FEDERAL ANTI-KICKBACK STATUTE

The Medicare Anti-kickback statute is the mother of all anti-kickback/anti-rebate statutes. It is codified at 42 U.S.C. 1320a-7b. The Anti-kickback statute is a broadly worded statute that makes it a crime to pay or receive remuneration of any kind for referrals or services compensable under any federal or state health care program. More specifically, the Anti-kickback statute makes it a felony, punishable by up to five years in prison and a $25,000 fine, to "knowingly and willfully" solicit, receive, offer or pay any remuneration in return for (1) referring or arranging for services payable by any federal or state health care program, or (2) purchasing, leasing ordering or arranging for any goods, facilities or services which may be paid for in whole or in part by any federal or state health care program. Another sanction available under the statute is exclusion of any person or entity from participation in the Medicare program. Additionally, the Balanced Budget Act of 1997 added civil monetary penalties for violations of the Anti-kickback statute in amounts up to $50,000 per violation and assessments equal to not more than three times the amount of remuneration paid under the arrangement. (See 42 U.S.C. 1320a-7a(7)).

To restate the basic prohibition of the statute, if a payment of any kind, direct or indirect, is being made where at least one purpose of the payment is to influence referrals, purchasing, leasing, or to furnish anything that can be paid for by Medicare or Medicaid, then both the person/entity paying and the person/entity receiving the payment can be charged with a felony or be subject to civil monetary penalties. The most important built in safeguard in this statute, as far as providers are concerned, is that the payment or receipt of payment must be made "knowingly and willfully." How courts ultimately interpret this requirement will determine just how much protection it affords providers.

The Ninth Circuit Court of Appeals has interpreted the "knowingly and willfully" requirement to mean that an individual charged with violating the Anti-kickback statute must (1) know that the law prohibited the conduct at issue, and (2) engage in that conduct with the specific intent of violating the statute. That is a very high standard for the government enforcer to overcome. However, courts in other federal circuits have ruled that the statute is violated if only one purpose of the payment is to influence or induce referrals, even in the absence of a specific knowledge of the statute and a specific intent to violate it. So long as the Ninth Circuit's current interpretation remains in place, providers located in the Ninth Circuit can enter into various arrangements with a higher degree of confidence than providers located outside of the Ninth Circuit. Until the U.S. Supreme Court addresses this split of opinion on the definition of "knowingly and willingly" there will be no definitive answer.

The primary enforcer of the Anti-kickback statute is the Office of the Inspector General of the Department of Health and Human Services (the "OIG"). In addition to enforcing the statute, the OIG is charged with developing "safe harbors" to the statute and responding to requests for advisory opinions related to the statute.

The Anti-kickback statute contains a few exceptions where the statute will not apply, including bona fide employment relationships. That exception simply states that the statute will not apply to: "Any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services."

In addition to this exception, the OIG has adopted by regulation several so called "safe harbors." If the facts of a particular situation meet all of the requirements of any of the safe harbors, then that situation/transaction will not be found to violate the Anti-kickback statute. However, the fact that a given situation does not meet all the requirements of a safe harbor does not mean the situation violates the statute. Instead, it simply means that you must apply a normal Anti-kickback statutory analysis to the situation to see if it complies. This is an important aspect of federal anti-kickback analysis because it is frequently impossible to meet all of the requirements of any given safe harbor.

Prior to November 1999, the OIG had promulgated 13 safe harbors. In 1994, the OIG published a proposed rule clarifying several of the existing and proposed new safe harbors. In November 1999, the OIG finally published a final rule adopting several clarifications to the existing safe harbors and adopting eight new safe harbors. (See 64 FR 63518 (Nov. 19, 1999)). The current safe harbors under the Anti-kickback statute are as follows:

1. Investment interests - (i) large entity; (ii) small entity; and (iii) entity in under-server area;
2. Space rental;
3. Equipment rental;
4. Personal services and management contracts;
5. Sale of practice;
6. Referral services;
7. Warranties;
8. Discounts;
9. Employees;
10. Group purchasing organizations;
11. Waiver of beneficiary co-insurance and deductible amounts;
12. Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans;
13. Price reductions offered to health plans;
14. Practitioner recruitment;
15. Obstetrical malpractice insurance subsidies;
16. Investments in group practices;
17. Cooperative hospital services organizations;
18. Ambulatory surgery centers;
19. Referral agreements for specialty services;
20. Price reductions offered to eligible managed care organizations; and
21. Price reductions offered by contractors with substantial financial risk to managed care organizations.

These safe harbors are codified at 42 CFR 1001.952. The discount, employees, waiver of coinsurance, and group purchasing safe harbors are all also statutory exceptions, set forth in 42 U.S.C. 1320a-7b(b)(3). The safe harbor regulations related to these exceptions attempt to clarify the exception. It is important to remember that there are exceptions and, if applicable, the statutory prohibitions do not apply to these situations.

The most relevant safe harbor to physician compensation arrangements (besides the employee exception/safe harbor) is the personal services and management contracts safe harbor, which requires that:

1. the agreement be in writing and signed by the parties;
2. the agreement cover all of the services between the two parties for the term of the agreement and specify the services to be provided by the physician;
3. if the services are on a part-time basis, then the agreement must specify the exact schedule for the services;
4. the term of the agreement is for not less than one year;
5. the aggregate compensation paid is set in advance, is consistent with fair market value, and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be paid under Medicare or a state health care program;
6. the services performed do not involve the counseling or promotion of a business arrangement or other activity that violates state or federal law; and
7. the aggregate services called for in the agreement must not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

Several of these requirements make compliance with this safe harbor difficult, if not impossible, for most physician compensation arrangements, especially those between a physician and a hospital. First, the personal services safe harbor requires that all of the services provided by the physician to the entity (e.g., a hospital, clinic, group practice, etc.) must be covered under the agreement. These preclude compliance with this safe harbor if a physician has multiple compensation arrangements with the same entity. Second, the agreement must set the aggregate compensation in advance, which prevents the use of formulas or hourly rates. Another important twist, is that the OIG believes that agreements cannot have "without cause" termination provisions and comply with this requirement.

When all of those requirements are laid on top of a typical physician compensation agreement (other than employment arrangements), the result is a form of agreement that is of very little practical use in structuring relationships that adequately account for modern health care business realities and that properly align physician and entity financial incentives.

The personal services safe harbor is the most important safe harbor in relation to financial arrangements that address payment for services rendered. Several other of the safe harbors (space and equipment rental, investment interests, physician recruitment, investments in group practices, and ambulatory surgery centers) have important impacts on other types of physician financial arrangements. Discussing all of these safe harbors is beyond the scope of these materials. However, there are several general principles that attorneys should look for when faced with these other types of arrangements. In planning for compliance with the Anti-kickback statute, the existence of any of the following factors in a proposed transaction or agreement should always trigger red flags: if an agreement requires one of the parties to refer patients to the other party or some other specific entity; investment or participation interests that are tied to the volume or value of referrals; provisions requiring the expulsion of participants or cancellation of agreements if a party does not refer patients to other parties or the new entity; disproportionate returns on investment; and guaranteed returns on investments. In addition, if one of the parties is motivated by a desire to secure a flow of referrals, and makes statements indicating that motivation, an intent to violate the statute may be found. In any case where any of these factors are identified, a provider should undertake a more detailed analysis to ensure the arrangement does not violate the Anti-kickback statute.

The Anti-kickback statute requires the OIG to provide advisory opinions regarding the application of the statute to specific situations, upon request. The request must meet several lengthy requirements which these materials will not address here, except to state that the requestor must reimburse the OIG for the cost of providing the opinion. Opinions are only binding on the requestor and will take a minimum of 60 days to obtain from the OIG. The OIG will not address issues regarding the fair market value of any particular arrangement. The OIG's advisory opinions, along with various other items of useful information, are available on the OIG's web site at www.dhhs.gov/progorg/oig/advopn/index.htm. As of this writing, the statute requiring the OIG to provide advisory opinions expired (or sunsetted). The OIG is still issuing opinions related to requests made prior to the sunset date. There is an initiative by many health care providers (apparently supported by the OIG) to reauthorize the advisory opinion process.

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