Health care fraud.

Author:Harrison, Steven
Position:Continuation of II. Statutes Addressing Medicare and Medicaid Fraud B. Anti-Kickback Statute through IV. Enforcement, with footnotes, p. 1254-1288 - Thirtieth Annual Survey of White Collar Crime

ix. Relationships Between Providers and Suppliers

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

The safe harbor regulations impose requirements on both the seller (204) and the buyer. (205) The OIG later clarified the rules, noting that a seller will be safe harbored regardless of the omissions of a buyer so long as a seller has "done everything it reasonably could under the circumstances to ensure that the buyer understands its obligations to accurately report the discount." (206)

Suppliers or manufacturers of medical equipment and other supplies may offer warranties to purchasing health care providers or beneficiaries that either guarantee replacement of the supplier or manufacturer's own product, or even another entity's defective product. (207) 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. (208) Another abusive warranty arrangement occurs when a supplier offers to honor another manufacturer's warranties, but instead of repairing the item, she replaces it with her own brand and bills Medicare for the replacement value. (209) Anti-kickback provisions punish such arrangements unless they fall within the protection of the warranty safe harbor. (210)

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. (211) 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"). (212) The safe harbor conditions depend on whether the buyer is a competitive plan or HMO acting in accordance with a risk contract, (213) a plan that submits cost reports to HHS or state governments, (214) or a plan that submits requests for payment on a per-charge basis. (215) The safe harbor for discounts (216) was created to "encourag[e] price competition that benefits the Medicare and Medicaid programs." (217) The 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." (218)

Payments made to the GPOs by a vendor of goods or services will fall within the GPO safe harbor (219) 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 3% 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. (220) Second, the GPO must disclose, in writing 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. (221)

x. Ambulance Replenishing

The regulations also provide a safe harbor for "ambulance restocking arrangements," a common practice among hospitals of restocking ambulance providers with drugs and supplies used during the transport of a patient. (222) To qualify, the arrangement must meet certain billing, (223) record-keeping, (224) and volume (225) requirements, and the receiving facility and the ambulance provider must otherwise comply with all federal, state, and local laws. (226) In addition to these requirements, the arrangement must satisfy all of the standards of one of the three qualified types of replenishing agreements: general, fair market value, or government mandated. (227)

Facilities engaged in general replenishing agreements must (i) give similar agreements to similar classes of ambulance provider, (228) and (ii) must conduct the arrangement in an "open and public manner." (229) Prices for so-called "fair market value" replenishing must (i) be based on prices paid in arms-length transactions, and (ii) if not paid at the time of replenishment, be set in advance at levels that are "commercially reasonable." (230) Finally, any government mandated replenishing agreements must meet the standards set by the local statute. (231)

  1. Self-Referral/Stark Amendments

    Congress enacted the Omnibus Budget Reconciliation Act of 1989 (containing "Stark I") (232) to counteract the burgeoning cost of health care resulting from physician self-referrals. (233) Stark I prohibits physicians from referring Medicare patients to clinical laboratories in which the physician has a financial interest, unless the financial interest falls under one of the safe harbor provision provided in the statute. (234) When Stark I proved insufficient to curtail the continuing abuses of self-referrals, Congress enacted the Omnibus Reconciliation Act of 1993 (containing "Stark II"), (235) which significantly expanded the scope of Stark I. (236)

    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; and (c) the submission of a claim for services. (237)

      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. (238)

      b. Referral

      Referral of Medicare and Medicaid patients to health care providers with whom the referring physician has a financial relationship is prohibited under the "Stark II" amendments to the statute. (239) A referral includes a request for any designated health service payable under Medicare or Medicaid. (240) Because Stark II does not have an intent requirement, strict liability is imposed for referrals if a financial relationship exists. (241)

      c. Submission of a Claim for Services

      An entity receiving a prohibited referral may not make a Medicare claim. (242) Such an entity is also forbidden from billing any individual, third party payor, or other entity for designated health services (243) for which the physician made the referral. (244)

    2. Absence of an Exception or Safe Harbor

      A medical entity must also recognize that a transaction might comply with the Stark rules while falling outside any of the anti-kickback safe harbors in some circumstances. (245) 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. (246) The Stark amendments contain several exceptions for certain financial arrangements. (247) 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 Physician-Owned Specialty Hospitals, 23 Health Law. 24, 26-29 (2010) (discussing rise and fall of the exploitation of the "whole hospital exception" wherein so long as the physician had a financial interest in the whole hospital, rather than the specific laboratory, his referral was legal). compensation arrangements only. (248) The Secretary of HHS is authorized to make additional exceptions by regulation where the "financial relationship ... does not pose a risk of program or patient abuse." (249)

      The amendments also contain several important safe harbor provisions. The first category of safe harbors provides exceptions for physician services, in-house ancillary services, pre-paid plans, electronic prescribing, and other arrangements that do not pose a risk of program or patient abuse which are specified by regulation. (250)

      The second category provides exceptions for publicly held securities, hospitals in Puerto Rico, rural providers, and hospital ownership. (251)

      The third category provides exceptions for rental of space, rental of equipment, bona fide employment relationships, personal service arrangements, remuneration unrelated to the provision of designated health services, physician recruitment, isolated transactions, group practice arrangements with hospitals, and payments by physicians. (252)

    3. Penalties

      Section 1395nn provides five sanctions. First, claims filed for services in violation of the self-referral laws will result in non-payment. (253) Second, if a person collects money in violation of Stark II, that person is liable for and must refund the money on a timely basis. (254) Third, civil monetary penalties and exclusion from participation in Medicaid and Medicare programs may result from improper claims. (255) The civil penalty applies if the person who bills or presents the claim "knows or should know" that the bill or claim violates the statute; the penalty may not exceed $15,000 per violation. (256) Fourth, a civil penalty not to exceed $100,000 applies to circumvention schemes, such as cross-referral arrangements, when a physician or entity "knows or should know" that the arrangement has a principal purpose of assuring referrals by the physician to the entity, which if the physician made directly would violate the statute. (257) Fifth, any person who is subject to and fails to meet the reporting requirements faces a civil penalty not to exceed $10,000 per day in which reporting was required. (258)

  2. The Health Insurance Portability and Accountability Act of 1996

    In 1996, Congress enacted the Health Insurance Portability and Accountability Act ("HIPAA"). (259) HIPAA is the most comprehensive attempt to fight fraud in federal health care programs, (260) and it expands the scope...

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