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Anti-Kickback Statute Compliance

While the prohibition against kickbacks is among the better-known concepts in healthcare law, there’s often confusion around what exactly is prohibited and how to defend a business that is under government investigation for alleged anti-kickback violations.

The Anti-Kickback Statute Explained

The federal anti-kickback statute (AKS) prohibits the knowing and willful solicitation, offer, payment or acceptance of any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind:

  • for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, service, or item reimbursable under a federal healthcare program, or
  • for referring an individual for a service or item covered by a federal healthcare program.

What Constitutes a Violation?

“Remuneration” under the AKS has been interpreted to include virtually anything of value. Courts interpret remuneration very broadly and apply what has become known as the “one purpose” test. Under this standard, the payment is a violation of the AKS if any part of the purpose of a payment to a physician or referral source by any supplier or provider is an inducement for past or future referrals.

Examples include: 

  • Cash for referrals,
  • Discounts,
  • Paying a physician’s spouse,
  • Disproportional return on investments,
  • Airplane tickets, 
  • Certain marketing commissions, etc.
Lynette Byrd
Attorney Lynette S. Byrd
Healthcare Team Lead
Former Federal Prosecutor

Prior to 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 actual knowledge of or specific intent to commit a violation of the AKS, 42 U.S.C. §1320a-7b(h).

This standard is a dramatic deviation from the Hanlester Network v. Shalala decision, 51 F.3d 1390 (9th Cir. 1995), in which the Ninth Circuit held that the government must prove that the defendant actually knew that he violated the AKS and that he engaged in conduct with the specific intent to violate the law. In practice, the legislative decision to lower the burden of proof for the government in anti-kickback cases now allows prosecutions against people that simply “should have known” that a violation occurred. 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 with a maximum fine of $25,000 and five years imprisonment—per each count. Violation of the AKS is also grounds for substantial civil monetary penalties and/or exclusion from the Medicare program. Since the AKS is intent-based, the government must demonstrate that the alleged illegal payments were made “knowingly and willfully,” although, as noted above, this burden does not require specific intent to violate the AKS. In practice, the government often meets its burden by surrounding facts and circumstantial evidence, such as the existence of a monetary advantage in return for referrals.

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

If you have questions or needs regarding these exceptions, you should call the healthcare defense attorneys of the Oberheiden, P.C. for a free and confidential consultation.

Contact Oberheiden, P.C. online today.

October 2019 Update: OIG Proposes Major Changes to Anti-Kickback Statute Safe Harbors

The U.S. Department of Health and Human Services (DHHS) Office of Inspector General (OIG) released proposed modifications to the Anti-Kickback Statute’s safe harbor regulations on October 17, 2019. The OIG proposes to establish six new regulatory safe harbors and modify four of the existing safe harbors to provide broader protection for healthcare providers and other entities. 

Proposed New Anti-Kickback Statute Safe Harbor

The OIG’s proposal includes three new safe harbors for “value-based enterprises” and additional safe harbors related to improving healthcare quality, utilizing CMS-sponsored model patient incentives, and cybersecurity technology and services:

  • A safe harbor for arrangements that are designed to improve the quality of care, patient health outcomes, or operational efficiency by promoting patient engagement and adherence to care protocols.
  • A safe harbor for arrangements involving remuneration in the form of incentives and support under models and initiatives sponsored by the Centers for Medicare and Medicaid Services (CMS).
  • A safe harbor for donations of cybersecurity technology and related services that are intended to improve protections for patients’ private information and mitigate the risk of cyberattacks.
  • A value-based enterprise (VBE) safe harbor for arrangements with “substantial downside financial risk” for the entity that pays remuneration in connection with program-reimbursed healthcare items or services.
  • A VBE safe harbor for arrangements in which the payor assumes full financial risk, which would provide greater flexibility for structuring lawful transactions than that afforded for arrangements involving substantial (rather than full) downside risk.

A VBE value-based enterprise (VBE) safe harbor for remuneration paid in connection with care coordination arrangements that are designed to improve the quality of patient care, health outcomes, or efficiency. Modifications to Existing Anti-Kickback Statute Safe Harbors

Along with proposing these additional safe harbors, the OIG’s proposal would expand the protections available under four existing Anti-Kickback Statute safe harbors:

  • Electronic Health Records Items and Services – The proposal would add protections for cybersecurity technology included in electronic health records arrangements, fix issues with the regulations’ existing language regarding interoperability, and remove the safe harbor’s sunset provision. 
  • Local Transportation – The proposal would extend the distance of permissible local transportation from 50 miles to 75 miles, and remove the distance limit entirely for transportation of discharged patients to their homes. It would also allow for the use of ride-sharing services under appropriate circumstances. 
  • Personal Services and Management Contracts – The proposal would require the provider’s compensation methodology to be set in advance rather than the provider’s aggregate compensation, eliminate certain requirements for part-time arrangements, and permit certain types of outcomes-based remuneration structures. 
  • Warranties – The proposal would expand the definition of a “warranty” to cover bundled items and services under certain circumstances and remove the reporting requirements for beneficiaries. 

The OIG is also proposing 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. Especially in so-called physician joint ventures, in which physicians invest in businesses such as a hospital or a pharmacy, the best healthcare compliance lawyers are typically able to create AKS-compliant arrangements. Complying with the following recommendations in particular will reduce the risk under the AKS arising out of the physicians’ investment in a venture:

  • the amount invested by each physician-investor is proportionate to that 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 is structured to require that all parties 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 and not tied to the volume or value of business generated for the venture; and
  • physician-investors are required to make a “substantial investment” and to have both control of the venture and distribution of profits proportional to such investment.

To further mitigate regulatory risks, the structure, capitalization, and terms of distributions from the venture should be commercially reasonable and represent a fair market value exchange among the participants.

Contact us for a free, confidential consultation.

Carving Out Federal Referrals

A common misconception is that the AKS is not implicated when federal healthcare program beneficiaries or business generated by federal healthcare programs are “carved out” of a proposed arrangement.

In Advisory Opinion No. 11-08 (2011) and other advisory opinions, the OIG notes its long-standing concern with arrangements whereby parties “carve out” federal healthcare program beneficiaries and business generated by federal healthcare programs from “otherwise questionable financial arrangements.” The OIG further notes that such arrangements “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. The U.S. Department of Health and Human Services (HHS) has promulgated a number of “safe harbor” regulations that specify arrangements that do not violate the AKS, including the following:

  • Certain Small Investments
  • Employee Contracts
  • Group Purchasing Organizations
  • Investments in Publicly Traded Entities
  • Personal Services and Management Contracts
  • Sale of Practice
  • Space & Equipment Rentals

While strict compliance with a safe harbor may provide comfort that an arrangement is unlikely to violate the law, failure to fit within a safe harbor does not mean an arrangement is illegal per se. In contrast, failure to fit within a safe harbor merely means all the facts and circumstances must be reviewed to determine whether the parties had the requisite intent to violate the AKS. The parties’ intent to comply with a safe harbor would be relevant to demonstrating that they did not intend to violate the law, see 64 Fed. Reg. 63,518; 63,521 (Nov. 19, 1999).

If you require documents that apply these and other risk-reducing components to be drafted, you should call the federal anti-kickback attorneys of Oberheiden, P.C. for a free and confidential consultation.

Small Investment Safe Harbor

The small investment safe harbor is one example of a safe harbor. The small investment safe harbor protects the return on an investment made to an investor if eight standards are met. One of those requirements is that not more than 40% 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. This is often referred to as the 60-40 Rule, whereby up to 40% of a company is owned by referring physicians and 60% is owned by either non-physicians or physicians that do not refer business to the company.

In that context, the law also demands that not more than 40% of the entity’s gross revenues related to the furnishing of healthcare items and services come from referrals or business otherwise generated by investors, see 42 C.F.R. § 1001.952(a)(2). This requirement––in practice––means that the company will likely need to diversify in order to secure cash that is not generated by investor referrals.

Furthermore, to avoid preferential treatment of stronger referral sources, the law expects that the terms on which an investment interest is offered to a passive investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity is no different from the terms offered to other passive investors, see 42 C.F.R. § 1001.952(a)(2).

State Law Anti-Kickbacks

Most (but not all) states have enacted a state law version of the federal anti-kickback statute. California is one such example. The California anti-kickback statute prohibits the offer, delivery, receipt or acceptance by any licensed person (e.g. a physician) of any remuneration as compensation or an inducement for referring patients.

Unlike the federal prohibition, the California (and similar statutes in other states) anti-kickback statute applies to “all payors.” Therefore, its application is not limited to federal payment program beneficiaries. Most notably, the AKS prohibition includes commercial insurance payors. A violation of the California anti-kickback 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 anti-kickback statute does not contain the safe harbor provisions found in the federal AKS, the California anti-kickback statute does contain some exceptions to the general prohibition. There is some precedent in California indicating that where an arrangement meets the standards of a federal safe harbor, the state may take a similar view and deem the arrangement 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 provides that it is not unlawful for a physician to refer an individual to a laboratory, pharmacy, clinic or healthcare facility in which the physician has an investment interest, provided that the physician’s return on investment is “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 that are deemed to be made without a “valid medical need” are not accepted under this provision, see Cal. Bus. & Prof. Code § 650(d).

Contact Oberheiden, P.C. online today.

Defending AKS Charges

When it comes to AKS charges, our team of former federal prosecutors and experienced defense attorneys effectively protects the interests of individual and corporate clients accused of AKS violations. Common targets of kickback investigations are:

  • Physicians
  • Marketers
  • Consultants
  • Business Owners

Our number one goal in each AKS representation is to convince the government to keep the investigation limited to civil matters or to drop the case all together and to center on others. As noted above, the AKS has both civil and criminal components, and no one wants to face criminal felony charges. Because of that potentially significant exposure, it is important to contact the experienced attorneys at Oberheiden, P.C. immediately for a free and confidential consultation.

Success Stories

Oberheiden, P.C. has obtained no civil or criminal liability results for our clients in OIG investigations, investigations by the Department of Justice, the Department of Defense, the Department of Health and Human Services, the Department of Labor and others in the following 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.

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