HA 625 Unit 6 fraud and abuse audit plan example

One Hundred Forty Physician Arrangements, Two Different Laws: A Fraud and Abuse Audit Plan That Tests Stark and Anti-Kickback Risk Separately

Student Name

Health Care Administration, Herzing University

HA 625: Healthcare Law and Ethics

Instructor Name

February 19, 2026

One Hundred Forty Physician Arrangements, Two Different Laws: A Fraud and Abuse Audit Plan That Tests Stark and Anti-Kickback Risk Separately

Purpose and Scope

This plan sets out the fiscal year 2026 audit of financial relationships between a composite 300-bed community hospital and the physicians who refer patients to it. The hospital holds about 140 active arrangements: 22 office leases in its medical office building, 18 medical directorships, 31 emergency on-call agreements, 6 physician recruitment agreements, 9 professional services agreements for hospital-based physicians, and roughly 54 smaller items such as shared staff, equipment use and non-monetary gifts. The audit asks, for each arrangement tested, whether it fits a legal exception or protection, and it reports findings to the board's audit and compliance committee in September. The plan is built around the difference between the two federal laws that govern these relationships, because that difference decides how every finding is handled.

Two Laws, Two Kinds of Risk

The physician self-referral law, commonly called Stark, bars physicians from sending Medicare patients for designated health services, which include inpatient and outpatient hospital services, to an entity with which the physician has a financial relationship, and prohibits the entity from billing for those referrals, unless an exception applies (42 U.S.C. § 1395nn). Stark is a strict liability law. Intent does not matter: an arrangement either meets every element of an exception or it does not, and if it does not, every claim for a referred service during the noncompliant period is an overpayment. The exceptions are detailed and technical, requiring among other things a signed writing, compensation set in advance, and fair market value not determined by the volume or value of referrals (42 C.F.R. § 411.357).

The Anti-Kickback Statute makes it a crime when anyone knowingly and willfully pays, offers, asks for or accepts remuneration in return for, or to bring about, referrals of business paid for by a federal health care program; the prohibition sits at 42 U.S.C. § 1320a-7b. It applies to anyone, not only physicians, and to every federal program, not only Medicare. Unlike Stark, it turns on intent, and a violation requires that at least one purpose of the payment was to induce referrals. Safe harbors protect arrangements that meet all of their conditions, but an arrangement outside a safe harbor is not automatically unlawful; it is judged on its facts and intent. The safe harbors are listed at 42 C.F.R. § 1001.952.

For the audit, the consequence is practical. A Stark finding is a factual question the audit team can answer: is the lease signed, is the rent what the lease says, has the term expired? An Anti-Kickback concern raises a question of intent that the audit team should not answer on its own. Stark findings therefore go to the compliance officer for quantification and repayment; Anti-Kickback concerns go to outside counsel, and the work on them is done at counsel's direction so that the analysis is protected by privilege.

Risk Register

Each area is rated for likelihood of a problem, from 1 (rare) to 5 (expected), and for impact, from 1 (minor) to 5 (severe), and ranked by the product. Ratings draw on last year's findings, the number of arrangements, and the dollar value of referrals involved.

Testing Approach by Area

Office leases. All 22 leases are tested, since the population is small and the risk is highest. For each: confirm a signed lease is in effect for every month; compare rent charged with rent received in the general ledger; confirm common area charges were billed; compare the rent per square foot with the independent valuation obtained two years ago. An expired lease that continued on the same terms may still qualify for the holdover protection in the rental exception if its conditions are met, so each holdover is tested against those conditions, not treated as an automatic failure.

Medical directorships. All 18 are tested for a current signed agreement and a fair market value opinion. For compensation, a random sample of 6 months per directorship is tested against time logs and evidence that the listed duties were performed, such as committee minutes or policy reviews. Any physician holding more than one directorship is reviewed to see whether the combined hours are plausible alongside a full clinical practice.

Non-monetary compensation. The audit reconstructs, from expense reports and purchasing card records, the value of meals, event tickets and gifts given to each referring physician in calendar year 2025, and compares each total with the annual limit published by the Centers for Medicare & Medicaid Services.

Recruitment agreements. All 6 are tested for relocation of the practice as the exception defines it, for income guarantee calculations, and for repayment terms that the hospital actually enforced.

On-call and shared staff. A sample of 10 on-call agreements is tested for rate support and for call schedules showing that paid days were covered. Shared staff are identified from payroll location codes and interviews with office managers.

How Findings Will Be Handled

Stark findings. The compliance officer quantifies the Medicare claims for designated health services referred by the physician during the noncompliant period. Under 42 U.S.C. § 1320a-7k(d), the hospital has 60 days from identifying an overpayment to report and repay it, and that clock runs from identification, not from when the audit began. Because a Stark overpayment can be large even when the underlying lapse is small, such as an unsigned lease renewal, disclosure through the Centers for Medicare & Medicaid Services self-referral disclosure protocol will be considered for any finding, since it can reduce the amount owed.

Anti-Kickback concerns. Any fact pattern that suggests payment tied to referrals, such as a directorship with no evidence of duties paid to a high-referring physician, is reported to outside counsel before any further inquiry, and counsel directs the work. If counsel concludes a violation may have occurred, the hospital would consider the Office of Inspector General's self-disclosure protocol rather than the Stark protocol.

In both cases, the arrangement is fixed going forward at once, whether through a signed renewal, a rent adjustment, or suspension of payments, and the fix is not delayed until the historical question is resolved.

Owners, Timeline and Reporting

Audit lead: director of internal audit, with two staff auditors. Legal: outside health care counsel for Anti-Kickback questions and fair market value disputes. Business owners: the vice president of physician services for directorships and recruitment, and the director of real estate for leases. Fieldwork runs March through June; draft findings go to business owners in July for response; the final report goes to the audit and compliance committee in September. The plan follows the federal compliance guidance's emphasis on auditing arrangements with referral sources as a core risk area and on reporting results to the board (U.S. Department of Health and Human Services, Office of Inspector General [OIG], 2023). The hospital and arrangements are composite; counts are illustrative.

References

Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (2025).

Exceptions, 42 C.F.R. § 1001.952 (2025).

Exceptions to the referral prohibition related to compensation arrangements, 42 C.F.R. § 411.357 (2025).

Limitation on certain physician referrals, 42 U.S.C. § 1395nn (2025).

Reporting and returning of overpayments, 42 U.S.C. § 1320a-7k(d) (2025).

U.S. Department of Health and Human Services, Office of Inspector General. (2023). General compliance program guidance. https://oig.hhs.gov/compliance/general-compliance-program-guidance/