United States: Physicians Face Increased Anti-Kickback Enforcement Focus

It appears that the Office of Inspector General ("OIG") now has physicians squarely in the crosshairs of one of its most powerful enforcement tools: the Anti-Kickback Statute ("AKS").

The AKS is a criminal statute with stiff penalties. It prohibits the offer or payment of anything of value with the intent to induce the referral of federal health care program business, including specifically Medicare and Medicaid. Physicians, in particular, should be aware that the AKS also prohibits the solicitation or receipt of anything of value in return for federal health care program referrals.

The AKS has broad application to all types of arrangements involving physicians. One reason for this is that, under the statute, the term referral doesn't have the traditional medical practice meaning (i.e., sending a patient to a specialist or sub-specialist for a second opinion or management of a specific problem). It has perhaps the broadest conceivable meaning that includes traditional referrals but also recommending, purchasing, leasing, ordering or arranging for any good, facility, service or item for which payment may be made in whole or in part by a federal health care program. All things physicians do on a daily basis on their patients' behalf.

The AKS is not new. In fact, it has been the basis for many of the headline-grabbing health care fraud settlements over the last decade. There are plenty of examples just in 2014:

  • Pharmaceutical company Sanofi paid $109 Million to settle allegations it provided free units of a knee injection drug to induce physicians to purchase and prescribe the product;
  • Amedysis Home Health and Hospice paid $150 Million to resolve a case focused on purportedly improper financial relationships with referring physicians;
  • Saint Joseph Health System (London, KY) paid $16.5 Million to settle False Claims Act case that that included allegations of sham management agreements with physicians.

As a general rule, though, health fraud enforcers and whistleblowers have targeted one side of the equation, i.e., the pharmaceutical companies, device manufacturers, hospitals, clinical laboratories and other providers who have made payments to physicians intending to induce referrals of Medicare and Medicaid business. However, in recent years, there have been signs that trend is coming to an end. And a recent warning issued by the OIG left no room for question.

OIG Fraud Alert Confirms Focus on Physician AKS Compliance

On June 9, 2015, the OIG issued Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability. The Fraud Alert urges physicians to carefully consider the terms and conditions of medical directorships and other compensation because "if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business," a compensation arrangement may violate the AKS. The Alert then highlights recent settlements involving AKS allegations against 12 individual physicians who the OIG asserts entered into improper medical director agreements. According to the Alert, the arrangements included improper remuneration because (1) payments took into account the value or volume of referrals; (2) payments did not reflect the fair market value for services to be performed; (3) the physicians did not actually provide the services required by the agreement; and (4) in some cases, provisions of the agreement relieved the physicians of financial burdens by paying the salaries of the physicians' front office staff.

The OIG likely is referencing a series of settlements with individual physicians that followed the False Claims Act settlement involving Fairmont Diagnostic Center and Open MRI Inc ("Fairmont") in Houston. In 2012, Fairmont entered a settlement agreement with the Department of Justice to resolve a False Claims Act case initiated by two physician whistleblowers. Fairmont and owner Jack Baker, a radiologist, agreed to pay $650,000 and Baker agreed to a six-year exclusion from participation in federal health care programs. A year after Fairmont settled, the OIG entered into the first of 12 settlements with physicians who held medical directorships with Fairmont. Those individual settlements resolved AKS allegations pursued by the OIG under the Civil Monetary Penalties Law and included penalties ranging from $50,000 to $195,000. One physician agreed to be excluded. Descriptions of these settlements and several others involving AKS allegations lodged against physicians are available here.

Identifying "Never Statements" for Negotiating Compensation

The increased enforcement focus should cause physicians to carefully consider their negotiating tactics with respect to compensation arrangements, as the record of negotiation (frequently in the form of email exchanges) can be used to show evidence of intent. Most physicians are familiar with the concept of "Never Events" or medical errors that should never occur. In the context of negotiating compensation, rental payments, investment interests, purchase agreements or other financial arrangements, it would be wise to also think about "Never Statements" or things that should never be uttered. Some examples include:

  • "You should pay me more because you can't succeed in this market without my referrals."
  • "I'm the most productive doctor on the medical staff, and I deserve to be compensated for that."
  • "I generate a lot of revenue for your company. Let's just call it a success fee."
  • "I'm one of your best customers; I'm sure you want to keep me happy."
  • "Don't talk to me about fair market value; it doesn't apply to me."

These types of statements might be perfectly normal, appropriate and often effective negotiating tactics in other industry sectors. In healthcare, these are the kind of negotiating tactics the government investigators will comb through emails to find. They are the kind of statements that will land physicians across the table from the OIG trying to avoid hefty civil monetary penalties, exclusion or, in extreme cases, criminal penalties. And, particularly given the government's increased enforcement focus, physicians should banish these kind of statements (and thinking) from their negotiation toolbox.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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