Kickbacks

The federal antikickback law (the Fraud and Abuse Statute) prohibits anyone (entities or individuals) from soliciting or receiving, offering, or paying any remuneration to induce business for which payment may be made under a federal health care program. Remuneration may be a bribe, rebate, kickback, or any other form of inducement or reward for referrals, purchases, leases, or arrangement for goods, facilities, or services. The antikickback law is a double-pronged statute that targets both parties to the illegal agreement. In addition to the federal law, most states have antikickback statutes as well, and these laws are often more restrictive than the federal law.

The antikickback law is one of many fraud and abuse laws passed to protect the integrity and financial viability of the U.S. health care system. A free market system endorses the philosophy that unfettered competition ensures the lowest prices and the highest quality. When health care decisions are based on financial incentives, these incentives can affect utilization, competition, and patient choice. Where referrals are governed by financial[Page 318] incentives, the medical marketplace suffers, because new competitors can no longer win business with superior quality, service, or price. Therefore, health care laws prohibit kickbacks, payments, or favors given to induce referrals.

The antikickback law makes it a crime to knowingly or willfully offer or solicit, pay or receive anything of value to induce referrals. Courts have struggled in trying to define the level of knowledge required to satisfy the statute. Generally, one who acts voluntarily and intentionally will be deemed to satisfy the “knowing” requirement for the statute. In addition, when employees of an entity engage in prohibited referrals, the entity also can be found criminally liable if the employees were acting within the scope of their employment and the acts were at least partially intended to benefit the employer. Given the collective knowledge of its employees, the entity is deemed to have acted “knowingly.”

Violation of the kickback statute constitutes a felony. Penalties, which include a prison term of up to 5 years and/or a fine of up to $25,000, are assessed for each offense. Conviction also carries a mandatory exclusion from government health care programs. This means that any person or entity convicted under the statute cannot legally submit a claim for payment to government health care programs for services rendered. This exclusion extends not only to the excluded individual or entity but also to anyone doing business with that excluded provider. For instance, if an excluded provider admits a Medicare patient to the hospital, neither the hospital nor the provider will be allowed to seek Medicare reimbursement for the provision of services or supplies. This provision places a special burden on all health care entities to ensure that none of their referrals come from an excluded provider. The government maintains a list of providers that have been excluded from Medicare/Medicaid programs. In today' health care marketplace, exclusion is a virtual death knell for providers, because government-subsidized health care consumers comprise such a large part of the market.

One problem with the antikickback statute is that the broadly drafted prohibitions technically encompass many activities that are common practices in health care. Courts also have historically interpreted the antikickback statute broadly. For example, many courts have adopted the “one purpose” test in determining the legality of certain practices. Under this test, if one purpose of the business arrangement is to induce referrals the statute has been violated, regardless of other, legitimate purposes for the arrangement. For instance, if a hospital recruits physicians to its community and pays certain incentives to entice them to open or join practices in the community, is this an illegal kickback? Arguably, there would be legitimate reasons for bringing a new physician into the community, such as a shortage of physicians in that specialty. But at least one reason for offering the incentives would be the anticipation of future referrals. As a practical matter, it is fairly commonplace for hospitals to offer limited incentives to physicians to come to their community and join their medical staffs. Recruitment incentives are not generally deemed illegal kickbacks if structured properly. Certainly the incentives cannot be tied in any way to the volume of referrals or offered in exchange for a specific requirement that the physician refer to that hospital.

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