Anti-Kickback Statute Compliance
Kickbacks are among the best-known concepts in healthcare law but, confusion exists about what is illegal and how to defend a business under government investigation for anti-kickback violations.
The Anti-Kickback Statute Explained
The federal anti-kickback statute (AKS) prohibits knowingly and willfully accepting solicitations, offers, payments, or remuneration. Payments may occur directly or indirectly, overtly or covertly, in cash or in kind:
- for purchasing, leasing, ordering, arranging for or recommending the purchase, lease, or order of any good, facility, service, or item paid under a federal healthcare program, or
- for referring someone for a service or item covered by a federal healthcare program.
What Constitutes a Violation?
Remuneration is exchanging anything of value. The Anti-Kickback law goes into effect once remuneration of any kind is on offer between parties. Broad in scope, the statute may be violated if only one purpose of a payment is to prompt referrals. U.S. v. Greber, 760 F.2d 68 (3rd Cir. 1985).
- Cash for referrals,
- Paying a physician’s spouse,
- Disproportional return on investments,
- Airplane tickets,
- Certain marketing commissions, etc.
Before the Affordable Care Act, alleged misconduct under the AKS had to constitute “bad intent.” The Affordable Care Act modified the anti-kickback statute by clarifying that a person need not have knowledge of nor specific intent to commit a violation of the AKS, 42 U.S.C. §1320a-7b(h).
This standard is a change from the Hanlester Network v. Shalala decision, 51 F.3d 1390 (9th Cir. 1995). The Ninth Circuit said prosecutors must prove the defendant knew he violated the AKS and engaged in conduct with specific intent to violate the law. In practice, the decision lowering the government’s burden of proof allows prosecution against people who simply “should have known” that a violation happened. The government no longer needs to prove actual knowledge or specific “bad” intent.
What Are the Penalties?
Violations of the AKS are punishable as a felony. A maximum fine of $25,000 and five years in prison for each count is possible. In addition, violations are grounds for civil monetary penalties and/or exclusion from the Medicare program. The government must show alleged illegal payments were made “knowingly and willfully”. However, the burden does not require specific intent to violate the law. In practice, prosecutors often make their case with surrounding facts and inferred evidence.
What Exceptions Exist?
The Anti-Kickback Statute contains several exceptions. The exceptions include, but are not limited to:
- Bona Fide Payments to W-2 Employees
- Payments to Purchasing Agents
- Safe Harbor Transactions
- Specified Risk-Sharing Arrangements
Have questions about the Anti-Kickback Statute? Call the healthcare defense attorneys of Oberheiden, P.C. now for a free and confidential consultation.
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Changes to Anti-Kickback Statute Safe Harbors
Effective January 19, 2021, the U.S. Department of Health and Human Services (DHHS) Office of Inspector General (OIG) issued a new rule establishing three new and modifying four existing safe harbors to provide broader protection for healthcare providers and other entities.
New Anti-Kickback Statute Safe Harbors
The OIG’s rule includes three new safe harbors for “value-based enterprises”. These safe harbors vary by the type of remuneration protected, level of financial risk assumed by the parties, and safeguards included as safe harbor conditions:
- A safe harbor (§ 1001.952(hh)) for certain tools and supports furnished to patients to improve quality, health outcomes, and efficiency.
- A safe harbor (§ 1001.952(ii)) for certain remuneration provided in connection with a CMS-sponsored model to reduce the need for separate and distinct fraud and abuse waivers for new CMS-sponsored models.
- A safe harbor (§ 1001.952(jj)) for donations of cybersecurity technology and services.
A VBE value-based enterprise (VBE) safe harbor for remuneration paid in connection with care coordination arrangements designed to improve the quality of patient care, health outcomes, or efficiency. Modifications to Existing Anti-Kickback Statute Safe Harbors
Along with additional safe harbors, the OIG’s expands protections available under four existing Anti-Kickback Statute safe harbors:
- Electronic Health Records Items and Services – Adds protections for cybersecurity technology included in electronic health records arrangements. Corrects issues with the existing language regarding interoperability and removes the safe harbor’s sunset provision.
- Local Transportation – Extends the distance of local transportation from 50 miles to 75 miles, and removes the distance limit for transporting discharged patients to their homes. It would also allow the use of ride-sharing services under appropriate circumstances.
- Personal Services and Management Contracts – Require a provider’s payment methodology be set in advance rather than based on aggregate compensation. The rule eliminates some requirements for part-time arrangements and permits specific types of outcomes-based payment arrangements.
- Warranties – Expands the definition of “warranty” to cover bundled items and services under certain nstances and removes reporting requirements for beneficiaries.
The OIG made a modification to the existing civil monetary penalty (CMP) rules that would allow for beneficiary inducements in the field of telehealth for certain in-home dialysis services.
How to Minimize Risk in a Joint Venture?
Clearly, not all payments to physicians constitute a violation of the AKS. In physician joint ventures, where physicians invest in businesses like hospitals or pharmacies, good healthcare compliance lawyers are often able to create AKS-compliant arrangements. The following guidance will reduce risks under the AKS for physician investment in a venture:
- The amount invested by each physician-investor is comparable to the physician-investor’s interest in the venture;
- There is no requirement of divestiture tied to the level of referrals for services;
- The terms of investment in the venture are the same for all investors;
- The investment requires all parties to share business risk in the venture through the contribution of capital;
- Remuneration (in the form of distributions) is based on each physician-investor’s ownership interest in the venture. It need not tied be to the volume or value of business generated for the venture; and
- Physician-investors must make a “substantial investment” and have both control of the venture and distribution of profits roughly equal to the investment.
To reduce risk, the structure, capitalization, and terms of distribution from the venture should be commercially reasonable and represent a fair market value exchange among participants.
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Carving Out Federal Referrals
A common mistake is that the AKS is not in play when federal healthcare program beneficiaries or business generated by federal healthcare programs are contracted out to another entity (“carved out”) of a proposed agreement.
In Advisory Opinion No. 11-08 (2011), the OIG notes its concern in situations where parties “carve out” program beneficiaries and business generated by federal healthcare programs from “otherwise questionable financial arrangements.” The OIG further notes that such agreements “implicate and may violate the anti-kickback statute by disguising remuneration for federal business through the payment of amounts purportedly related to non-federal business,” OIG Advisory Opinion No. 11-08 (2011).
How to Structure Business Deals
One way to comply with the AKS is to structure arrangements and joint ventures in compliance with safe harbors established by the statute, see 42 C.F.R. § 1001.952 et seq. HHS promotes a number of “safe harbor” regulations specifying agreements that do not violate the AKS:
- Certain Small Investments
- Employee Contracts
- Group Purchasing Organizations
- Investments in Publicly Traded Entities
- Personal Services and Management Contracts
- Sale of Practice
- Space & Equipment Rentals
Failure to fit within a safe harbor does not mean an arrangement is illegal. It simply means all circumstances must be reviewed to determine if the parties had intent to violate the law. A party’s effort to comply with a safe harbor would demonstrate they did not intend to violate the AKS, see 64 Fed. Reg. 63,518; 63,521 (Nov. 19, 1999).
If you need documents applying these and other risk-reducing elements, call the federal anti-kickback attorneys of Oberheiden, P.C. for a free and confidential consultation.
Small Investment Safe Harbor
An example of a safe harbor exists concerning small investments. It protects return on an investment made to an investor if it meets eight standards. One is that not more than 40 percent of the value of each class of investment interests may be held by investors who are in a position to make or influence referrals to, or furnish items or services to the entity. Known as the 60-40 Rule, up to 40 percent of a company is owned by referring physicians and 60 percent is owned by physicians, or by non-physicians who do not make referrals to the company.
The law also states that not more than 40 percent of the entity’s gross revenues related to furnishing healthcare items and services come from referrals or business otherwise generated by investors, see 42 C.F.R. § 1001.952(a)(2). In practice, the company will likely need to diversify in order to secure cash that is not produced by investor referrals.
To avoid special treatment of stronger referral sources, the law expects terms on which an investment interest is offered to a passive investor, who is in position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity, is no different from terms offered to other passive investors, see 42 C.F.R. § 1001.952(a)(2).
State Law Anti-Kickbacks
Most states have a version of the federal anti-kickback statute. California bars any licensed person (e.g. a physician) from offering, delivering, receiving or accepting remuneration as compensation or inducement to refer patients.
Unlike the federal prohibition, California law (and similar statutes in other states) applies to all payors. Therefore, its application is not limited to federal payment program beneficiaries. Notably, the AKS prohibition includes commercial insurance payors. A violation of the statute is punishable by imprisonment and/or by a fine not exceeding $50,000 per occurrence, see Cal. Bus. & Prof. Code § 650.
State Law Safe Harbors
Although the California statute does not contain safe harbor provisions found in federal law, it does contain some exceptions to the general prohibition. There is precedent indicating if an arrangement meets the standards of a federal safe harbor, the state may take a similar view deeming it compliant with California law, see 89 Ops. Cal.Atty.Gen. 25, 34- 36 (2006) (interpreting Cal. Welf. & Inst. Code § 14107.2).
The California anti-kickback statute states it is not unlawful for a physician to refer an individual to a laboratory, pharmacy, clinic or healthcare facility where the provider has an investment interest. The physician’s return on investment must be “based upon the amount of the capital investment or proportional ownership of the licensee,” and “not based on the number or value of any patients referred.” Referrals made without a “valid medical need” are not accepted under this provision, see Cal. Bus. & Prof. Code § 650(d).
Defending AKS Charges
When it comes to AKS charges, our team of former federal prosecutors and experienced defense attorneys protect the interests of individual and corporate clients accused of AKS violations. Common targets of kickback investigations are:
- Business Owners
In each AKS case we work to convince prosecutors to limit the investigation to civil matters, or drop the case. As noted, the AKS has both civil and criminal components. No one wants to face criminal felony charges. Due to possible exposure, it is important to contact the experienced attorneys at Oberheiden, P.C. now for a free and confidential consultation.
Oberheiden, P.C. has received no civil or criminal liability results for investigations by the OIG, the DOJ the DOD, the DHHS or, the DOL. Adding to our success are clients in these service industries:
- Healthcare Marketing Companies
- Home Healthcare
- Medical Device Companies
- Medicare Laboratories
- Non-Federal Laboratories
- Physician Owned Entities
- Physician Providers
- Physical Therapy
Not all attorneys of Oberheiden, P.C. are licensed in California and nothing contained herein is meant to constitute the unauthorized practice of law.