the anti-kickback statute

BILL COPELAND'S

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HEALTH LAW INSIGHTSSpring 2008

The Medicare and Medicaid Anti-Kickback Statute and its Implications for the

Federal Civil False Claims Act

As you are no doubt aware, the United States District Court for the Southern

District of Ohio recently unsealed a whistler-blower suit naming The Christ Hospital,

The Health Alliance of Greater Cincinnati and The Ohio Heart Health Center as

defendants. The Department of Justice has intervened in the suit and plans to file its

own suit.

The suit alleges improper financial incentives in the form of kickbacks to

cardiologists in exchange for generating revenue for the hospital. The whistle-blower in

the case is a cardiologist who is not a member of The Ohio Heart Health Center.

In addition to The Christ Hospital case, the United States Attorney for the

Northern District of Texas announced on March 17, 2008 that his office has entered into

a settlement agreement with Hardeman Memorial Hospital to resolve a False Claims

Act case involving kickbacks in the form of an improper lease arrangement with a

physician on the hospital's staff.

With these cases in mind, I would like to review both the False Claims Act and

the Anti-Kickback Statute and how they interface. First, let us review the False Claims

Act.

The Federal False Claims Act ("FCA") is a federal statute that prohibits,

among other things, anyone from presenting a false or fraudulent claim for payment to

the Federal Government, or causing the use of a false record to get a claim paid by the

Federal Government. In the health care context, this would include billing for work not

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performed, upcoding, billing for unnecessary services, and even billing for services that

were obtained in violation of other regulations (such as the anti-kickback statute).

The FCA provides a financial incentive for people with knowledge of false claims

against the Federal Government to come forward. It does so by awarding a successful

relator (the plaintiff in a FCA case) with between 15-30% of any recovery from a

defendant.

The relator files a FCA suit (also called a "qui tam" suit) on behalf of the United

States. It is filed under seal (not a public document), along with a disclosure statement

providing evidence to the government.

While under seal, the government investigates the allegations, and decides

whether to intervene. During this period, the defendant may not even be aware of the

case. If the government intervenes, the government is the primary prosecutor (although

the relator still has input), and the relator receives 15-25% of any recovery. If the

government does not intervene, the relator can still go forward with the suit and, if

successful, receives 25-30% of any recovery.

To prove an FCA violation, the relator must show that the defendant was

responsible for a false claim to the Federal Government. The relator initially presents

this evidence in a "disclosure statement," submitted to the Government when the

complaint is filed. This disclosure statement sets forth all of the evidence the relator

possesses regarding the false claim, and generally points the Government to additional

persons or documents that would substantiate the allegations.

The evidence provided needs to be as detailed as possible. It is not sufficient to

base a complaint on rumors of wrongdoing; there should be specific allegations

showing the time, date, place and content of any false claim. It is also helpful to have

documentation supporting the allegations.

The false claim must be shown by the civil standard - preponderance of the

evidence (more likely than not); it does not have to be shown by the criminal standard -

beyond a reasonable doubt. The relator does not have to show specific intent to

defraud. The statute defines "knowingly" to include acting with "deliberate ignorance"

or "reckless disregard" of the truth or falsity of the information.

The 1986 amendments to the FCA clarified and relaxed these burdens of proof, in

part to prevent the ostrich or "head in the sand" defense. For example, a physician

signing off on a HCFA 1500 form would find it difficult to defend an FCA violation by

claiming that he knew nothing of the billing practice and left it all to his staff.


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Anyone with knowledge of the illegal conduct can bring an FCA suit. This is

often a current or former employee of a defendant. However, if the relator "planned

and initiated" the false claims violation, the award to the relator may be reduced; if the

relator is criminally convicted for his or her role, they must be dismissed from the suit.

However, there are limits on bringing an FCA suit; you must bring the case six

years from the date of the false claim, or within three years after the Government knows

or should have known of the false claim, but in no event later than ten years after the

false claim. In addition, if the allegations in the FCA suit were already "publicly

disclosed," the relator has to be the "original source" of the allegations who brought the

information to the Government before filing an action. One cannot bring an FCA suit

where the allegations are already the subject of a civil suit or administrative civil

monetary penalty proceeding where the Government is a party.

Filing a suit is not without risk, however. Once the Government decides

whether to intervene, the case is unsealed. At that point, service of the complaint is

made on the defendant and the defendant knows the identity of the relator. This may

lead to retaliation by a defendant. However, a section of the FCA provides strong

protections for whistleblowers; whether or not the relator proves the underlying FCA

violation, this provision provides significant protection to the relator. In addition, if the

defendant prevails in the suit, and the court finds the suit was clearly frivolous,

vexatious or brought for harassment, then the court may find the relator liable for the

defendant's expenses and fees.

The original 1863 False Claims Act provided for civil penalties of $2,000 per

claim. Adjusted for inflation, that is $41,000 in 2007 dollars. Currently, civil penalties

are $5,500 to $11,000 per false claim. 1 Since 1986 when the False Claims Act was

amended, lawsuits under the False Claims Act have returned $20 billion to the US

Treasury, $2 billion in 2007. Whistle-blower lawsuits resulted in $1.45 billion of the

2007 amount.'

Health care fraud has become one of the primary targets of FCA suits. Not only

has the number of FCA cases risen dramatically since 1986, but also there is a distinct

trend toward health care fraud cases. In 1994, only 18% of the cases involved health

care fraud; of the current cases, in excess of 50% involve health care fraud.

1 Taxpayers Against Fraud, False Claims Act Update and Alert, April 15, 2008.

' Sen. Charles Grassley, Press Release, November 1, 2007.


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The Medicare/Medicaid Fraud and Abuse Anti-Kickback Statute (the "Statute")

provides that the offer or payment, as well as the solicitation or receipt, of "any

remuneration" in exchange for referrals of any good, facility, service, or item for which

payment may be made in whole or in part under Medicare/Medicaid is prohibited.

The prohibited activity is a two way street, and both the payer and the receiver

are equally culpable. The definition of remuneration, however, is a gray area. While the

Statute provides that remuneration includes "any kickback, bribe or rebate," it does not

define these terms. Further, there is a prohibition against remuneration "directly or

indirectly, overtly or covertly, in cash or in kind."

Clearly, direct cash payments in exchange for referrals violate the Statute. What

is less clear, however, is what constitutes "indirect payments."

To date, the courts have interpreted the Statute in a very expansive manner. If

remuneration flows from one party to another and if referrals (or the opportunity to

provide goods and services) flow back, the potential for criminal prosecution exists

regardless of the presence of good business reasons for the venture.

Paying for referrals, directly or indirectly, overtly or covertly, violates the

Statute. Changing the form of the payment will make it no less a violation.

The Medicare and Medicaid Patient and Program Protection Act of 1987

modifies the criminal provisions of the Statute by requiring the promulgation of

regulations (the "Safe Harbors") specifying those payment practices that will not be

subject to criminal prosecution and that will not provide a basis for civil monetary

penalties or exclusion from the Medicare or Medicaid programs.

Strict compliance with the criteria for each applicable Safe Harbor is necessary to

obtain immunity under these rules. In other words, to comply with a Safe Harbor and

escape enforcement, one must meet all criteria for the particular Safe Harbor. However,

it is important to note that failure to comply fully with a Safe Harbor's criteria does not

necessarily mean that a particular practice or arrangement violates the Statute. The OIG

will evaluate activities that fail to meet Safe Harbor requirements on their own merits

for compliance with the Statute.

Please note that under the rules, payment is not the important element. Intent to

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induce a referral is the key factor.

It is very important to be sure you are in strict compliance with the anti-kickback

safe harbors that are appropriate to the transaction. Failure to do so can result in

substantial legal penalties (even if a criminal trial finds you not guilty) if the authorities

decide to pursue an investigation. In the Alvarado case in San Diego last year the

hospital and its CEO have had to bear the cost of two criminal trials and an exclusion

action.

In addition, let us not forget civil monetary penalties: In the March 2008 case of

Hardeman County Memorial Hospital, Texas, referenced above, the hospital agreed to

pay $398,230.56 to resolve its liability under the civil monetary penalties provisions

applicable to kickbacks. The hospital leased space to a physician at a rate below fair

market value.3

Violation of the anti-kickback statute is a sufficient basis for an action under the

False Claims Act. In the case of McLaren Regional Medical Center, Illinois, a

whistleblower brought an action under the Federal False Claims Act, alleging that

defendants, McLaren and Family Orthopedic violated the Statute by disguising

kickbacks for both physical therapy and occupational therapy as lease payments

between the parties. The district court, while finding that the lease agreement was an

arms length transaction and was consistent with fair market value nevertheless held

that violation of the Statute was basis for a False Claims Act case

The lesson here is if you are going to engage in these activities, it is

imperative that you play by the rules. The San Diego case brings to mind the

Kansas City case of not too long ago. In that case, after a nine-week trial in the

federal district court, a jury found two physicians and two hospital executives guilty of

violating the Statute. The physicians were members of a medical group that provided

care to patients in nursing homes. Medicare covered most of these patients.

On several occasions, clients have asked that I structure transactions that

obviously implicate the statute so that they are legal. My response is that there is no

way to rob a bank legally, and, likewise, no way to make violations of the statute legal,

except, by following the safe harbors to the letter.

3 United States Attorney Northern District of Texas, Press Release, March 17, 2008.


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I have seen a definite increase in ventures between parties where there is a

referral relationship. It is extremely important that competent counsel practicing in the

fraud and abuse area review these ventures to ensure that no violation of the Statute

exists. Improper structure can have catastrophic consequences.

© 2008 William Mack Copeland.

You can reprint any part of this newsletter by providing the following acknowledgement: "Reprinted

with permission. William Mack Copeland, www.wmcopeland.com ."

The information contained in this newsletter does not constitute legal advice. No claims, promisesor guarantees about the accuracy, completeness, or adequacy of the information containedherein. As legal advice must be tailored to the specific circumstances of each case, and laws areconstantly changing, nothing provided herein should be used as a substitute for the advice ofcompetent counsel.


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the anti-kickback statute

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