Fam Pract Manag. 2003 Mar;10(3):66.

Productivity-based salary reductions


The physicians in our outpatient practice are salaried employees of the hospital. A provision in our contracts states that the hospital will reduce our salary if its collections for the year are under a designated amount for each physician. The salary reduction occurs the following year and is proportional to the amount of collections under the designated amount. Is this legal?


Productivity-based salary reductions are legal. The type of provision you’re describing is common and is intended to give physicians an incentive to work to a certain level and to ensure that the employment relationship is a viable business proposition. It does not conflict with the Stark statute, the anti-kickback statute or any federal reimbursement program principles.

That said, there are a couple of issues to consider with such a provision:

  1. Since the effectiveness of the hospital’s collections activities for physician services is critical, the hospital should set some standards for performance (e.g., age of accounts receivable, timeliness of claim submissions and completeness of claims submitted).

  2. Because of the false claims liability associated with claim submissions, each physician’s employment contract should state that the hospital is required to abide by the law, must meet industry billing standards and will indemnify physicians for expenses incurred in association with the hospital’s billing practices.

Fraudulent hospital-discharge coding?


Our local hospital asks physicians to sign a diagnosis sheet for each patient that lists the discharge diagnosis and codes assigned by the hospital’s coder. On several occasions, I have refused to sign the diagnosis sheet because the coding was incorrect. However, I was told by hospital administration that because the diagnosis sheet is not part of the patient’s record, my signature is not necessary. So, the codes were submitted unchanged. Is this fraudulent? If so, how can I protect myself legally?


If the hospital is knowingly and willfully miscoding the diagnosis on the hospital discharge, that may be considered fraud, especially if the hospital is benefiting financially as a result. You have already taken the first step to protect yourself by not signing what you know or believe to be false. Beyond that, you may want to contact a health care attorney who can advise you on your exposure, if any, to legal liability in this kind of situation. If you do not have a health care attorney, you can find one through FP Assist, the Academy’s clearing-house for consultants and attorneys, which you can access at or by calling 800–274–2237, extension 4148. You may also want to consider reporting this suspected fraud to the appropriate state agency (e.g., your state attorney general’s office) or the U.S. Department of Health and Human Services’ Office of Inspector General Hotline (by phone: 800-HHS-TIPS, by fax: 1–800–223–8164 or by e-mail:

Preventing embezzlement


Is embezzlement common in medical offices? How can I prevent it from occurring in my practice?


Many physicians treat their staff like family and insist that they have no reason to worry about embezzlement. Unfortunately, embezzlement is a crime of opportunity and occurs most often in trusting situations just like these. Small businesses are the most vulnerable to this kind of fraud, with the average scheme causing $127,500 in losses.1

You can prevent this kind of fraud by ensuring that no staff member ever knows more about your practice than you do. Train yourself on the practice’s accounting system and practice management software, and be aware of how cash is collected in the practice. Know who is responsible for posting payments, making bank deposits and correcting mistakes made on input into the computer; these tasks should not all be done by the same person.

Despite the best prevention efforts, embezzlement could still occur in your practice. Watch out for the following warning signs:

  • An increase in past due accounts receivable,

  • An increase in patient adjustments or write-offs,

  • An increase in patient refunds,

  • A decrease in collections,

  • A decline in employee job performance,

  • Employee personality changes,

  • Staff members with financial difficulties or those with newfound wealth.

If you have any suspicions, don’t be afraid to investigate them promptly.


1. Association of Certified Fraud Examiners 2002 Report to the Nation on Occupational Fraud and Abuse. Available at Accessed Feb. 16, 2003.

* Denotes member of FP Assist, the AAFP’s online clearinghouse for consultants and attorneys.


Copyright © 2003 by the American Academy of Family Physicians.
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