Healthcare Provider Fees May Constitute Kickbacks Even Without Direct Referrals

By on November 15, 2013

In a recent advisory opinion, the Department of Health and Human Services inspector general warned health care providers about entering into contracts that may generate illegal kickbacks and result in administrative penalties.  An unnamed anesthesiology provider requested advice regarding a proposed contract with an in-hospital psychiatric service.  Currently, the anesthesiology provider is the exclusive provider of anesthesia services to a hospital, with the exception of the in-house psychiatric service, which uses its own provider.  Prior to 2011, the anesthesiology provider was the exclusive provider for the hospital, including psychiatric services.  In December 2010, however, the psychiatric service relocated its practice to the hospital and negotiated for the right of its anesthesiologist to offer services to its patients, thus eliminating the anesthesiology provider’s exclusivity contract for psychiatric care.

Under the proposed arrangement, the in-house psychiatric service would contract out anesthesiology services to the anesthesiology provider for days when its anesthesiologist is unavailable or an additional anesthesiologist is needed.  The anesthesiology provider would receive a per diem payment for each day its services were requested.  Per the arrangement, the psychiatric service would retain a fee equal to the difference in the fee billed by the in-house psychiatric service and collected from Medicare, Medicaid, third party payors and patients, and the per diem amount paid to the anesthesiology provider.

Although there was no direct referral for the anesthesiology services, the inspector general cautioned that such remuneration could violate anti-kickback statutes, resulting in the imposition of penalties under sections 1128(b)(7) or 1128A(a)(7) of the Social Security Act.  Both of those sections refer to the commission of acts detailed in the federal anti-kickback statute.  The inspector general stated that the arrangement essentially allowed the psychiatric service to accomplish indirectly that which it could not do directly—receive a fee from the anesthesiology provider’s revenues in exchange for sending patients to the provider.  In effect, such an arrangement constituted a referral.

Under the federal anti-kickback statute, it is illegal to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program.  The statute is violated if remuneration is purposefully paid—even if it is just one purpose of the remuneration—with the intent to induce or reward further referrals of items or services payable by a federal health care program.  Some safe harbors exist for practices that are unlikely to result in fraud or abuse.  Additionally, a determination of intent is required to assess the illegality of the kickbacks.  Health care providers should consider how to structure contracts and other arrangements to avoid illegal kickbacks and other anticompetitive effects that may result in administrative penalties.

Lisa A. PetersonLisa A. Peterson
Lisa A. Peterson focuses her practice on antitrust, regulatory and litigation matters. She assists clients across a variety of industries and has represented numerous clients in the health care, pharmaceutical, and biotechnology industries. Lisa advises clients on mergers and acquisitions, including obtaining clearance from the Federal Trade Commission (FTC) and Department of Justice (DOJ), as well as counsels clients on issues regarding antitrust compliance, pricing, and distribution. She also counsels clients on cartel prosecutions and defenses, including government investigations and the initiation and defense of civil class action litigation. Read Lisa Peterson's full bio.

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