As previous False Claims Act (FCA) Fundamentals posts have discussed, the FCA, 31 U.S.C. § 3729, et seq., can be triggered by submitting claims tied to violations of certain federal statutes. This post will explain the basics of two such statutes: the Anti-Kickback Statute (AKS) and the Stark Law.

Anti-Kickback Statute

The AKS, 42 U.S.C. § 1320a-7b(b), prohibits any person or entity from knowingly and willfully giving, receiving, or soliciting “remuneration” in exchange for patient referrals under a federal healthcare program. In this context, the kickback (“remuneration”) can include any form of financial incentive that might encourage a provider to refer a patient, whether it is “in cash or in kind,” “direct or indirect,” or “overt or covert.” Indeed, courts have found that illegal remunerations can range from extravagant vacations for referring physicians to direct payments for sales representatives, and many things in between.

The AKS is an intent-based statute. Accordingly, a person can violate the AKS only if they act willfully and knowingly. To that end, some courts have held that it is not a defense to the AKS that the provider had other legitimate reasons to provide the remuneration, and that a provider can face liability if any one purpose of the remuneration is to induce a referral.

The AKS and its corresponding regulations include several “safe harbors” that exempt certain business arrangements from AKS liability. For example, the AKS includes safe harbors for the following:

• Rental space.
• Rental equipment.
• Personal services agreements.
• Personal management contracts.
• Waiver of copayment, coinsurance, and deductible amounts.
• Remuneration to employees.

Each AKS safe harbor has its own specific requirements that must be met to qualify for protection. However, the AKS safe harbors are not exclusive. Business arrangements not meeting a safe harbor are evaluated on their “facts and circumstances” to determine if they implicate AKS liability.

The AKS is a criminal statute with both civil and criminal penalties. On the civil side, AKS violators risk penalties up to $100,000 per violation and triple the value of any illegal kickbacks, and they may also be excluded from participating in federal healthcare programs. On the criminal side, an AKS conviction is a felony that can lead to a $100,000 fine per violation and up to ten years in prison.

AKS violations can give rise to FCA liability because, by statute, claims tainted by AKS violations are deemed false for purposes of the FCA.

Stark Law

At its core, the Physician Self-Referral Law (Stark Law), 42 U.S.C. § 1395nn, is a conflict-of-interest prevention statute. Embedded in the Social Security Act, the Stark Law broadly prohibits physicians from referring federal healthcare beneficiaries to providers with which the physicians have a financial relationship. As might be expected, the Stark Law casts a wide net, covering both ownership interests in other entities and compensation agreements with other providers. It even includes financial relationships involving a provider’s spouse or other immediate family members.

The Stark Law is a strict liability statute. This means that it applies regardless of whether the physician intended to refer a Medicare patient to a practice that he or she owns or if the referring physician even knows about the compensation agreement with the other provider. All that matters is that the financial relationship existed and that the referral occurred.

The Stark Law applies to referrals for only a dozen specific healthcare services. These services, known as “Designated Health Services,” are:

• Clinical laboratory services.
• Physical therapy services.
• Occupational therapy services.
• Outpatient speech-language pathology services.
• Radiology and certain other imaging services.
• Radiation therapy services and supplies.
• Durable medical equipment and supplies.
• Parenteral and enteral nutrients, equipment, and supplies.
• Prosthetics, orthotics, and prosthetic devices and supplies.
• Home health services.
• Outpatient prescription drugs.
• Inpatient and outpatient hospital services.

Like the AKS, the Stark Law accounts for the fact that certain referral relationships may be necessary in the modern healthcare system by creating safe harbors. For instance, the “in-office ancillary” services exception allows physicians to perform diagnostic or imaging services at the same location where they provided the initial care. Similarly, other safe harbors allow physicians to create group practices, refer to interested providers in a rural setting, or enter into bona fide employment relationships without creating Stark Law liability. However, each safe harbor has its own intricate requirements. Unlike the AKS, the Stark Law does not give any leeway for referral relationships that do not satisfy every element of an exception.

Although it does not have criminal ramifications, penalties for violating the Stark Law can also be steep. For instance, a provider can be fined as much as $15,000 for every referral that violates the Stark Law, and if the provider creates any arrangement that they know would implicate the Stark Law, civil penalties can reach $100,000 for each violation. Violators also risk being excluded from participating in federal healthcare programs.

Some courts have held that claims tainted by Stark Law violations are false under the FCA and thus can lead to FCA liability.

AKS and the Stark Law in Practice

The AKS and Stark Law are significant drivers of FCA litigation. The following are recent examples of cases involving AKS and Stark Law allegations:

• In S. ex rel. Jennings v. Flower Mound Hospital Partners, LLC, relators alleged that a physician-owned hospital violated the AKS and the Stark Law when it purchased shares from older physician-owners and resold them to younger physicians. According to relators, the hospital selected which physicians to sell shares to (along with how many shares to sell them) based on their volume of referrals. The hospital agreed to pay $18.2 million to resolve the Stark and AKS violations.
• In S. ex rel. Herbold v. Doctor’s Choice Home Care, Inc., the U.S. District Court for the Middle District of Florida held that a home health agency violated the Stark Law when it hired the wife of one referring physician to work as an account executive and the wife of another to serve as its director of business development. The wives were then paid a commission based on the number of referrals they generated, including referrals from their respective husbands.
• In United States v. Blair, the U.S. District Court for the District of Maryland held that a pharmacy owner could face criminal AKS charges where he paid over $1.5 million in commissions to sales representatives for referrals to his pharmacy. The indictment also alleged that the pharmacy owner waived copayments for TRICARE beneficiaries to encourage patients to fill prescriptions at his pharmacy, violating the AKS.
• In United States v. Teva Pharmaceuticals USA, Inc., the U.S. District Court for the District of Massachusetts held that a pharmaceutical company could violate the AKS by making donations to charitable foundations, which were used to cover patient co-pays for a drug that it produced. While the company argued that its donations covered patient co-pays generally, the complaint alleged that the company worked with the charitable foundations to maximize the likelihood that the donations would help patients using its drugs. The court also observed that, though the company did not formally track its return on investment, handwritten notes from a meeting showed that the company had determined it would generate more than $114 million in revenue because of its donations.
• In S. ex rel. Byrd v. Acadia Healthcare Co., the U.S. District Court for the Middle District of Louisiana held that a healthcare system could face FCA liability where it provided free staff to a psychiatrist in exchange for referrals, a practice that violated both the AKS and the Stark Law.