Leverage internal audit to minimize risk in medical leadership contracting and compensation processes

Over the past two years, the “Great Resignation” has hit few industries harder than healthcare. With employee demand at an all-time high, those in the industry have taken on additional roles and responsibilities or contracted independent third parties for assistance.

Stark Law is a federal legislation that governs employed and independent physician arrangements, including those for medical directorships. Stark Law establishes detailed requirements for healthcare personal service agreements, defining limits of acceptable behavior. Violators of Stark Law are subject to fines up to $15,000 for each occurrence. Each year, the Office of Inspector General (OIG) releases its work plan outlining their areas of review concentration. Medical director arrangements are particularly vulnerable to review by the OIG as they involve compensation to physicians for non-clinical administrative services. Internal audit can play an important role in evaluating current processes and providing recommendations to refine and enhance future processes, minimizing legal and financial risk to the organization. 

The role of internal audit

How and what can internal audit do to assist healthcare organizations in their evaluation of current medical leadership contracting and compensation processes? How can internal audit help determine the effectiveness of the processes for compliance with federal rules and regulations? 

Internal auditors can evaluate the design effectiveness of the existing controls to mitigate risk, identify process gaps and provide recommendations for improvement over existing medical leadership contracting and compensation processes. 

In evaluating medical leadership contracting and compensation processes, internal audit should ask the following questions: 

• Has the organization assigned responsibility for the medical leadership contracting and compensation processes?
• What policies and procedures are in place to address the medical leadership contracting and compensation processes?
• Who maintains the list of medical leadership contracts, and does it include the appropriate information?
• Has commercial reasonableness been established for all existing contracts?
• Have agreements been set up properly? 
• Do contracted rates agree with the fair market value of services?