Q: My partner and I (we are both family practitioners) have been offered the opportunity to be medical directors at a sleep center where we send our patients. It will be a financial boost for us and will only take a few hours a month. We would be paid by the hour. I know that a percentage agreement is something that has to be avoided because it incentivizes referrals, but this will be hourly work at a flat rate. Any problems with this?

Dr. MedLaw: You are correct about avoiding any set-up that gives you skin in the referral game under the guise of directorship, but there are still some red flags here.

Both of you being asked to be medical directors at a single facility that you refer to is worrisome. Do they actually need both of you? Are other referrers being asked to be directors as well? Check into this because it may be a scheme to compensate referrers…in other words, an illegal kick-back just as you know that you need to avoid.

That you will be well-paid for little work is also a problem. A frank “pay for play” for referrals is obviously unacceptable, but what you describe also sounds a bit too good to be true. Be honest – are they paying you more than the fair market value of your time for the work that you will actually be doing? If so, it is probably a way to compensate you for referrals.

Make sure that you are required to account, on a monthly basis, for how you specifically spent your time, such as administrative meetings, drafting protocols, and evaluating staff, not just submitting the raw hours. If you will be doing real directorial work, this will be easy to fulfill but if you will not have actual duties and the facility does not require proof that you earned your pay then the position is likely a compensation scheme.

Also, be wary of compensation in other guises. For example, if the facility offers you administrative staff free of charge to assist you in your medical director duties it can be permissible if that staff does just that, but if they perform other duties in your office then it is compensation because you are getting a free worker. The same would apply if the facility provides a computer or supplies – whatever you use outside their specific work is compensation in another form and can be construed as an inducement to refer.

Beyond the pitfalls of compensation, there is also the issue of insurance, which you notably did not mention, suggesting that the facility never brought it up.

Your malpractice policy covers your medical work, not the work you do as an administrator. However, your liability can be in both areas. As a director performing actual duties in matters like hiring, firing, credentialing, staff reviews, and discipline, you could be sued for discrimination or wrongful termination, and if you have a role in regulatory compliance then you are open to liability to both government agencies and to the facility if you make errors. The facility should be providing a Directors and Officers policy to cover this work and that policy (which you should ask to see) should include coverage for federal and state regulatory issues and adequate funding for legal support and be from a reputable company with an adequate rating.

You should also inform your own malpractice carrier if your administrative decisions on clinical issues, such as setting up coverage protocols, could be the basis of a malpractice claim. If they want to charge for an additional rider, or if you will need surplus lines coverage, the facility should cover that.

Also, make certain that the facility is itself properly insured and not planning to use its directors as its own “deep pockets”.

…and if you are told that everything is fine on their end and that you don’t need additional insurance, then run – if this is a real job you will need appropriate coverage, so an answer like that would be proof that it is just a kick-back in director’s clothing.

Have a knowledgeable healthcare attorney look over the situation with this facility before you get involved.