Healthcare Referral SourcesLegal Issues &

Policy Recommendations

Health Care

Compliance Association

Compliance Institute

Anne M. HauleNew Orleans, Louisiana

September 27, 2000

What is a Healthcare Referral Source?

Person or entity that refers patients to providers or suppliers for healthcare services

Who is a Referral Source to a Hospital?

Physicians Podiatrists Oral Surgeons Nursing Homes Ambulance Companies

Psychologists Physical Therapists Police Mental Health Agencies

To Whom is the Hospital a Referral Source?

Nursing Home Home Health Agency Clinical Laboratory Hospice Durable Medical Equipment Company Hospital-Based Physicians (Radiology,

Pathology, Anesthesiology)

Why are There Laws Regarding Healthcare Referral Source Relationships?

To protect public health– Overutilization– Underutilization– Inappropriate provider/supplier

To decrease cost of care To promote patient choice To promote competition

What Laws Govern Healthcare Referral Source Relationships?

Anti-Kickback Statute (Fraud & Abuse) Self-Referral Statute (Stark II) State Healthcare Self-Referral Acts IRS Intermediate Sanctions

What is the Anti-Kickback Statute?

Federal Criminal Law Criminal Penalties against any individual or

entity that:Knowingly and willingly offers or 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—

(continued)

What is the Anti-Kickback Statute?(continued)

(a) to refer an individual to a person for the furnishing or arranging for the furnishing of any item of service for which payment may be made in whole or in part under [Medicare, Medicaid or other federal health care program], or

(b) to purchase, lease, order or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under [Medicare or a state health care program]

Anti-Kickback

Applies to Medicare, Medicaid, and other Federal Program Payors

Applies to both sides of a transaction (i.e. Physician and Hospital)

Anti-Kickback

Penalties include prison, fines and exclusion from Medicare/Medicaid

Standard of Proof– Beyond a reasonable doubt– Knowing and Willful Violation– Circumstantial Evidence of Intent

Anti-Kickback

Safe Harbors:– Limited Investment Interests

– Space Rental– Equipment Rental– Personal Services and

Management Contracts– Sale of a Practice– Referral Services

– Warrants– Discounts– Employees– Group Purchasing

Organizations– Waiver of Co-Pays

and Deductibles– Managed Care

Anti-Kickback

Safe Harbors:– Investment in

Underserved Areas– Sales of Physician

Practices– Practitioner Recruitment– OB Malpractice

Insurance Subsidies

– Investments in Group Practice– Cooperative Hospital Service

Organization– Ambulatory Surgical Center– Referral Agreements for

Specialty Services

Anti-Kickback

Fraud Alerts Regarding Referral Source Arrangements– Hospital Incentives to Referring Physicians– Medical Services to Nursing Homes– Arrangements for the Provision of Clinical Lab Services– Nursing Home Arrangements with Hospices– Home Health Fraud– Joint Venture Relationships– Routine Waiver of Part B Co-Payments/Deductibles

Anti-Kickback

Advisory Opinion Process:– OIG (Fraud & Abuse) Opinions--6 in 1997,

18 in 1998, 14 in 1999, 5 in 2000 (as of July)– HCFA (Stark) Opinions--2

Anti-Kickback

Compliance Guidance– Physician Practices (Draft)– Nursing Facilities– Hospices– Medicare + Choice Organizations– Third Party Billing Companies– DME– Home Health– Clinical Labs– Hospitals

Anti-Kickback

Fraud Alert on Hospital Incentives to Physicians– Payment of any sort of incentive by the

hospital each time a physician refers a patient to the hospital

– The use of free or significantly discounted office space or equipment (in facilities usually located close to the hospital)

Anti-Kickback

– Provision of free or significantly discounted billing, nursing, or other staff services

– Free training for a physician’s office staff in areas such as management techniques, CPT coding, and laboratory techniques

– Guarantees which provide that, if the physician’s income fails to reach a predetermined level, the hospital will supplement the remainder up to a certain amount

Anti-Kickback

– Low-interest or interest-free loans, or loans which may be “forgiven” if a physician refers patients (or some number of patients) to the hospital

– Payment of the cost of a physician’s travel and expenses for conferences

– Payment for a physician’s continuing education courses

Anti-Kickback

– Coverage on hospital’s group health insurance plans at an inappropriately low cost to the physician

– Payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, or payment for services in excess of the fair market value of services rendered

The Self-Referral Statute (Stark II)

Federal Civil Law (January 1, 1995) Applies to Physicians and their Financial

Relationship with Referral Sources Prohibits Referrals between Physicians and

Entities with which they have Financial Relationships

Prohibits Billing if Prohibited Referral Sanctions Include Repayment, Fines,

Exclusion

Stark II

Covers 11 Designated Health Services:

– Clinical Laboratory Services– Physical Therapy Services– Occupational Therapy– Radiology Services (MRI, CT, US)– Radiation Therapy Services– Durable Medical Equipment

Stark II

– Parental/Enteral Nutrients, Equipment, Supplies– Prosthetics, Orthotics, and Devices– Home Health Services– Outpatient Prescription Drugs– Inpatient and Outpatient Hospital Services

Stark II

Exceptions to Stark:– Unrelated to Designated Health Services– Rural Facility Treating Rural Residents– Isolated Financial Transactions (one time sale)– Group Practice– In-Office Ancillary Services

Stark II

Exceptions to Stark (continued):– Capitated Health Plans– Investments in Publicly Traded Companies– Office and Equipment Rental

FMV Rent Term/Minimum One Year Written Agreement Unrelated to Referrals

– Bona Fide Employment

Stark II

Exceptions to Stark (continued):– Personal Services Arrangements

Written Agreement Specifies Services Term/Minimum One Year FMV Compensation Commercially Reasonable Terms

– Managed Care– Physician Recruitment

Relocation to community Not Tied to Referrals

What Are Intermediate Sanctions?

Federal Tax Law Imposes penalty excise taxes on (i)

disqualified persons (e.g., physicians on a hospital’s medical staff) who receive “excess benefits from tax-exempt organizations (e.g., many hospitals) and (ii) the organization’s managers and board members who participate in such transactions know then to provide excess benefits

What Are Intermediate Sanctions?

Applies to physicians and the officers and directors of a tax-exempt organization, in connection with certain transactions between physicians and organizations

Intermediate Sanctions

Initial penalties include a tax equal to 25% of excess benefit received on each physician, and a tax equal to 10% of the excess benefit conferred (up to $10,000) on each organization manager knowingly involved in setting up excess benefit

Secondary penalties (once the IRS has provided notice of initial penalty) include a tax equal to 200% of the excess benefit on physicians

Intermediate Sanctions

IRS Requirements– Good business judgment, shown through

internal documentation (e.g., time records for medical directors)

– Documentation focusing on fair market value, reasonableness standards, and arm’s length concepts

Problematic Scenarios

Variable Payments No Contract No Lease No Time Records Services Not Necessary Services Not Performed Past Due Rent Loans/Interest/

Repayment

Freebies to Referral Sources

Lavish Entertainment Numerous arrangements Cross-Town Recruitment Solicitation

Policy Recommendations

Conduct a Comprehensive Legal Audit – Importance of Attorney-Client Privilege– Target all referral source relationships– Review all arrangements involving:

Physician Recruitment Professional Services

Agreements Leases Practice Acquisitions Practice Management

Management Services Agreements

Loans Entertainment Gifts IPA, PHO, MSO

Policy Recommendations (continued)

Publish Rules Governing:– Physician Recruitment– Professional Services Agreements– Leases– Practice Acquisitions– Practice Management– Management Services Agreements– Loans– Entertainment– Gifts– IPA, PHO, MSO arrangements

Policy Recommendations (continued)

Establish Uniform Contracting Process for ALL Referral Source Arrangements– Limit Contracting Authority to CEO– Require CEO to Sign Certification– Use Standard Contract Forms– CFO to Control Payments– No Payments without Contract and Time

Records

Policy Recommendations (continued)

All Arrangements with Referral Sources to be Reviewed by Compliance Officer/Legal Counsel

Central Contract Repository Audit Discipline