Health care fraud.

• Author: Lundqvist, Hanna
• Position: II. Statutes Addressing Medicare and Medicaid Fraud B. Medicaid Anti-Kickback Statute 4. Safe Harbor Provisions viii. Arrangements Between Providers and Health Plans through IV. Enforcement, with footnotes, p. 893-928 - Twenty-Seventh Annual Survey of White Collar Crime

viii. Arrangements Between Providers and Health Plans

Providers who contract with health plans to provide services for reduced fees may be protected by a safe harbor coveting price reductions offered to health plans. (197) The requirements vary depending on the health plan and the arrangement made with the government. If the plan is an HMO, CMP, or PHP that has entered a contract with CMS or a state agency, it will be protected if it does not claim payment from HHS or a state agency without prior approval or otherwise attempt to shift the burden of the agreement onto Medicare or a state health program. (198) Plans that are not HMOs, CMPs, or PHPs have different requirements. (199)

Payments between eligible managed care organizations ("MCO") (200) and contractors, and payments between contractors and sub-contractors, are protected under the safe harbor for price reductions offered to eligible MCOs if a signed, written agreement between the parties for at least one year specifies covered items and services. (201) Neither party to such an agreement may seek to give or receive payment in exchange for the provision or acceptance of business outside of the scope of the agreement if a federal health care program may reimburse the business on a fee-for-service or cost basis. (202) The financial burden of such an agreement may not be shifted to a federal health care program. (203)

A separate safe harbor protects arrangements between MCOs and contractors and subcontractors if the contracting entities bear some of the risk of patient care. (204) Payments between qualified managed care plans (205) and first-tier contractors are protected if a written signed agreement between the parties: (i) covers at least a year; (ii) specifies the items and services covered by the agreement; (iii) requires participation in a quality assurance program; and (iv) specifies how fees will be determined and assessed. (206) If the first-tier contractor has an investment interest in the health plan, the interest must fulfill the requirements of the investment interest safe harbor. (207)

ix. Relationships Between Providers and Suppliers

Several safe harbors guide the relationships between providers and suppliers. Regulations governing warranties, discounts, and group purchasing organizations ("GPOP") outline the steps necessary to avoid anti-kickback inquiry into supplier arrangements.

Suppliers or manufacturers of medical equipment and other supplies may offer warranties to purchasing health care providers or beneficiaries that either guarantee replacement of a supplier or manufacturer's own product or of another entity's defective product. (208) These warranties become abusive when a provider receives an item for a reduced price because of a warranty, but then, for reimbursement purposes, reports the purchase of the item as though the item were new. (209) Another abusive warranty arrangement occurs when a supplier offers to honor another manufacturer's warranties, but instead of repairing the item, replaces it with his own brand, and then the purchaser bills Medicare for the replacement value. (210) Anti-kickback provisions punish such arrangements unless they fall within the protection of the warranty safe harbor. (211) The safe harbor regulations impose requirements on both the seller and the buyer. The seller must (i) accurately report any price reduction that results from the warranty on the invoice that it presents to the buyer; (ii) clearly report the existence of a warranty on the invoice and then provide supplemental documentation to the buyer once the price reduction is known, if the amount of the reduction is not known at the time of sale; (iii) not pay for anything under the warranty other than the cost of the item itself; and (iv) inform the buyer of its obligations under this provision. (212) The buyer must (i) accurately report any price reduction that it received on an item to HHS or a state agency on the applicable cost reporting mechanism; and (ii) upon request, provide HHS or a state agency with the invoice and any supplemental documentation from the manufacturer for products under warranty. (213)

The safe harbor for discounts (214) was created for the purpose of "encouraging price competition that benefits the Medicare and Medicaid programs." (215) OIG encourages discount arrangements, but considers situations where the government receives less than its proportional share of the benefit of the discount to be "seriously abusive." (216) Reductions in price that a buyer is granted for an item or service will not be prosecuted under anti-kickback laws if the provisions of this safe harbor are met. (217) Separate rules are established for buyers, sellers, and those who offer the discount but do not fall into either of the other two categories (often termed "offerors"). (218) The conditions that each of these parties must meet to satisfy the requirements of this safe harbor depend on whether the buyer is a competitive plan or HMO acting in accordance with a risk contract, (219) a plan that submits cost reports to HHS or state governments, (220) or a plan that submits requests for payment on a per-charge basis. (221)

Payments made to GPOs by a vendor of goods or services will fall within the GPO safe harbor (222) if two criteria are met. First, for each entity for whom it provides items or services, the GPO must have a written agreement that either: (i) specifies that the GPO's fee will be no more than three percent of the purchase price; or (ii) establishes the maximum amount that the GPO will be paid as a fixed sum or a fixed percentage of the value of the purchases. (223) Second, the GPO must disclose to the entity for which the goods or services are purchased the amount received from each vendor to that entity annually, and disclose the same to HHS upon request, if the entity is a provider of health care services. (224)

x. Ambulance Replenishing

The regulations also provide a safe harbor for ambulance restocking arrangements. (225) The transfer of drugs or supplies from a hospital to an ambulance service will not violate the statute when the following four requirements are satisfied: (226) (i) both the ambulance and the hospital do not each bill for the same replenished drugs; (227) (ii) the receiving facility or ambulance provider, or both, must maintain records of the replenished drugs and medical supplies that were restocked; (228) (iii) the replenishing arrangement must not take into account the volume or value of a business that is generated by either party; (229) and (iv) the receiving facility and the ambulance provider otherwise comply with all federal, state, and local laws. (230) In addition to these requirements, the arrangement must qualify as a general replenishing arrangement, fair market value replenishing arrangement, or government mandate replenishing arrangement. (231)

d. Proposed Amendments

In addition to these safe harbors, two proposals that many hoped would be included in the 1999 clarifications--an integrated delivery system safe harbor (232) and a transition period for the new rules (233)--were not included in the final rules. (234)

3. Self-Referral/Stark Amendments

   Congress enacted the Omnibus Budget Reconciliation Act of 1989 ("Stark I") (235) to counteract the burgeoning cost of health care resulting from physician selfreferrals. (236) Stark I prohibits physicians from referring Medicare patients to clinical laboratories in which the physician has a financial interest, absent a safe harbor provision. (237) When Stark I proved insufficient to curtail the continuing abuses of self-referrals, Congress enacted the Omnibus Reconciliation Act of 1993 ("Stark II"), (238) which significantly expanded the scope of Stark I. (239)

   1. Elements of the Offense

      To establish a Stark violation, the government must show: (a) a financial relationship between a health care entity and physician; (b) a referral by the physician to the entity for designated health services; (c) the submission of a claim for services; and (d) the absence of an exception. (240)

      a. Financial Relationship

      A financial relationship includes an ownership or investment interest in an entity by a physician or his immediate family member, or a compensation arrangement between a physician or his immediate family member and the entity. (241)

      b. Referral

      A referral includes a request for any designated health service payable under Medicare or Medicaid. (242) Because Stark II does not have an intent requirement, strict liability is imposed for referrals if a financial relationship exists. (243)

      c. Submission of a Claim for Services

      An entity receiving a prohibited referral may not make a Medicare claim. (244) Such an entity is also forbidden from billing any individual, third party payer, or other entity for designated health services (245) for which the physician made the referral. (246)

      d. Absence of an Exception or Safe Harbor

      Once the government demonstrates that an individual or entity has violated the Stark statute, the burden shifts to the defendant to establish that the defendant's conduct falls within one of the established exceptions. (247) The Stark amendments contain several exceptions for certain financial arrangements. (248) These exceptions fall into three categories: (i) exceptions applicable to both physician ownership or investment interests and compensation arrangements; (ii) exceptions for ownership or investment interests only; and (iii) exceptions for compensation arrangements only. (249) The Secretary of Health and Human Services is authorized to make additional exceptions by regulation where the "financial relationship ... does not pose a risk of program or patient abuse." (250) The amendments also contain several important safe harbor provisions. (251) A medical entity must also recognize that in some circumstances a transaction might comply with the Stark rules while falling outside any of the anti-kickback safe...