In June 2025, the OIG workplan was updated to include the Monitoring and Engagement of Medical Directors in Nursing Homes and CMS will begin conducting their reviews in 2026. The scope of the OIG’s focus will be in three areas:

1. the extent in which medical directors performed required duties in nursing homes,
2. the extent in which pay-rolled based journal data on medical director’s hours are accurate and useful for oversight, and
3. opportunities to improve oversight and transparency of nursing homes engagement and funding of medical directors through existing data or other monitoring mechanisms.

Given the up-and-coming medical director reviews by CMS this article will review the regulatory requirements for medical directors in nursing homes, the barriers nursing homes have faced when implementing the regulations and proactive takeaways to consider when analyzing your medical director’s arrangements and the documentation required to quantify the effectiveness of medical director services.

The governing regulations on medical directors in nursing homes we will be reviewing is United States Code of Federal Regulations Title 42 Public Health Chapter IV CMS Part 483-Requirements for States and Long-Term Care (LTC) Facilities section 483.75 Administration. The Administration section requires LTC facilities to be administered in a manner that enables it to use its resources effectively and efficiently to attain or maintain the highest practicable, physical, mental, and psychosocial well-being of each resident. The requirements for medical directors are listed under section 42 CFR 483.75 (i) which indicates the facility must designate a physician to serve as a medical director who will be responsible for implementing resident care policies and coordination of medical care in the nursing facility. The intention of this regulation is to not only provide medical care in the facility but to also provide clinical guidance and clinical oversight on the implementation of resident policies and procedures to help with promoting quality of care and services to nursing homes residents.

The development, implementation and evaluation of resident care policies and procedures must be based on current evidence-based standards of practice and resolve medical and clinical concerns that affect residents’ quality of care and services. This is achieved when the medical director collaborates with the facility leadership (Administrator/ Director of Nursing/ Clinical Staff), attending physicians, physician extenders (nurse practitioners/ physician assistants), and consultants.

Documentation is key - The facility documentation which demonstrates the medical director’s level of involvement will need to be evident within the nursing homes facility assessments and quality assurance and performance improvement meetings. The medical director should be actively involved in the facility assessment process and not just be listed as a participant.

• The facility documentation should show the medical director’s input in evaluating resident needs, staffing and resources.
• Document the medical director’s attendance and contributions in meetings updating the facility assessment, during quality assurance and performance improvement (QAPI) meetings, policy reviews, and administrative decisions with the facility leadership team.
• Record instances where the director intervenes in clinical care such as reviewing diagnoses, prescribing practices, or addressing issues with attending physicians.
• Documentation should also show that the medical directors’ interventions are based upon current standards of practice.

Despite CMS regulations on Medical Directorships within nursing homes, the OIG has also provided ongoing guidance to medical directors’ roles within nursing homes. Initially in 2000 OIG Compliance Program Guidance for Nursing Facilities, which historically emphasized the risks of physician arrangements and medical director contracts being in violation of Anti-Kickback Statute (AKS), Physician Self-Referral and Stark Laws. In 2008 the Supplemental OIG Compliance Program Guidance for nursing homes and medical directorship expanded to the need for these arrangements to have documentation to show the arrangement was fair market value, document the services being provided, and they’re not sham for resident referrals.

Recently in 2024 OIG Nursing Facility Industry Segment-Specific Compliance Guidance (ICPG), medical directors are explicitly considered a compliance risk when it comes to their contracts, services, and likelihood for kickbacks for referrals. OIG also has enhanced their focus on the clinical and administrative responsibilities of medical directors when it comes to resident care policies and procedures, and quality of care and services and the billing for the services.

In addition to regulatory and operational responsibilities, it is essential for nursing homes to ensure that medical director arrangements comply with federal laws governing physician compensation and referrals. Specifically, the medical director’s role and compensation must be carefully structured and monitored to avoid violations of the physician self-referral law (commonly known as the Stark Law), the Anti-Kickback Statute, and related federal regulations.

• Stark Law: The Stark Law prohibits physicians from making referrals for certain designated health services payable by Medicare or Medicaid to entities with which they (or an immediate family member) have a financial relationship unless an exception applies. Medical director’s agreements must be in writing reflect fair market value for bona fide services provided and not be based on the volume or value of referrals.
• Anti-Kickback Statute: This statute makes it illegal to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by federal health care programs. Medical director’s compensation arrangements must not serve as an incentive for directing referrals to the facility.
• Physician Self-Referral Law: Overlapping with the Stark Law, this law restricts physician referrals when there is a financial relationship with the facility, unless specific safe harbors or exceptions are met.

OIG and Department of Justice (DOJ) have aggressively pursued nursing homes and related entities for sham medical director arrangements that violated the Anti-Kickback Statute and False Claim Act.

Sham arrangements typically involve payments for referrals rather than bona fide administrative or clinical services, with little or no documentation of actual work performed. There have been several settlements involving sham medical director arrangements for not only nursing homes but for other healthcare entities such as hospitals, home care, and assisted living entities. Here are a few healthcare entities who were in violation and entered into settlement agreements with the DOJ.

• Prema Thekkek, Paksn Inc., and Six California Skilled Nursing Facilities (2023) entered into a $45.6 million consent judgement with a 5-year Corporate Integrity Agreement (CIA) with HHS-OIG where the settlement resolved allegations of False Claims Act and Antikickback Statute violations from 2009-2021. The basis for the settlement was medical director contracts were not used to pay for legitimate administrative services but pay for patient referrals, physicians were paid monthly stipends ($1,500-$10,000) regardless of actual services provided, physicians hired based on promises of patient refers minimums were met and if the minimum referrals weren’t provided the physician was terminated and the nursing homes documentation requirements for the services provided were not enforced.
• Village Home Care LLC, CEO and Two Doctors (2023) the collective settlement amount was about half a million dollars for allegedly violating the false claims act and anti-kickback statute. The alleged violations involved sham medical director and sublease agreements used to pay physician for patient referrals with no actual services or use of the subleased space.
• Phillip Esformes/Esformes Nursing Home Network (2019) settlement for violation of AKS and Fraud that resulted in criminal charges and imprisonment. Alleged large-scale kickback scheme where physicians, marketers, and others (Medical directors and consultants) were paid to refer patients to Esformes skilled and assisted living facilities.

Common themes in OIG/DOJ “sham medical director” cases

Across these and similar nursing home cases, the government tends to focus on a fairly consistent pattern:

• Little or no documented services: Medical director agreements exist on paper, but there are few agendas, minutes, work product, QAPI deliverables, or time records to back up the payments.
• Compensation not tied to FMV or effort: Physicians receive flat monthly fees that don’t match any reasonable estimate of hours or complexity, or that are unusually high given the size/acuity of the facility.
• Referral‑driven motive: Evidence (emails, internal comments, timing of contracts) suggests the purpose of the arrangement was to secure or retain admissions, certifications, or orders, not to obtain genuine medical director services.
• Duplicative or vague roles: Multiple physicians hold overlapping “medical director” or “quality consultant” titles for the same facility or service lines without clear differentiation of duties.
• Weak compliance oversight: Compliance is either not reviewing these arrangements or is ignored; there’s no systematic FMV analysis, conflict review, or monitoring of actual performance.

The 2024 Nursing Facility ICPG essentially solidified these concerns for SNFs and are calling out medical director arrangements are being typically used by facilities to disguise kickbacks. Therefore, nursing homes compliance teams are encouraged to rigorously scrutinize the medical director’s contracts for their scope of work, fair market value, and services with quantifiable documentation to support the arrangement.

• For instance, develop a medical director checklist that can be utilized to determine the essential elements of every medical director contract to determine whether there’s documentation to support fair market value, the amount of hours monthly the medical director spends performing medical director tasks and how to track their hours so their time in the facility as an attending isn’t added to their medical director task and duties.
• Confirm the medical director is getting compensated for their medical director contracted hours only and not receiving additional compensation or financial incentives (a majority of the assigned residents, below market goods and services, bonuses for patient referrals or not providing the required number of hours and duties as a medical director before receiving their monthly stipend).

In 2025-2026 OIG workplan CMS implemented the requirement that nursing homes report medical director hours in the Payroll Based Journal (PBJ) system whether the medical director is an employee or an independent contractor. PBJ work hours only applies to hours work onsite for medical director roles which means only report the hours the medical directors spend performing medical director duties physically onsite. Therefore, any remote or offsite medical director tasks such as consulting, chart or policy reviews or monitoring performed cannot be reported by the nursing home in PBJ. The PBJ reporting system doesn’t have a separate code for medical directors.

Code 17 - The PBJ code that will have to be used is code 17 for Physician/MD/DO and reports the hours worked in the facility only. So, if a medical director is paid a flat monthly stipend, the facility must determine the actual on site hours worked.

When to Report 0 - If the medical director doesn’t do any onsite medical director duty within a quarter the facility must report a “0” zero on PBJ.

Based upon CMS review of the PBJ system, only 36% of nursing homes have reported PBJ hours for their medical directors. Therefore, the OIG is actively evaluating whether medical directors are performing their duties, whether PBJ date on medical directors is accurate and how to improve transparency and oversight of the medical directors in nursing homes. So, nursing homes can expect to see increased scrutiny of PBJ and reported medical director hours, potential audits comparing medical director contracts, invoices, and PBJ submissions as well as tightening of CMS guidance.

Therefore, nursing home administration, compliance and legal teams should incorporate into their medical director arrangements the following:

• Maintain detailed logs of onsite medical director time.
• Ensure the contract specifies onsite expectations.
• Align invoices with documented onsite hours.
• Avoid reporting offsite administrative time.
• Audit PBJ submissions quarterly for accuracy.

Conclusion and Key Takeaways

The upcoming OIG and CMS scrutiny of nursing home medical director arrangements underscore the critical need for compliance, transparency, and robust documentation. Nursing homes must ensure their medical director contracts are clearly defined, reflect fair market value, and are supported by thorough records of onsite services. Avoiding sham arrangements and ensuring adherence to federal laws such as the Stark Law and Anti-Kickback Statute are essential to mitigate legal risks.

Key takeaways include:

• Maintain detailed, contemporaneous documentation of medical director activities, especially onsite work.
• Ensure contracts specify the scope of responsibilities and compensation aligns with actual services rendered.
• Regularly audit Payroll Based Journal (PBJ) submissions for accuracy and compliance, reporting only onsite medical director hours as required.
• Separate medical director’s duties from other physician roles to avoid duplicative or vague arrangements.
• Engage compliance and legal teams in ongoing monitoring and evaluation of medical director arrangements to address regulatory risks and prevent enforcement actions.

By proactively addressing these areas, nursing homes can better withstand regulatory review, foster quality resident care, and mitigate any costly enforcement actions for noncompliance with the regulations.

About the Author Kirsten Taylor-Billups, JD, RN, CHC