Anti-Kickback Law in Healthcare - a comprehensive look - The Fox Group (2023)

The U.S. Federal Anti-Kickback Statute (AKS) is the governing law that prohibits any person or entity from knowingly and willfully offering, paying, or soliciting any type of remuneration for referrals. Specifically, this means for any services provided and reimbursable under any federally-funded government program, such as Medicare and Medicaid. Violations of this law can result in substantial fines, felony conviction and imprisonment, and exclusion from federally funded programs.

In this Article …

  • Why is there an Anti-Kickback Law in Healthcare?
  • What is a Referral Under the Anti-Kickback Law?
  • What are the Exceptions to the Anti-Kickback Law?
  • Why are there Safe Harbors?
  • Guidelines from the Office of Inspector General (OIG)
  • Examples of Unlawful Kickbacks and Financial Arrangements Under the Anti-Kickback Statute
  • Anti-Kickback Prohibition on Referrals and Recommendations
  • What are Examples of Conduct that Falls Under Safe harbor Guidelines?
  • Anti-Kickback Law Criminal Penalties
  • False Claims Act Liability
  • Civil Monetary Penalties Law
  • How can You Protect Yourself from Anti-Kickback Statute Liability?

Why is there an Anti-Kickback Law in Healthcare?

The Federal Anti-Kickback Statute was originally passed in 1972. It aims to protect patients and federal health care programs, including Medicare and Medicaid, from fraud and abuse. This can occur due to influences of monetary or other compensation to healthcare providers that would in turn influence their decisions about medical services that are billed to Federal programs.

The Social Security Amendments of 1972 contained the original anti-kickback laws. They were amended in 1977 to include the Medicare-Medicaid anti-kickback legislation. In 1987, the Medicare and Medicaid Patient and Program Protection Act was passed. In 1991, the final Safe Harbor regulations were published. These laws and regulations collectively form the “anti-kickback laws.”

What is a Referral Under the Anti-Kickback Law?

The Anti Kickback Law applies to whoever knowingly and willfully offers and pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to 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 Medicare or a State healthcare program, or
  • to purchase, lease, order, or arrange for—or recommend purchasing, leasing, or ordering—any good, facility, service or item of service for which payment may be made in whole or in part under Medicare or a State healthcare program

What are the Exceptions to the Anti-Kickback Law?

Although the law is very broad, it does include exceptions that allow some flexibility for actions that otherwise would violate the law. These exceptions are called safe harbors. Safe harbors allow arrangements that can benefit organizations, programs, and patients, while still staying within the limits of the anti-kickback laws.

The 1991 Safe Harbor Rules provide guidelines for actions that normally might constitute a violation of the anti-kickback laws, but which under these specific guidelines, do not. Some examples of exceptions that fall within safe harbor rules are:

  • managed care arrangements,
  • investments in publicly-traded companies,
  • investments in small healthcare joint ventures,
  • space and equipment rental,
  • personal services,
  • sales of retiring physicians’ practices to other physicians, and
  • group purchasing arrangements.

Also, a managed care organization that offers discounts to enrollees for the care provided to and for them, and follows all the guidelines specified in the safe harbor rules, would not be in violation of anti-kickback laws.

Why are there Safe Harbors?

The rationale for safe harbor rules is that arrangements under these exceptions are not expected to result in increased use of services, and subsequent costs to a state and/or federal health care program, for services to beneficiaries. Newer safe harbor rules address needs in medically under-served areas. These new rules provide the ability for entities to:

  • provide incentives for the purpose of recruiting physicians in under-served areas,
  • make investments in group practices and referral arrangements for specialty services,
  • enter into cooperative hospital arrangements, and
  • make other arrangements that help to provide medical services in under-served areas.

These arrangements must follow the guidelines or the participants will not be protected by the safe harbor rules from violations of the anti-kickback laws.

Guidelines from the Office of Inspector General (OIG)

The Office of Inspector General has developed compliance program guidance documents, available on its website, that are directed at various portions of the healthcare industry. This guidance is designed to encourage organizations to monitor and adhere to applicable regulations and requirements.

Within these guidelines are specific and informative suggestions on how to ensure that organizations adhere to anti-kickback laws. In addition, the OIG develops and publicizes fraud alerts that specifically address certain trends in the healthcare industry. There have been 17 special fraud alerts since 1988 that have addressed special practices by the medical community. There were alerts regarding:

  • joint venture arrangements,
  • routine waivers of Medicare Part B co-payments and deductibles,
  • hospital incentives to referring physicians,
  • prescription drug marketing practices,
  • arrangements for the provision of clinical laboratory services,
  • telehealth services,
  • telemarketing of DME services, and
  • services in nursing homes.

The OIG also distributes fact sheets that describe specific arrangements between organizations. Any corporation or organization that provides services and/or bills any federal or state program should make sure its organization and employees are aware of the applicable laws and regulations. Such organizations should have a compliance program that outlines their own guidelines for compliance with all applicable regulations.

A recent case regarding anti-kickback regulations was considered in the U.S. Court of Appeals. It addressed the “one purpose” test. The Court ruled that if only one purpose of a payment to a physician was to induce future referrals, then that payment was a violation of the Anti Kickback Laws. The “one purpose” rule serves as an excellent guideline for organizations and individuals when considering marketing and sales activities with respect to physicians and hospitals.

Examples of Unlawful Kickbacks and Financial Arrangements Under the Anti-Kickback Statute

There are many instances of conduct that violates anti-kickback laws. Among the most frequent are kickbacks in the form of a beneficial or financial arrangement for the purchase or ordering of specific health services or products.

Example 1A sales representative from a medical supply company offers dinner to a hospital purchasing agent, and even perhaps to their family. This action is not only a violation by the sales representative, but could also be considered a violation by the medical supply company as that representative’s employer – and by the hospital purchasing agent who accepts the perk.
Example 2A company making prosthetic joint replacements gives surgeons who use their products tickets and transportation to the Super Bowl. The surgeons may be more likely to use the products, due to the organization’s “generosity”. The company and the surgeons are in violation of the anti-kickback laws.
Example 3A representative of a medical device manufacturer arranges and pays for a vacation for a person who can influence the purchase of the device for patients. The representative, the manufacturer, and the person accepting the vacation may be in violation of anti-kickback laws.
Example 4A managed care organization offers monetary rewards to physicians to influence their patients to join the managed care organization. Both the managed care organization and the physicians may be in violation of the anti-kickback laws.
Example 5A pharmacy company pays a physician for “consulting services,” e.g., attending a dinner to give feedback on the company’s latest medication, which is being prescribed by the physician. The pharmacy company and the physician may be in violation of the anti-kickback laws.
Example 6Physicians who waive co-payments and/or deductibles for Part B Medicare beneficiaries are in violation. The only exceptions to this rule are documented hardship cases and cases in which the patient makes a good-faith promise to pay.

Anti-Kickback Prohibition onReferrals and Recommendations

The law is a major deterrent designed to prevent healthcare providers and their agents from being influenced to provide or refer healthcare services in exchange for monetary reimbursement or preferential treatment (kickbacks). Without this law, organizations might offer healthcare providers either cash or benefits in return for:

  • referring patients to the organization’s products or services,
  • prescribing the organization’s product, or
  • actually using the organizations’ products in conjunction with treatment.

The offer or acceptance of any remuneration may be in the form of a kickback, special arrangement for a benefit (including personal benefits such as meals, vacations/travel, etc.), bribe, or rebate of some type. It is important for both organizations and their agents to understand that this law has a wide application and applies to those who knowingly or unknowingly violate the rules.

What are Examples of Conduct that Falls Under Safe Harbor Guidelines?

One clear example of an activity that falls under safe harbor rules is that of a medical device company compensating a physician as a consultant when certain criteria are met. The compensation

  • has to fall within market value,
  • has to be set in advance,
  • has to be in writing, and
  • has to state the services to be provided.

A second example of safe harbor activity is investment in a large, publicly traded medical/healthcare company by a representative of a hospital or physician. A third example is when a managed care company offers reduced premium amounts to beneficiaries. The sale of a physician’s practice when they retire is another safe harbor activity. Many investments in medical organizations can fall within safe harbor regulations. In addition, there are safe harbor guidelines for inducements for recruiting physicians in medically under-served areas. Without an allowance for extra incentives, those areas may never be able to attract the physicians and organizations they need to provide care for their populations.

It is important to note that an arrangement designed to fall within a safe harbor must fit exactly in that safe harbor. For instance, consider an orthopedist who invests in a new company making implantable prostheses that the orthopedist asks a hospital to begin using for patients. If the company is not publicly traded, this could be a violation of the Anti-Kickback law.

Anti Kickback Law Criminal Penalties

Penalties for violations are fairly simple and consist of provisions written in the law. They include conviction of a felony with fines up to $25,000, or up to five years in prison, or both. Administrative civil monetary penalties may consist of fines up to $50,000 and exclusion from participating in federal healthcare programs for up to five years. Although the monetary fines can be substantial, imprisonment or exclusion from participating in federal or state healthcare programs could end a corporation or individual’s healthcare business.

The Anti-Kickback Statute & Stark Law – Key Differences + Examples

The Stark Law prohibits a financial relationship between physicians who are in a position to make patient referrals (and certain of their family members) and any one of 10 designated health services unless the arrangement meets one of the exceptions.

The Stark Law is considered a “strict liability” statute, which means the intent of the parties in entering into the arrangement doesn’t matter. What matters is that all of the requirements of the exception are met. One of the issues that tripped up many physicians and hospitals was the requirement that a written, signed agreement be in place before the commencement of payments received by the physician.

As noted above, the Anti Kickback Law applies to whoever knowingly and willfully offers and pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to any person to refer an individual for services or products that are paid for by a federal health care program.

Penalties under Stark law involve recovering payments from a federal health care program, civil monetary penalties to physicians and the designated health service, and exclusion from federal health care programs.

When a financial relationship between a designated health service and a referring physician is found to not meet an exception, federal authorities may allege that the arrangement is actually a kickback for referrals. This subjects both parties to the Anti-Kickback Law penalties, too. For instance, payments from designated health services to the physician may exceed the fair market value of the physician’s services. This can make the payment look like a kickback to the referring physician for the referral.

False Claims Act Liability

The U.S. False Claims Act (FCA) is a federal law, under which any entity or person who submits false or fraudulent claims for payment from government agencies can be prosecuted. The act prohibits knowingly submitting (or causing to be submitted) false claims for payment. It also prohibits making false statements that are material to a false claim.

Probably the most frequent types of fraud committed by healthcare providers are the submission of claims for services or goods not provided, and the submission of a false record or statement material to a false claim. For instance, if a physician submits claims for patient visits but he has not seen the patients at all, he has made false claims. If the organization to which the claim was submitted asks for the record of a visit and the physician falsifies and submits one, he has submitted a false claim.

It is becoming common for federal authorities to tie together violations of the Stark Law, the Federal False Claims Act, and the Anti-Kickback Statute. Each claim from a healthcare provider to a Federal healthcare program includes a statement certifying the submitter is in compliance with all applicable Medicare or Medicaid laws and regulations, including the Stark Law. If the financial arrangement between the designated health service and the referring physician exceeds the fair market value of the physician services, the compensation may be considered a kickback to the physician. The claim may also be considered a false claim since the arrangement was defective.

Civil Monetary Penalties Law

Federal authorities may seek civil monetary penalties and sometimes exclusion for a wide variety of conduct. They can seek different amounts of penalties and assessments based on the type of violation at issue. Penalties range from $10,000 to $50,000 per violation. Some examples of CMPL violations include:

  • presenting a claim that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;
  • presenting a claim that the person knows or should know is for an item or service for which payment may not be made; and
  • violating the Anti-Kickback Statute.

How can You Protect Yourself from Anti Kickback Statute Liability?

First and foremost, keep in mind the patient comes before profits. Second, know the regulations, and keep up with changing rules. Third, check laws or regulations if you believe that something you or your organization is doing may be in a “gray” area or may even be in violation of a regulation. Fourth, make sure every person you work with in your organization is educated about the regulations. Lastly, if you are in doubt, avoid a costly mistake by changing your practice to make sure it adheres to all regulations.

One of the most important steps any organization needs to take when examining whether its conduct falls under the AKS safe harbor rules is to seek legal advice or request an advisory opinion from the OIG. If you seek advice from the OIG, understand that you must identify and divulge all parties and documents associated with the arrangement. The situation may be simple; perhaps one of the sales personnel plays golf with a physician who is instrumental in choosing a device that a hospital will be ordering. Is paying for a golf game a violation of regulations and Anti-Kickback laws? Is it something that could at least be construed as a potential violation? When in doubt, check with a supervisor or an outside expert to identify safe harbors and avoid the risk of violating federal government regulations.

Progressive organizations develop guidelines and educate their employees about federal anti-kickback laws, and monitor compliance with their programs. If there is a question about an activity falling within the guidelines, expert advice should be solicited. In short, always evaluate and determine if your actions could be construed to be a violation of the federal anti-kickback statute.

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Jim Hook, MPH

Mr. James D. Hook has over 30 years of healthcare executive management and consulting experience in medical groups, hospitals, IPA’s, MSO’s, and other healthcare organizations.

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