Doctors frequently refer patients to other health care providers, hospitals, and care facilities, usually with their patients’ best interests in mind.  Unfortunately, this generally innocuous practice of referring patients to other healthcare providers and facilities, as well as also getting new patients through referrals, can put physicians at risk of being suspected of taking kickbacks.

To avoid this type of suspicion or actual prosecution for being involved in a kickback scheme, it is important to understand the law and its implications for business relationships in the healthcare, pharmaceutical, and medical device industries. In this blog post, we’ll provide the information you need to understand the federal Anti-Kickback law, its effects on healthcare business transactions, the Department of Health and Human Services’ recognized exceptions to the law, and penalties for breaking the law.
 

The Federal Anti-Kickback Statute

Overview of the Anti-Kickback Law
The Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) prohibits anyone from knowingly and willfully receiving or paying anything of value to influence the referral of federal health care program recipients.  Anyone who offers, makes, solicits or accepts payment or remuneration for referrals for items or services reimbursed by a federal health care program is indeed breaking the law and can be charged with a felony.

It is important to keep in mind that under the law, remuneration can take many forms besides cash.  For example, a hospital providing free or reduced office rent to physicians who agree to refer patients to the hospital is a form of illegal remuneration. Paying doctors bogus test interpretation fees when they refer patients for testing to a particular provider is another example.  Similarly, receiving money or gifts from a pharmaceutical or medical device company with the understanding that you will refer their products to your patients is a violation of the law even if you would have otherwise legitimately prescribed the medication or ordered the equipment.

The Element of Intent
Parts of the law have been revised significantly since it was originally passed in 1972. In 1980, for example, the intent standard was revised to require proof that someone accused of breaking the law had acted “knowingly and willfully” when engaging in acts prohibited by the law. Members of Congress were concerned that without this heightened standard, individuals’ inadvertent actions could lead to criminal charges and penalties.

However, with the passing of the Patient Protection and Affordable Care Act (ACA) in 2010, Congress increased the reach of the Anti-Kickback Statute by eliminating, the requirement that an individual have knowledge of the law’s prohibitions or specific intent to break the law.  In fact, the new law specified that claims violating the Anti-Kickback Statue are by their very nature violations of the False Claims Act, so people unintentionally breaking the law can still be held liable for fraud. In essence, the ACA codified fraud liability for violations of the Anti-Kickback Statute.

Safe Harbors under the Anti-Kickback Law
Since the Anti-Kickback Statue is so broad in scope, health care providers have long been concerned that business arrangements that are not kickback schemes and that could in some instances benefit patients, might be seen as violations. In 1987, Congress tried to address these concerns in the Medicare and Medicaid Patient and Program Protection Act by authorizing the Department of Health and Human Services (HHS) to designate specific situations as “safe harbors” that would not be prosecuted under the law.

Originally, the HHS listed ten broad areas as “safe harbors.” This list was clarified and expanded throughout the 1990s, especially with the Health Insurance Portability and Accountability Act’s (HIPAA) exception for certain risk-sharing organizations. Since then, the list has been reviewed, clarified, and updated through the Office of Inspector General’s (OIG) rule-making procedures. Currently there are 28 “safe harbors”:

1. Investment Interests – Physician’s investments in health care entities to which they refer patients when opportunities to invest in those entities are also available to the general public.
2. Rental Agreements – Rental arrangements for at least a year with rent set at fair market value.
3. Equipment Rental – Equipment rentals at fair market value with agreements outlining terms.
4. Personal Services and Management Contracts – Joint ventures and other arrangements for payment for personal services or management contract if payment is at fair market value and specified in advance.
5. Sale of Practice – The sale of physician practices due to retirement, leaving medical practice, or moving from the service area, but not if the sale is made as a way to have an ongoing source of referrals.
6. Referral Services – Paid referral services from professional and other consumer groups if specific standards are met.
7. Warranties – Warranties for products.
8. Discounts – Discounts to the amount paid for a good or service. (See the next section of this blog post for proposed changes to this provision.)
9. Employees – Payments to bona fide employees who help in soliciting program business.
10. Group Purchasing Organizations – Payments from vendors to group purchasing organizations if there is a written agreement on the amount to be paid.
11. Waiver of Beneficiary Cost-Sharing Amounts – Beneficiary copayments, coinsurance amounts and deductibles.
12. Managed Care – Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans to beneficiaries.
13. Price Reductions for Health Plans – Reductions in prices offered by providers to health plans.
14. Practitioner Recruitment in Underserved Areas – Recruitment incentives paid by entities to attract physicians and other providers to health professional shortage areas.
15. Subsidies for Obstetrical Malpractice Insurance in Underserved Areas – Payment of malpractice insurance premiums by a hospital or other entity for practitioners in obstetrical practice in health professional shortage areas.
16. Investments in Group Practices – Physicians’ investments in their own group practices, if the group practice meets the self-referral (Stark) law definition of group practice.
17. Cooperative Hospital Service Organizations (CHSO) – Payments from a tax-exempt hospital to a CHSO to which it belongs and payments from the CHSO to the patron hospital.
18. Investments in Ambulatory Surgical Centers (ASC) – Physician investments in surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs, and hospital/physician-owned ASCs, as long as the ASC is an extension of their office practice.
19. Specialty Referral Arrangements Between Providers – Specific arrangements when a physician or entity refers a patient for specific services from another individual or entity with the understanding that the patient will be referred back to the original physician or entity, as long as the referral is clinically appropriate.
20. Price Reductions for Eligible Managed Care Organizations – Payment between eligible managed care organizations with a specific signed agreement.
21. Price Reductions by Contractors with Substantial Financial Risk to Managed Care Organizations – Contractors reduce price for qualified managed care plan according to a written agreement specifying the terms.
22. Ambulance Replenishing – Drugs and medical supplies given by a physician or entity to replenish ambulance supplies.
23. Transfer of Goods – Items, services, donations from an individual or entity to a health center.
24. Electronic Prescribing Items and Services – Non-monetary remuneration for hardware, software, and training for using electronic prescribing items and services.
25. Electronic Health Records Items and Services – Non-monetary remuneration for hardware, software, and training for using electronic health records items and services.
26. Federally Qualified Health Centers and Medicare Advantage Organization – Payments between federally qualified health centers and Medicare Advantage plans according to written agreements.
27. Medicare Coverage Gap Discount – Discounts to a beneficiary to apply to the Medicare gap.
28. Local Transportation – Free or discounted transportation.

The safe harbors have numerous specific definitions, standards, and criteria for determining compliance. To fall under safe harbor protection, a business arrangement must meet all of the specifications of the safe harbor. However, if an arrangement doesn’t meet all of them, it isn’t necessarily illegal.  According to the Office of the Inspector General, such arrangements have to be analyzed for compliance on a case-by-case basis.

Proposed Changes to the Anti-Kickback Statute’s Safe Harbors
Recently, the HHS has proposed new rules on “safe harbors” for the Anti-Kickback Statute.  The discount safe harbor (#8 in the list above) is specifically targeted, with the proposed rules removing certain rebates paid by pharmaceutical companies to pharmacy benefit managers.

The thinking behind this proposed change is that pharmaceutical companies know that they have to give pharmacy benefit managers some kind of rebate, so they increase the price of the drug to cover the rebate.  Similarly, the pharmacy benefit manager knows he will get a larger rebate if he can get the buyer to pay a higher price. In some cases, then, drug company rebates result in higher prices rather than reductions in prices.

In addition to the change in the discount safe harbor, the proposed rules include two new “safe harbors.” First is a new discount “safe harbor” that allows discounts for pharmaceutical products if they are not rebates, but set in advance, charged to the beneficiary at the point of sale, and paid by a manufacturer to a dispensing pharmacy. Second is a requirement that pharmacy benefit managers get paid according to a written agreement with fair market value fixed fees rather than a referral-based system.

These new rules were open for public comment until April 8, 2019, and are presently being finalized. They are set to go into effect in 2020.
 

Penalties for Violating the Anti-Kickback Statute

The Anti-Kickback Statute is a federal criminal statute, and the penalties for violating the law can be very serious.  If you have engaged in illegal kickback transactions, you could be charged with a felony that is punishable by up to five years in prison, criminal fines up to $25,000 per violation, civil penalties up to $50,000 per kickback plus three times the amount of the remuneration, and exclusion from participation in federal health care programs.

In addition to being indicted for paying or receiving kickbacks, you could also be charged with conspiracy to pay and receive kickbacks, conspiracy to defraud the U.S., conspiracy to commit health care fraud, health care fraud, conspiring to commit money laundering, and/or money laundering, depending on the particular circumstances of the case. The penalty could then be much more severe than for a single felony.
 

Conclusion

Physicians and other health care practitioners are good targets for kickback schemes because of the important role you play in referring patients to specialists and health care facilities as well as deciding which medications, services, and supplies they need. Therefore, it is important to have a good understanding of the Anti-Kickback Law, “safe harbors” under the law, proposed changes to the law, and what you can do if you are suspected of being involved in a kickback arrangement.

The government utilizes the combined resources of Federal, State, and local enforcement agencies to investigate and prosecute kickback and other health fraud cases. The Office of Inspector General (OIG), the Department of Justice, Offices of the United States Attorneys, the Federal Bureau of Investigation, and others join forces to analyze data and investigate possible cases of fraud.  The OIG shares intelligence with the Centers for Medicare & Medicaid Services, which stops payments to suspected kickback perpetrators.

If you have concerns about kickbacks, an investigation, or suspended CMS payments, please contact an experienced federal defense attorney as soon as possible. It is likely the government has already conducted a lengthy, in-depth investigation to collect damaging evidence.  It is crucial that you work with a lawyer who is knowledgeable about health care law and has experience in court to assess your case and determine your best course of action.

Orlando federal defense attorney Jonathan Rose is a skilled health care fraud and Medicare fraud attorney with 20 years of experience in state and federal courts, including experience as a former prosecutor. He’ll put his inside knowledge of federal investigations and prosecutions to work building an aggressive defense that promotes your best interests.

Sources

Crane, T.S., Kingsbury,S., Lovitch, K., & Roll, C. (2014). What is the Anti-Kickback Statute? American Bar Association. Excerpt retrieved at https://www.americanbar.org/groups/young_lawyers/publications/tyl/topics/health-law/what-is-anti-kickback-statute/

Electronic Code of Federal Regulations. (2019, April 5). §1001.952   Exceptions. https://www.ecfr.gov/

Luthi, S. (2019, April 5). CMS offers transition for Part D plans for safe harbor rule. Modern Healthcare. https://www.modernhealthcare.com/government/cms-offers-transition-part-d-plans-safe-harbor-rule

Oswald, R.S., & Scher, D.L. (2012, May 1). Health care law expands false claims act liability under Anti-Kickback Statute. Westlaw Journal Health Care Fraud. Rpt. at

https://www.employmentlawgroup.com/in-the-news/articles/health-care-law-expands-false-claims-act-liability-anti-kickback-statute/

U.S. Department of Health and Human Services. Office of Inspector General. (2019, Jan.) Medicare Fraud Strike Force.

https://oig.hhs.gov/fraud/strike-force/

U.S. Department of Health and Human Services. Office of Inspector General. (n.d.). A roadmap for new physicians: Fraud & abuse laws. https://oig.hhs.gov