Anti-Kickback and Stark Investigations: Attention Intensifies

[Editor's note: This article was originally posted on December 7th, 2009.]

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stark and anti-kickback laws - health care complianceIntroduction: Health care providers, whether physicians or hospitals, should be critically reviewing their longstanding financial relationships to ensure compliance with recent revisions to the federal self-referral restrictions under the Stark and the Anti-Kickback laws.

The practice of a physician referring a patient to a hospital or clinic in which she or he has a financial interest is governed by a federal law, known as Stark. Various remuneration plans offered to induce or compensate physicians for program referrals are governed by another federal law, the Anti-Kickback law. While related, the laws are targeted at different conduct, have different levels of required intent for liability, and have different penalties.

Since their inception, both laws have provided exceptions to accommodate legitimate business arrangements and “safe harbors” for activities not subject to enforcement if certain conditions are met. However, recent revisions have narrowed the exceptions at the same time that new self-reporting requirements have come into play. Proposed healthcare reform bills have also threatened some of the exceptions. Increasingly aggressive enforcement, as well as “voluntary” disclosures forced by internal due diligence investigations, have heightened the risk of non-compliance. Further heightening the risk is the appeal of monetary rewards for whistleblowers in these difficult economic times.

As the attention intensifies, physicians and hospitals must now actively review their contracts and leases to ensure that formerly compliant practices do not now run afoul of these laws.

Self-Referral: The laws and regulations known as Stark I, II, and III, after Congressman Fortney “Pete” Stark, (42 U.S.C. § 1395nn), prohibit referrals of Medicare or Medicaid patients for certain “designated health services” to a entity in which a doctor or immediate family member has a direct or indirect ownership interest or compensation arrangement. Nor can the entity bill Medicare or Medicaid for services provided pursuant to an illegal referral.

However, there are exceptions for such items as “in-office ancillary services,” which allow members of a physician group practice to provide their own labs and equipment for referred services if there is strict adherence to a number of conditions. There are other exceptions for preventative screening tests, intra-family referrals, and fair-market compensation. Penalties can be as high as $100,000 or three times the amount claimed as well as exclusion from participation in the program. Intent is not an element for liability so ignorance of the law is not an excuse. Liability under Stark is strict, but civil.

Anti-Kickback: The Anti-Kickback law (42 U.S.C. § 1320a-7b(b)) prohibits the “knowing and willful” offer, solicitation, payment or receipt of any remuneration directly or indirectly for referring an individual for a Medicare or Medicaid covered service or for purchasing, leasing, ordering, arranging for or recommending any good, facility or service covered under a government health program. There are “safe harbors” including rental of equipment and space, investment interests, group purchasing arrangements, and waiver of co-payments.

Again, there are numerous specific requirements for each safe harbor, all of which must be satisfied to avoid liability. Penalties can be civil, as high as $100,000 or three times the remuneration, or criminal, as high as $25,000 and five years in prison. In contrast to Stark, there must be deliberate intent to arrange for an item of value in exchange for referrals in a manner that is prohibited.  Thus, liability for kickbacks is not strict, but it can be criminal.

Expensive Lessons: Hospitals and medical centers that have not complied with the conditions of the Stark and Anti-Kickback laws have paid significant fines.  In December 2008, Condell Medical Center in Illinois paid $36 million after voluntarily disclosing violations uncovered during pre-acquisition due diligence.  Violations included paying physicians for providing services without a written agreement, leasing medical space to referring physicians at below-market rates, deferring or abating rental payments, and allowing physicians to “work off” loans at hourly rates that exceeded fair market value. In 2006, Lincare Holdings, a respiratory company in Florida, paid $10 million in fines for giving referring physicians sports tickets, golf equipment, fishing trips, meals and office equipment and disguising kickbacks as consulting agreements.

While the above examples may be obvious, concerns have also been raised as to almost any free goods and services being offered such as pharmaceutical consultant services, laboratories reviewing infection control or providing chart review, radiology services, computers or durable medical equipment.

Revisions to Exceptions and Safe Harbors: Revisions that have gone into effect recently make it more difficult for doctors and hospitals to undertake joint ventures.  Certain arrangements whereby hospitals contracted with doctor-owned entities to provide ancillary services will have to narrow those services and may need to “unbundle” leases of space and equipment. Under the new provisions, contracts must be reviewed to ensure that compensation reflects fair market value as determined by neutral sources, flat fees rather than percentage of revenue should be the norm, and “per-click” leasing of equipment is explicitly excluded because it could be seen as encouraging overutilization.

Also, be aware that during the recent healthcare reform debate, an amendment was offered to close the exception for in-office ancillary services for certain advanced medical imaging services.  This service was characterized during the debate as detrimental due to increased referrals and dangerous in the hands of untrained providers. These concerns led to a commitment to continue examination of the issue and a request to further tighten existing regulations after the amendment was withdrawn.  Thus, these exceptions are nowhere near set in stone.

Moreover, another recent requirement imposed audit and reporting obligations on 500 hospitals, which significantly increased the risk of noncompliance with the new more stringent conditions under which hospital-doctor arrangements are maintained. The Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health & Human Services Office of Inspector General (OIG) now require hospitals to complete a Disclosure of Financial Relationships Report (DFRR).  The DFRR requires disclosure of details on physician agreements, the effect being analogous to reports filed under Sarbanes-Oxley and tax returns, i.e., virtually mandated disclosure of wrongdoing.  That is because false statements made on a DFRR can lead to liability separate and apart from any substantive violations.   Thus, filing accurate DFRRs will require a careful compliance assessment.

If this were not enough incentive to pay attention to longstanding arrangements that to date have avoided scrutiny, consider recent statements by the Department of Justice which announced a heightened focus on healthcare fraud.  The DOJ Fraud Section, which has responsibility for criminal enforcement of the Anti-Kickback laws, announced in October that it is hiring 10-15 new attorneys, most of whom are to be deployed against health care fraud.

Recommendations: A very focused review of physician-hospital arrangements should be undertaken with specialized legal counsel, familiar with the recent amendments to the Anti-Kickback and Stark laws.  Additionally, updating the auditing and monitoring component of compliance programs already in place should be a priority.  If such a compliance program is not in place, one should be implemented that takes into account the risk areas identified by the OIG in their advisory opinions and includes a workable auditing and monitoring mechanism appropriate to the operations and staff involved in the financial relationship.

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About the Author

wendy-wysongWendy L. Wysong is a partner at Clifford Chance US LLP in the White Collar & Regulatory group. Her concentration is compliance and enforcement under U.S. civil and criminal laws.

Ms. Wysong is the immediate past Deputy Assistant Secretary for Export Enforcement and Acting Assistant Secretary at the Bureau of Industry and Security, U.S. Department of Commerce.

She managed its enforcement program and was involved in the development and implementation of foreign policy through export control policies and programs throughout the administration, including the Departments of Justice, State, Treasury, and Homeland Security, as well as the intelligence community.

About the Author

Wendy Wysong

wendy wysong, asia pacific compliance expert About the Author
Wendy L. Wysong, a litigation partner with Clifford Chance, maintains offices in Hong Kong and Washington D.C. She offers clients advice and representation on compliance and enforcement under the Foreign Corrupt Practices Act, the Arms Export Control Act, International Traffic in Arms Regulations, Export Administration Regulations, and OFAC Economic Sanctions. She was appointed by the State Department as the ITAR Special Compliance Official for Xe Services (formerly Blackwater) in 2010.

Ms. Wysong combines her experience as a former federal prosecutor with the United States Attorney for the District of Columbia for 16 years with her regulatory background as the former Deputy Assistant Secretary for Export Enforcement at the Bureau of Industry and Security, U.S. Department of Commerce. She managed its enforcement program and was involved in the development and implementation of foreign policy through export controls across the administration, including the Departments of Justice, State, Treasury, and Homeland Security, as well as the intelligence community.]

Ms. Wysong received her law degree in 1984 from the University of Virginia School of Law, where she was a member of the University of Virginia Law Review.
Contact information:
Wendy L. Wysong
Clifford Chance
28th Floor Jardine House
One Connaught Place
Hong Kong
+852 2826 3460
+852 9280 3612 (cell)
And
2001 K Street, NW
Washington, DC 20006
+1 202 912 5030
+1 202 290 7634
target="_blank">Wendy.wysong@cliffordchance.com

Ms. Wysong writes a regular column, Asia Pacific Compliance, for CCI.

One Comment

  1. Anonymous
    February 14, 2012

    Is it a violation for a large podiatry group to own their own surgery centers, MRI center, and pathology lab? They constantly urge doctors to send more and more specimens on all patients, including Medicare and Medicaid. Honestly their top payor is Medicare, they also have a client bill program that a large practice is abusing heavily. The owner of the practice is constantly sending out emails urging doctors to send more and more patients to these ancillary services. The doctors are violating their contracts with insurance companies intentionally referring patients out of network to their own lab. Is this worth being investigated?