Provider and Provider Relationships. Primary Fraud and Abuse Issues

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1 Provider and Provider Relationships Primary Fraud and Abuse Issues This document is intended to identify the primary healthcare fraud and abuse laws that may apply to contractual relationships between providers in the U.S., and exceptions to those laws. The summary is not comprehensive, but provides the most common laws and regulations that should be considered when entering into these types of agreements. The particular circumstances of every proposed relationship should be carefully assessed and compared to applicable statutes and regulations. Every proposal and scenario is different as a single difference in facts can change an analysis. Accordingly, it is essential to evaluate every idea under the statutes and regulations. The primary federal laws governing fraud and abuse issues in healthcare are the Physician Self-Referral Law, commonly known as the Stark Law (42 U.S.C. 1395nn), and the Anti-Kickback Statute (42 U.S.C. 1320a-7b(b)). The Stark Law is a civil law that does not require intent to violate. By contrast, the Anti-Kickback Statute is a criminal statute where some level of intent to commit an impermissible act must exist, though the exact extent of that intent is an item open for debate. When considering relationships between providers, various forms of such arrangements could arise. It is important to understand that the term provider is used very broadly to cover any type of provider whether individual physician, physician practice, hospital, long-term care facility, durable medical equipment provider, or any other provider of healthcare services. The following is a summary of the primary means of fitting those relationships within the scope of the Stark Law and Anti-Kickback Statute. Other exceptions and safe harbors could apply, but the ones identified below are the most likely to be considered. The Stark Law The Physician Self-Referral Law, commonly known as the "Stark Law", prohibits a physician from referring Medicare or Medicaid patients for Designated Health Services ("DHS"), to an entity with which the physician or an immediate family member of the physician has a direct or indirect "financial relationship." The law also prohibits an entity, such as a hospital or other provider or supplier, from billing for any DHS furnished as a result of a prohibited referral. The Stark Law is a strict liability law. As such, no intent to violate the statute is necessary for claims for DHS to be denied or a violation to be found. This creates a clear distinction from the criminal nature of the Anti-Kickback Status. Even though the Stark Law is a strict liability statute, there are enhanced penalties for knowing violations. Specific statutory and regulatory exceptions protect certain relationships from the law s general prohibition. If a referral relationship does not meet each and every requirement of an pg. 1

2 exception, liability attaches to a prohibited referral. Accordingly, whenever an arrangement involves a financial relationship with a physician who refers DHS that is payable by Medicare or Medicaid, the proposed arrangement must be evaluated for compliance with the Stark Law. The analysis must be based upon the specific facts and circumstances of each proposed arrangement. For alternative payment methodology relationships between providers, the following exceptions may be considered: Personal Service Arrangements (42 C.F.R (d)) To meet the Personal Service Arrangements exception, the agreement must have the following elements: (i) specify the services in writing and be signed by the parties, (ii) cover all of the services to be provided, (iii) only include those services reasonable and necessary for a legitimate business purpose, (iv) have a term of at least one year, (v) set compensation in advance at fair market value (which is defined specifically by the Stark Law), and (vi) not include services that involve counseling to break another law. A personal service arrangement would be utilized when two provider organizations contract. The terms are similar to an employment agreement, but two business entities contract on a different level. Fair Market Value Compensation (42 C.F.R (l)) To meet the Fair Market Value Compensation exception is somewhat of a fall back exception since it is utilized when an arrangement cannot easily fit it another exception. To meet this exception, the agreement must have the following elements: (i) specify the services in writing and be signed by the parties, (ii) specify the timeframe for the arrangement provided that if the agreement is terminated within the first year then another agreement for the same services cannot be entered into, (iii) set out compensation in advance at fair market value, (iv) be commercially reasonable while furthering the legitimate business interests of the parties, (v) not violate the Anti-Kickback Statute, and (vi) not include services that involving counseling to break another law. The fair market value compensation exception is utilized when an arrangement does not necessarily fit into another exception. The purpose of the exception is to be a bit of catch-all exception. However, it cannot be utilized if a proposed arrangement can satisfy another exception, such as the personal service arrangements exception. Risk-sharing Arrangements (42 C.F.R (n)) The Risk-sharing Arrangements exception is being utilized with increasing frequency, especially in alternative payment based relationships. The exception covers compensation pursuant to a risk-sharing arrangement between a managed care organization or an independent physician association and a physician or a subcontractor. The basic premise of the exception is that in a risk-sharing arrangement, the total compensation is known in advance, which reduces the concern of driving referrals to increase business because more business will not be billed to a government healthcare program. pg. 2

3 The Anti-Kickback Statute The federal Anti-Kickback Statute ("AKS") makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration (either directly or indirectly) in return for referring an individual for the furnishing of an item or service that is reimbursable (in whole or in part) under a federal health care program; or, in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any item or service that is reimbursable (in whole or in part) under a federal health care program (Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. No , 14a, 101 Stat. 680, codified at 42 U.S.C. 1320a-7b(b)). Specifically, the AKS provides that: Whoever knowingly and willfully offers or pays [or solicits or receives] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to (or from) any person to induce such person to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony. A "federal health care program" is any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the Federal Employee Health Benefits Plan ) or any State health care program. Remuneration includes the transfer of anything of value and thus could include any of the wide variety of payments that manufacturers make to health care professions. For instance, discounts, rebates, speaking fees, grants, gifts and free items or services all can qualify as remuneration under the AKS. The AKS will be violated so long as one purpose of an arrangement is to induce referrals. However, parties can insulate a relationship by satisfying the elements of a safe harbor. The safe harbors are carve-outs from the general prohibition of the AKS. Satisfying every element of a safe harbor means that the relationship does not result in prohibited remuneration. While fully satisfying a safe harbor is the best means of determining that a relationship is safe, from a practical perspective it is also possible to not fulfill every element and still have a safe relationship. This is possible because, as noted above, the AKS is an intent based statute. For alternative payment methodology relationships between providers, the following safe harbors may be considered: Personal Services and Management Contracts (42 C.F.R (d)) To meet the Personal Services and Management Contracts safe harbor, the agreement must meet the following elements: (i) the agreement is in writing and signed by the parties, (ii) all services to be provided are covered by the agreement, (iii) if services will be provided less than full-time, then the schedule for delivery is set out, (iv) the term is at least one year, (v) compensation is set in advance at fair market value, (vi) the services do not include counseling to pg. 3

4 break another law, and (vii) the services are reasonably necessary to accomplish a commercially reasonable purpose. Discounts (42 C.F.R (h)) The Discounts safe harbor generally requires the nature of the discount to be set out in advance, to be documented when it is earned, and the actual discount reported to the government. The exact requirements depend upon the nature of the parties. While the Discounts safe harbor may be considered in connection with an alternative payment based arrangement, it would likely be difficult to satisfy the requirements of the safe harbor. Price Reductions offered by contractors with substantial financial risk to managed care organizations (42 C.F.R (u)) The Price Reductions safe harbor protects relationships between a managed care plan and the first tier contractor and then between the first tier contractor and downstream contractors. In the first instance, an agreement between a managed care plan and the first tier contractor must meet the following elements: (i) be in writing and signed by the parties, (ii) specify the items and services covered by the agreement, (iii) have a term of at least one year, (iv) require participation in a quality assurance program, and (v) specify a methodology for determining payment that is both commercially reasonable and for fair market value. Further, the first tier contractor must have substantial financial risk. For purposes of the safe harbor, substantial financial risk can be established through one of four payment methodologies: (1) periodic fixed payment, (2) percentage of premium, (3) inpatient federal health care program diagnostic-related groups, or (4) bonus and withhold agreements. If the first level meets the safe harbor, then an agreement between the first tier contractor and a downstream contractor must satisfy the following elements: (i) both parties are paid in accordance in accordance with one of the substantial financial risk methodologies, (ii) if payment is made by a federal health care program it is done in accordance with the safe harbor, and (iii) when setting the terms of the agreement (a) neither party gives or receives remuneration to induce referrals and (b) neither party shifts the financial burden of the agreement so that increased payments are claimed from a federal health care program. If you or your organization is considering entering into any type of provider to provider contracting arrangement, we strongly encourage you to consult legal counsel before doing so. U.S. provider contracting laws are complex and varied; it is in the best interest of all involved to ensure that your agreement meets both your personal interest and the requirements of the law. Disclaimer: This document is not intended to provide legal advice and is designed for informational purposes only. For a specific assessment of particular circumstances, a lawyer should be consulted. pg. 4

5 About the Author Matthew Fisher is a Partner with the law firm of Mirick O Connell in Worcester, MA. He is the chair of the firm s Health Law Group and a member of the firm s Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt s health law practice includes advising clients on complying with requirements of HIPAA, the Stark Law, the Anti- Kickback Statute, and other regulations in the context of daily operations, contractual arrangements, and relationships. Matt is also a member of the HIMSS Alternative Payment Model Infrastructure task force. pg. 5