New York State Bar Association
Health Law Section
Spring Program 2007
Gregory Naclerio, Esq.
When the ball fell in Times Square on December 31st, more than 2007 was ushered in. This year will see the Federal and State governments putting a full court press on Medicare and Medicaid Fraud as well as thefts from private insurance carriers. This overview will give the new practitioner the basics of how health care fraud will be prosecuted. However, as with all fields of law, once the practitioner is familiar with the basics, a detailed course of study of the applicable regulations and case law is required to properly defend your client against allegations of Health Care Fraud.
The WHO: The Prosecution.
Fighting health care fraud is the priority of both federal and state prosecutors. The federal component is generally led by agents of the Health and Human Services, Office of the Inspector General (“OIG”). These agents are specialists in the investigation of health care fraud cases and are usually teamed-up with F.B.I. Agents or Postal Inspectors. The investigative findings of these law enforcement agents are presented to the United States Attorney’s Office for prosecution. Each U.S. Attorney’s Office has dedicated prosecutors – Health Care Fraud Criminal and Civil Coordinators – to evaluate and if appropriate, commence criminal and/or civil prosecutions.
The State’s health care fraud prosecution is vested in the Attorney General’s Medicaid Fraud Control Unit (“MFCU”). This office, consisting of auditors, investigators and prosecutors, utilizes the “team approach” in their prosecutions. With a compliment of fraud investigators located within their office, the MFCU commences its own investigations and is also responsible for prosecutions. A new state office, the Office of Medicaid Inspector General (“OMIG”), is primarily responsible for the audit of health care providers suspected of fraud and is obligated to refer potential criminal fraud to the MFCU.
Recent public criticism of the MFCU coupled with the possibility of increased federal funds if the MFCU reaches certain recovery benchmarks, will usher more investigations and vigorous prosecutions in 2007.
The WHAT: Key Federal and State Health Care Fraud Statutes.
Federal: Private Plans
Prior to August 1996 the Federal government primarily used the Mail Fraud Statute (18 USC 1341) to prosecute thefts from private healthcare insurance carriers. However, as part of the Health Insurance Portability and Accountability Act (“HIPAA”) new criminal statutes were passed to combat health insurance fraud in the private sector.
Specifically addressing tools Federal prosecutors have to prosecute Medicare/Medicaid Fraud the following statutes are of note:
In addition, the Secretary of Health and Human Services has the power to permissively exclude individuals for, inter alia:
Federal: The Anti-Kickback Statute: The Safe Harbors:
Health Care providers were becoming more and more concerned that practices they believed to be commercially reasonable could subject them to felony prosecution for violating the AKS. This concern was real as the AKS on its face was exceedingly broad in its scope. It took 15 years for the Providers to convince Congress to authorize HHS to promulgate “Safe Harbors” for “…certain commercial transactions which, while potentially prohibited by the law, would not be prosecuted.”1
Today, there are Safe Harbors that range from arrangements for space rental to arrangements “between certain qualified managed care plans and their contractors and subcontractors.” A full listing of Safe Harbors can be found at www.oig.hhs.gov and then click, Fraud Detection but the most popular Safe Harbors included:
|Space Rentals||Sale of Physician Practice|
|Equipment Rentals||Small Entity Investments|
|Personal Service and Management Services||Discounts|
While the rule is: If you are in a Safe Harbor you will not be prosecuted. However, the fact that you are not does not mean you violated the law. In short, being in a Safe Harbor means you meet each and every element of the Safe Harbor requirements and thereby qualify for a “We Will Not Prosecute You for a AKS Violation” card issued by the Government. But you can have a non-safe harbor agreement that still does not violate the AKS.
The safe harbor analogy is appropriate because if you stay in a safe harbor you’re guaranteed you won’t be captured by the pirates. If you venture out to sea the closer you get to dangerous areas the greater the chance you will get captured by the pirates. It depends on the skill of the Captain ( i.e. you) to steer a safe course and avoid capture.
An illustration of a business arrangement will help understand the Safe Harbor concept.
Dr. Neuro, is a Board Certified Neurologist with a specialty in Neuro-Diagnostics. Dr. Neuro provides EMG’s, NCV’s, SEEP’s to ascertain if the patient suffered nerve damage. She works as Chief of Neurology at St. Elsewhere Medical Center.
Dr. Family Medicine owns an office consisting of five treatment rooms and sees a lot of no-fault accident patients. Currently, Dr. Family sends his no-fault patients to Dr. Neuro testing at St. Elsewhere.
Dr. Family suggests Dr. Neuro start her own practice by renting space in his office and he will continue to send her the patients that he currently sends to St. Elsewhere. Dr. Neuro agrees and will rent two treatment rooms from Dr. Family on Tuesday and Wednesdays from 1:00 to 8:00 p.m.
Dr. Family and Dr. Neuro know that each neurological test performed on any patient referred by Dr. Family will let Dr. Neuro bill approximately $1,500. They figure the average referral will generate $3,000 to Dr. Neuro’s PC. Dr. Family proposed that the rent for the two treatment rooms (total of 240 sq. ft.) be $7,500/month.
Does this violate the AKS?
No, the AKS only pertains to Medicine/Medicaid billings. Neuro is not a Medicare/Medicaid provider, so the AKS is not applicable.2
Now change the facts. Dr. Neuro is a Medicare provider and Dr. Family will send (Medicare Private-Commercial) to Neuro for testing. The rental is still $7,500 per month.
To ensure, this transaction will not be prosecuted as an AKS violation you want to come under a Safe Harbor – the Space Rental Safe Harbor seems to fit. To meet the safe harbor you must meet all five elements. Miss one and you’re “Out!”
“This lease is for one year,” but you can have a no-cause termination clause as long as you do not enter into a new agreement between the parties for one year after termination of the agreement
For purposes of paragraph (b) of this section, the term fair market value means the value of the rental property for general commercial purposes, but shall not be adjusted to reflect the additional value that one party (either the prospective lessee or lessor) would attribute to the property as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare or a State health care program.
Fair Market Value is a key element in this five-prong test. Can you get a Certified Public Accounting Firm to give you an opinion that $7,500/month for 2 days is Fair Market Value? Is Neuro really paying for space or patients – “That is the Question”. Fair Market Value is like Judge Stewart’s response to whether he could define pornography “I know it when I see it.” Nevertheless, I recommend getting a CPA Fair Market Value opinion letter.
The OIG also posted a Fraud Alerts on its website of particular note in connection with the example above (i.e. “Rental of Space” in Physician’s Offices by an Entity or Person to which the Physician refers.)3 The new health care practitioner would do well to review this alert and other guidance on the OIG website.
The OIG also accepts individual requests to review an existing or proposed transaction and will issue an Advisory Opinion indicating whether a given set of facts violates the AKS. The procedure to be followed in requesting an Advisory Opinion along with Advisory Opinions already issued appears on the OIG web site. While the opinions only affect the Requesting Parties, a review of past and current Advisory Opinions provide general guidance to all practitioners.
Federal: The Stark Law (42 USCA 1395mm)
“The Limitation on certain physician referrals” – commonly called the “Stark Law” after its sponsor Congressman Pete Stark simply states:
Except as provided in subsection(b) of this section, if a physician (or an immediate family member of such physician) has a financial relationship with an entity specified in paragraph (2), then.
However, that is where the simplicity ends. Supplementing the Stark Law are the Stark Regulations I (Fed. Reg. Jan., 4, 2001 (Vol 66, No. 3 pp 855-904)) and Stark II Regulations (Fed. Reg. March 26, 2004 (Vol. 69, No. 59, pp16053-16146)) which take the simple premises of the Stark Law and expand its scope.4 To fully understand the Stark Law you must read the Regulations. There is no getting around that daunting task. From “definitions” to “exceptions” the Stark Law, as explained by the Regulations, needs a lot of study. However, some of the easier concepts to emerge from Stark can be distilled as follows:
To clarify these broad services the CPT Codes used to describe DHS’s are in the Fed. Reg.5 (Got to love health law alphabets soup!)
Violations of the Stark Law will require refunding of payments received for a prohibited referral; a civil monetary penalty of not more than $15,000 for each service or a $100,000 civil monetary penalty for a “circumvention scheme.” Also, exclusion from the Medicare/Medicaid programs can occur.
If you are not dealing with a service paid by Medicare/Medicaid, you still may need to examine the New York State Law for physician referral.
New York State: The Healthcare Practitioners Referral Act
New York State also believes that physicians who have a financial interest in certain ancillary services may engage in patterns of over utilization. Hence, New York passed the Health Care Practitioners Referral Act codified at 238 et seq. of the Public Health Law (PHL). Sometimes called the “State Stark” or “Mini-Stark,” the PHL states that:
(a) a practitioner authorized to order clinical laboratory services, pharmacy services, radiation therapy services, physical therapy services or x-ray or imaging services may not make a referral for such services to a health care provider authorized to provide such services where the practitioner or immediate family member of such practitioner has a financial relationship with such health care provider;
(b) a health care provider or a referring practitioner may not present or cause to be presented any individual or third party payor or other entity a claim, bill, or other demand for payment for clinical laboratory services, pharmacy services, radiation services, physical therapy services, or x-ray or imaging services furnished pursuant to a prohibited referral.
Like Stark, there are exceptions to the above stated prohibitions. However, unlike Stark there are no regulations which have been promulgated pursuant to §238 to assist in clarifying the exceptions. Violations of §238 will make referring practitioners and the health care provider “jointly and severally” liable to the payor for any amounts collection. Violation of §238 can also be deemed a violation of P.H.L. §12(b) which is a misdemeanor as well as professional misconduct (Ed Law §6530. See, also, Ed Law Regs. 8 NYCRR 29.1 et seq.)
It should also be noted that Section 238-d of the PHL has a provision concerning practitioner disclosure requirements. Specifically, with respect to referrals not prohibited by Section 238 and subject to certain exceptions contained in that section, practitioner may not make a referral to a health care provider for the furnishing of any health or health related item or service where such practitioner or immediate family member of such practitioner has a financial relationship without disclosing to the patient ownership or investment interest with such health care provider or any compensation arrangement between physician and the health care provider which is in excess of fair market value or which provides for compensation that varies directly or indirectly based upon the volume or value of any referrals between the parties.
1See, Federal Anti-kickback Law and Regulatory Safe Harbors, Fact Sheet, Nov. 1999.
2The New York State Education Law regarding paying a referral fee may be implicated (Ed Law§ 6530 (18)).
3February 23, 2000 Fraud Alert, www.oig.hhs.gov/fraud/fraudalerts.html.