Designated Health Services Fraud Defense
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Dr. Nick Oberheiden
Improper Billings for Designated Health Services Can Lead to Prosecution Under the Stark Law, False Claims Act, and Other Statutes. We Provide Designated Health Services Fraud Defense for Physicians and Businesses Nationwide.
The Stark Law is one of several federal laws that regulate financial transactions between physicians and related and unrelated entities. The Stark Law applies to financial transactions with related entities in particular—and it specifically prohibits so-called “self-referrals” for designated health services.
While most physicians are aware of the Stark Law, few have a clear understanding of its specific prohibitions, and fewer still have a clear understanding of the scope of transactions and relationships to which it applies. As a result, violations of the Stark Law are not uncommon, and many physicians unexpectedly find themselves facing fraud allegations pertaining to designated health services billings and referrals.
Billings for designated health services can implicate the False Claims Act and other federal statutes as well. As a result, when facing allegations of designated health services fraud, physicians and businesses need to ensure that they have a clear understanding of the allegations at hand, and they must promptly engage experienced counsel to defend them by all means available.
Understanding the Stark Law’s Prohibition on Self-Referrals for Designated Health Services
In order to successfully defend against allegations of designated health services fraud under the Stark Law, physicians and businesses first need to understand whether (and to what extent) any consummated transactions may have violated the statute. This requires a clear understanding of the definition of both a “self-referral” and a “designated health service”.
What is a Self-Referral?
Under the Stark Law, a self-referral is any transaction between a physician and a related business that involves a payment made in relation to a patient who is a Medicare or Medicaid beneficiary. Specifically, the Stark Law prohibits:
- “[A] physician from making referrals for certain designated health services (DHS) payable by Medicare [or Medicaid] to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies.”
- An “entity [with which a physician or immediate family member has a financial relationship] from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for . . . referred services.”
In cases involving self-referrals, both the referring physician and the related entity can face liability under the Stark Law. The referring physician can face liability for making the compensated referral, and the related entity can face liability for billing Medicare or Medicaid for the funds used to pay for the referral.
Importantly, the general prohibitions on self-referrals in the Stark Law are subject to a number of exceptions. If a payment or transaction falls within one of these exceptions, then it does not qualify as a self-referral—and neither the referring physician nor the related entity is subject to liability. Some examples of the Stark Law’s self-referral exceptions include:
- Lease payments for office space
- Lease payments for equipment rentals
- Compensation for bona fide employment relationships
- Compensation for personal service arrangements
- Recruiting incentives paid to the physician in relation to his or her hiring
- Isolated transactions involving payments consistent with fair market value and unrelated to the volume or value of any referrals provided by the physician
- Nonmonetary compensation falling below the statutory threshold (which is adjusted annually for inflation)
- Incidental benefits provided to hospital staff (including physicians)
In many cases, it will not be readily apparent that a payment or transaction qualifies for a Stark Law exception; and, as a result, physicians and businesses will often face investigations in which they have clear defenses available. At Oberheiden P.C., we have significant experience defending physicians and businesses in Stark Law investigations, and we have helped many of our clients avoid Stark Law penalties by demonstrating that one of the statute’s exceptions applies.
What is a Designated Health Service?
The Stark Law’s prohibition on self-referrals only applies in cases involving designated health services. Designated health services are defined in 42 CFR Section 411.351 and include:
- Clinical Laboratory Services
- Physical Therapy Services
- Outpatient Pathology Services
- Radiology and Radiology Therapy Services
- Imaging Services
- Durable Medical Equipment and Supplies
- Parenteral and Enteral Nutrients, incl. Equipment and Supplies
- Prosthetics, Orthotics, and Prosthetic Devices and Supplies
- Home Health Services
- Outpatient Prescription Drugs
- Inpatient and Outpatient Hospital Services
As you might expect, each of these terms has its own specific (and often complicated) definition. For example, 42 CFR Section 411.351 defines “clinical laboratory services” as:
“[T]he biological, microbiological, serological, chemical, immunohematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings, including procedures to determine, measure, or otherwise describe the presence or absence of various substances or organisms in the body, as specifically identified by the List of CPT/HCPCS Codes.”
The “List of CPT/HCPCS Codes” is maintained by the Centers for Medicare and Medicaid Services (CMS), and CMS updates the list on an annual basis. In designated health services fraud investigations, one of the first key steps is to determine whether the alleged self-referrals in question involve designated health services under the current Medicare and Medicaid rules. If they do not, then the Stark Law does not apply.
What Constitutes Designated Health Services Fraud?
Designated health services fraud is any transaction or practice that results in the illegitimate receipt of federal funds through Medicare or Medicaid. Similar to other types of healthcare billing fraud, allegations of designated health services fraud can take many forms, and physicians and their related entities must have a clear understanding of the specific allegations at issue in order to defend themselves effectively.
While many cases of alleged designated health services fraud implicate the Stark Law, physicians and related businesses can potentially face prosecution under the False Claims Act and other federal statutes as well. With this in mind, some examples of practices that can be prosecuted as designated health services fraud include:
- Billing Medicare or Medicaid for Self-Referrals – Billing Medicare or Medicaid for funds used to pay self-referrals is considered a form of designated health services fraud. In these cases, both the referring physician and the business that bills Medicare or Medicaid can face civil liability under the Stark Law.
- Improperly Classifying Designated Health Services – Physicians and related entities can face liability for improperly classifying designated health services as non-designated services in order to avoid the Stark Law’s prohibitions. This practice can also lead to health care billing fraud allegations under the False Claims Act and other statutes.
- Billing for Medically–Unnecessary Designated Health Services – Billing for medically-unnecessary designated health services is a common allegation in cases involving the Stark Law. If a business bills for medically-unnecessary designated health services in order to compensate a physician for a Medicare or Medicaid beneficiary referral, this too can implicate the False Claims Act and other federal statutes that apply in cases of government program fraud.
- Overbilling for Designated Health Services – Overbilling for designated health services in order to compensate physicians for referrals has the same implications as improperly classifying designated health services and billing for medically-unnecessary designated health services. Physicians and related businesses can face civil liability under the Stark Law, and they can potentially face civil or criminal prosecution under various other federal statutes as well.
- Other Billing and Coding Violations – Other billing and coding violations involving designated health services can also lead to prosecution for Medicare or Medicaid fraud—even if they do not involve prohibited self-referrals under the Stark Law. Billings for designated health services are subject to the same rules and requirements that apply to other healthcare services, and billing violations can lead to civil or criminal prosecution depending on the specific allegations involved.
FAQs: Designated Health Services Fraud Defense
How Can I Determine if My Business or Practice has Committed Designated Health Services Fraud?
When facing any type of federal healthcare fraud investigation, it is imperative to conduct an internal compliance assessment in order to determine what (if anything) federal authorities are going to find. When we represent clients in designated health services fraud matters, we conduct this assessment for our clients so that it is protected by the attorney-client privilege.
What are the Penalties for Designated Health Services Fraud?
The penalties for designated health services fraud vary depending on the specific statute (or statutes) under which federal prosecutors decide to pursue charges. Under the Stark Law, potential penalties include recoupments, fines, and other financial penalties. Under the False Claims Act, the same civil penalties are on the table, but criminal prosecution (and thus criminal fines and prison time) is a possibility as well.
When Do I Need to Engage Legal Counsel for Designated Health Services Fraud Defense?
If you are facing a designated health services fraud investigation, you should engage legal counsel immediately. At Oberheiden P.C., our senior healthcare fraud defense lawyers are available to speak with you and start working on your defense 24/7.
Talk to a Designated Health Services Fraud Defense Lawyer in Confidence
Are you (or is your business or practice) under investigation for designated health services fraud? If so, we strongly encourage you to speak with one of our lawyers right away. For a confidential and complimentary case assessment, call 888-680-1745 or contact us online now.