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Medical Director Agreements: Doctor Beware

Given the current financial challenges physicians face from skyrocketing overhead costs and declining reimbursement rates, many are seeking alternative sources of income to bolster the revenues they generate from medical services they personally perform. One of the ways in which physicians are attempting to do this is to serve as medical directors for other entities.

In record numbers, physicians are agreeing to serve as medical directors for freestanding clinics, outpatient and ambulatory surgical centers, nursing homes and long-term care facilities, clinical labs, diagnostic imaging centers and other health care entities and organizations. However, while medical director agreements and positions can be lucrative, they are also fraught with legal and regulatory pitfalls that can have unforeseen negative effects on the physicians who serve in these roles. Therefore, it is imperative that doctors to try to protect themselves through proper structuring of medical director agreements and business relationships.

The potential to violate health care regulatory laws presents the first danger. In many instances, entities offering physicians medical director positions do so as part of an attempt to garner referrals from those physicians. In these situations, compensation arrangements are often structured either to directly or indirectly influence a physician's referral patterns. These types of arrangements can not only come under scrutiny through several federal and Florida health care regulatory laws, but also quite frankly violate them.

For instance, if a federal or Florida health care regulator felt that a medical director agreement was structured in order to induce a physician to refer their patients to the entity with which the physician was contracting, the regulator could possibly assert violations of the federal Anti-Kickback Statute, the Florida Patient Brokering Act, or the federal Stark Law. Physicians should be aware that these statutes carry with them draconian and severe consequences such as fines and civil monetary penalties ranging from $10,000 to $50,000 per occurrence; exclusion from the Medicare and Medicaid programs; possible criminal action, including incarceration; and possible disciplinary action taken against the physician's license.

Additionally, emergency medicine physicians who serve as medical directors through either an employment or independent contractor relationship with a basic life support transportation service or advanced life support service must meet and comply with the requirements of Section 401.265, Florida Statutes. These requirements include: (1) supervising and assuming the direct responsibility for the medical performance of emergency medical technicians and paramedics; (2) performing duties such as advising, consulting, training, counseling and overseeing the services provided by such entities; (3) ensuring appropriate quality assurance and establishing a quality assurance committee that provides for quality assurance review of all emergency medical technicians and paramedics operating under the medical director's supervision; (4) disciplining emergency medical technicians and paramedics as necessary; and (5) reporting certain incidents and disciplinary matters to appropriate state agencies when required by Section 401.265, Florida Statutes. Failure to meet and comply with these requirements could result in disciplinary action being taken against a medical director's medical or osteopathic medicine license.

Another significant pitfall physicians need to be aware of involves the potential medical malpractice and professional liability issues that may arise due to the physicians' performance of their duties as medical directors. In medical director agreements, physicians are often asked to supervise other personnel such as nurse practitioners, physician assistants, physical therapists, nursing assistants, radiology technicians and even other physicians. In addition, physicians serving as medical directors are often required to review clinical, patient care and risk management policies and procedures as part of their duties and obligations.

In some cases, plaintiffs who alleged that they may have been injured by the negligence of an entity or another licensed health care professional under the supervision of a medical director have asserted both direct and vicarious liability claims against a physician serving as a medical director. In many cases, physicians often overlook medical malpractice insurance and indemnification provisions that are either not included in their medical director contracts or are poorly written provisions. Physicians serving as medical directors (due to their busy schedules or lack of knowledge about an entity or facility) also often fail to provide the necessary supervision and review of both personnel and policies and procedures. More and more, when they bring medical malpractice or professional negligence lawsuits, plaintiffs' attorneys are asserting claims for these alleged failures against physicians serving as medical directors.

A third pitfall involves the requirements physicians must meet when supervising ancillary personnel and health care providers while serving as medical directors. Specifically, many Medicare and Medicaid billing regulations require certain levels of supervision by a physician in order for an entity or health care provider to be able to bill for the services being rendered by an ancillary health care provider. Failure to provide the appropriate supervision can result in allegations of false claims being made to the Medicare or Medicaid programs. While the entity or the health care provider filing these claims will be primarily responsible for any such alleged false claims, in many instances government agencies and regulators are asserting similar claims against physicians serving as medical directors and seeking to hold them liable for either administrative, civil or criminal violations.

Finally, in March 2004, Florida implemented The Health Care Clinic Act (the "Act") in Part XIII of Chapter 400, Florida Statutes. The Act provides that each clinic governed by the Act must have a medical director who has a full and unencumbered license as either a medical doctor, osteopathic physician, podiatric physician or chiropractic physician. It is important to note that the Act requires a clinic's medical director to be authorized under Florida law to supervise all of the services provided at the applicable clinic. Therefore, a clinic providing general medical care cannot be supervised by a chiropractic or podiatric physician due to the limited scope of practice of their professional licenses.

As a result, many clinics that offer a diverse range of services including general medical care are seeking medical doctors and osteopathic physicians to serve as their medical directors. However, serving as a medical director in accordance with the Act can be extremely risky for medical doctors and osteopathic physicians. Specifically, Section 400.9935, Florida Statutes, requires that a medical director must accept, in writing, the legal responsibility for certain activities and duties that must be performed by the clinic. This Section states that a medical director shall: (1) ensure that signs identifying the medical director are posted in a conspicuous location in the clinic; (2) ensure that all practitioners providing health care services or supplies to clinic's patients maintain a current, active and unencumbered Florida license; (3) review any patient referral contracts or agreements executed by the clinic; (4) ensure that all health care practitioners at the clinic have active appropriate certification or licensure for the level of care or treatment they are providing; (5) serve as the clinic's medical records owner in accordance with Section 456.057, Florida Statutes; (6) ensure the clinic's compliance with all record keeping, physician office surgery, and adverse incident reporting requirements under applicable Florida statutes, rules and regulations; and (7) conduct systematic reviews of the clinic's claims submissions and billings in order to ensure that the billings and claims submissions are not fraudulent or unlawful, and upon discovery of any unlawful claim or charge take immediate corrective action. Under the Act, additional responsibilities are imposed on clinics and their medical directors when clinics provide radiology services.

Medical directors for clinics requiring licensure under the Act are faced with a plethora of responsibilities for which they can be held legally responsible if the clinic fails to meet all of its legal requirements. In other words, a medical director for clinic license under the Act could face civil, administrative and licensure actions and penalties if they fail to ensure that a clinic meets all of the requirements set forth in Section 400.9935, Florida Statutes. In these situations, physicians serving as medical directors have a heightened standard of both supervision and legal responsibility that most physicians serving as medical directors have not experienced prior to the implementation of the Act. Medical doctors and osteopathic physicians who chose to serve as a medical director of a clinic license under the Act must be aware of and completely understand the significant responsibility and potential liability that they are undertaking when entering into medical director agreements with such clinics.

Consequently, any medical doctor or osteopathic physician considering entering into an agreement to serve as a medical director should carefully review any proposed agreement and consider retaining qualified legal counsel in order obtain a complete and thorough review of their agreements and the potential duties, responsibilities and liabilities which come with such agreements.

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