AMARILLO, TX – Let us look at two hypothetical scenarios:
Scenario #1: Dr. Smith refers Medicare patients to ABC Medical Equipment, Inc. Dr. Smith requests ABC to sponsor his trip to a conference in Palm Springs.
Scenario #2: ABC is holding its annual meeting in Aspen in July for its employees. ABC asks Dr. Jones to speak at the annual meeting. Jones refers Medicare patients to ABC. In so doing, ABC offers to (i) pay Jones for his time in preparing for and presenting his program and (ii) reimburse Jones for his travel expenses.
We will analyze both arrangements under the federal anti-kickback statute (“AKS”) and the federal Stark physician self-referral statute (“Stark”).
Stark prohibits physicians from referring patients to receive designated health services (“DHS”) payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship unless a Stark exception is met. DHS includes: clinical laboratory services; therapy services; radiology services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, prosthetic devices, and supplies; home health services; outpatient prescription drugs; and all inpatient and outpatient hospital services. CMS defines financial relationship as a direct or indirect ownership or investment interest in an entity or a direct or indirect compensation arrangement with an entity.
There are several exceptions to Stark including the Nonmonetary Compensation exception, the Personal Service Arrangement exception, and the Fair Market Value exception. If an arrangement satisfies an exception’s requirements, then the arrangement avoids a Stark violation.
The Nonmonetary Compensation exception permits an entity to compensate a physician in the form of items or services (not including cash or cash equivalents) that do not exceed $423 during the 2020 calendar year. The compensation must meet the following requirements to be a valid exception: (i) the compensation cannot take into account the volume or value of referrals or other business generated by the referring physician; (ii) the compensation may not be solicited by the physician or the physician’s practice (including employees and staff members); and (iii) the compensation arrangement cannot violate the AKS or any federal or state law.
The Personal Service Arrangement (“PSA”) exception permits renumeration to a physician for services rendered by the physician. The PSA exception requires the arrangement to meet the following conditions:
- the arrangement is specified in a written agreement and signed by both parties;
- the arrangement covers all the services furnished by the physician to the entity or cross references a master list of contracts between the parties and maintained by the entity;
- the arrangement’s aggregate services do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement;
- the duration of each arrangement is at least one year;
- the compensation to be paid over the term of the arrangement is set in advance and does not exceed the fair market value for the services; and
- any services provided may not involve the counseling or promotion of an unlawful business arrangement or activity.
The Fair Market Value (“FMV”) exception permits an entity to compensate a physician for the provision of items or services so long as the arrangement meets the following conditions:
- there is a written agreement clearly specifying the items or services provided by the physician, with such agreement signed by the parties;
- the agreement specifies the timeframe of the arrangement;
- the agreement specifies the compensation provided under the arrangement; the compensation must be set in advance, be consistent with fair market value and not be determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician;
- the arrangement is commercially reasonable and furthers a legitimate business purpose of the parties;
- the arrangement does not violate the AKS; and
- any services provided may not involve the counseling or promotion of an unlawful business arrangement or activity.
Fair market value means “the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated actual referrals” by and/or between the parties.
The Federal Anti-Kickback Statute
The AKS prohibits a provider from knowingly or willfully offering, paying, soliciting or receiving remuneration to induce referrals for items or services covered by a government program. Because the AKS is drafted so broadly, safe harbors have been promulgated to protect certain arrangements that meet the Safe Harbor requirements. Failure to fall within a safe harbor does not mean the arrangement violates the AKS. Rather, it means the arrangement will be closely scrutinized on its particular facts and circumstances to determine whether there is a violation. A number of courts have adopted the “one purpose test” when determining the applicability of the AKS to an arrangement. The one purpose test states that the AKS applies if one purpose of the remuneration is to induce referrals even if there are other legitimate purposes.
One AKS safe harbor is the Personal Services and Management Contracts (“PSMC”) exception. The PSMC safe harbor has seven requirements:
- written agreement signed by the parties;
- the agreement includes a detailed description of the services to be provided;
- the term of the agreement term is not for less than one year;
- the aggregate compensation is set in advance, is fair market value, and is determined through arm’s length negotiations;
- compensation must not be determined in a manner that takes into account the volume or value of referrals;
- all arrangements must be in one agreement; and
- the arrangement must serve a commercially reasonable business purpose.
Analysis of Scenario #1
Dr. Smith refers Medicare patients to ABC. If ABC compensates Dr. Smith, then the transaction creates a financial relationship between Dr. Smith and ABC. As such, the arrangement implicates Stark unless a Stark exception is met.
ABC would like to reimburse Dr. Smith for his expenses in attending the Palm Springs conference. The Nonmonetary Compensation exception only applies to compensation paid to a physician in the form of items or services, not cash or cash equivalents. Further, Dr. Smith reached out to ABC to request the compensation. The exception does not apply if the physician solicits an entity for the compensation. Accordingly, the arrangement does not fall within the Nonmonetary Compensation exception.
This scenario also would likely not meet the PSA exception or the FMV exception. Both exceptions require the physician to provide a service to the entity. Dr. Smith’s attendance at the Palm Springs conference does not constitute a “service” for ABC.
Dr. Smith refers Medicare patients to ABC and if ABC agrees to cover some of Dr. Smith’s expenses to attend the Palm Springs conference, then Dr. Smith is receiving renumeration … thereby implicating the AKS. To avoid problems under the AKS, the arrangement would need to meet an AKS safe harbor. As previously mentioned, Dr. Smith is not providing a service to ABC. Without a furnished service, the PSMC safe harbor is not met.
Analysis of Scenario #2
Like the first arrangement, Dr. Jones refers Medicare patients to ABC and a financial relationship will form if ABC compensates Dr. Jones. As such, the arrangement implicates the Stark Law unless a Stark exception is met.
Unlike the first arrangement, Dr. Jones is providing ABC a service by speaking at an ABC sponsored meeting attended by ABC’s employees. The purpose of his presentation is to educate and train the ABC employees on clinical and related issues.
Since Dr. Jones is providing ABC a service, the arrangement can be structured to fall under the PSA exception. ABC and Dr. Jones should put the arrangement in writing and sign the agreement. The agreement must include: (i) a detailed description of Dr. Jones’s presentation, how it will be given, and the intended audience; (ii) a set compensation amount that is fair market value; and (iii) an agreement term for not less than one year. The PSA exception also requires that the service be reasonable and necessary for the legitimate business purposes of the arrangement. The arrangement should satisfy this condition because ABC is holding a meeting for its employees, many of whom work directly or indirectly with health care personnel. Dr. Jones’s expertise will likely educate the employees while benefitting ABC overall. Thus, so long as ABC meets these requirements the arrangement should fall under the PSA exception.
ABC’s arrangement may also fall within the FMV exception. Like the reasoning for the PSA exception, it is reasonable to assume that Dr. Jones’s presentation will be commercially reasonable and furthers a legitimate business purpose. Different from the PSA exception though, the FMV exception also requires compliance with the AKS. The arrangement can be structured to comply with (or substantially comply with) the PSMC safe harbor. This is so long as the arrangement is put in writing and the agreement includes the safe harbor’s requirements.
Though the arrangement can be structured to meet the applicable exceptions/safe harbor, ABC can take additional steps to help limit the risk of a Stark or AKS violation. To do this, ABC should document how it has met each condition of the exceptions/safe harbor. Proper documentation is important because the Department of Justice (“DOJ”) has been cracking down on the payment of sham “speaker fees” to physicians by an entity. For example, the DOJ alleged that Insys Therapuetics was using sham “speaker programs” to increase brand awareness of one of its drugs. These speaker programs were supposed to consist of peer-to-peer educational lunches and dinners. According to the DOJ, in reality these programs were used to pay bribes and kickback to targeted practitioners in exchange for increased drug sales.
To limit the risk of an enforcement action, ABC should include significant detail on the amount of time Dr. Jones will be paid to prepare and give his presentation. For example, the agreement can require Dr. Jones to submit his presentation for approval by ABC prior to the Aspen meeting. With regards to payment, the agreement should also limit Dr. Jones’s expenses to reasonable amounts and require Dr. Jones to submit an invoice of his time and expenses to ABC. This will allow ABC to review Dr. Jones’s expenses and ensure that his costs are reasonable and within the compensation amount set forth in the agreement. Only after ABC’s review and approval of the invoice should ABC compensate Dr. Jones.
AAHOMECARE’S EDUCATIONAL WEBINAR
Billing on a Non-Assigned Basis
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Lisa K. Smith, Esq., Brown & Fortunato, P.C.
Wednesday, March 24, 2020
2:30-3:30 p.m. EASTERN TIME
It is obvious that Medicare intends to pay as little as possible for DME. As a result, many DME suppliers are electing to become “non-participating” suppliers and are selling/renting Medicare-covered items on a non-assigned basis. This means that the Medicare beneficiaries pay cash up front to the suppliers. This interactive program will discuss the multiple issues arising out of billing non-assigned, including the following: (i) What does it mean to bill non-assigned? (ii) If the supplier bills an item non-assigned, then can the supplier set the price without limitation? (iii) Must the supplier submit a claim to Medicare so that the beneficiary can be reimbursed? (iv) Can the supplier sell a capped rental item for cash? (v) Does the supplier need to obtain documentation supporting medical necessity? (vi) Is the supplier at risk of having to repay Medicare and/or the beneficiary in the event of a subsequent audit?
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. 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 firstname.lastname@example.org.
42 U.S.C. § 1395nn (h)(5).
 Id. § 1395nn (a)(2).
 42 C.F.R. § 411.357(k).
 Id. § 411.357(l).
 Id. § 411.351.
 42 U.S.C. § 1320a-7b(b)(1).
 61 Fed. Reg. 2122, 2124 (1996).
 U.S. v. Gerber, 760 F.2d 68 (3rd Cir. 1985), cert. denied, 474 U.S. 988 (1985).
 42 C.F.R. § 1001.952(d).
 Press Release, U.S. Dep’t of Justice Off. of Pub. Aff., Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations (Jun. 5, 2019), https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal.