Anti-Kickback Law and Suspect Financial Agreements: FAQ


ACR Bulletin
April 1999

Legal

What is the anti-kickback law?
The federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b), prohibits individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid or any other federally funded program (except the Federal Employees Health Benefits Program). Some courts have interpreted the law to cover any arrangement in which one purpose of the remuneration is to induce or compensate for program referrals. However, one federal appellate court has ruled that to prove a violation of the anti-kickback statute, the government must prove that a defendant had a specific intent to disobey the law.

Does the law have any exceptions?
Yes. While the anti-kickback law is broad, the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services issued "safe harbor" rules in 1991, identifying specific types of activities not subject to enforcement actions under the anti-kickback statute as long as various conditions are satisfied (56 Fed. Reg. 35951 [1991], 42 C.F.R. § 1001).

The safe harbor rules cover such activities as investments in publicly traded companies, joint ventures, rentals of space or equipment, personal services agreements, sales of practice, discounts and other arrangements. The OIG has since issued a final safe harbor for managed care arrangements involving particular price reductions and enrollee incentives. Several proposed safe harbors that include exceptions for investment interests in rural areas have not yet been finalized.

Conduct that falls outside a safe harbor does not mean an individual or entity automatically has violated the law. However, compliance with the safe harbor requirements will protect a transaction from anti-kickback scrutiny by the OIG and the Justice Department. ACR members should carefully evaluate the unique facts and circumstances of each arrangement in their local jurisdictions with their practices' legal counsel.

Why does the anti-kickback statute matter to my practice?
Recent federal legislation has expanded the scope of the anti-kickback law and its penalties. Federal law enforcement agencies such as the OIG and the Justice Department regard the law as a key weapon in the anti-fraud and anti-abuse tool kit. Additionally, ACR members-both those who are hospital-based and those who are practicing in groups or clinics-face potential kickback violations in financial arrangements with other physicians, hospitals and managed care organizations.

What penalties does the anti-kickback law impose?
A violation of the anti-kickback law is a felony offense that carries criminal fines of up to $25,000 per violation, imprisonment for up to five years and exclusion from government health care programs.

The Balanced Budget Act of 1997 created an alternate sanction. The government may levy a civil fine of
up to $50,000 for each violation of the statute and an assessment of three times the amount of the kickback. Previously, the only anti-kickback enforcement tools available to the OIG and DOJ were excluding a physician from the Medicare and Medicaid programs, which is a lengthy process, or seeking conviction under the higher burden of proof required for criminal cases. The government likely will use the new "intermediate sanction" authority more aggressively in anti-kickback cases because it will be easier to impose.

What are some examples of possible kickbacks?
A hospital may demand that radiologists pay excessive transcription costs, for which the hospital is reimbursed under Medicare Part A. The radiologists either have to pay an amount that exceeds what Medicare pays for the service (e.g., fair market value) or risk losing the contract to provide radiologic services for the hospital. Although the radiologists would not be subject to anti-kickback liability if they declined to pay, the hospital would be liable because it solicited the excessive payment in return for continuing to refer to the radiologists federal program business.

Members of a hospital-based radiology department may be coerced by the hospital to become employees of a multispecialty clinic from which physicians refer patients to the hospital. Professional revenues generated at the hospital then flow to clinic physicians and serve as an inducement for them to refer patients to the hospital.
Purchased interpretations by nonradiologists obtained from radiologists for amounts significantly below the Medicare fee schedule could yield sub-fair market value payment to radiologists. The difference between the radiologists' professional component billed by a family practice and payment made to the radiology group might represent an illegal kickback.

Medical oncologists may propose to enter into a joint venture with a radiation oncology group whereby each party would have a 50 percent ownership stake in a cancer treatment center. That 50/50 ownership split would fail to meet the safe harbor's maximum limit of 40 percent ownership by physicians who refer to entities they own.

Free radiology services may be provided to other hospital-based physicians who send patients for CT scans or to hospital administration employees as part of the radiologists' exclusive contracts.

While proving a violation in such situations requires proof of intent to disobey the law, the OIG indicated in a 1991 Management Advisory Report that "if a hospital demands payment from a hospital-based physician ostensibly for services that the hospital has already received reimbursement for through the prospective payment system, the anti-kickback statute may be implicated A court may draw an inference that a direct payment from a hospital-based physician to a hospital is made for an illegal purpose if the amount of the payment cannot be justified based on the amount of services the hospital renders under the contract with the physician."

Should I try to obtain an advisory opinion from the OIG on whether an arrangement might violate the kickback law?
Perhaps. The OIG does provide advisory opinions that can assist a party in deciding whether to move forward with an arrangement. However, there are drawbacks. The OIG's opinions apply only to the requesting party's specific arrangement and cannot be used to assess the legality of any other arrangements. A requester must identify all parties to the arrangement and agree to submit all relevant documents relating to the arrangement, including contracts and leases. The requester may ask that the OIG protect proprietary information, but the OIG will not guarantee that such information will not be disclosed under a Freedom of Information Act inquiry. If an arrangement does not qualify for a safe harbor or a favorable advisory opinion, it might be scrutinized by the OIG for potential investigation and referred to the Justice Department for prosecution. We strongly recommend that any ACR member who considers seeking an advisory opinion first consult with qualified local counsel.

Could forgiving a patient's copayment represent a potential kickback problem?
Yes. The OIG has stated that routine waivers of Part B service copayments for federal program beneficiaries may violate the anti-kickback law. While the OIG has recognized an exception based on an individual's financial hardship or where a "good-faith effort" to collect copayments or deductibles has been made, it assesses those situations case-by-case. Thus, radiologists and radiation oncologists should attempt to collect a copayment or deductible unless they have proof of the patient's inability to pay.

What about extending professional courtesy to a colleague?
Many physicians provide "professional courtesy" discounts to other physicians as well as to those with whom they work or have a personal relationship (e.g., office staff, hospital employees and family members).
These discounts, which may involve the provision of services at no charge or the waiver of a patient's copayment or deductible, may raise concerns under the federal anti-kickback statute. However, there have been no reported cases in which a physician has been prosecuted for professional courtesy discounts, and it is unlikely that the government would target such discounts except in extreme cases of abuse. In many professional courtesy situations, physicians who grant courtesy already have strong relationships with the recipient.

For the government to bring an anti-kickback action against a physician based on professional courtesy, it would have to prove that one purpose of the free or discounted service was to induce the referral of federal program beneficiaries and, at least in one jurisdiction, that the parties had a specific intent to violate the anti-kickback statute. It is unlikely that the government could make such a case based solely on granting professional courtesy to fellow physicians, family members or employees of the radiologist or radiation oncologist who happen to be federal program patients. However, the government might be able to prove an anti-kickback violation if professional courtesy is offered for a highly valued service or procedure to a physician who is in a position to refer federal program patients to the radiologist or radiation oncologist, or if a radiology or radiation oncology group is required to extend professional courtesy to employees of a hospital with which the group has an exclusive contract.

Could one transaction violate both the anti-kickback law and the Stark self-referral law?
Yes. Stark II and the federal anti-kickback statute are independent laws. A physician who wishes to
refer to or receive a referral from an entity with which that physician has a financial relationship must satisfy the requirements of both laws. Compliance with one does not necessarily ensure compliance with the other. However, many anti-kickback safe harbors share common elements with certain exceptions under the Stark self-referral law. For example, to meet the safe-harbor requirements for personal services and management contracts, physicians must enter into a written contract for at least one year. The contract's aggregate compensation must reflect fair market value and not take into account the volume or value of referrals. The Stark compensation exception for personal service agreements has similar requirements, except that it does not mandate that the compensation be aggregated in advance. Because most ACR members do not refer patients to other physicians or other health care providers, they should be more concerned about receiving prohibited referrals than making them.

If my group or department is approached with a proposal that appears to involve a kickback, but we do not accept it, could we still be liable?
To violate the anti-kickback law, one must knowingly and willfully offer or pay, solicit or receive remuneration in exchange for referring a patient for an item or service payable by the government, or for ordering or arranging for ordering any such item or service.

It is extremely unlikely that merely being offered a suspect financial arrangement without making some affirmative response would put a radiologist or radiation oncologist in jeopardy. ACR members who believe that they have been approached with a potentially fraudulent arrangement should consult with an attorney experienced in health care fraud matters before responding.

Could an arrangement violate a state law also?
Yes. Many states have anti-kickback statutes, including California, Florida, Georgia, Massachusetts, New Jersey, North Carolina and Texas. As some state laws are more comprehensive than others, ACR members should consult their local counsel.

Would fee splitting be considered a kickback?
Sharing a fee with another physician or health care provider for obtaining a patient referral is one type of remuneration for referrals. States such as Illinois, New York and North Carolina make fee-splitting a separate offense from kickback acts. Violations of fee-splitting laws may subject a physician to disciplinary action by a state's licensing board, in addition to other sanctions.

How can I protect myself against anti-kickback liability?
ACR members must vigilantly review all leases and contracts they currently have or are negotiating with other physicians and with hospitals and managed care organizations. Such documents could serve as damaging evidence of intent to engage in illegal conduct.

If ACR members wish to report suspected kickback acts to federal law enforcement authorities, they may call the OIG's national toll-free hotline at (800) 447-8477.



Copyright © 1998 American College of Radiology