Legal Issues: Fraud and AbuseNavigating Stark and Kickback

Reece Hirsch, Esq.Jordana Schwartz, Esq.

HIT Summit WestMarch 7, 2005

The Counterintuitive The Counterintuitive IndustryIndustry

Business arrangements that Business arrangements that make perfect sense in other make perfect sense in other industries can violate a host of industries can violate a host of health care laws and health care laws and regulations.regulations.

One of the most heavily One of the most heavily regulated industries.regulated industries.

A legitimate business purpose A legitimate business purpose is not a defense. is not a defense.

The Need for Health The Need for Health Care ITCare IT

Few argue that the health care industry Few argue that the health care industry desperately needs to develop a more desperately needs to develop a more sophisticated and interoperable IT sophisticated and interoperable IT infrastructure.infrastructure. In 2001, the Institute of Medicine cited IT as one of In 2001, the Institute of Medicine cited IT as one of

the principal ways to improve the quality of health the principal ways to improve the quality of health care in America.care in America.

President Bush’s call for adoption of electronic President Bush’s call for adoption of electronic health records (EHRs) in the next 10 years.health records (EHRs) in the next 10 years.

Establishment of the Office of the National Establishment of the Office of the National Coordinator for Health Information Technology Coordinator for Health Information Technology (ONCHIT)(ONCHIT)

March 3, 2005: HHS Secretary Mike Leavitt touts March 3, 2005: HHS Secretary Mike Leavitt touts EHRs to House appropriations committee.EHRs to House appropriations committee.

President Bush’s 2006 budget proposal includes President Bush’s 2006 budget proposal includes $125 million for HIT.$125 million for HIT.

The Main Barrier -- The Main Barrier -- CostCost

The pace of adoption of HCIT by The pace of adoption of HCIT by physicians has been slow and physicians has been slow and uneven.uneven. 2000 Harris survey indicated that 2000 Harris survey indicated that

only 17% of physicians in office-only 17% of physicians in office-based practice used electronic based practice used electronic medical records (EMRs).medical records (EMRs).

2003 survey: the median 2003 survey: the median physician practice spends only 2% physician practice spends only 2% of its operating budget on IT.of its operating budget on IT.

The Cost of EMRsThe Cost of EMRs Partners Healthcare in Boston – Partners Healthcare in Boston –

cost of an EMR system may cost of an EMR system may exceed $25K per provider, exceed $25K per provider, attributable to:attributable to: Hardware costsHardware costs Software licensingSoftware licensing TrainingTraining Losses in productivity Losses in productivity

associated with conversionassociated with conversion

The Cost of EMRsThe Cost of EMRs Given the narrow profit margins of most Given the narrow profit margins of most

physician practices, physicians are physician practices, physicians are unlikely to make the large investments unlikely to make the large investments necessary to implement a fully necessary to implement a fully interoperable HCIT system using EMRs.interoperable HCIT system using EMRs.

Health plans, hospitals and Health plans, hospitals and pharmaceutical companies must be the pharmaceutical companies must be the driver’s of HCIT change.driver’s of HCIT change. ““That’s where the money is” (Willie That’s where the money is” (Willie

Sutton)Sutton)

Accelerating HCIT Accelerating HCIT Adoption by PhysiciansAdoption by Physicians

Many barriers to Physician Many barriers to Physician AdoptionAdoption LegalLegal GenerationalGenerational Lack of InteroperabilityLack of Interoperability CostCost

Accelerating HCIT Accelerating HCIT Adoption by PhysicianAdoption by Physician

Many hospitals/IDNs want to Many hospitals/IDNs want to wire their wire their staff and non-staff physicians staff and non-staff physicians by providing them with:by providing them with: Office SystemsOffice Systems Handheld DevicesHandheld Devices

Fraud & abuse laws must be Fraud & abuse laws must be carefully evaluatedcarefully evaluated

Principal Health Care Principal Health Care Fraud & Abuse StatutesFraud & Abuse Statutes

The Stark LawThe Stark Law Anti-Kickback LawAnti-Kickback Law State Fraud and Abuse LawsState Fraud and Abuse Laws

The Stark LawThe Stark Law

The Basic ProhibitionThe Basic Prohibition

Prohibits a physician from Prohibits a physician from referring patients to an entity referring patients to an entity for the “furnishing” at least one for the “furnishing” at least one of 11 “designated health of 11 “designated health services” if the physician (or services” if the physician (or immediate family) has a immediate family) has a “financial relationship” with the “financial relationship” with the entity, unless the relationship entity, unless the relationship falls within an exception. falls within an exception.

Stark Law ProhibitionsStark Law Prohibitions Two Basic Prohibitions

First, if a “physician” (or “immediate family member”) has a “financial relationship” with an “entity,” then the physician may not “refer” Medicare patients “to” the entity for the furnishing of “designated health services,” unless an exception applies

Second, an entity may not bill Medicare (or any other individual or entity) for services furnished pursuant to a prohibited

referral

Stark Law - PenaltiesStark Law - Penalties

Sanctions Civil: refunds, $15,000 CMP per claim,

$100,000 for “scheme” to circumvent, permissive exclusion

Collateral: potential FCA liability ($11,000 per claim, treble damages, private whistleblowers)

The Anti-Kickback The Anti-Kickback LawLaw

The Basic ProhibitionThe Basic Prohibition It is illegal for any individual or entity It is illegal for any individual or entity

“knowingly and willfully” to offer or pay “knowingly and willfully” to offer or pay “remuneration” -- directly or indirectly, overtly “remuneration” -- directly or indirectly, overtly or covertly, in cash or in kind – to “induce” or covertly, in cash or in kind – to “induce” another individual or entity to: another individual or entity to:

““refer” an individual to a person for the refer” an individual to a person for the furnishing of any item or service for which furnishing of any item or service for which payment may be made under a federal health payment may be made under a federal health care program;care program;

““purchase,” “lease” or “order” any covered purchase,” “lease” or “order” any covered item or service; oritem or service; or

““arrange for or recommend” the purchase or arrange for or recommend” the purchase or order of any covered item or service.order of any covered item or service.

AKL- ElementsAKL- Elements Step One -

Remuneration Does proposed

arrangement provide for “remuneration” of any kind to flow from the hospital to the physician?

Step Two – Inducement Unlawful to give or to

accept remuneration in exchange for:

referring program patients purchasing or ordering

covered items arranging for others to

make such referrals/purchases/orders

recommending that others make such referrals/purchases/orders

AKL - Penalties and AKL - Penalties and SanctionsSanctions

Sanctions Criminal: five years, $25,000 fine,

mandatory exclusion Civil: $50,000 CMP, three times total

amount of “remuneration,” permissive exclusion

Collateral: potential FCA liability ($11,000 per claim, treble damages, private whistleblowers)

Stark Law v. Anti-Kickback Stark Law v. Anti-Kickback LawLaw

Differences AKL is criminal; Stark Law is civil AKL has a “state of mind” requirement; Stark

Law is “strict liability” AKL applies to arrangements between

providers, suppliers, and physicians; Stark Law is limited to physician arrangements

AKL applies to all federal health care programs (other than FEHBP); Stark Law (effectively) applies only to Medicare

Some Threshold Some Threshold QuestionsQuestions

Does the provision of HCIT by a hospital Does the provision of HCIT by a hospital to a physician = remuneration?to a physician = remuneration?

If yes, does such remuneration act as If yes, does such remuneration act as an “inducement” to the physician to an “inducement” to the physician to refer federal health care program refer federal health care program patients to the hospital? patients to the hospital?

Does provision of access or technology Does provision of access or technology for EMRs give rise to a financial for EMRs give rise to a financial relationship between the hospital and relationship between the hospital and the physician, per the Stark law?the physician, per the Stark law?

Potential Exceptions Potential Exceptions and Safe Harborsand Safe Harbors

Stark LawStark Law Non-monetary compensation up to $300Non-monetary compensation up to $300 Medical staff incidental benefitsMedical staff incidental benefits Payments at fair market valuePayments at fair market value Community wide health information Community wide health information

systemsystem Anti-Kickback LawAnti-Kickback Law

Personal servicesPersonal services Equipment rentalEquipment rental

Stark LawStark Law

ExceptionsExceptions

Non-Monetary Non-Monetary Compensation Up to Compensation Up to

$300$300 Items or services (not including cash or Items or services (not including cash or cash equivalents) that do not exceed, on cash equivalents) that do not exceed, on aggregate, $300 per year;aggregate, $300 per year;

Compensation is not determined in a Compensation is not determined in a manner that takes into account the manner that takes into account the volume or value of referrals or other volume or value of referrals or other business generated by the referring business generated by the referring physician;physician;

The compensation may not be solicited The compensation may not be solicited by the physician or his or her practice; by the physician or his or her practice; andand

The compensation arrangement does not The compensation arrangement does not violate the AKL.violate the AKL.

Medical Staff Incidental Medical Staff Incidental BenefitsBenefits

Universal availability of the benefit to Universal availability of the benefit to members of the medical staff, without members of the medical staff, without regard to the volume or value of referrals regard to the volume or value of referrals or other business generated between the or other business generated between the parties;parties;

The benefits must be offered only during The benefits must be offered only during periods when the medical staff members periods when the medical staff members are making rounds or are engaged in are making rounds or are engaged in other services or activities that benefit other services or activities that benefit the facility or its patients – CMS the facility or its patients – CMS acknowledgement that dedicated acknowledgement that dedicated electronic or Internet items or services, electronic or Internet items or services, dedicated pagers or two‑way radios may dedicated pagers or two‑way radios may meet the requirements of this exception;meet the requirements of this exception;

Medical Staff (cont.)Medical Staff (cont.) The benefits must be provided by the The benefits must be provided by the

facility and used by the medical staff facility and used by the medical staff members only on the facility’s campus - members only on the facility’s campus - CMS acknowledges that this requirement CMS acknowledges that this requirement may be met if communication devices are may be met if communication devices are used exclusively to access hospital used exclusively to access hospital medical records, patient information or medical records, patient information or patients or personnel located on campus;patients or personnel located on campus;

The benefits must be reasonably related The benefits must be reasonably related to the provision of, or designed to to the provision of, or designed to facilitate directly or indirectly the delivery facilitate directly or indirectly the delivery of, medical services at the facility;of, medical services at the facility;

Medical Staff (cont.)Medical Staff (cont.) The benefits must be of low value The benefits must be of low value

((i.e.,i.e., less than $25, now indexed for less than $25, now indexed for inflation by reference to the CPI) with inflation by reference to the CPI) with respect to each occurrence;respect to each occurrence;

The benefits must not be determined The benefits must not be determined in any manner that takes into account in any manner that takes into account the volume or value of referrals or the volume or value of referrals or other business generated between other business generated between the parties; andthe parties; and

The compensation arrangement does The compensation arrangement does not violate the federal health care not violate the federal health care program anti‑kickback law.program anti‑kickback law.

Payments at FMVPayments at FMV

Useful where physicians must Useful where physicians must pay a fee to access the pay a fee to access the networknetwork

Fee must be at FMV, without Fee must be at FMV, without regard to volume or value of regard to volume or value of DHS referrals between the DHS referrals between the entitiesentities

Community Wide Community Wide Health Information Health Information

SystemSystem Added in new Stark Phase II Added in new Stark Phase II

regulations, effective July 26, regulations, effective July 26, 20042004

Creates Stark exception for Creates Stark exception for hospitals to provide HCIT to hospitals to provide HCIT to physicians in a communityphysicians in a community

Community Wide HIS - Community Wide HIS - RequirementsRequirements

Items or services principally used by Items or services principally used by physician as part of the community-wide physician as part of the community-wide HIS;HIS;

Items or services must be provided to Items or services must be provided to physicians in a manner that do not take physicians in a manner that do not take into account the volume or value of into account the volume or value of referrals;referrals;

The HIS must be “community wide,” The HIS must be “community wide,” i.e.i.e., , available to all providers, practitioners and available to all providers, practitioners and residents of the community;residents of the community;

The arrangement does not violate the AKL. The arrangement does not violate the AKL.

Community Wide HISCommunity Wide HIS Multiple Issues:Multiple Issues:

How do you define “community?”How do you define “community?” How do you make technology How do you make technology

available to all, while ensuring available to all, while ensuring security and proper use of system? security and proper use of system?

How do you finance such a system?How do you finance such a system? Difficulty in ensuring compliance Difficulty in ensuring compliance

with AKL.with AKL.

Anti-Kickback LawAnti-Kickback Law

Safe HarborsSafe Harbors

AKL – Personal Services & AKL – Personal Services & Equipment Safe HarborsEquipment Safe Harbors

Arrangement is in writingArrangement is in writing The written agreement covers all the The written agreement covers all the

services/items the EMR network will provideservices/items the EMR network will provide If the arrangement is for part-time or If the arrangement is for part-time or

sporadic use (as opposed to full-time), the sporadic use (as opposed to full-time), the agreement specifies the exact schedule of agreement specifies the exact schedule of useuse

The aggregate compensation over the term The aggregate compensation over the term of the agreement is set in advance, of the agreement is set in advance, consistent with FMV, and not determined in a consistent with FMV, and not determined in a manner that takes into account existing or manner that takes into account existing or expected referrals of federal health care expected referrals of federal health care program business between the partiesprogram business between the parties

Assessing RiskAssessing Risk If arrangement does not fit within an AKL safe

harbor, what are the risk factors? To what extent are AKL policy objectives

implicated? Has OIG issued any guidance (fraud alerts,

advisory opinions, etc.)? What is current enforcement environment? What is organization’s risk tolerance level?

Removing the Fraud Removing the Fraud and Abuse Barriers to and Abuse Barriers to

HCITHCIT GAO Report finds F&A laws are barrier GAO Report finds F&A laws are barrier

to HCIT disseminationto HCIT dissemination Revisions to Stark regulations or Revisions to Stark regulations or

possible new safer harbor under the possible new safer harbor under the AKLAKL

Promotion of interoperability and Promotion of interoperability and open-source software may minimize open-source software may minimize the need for a sponsor to fund a the need for a sponsor to fund a networknetwork

Use of RHIOs with multiple funding Use of RHIOs with multiple funding sources, greater availability and accesssources, greater availability and access

Some Examples and Some Examples and Case StudiesCase Studies

Hospital

ClinicalLab

Pharmacy

MedicalStaff

MemberPhysicians

UnaffiliatedPhysicians

DHS Referrals

Remuneration

DHS

Referra

ls

RemunerationRemuneration

RemunerationDHS DHS Referrals

EXAMPLEEXAMPLE 1 1

DHS Referrals

Hand-held DevicesHand-held Devices A hospital’s provision of PDAs and A hospital’s provision of PDAs and

other hand-held devices to physicians other hand-held devices to physicians would constitute “remuneration” under would constitute “remuneration” under the anti-kickback law.the anti-kickback law.

Are the PDAs used to order Are the PDAs used to order prescriptions and other services paid prescriptions and other services paid for by Medicare or Medi-Cal? Most for by Medicare or Medi-Cal? Most likely.likely.

Analysis will always be highly fact-Analysis will always be highly fact-specific.specific.

Computers and Computers and ConnectivityConnectivity

Hospital provides computers and Hospital provides computers and Internet connectivity to medical staff Internet connectivity to medical staff physicians.physicians. Serves a legitimate purpose – aiding Serves a legitimate purpose – aiding

clinical communications.clinical communications. Computers and connectivity constitute Computers and connectivity constitute

“remuneration.”“remuneration.” Are the computers dedicated to the Are the computers dedicated to the

function or can they be used for general function or can they be used for general business operations of the physician business operations of the physician practice?practice?

OIG Advisory Opinion OIG Advisory Opinion 99-1499-14

OIG considered a telemedicine network OIG considered a telemedicine network funded by a health system.funded by a health system.

Health system funded transmission line Health system funded transmission line charges, equipment maintenance and charges, equipment maintenance and purchase of new equipment by rural purchase of new equipment by rural physicians.physicians.

OIG chose not to impose sanctions, finding OIG chose not to impose sanctions, finding that community benefits outweighed that community benefits outweighed potential for abuse.potential for abuse.

No guarantee that same conclusion would be No guarantee that same conclusion would be reached in a non-rural setting or for other reached in a non-rural setting or for other technologies.technologies.

Independent Regional Health

Information Organization

Hospital

ClinicalLabs

Physicians

NursingHome

Technology

Remuneration

Funds

FundsFunds

Technology

FundsFunds

EXAMPLEEXAMPLE 2 2

Technology

Breaking the Link Breaking the Link Between Funding and Between Funding and

Referral SourcesReferral Sources RHIOs offer the possibility of providing RHIOs offer the possibility of providing

HCIT solutions to physicians through a HCIT solutions to physicians through a vehicle that is not directly linked to a vehicle that is not directly linked to a referral source.referral source.

RHIO organizational models:RHIO organizational models: Tax-exempt 501(c)(3) organization.Tax-exempt 501(c)(3) organization. Non-profit mutual benefit organization.Non-profit mutual benefit organization. For-profit corporation or LLC capitalized For-profit corporation or LLC capitalized

by multiple parties (perhaps with by multiple parties (perhaps with minority hospital interest).minority hospital interest).

Breaking the Link Breaking the Link Between Funding and Between Funding and

Referral SourcesReferral Sources The Office of Inspector General (OIG) The Office of Inspector General (OIG)

has issued advisory opinions has issued advisory opinions indicating that an intermediary indicating that an intermediary charitable organization can “break charitable organization can “break the link” between funding source the link” between funding source and referrals:and referrals: Patient assistance program funded Patient assistance program funded

by operators of dialysis facilities.by operators of dialysis facilities. Program offering financial assistance Program offering financial assistance

for medical expenses funded by drug for medical expenses funded by drug manufacturers. manufacturers.

Reece Hirsch, Esq. – San Francisco

415.882.5040rhirsch@sonnenschein.com

Jordana G. Schwartz, Esq.- New York

212.768.6752jgschwartz@sonnenschein.com

Sonnenschein Nath & Rosenthal LLP