or receive remuneration. Each party’s intent is a 

key element of their liability under the AKS.

Criminal penalties and administrative sanctions for 

violating the AKS include fines, jail terms, and exclusion 

from participation in the Federal health care programs. Under the CMPL, 

physicians who pay or accept kickbacks also face penalties of up to $50,000 

per kickback plus three times the amount of the remuneration.

Safe harbors protect certain payment and business practices that could otherwise 

implicate the AKS from criminal and civil prosecution. To be protected by a safe harbor, 

an arrangement must fit squarely in the safe harbor and satisfy all of its requirements. 

Some safe harbors address personal services and rental agreements, investments in 

ambulatory surgical centers, and payments to bona fide employees. 

 For additional information on safe harbors, see “OIG’s Safe Harbor Regulations” 

available at http://oig.hhs.gov/fraud/safeharborregulations.asp.

As a physician, you are an attractive target for kickback schemes because 

you can be a source of referrals for fellow physicians or other health care providers 

and suppliers. You decide what drugs your patients use, which specialists they see, and 

what health care services and supplies they receive. 

4
Many people and companies want your patients’ business and would pay you to send 

that business their way. Just as it is illegal for you to take money from providers and 

suppliers in return for the referral of your Medicare and Medicaid patients, it is illegal 

for you to pay others to refer their Medicare and Medicaid patients to you.

The kickback prohibition applies to all sources 

of referrals, even patients. For example, where the 

Medicare and Medicaid programs require patients to 

pay copays for services, you are generally required to collect that money from your 

patients. Routinely waiving these copays could implicate the AKS and you may not 

advertise that you will forgive copayments. However, you are free to waive a copayment 

if you make an individual determination that the patient cannot afford to pay or if your 

reasonable collection efforts fail. It is also legal to provide free or discounted 

services to uninsured people.

Besides the AKS, the beneficiary inducement statute (42 U.S.C. § 1320a-7a(a)(5)) also 

imposes civil monetary penalties on physicians who offer remuneration to Medicare 

and Medicaid beneficiaries to influence them to use their services.

The Government does not need to prove patient harm or financial loss to the programs 

to show that a physician violated the AKS. A physician can be guilty of violating 

the AKS even if the physician actually rendered the service and the service was 

medically necessary. Taking money or gifts from a drug or device company 

or a durable medical equipment (DME) supplier is not justified by the 

argument that you would have prescribed that drug or ordered that 

wheelchair even without a kickback.

Kickbacks in health care can lead to:

B Overutilization

B Increased program costs

B Corruption of medical decisionmaking

B Patient steering

B Unfair competition

5
Physician Self-Referral Law [42 U.S.C. § 1395nn]

The Physician Self-Referral Law, commonly referred to as the Stark law, prohibits 

physicians from referring patients to receive “designated health services” payable by 

Medicare or Medicaid from entities with which the physician or an immediate family 

member has a financial relationship, unless an exception applies. Financial relationships 

include both ownership/investment interests and compensation arrangements. For 

example, if you invest in an imaging center, the Stark law requires the resulting 

financial relationship to fit within an exception or you may not refer patients to the 

facility and the entity may not bill for the referred imaging services. 

“Designated health services” are: 

•	 clinical laboratory services; 

•	 physical therapy, occupational therapy, and outpatient speech-language 

pathology services; 

•	 radiology and certain other imaging services; 

•	 radiation therapy services and supplies; 

•	 DME and supplies; 

•	 parenteral and enteral nutrients, 

equipment, and supplies; 

•	 prosthetics, orthotics, and prosthetic 

devices and supplies; 

•	 home health services; 

•	 outpatient prescription drugs; and 

•	 inpatient and outpatient hospital services. 

The Stark law is a strict liability statute, which means proof of specific intent to 

violate the law is not required. The Stark law prohibits the submission, or causing 

the submission, of claims in violation of the law’s restrictions on referrals. Penalties 

for physicians who violate the Stark law include fines as well as exclusion from 

participation in the Federal health care programs. 

 For more information, see CMS’s Stark law Web site available at 

http://www.cms.gov/physicianselfreferral/.

6
Exclusion Statute [42 U.S.C. § 1320a-7]

OIG is legally required to exclude from participation in all Federal health care 

programs individuals and entities convicted of the following types of criminal offenses: 

(1) Medicare or Medicaid fraud, as well as any other offenses related to the delivery of 

items or services under Medicare or Medicaid; (2) patient abuse or neglect; (3) felony 

convictions for other health-care-related fraud, theft, or other financial misconduct; 

and (4) felony convictions for unlawful manufacture, distribution, prescription, or 

dispensing of controlled substances. OIG has discretion to exclude individuals and 

entities on several other grounds, including misdemeanor convictions related to 

health care fraud other than Medicare or Medicaid fraud or misdemeanor 

convictions in connection with the unlawful manufacture, distribution, 

prescription, or dispensing of controlled substances; suspension, 

revocation, or surrender of a license to provide health care for reasons 

bearing on professional competence, professional performance, 

or financial integrity; provision of unnecessary or substandard 

services; submission of false or fraudulent claims to a Federal health 

care program; engaging in unlawful kickback arrangements; and 

defaulting on health education loan or scholarship obligations.

If you are excluded by OIG from participation in the Federal health 

care programs, then Medicare, Medicaid, and other Federal health care 

programs, such as TRICARE and the Veterans Health Administration, 

will not pay for items or services that you furnish, order, or prescribe. 

Excluded physicians may not bill directly for treating 

Medicare and Medicaid patients, nor may their services be 

billed indirectly through an employer or a group practice. In 

addition, if you furnish services to a patient on a private-pay basis, no 

order or prescription that you give to that patient will be reimbursable by 

any Federal health care program.

 For more information, see OIG’s Special Advisory Bulletin entitled “The Effect of 

Exclusion From Participation in Federal Health Care Programs” available at 

http://oig.hhs.gov/fraud/docs/alertsandbulletins/effected.htm.

7
You are responsible for ensuring that you do not employ or contract with excluded 

individuals or entities, whether in a physician practice, a clinic, or in any capacity 

or setting in which Federal health care programs may reimburse for the items or 

services furnished by those employees or contractors. This responsibility requires 

screening all current and prospective employees and contractors against OIG’s List of 

Excluded Individuals and Entities. This online database can be accessed from OIG’s 

Exclusion Web site. If you employ or contract with an excluded individual or entity 

and Federal health care program payment is made for items or services that person or 

entity furnishes, whether directly or indirectly, you may be subject to a civil monetary 

penalty and/or an obligation to repay any amounts attributable to the services of the 

excluded individual or entity.

 For more information, see OIG’s exclusion Web site available at

http://oig.hhs.gov/fraud/exclusions.asp.

Civil Monetary Penalties Law [42 U.S.C. § 1320a-7a]

OIG may seek civil monetary penalties and sometimes exclusion for a wide variety of 

conduct and is authorized to seek different amounts of penalties and assessments based 

on the type of violation at issue. Penalties range from $10,000 to $50,000 per violation. 

Some examples of CMPL violations include: 

B presenting a claim that the person knows or should know is for an item or service 

that was not provided as claimed or is false or fraudulent;

B presenting a claim that the person knows or should know is for an item or service 

for which payment may not be made;

B violating the AKS;

B violating Medicare assignment provisions;

B violating the Medicare physician agreement;

B providing false or misleading information expected to influence a decision to 

discharge; 

B failing to provide an adequate medical screening examination for patients 

who present to a hospital emergency department with an emergency medical 

condition or in labor; and

B making false statements or misrepresentations on applications or contracts to 

participate in the Federal health care programs.

8
I. Physician Relationships With Payers

During residency, you probably are not focused on who pays for your patients’ care. 

Once you start practicing, it is important to understand who the payers are. The U.S. 

health care system relies heavily on third-party payers, and, therefore, your patients 

often are not the ones who pay most of their medical bills. Third-party payers include 

commercial insurers and the Federal and State governments. When the Federal 

Government covers items or services rendered to Medicare and Medicaid 

beneficiaries, the Federal fraud and abuse laws apply. Many States also 

have adopted similar laws that apply to your provision of care under State-financed 

programs and to private-pay patients. Consequently, you should recognize that the 

issues discussed here may apply to your care of all insured patients.

Accurate Coding and Billing

Payers trust you, as a physician, to provide necessary, cost-effective, and quality care. 

You exert significant influence over what services your patients receive, you control the 

documentation describing what services they actually received, and your documentation 

serves as the basis for bills sent to insurers for

services you provided. The Government’s 

payment of claims is generally based solely 

on your representations in the claims 

documents. 

Because the Government invests so 

much trust in physicians on the front end, 

Congress provided powerful criminal, civil, 

and administrative enforcement tools for 

instances when unscrupulous providers abuse that trust. The Government has broad 

capabilities to audit claims and investigate providers when it has a reason to suspect 

fraud. Suspicion of fraud and abuse may be raised by irregular billing patterns or 

reports from others, including your staff, competitors, and patients.

9
When you submit a claim for services performed for a Medicare or 

Medicaid beneficiary, you are filing a bill with the Federal Government 

and certifying that you have earned the payment requested and complied 

with the billing requirements. If you knew or should have known that the submitted 

claim was false, then the attempt to collect unearned money constitutes a violation. A 

common type of false claim is “upcoding,” which refers to using billing codes that 

reflect a more severe illness than actually existed or a more expensive treatment than 

was provided. Additional examples of improper claims include:

B billing for services that you did not actually render;

B billing for services that were not medically necessary;

B billing for services that were performed by an improperly supervised or 

unqualified employee;

B billing for services that were performed by an employee who has been excluded 

from participation in the Federal health care programs; 

B billing for services of such low quality that they are virtually worthless; and 

B billing separately for services already included in a global fee, like billing for an 

evaluation and management service the day after surgery. 

Upcoding 

Medicare pays for many physician services using Evaluation and Management 

(commonly referred to as “E&M”) codes. New patient visits generally require more 

time than follow-up visits for established patients, and therefore E&M codes for 

new patients command higher reimbursement rates than E&M codes for established 

patients. An example of upcoding is an instance when you provide a follow-up office 

visit or follow-up inpatient consultation but bill using a higher level E&M code as 

if you had provided a comprehensive new patient office visit or an initial inpatient 

consultation.

Another example of upcoding related to E&M codes is misuse of Modifier 25. 

Modifier 25 allows additional payment for a separate E&M service rendered on the 

same day as a procedure. Upcoding occurs if a provider uses Modifier 25 to claim 

payment for an E&M service when the patient care rendered was not significant, 

was not separately identifiable, and was not above and beyond the care usually 

associated with the procedure.

CAUTION CAUTION CAUTION CAUTION CAUTION CAUTION CAUTION

CAUTION CAUTION CAUTION CAUTION CAUTION CAUTION CAUTION

10
Case Examples of Fraudulent Billing

• A psychiatrist was fined $400,000 and 

permanently excluded from participating in the 

Federal health care programs for misrepresenting 

that he provided therapy sessions requiring 

30 or 60 minutes of face-to-face time with the 

patient, when he had provided only medication checks for 

15 minutes or less. The psychiatrist also misrepresented that he provided 

therapy sessions when in fact a non-licensed individual conducted the sessions.

• A dermatologist was sentenced to 2 years of probation and 6 months of home 

confinement and ordered to pay $2.9 million after he pled guilty to one count of 

obstruction of a criminal health care fraud investigation. The dermatologist admitted 

to falsifying lab tests and backdating letters to referring physicians to substantiate 

false diagnoses to make the documentation appear that his patients had Medicarecovered conditions when they did not.

• A cardiologist paid the Government $435,000 and entered into a 5-year Integrity 

Agreement with OIG to settle allegations that he knowingly submitted claims for 

consultation services that were not supported by patient medical records and did 

not meet the criteria for a consultation. The physician also allegedly knowingly 

submitted false claims for E&M services when he had already received payment for 

such services in connection with previous claims for nuclear stress testing. 

• An endocrinologist billed routine blood draws as critical care blood draws. He 

paid $447,000 to settle allegations of upcoding and other billing violations.

11
Physician Documentation

Physicians should maintain accurate and complete medical records and documentation 

of the services they provide. Physicians also should ensure that the claims they submit 

for payment are supported by the documentation. The Medicare 

and Medicaid programs may review beneficiaries’ medical 

records. Good documentation practice helps ensure that 

your patients receive appropriate care from you and 

other providers who may rely on your records for 

patients’ past medical histories. It also helps you address 

challenges raised against the integrity of your bills. You may have 

heard the saying regarding malpractice litigation: “If you didn’t 

document it, it’s the same as if you didn’t do it.” The same can be 

said for Medicare and Medicaid billing.

 For more information on physician documentation, see CMS’s Documentation 

Guidelines for Evaluation and Management Services available at

http://www.cms.gov/MLNEdWebGuide/25_EMDOC.asp.

Enrolling as a Medicare and Medicaid Provider 

With CMS

CMS is the Federal agency that administers the Medicare program and monitors the 

Medicaid programs run by each State. To obtain reimbursement from the Government 

for services provided to Federal health care program beneficiaries, you must:

1. Obtain a National Provider Identifier (NPI). An NPI is a unique health 

identifier for health care providers. You may apply for your NPI at 

https://nppes.cms.hhs.gov/NPPES/Welcome.do.

2. Complete the appropriate Medicare Enrollment Application. During the 

enrollment process, CMS collects information to ensure that you are qualified 

and eligible to enroll in the Medicare Program. Information about Medicare 

provider enrollment is available at 

http://www.cms.gov/MedicareProviderSupEnroll/.

3. Complete your State-specific Medicaid Enrollment Application.

Information about Medicaid provider enrollment is available from your State 

Medicaid agency.

Once you become a Medicare and/or Medicaid provider, you are responsible for 

ensuring that claims submitted under your number are true and correct.

12
 For tips you can share with your patients on how they can protect themselves from 

medical identity theft, see OIG’s brochure entitled “Tips to Avoid Medical ID 

Theft” available at 

http://oig.hhs.gov/fraud/IDTheft/OIG_Medical_Identity_Theft_Brochure.pdf.

Prescription Authority

The Drug Enforcement Administration (DEA) is a Department 

of Justice agency responsible for enforcing the Controlled 

Substances Act. When you prepare to enter practice, you 

probably will apply for a DEA number that authorizes you 

to write prescriptions for controlled substances. You also 

will apply for your State medical license and any additional credentials your State 

requires for you to write prescriptions. You must ensure that you write prescriptions 

only for lawful purposes.

Case Examples of Misuse of Physician Provider and 

Prescription Numbers 

• A physician was ordered to pay $50,000 in restitution to the Government for 

falsely indicating on his provider number application that he was running his own 

practice when, in fact, a neurophysiologist was 

operating the practice and paying the physician a 

salary for the use of his number.

• An osteopathic physician was sentenced to 10 

years in prison and ordered to pay $7.9 million in 

restitution after she accepted cash payments for signing preprinted 

prescriptions and Certificates of Medical Necessity for motorized wheelchairs for 

beneficiaries she never examined. More than 60 DME companies received Medicare 

and Medicaid payments based on her fraudulent prescriptions. 

• An internal medicine physician pled guilty to Medicare fraud and to conspiring 

to dispense oxycodone, morphine, hydrocodone, and alprazolam. The physician 

allowed unauthorized and non-medical employees at his pain center to prescribe 

drugs using his pre-signed blank prescription forms. Prescriptions were issued in 

his name without adequate physical exams, proper diagnoses, or consideration of 

alternative treatment options. He paid $317,000 in restitution to the Government.

13
Assignment Issues in Medicare Reimbursement

Most physicians bill Medicare as participating providers, which is referred to as 

“accepting assignment.” Each year, Medicare promulgates a fee schedule setting the 

reimbursement for each physician service. Once beneficiaries satisfy their annual 

deductible, Medicare pays 80 percent of the fee schedule amount and the beneficiary 

pays 20 percent. Participating providers receive the Medicare program’s 

80 percent directly from the Medicare program and bill the beneficiary 

for the remaining 20 percent. Accepting assignment means that the 

physician accepts the Medicare payment plus any copayment or 

deductible Medicare requires the patient to pay as the full payment 

for the physician’s services and that the physician will not seek any 

extra payment (beyond the copayment or deductible) from the 

patient. Medicare participating physicians may not bill Medicare 

patients extra for services that are already covered by Medicare. 

Doing so is a violation of a physician’s assignment agreement and 

can lead to penalties.

The second, less common, way to obtain Medicare reimbursement is to bill as a nonparticipating provider. Non-participating providers do not receive direct payment 

from the Medicare program. Rather, they bill their patients and the patients seek 

reimbursement from Medicare. Although non-participating providers are not subject to 

the assignment rules, they still must limit the dollar amount of their charges to Medicare 

patients. Generally, non-participating providers may not charge Medicare beneficiaries 

more than 15 percent in excess of the Medicare fee schedule amount. It is illegal to 

charge patients more than the limiting charge established for physicians’ services.

You may see advertisements offering to help you convert your practice into a “boutique,” 

“concierge,” or “retainer” practice. Many such solicitations promise to help you work 

less, yet earn more money. If you are a participating or non-participating 

physician, you may not ask Medicare patients to pay a second time for 

services for which Medicare has already paid. It is legal to charge patients 

for services that are not covered by Medicare. However, charging an “access fee” or 

“administrative fee” that simply allows them to obtain Medicare-covered services 

from your practice constitutes double billing. 

 Excluded providers may not receive 

Medicare payment either as participating 

or non-participating providers.

DO NOT

ENTER

14
Case Example of a Physician Violating an Assignment 

Agreement by Charging Beneficiaries Extra Fees

• A physician paid $107,000 to resolve potential 

liability for charging patients, including Medicare 

beneficiaries, an annual fee. In exchange for 

the fee, the physician offered: (1) an annual 

physical; (2) same- or next-day appointments; 

(3) dedicated support personnel; (4) around-the-clock 

physician availability; (5) prescription facilitation; (6) expedited and 

coordinated referrals; and (7) other amenities at the physician’s discretion. The 

physician’s activities allegedly violated the assignment agreement because some of 

the services outlined in the annual fee were already covered by Medicare.

15
II. Physician Relationships With Fellow 

Providers: Physicians, Hospitals, 

Nursing Homes, Etc.

Any time a health care business offers something to you for free or at below fair market 

value, you always should ask yourself, “Why?” For example, if a DME supplier offers to 

give you cash or to pay for your summer vacation, you should suspect that the supplier 

is trying to induce you to refer your patients to that vendor. If a laboratory offers to 

decorate your patient waiting room, you should suspect that it is trying to induce you 

to send your lab business its way.

 For more information on physician relationships with: 

fellow providers, see OIG’s “Compliance Program Guidance for Individual and 

Small Group Physician Practices” available at 

http://oig.hhs.gov/authorities/docs/physician.pdf;

hospitals, see OIG’s “Supplemental Compliance Program Guidance for Hospitals” 

available at http://oig.hhs.gov/fraud/docs/complianceguidance/012705HospSupplem

entalGuidance.pdf; and

nursing homes, see OIG’s “Supplemental Compliance Program Guidance for 

Nursing Facilities” available at 

http://oig.hhs.gov/fraud/docs/complianceguidance/nhg_fr.pdf.

Physician Investments in Health Care 

Business Ventures

Some have observed that physicians who invest in health care business ventures with 

outside parties (e.g., imaging centers, labs, equipment vendors, or physical therapy 

clinics) refer more patients for the services provided by those parties than physicians 

who do not invest. Maybe this disproportionate utilization partly reflects the physicians’ 

belief in the value of the services or technology, prompting the investments in the 

first place. However, there also is a risk that the physicians’ belief in the value of 

the services or technology is less a cause than an effect of the investment interest. 

The physician investors’ disproportionate utilization may be motivated partly by the 

physicians’ ability to profit from the use of the ancillary services. These business 

relationships can sometimes unduly influence or distort physician decisionmaking 

and result in the improper steering of a patient to a particular therapy or source of 

services in which a physician has a financial interest. Excessive and medically 

unnecessary referrals waste Government and beneficiary money and 

16
can expose beneficiaries to harm from unnecessary services. Many of these 

investment relationships have serious legal risks under the AKS and Stark law.

If you are invited to invest in a health care business whose products you might order or 

to which you might refer your patients, you should ask the following questions. If the 

answer is “yes” to any of them, you should consider carefully whether you are investing 

for legitimate reasons.

V Are you being offered an investment interest for a nominal capital contribution?

V Will your ownership share be larger than your share of the aggregate capital 

contributions made to the venture? 

V Is the venture promising you high rates of return for little or no financial risk?

V Is the venture or any potential business partner offering to loan you the money to 

make your capital contribution?

V Are you being asked to promise or guarantee that you will refer patients or order 

items or services from the venture?

V Do you believe you will be more likely to refer more patients for the items and 

services provided by the venture if you make the investment?

V Do you believe you will be more likely to refer to the venture just because you 

made the investment?

V Will the venture have sufficient capital from other sources to fund its ongoing 

operations?

17
 For more information on physician investments, see:

OIG’s Special Fraud Alert entitled “Joint Venture Arrangements” available at 

http://oig.hhs.gov/fraud/docs/alertsandbulletins/121994.html;

OIG’s Special Advisory Bulletin on contractual joint ventures available at 

http://oig.hhs.gov/fraud/docs/alertsandbulletins/042303SABJointVentures.pdf; and

OIG’s “Supplemental Compliance Program Guidance for Hospitals” 

available at http://oig.hhs.gov/fraud/docs/complianceguidance/012705HospSupplem

entalGuidance.pdf.

Case Examples Involving Kickbacks for Referrals 

and Self-Referrals

• Nine cardiologists paid the Government over 

$3.2 million for allegedly engaging in a kickback 

scheme. The cardiologists received salaries 

under clinical faculty services agreements 

with a hospital under which, the Government 

alleged, they did not provide some or any of the services. 

In exchange, the cardiologists referred their patients to the hospital for 

cardiology services. Two of the physicians also pled guilty to criminal embezzlement 

charges involving the same conduct.

• A physician paid the Government $203,000 to settle allegations that he violated the 

physician self-referral prohibition in the Stark law for routinely referring Medicare 

patients to an oxygen supply company he owned.

18
Physician Recruitment

A hospital will sometimes provide a physician with a recruitment incentive to induce 

the physician to relocate to the hospital’s geographic area, become a member of its 

medical staff, and establish a practice that helps serve that community’s medical needs. 

Often, such recruitment efforts are legitimately designed to fill a “clinical gap” in a 

medically underserved area to which it may be difficult to attract physicians in the 

absence of financial incentives. However, as you begin planning your professional 

future and perhaps receiving recruitment offers, you need to be aware that in some 

communities, especially ones with multiple hospitals, the competition for patients can 

be fierce. Some hospitals may offer illegal inducements to you, or to the established 

physician practice you join in the hospital’s community, to gain referrals. This means 

that the competition for your loyalty can cross the line into illegal arrangements for 

which both you and the hospital can be liable. 

Recruitment arrangements are of special interest to graduating residents and fellows. 

Within very specific parameters specified in the Stark law and subject to compliance 

with the AKS, hospitals may provide relocation assistance and practice support under 

a properly structured recruitment arrangement to assist you in 

establishing a practice in the hospital’s community. Alternatively, a 

hospital may pay you a fair market value salary as an employee or pay 

you fair market value for specific services you render to the hospital 

as an independent contractor. However, the hospital may not 

offer you money, provide you free or below-market rent for 

your medical office, or engage in similar activities designed 

to influence your referral decisions. You should admit 

your patients to the hospital best suited to care for 

their particular medical conditions or to the 

hospital your patient selects based on his or her 

preference or insurance coverage. As noted, if a hospital 

or physician practice seperately or jointly is recruiting you as a 

new physician to the community, you may be offered a 

recruitment package. But, you may not negotiate for benefits in 

exchange for a promise—implicit or explicit—that you will 

admit your patients to a specific hospital or practice setting 

unless you are a hospital employee. You should seek 

knowledgeable legal counsel if someone with whom you are 

entering into a relationship requires you to admit patients to a 

specific hospital or practice group.

19
Case Examples of Medical Directorship Issues

• A physician group practice paid the Government 

$1 million and entered into a 5-year Corporate 

Integrity Agreement to settle alleged violations of 

the AKS, FCA, and Stark law related to medical 

directorships with a medical center. Allegedly, 

the agreements were not in writing, the physicians were 

paid more than fair market value for the services they rendered, and the 

payment amounts were based on the value of referrals the physicians sent to the 

medical center.

• Two orthopedic surgeons paid $450,000 and $250,000 to settle allegations related 

to improper medical directorships with a company that operated a diagnostic imaging 

center, a rehabilitation facility, and an ambulatory surgery center. The company 

allegedly provided the physicians with valuable compensation, including free use 

of the corporate jet, under the medical directorship agreements, which required the 

physicians to render limited services in return. The agreements with the physicians 

allegedly called for redundant services and served to encourage the physicians to 

refer their patients to the facilities operated by the company.

Tips for Medical Directors

If you choose to accept a medical directorship at a nursing home or other facility, 

you must be prepared to assume substantial professional responsibility for the care 

delivered at the facility. As medical director, patients (both your own patients and the 

patients of other attending physicians) and their families count on you, and State and 

Federal authorities may hold you accountable as well. To do this job well, you should:

•	 actively oversee clinical care in the facility; 

•	 lead the medical staff to meet the standard of care; 

•	 ensure proper training, education, and oversight for physicians, nurses, and other 

staff members; and

•	 identify and address quality problems.

20
III. Physician Relationships With Vendors

Free Samples

Some physicians welcome visits from pharmaceutical salespeople, while other

physicians prefer not to directly engage with industry representatives. If you decide to 

make your practice accessible to salespeople, you probably 

will be offered product samples. Many drug and biologic 

companies provide physicians with free samples that 

the physicians may give to patients free of charge. It 

is legal to give these samples to your patients 

for free, but it is illegal to sell the samples.

The Government has prosecuted physicians 

for billing Medicare for free samples. Opinions 

differ on whether sampling practices ultimately 

increase or decrease patients’ long-term drug costs. If 

you choose to accept samples, you will need reliable systems in place to safely store the 

samples and ensure that samples are not commingled with your commercial stock. 

Case Example Involving Drug Samples

• Several urologists pled guilty to charges of conspiracy, paid restitution in the tens 

of thousands of dollars, and received sanctions against their medical licenses for 

billing Medicare for injectable prostate cancer 

drugs they received for free from two 

pharmaceutical companies. The pharmaceutical 

companies paid $1.4 billion for their part of the 

alleged scheme to give urologists free samples 

and encourage them to bill Medicare at an inflated 

price. The pharmaceutical companies also provided urologists with 

additional inducements to use their drugs over the competitor’s products, including 

drug rebates, education grants, volume discounts, free goods, and debt forgiveness.

21
Relationships With the Pharmaceutical and Medical 

Device Industries

Physician-industry collaboration can produce important medical advances. However, 

some pharmaceutical and device companies have used sham consulting agreements 

and other arrangements to buy physician loyalty to their products. Such illegal 

arrangements induce physicians to prescribe or use products on the basis of that loyalty 

to the company or to get more money from the company, rather than because it is the 

best treatment for the patient. 

As a practicing physician, you may have opportunities to work as a consultant or 

promotional speaker for the drug or device industry. For every financial relationship 

offered to you, evaluate the link between the services you can provide and the 

compensation you will receive. Test the propriety of any proposed relationship by 

asking yourself the following questions:

V Does the company really need my particular expertise or input?

V Does the amount of money the company is offering seem fair, appropriate, and 

commercially reasonable for what it is asking me to do?

V Is it possible the company is paying me for my loyalty so that I will prescribe its 

drugs or use its devices?

 A good discussion that assists in distinguishing between legitimate and 

questionable industry relationships is located in the OIG’s “Compliance Program 

Guidance for Pharmaceutical Manufacturers” available at 

http://oig.hhs.gov/authorities/docs/03/050503FRCPGPharmac.pdf.

22
If your contribution is your time and effort or your ability to generate useful ideas and 

the payment you receive is fair market value compensation for your services without 

regard to referrals, then, depending on the circumstances, you may legitimately serve 

as a bona fide consultant. If your contribution is your ability to prescribe a 

drug or use a medical device or refer your patients for particular services 

or supplies, the proposed consulting arrangement likely is one you should 

avoid as it could violate fraud and abuse laws. 

For example, if a drug company offers to pay you and a hundred other 

“thought leaders” to attend a conference in the Bahamas without 

requiring preparatory work on your part or information about 

your expertise in the field (other than the fact that you are a 

licensed physician), you should be suspicious that the company 

is attempting to influence you to prescribe its drug.

Case Example of Kickbacks in the Device Industry

• Four orthopedic device manufacturers paid $311 million to settle kickback and 

false claims allegations that the companies bribed surgeons to recommend their hip 

and knee surgical implant products. The companies 

allegedly would award physicians with vacations, 

gifts, and annual “consulting fees” as high as 

$200,000 in return for the physicians’ 

endorsements of their implants or use of them in 

operations. Many of the individual orthopedic 

surgeons at the receiving end of the kickbacks are the subject of 

ongoing investigations by the Government. One orthopedic surgeon recently paid 

$650,000 to resolve allegations that the surgeon accepted payments from device 

manufacturers to use their hip and knee implants.

23
Transparency in Physician-Industry Relationships

Although some physicians believe that free lunches, subsidized trips, and gifts do 

not affect their medical judgment, research shows that these types of perquisites can 

influence prescribing practices. Recent pharmaceutical company settlements with 

the Department of Justice and OIG require “transparency” in physician-industry 

relationships, whether by requiring the pharmaceutical company to provide the 

Government with a list of physicians whom the company paid and/or by requiring 

ongoing public disclosure by the company of physician payments. The public will 

soon know what gifts and payments a physician receives from industry.

The Patient Protection and Affordable Care Act of 2010 requires drug, device, and 

biologic companies to publicly report nearly all gifts or payments they make to 

physicians beginning in 2013.

Academic institutions also may impose various restrictions on the interactions 

their faculty members or affiliated physicians have with industry. These and other 

considerations may factor into your decision about whether you want to conduct 

industry-sponsored research; serve as a consultant or director for a drug, biologic, 

or device company; apply for industry-sponsored educational or research grants; or 

engage in other relationships with industry.

 Both the pharmaceutical industry (through PhRMA) and the medical device 

industry (through AdvaMed) have adopted codes of ethics for their respective 

industries regarding relationships with health care professionals. Both codes are 

available online.

Conflict-of-Interest Disclosures

Many of the relationships discussed in this brochure are subject to conflict-of-interest 

disclosure policies. Even if the relationships are legal, you may have an obligation 

to disclose their existence. Rules about disclosing and managing conflicts of interest 

come from a variety of sources, including grant funders, such as States, universities, 

and the National Institutes of Health, and from the Food and Drug Administration 

(FDA) when data are submitted to support marketing approval for new drugs, devices, 

or biologics. To “manage” your conflicts of interest, consider the conflicts policies that 

affect your professional activities, candidly disclose any industry money subject to 

these policies, and adhere to restrictions on your activities. If you are uncertain whether 

a conflict exists, ask someone. You always can apply the “newspaper test” and ask 

yourself whether you would want the arrangement to appear on the front page of your 

local newspaper.

24
Continuing Medical Education

After finishing your formal graduate medical training, 

you will assume greater responsibility for your continuing 

medical education (CME) to maintain State licensure, 

hospital privileges, and board certification. Drug and device manufacturers sponsor 

many educational opportunities for physicians. It is important to distinguish 

between CME sessions that are educational in nature and sessions that 

constitute marketing by a drug or device manufacturer. Industry satellite 

programs that occur concurrently with a society meeting are generally promotional, 

even if the primary speaker is a physician who is well known in the field. You should 

be circumspect about a discussion that focuses on a particular brand drug or device, as 

opposed to all the treatment alternatives for a specific condition.

For example, if speakers recommend use of a drug to treat conditions for which 

there is no FDA approval or use of a drug by children when FDA has approved 

only adult use, you should independently seek out the empirical data that support 

these recommendations. Note that although physicians may prescribe 

drugs for off-label uses, it is illegal under the Federal Food, Drug, 

and Cosmetic Act for drug manufacturers to promote off-label uses 

of drugs.

 Advertisements and other promotional materials for drugs, biologics, and medical 

devices must be truthful, not misleading, and limited to approved uses. FDA is 

requesting physicians’ assistance in identifying misleading advertisements through 

its Bad Ad Program. If you spot advertising violations, you should report them to 

FDA by calling 877-RX-DDMAC (877-793-3622) or by emailing badad@fda.gov.

If you are invited to serve as faculty for industry-sponsored CME, ask yourself the 

following questions:

V Does the sponsor really need my particular expertise or input?

V Does the amount of money the sponsor is offering seem fair and appropriate for 

the educational value I will add to the presentation?

V Is it possible the sponsor is paying me for my loyalty so that I will prescribe its 

drugs or use its devices?

V Does the sponsor prepare a slide deck and speaker notes, or am I free to set the 

content of the lecture?

25
Compliance Programs for Physicians

Establishing and following a compliance program will help physicians avoid fraudulent 

activities and ensure that they are submitting true and accurate claims. The following 

seven components provide a solid basis upon which a physician practice can create a 

voluntary compliance program:

1. Conduct internal monitoring and auditing.

2. Implement compliance and practice standards.

3. Designate a compliance officer or contact.

4. Conduct appropriate training and education.

5. Respond appropriately to detected offenses and develop corrective action.

6. Develop open lines of communication with employees.

7. Enforce disciplinary standards through well-publicized guidelines.

With the passage of the Patient Protection and Affordable Care Act of 2010, physicians 

who treat Medicare and Medicaid beneficiaries will be required to establish a 

compliance program.

 For more information on compliance programs for physicians, see OIG’s 

“Compliance Program Guidance for Individual and Small Group Physician 

Practices” available at http://oig.hhs.gov/authorities/docs/physician.pdf.

Where To Go for Help

When you are considering whether or not to engage in a particular billing practice; 

enter into a particular business venture; or pursue an employment, consulting, or other 

personal services relationship, it is prudent to evaluate the arrangement for potential 

compliance problems. The following is a list of possible resources that can help you.

Ј Experienced health care lawyers can analyze your issues and provide a 

legal evaluation and risk analysis of the proposed venture, relationship, or 

arrangement.

26
Ј The Bar Association in your State may have a directory of attorneys in your area 

who practice in the health care field.

Ј Your State or local medical society may be a good resource for issues affecting 

physicians and may have listings of health care lawyers in your area.

Ј Your specialty society may have information on additional risk areas specific to 

your type of practice.

Ј CMS’s local contractor medical directors are a valuable source of information 

on Medicare coverage policies and appropriate billing practices. The contact 

information for local contractors is available at 

http://www.cms.gov/MLNGenInfo/30_contactus.asp.

Ј CMS’s “Medicare Physician Guide: A Resource for Residents, Practicing 

Physicians, and Other Health Care Professionals” available at 

http://www.cms.gov/MLNProducts/downloads/physicianguide.pdf, provides an 

overview of the Medicare program and information on Medicare reimbursement 

and payment policies.

Ј The OIG’s Web site, available at http://oig.hhs.gov, provides substantial 

fraud and abuse guidance.

Ј As discussed above, OIG issues Compliance Program Guidance documents that 

include compliance recommendations and discussions of fraud and abuse risk 

areas. These guidance documents are available at 

http://oig.hhs.gov/fraud/complianceguidance.asp.

Ј OIG issues advisory opinions to parties who seek advice on the application of the 

AKS, CMPL, and Exclusion Authorities. Information on how to request an OIG 

advisory opinion and links to previously published OIG advisory opinions are 

available at http://oig.hhs.gov/fraud/advisoryopinions.asp.

Ј CMS issues advisory opinions to parties who seek advice on the Stark law. 

Information on how to request a CMS advisory opinion and links to previously 

published CMS advisory opinions are available at 

http://www.cms.gov/PhysicianSelfReferral/95_advisory_opinions.asp.

27
What To Do If You Think You Have a Problem

If you are engaged in a relationship you think is problematic or have been following 

billing practices you now realize were wrong:

Ј Immediately cease filing the problematic bills.

Ј Seek knowledgeable legal counsel.

Ј Determine what money you collected in error from your patients and from the 

Federal health care programs and report and return overpayments.

Ј Unwind the problematic investment.

Ј Disentangle yourself from the suspicious relationship.

Ј Consider using OIG’s or CMS’s self-disclosure protocols.

 OIG Provider Self-Disclosure Protocol

The OIG Provider Self-Disclosure Protocol is a vehicle for physicians to voluntarily 

disclose self-discovered evidence of potential fraud. The protocol allows providers 

to work with the Government to avoid the costs and disruptions entailed in a 

Government-directed investigation. For more information on the OIG Provider 

Self-Disclosure Protocol, see http://oig.hhs.gov/fraud/selfdisclosure.asp.

Case Examples of Physician Liabilities Resolved Under 

the OIG Provider Self-Disclosure Protocol

• A Minneapolis physician paid $53,400 and 

resolved liability for violating his Medicare 

assignment agreement by charging patients a 

yearly fee for services, some of which were 

covered by Medicare.

• A Florida physician paid $100,000 and resolved liability related to 

referring patients to a lab owned by his brother.

• A neurosurgery practice paid $10,000 and resolved liability for employing an 

individual who was excluded from participation in the Federal health care programs.

28
What To Do If You Have Information About 

Fraud and Abuse Against Federal Health 

Care Programs

If you have information about fraud and abuse against Federal health care programs, 

use the OIG Fraud Hotline to report that information to the appropriate authorities. The 

Hotline allows the option of reporting anonymously. 

Phone: 1-800-HHS-TIPS (1-800-447-8477)

Fax: 1-800-223-8164

Email: HHSTIPS@oig.hhs.gov

TTY: 1-800-377-4950

Mail: Office of Inspector General

 Department of Health & Human Services

Attn: HOTLINE

P.O. Box 23489

Washington, DC 20026

 For additional information about the Hotline, visit the OIG Web site at 

http://oig.hhs.gov/fraud/hotline/.

29
This publication is available on the OIG Web site. You may reproduce, reprint, 

and distribute this publication for educational purposes. You may not charge a 

fee for this publication. http://oig.hhs.gov/fraud/PhysicianEducation/