FUNDAMENTALS OF HEALTH LAW
the anti-kickback statute

Anthea R. Daniels, Esq.
Baker, Donelson, Bearman,
Caldwell & Berkowitz
Baker Donelson Center, Suite 800
211 Commerce Street
Nashville, TN 37201

Overview

This outline provides guidance on the Federal Anti-Kickback statute. The Anti-Kickback statute (the “AKS”)[1] was enacted in 1972, however, it wasn’t until the mid-1980’s when there was some enforcement of the statute. Today the federal government uses the AKS as one of the tools in its arsenal (including “Stark” and False Claims Act violations) in order to preserve the federal trust fund and recoup Medicare, Medicaid and other government proceeds paid illegally to parties engaged in AKS violations. This presentation in 1990 would have been much more simplistic and would have covered a handful of cases, fraud alerts and safe harbors. Today, there are too many safe harbors, cases, settlements, advisory opinions, fraud alerts and investigations to cover in any one hour or even one day program. Nevertheless, this outline and presentation will hit the key issues for someone starting to advise parties on AKS compliance.

I.the statute

A.General Prohibited Activity.

AKS provides criminal and civil penalties for individuals and entities that knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business/referrals for which payment may be made under a federal health care program (e.g., Medicare, Medicaid, Tricare, etc.). Kickbacks, bribes and rebates constitute remuneration. This statute applies to direct or indirect arrangements, payments made overtly or covertly, in cash or in kind. The remuneration can also be offered not only for referrals but in order to induce the purchasing, leasing, ordering or arranging for any good, service or item reimbursed by a federal health care program. It is an intent based statute. Most federal circuit courts have adopted the “one purpose” test first enumerated in the Greber case.[2] Thus, if one purpose of the payment was made to incentivize the physician to refer patients, then the AKS has been violated. The ACA sets forth that a person “need not have actual knowledge of this section or specific intent to commit a violation of this Section.” Thus, ignorance is no longer bliss.

B.Penalties.

Each violation is punishable by a $25,000 fine and up to five years improvement. Additionally, a conviction results in mandatory exclusion from participation in the Medicare and Medicaid programs. Even without a conviction, a person can be excluded at the discretion of the Secretary of HHS. The government can also recover civil monetary penalties of treble damages plus $50,000 for each AKS violation.

C.Remuneration.

So, what constitutes remuneration? Based on government and case law guidance, it includes:

  • Anything of value.
  • Cash/gifts.
  • Any compensation/payment for services or items in excess of fair market value.

D.The Statutory Exceptions.

  • Discounts for items properly disclosed and reflected in the charges by the provider.
  • bona fide employer/employee arrangements.
  • amounts paid by a provider to a group purchasing organization if there is a written agreement setting forth the fee and administration fee for participants.
  • waivers of co-insurance in relation to federally qualified healthcare centers.
  • certainrisk sharing arrangement.
  • waiver/reduction by pharmacies of cost sharing obligations under Medicare Part D.
  • remuneration between federally qualified health centers (“FQHC”) and any entity providing services, items, loans or donations to a FQHC.
  • IT hardware, software and training used to transmit/receive electronic prescription information.

II.The regulations (42 CFR §1001.952)

Since 1991 when the first safe harbors were released, the government has slowly published more and more safe harbors and other guidance as discussed below. Unlike a statutory exception, an arrangement need not satisfy every criteria of a safe harbor in order for the arrangement to be deemed acceptable. Stated otherwise, an arrangement can be deemed not to violate AKS even if the arrangement does not satisfy a safe harbor. On account of this, several of the safe harbors are difficult to satisfy (e.g. personal service arrangements which require remuneration to be set in advance and the 60/40 tests in the investments in small entities safe harbors).

Set forth below are the current safe harbors:

  • Investments in publicly traded and small entities.
  • Referral services.
  • Discounts.
  • Employees.
  • Warranties.
  • Space rentals
  • Equipment rentals.
  • Personal services/management agreements.
  • Group purchasing.
  • Co-insurance waivers.
  • Sale of professional practices.
  • E-prescribing, EHRs.
  • Increased coverage, reduced cost-sharing, or reduced premiums offered by health plans.
  • Price reductions offered to health plans, eligible managed care organizations.
  • Practitioner recruitment.
  • Obstetrical malpractice insurance subsidies.
  • Investments in group practices.
  • Cooperative hospital service organizations.
  • Ambulatory surgical centers.
  • Ambulance replenishing.

A.Investment Interest in Publicly Traded Company.

  • Large publicly traded company.
  • Must have at least $50 million in undepreciated net tangible assets related to the furnishing of health care items or service.
  • Securities are registered with the SEC.
  • Obtained “on terms equally available to the public” via trading on a registered national securities exchange.

B.Small Investment Interest - (eight standards must be satisfied)

  • Not more than 40% of the value of the investment interests are held by a person in a position to refer or influence referrals, or furnish services to or otherwise generate business for the entity.
  • Not more than 40% of the gross revenues come from the referrals or business generated from investors.
  • Terms are offered equally to passive and active investors.
  • Terms of investment are not related to previous or expected referrals or business generated for the entity.
  • No requirement to refer.
  • The entity cannot market the entity’s services to passive investors differently than to non-investors (no preference to passive investors).
  • No funds are loaned or guaranteed to investors to assist with investing.
  • Distributions are proportionate to investment.

C.Investment Entity in a MUA (medically underserved area)

  • No more than 50% of investments are held by investors in a position to refer.
  • At least 75% of the dollar value of entity’s business must be derived from services rendered to people who reside in an underserved area (MUA) or members of a medically underserved population (MUP).
  • Same other requirements in small entity safe harbor.
  • If area is no longer underserved, have wrap up of the lesser of (i) the period of the term of investment, or (ii) 3 years after area ceases to be underserved.

D.Space, Equipment and Personal Service and Management Agreements.

  • Written agreement executed by the parties.
  • Term of at least 1 year.
  • Aggregate payment is set in advance.
  • If not full time services, specify the specific schedule or intervals.
  • Remuneration constitutes F.M.V. and do not vary based on volume or value of service.

E.Sale of Practice (sale from one practitioner to another)

  • Sale is completed in a year.
  • Selling physician will not refer to practice or generate business.
  • Will include a sale to a hospital if: the sale is completed in 3 years; practitioner will not make referrals or generate business, the practice is located in a HPSA and purchasing hospital has to work diligently to recruit a physician to take over practice within 1 year and satisfy physician recruitment safe harbor.

F.Referral Services.

  • Addresses referral service arrangements.
  • For example, a hospital or medical society referral services directory/hotline.
  • A referral service may not exclude any person or entity that meets participation qualifications.
  • Other requirements.

G.Warranties and Discounts.

  • Addresses a manufacturer or supplier warranty on DME, pharmaceuticals, etc., subject to specific requirements.
  • Requirement that such warranties and discounts must be accurately reflected at time of sale in writing on invoice as referenced and provided at year end or end of specific promotion.

H.Employer.

  • Doesn’t have to be written agreement.
  • Bona fide employment relationship.
  • Employee has same meaning as 42 U.S.C. §3121(d)(2).

I.Group Purchasing Organization.

  • Safe harbor for GPO.
  • Written GPO agreement
  • Specific fee requirements.

J.Waiver of Beneficiary Co-Insurance and Deductible Amounts.

  • Waiver of Medicare and Medicaid amounts paid by beneficiary.
  • Certain requirements to be satisfied by hospitals for inpatient service waivers for services paid under the prospective payment system and to certain FQHC.
  • Other requirements.

K.Increased Coverage, Reduced Cost Sharing Amounts or Reduced Premiums Offered by Health Plans.

  • Certain risk based health plans can provide incentives which will not be deemed “remuneration” if the health plan satisfies certain criteria.
  • Applies only to Medicare and Medicaid contracting health plans.

L.Practitioner Recruitment.

  • To be used for a physician practicing less than 1 year in his/her medical specialty and relocating his/her primary practice within a HPSA for his/her medical specialty if:
  • written agreement that specifies benefits and assigned by parties.
  • if leaving existing practice, at least 75% of revenues of new practice are from new patients not treated before.
  • benefits do not exceed a 3 year period and no renegotiation.
  • no requirement to refer; can require maintaining medical staff privileges.
  • can obtain privileges elsewhere and refer there.
  • benefits don’t vary based on referrals.
  • treat patients in a non-discriminatory fashion.
  • 75% of revenue is generated from patients residing in HPSA.
  • payment cannot directly or indirectly benefit any other person or entity in a position to refer to entity.

M.Malpractice Insurance.

  • Paid by hospital/entity to entity paying for malpractice insurance.
  • Includes a certified midwife.
  • If primary practice is in a HPSA.
  • Seven additional standards.

N.Investments in Group Practice.

  • Addresses dividends orinterest income paid to a member of a group practice.
  • Equity held by licensed professionals who practice in the group.
  • Equity is in the group practice.
  • Must be a unified business with centralized decision-making, pooling of expenses and revenues.
  • Revenues are distributed in accordance with Stark "in-office ancillary service" definition.

O.Cooperative Hospital Service Organizations.

  • Payments between CHSO and its patron hospital.
  • Both are §501(c)(3).
  • Certain standards.

P.Ambulatory Surgery Centers.

There are 4 categories for types of investor owned ASCs.

  • Return for an investment in an ASC.
  • Surgeon owned ASC requests.
  • all are surgeons and refer to entity and perform surgery on patients.
  • not offered based on volume or value of referrals.
  • 1/3 of each surgeon’s income is derived from surgeon’s performance of procedure.
  • no loaning of funds.
  • proportional distributions.
  • all ancillary services are integrally related to primary procedure and are not separately billed to Medicare or a Federal health care program.
  • Nondiscrimination.
  • Single-Specialty ASC.
  • all physicians engaged in the same medical specialty;
  • they refer and provide services to their patients;
  • same requirements as above.
  • Multi-Specialty ASCs.
  • All investors are physicians;
  • same requirements as above;
  • second 1/3 test. At least 1/3 of the procedures performed by each physician/investor must be performed at the ASC.
  • Hospital/Physician ASCs.
  • one investor is a hospital;
  • same typical investor requirements as above;
  • hospital cannot claim any of these ASC costs on its cost report.
  • Owners in all ASCs can also be persons who do not work for ASC or any investor and do not refer patients or generate business.

Q.Referral Arrangements for Specialty Services.

  • Addresses a mutual arrangement to refer back patients referred to a specialist.
  • Referral back is clinically appropriate.
  • The expertise of specialty physician is needed.
  • No payments or fee splitting in connection with any Federal health care program.
  • No exchange of value between the parties.

R.Price Reductions Offered to Eligible Managed Care Organizations.

  • Addresses payments between an MCO and first tier contractor for providing or arranging for a service.

S.Price Reductions Offered by Contractors with Substantial Financial Risk to MCOs.

  • Addresses payment between an MCO and first tier contractor.
  • For participation in QA Programs.

T.Ambulance Replenishing.

  • Addresses gift or transfer of drugs or medical supplies by hospital or other receiving entity to an ambulance provider.
  • Purpose – to replenish ambulance.
  • Ambulance must be used on average 3 times a week for emergencies.
  • Both do not bill for the same replenished drug or supply.
  • Other standards.

U.Electronic Prescribing Items and Services.

  • Allows a hospital to provide hardware, software or IT and training services used solely to receive and transmit electronic prescription information.
  • Provided by a hospital to a physician who is a member of medical staff.
  • Provided by a group practice to a member of the group.
  • A PDP sponsor or Medicare Advantage organization to a pharmacy participating in the network.
  • Other Standards

V.Electronic Health Records, Items and Services.

  • Software, IT and training services in order to create, maintain, receive EHR.
  • Provided to a provider engaged in health care delivery (other than a laboratory company) by an individual entity or health plan.
  • Software is interoperable when provided to provider.
  • The donor doesn't take any act to limit compatibility or interoperability of items/services with other e-prescribing or EHR systems.
  • Not made a condition by beneficiary to do business with donor/hospital.
  • Neither eligibility or amount or nature of services is determined taking into account the volume or value of referrals.
  • Such determination can be based on size of practice total participation within, hours of practice, use of automated technology, member of medical staff, uncompensated care of any other reasonable manner.
  • Written agreement signed by the parties.
  • Specific items/services.
  • Donor doesn't know recipient already has items/services.
  • Donor does not restrict use for any patient.
  • No staffing at recipient's office.
  • Beneficiary/recipient pays 15% of Donor's cost for items/services. No financing by Donor.
  • Transfer of items and services are completed by December 31, 2021.

III.the fraud alerts, special advisory bulletins and other guidance

From time to time, the OIG has issued special fraud alerts and other guidance. Since 1994, the OIG has published approximately 18 fraud alerts. In addition, the OIG has issued approximately 34 other guidance documents and approximately 19 bulletins. While some dating back to 1994 addressed joint ventures which were of great interest to providers and their counsel, the most recent ones, including the one issued October 16, 2015, reminds providers that if they are going to donate software or systems, such provider cannot engage in information blocking by not allowing such hardware/software to interact with other EHR systems or charging higher fees for interacting with other providers. Additionally, the June 9, 2015 document reiterated that physician compensation arrangements (in such instances medical directorships and office staff arrangements) which do not reflect fair market value constitute improper remuneration to physicians are subject to “criminal, civil, and administrative sanctions.” Thus, for persons intimately involved in fraud and abuse counseling regarding the recent issuances, there is typically rarely anything earth shattering in these fraud alerts but rather reinstatement of the existing safe harbors and other guidance, Set forth below is a list of the Fraud Alerts from 1995-2014.

June 25, 2014 – Special Fraud Alert: Laboratory Payments to Referring Physicians.

March 26, 2013 – Special Fraud Alert: Physician-Owned Entities.

January 1, 2013 – Updated Special Fraud Alert: Telemarketing by Durable Medical Equipment Suppliers.

  • OIG Letter Regarding Updated Special Fraud Alert (03-02-2010): Telemarketing by Durable Medical Equipment Suppliers
  • CMS Telemarketing Frequently Asked Questions

March 3, 2003 – Special Fraud Alert: Telemarketing by Durable Medical Equipment Suppliers.

February 23, 2003 – Rental of Space in Physician Offices by Persons or Entities to Which Physicians Refer.

January 7, 1000 – Physician Liability for Certifications in the Provision of Medical Equipment and Supplies and Home Health Services.

March 1998 – Fraud and Abuse in Nursing Home Arrangement With Hospices.

June 17, 1996 – Provision of Services in Nursing Facilities.

August 10, 1995 – Publication of 2 Special Fraud Alerts addressing:

  • Home Health Fraud
  • Medical Services to Nursing Homes

December 19, 1994 – Publication of 5 Special Alerts addressing:

  • Joint Venture Relationships
  • Routine Waiver of Part B Co-payments/Deductibles
  • Hospital Incentives to Referring Physicians
  • Prescription Drug Marketing Practices
  • Arrangements for the Provision of Clinical Lab Service

IV.the advisory opinions

Notwithstanding the statutory exceptions, fraud alerts and safe harbors, due to the broad nature of the statute and how many legitimate arrangements could be deemed to still constitute an AKS violation, Congress mandated that the OIG issue advisory opinions to parties interested in obtaining clear guidance on whether their arrangement or proposed arrangement violated AKS.[3] Thus, the advisory opinion process was born.

All of the Advisory Opinions issued since 1997 are available on the OIG website. The specific names of the parties are deleted and they do not have precedential value. Thus, only the party issued the advisory opinion can rely on the conclusion given.

Since 1997, there are typically anywhere from 10-20 Advisory Opinions issued each year. For example to date, there have been approximately 15 Advisory Opinions issued in 2015.

Note, the Advisory Opinions will never examine whether payment constitute fair market value. Instead, the parties via internal or external resources should determine fair market value.

While many health care providers and their counsel hailed the coming of the Advisory Opinions, the outcome is not as exciting or helpful as one might have desired. Many Advisory Opinions state the obvious and leads a reader to wonder why a person would ever submit such a question. Many of the joint venture and close to the line Advisory Opinionsrefuse to give much comfort to arrangements and conclude with the ever so common quote that this arrangement may constitute a violation of AKS.

Nevertheless, it is a good resource especially for those new to AKS. However, the Advisory Opinion process cannot be used for hypotheticals, model arrangements, general questions, a determination of fair market value of goods, services or property, determining whether someone is a bona fide employee, or the application of the Stark Law, the law, guidance, the process for submitting and a question and answer section.

The OIG charge $151 per hour as of January 1, 2015 for the preparation of an Opinion. The OIG website has a whole section dedicated to Advisory Opinions, the law, guidance, the process for submitting and a question and answer section.