Fraud & Abuse (Anti-Kickback, Fee-Splitting, Stark)

In addition to federal law, many states have a “mini-Stark” statute that addresses self-referral and physician conflicts of interest, as well as their own anti-kickback and fee-splitting prohibitions. For example, in New York, Public Health Law 238-a prohibits referral of certain designated health services (DHS) to an entity (or an immediate family member) with which the practitioner has a financial relationship. Those services include: clinical laboratory services, pharmacy services, radiation therapy services, physical therapy services, or x-ray or imaging services.

Within the Administrative Rules and Regulations of the New York State Codes, Rules & Regulations, Section 34-1.5 provides that a practitioner must disclose the financial interest; and must inform the patient of their right to use a specifically identified alternative healthcare provider if reasonably available, if the referral is for one other than the DHS identified. As well, New York has a number of statutory provisions and regulations addressing fee-splitting concerns in healthcare.  Among them, New York State Education Law, Section 6509-a includes fee-splitting in the definition of “professional misconduct,” including that any person licensed in enumerated Articles: has directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity in connection with the furnishing of professional care, or service….

Section 6509-a does not prohibit physicians from practicing as partners in a PLLC or as shareholders in a PMC.

In addition, Section 6509 includes in professional misconduct, “permitting, aiding or abetting an unlicensed person to perform activities requiring a license,” and committing unprofessional conduct as defined by the rules of the Board of Regents. While the first provision primarily addresses CPM and the second, fee-splitting, the two are often raised together.

The Board of Regents also has rules that include several sections prohibiting fee-splitting between physicians and non-physicians.

In California, Business & Professions Code Section 650(a) provides:

… the offer, delivery, receipt, or acceptance by any person licensed under this division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred is unlawful.

The Medical Board of California notes on its webpage, Inducements (Kickbacks) for Patient Referrals:

Violation of the above is punishable by imprisonment, a fine of up to $50,000, or both. This law applies to referrals by physicians, dentists, nurses, and other health care professionals including chiropractors. The intent of the law is to protect the public from excessive health care costs, from referrals based on considerations other than the best interests of the patients, deceit and fraud, and payment to a licensee where professional services have not been rendered.

This basic prohibition against kickbacks and fee-splitting applies, among other things, to “any person licensed under” Division 2 (Healing Arts).

Business & Professions Code Section 652.5 provides that any violation constitutes a misdemeanor “as to any persons, whether or not licensed under this division, and is punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500), or by both the imprisonment and the fine.” Attorney General opinions in California have spoken to BPC 650 violations by those other than healthcare licensees.   California Business & Professions Code Section 650(h) provides for even larger penalties for the licensee.

There are, however, several exceptions to Stark and to state self-referral laws, and safe harbors to federal and state anti-kickback laws.  For example, the federal anti-kickback statute contains a federal safe harbor for remuneration from an entity under a personal service arrangement or management contract.

This safe harbor requires all of the following:

(1) The management agreement covers all the services the manager provides for the term of the agreement and specifies those services;

(2) The agreement is intended to provide for the services of the agent on a periodic, sporadic, or part-time basis, rather than on a full-time basis for the term of the agreement. The agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals;

(3) The term of the agreement is for at least one year;

(4) The aggregate compensation paid to the manager over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions, 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;

(5) The services performed under the agreement do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law; and

(6) The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

For a part-time contractor, the second element requires that the dates and times of the proposed services be outlined in the contract, and the exact charge for services in these blocks or chunks.

The California counterpart is much simpler.  Business & Professions Code Section 650(b) provides an allowance as follows:

The payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer.

A key consideration is to ensure that:

1. The compensation is at fair market value for the services rendered; and
2. The compensation does not vary by volume or value of patients referred

We have counseled various healthcare practices, practitioners, and companies on fraud and abuse issues.  Our advice on Stark and anti-kickback issues has been important both in ongoing healthcare ventures at various levels of business maturity, and to the healthcare startup that takes account of compliance concerns in structuring its venture at the outset.  We have provided advice on self-referral and fee-splitting issues to addiction treatment centers, chiropractors and acupuncturists, diagnostic facilities, home health agencies, medical groups, and physicians, among others.

Our healthcare lawyers will carefully analyze state law, as these prohibitions will apply even if federal law does not, where the physician or other healthcare provider does not submit claims for reimbursement by Medicare or another federally funded healthcare program.