AMARILLO, TX – Assume that a physician does not directly or indirectly generate referrals of federal health care program (“FHCP”) patients to a DME supplier. If the supplier compensates the physician for services, then neither the federal anti-kickback statute (“AKS”) nor the federal Stark physician self-referral statute (“Stark Law”) will be violated.

Now let’s change the facts and assume that the physician does directly or indirectly generate FHCP patients to the DME supplier. Compensating the referring physician for services will implicate the AKS and the Stark Law. As such, the arrangement needs to fit within a Stark Law exception and an AKS safe harbor. This article discusses the applicable Stark Law exception and AKS safe harbor.

Stark Law
The Stark Law prohibits physicians with financial relationships with an entity from making referrals of designated health services (“DHS”) to such entity, unless the arrangement fits within a specific exception to the Stark Law. In order to implicate the Stark Law, an arrangement needs five elements: (1) a physician; (2) DHS; (3) referral; (4) an entity; and (5) a financial relationship. If any one of these items is not present, then the Stark Law is not implicated.

In reviewing the Stark Law, it is important to note the following:

• DHS includes, but is not limited to, DME and prosthetics and orthotics.
• CMS has advised that a “referral” for the purposes of the Stark Law encompasses more than just a direct recommendation from a physician to an entity. A referral requires “that a physician only request an item or service or include it in a plan of care.”
• The Stark Law applies to financial relationships between entities and physicians or a physician’s immediate family members. An “immediate family member” includes the physician’s husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepsibling; father or mother-in-law; son or daughter-in-law; brother or sister-in-law; grandparent or grandchild; and, spouse of a grandparent or grandchild.
• Financial relationships include both compensation arrangements and ownership or investment interests.
• The Stark Law applies to items and services reimbursable by Medicare or Medicaid.

The Stark Law personal services exception states that remuneration paid by an entity to a physician or to a group practice for specific services is permissible as long as the following requirements are met:

• The arrangement is set out in writing, signed by the parties, and specifies the services that are covered by the arrangement.
• The agreement covers all services furnished by the physician or group practice.
• The aggregate services provided under the agreement do not exceed what is reasonable and necessary for the legitimate business purpose of the arrangement.
• The term of the agreement is at least one year. If the agreement is terminated before one year for any reason, the parties must agree not to enter into another arrangement with the same or substantially the same terms until the one-year term of the initial agreement lapses.
• The compensation paid to the physician during the term (a) is set in advance, (b) is consistent with fair market value (“FMV”), and (c) does not take into account the volume or value of any referrals or business generated between the parties.
• The arrangement does not involve an activity that violates federal or state law.

In order to meet the personal services exception, an arrangement must meet all of the requirements. Failure to meet any one requirement means that the exception does not apply. In order to be “set in advance” the compensation must meet one of the following requirements:

• The aggregate compensation is set out in the writing before the items or services are furnished by the physician.
• A time-based or per-unit of service-based amount is set out in writing before the furnishing of the items and services by the physician.
• A specific formula for calculating the compensation is set out in writing before the furnishing of the items and services by the physician.

Anti-Kickback Statute
The AKS prohibits any person from knowingly or willfully offering, paying, soliciting, or receiving any remuneration in exchange for referring or arranging for the referral of items and services that are payable by a FHCP. Remuneration includes anything of value paid overtly or covertly, in cash or in kind. FHCPs include, but are not limited to, Medicare, Medicaid, TRICARE, Medicare Advantage, and Medicaid Managed Care Plans.

Because of the breadth of the AKS, the Office of Inspector General (“OIG”) has published a number of “safe harbors.” If an arrangement falls within a safe harbor, then as a matter of law, the AKS is not violated. If an arrangement does not comply with a safe harbor, then it does not mean that the AKS is violated. Rather, it means that the arrangement must be closely scrutinized in light of the language of the AKS, court decisions, and other published guidance.

The applicable safe harbor to a compensation arrangement with a physician is the “Personal Servies and Management Contracts” safe harbor. This safe harbor states that compensation paid by a principal (DME supplier) to an agent (the physician) for services of the agent will not be considered remuneration as long as the arrangement meets the following seven standards:

• The agreement between the parties is set out in writing and signed by both parties.
• The agreement covers and specifies all of the services provided by the agent to the principal for the term of the agreement.
• If the services are to be provided on a periodic basis, the agreement must set out the specific schedule of intervals during which the services will be provided.
• The agreement is for a period of at least one year.
• The aggregate compensation paid to the agent for the term of the agreement is (a) set in advance; (b) consistent with fair market value (“FMV”); (c) not based on the volume or value of FHCP referrals or business generated by the agent.
• The arrangement does not involve an activity that would violate state or federal law.
• The aggregate services under the agreement do not exceed what is reasonably necessary to accomplish the commercially reasonable business purpose of the services.

State Law
Each state has an anti-kickback statute that is similar to the AKS. Some state anti-kickback statutes apply only if the payor is the state Medicaid program. Other state anti-kickback statutes apply even if the payor is a commercial insurer or a cash-pay patient. In addition to a general anti-kickback statute, many states have anti-fraud statutes that address referrals and “patient brokering.” For example, the New York anti-kickback statute prohibits any medical assistance provider from “soliciting, receiving, offering, accepting, or agreeing to receive, accept or give any payment or consideration to another person in exchange for the referral of items or services that are payable under the state’s Medicaid statutes.”

A “medical assistance provider” is defined to include any “person, firm, partnership, group, association, fiduciary, employer, or representative thereof or other entity who is furnishing care, services, or supplies” under the state Medicaid program. Notably, the text of the law states that “this subdivision shall not apply to any activity specifically exempt by federal statute or federal regulations promulgated thereunder.”

AAHomecare’s Retail Work Group
The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets once a month via video conference during which (i) an expert guest will present a topic on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group video conference is scheduled for May 9, 2019, at 11:00 a.m. Central. Renae Storie, Pride Mobility Products, will present “Driving Customer Engagement through Successful Events & Campaigns.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Government Affairs, AAHomecare ([email protected]).

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected].