How to guard against kickback charges

Kickback suits against hospitals are on the rise. Unfortunately, there are no bright lines in this area, and it is very difficult for compliance officers to get that through to their staff, warns health care attorney Donna Thiel of Morgan Lewis in Washington, DC. "They have to rely on inferences that are raised based on money or benefit," she says. "That has to be justified on a rational basis that isn’t just the volume or value of referrals."

According to Thiel, compliance officers should begin by educating their staff about the basics of the anti-kickback statute. She says compliance officers then can use a four-part analysis that looks at referrals of Medicare-covered goods or services, remuneration (either direct or indirect, in cash or in kind), intent to induce referrals, and safe harbors.

In analyzing referrals, Thiel says it is important for staff to understand that not only physicians, but hospitals, home health agencies, and others can make referrals. "They should also know that the statute prohibits not only direct referrals but payments to anyone who will recommend the leasing, purchasing, or ordering of any goods, facility, item, or service," she says.

Former Assistant U.S. Attorney Michael Kendall of McDermott Will in Boston argues that the safest route to guarding against kickback charges is simply to discount the price of the product or service and record this on the invoice. "If you can just get the best, lowest price for the product at issue, it is a far better way to do it," he says. If that route isn’t taken, he says, the details of all agreements must be scrutinized closely.

For example, one case was brought against a company offering free phlebotomists to urology offices to perform certain tests. If the company is drawing blood and the physician is not getting the $5 charge for the blood draw, the government may not be alarmed, says Kendall. But if the physician is billing for the blood draw and an outside lab company is supplying the employee to perform the service, that will catch the government’s attention, he warns.

Likewise, if the outside company is taking weights and temperatures and helping to prepare the patient for the exam, that also is likely to draw attention, he says.

Analyzing remuneration is extremely difficult, warns Kendall. On its face, he says, remuneration is merely anything of value that is given in order to illegally influence a decision. "It’s a bribe," he says. "You pay somebody to do something they should not do. That is fairly straightforward." But many deals are far more nuanced, he cautions.

Kendall says that when looking at remuneration, it is important to determine who is getting the benefit. "If it is going to a person for personal use and to influence a purchasing decision, it is almost certainly illegal, unless it is of de minimus value," he warns.

Then there is the issue of indirect payments, which virtually always go to the health care institution. "Indirect payments are a huge problem," he warns. "The government has scratched the surface in some areas, and in other areas, it has no idea what is going on."

Indirect payments are the most subtle and complicated issues for kickback analysis, Kendall says. For example, if a hospital is renting space to a physician practice, determining whether the practice is paying fair-market value isn’t easy.

"There is no perfect answer," says Kendall. "But there are good-faith responses." If providers document what they are doing and there is sound business analysis and it is not trying to influence a referral, he says it probably can be justified.

Likewise, there is no general rule to follow where "free goods" are concerned. For example, free stands sometimes are given along with IV solution. But that may simply represent a discount off the price of the bags that could be accounted for on the invoice.

Kendall says hospitals must scrutinize all these areas, even though that means wrestling with both the business and the medical side of the organization. But physicians may not want to give up free services, especially if their own budget will not reflect a straight discount, he warns.

"That is a huge problem for compliance officers," says Kendall. "You simply say, Take $100 off the price of the good,’ but that does not benefit the individual doctor who made the purchasing decision, who may want the free chair or exam table instead."

Here are some of the other questions compliance officers must confront:

  • Can a small gift or premium result in liability for kickbacks? According to Kendall, there is both a legal and a practical answer to this question. For example, pharmaceutical companies may offer a free meal at a hospital. But even a small gift that is de minimus may create an appearance problem regardless of its value. "The real issue is intent," says Kendall.
  • How do you decide what is acceptable? Compliance officers probably should have legal counsel to make this decision because of the complexity of safe harbors and other considerations.

"Begin with common-sense items," he says. "Anything that goes to you personally is obviously suspect, and anything that is hidden is very suspect." For example, if a group-purchasing organization (GPO) tells a client they want two fees — the typical 3% GPO fee for anything the hospital buys as well as a 2% marketing fee on top of the 3%, the government may say it is a problem if the GPO does not disclose both fees to its members.

Kendall says he finds hidden marketing fees, hidden charges, and hidden costs that are disguised in the paperwork. "I always tell clients, You are not a criminal, so don’t act like one,’" he says. "If what you are doing can not be openly disclosed to the payer or the participants, then there could be a real problem."

  • Are holiday parties an inducement for referrals? Again, there is no simple answer here. Sponsoring a hole at a golf course is one thing, but if an ambulance company spends $10,000 on the party, that’s another matter.

"Maybe you can accept it, but it is a question of how you handle it," he explains. If a pharmaceutical company wants to give the hospital a holiday party, that may not be a problem as long as it goes on the cost report as well as the invoices of the purchases from the drug company.