The Fraud and Abuse Trifecta: An Overview

Healthcare providers in the United States are subject to various complex fraud and abuse laws at both the state and federal levels. Because violating these laws can subject the provider or healthcare practice to significant monetary, civil and /or criminal penalties, it is essential to understand and comply with the requirements of each law, and to exercise extreme caution to avoid potential violations. This article discusses the three most well-known federal fraud and abuse laws: the Stark Law, the Anti-Kickback Statute, and the False Claims Act.

Stark Law

The Stark Law prohibits physicians,[1]  absent an enumerated exception, from referring patients to entities in which the physician or the physician’s direct family member holds an ownership interest or from which the physician receives compensation in exchange for patient referrals.  In order for the Stark Law to apply, the services for which the patient is being referred must fall under the category of “designated health services” and must be fully or partially paid by a government program, such as Medicare, Medicaid, or TRICARE. [2]

Stark Law Safe Harbors

There are several exceptions, or “safe harbor” regulations, to the Stark Law,[3] pursuant to which a physician can refer patients to healthcare entities in which the physician has a financial interest without violating the Stark Law. These exceptions include a) the personal services exception, b) the office space and equipment rental exception, c) the group practice arrangements exception, d) the physician recruitment exception, and e) the fair market value compensation exception. Exceptions to Stark generally require that the agreement between a provider of DHS and the referral source be in writing. The fair market value compensation exception, which is the broadest of these exceptions, allows physicians to receive non-monetary compensation for referring patients to third-party healthcare entities for federally funded healthcare services, provided that:

1.     The compensation arrangement is recorded in writing and covers only specific identifiable items or services;

2.     The duration of the compensation arrangement is specified in advance;

3.     The compensation arrangement is consistent with fair market value and not be based on account volume or the value generated from patient referrals;

4.     The compensation arrangement is commercially reasonable and furthers legitimate business purposes of the referring physician and the compensating healthcare entity;

5.     The compensation arrangement satisfies one of the safe-harbor regulations enumerated under the Anti-Kickback Statute.

It is important to note that these Stark Law exceptions apply only in limited circumstances. If any of the required elements to the exception are lacking, the financial relationship will be deemed a violation.

Penalties for Non-Compliance

Physicians who violate the Stark Law may be subject to severe civil and monetary penalties, including fines of up to $15,000 per violation and $100,000 per each arrangement or scheme which violates the Stark Law. In addition, government payers can refuse payment for medical services to physicians who violated the Stark Law, demand repayment for services for which the physician was already reimbursed and exclude the physician from participating in federally funded healthcare programs. It is important to note that intent is not necessary to find that the physician violated the Stark Law: the mere violation of the law is sufficient to trigger penalties.  

Due to the broad and complex scope of the Stark Law and its frequent expansion, maintaining compliance is often a challenge for healthcare providers. For this reason, healthcare providers should carefully plan their financial relationships and seek assistance from an experienced healthcare attorney who can properly structure the physician’s referral relationships.

Federal Anti-Kickback Statute 

The Anti-Kickback Statute (“AKS”) is a federal law which makes it illegal for individuals or entities to knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business which is wholly or partially paid by a federal health care program.[4] The AKS was enacted to prevent medical providers from making healthcare decisions which were motivated by personal financial incentives rather than medical necessity, and to prevent the waste and misuse of federal health care program funding.[5]

 AKS Safe Harbors

 There are several safe harbors which, if met, shield entities and individuals from criminal liability under the Anti-Kickback Statute. These safe harbors include a) the Investment Interests exception; b) the Office Space Rental exception; c) the Equipment Rental exception; d) the Personal Services/Management Contracts exception; e) the Referral Services exception; f) the Payments Made to Bona Fide Employees exception; and g) the Recruitment exception.

Penalties for Non-Compliance

The penalties for violating the Anti-Kickback Law are severe. A violation can result in a felony conviction punishable by a fine up to $25,000.00 and/or imprisonment for up to five years, and in the provider or entity’s exclusion from the Medicare program. In addition, individuals who violate the AKS are presumed to have also violated the FCA and may be additionally subject to penalties thereunder.[6]  

False Claims Act

The False Claim Act is a federal law which prohibits healthcare providers from submitting fraudulent medical claims[7] to any federally funded healthcare program, such as Medicare or Medicaid.  Unlike the Stark Law, which can be violated even without the individual’s intent, the False Claims Act cannot be violated unless an individual “knowingly”[8] submits false claims to the government.[9] However, in order to satisfy this standard, the individual did not have to have actual knowledge about the false nature of the statement which he or she submitted to the government; it is sufficient for the person to “act in reckless disregard or in deliberate ignorance of the falsity of the information.”[10]

An individual can violate the FCA by:

• Knowingly presenting a false or fraudulent claim for payment to the federal government

• Knowingly using a false record or statement to obtain payment on a medical claim;

• Knowingly using a false record or statement to conceal or decrease overpayments owed to the federal government, or avoid repaying the funds altogether;

• Avoiding the transfer of property owed to the federal government; or 

• Conspiring with third parties to obtain payment on a false or fraudulent claim.[11]

Common examples of FCA violations include:

• A healthcare provider who submits a bill to Medicare, Medicaid or TRICARE for services which the physician did not provide;

• The provider submitting records that he or she knows (or should know) are false in order to appear compliant with certain contractual or regulatory requirements; and

• The provider providing false information in order to retain money from the federal government to which the individual was never entitled.

 Penalties for Non-Compliance

Individuals who violate the FCA are subject to civil penalties of $5,000 to $10,000 plus up to three (3) times the amount of damages which the Government incurs as a result of that person’s FCA violation.

Changes to the False Claims Act Under PPACA

 The Patient Protection and Affordable Care Act (PPACA)[12] expanded the FCA by creating more stringent compliance requirements and making it easier for whistleblower to bring False Claims actions against healthcare providers.[13] Healthcare providers who are found to violate the False Claims Act can face a variety of administrative, civil and criminal penalties.

False Claims Act Investigations

 False Claims Act investigations being with a Civil Investigative Demand (“CID”) from the government, requesting the suspected individual or entity to submit requested documents, answer written interrogatories, and/or give oral testimony which may be relevant to the suspected false claim. In order to be valid under the law, the CID must:

• Describe the nature of the conduct which constitutes the alleged FCA violation and the general purpose for which the demand is being issued;

• Describe each class and type of material which the individual or entity is asked to produce,

• Provide the date, time and place of any requested oral testimony;

• Establish the appropriable time periods for response;

• Be properly served on the suspected individual or entity.

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[1] The Stark Law applies to Doctor of Medicine or osteopathy, Doctor of Dental Surgery or dental medicine, podiatrists, optometrists, and chiropractors.

[2] Designated Health Services include: a) Clinical laboratory services; b) Physical therapy services; c) Occupational therapy services; d) Outpatient speech-language pathology services; e) Radiology and certain other imaging services; f) Radiation therapy services and supplies; g) Durable medical equipment and supplies; h) parenteral and enteral nutrients, equipment, and supplies; i) Prosthetics, orthotics, and prosthetic devices and supplies; j) Home health services; k) Outpatient prescription drugs; and l) Inpatient and outpatient hospital services.

[3] However, the physician is allowed to refer patients to an entity that pays non-monetary compensation of not greater than $200 per year. In addition, the Stark Law does not apply to practitioners who refer patients for preventive services, provided that the services are reimbursed according to a Medicare fee schedule and do not exceed CMS frequency limits. Finally, physician referrals for hospital incidental benefits are exempt from the Stark Law if they meet various enumerated criteria.

[4] Specifically, the AKS prohibits the solicitation or receipt of "any remuneration (including any kickback, bribe, or rebate)" in exchange for purchasing or ordering any good or item "for which payment may be made in whole or in part under a Federal health care program." 42 U.S.C. § 1320a-7b(b)(1)(B).

[5] See United States v. Patel, 778 F.3d 607, 612 (7th Cir. 2015).

[6] See United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 54 (D. Mass. 2011)("[L]iability under the False Claims Act can be predicated on a violation of the Anti-Kickback Statute.").

[7] A “claim” is a request or demand for money or property made directly to the Federal government or to a contractor (Medicare contractor), grantee, or another recipient.

[8] The terms “knowing” or “knowingly” means that a person with actual knowledge of the information acts in deliberate ignorance of the truth or falsity of the information or acts in reckless disregard of the truth or falsity of the information. The government does not have to show the person or entity’s specific intent to defraud.

[9] The “knowingly” requirement is satisfied if the person submitting the false information: (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required. 31 U.S.C. 3729(b).

[10] See 31 U.S.C. § 3729

[11] Id.

[12] See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010).

[13] For example, under the PPACA, a whistleblower can file a claim under the False Claims Act even if the whistleblower did not directly discover this violation. Instead, whistleblowers can file False Claims Act suits based upon information which was publicly revealed in federal criminal, civil, or administrative proceedings in which the government was a party, as well as based upon information obtained from federal reports, hearings, audits, or investigations. Under the PPACA, the false claims act was changed to require healthcare providers to return known overpayments to the government within 60 days of discovering the error.