What Is the Small Investor Safe Harbor?
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Safe harbor regulations describe financial arrangements involving referring physicians in which, although the transaction technically implicates the anti-kickback statute, it does not actually violate the law. These safe harbor arrangements are specifically excluded from the definition of illegal remuneration. Among the most prominent exception to the anti-kickback statute is the safe harbor for investment interests in small entities, regulated at 42 C.F.R. 1001.952(a)(2). The following is a brief introduction of this so-called “Small Investor Safe Harbor.”
Under section 1877, a physician may not refer a Medicare patient for certain designated health services to an entity with which the physician or an immediate family member of the physician has a financial relationship unless an exception applies. In this context, the following definitions and explanations apply.
- Designated Health Services (“DHS”). In order to implicate Stark Law, a physician’s referral must be for a designated health service, which is defined to include referrals for laboratories, physical and occupational therapy, radiology, radiation therapy, durable medical equipment, parenteral and enteral nutrients, equipment, devices, supplies, orthotics, prosthetics, home health, outpatient prescription drugs, and inpatient and outpatient hospital services.
- Financial Relationship. A financial relationship includes both ownership or investment interests as well as compensation arrangements, see 42 C.F.R. Sect. 411.354(b)(1).
One of the most commonly used exceptions to physician self-referral restrictions and the anti-kickback laws is the so-called small investment safe harbor. The safe harbor is hereby designed to legitimize financial relationships between referring physicians and businesses. The next section introduces the eight elements of the small investment safe harbor.
(1) No more than 40 percent of the value of the investment interests of each class of investment interests may be held in the previous fiscal year or previous 12-month period by investors who are in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity.
(2) The terms on which an investment interest is offered to a passive investor, if any, who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must be no different from the terms offered to other passive investors.
(3) The terms on which an investment interest is offered to an investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must not be related to the previous or expected volume of referrals, items or services furnished, or the amount of business otherwise generated from that investor to the entity.
(4) There may not be any requirement that a passive investor, if any, make referrals to, be in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity as a condition for remaining as an investor.
(5) Any investor must not market or furnish the entity’s items or services (or those of another entity as part of a cross referral agreement) to passive investors differently than to non‑investors.
(6) No more than 40 percent of the entity’s gross revenue related to the furnishing of healthcare items and services in the previous fiscal year or previous 12-month period may come from referrals or business otherwise generated from investors.
(7) The entity or any investor (or any agent thereof) must not loan funds to or guarantee a loan for an investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity if the investor uses any part of such loan to obtain the investment interest.
(8) The amount of payment to an investor in return for the investment interest must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor.
The Role of the OIG
The Anti-Kickback Statute is an intent-based criminal statute. By that definition, the legality of any arrangement remains largely dependent on what the parties intended to do under their agreement. The OIG itself can provide guidance through the use of Special Fraud Alerts, Advisory Opinions, and through the explained safe-harbor process. Complying with safe harbor provisions assure compliance. However, the OIG is clear that non-compliance with safe harbors does not ipso iure and automatically render a business venture unlawful. Non-compliance with safe harbors would, however, invite a detailed look at the facts and circumstances of the arrangement in question. Nonetheless, it is important for a joint venture to meet as many of the safe harbor elements as possible to maximize compliance.
Oberheiden, P.C. is a Dallas-based law firm that represents healthcare clients in the area of regulatory compliance and defense against government investigations. Our team consists of several former federal healthcare prosecutors that bring decades of government insights to the table and that know how to structure an arrangement without raising the government’s attention. By the same token, those clients that are subject to a government healthcare investigation know they can rely on our healthcare fraud defense experience and our proven track record of avoiding criminal charges.