What Healthcare Providers Need to Know About the Anti-Kickback Statute

The federal Anti-Kickback Statute is one of the most important laws for healthcare providers in the United States. It is also one of the most misunderstood. The Anti-Kickback Statute prohibits the payment of compensation (or “remuneration”) for referrals or other business that results in the receipt of federal funds. This includes funds paid for healthcare services, medications, or other items provided to Medicare, Medicaid, or Tricare beneficiaries or any other federal health care program. The Anti-kickback law differs from the Stark Law, which is a physician self-referral law, in that the Stark Laws prohibit self-referral to an entity providing designated health services and applies only to relationships with physicians.

Many medical providers and business executives are surprised to learn just how stringent the Anti-Kickback Statute’s prohibitions truly are, and that violations may uncover liability under the False Claims Act. But, as the Department of Health and Human Services’ Office of Inspector General (HHS OIG) makes clear:

“In some industries, it is acceptable to reward those who refer business to you. However, in the Federal health care programs, paying for referrals is a crime.”

Even when criminal charges are unwarranted, healthcare providers and others targeted in Anti-Kickback Statute investigations can face civil monetary penalties, and Anti-Kickback Statute violations can lead to scrutiny of providers’ and businesses’ other program-related practices as well. This scrutiny can lead to additional penalties—including Medicare, Medicaid, or Tricare exclusion in some cases, along with other government health care programs.

As a result, all healthcare providers and other businesses involved in the healthcare industry and who provide medical services need to prioritize Anti-Kickback Statute compliance. Crucially, while the statute prohibits the payment of referral fees for reimbursed business under government healthcare programs, it also exempts several types of financial relationships and transactions. Understanding when these exemptions (or “safe harbors”) apply is essential; and, when relying on the Anti-Kickback Statute safe harbors, providers and others must ensure that they have the documentation needed to withstand HHS OIG scrutiny when necessary.

The Anti-Kickback Statute’s Impact on Healthcare Providers and Other Businesses

Under the federal Anti-Kickback Statute, healthcare providers and other businesses in the healthcare industry can face civil or criminal prosecution for soliciting, accepting, offering, or paying any form of remuneration in exchange for Medicare, Medicaid, or Tricare referrals. The statute imposes criminal penalties in cases involving knowing and willful violations, while healthcare providers and other businesses (and their owners and executives) can face civil monetary penalties for inadvertently violating the law. As summarized by HHS OIG:

“The [Anti-Kickback Statute] is a criminal law that prohibits the knowing and willful payment of ‘remuneration’ to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal health care programs (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients). Remuneration includes anything of value and can take many forms besides cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies.”

While, as HHS OIG notes, the Anti-Kickback Statute is criminal in nature, the federal government can also pursue civil enforcement under the federal Civil Monetary Penalties Law (CMPL). As a result, while lack of knowledge and willfulness can be an effective defense against criminal enforcement, it is not a complete defense against liability.

The Anti-Kickback Statute prohibits healthcare providers and other businesses in the healthcare industry from engaging in financial transactions that are completely legal in most other industries. Even so, HHS OIG and other federal authorities strictly enforce the Anti-Kickback Statute in the healthcare sphere, and we routinely hear from practitioners and business owners who are facing scrutiny related to their financial relationships with other individuals and entities.

Safe Harbors Under the Anti-Kickback Statute that Protect Healthcare Providers and Other Businesses

While the Anti-Kickback Statute broadly prohibits referral fees and other forms of remuneration paid in exchange for federally funded business in the healthcare industry, it does not prohibit all financial relationships between referring individuals and entities. In fact, when structured and documented appropriately, many financial relationships that might otherwise be characterized as compensated referrals can fully comply with the Anti-Kickback Statute.

This is due to the safe harbor provisions in the federal Anti-Kickback Statute regulations. Some of the most commonly used Anti-Kickback Statute safe harbor provisions include:

• Investment Interests – The Anti-Kickback Statute regulations exempt the acquisition of an investment interest from the definition of “remuneration” provided that the investment meets all applicable requirements. Dividends, interest payments, and other qualifying investment-related payments are exempted as well. 
• Rental Agreements – Rental agreements for facilities, equipment, and machinery are also exempt provided that they meet all applicable requirements. While there are different requirements for different types of rental agreements, at a baseline, the rental rate must reflect an arm’s length transaction based on the value of the rented property. 
• Personal Services and Management Agreements – Personal services and management agreements that meet the requirements set forth in the Anti-Kickback safe harbor regulations are exempt as well. Among other requirements, a personal services or management agreement must have a term of at least a year, and the contracted services must “not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.”
• Employee Compensation – Compensation paid to bona fide employees is also exempt in most cases. Employees can even receive “outcomes-based payments” provided that these payments fully comply with the relevant safe harbor regulations. 
• Discounts – The safe harbor regulations state that the definition of “remuneration” does not include “a discount . . . on an item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs for a buyer as long as the buyer complies with the applicable standards.”
• Specialty Services – The safe harbor regulations specifically allow for the payment of referral fees for specialty services “payable in whole or in part under Medicare, Medicaid or any other Federal health care programs,” provided that the parties meet the four specific requirements outlined in the regulations. 
• Practitioner Recruitment – The Anti-Kickback Statute’s safe harbor regulations also exempt payments made “to induce a practitioner who has been practicing within his or her current specialty for less than one year to locate, or to induce any other practitioner to relocate, his or her primary place of practice into a [Health Professional Shortage Area] for his or her specialty area,” subject to compliance with the applicable requirements.

Again, these are just some of the most common examples. There are several additional Anti-Kickback Statute safe harbors that practitioners, hospitals, clinics, pharmacies, durable medical equipment (DME) companies, and other individuals and entities can use in a wide range of circumstances. With that said, to ensure Anti-Kickback Statute compliance, individuals and entities must structure their financial transactions and relationships to comply with a specific safe harbor, and they must carefully document this compliance so that they can prove it to HHS OIG if necessary.

The Consequences of Non-Compliance with the Anti-Kickback Statute in Healthcare

Non-compliance with the Anti-Kickback Statute can expose healthcare providers and others to either civil or criminal penalties depending on the specific allegations involved. As stated in the Anti-Kickback Statute itself, knowing and willful violations can lead to felony charges that carry up to a $100,000 fine and 10 years of federal imprisonment.

When federal prosecutors are unable to prove knowledge and willfulness, HHS OIG can pursue civil enforcement under the CMPL. In civil enforcement cases, healthcare providers and others can face fines of up to $50,000 per violation plus liability for restitution and three times the amount of the kickback (or kickbacks) at issue.

Restitution and Forfeiture in Healthcare Kickback Cases

Restitution liability presents a substantial risk in both civil and criminal prosecutions targeting healthcare providers under the Anti-Kickback Statute. It is not unusual for prosecutors to allege hundreds of thousands or millions of dollars in illegal Medicare billings—and being held liable for restitution (plus fines and other financial penalties) can threaten many healthcare entities’ viability as a going concern.

There is another important consideration as well: In criminal cases under the Anti-Kickback Statute, prosecutors can seek forfeiture of targeted entities’ and individuals’ assets before trial; and, through the restoration process, they can use forfeited assets to satisfy defendants’ restitution liability.

With these considerations in mind, addressing potential restitution liability should be a top priority when facing allegations under the Anti-Kickback Statute.

While there are several ways to address potential restitution liability in a healthcare kickback case, one strategy that will prove effective in many cases is to contest the amount of restitution owed. Under federal law, prosecutors are required to prove the amount of actual loss in order to seek restitution. This means that they must be able to prove that the victim paid for something that it wouldn’t have paid for otherwise—in this scenario, that the government paid for medical services or items that it would not have otherwise covered under Medicare or Medicaid.

Typically, this requires prosecutors to prove a lack of medical necessity. The courts have held that the mere payment of kickbacks does not, on its own, demonstrate that restitution is warranted. As a result, if targeted healthcare providers (or their defense lawyers) can successfully argue that the underlying Medicare or Medicaid billings in question were legitimate—or if prosecutors cannot prove that they were illegitimate—this can be enough to avoid liability for restitution.

Even when restitution liability is warranted, the amount owed should generally be based on the net financial benefit achieved through the kickbacks in question. This means that expenses incurred in connection with the services at issue (i.e., salaries and equipment costs) can potentially reduce the amount of restitution owed. This is critical to keep in mind, and it is a factor that healthcare providers (and their defense lawyers) must not overlook in Anti-Kickback Statute enforcement cases.

To be clear, these considerations apply to restitution liability only—not to the other financial penalties that may be on the table. Additionally, while prosecutors often use forfeiture to secure assets that can subsequently be used for restitution, the restoration process is not mandatory. As a result, even if the U.S. Department of Justice (DOJ) secures forfeiture of a healthcare provider’s assets before trial, the court could still separately impose liability for restitution at sentencing.

Given these risks—in addition to the other risks discussed above—healthcare providers targeted in Anti-Kickback Statute cases need to do everything they can to avoid liability. This includes not only taking the steps discussed below to mitigate their risk of facing scrutiny, but also responding effectively to scrutiny when necessary.

How Can Healthcare Providers and Other Businesses Avoid Liability for Anti-Kickback Statute Violations?

In light of these risks, what can (and should) healthcare providers and other businesses do to avoid liability for Anti-Kickback Statute violations? Here are some tips for managing Anti-Kickback Statute compliance and responding to scrutiny from HHS OIG:

1. Don’t Ignore the Need for Anti-Kickback Statute Compliance

First and foremost, healthcare providers and other entities must not ignore the need for Anti-Kickback Statute compliance. Compliance is mandatory; and, as discussed above, even inadvertent violations can lead to substantial civil liability.

2. Structure Financial Relationships with a Specific Safe Harbor in Mind

When structuring financial relationships with physicians, vendors, and other parties, healthcare providers and other entities should do so with a specific safe harbor in mind. Many of the safe harbors have specific requirements, and meeting all of these requirements is essential for staying in compliance.

3. Thoroughly Document all Financial Relationships

Thorough documentation is critical as well. Not only does having written agreements provide the opportunity to affirmatively demonstrate compliance with a relevant safe harbor, but some of the safe harbors specifically require a written agreement as well.

4. Track the Source and Destination of All Payments

Along with documenting their financial relationships, healthcare providers and other entities should also document the source and destination of all payments with potential Anti-Kickback Statute implications. This documentation could prove invaluable when facing scrutiny from HHS OIG.

5. Be Prepared to Deal with HHS OIG and the DOJ When Necessary

Finally, healthcare providers and other entities should proactively prepare for the possibility of facing scrutiny from HHS OIG or the DOJ. When facing an audit or investigation, being prepared to affirmatively demonstrate compliance can be one of the most efficient ways to achieve a favorable resolution

Schedule a Complimentary Consultation with a Federal Healthcare Lawyer at Oberheiden P.C.

Do you have questions or concerns about Anti-Kickback Statute compliance in healthcare? If so, we invite you to get in touch. Please call 888-680-1745 or contact us online to schedule a complimentary consultation.