Medical Director Agreement

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Medical Director Agreement

A Brief Introduction About the Medical Director Agreement

Serving as a medical director provides physicians an opportunity to increase their incomes. It helps them use their managerial skills to advance an organization’s objectives. Medical Director Agreements are subjected to increased scrutiny. As such, they should be carefully structured towards reducing risks. They involve risks of investigations over deception and abuse. This includes violations of the Stark Law and Anti-Kickback Statute.

To meet state and federal standards, the services listed in the agreement should be necessary. They should be well-documented and compensated at fair market value, set in advance.

Who Takes the Medical Director Agreement?

This agreement is made between the physician as well as the provider. In this Agreement, the physicians are retained to work for the Company and agree to devote such time, energy, as well as skill as his responsibilities, shall require.

A medical director contract or a physician service agreement elaborates more on the scope and nature of work, and responsibilities of both the parties involved.

Purpose of the Medical Director Agreement

The purpose of this Agreement is that the physician would be responsible for the overall supervision of healthcare services towards patients. The physician agrees to execute such responsibilities as may be assigned by the Company.

A Medical Director Contract specifies that the physician would devote such time as is necessary and render his best efforts to the performance of his responsibilities and the furtherance of the interests of the Company.

Also, as part of the services in the Agreement, a physician would maintain such records and provide such reports of Services as might be requested by the Company. Physicians are required to submit to Company monthly reports of services.

Contents of the Medical Director Agreement

In a Medical Director Contract, the exception used under both Stark and anti-kickback laws shall be the “personal services” safe harbor. Even though slightly different under each statute, few key elements in complying with the “personal services” safe harbor are:

  • Written Agreement: The Agreement is made between the physician, and the provider must be in writing, with a term of not less than one year.
  • Duties: The Agreement must provide for all of the services which the physician is expected to perform.
  • Commercially Reasonable: The services provided through the medical director must be necessary to the provider and not surpass the number of services required through the provider.
  • Representation and Warranties: An affirmation that the clinical privileges of the medical director are not suspended, revoked, or limited. Also, the medical director has not been suspended from any participation due to any criminal sanctions, fines, or other penalties.
  • Term and Termination: The terms shall include the effective date and date of renewal of the agreement. It also elaborates on voluntary termination, wherein the company can terminate the agreement upon a stated notice; and Termination for Breach with Notice and Opportunity to Cure and Immediate Termination for Cause.
  • Insurance: A general liability insurance that is in adherence to the required laws, to help cover the medical director for the services rendered.
  • General provisions: The agreement encapsulates various provisions and policies for compliance. These include
    • Modifications
    • Governing Law
    • Compliance with Laws
    • Compliance and Policies
    • Waiver
    • Confidential Information
  • Compensation: A medical director compensation clause determines the fair compensation as decided by the company, in leu for services rendered by the medical director. It also states the additional bonuses based on accomplishments.
  • Fair Market Value: The physician must be paid fair market value for the services provided. Also, it may be helpful to get a fair market value analysis, taking into account the geographic location, the experience of the physician, the certification of the physician, as well as they type of facility. While having such an analysis is not a complete defense in an investigation, it is beneficial to demonstrate that fair market value was analyzed as well as that the remuneration falls within what was believed to be an acceptable range.
  • Hourly Rate: It is suggested that the medical director be paid on an hourly basis, with such hourly rate being remunerated at the fair market value rate.
  • Cap on Compensation: it is also suggested that the aggregate compensation a physician could earn for his documented hours be capped, to further make certain reasonableness. 
  • Documentation: The physician must keep daily time logs of services executed and the time spent on each service. This shows that the physician is carrying out real work, for which the physician is being paid fair market value, and also could be utilized to demonstrate that the services being performed are necessary for the facility.

A physician partnership agreement sample states all these inclusions and can be customized accordingly.

How to Draft the Medical Director Agreement?

When entering into a Medical Director Contract with a physician, the arrangement requires complying with the Personal Services and Management Contracts, which are safe harbor towards the Anti-Kickback Statute and Personal Services Exception to Stark. Amongst other necessities,

  • The Agreement should be in writing and signed by the physician and health service provider,
  • The Agreement should specify the services and description of the services to be provided by the physician;
  • If the Agreement provides for services on a sporadic or part-time basis, then it should state exactly the scheduled intervals, their exact length as well as an exact charge for each interval.
  • It should define the responsibilities of the company as well as the physician toward each other.
  • The term of the Agreement should be for one year or more.
  • It should state the medical director’s specialization/expertise and a provision to maintain necessary licenses during the compliance.
  • The insurance terms as per the required laws that help cover the medical director for the services rendered.
  • The records and time reports demonstrating the undertaken suites and tasks.
  • The Compensation should be set in advance, be consistent with fair market value, and should not take into account any business generated amid the parties; and
  • The services performed should not involve a business arrangement that breaches any state or federal law.

You can also refer to a sample medical director agreement for a detailed view to enable a smooth drafting process.

Benefits & Drawbacks of the Medical Director Agreement

One benefit of the Medical Director Contract is the ability to tailor an arrangement to meet particular objectives and enable hospitals as well as physicians to achieve clinical and monetary integration without employment. However, in numerous ways, the flexibility of the Medical Director Contract also creates added challenges in managing them to optimize their effectiveness.

What Happens in Case of Violation?

In case there is a breach of Medical Director Agreement, either of the party might terminate this Agreement due to a material breach(1) of any term of this Agreement through the other party upon written notice of such breach to the breaching party, as well as the failure of the breaching party to cure such violation within 30 days after receiving such notice.

A hospital should ideally designate a physician to serve as a medical director. The physicians acting as a medical director are remunerated purely for the performance of administrative services relating to the patient care services.