Anti-Kickback Statute and Stark Law Settlements Worth Millions

The US Department of Justice recently announced several multi-million-dollar settlements against healthcare providers for violations of the federal AKS (Anti-Kickback Statute) and Stark Law self-referrals laws. Violations of each of these laws— Anti-Kickback Statute and Stark–generally also means that the healthcare violator can also be charged under the federal False Claims Act. These sets of laws are designed to regulate the financial relationship between health care practices, doctors, hospitals, vendors, and other health care companies.

The best course of action for every medical practice is to review the medical practice’s compliance issues with a skilled California healthcare attorney. There are precise rules for how doctors and health care providers can and cannot create financial relationships with other medical practices.

In a nutshell, Stark Law provides that medical practices cannot refer patients to a designated medical facility if the doctor or a family member has a financial interest in that medical facility. The Anti-Kickback Statute provides that physicians cannot offer or accept financial remuneration or benefits in return to for referring patients or accepting patients.

Claims to Medicare and Medicaid, under the Anti-Kickback Statute and Stark law, are considered “false claims” for False Claims Act (“FCA”) purposes. The False Claims Act also applies to other federal agencies. The False Claims Act (FCA) statutes generally apply to all payments that are made by Medicare and Medicaid for services that were performed due to the improper financial relationship – and to other transactions such as false billing.

The Anti-Kickback Statute applies to offering, soliciting, paying, or receiving remuneration to induce referrals for services that are coved by Medicare, Medicaid, and other federally funded programs such as TRICARE. The Stark Law generally applied to services based on improper referrals that are billed to just Medicare and Medicaid. Generally, the Department of Justice concern is that patients should be referred to healthcare providers based solely on what is in the best interests of the patient – and not any financial incentives for the doctor suggesting the referral.

The Anti-Kickback Statute does provide a safe harbor if certain conditions are met. There are arrangements that may be protected if the arrangements are placed in writing, the value of any transactions is based on fair market value, and the transactions/arrangements meet one of the definitions provided in Stark Law or the Anti-Kickback Statute.

Common Stark Law exceptions include arrangements for:

• Physician services
• In-office ancillary services
• Services Furnished by an Organization to Enrollees
• Rental of office space
• Equipment rental
• Personal service arrangements
• Physician recruitment
• Certain arrangements with hospitals
• Other exceptions

There are similar but not identical Anti-Kickback Statute safe harbor protections.

The following cases are recent examples of what kinds of referrals and schemes the US Department of Justice will pursue against healthcare providers. While many cases do settle, most are based on serious allegations by the US DOJ or by a whistleblower.

$46 million physician self-referral settlement

Sutter Health and several cardiologists agree to settle Stark Law violation allegations for more than $46 million.

On November 15, 2019 the US DOJ announced that Sutter Health (Sutter) and Sacramento Cardiovascular Surgeons Medical Group Inc. (Sac Cardio) had agreed to settle allegations that the medical practice had violated Stark Law. Both health providers are based in California. Sac Cardio is a three-person cardiovascular surgeon practice. Sutter agreed to pay $30.5 million to resolve charges Sutter’s compensation agreement with Sac Cardio was an “improper financial relationship.” The heart surgeon practice agreed to pay $506,000 to settle the complaints that the medial practice committed duplicative billing through one of its compensation agreements. The remaining sum, more than $15 million will be paid by Sutter for other violations of the physician self-referral provisions of Stark Law.

The settlements are based on a claim by a whistleblower who filed a “qui tam” action through the Federal False Claims Act. (California has a separate False Claims Act). In qui tam cases, the whistleblower is entitled to a percentage of any recovery. In this case, as in many whistleblower cases, the person who blows the whistleblower worked for one of the defendants.

The allegations centered around complaints by the DOJ that arrangements between Sutter and the cardiologists were improper because Sutter:

• “Paid compensation under personal services arrangements that exceeded the fair market value of the services provided
• Leased office space at below-market rates;
• Reimbursed physician-recruitment expenses that exceeded the actual recruitment expenses at issue.”
• Involved “double billing by Sutter’s ambulatory surgical centers for claims including radiological services Medicare separately paid another entity for performing.”

Boston laboratory agrees to pay $26.7 million to settle claims the laboratory violated the AKS, Stark Law, and the FCA by offering illegal inducements to the doctors who referred patients to the laboratory.

The US DOJ announced on November 26, 2019 that Laboratory Boston Heart Diagnostics Corporation (Boston Heart), of Framingham, Massachusetts, agreed to pay the huge sum based on charges that the corporation was paid by Medicare, Medicaid, and TRICARE for services performed on patients – when the patients were referred in violation of the AKS and of Stark Law – and for other billing irregularities. The DOJ claimed that Boston Heart “conspired with others to pay doctors kickbacks disguised as investment returns.”

“From 2015 to 2017, Boston Heart allegedly agreed to provide laboratory testing services to small Texas hospitals in exchange for per-test payments. To generate more referrals for the hospitals and more money for itself, Boston Heart allegedly coordinated with the hospitals’ independent marketers, who set up companies known as management service organizations (MSOs), to make payments to referring physicians that were disguised as investment returns but were actually based on, and offered in exchange for, the physicians’ referrals.”

The DOJ allegations include assertions that Boston Health worked with the MSOs to target specific doctors to encourage the physicians to work with the MSOs. Boston Heart even participated in sales pitches to the doctors to encourage the MSO/referral arrangements. The laboratory then billed Medicare, Medicaid, and TRICARE for the laboratory tests performed.

The DOJ saw the MSO/referral arrangements as kickbacks. The DOJ announcement states that the agency seeks to enforce the Anti-Kickback Statute and Stark Law because “Paying kickbacks to doctors in exchange for referrals undermines the integrity of federal healthcare programs.” Kickbacks hurt taxpayers by driving up medical costs, wasting taxpayer money, directly affect the treatment of patients, and affects the money patients must pay for services Medicare and other billing agencies do not. Often, the DOJ says, the laboratory tests are not necessary.

Additional allegations against Boston Health included the following:

• “The settlement also resolves allegations that Boston Heart conspired with the Texas hospitals and others to submit claims for outpatient laboratory testing for patients who were not hospital outpatients, in order to receive higher reimbursements from federal healthcare programs.”
• “In addition, the settlement resolves allegations that Boston Heart directly or indirectly paid processing and handling fees, waived patient copayments and deductibles, and provided physician practices with in-office dietitians in exchange for physician referrals for laboratory testing. “

Managed Service Organizations (MSOs) are designed to help physicians and other health providers with the non-clinical, administrative part of their medical practice—and to grow the business side of healthcare.” While the core idea of an MSO is to give health providers more ability to focus on their medical practice – there is a major risk that the financial arrangements and structural arrangements may be later seen to have violated federal and state laws including Stark Law and the Anti-Kickback Statute.

In the Boston Heart case, the whistleblower was awarded nearly $4.36 million as part of the settlement.

A Laboratory and Three Principals Agree to Pay $42.6 Million to the DOJ to Settle Claims for Kickbacks and Lack of Medical Necessity

The US Department of Justice (DOJ) announced on October 9, 2019 that UTC Laboratories, Inc. (RenRX) and the companies’ three principals including a physician had agreed to paid the settlement figures to resolve “allegations that the medical providers violated the False Claims Act by paying kickbacks in exchange for laboratory referrals for pharmacogenetic testing and for furnishing and billing for tests that were not medically necessary. RenRX agreed to pay $41.6 million while the three principals agreed to pay $1 million.

RenRx, which is headquartered in New Orleans, Louisiana, also agreed that the company would be excluded from participation in any federal health care program – for 25 years. The settlement was based on civil and criminal claims brought through the Federal False Claims Act which included claims RenRx violated the Anti-Kickback Statute as well.

The allegations by the government claimed that between 2013 and 2017, UTC Laboratories, Inc. and its principal officers “offered and paid remuneration” to the doctors to induce the doctors to refer patients to the laboratory for pharmacogenetic tests. The scheme was tied into a clinical trial called “the Diagnosing Adverse Drug Reactions Registry (DART), clinical trial identifier NCT01970709.”

The renumeration is alleged to have included sales commissions. The DOJ complaint also asserted that the tests were not medically necessary even though the UTC billed Medicare for the tests. In essence the Special Agent for the Department of Health and Human Services Office of the Inspector General (HHS-OIG) asserted that the referrals were based on “the payment of cash and thinly-disguised referral bribes.” The Special Agent said that “Genetic testing scams are becoming all too common. OIG has a genetic testing fraud alert here.”

The settlement was based on six different lawsuits which were filed through the qui tam, or whistleblower, provisions of the False Claims Act. The identity of the whistleblower was not stated in the announcements. Whistleblowers, who are often employees or contractors for one of the defendants, are entitled to percentage of any recovery under the False Claims Act – if certain formalities are met. The whistleblower’s share has not been determined yet.

The DOJ cases highlight some of the many ways that physicians, laboratories, and other healthcare companies and practices may be prosecuted for violating Stark Law and the Anti-Kickback Statute. Key red flags to look out for are:

• Discounts and waiving of fees to patients
• Arrangements for unnecessary medical services
• Personal service arrangements above fair market value
• Arrangements where the services are billed at higher rates than Medicare and other agencies would expect
• Payments for services that are really bribes
• Reimbursement of expenses above fair market value

Structuring MSO arrangements requires experience and understanding of some of the Stark and Anti-Kickback Statute traps for the unwary, as federal enforcement agencies will look for disguised kickbacks beneath the arrangements.

As noted, Stark Law has numerous exceptions that, if crafted properly, can help your practice reduce the risk of non-compliance allegations. The Anti-Kickback Statute has safe harbor protocols that may also help your practice reduce the risk of warning letters and False Claims Ac charges. We work with physicians, pharmacies, laboratories, and many other health providers and health businesses to analyze and prepare for their compliance requirements.

Contact Cohen Healthcare Law Group, PC to review your medical practice or healthcare company for claims that could suggest Stark or Anti-Kickback Statute violations.