Protect Yourself from Anti-Kickback Penalties

What Physicians Don’t Know About Their Agreements Could Hurt Them

Nearly 45 years after the enactment of the federal Anti-Kickback Statute, it is still not uncommon to hear of physicians facing bribery allegations, large settlement amounts, and even jail time for breaking the statute’s anti-fraud measures. While evolving case law has certainly added to the complexities and prevalence of the statute’s enforcement over the years, this article discusses simple steps physicians can take to safeguard themselves and their agreements when entering service relationships in which one or both parties receive reimbursement from federal healthcare programs.

[su_pullquote align=”right”]Resources:

Healthcare Fraud and Abuse— Navigating the Uh-Oh! Issues Facing Healthcare Companies

Developments in the Review of Physician/Hospital Arrangements Under the Anti-Kickback Statute and Stark Laws

Fraud and Abuse Primer: Anti-Kickback Statute and Stark Act

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Nearly 45 years after the enactment of the federal Anti-Kickback Statute, it is still not uncommon to hear of physicians facing bribery allegations, large settlement amounts, and even jail time for breaking the statute’s anti-fraud measures.

However, not all of these violations involve physician greed or deliberate fraud.  Many of them were caused by inadvertent breaches of the statute that could happen to any physician or practice.  Simple oversights in contracts, such as inaccurate calculations and missing support documentation, can be enough to find a physician guilty of bribery under the federal Anti-Kickback Statute.

While evolving case law has certainly added to the complexities and prevalence of the statute’s enforcement over the years, there are simple steps physicians can take to safeguard themselves and their agreements when entering service relationships in which one or both parties receive reimbursement from federal healthcare programs.

Exceptions to the Statute

First, it is important to understand what is prohibited and what is allowed under the federal Anti-Kickback Statute.  This law prohibits the knowing and willful payment of “remuneration” (of cash or non-cash value) to induce or reward patient referrals or the generation of business involving Medicare, Medicaid, or other federal healthcare programs.

Section 1001.952 of the statute lists all allowable exceptions to the federal Anti-Kickback Statute and specifically addresses the essential components of three types of agreements commonly entered into by physicians:[1]

• Space Rental—“Remuneration” does not include any payment made by a lessee to a lessor for the use of premises, if all of the following six standards are met:

1. The lease agreement is set out in writing and signed by the parties.
2. The lease covers all of the premises leased between the parties for the term of the lease and specifies the premises covered by the lease.
3. If the lease is intended to provide the lessee with access to the premises for periodic intervals of time, rather than on a full-time basis for the term of the lease, the lease specifies exactly the schedule of such intervals, their precise length, and the exact rent for such intervals.
4. The term of the lease is for not less than one year.
5. The aggregate rental charge 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 for which payment may be made in whole or in part under Medicare, Medicaid, or other federal healthcare programs.
6. The aggregate space rented does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental.

Note that for purposes of this section, the term “fair market value” means the value of the rental property for general commercial purposes, but shall not be adjusted to reflect the additional value that one party (either the prospective lessee or lessor) would attribute to the property as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare, Medicaid, and all other Federal healthcare programs. 

• Equipment Rental—“Remuneration” does not include any payment made by a lessee to the lessor for use of equipment, if all the following six standards are met:

1. The lease agreement is set out in writing and signed by the parties.
2. The lease covers all the equipment leased between the parties for the term of the lease and specifies the equipment covered by the lease.
3. If the lease is intended to provide the lessee with use of the equipment for periodic intervals of time, rather than on a full-time basis for the term of the lease, the lease specifies exactly the schedule of such intervals, their precise length, and the exact rent for such interval.
4. The term of the lease is for not less than one year.
5. The aggregate rental charge is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in a manner that considers the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid, or other federal healthcare programs.
6. The aggregate equipment rental does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental.

Note that for purposes of this section, the term “fair market value” means the value of the equipment when obtained from a manufacturer or professional distributor, but shall not be adjusted to reflect the additional value that one party (either the prospective lessee or lessor) would attribute to the equipment as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare, Medicaid, and all other Federal healthcare programs. 

• Personal Services and Management Contracts—“Remuneration” does not include any payment made by a principal to an agent as compensation for the services of the agent, if all the following seven standards are met:

1. The agency agreement is set out in writing and signed by the parties.
2. The agency agreement covers all the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent.
3. If the agency 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.
4. The term of the agreement is for not less than one year.
5. The aggregate compensation paid to the agent 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 considers the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid, or other federal healthcare programs.
6. 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.
7. The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

For purposes of this section, an agent of a principal is any person, other than a bona fide employee of the principal, who has an agreement to perform services for, or on behalf of, the principal.

Protect Yourself

I decided to write this article after personally witnessing a physician found guilty of bribery, partially due to the inadequacies of his agreements and their lack of key factors and support.  I have also seen rental and service agreements prepared by a healthcare attorney that did not hold up in a court of law.  In one case, the lawyer was found not accountable for deficiencies in his prepared draft agreements because he did not prepare the final agreements.  The physician who signed the agreements and received the payments was found guilty of bribery.

It is imperative for physicians to protect themselves with near-perfect agreements by following a few important steps:

• Ensure that critical components of all applicable exceptions are included in the agreement (as outlined above).
• Consult with a healthcare attorney to determine if the exception components are adequate. (The greater the specificity of details provided in the agreement, the greater level of protection provided to the physician.)
• Ensure that payment figures included in any agreement are reflective of fair market value. (A business appraiser experienced in healthcare business valuations can assist with calculating and supporting fair market value opinions.)
• Maintain a file to support the fair market value calculations, to include workpapers, calculations, and discussion notes that reflect intervals of time, usage to be included, etc.
• Be wary of any agreements, whether oral or written, that include payments to be received or paid from other providers where there is the possibility of referral of services that are reimbursed, even at a modest level, by the federal government through Medicare and Medicaid payments.

Consequences of Breaking the Statute

Criminal penalties and administrative sanctions for violating the federal Anti-Kickback Statute include fines, jail terms, and exclusion from participation in the federal healthcare programs.  Under the Civil Monetary Penalty Law, physicians who pay or accept kickbacks also face penalties of up to $50,000 per violation, plus three times the amount of the remuneration.

Physicians work extremely hard to achieve their medical degrees and licensure, and to develop and grow their practices.  It is certainly not worth jeopardizing it all, and potentially serving prison time, over shortcomings in rental, equipment, or service agreements.  Given the government’s steadfast vigilance to uncover whatever overpayments and bribes they can, it is best to consider these consequences and protect yourself with ironclad agreements, long before signing on the dotted line.

[1] Source: Federal Register/Vol. 81, No. 235/Wednesday, Dec. 7, 2016/Rules and Regulations.

Monica Kaden, MBA, ASA, CHFP is a Director in the Financial Advisory Services group at Marks Paneth LLP. She specializes in the valuation of healthcare entities, including professional practices and ambulatory surgery centers, and assists clients in litigation matters and settlement negotiations with her expert valuation opinions and testimony.
Ms. Kaden can be reached at (973) 630-5035 or by e-mail to mkaden@markspaneth.com.