Introduction to amda’s Model Medical Director Agreement Package for Nursing Facility Medical Director Services

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Introduction to AMDAs Model Medical Director Agreement Package for Nursing Facility Medical Director Services

AMDA’s Model Medical Director Agreement and Supplemental Materials: Medical Director of a Nursing Facility was updated January 2014. This model agreement contract package is intended to serve as a guide for agreements for medical director services for nursing facilities. The complete package includes:

1. Model agreement between the medical director and the nursing facility, including an indemnification provision; (pages 1-21)

2. Addendum A- Performance Requirements and Roles and Responsibilities of a Medical Director

(December, 2005); (pages A1-A8)

3. Addendum B - AMDA Statement on Compensation for Medical Director Services (December, 2005); (pages B1-B2)

4. Addendum C - CMS Interpretive Guidelines for Tag F501 (June, 1995); (page C1)

5. Addendum D - CMS Revised Interpretive Guidelines for Tag F501, Medical Director (November,

2005). (pages D1-D18)
The model agreement is not meant to be used as a fill in the blank” form. Rather, in numerous instances, the agreement indicates options for medical directors to consider and to modify provisions accordingly (e.g., specifying whether the relationship is one of employee or of independent contractor). The model agreement also indicates instances in which certain terms are required by statute or regulations (e.g., term of contract required to meet the personal services exception of the Stark Law). These issues are highlighted in shaded boxes in the agreement. Medical directors may not choose, in every instance, to contract for all of the services outlined in this package. In such instances, appropriate modifications must be made to this agreement.
This agreement does not substitute for competent legal advice of counsel. Medical directors should always have draft contracts reviewed by counsel who are familiar with the unique requirements of health care contracting. Knowledgeable local counsel should also be consulted to determine whether any particular requirements of state law must be included in the agreement.
AMDA developed the statement of Performance Requirements and Duties and Responsibilities of a Medical Director (Addendum A) to provide information regarding the qualifications and duties/responsibilities of the medical director in a nursing facility. It is intended to help clarify the role of medical director in a nursing facility, as well as to assist in describing those responsibilities to nursing facility administrators, and state and federal surveyors.
AMDA also developed the Statement on Compensation (Addendum B) to assist medical directors in estimating the work entailed in serving as medical director for a given nursing facility, as a means of arriving at a fair market value for those services.

THIS MEDICAL DIRECTOR AGREEMENT (this Agreement) is entered into as of


day of

, 20

(the Effective Date) by and between [(name of physician),

an individual residing at ] OR [(name of legal entity), a (state) (legal entity), having its principal place of business at (address)] (“the Physician”) and [(name of nursing facility), a (state) (legal entity), doing business as (name), having its principle place of business at (address)] (the “Facility”).
[DRAFTING NOTE: The contract should name the parties to the Agreement, taking care to specify the correct legal entity (e.g., individual physician, corporation, professional association, professional corporation or other entity as appropriate) and the complete name and address of the entity, to provide notices as required under the Agreement. The contract must be signed by the correct persons in an individual or representative capacity. Throughout the Agreement always use the same word(s) to refer to each party respectively.]

[DRAFTING NOTE - Contracts with Group Practices: Some nursing facilities contract with group practices for medical director services, rather than with a single physician. Medical director contracts with a group practice should specify a designated individual who has the authority and responsibility as medical director. Contracts with group practices could include clauses permitting substitution of personnel, subject to notice of and consent by the facility. Another option is to have all physicians of the group practice execute a joinder to the Agreement specifying that they will comply with and shall be bound by the provisions of the Agreement.]

WHEREAS, Facility is in the business of owning and operating nursing facilities; and
WHEREAS, Physician is duly qualified and licensed to practice medicine in the state in which Facility is located and is an experienced physician with a special interest in long term care medicine.
WHEREAS, Facility and Physician have agreed that Physician will provide the Services

(as defined hereinafter) to Facility; and

WHEREAS, The parties to this Agreement desire to provide a full statement of their respective covenants, agreements and responsibilities in connection with Physician’s appointment and Physician’s performance of the medical director services during the term of this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Physician and Facility agree as follows:
1. Term:
1.1 The term of this Agreement shall commence as of the Effective Date and shall continue thereafter for a period of one (1) year (the “Initial Term”). At the conclusion of the Initial Term, this Agreement, upon mutual agreement of the parties, may be renewed for successive one (1) year terms (each, a “Renewal Term”) unless terminated as provided for under Section 8 of this Agreement. Upon renewal of this Agreement, all other terms and conditions of this Agreement in existence at the end of the Initial Term shall continue in place. The word “Term,” when used in this Agreement shall mean the Initial Term and any Renewal Term.

[DRAFTING NOTE: The federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) and Stark Law (42 U.S.C.§ 1395nn) must be considered in properly structuring business arrangements involving health care providers. Significantly, both the Anti-Kickback Statute and Stark Law contain exceptions that protect certain arrangements from scrutiny under these laws, and U.S. Department of Health and Human Services (“HHS”) has promulgated regulations implementing these exceptions. (42 C.F.R. § 1001.952 and 42

C.F.R. § 411.350 et seq.). The Anti-Kickback Statute, which has both criminal and civil
penalties, prohibits individuals or entities from knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in order to induce business for which payment may be made by a federal health care program, including Medicare and Medicaid. “Remuneration” includes and type of payment, kickback, bribe, or rebate, whether directly or indirectly, overtly or covertly, paid either in cash or in kind. The Anti-Kickback Statute is extremely broad in scope, implicating nearly all transactions for which a federal health care program might be charged. However, the government has exempted certain types of payments or business practices, called “safe harbors,” from being subject to the Statute. Consequently, if a medical director arrangement with a nursing facility meets the “personal services safe harbor,” the arrangement would be exempt from the scrutiny under the Anti-Kickback Statute.

To satisfy the personal services safe harbor to the federal Anti-Kickback Statute, an arrangement must: (1) be in writing and signed by the parties; (2) specify the services to be provided; (3) specify the schedule for, length of, or charges for intervals of service if services are not full-time; (4) be for a term of not less than one year; (5) not base compensation on volume or value of referrals or other business (compensation must be determined in advance and based on fair market value of the services in an arm’s length transaction); and (6) not involve promotion or counseling of activities or business arrangements that violate state or federal law. ( 42 U.S.C. §

1320a-7b(b)(3)(C); 42 C.F.R. § 1001.952(d)). It is important to note that the failure to meet a safe harbor does not mean that the arrangement is per se illegal under the federal Anti-Kickback Statute. The personal services safe harbor under the Anti-Kickback Statute may be difficult to meet if the agreement is for part-time services. If a medical director arrangement is to be part time, the parties should be as specific as possible about the intervals of service (e.g., minimum hours per month) and the medical director’s duties and responsibilities. They should also ensure that the arrangement complies with all other elements of the safe harbor.

Generally speaking, the Stark Law prohibits a physician who has a financial relationship with an entity from referring Medicare and Medicaid patients to that entity for certain designated health services. (42 U.S.C. § 1395nn). The prohibition also applies if a physician's immediate family member has a financial relationship with an entity. Unlike the Anti-Kickback Statute, intent is irrelevant under Stark Law. The law is triggered by the mere fact that a financial relationship exists; it does not matter what the physician intended when he or she made a referral. Although the definition of a financial relationship is broad, there are several exceptions under the Stark Law. The exceptions are sometimes complex, and each element of an applicable exception must be satisfied in order for the arrangement to avoid violating the Stark Law. The Stark Law provides for a “personal services exception,” which is similar to the personal services safe harbor under the Anti-Kickback Statute. (42 U.S.C. § 1395nn(e)(3); 42 C.F.R. § 411.357(d)). A medical director agreement must meet all of the elements of the personal services exception in order for it not to violate the Stark Law. The personal services exception requires that an agreement: (1) be in writing, be signed by the parties and specify the services covered; (2) cover all of the services to be furnished by the physician (or immediate family member); (3) cover aggregate services that do not exceed those that are reasonable and necessary for the legitimate

purposes of the arrangement; (4) be for a term of at least one year; (5) provide for compensation to be set in advance, not to exceed fair market value, and (except in the case of a permissible physician incentive plan) not be determined by the volume or value of any referrals or other business generated between the parties; and (6) not involve counseling or promotion of a business arrangement or other activity that violates any state or federal law. (42 C.F.R. §

411.357(d)). Unlike a safe harbor under the Anti-Kickback Statute, the failure to satisfy a Stark
Law exception results in a violation of the Law.

The Stark Law provides that a medical director agreement attempting to comply with the statute should clearly define a medical director’s compensation and attempt to establish that it is consistent with “fair market value.” “Fair market value” is defined as “the value in arm’s length transactions, consistent with the general market value.” (42 C.F.R. § 411.351). “General market value” means “the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to an agreement who are not otherwise in a position to generate business for the other party” at the time of the agreement. (42 C.F.R. §

411.351). An hourly payment for personal services is considered to be “fair market value” if the payment is established using either of the following two methodologies: (1) the hourly rate is less than or equal to the average hourly rate for emergency room physician services in the relevant physician market, provided there are at least three hospitals providing emergency room

services in the market; or (2) the hourly rate is determined by averaging the “50th percentile

national compensation level” for physicians with the same physician specialty (or, if the specialty is not identified in the survey, for general practice) in at least four of the listed market surveys and dividing by 2,000 hours. The surveys that may be used for determining the hourly rate for non-emergency room practices are: (1) Sullivan, Cotter & Associates, Inc. – Physician Compensation and Productivity Survey; (2) Hay Group – Physicians Compensation Survey; (3) Hospital and Healthcare Compensation Services – Physician Salary Survey Report; (4) Medical Group Management Association – Physician Compensation and Productivity Survey; (5) ECS Watson Wyatt – Hospital and Health Care Management Compensation Report; and (6) William M. Mercer – Integrated Health Networks Compensation Survey. (42 C.F.R. § 411.351).

Many states also have their own version of anti-kickback and self-referral prohibitions, and these laws must also be considered when structuring a business arrangement involving health care providers.]

2. Engagement:
2.1 Facility engages and hereby appoints Physician to serve as the Medical Director of Facility for the Term.
2.2 [Option #1 Independent Contractor: At all times during Physician’s performance of duties and responsibilities pursuant to this Agreement, Physician shall be an independent contractor. Physician shall be responsible for paying all taxes due on all amounts paid to Physician hereunder and shall indemnify and hold Facility harmless from any failure to pay such taxes, including any interest and penalties assessed against Facility. Facility shall have no responsibility for withholding taxes or for employee benefits of Physician. The parties shall cooperate if any taxing authority asserts that Physician is not an independent contractor under this Agreement. Except as expressly set forth herein or as may be required by applicable law, Facility shall neither have nor exercise any control or direction over the methods by which Physician shall perform the duties hereunder, nor shall Facility control how Physician’s duties are accomplished hereunder, as long as said duties are performed as required by this Agreement.]
[Option #2 Employee: Physician shall be an employee of Facility for all purposes. Facility shall withhold amounts from Physician’s compensation in accordance with the requirements of applicable law for federal and state income tax, FICA, FUTA, and other employment or payroll tax purposes. It shall be Physician’s responsibility to report and pay all federal, state and local taxes arising from Physician’s receipt of compensation hereunder.]

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