by Kenya S. Woodruff and Phillip L. Kim
Federal agencies recovered over $2.5 billion from healthcare-related settlements and judgments under the False Claims Act (FCA) in 2016 alone. In 2017, prison sentences for healthcare fraud and abuse violations ranged from six months to 75 years. While there are a number of critical considerations that can impact the success of a healthcare deal, federal fraud and abuse laws, including the FCA, Anti-Kickback Statute (AKS), and Physician Self-Referral (Stark) Law, are among the most important. These laws cover egregious acts of fraud and bribery, as well as contractual relationships, investments, and marketing and recruiting practices that are perfectly legal in other industries. Consequently, anyone can unknowingly commit healthcare fraud, and with prison time and millions of dollars at stake, what you don’t know can hurt you.
The FCA imposes civil liability essentially any time a claim is submitted to a government payor that does not reflect the services provided. It is an AKS violation to knowingly and willfully offer, pay, solicit, or receive anything of value to induce referrals for federally covered items or services. AKS is triggered if one purpose of the transaction is to induce referrals, regardless of other legitimate purposes. The Stark law prohibits a physician (or family member) from making referrals for designated health services (DHS) payable by Medicare to an entity with which the physician/family member has a financial relationship, unless an exception applies. Some examples of DHS are clinical laboratory services, radiology services, and inpatient and outpatient hospital services. Stark also prohibits entities from billing any individual, third-party payor, or other entity for any DHS provided pursuant to a prohibited referral.
A violation of AKS is automatically a violation of the FCA, and a violation of Stark is typically a violation of AKS, the FCA, or both. Because both Stark and AKS give rise to FCA penalties, the FCA has the highest enforcement figures, but Stark and AKS present the most complex issues for deals and related transactions. Common arrangements that implicate Stark and AKS include joint ventures, discounts, call coverage, co-marketing or practice support, speaking/teaching compensation, grants, and entertainment. The most highly scrutinized transactions include physician-laboratory arrangements, independent diagnostic testing facilities (IDTFs), pharmacies, pharmaceutical and medical device companies, and home health agencies.
While the above arrangements and transactions almost automatically raise AKS and Stark flags, the government has continuously recognized that kickback and referral schemes can be complex and take many different forms. Accordingly, the movement toward consolidation in the healthcare industry has brought with it new fraud and abuse enforcement trends. In particular, the government is paying attention to mergers and acquisitions. For example, healthcare acquisitions that account for “goodwill” in the purchase price may resemble compensation for existing or future patient volume, which could violate AKS and/or Stark if proper measures are not taken to ensure that the transaction fits within the applicable safe harbor and/or exception.
The Department of Human Health Services Office of Inspector General (OIG) is responsible for enforcing AKS, while the Center for Medicare and Medicaid Services (CMS) enforces Stark. The OIG and CMS issue advisory opinions in response to inquiries about the legality of complex healthcare arrangements under AKS and Stark, respectively. These advisory opinions can be helpful in identifying potentially problematic transactions and how the government may perceive them. For example, in 2013, the OIG issued Advisory Opinion No. 13-03, in which it expressed its “long-standing concern about arrangements under which parties ‘carve out’ referrals of federal health care program beneficiaries or business generated by federal health care programs from otherwise questionable financial arrangements.” In short, the OIG warned against the contemplated attempt to circumvent AKS by avoiding government payors, as such arrangements may be viewed merely as an attempt to “disguise” the risks the OIG is seeking to eliminate.
The analysis of a given healthcare arrangement under AKS, Stark, or any other applicable state or federal law depends upon the totality of the facts and circumstances involved, which means there is no one-size-fits-all formula for regulatory compliance in this realm. The landscape of healthcare business is constantly changing in response to legislative activity and concerns about controlling costs. The proposed arrangements are often innovative and may seem to make good business sense. Nonetheless, careful review of the applicable fraud and abuse laws is necessary to ensure permissibility.