State laws and regulations that affect your medical practice
1. What does the Medicare Anti-Kickback Statute prohibit?
The Medicare Anti-Kickback Statute provides criminal penalties for individuals or entities that "knowingly and willfully offer, pay, solicit or receive remuneration in order to induce or reward referrals of items or services reimbursed under the Medicare or State health care programs."
The types of remuneration covered by this prohibition include the transfer of anything of value, such as kickbacks, bribes, and rebates, made directly or indirectly, overtly or covertly, in cash or in kind. Prohibited conduct includes not only remuneration intended to induce or reward referrals of patients, but also remuneration intended to induce or rewardthe purchasing, leasing, ordering or arranging for any good, facility, service or item paid for by Medicare or State health care programs.
2. What is the penalty for violating the statute?
Anyone found to be violating the statute will be guilty of a felony and upon conviction, will be fined not more than $25,000 or imprisoned for not more than five years, or both and is subject to exclusion from participation in Federal healthcare programs, including Medicare and Medicaid. Civil monetary penalties may also be imposed against the violator. Violations of the statute may also result in liability under the federal False Claims Act.
3. What are "safe harbors" in relation to these statutes?
The Office of Inspector General (OIG) has promulgated regulations specifying certain permissive practices under the Medicare and Medicaid anti-kickback laws. Mandated by Congress, the safe harbors were intended to meet the health care industry's concern for certainty and safety from prosecution. A health care practice or activity that technically violates the anti-kickback statute but falls within the parameters of an applicable safe harbor will be protected from prosecution. However, failure to comply with a safe harbor does not mean a practice is per se illegal; instead, it will be analyzed on the basis of its particular facts and circumstances. Current Safe Harbor Regulations include, but are not limited to, the following:
Investment Interests: This safe harbor allows physicians and other healthcare providers to invest in entities that provide healthcare services without being subject to either criminal or civil penalties, provided that there is no payment made to the physicians or other health care providers in exchange for referrals to these entities and provided the arrangement complies with the numerous other criteria applicable to investments in either small health care joint ventures or in publicly held health care companies.
Space Rental: Physicians may lease space to or from healthcare providers to whom they refer without being subject to either criminal or civil penalties, provided that the lesseedoes not rent more space than is actually needed as a means for paying for referrals, and rent must be set in advance, at fair market value. Contracts must be for a period of at least one year, to prevent periodic renegotiation of short-term contracts in response to changing patterns of referrals.
Equipment Rental: Physicians may rent equipment to or from healthcare providers without being subject to either criminal or civil penalties, provided that the lessee does not rent more equipment than is actually needed as a means for paying for referrals. Contracts must be for a period of at least one year, to prevent periodic renegotiation of short-term contracts in response to changing patterns of referrals, and payments must be set in advance, at fair market value.
Personal Services & Management Contracts: Physicians may offer personal or management services to healthcare providers without being subject to either criminal or civil penalties as long as the healthcare providers do not purchase more services than they actually need as a means of paying for referrals. Contracts must be for a period of at least one year, to prevent periodic renegotiation of short-term contracts in response to changing patterns of referrals and compensation must be set in advance, at fair market value.
Sales of Practices in Underserved Areas: This safe harbor protects hospitals in Health Professional Shortage Areas (HPSAs) that purchase and "freeze" a retiring physician’s practice until the hospital recruits a new physician to replace the retiring one. They must engage in good faith efforts to locate a new physician within three years.
Referral Services: This safe harbor concerns payments by physicians to referral services such as professional societies or other consumer-oriented groups. Any fee that a referral service charges may not be based on the volume or value of any referrals and must be based on the cost of operating the referral service.
Discounts: This safe harbor protects from civil or criminal penalties physicians and other healthcare providers who offer discounts for goods and services provided to other healthcare providers, under the proper circumstances.
Joint Venturesin Underserved Areas: This safe harbor protects joint ventures in underserved urban, as well as rural, areas. To qualify, a venture must be located in a medically underserved area, and serve 75% medically underserved patients. This safe harbor permits up to 50% physician investors and unlimited revenues from referral source investors.
Ambulatory Surgical Centers (ASC): The ASC safe harbor is divided into four categories: surgeon-owned, single-specialty physician-owned, multi-specialty physician-owned and hospital/physician-owned centers. The ASC must be an extension of the physician’s office practice pursuant to conditions set forth in the safe harbor. Certain investors who are not existing or potential referral sources are permitted. Hospital investors are not permitted to make or influence referrals. The ASC safe harbor does not apply to other physician-owned clinical joint ventures, such as cardiac catheterization labs, end-stage renal dialysis facilities or radiation oncology facilities.
Investment Interests in Group Practices: This safe harbor protects investments by physicians in their own group practices, if the group practice meets the Stark law definition of a group practice.
Practitioner Recruitment in Underserved Areas: This safe harbor protects recruitment payments made by entities to attract needed physicians and other health care professionals to rural and urban health professional shortage areas (HPSAs). At least 75 percent of the recruited practitioner's revenue must be from patients who reside in HPSAs or medically underserved areas or are members of medically underserved populations, such as the homeless or migrant workers. The safe harbor limits the duration of payments to three years and does not protect payments made by hospitals to existing group practices to recruit physicians to join the group.
Obstetrical Malpractice Insurance Subsidies in Underserved Areas: This safe harbor protects a hospital or other entity that pays all or part of the malpractice insurance premiums for practitioners engaging in obstetrical practice in HPSAs. To qualify for protection, at least 75 percent of the subsidized practitioners' patients must be medically underserved patients.
Referral Agreements for Specialty Services: This safe harbor protects referral agreements where an individual such as a primary care physician agrees to refer a patient to a specialist with the understanding that when the referred patient has reached a certain phase of recovery, the primary care physician shall resume treatment of that patient. The safe harbor does not protect arrangements involving parties that split a global fee.
Cooperative Hospital Service Organization: This safe harbor protects cooperative hospital service organizations (CHSOs), organizations formed by two or more tax-exempt hospitals, known as "patron hospitals," to provide specifically enumerated services, such as purchasing, billing, and clinical services solely for the benefit of patron hospitals. The patron hospital is permitted to make payments to a CHSO to support its operational costs.
Managed Care Downstream Shared Risk Arrangements: This safe harbor protects contractual arrangements that are "downstream" from the direct or "first-tier" contracting arrangement between a managed care plan and contractors or subcontractors, where the contractors are at substantial financial risk for the services they provide or order for federal health care program beneficiaries.
Managed Care Financial Arrangements: This safe harbor protects various financial arrangements between managed care entities that receive a fixed or capitated amount from federal health care programs and "first-tier" individuals and entities with which the managed care entity contracts for the provision of health care items or services.
Warranties. This safe harbor protects any payment or exchange of anything of value under a warranty provided by a manufacturer or supplier of an item to the buyer (such as a health care provider or beneficiary) of the item, as long as the both the buyer and manufacturer comply with certain standards including that the buyer must fully and accurately report any price reduction of the item (including a free item), which was obtained as part of the warranty, in the applicable cost reporting mechanism or claim for payment filed with the Department or a State agency and that the manufacturer or supplier must either fully and accurately report the price reduction of the item (including a free item), which was obtained as part of the warranty, on the invoice or statement submitted to the buyer, or where the amount of the price reduction is not known at the time of sale, the manufacturer or supplier must fully and accurately report the existence of a warranty on the invoice or statement, inform the buyer of its obligations when the price reduction becomes known, provide the buyer with documentation of the calculation of the price reduction resulting from the warranty. Furthermore, the manufacturer or supplier must not pay any remuneration to any individual (other than a beneficiary) or entity for any medical, surgical, or hospital expense incurred by a beneficiary other than for the cost of the item itself.
Employees. This safe harbor protects salary paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.
Electronic Prescribing Items and Services. This safe harbor protects the provision by specified entities of certain hardware, software, information technology and/or training services used solely to receive and transmit electronic prescription information to physicians. The items and services must be provided by a hospital to a physician who is a member of its medical staff; by a group practice to a physician who is a member of the group; or by a prescription drug plan sponsor or Medicare Advantage organization to a prescribing health care professional or to network pharmacists and pharmacies. Numerous other criteria apply.
Electronic Health Records Items and Services. This safe harbor protects the provision of interoperable software, information technology and/or training services used predominantly to create, maintain, transmit or receive electronic health records. Protected donors of these items or services are (a) individuals or entities that provide services covered by a federal health care program and submit claims or requests for payment either directly or through reassignment, to a federal health care program; or (b) a health plan. Protected recipients are individuals or entities engaged in the delivery of health care. Among other criteria, the electronic health records software must contain electronic prescribing capability, either through an electronic prescribing component or the ability to interface with the recipient's existing electronic prescribing system, that meets the applicable standards under Medicare Part D at the time the items and services are provided. Before receipt of the items and services, the recipient must pay 15% of the provider’s cost for the items and services. The transfer of electronic records supplies must occur on or before December 31, 2013.
4. What is the physician self-referral prohibition?
The federal physician self-referral prohibition, contained in the Medicare and Medicaid statute, is commonly referred to as the “Stark Law” and was enacted in 1989. Initially, this statute prohibited a physician from referring Medicare patients to an entity for clinical laboratory services if the physician or his or her immediate family member had a financial relationship with the entity, unless an exception applies.
The revised Stark statute, "Stark II," has expanded the self-referral ban to the following “designated health services”: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and speech-language pathology services; (3) radiology and certain other imaging services (e.g., MRI’s, CAT scans, and ultrasound services); (4) radiation therapy services and supplies; (5) durable medical equipment and supplies; (6) parenteral and enteral nutrients, equipment, and supplies; (7) prosthetics, orthotics, and prosthetic devices and supplies; (8) home health services; (9) outpatient prescription drugs; and (10) inpatient and outpatient hospital services. It also extended the referral prohibition to the Medicaid program.
5. What are the penalties for violating the Stark Law?
Penalties for violations include denial of payment, mandatory refunds, monetary penalties and exclusion from the Medicare program.
6. Are there any exceptions to the self-referral prohibition? If so, what are they?
Yes. Exceptions to the self-referral prohibitions include:
A. Exceptions for both ownership and compensation arrangement prohibitions:
1. Physician Services;
2. In-Office Ancillary Services;
3. Prepaid Plans;
4. Academic Medical Centers;
5. Implants furnished by an ASC;
6. EPO and other dialysis-related drugs furnished in or by an ESRD facility;
7. Preventive screening tests, immunizations, and vaccines;
8. Eyeglasses and contact lenses following cataract surgery; and
9. Intra-family rural referrals.
B. Exceptions relating only to the ownership or investment prohibitions:
1. Ownership in Publicly Traded Securities and Mutual Funds;
2. Hospitals in Puerto Rico;
3. Rural Provider; and
4. Hospital Ownership.
C. Exceptions relating to the compensation arrangement prohibition:
1. Rental of Office Space;
2. Rental of Equipment;
3. Bona Fide Employment Relationships;
4. Personal Service Arrangements;
5. Remuneration Unrelated to the Provision of Designated Health Services;
7. Isolated Transactions;
8. Certain Group Practice Arrangements with a Hospital;
9. Payments by a Physician to certain entities for Items and Services;
10. Charitable donations by a physician;
11. Non-monetary compensation from an entity up to $300 in value;
12. Medical staff incidental benefits;
13. Fair market value compensation;
14. Risk-sharing arrangements;
15. Compliance training;
16. Indirect compensation arrangements;
17. Referral services;
18. Obstetrical malpractice insurance subsidies;
19. Professional courtesy;
20. Retention payments in underserved areas;
21. Community-wide health information systems;
22. Electronic Prescribing Items and Services; and
23. Electronic Health Records Items and Services.
Each of these exceptions has specific and often detailed requirements for compliance.
7.Has the OIG identified other areas that may potentially violate the Medicare fraud and abuse laws?
For a complete list of other areas that may potentially violate the Medicare fraud and abuse laws visit the OIG’s website at http://oig.hhs.gov/fraud.html.
8. Are There Additional Prohibitions Under Texas Law?
Yes. See “Texas Referrals and Kickbacks.”
Copyright © Kern Augustine Conroy and Schoppmann, P.C. Used with permission.