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What You Need To Know About Federal Restrictions On Referral Relationships (Online-Only Article)

By Patrick Craig, JD*

Given the important role that referral relationships play in dentistry, practitioners need a basic understanding of the applicable state and federal laws that govern health care referrals.  Below is a brief explanation of how the two most important of these laws work, namely the Stark Law and the Anti-Kickback Statute, and how to ensure that your practice avoids any potential liability.

The Stark Law

The Stark Law, named after Congressman Pete Stark, is the federal law regulating physician self-referrals of Medicare and Medicaid patients.  The first phase of the Stark Law (Stark I) went into effect January 1, 1992 and barred self-referrals for clinical laboratory services under the Medicare program.  Since that time, the Stark Law has been expanded and clarified through statutory amendments and federal regulations promulgated by the Centers for Medicare and Medicaid Services (CMS).

Today, the Stark Law generally provides that a physician may not make a “referral” of a Medicaid or Medicare patient for a “designated health service” to an entity in which the physician (or an immediate family member of the physician) has a “financial relationship.”

Each of those key terms is defined broadly by the statute, with an extensive system of exceptions to protect permissible referrals from the ban.  For example, the term “financial relationship” is generally defined to mean any ownership or investment interest as well as any arrangement involving remuneration of any kind.   Obviously, this general definition is quite inclusive.  However, there are a number of exceptions to the definition, including ownership of publicly-traded securities, bona fide employment relationships, as well as certain real estate and equipment leases and personal service agreements, provided that those arrangements are in writing and meet certain other criteria.

Also excluded from the definition of “financial relationship” is certain de minimis non-monetary compensation (e.g., meals, gifts, etc.).  To fall within this de minimis exception, the aggregate yearly value of the compensation must not exceed a certain statutory limit, which is adjusted for inflation each year ($385 for calendar year 2014).  Further, the compensation must not (i) be determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician; (ii) be solicited by the referring physician or his or her staff; or (iii) violate the Anti-Kickback Statute (discussed below) or other federal or state law.

The Stark Law imposes stiff penalties for violating the ban on restricted referrals, including denial/refund of payment to an entity that knowingly accepts a prohibited referral, imposition of a $15,000 per service civil penalty, and imposition of a $100,000 civil penalty for each arrangement considered to be a scheme intended to circumvent the Stark ban.

In addition to the federal Stark Law, many states have enacted similar bans on certain physician referrals.  These laws, sometimes referred to as “mini-Stark laws,” vary widely from state to state in both content and enforcement.  For example, some states have adopted statutes that contain language very similar to the federal Stark Law, banning physician referrals for designated health services to an entity in which the physician has a financial interest.  Others have adopted a notice approach, requiring a referring physician to disclose to the patient in writing any financial interest that he or she may have in the referred entity.  Still others have declined to adopt any state counterpart to the federal Stark Law.

Due to the wide-ranging scope and content of state mini-Stark laws, it is possible that a referral which is permissible under federal Stark Law may be prohibited under state law (for example, some mini-Stark laws reach beyond the federal scheme to encompass private insurance, as well as Medicare and Medicaid, include a broader scope of services as designated health services, and/or contain fewer explicit exceptions than the federal scheme).  It is therefore important for practitioners to be familiar with at least the basic parameters of their state’s self-referral laws.

Anti-Kickback Statutes

The federal Anti-Kickback Statute also plays a role in regulating certain referral relationships.  Like the Stark Law, the Anti-Kickback Statute is broad on its face with a number of exceptions.  Generally speaking, the statute prohibits giving anything of value in order to induce either (i) referrals for; or (ii) the purchase, ordering, or recommendation of any item or service covered by Medicaid, Medicare, or any other federally funded health care program.

Some exceptions to the Anti-Kickback Statute (called “safe harbors”) include certain employment arrangements, personal service and management contracts, real estate and equipment leases, practice sales, and investments in a group practice, provided that the arrangement meets certain requirements.

Unlike the Stark Law, the federal Anti-Kickback Statute does not contain an explicit safe harbor for de minimis gifts.  However, subsequent guidance has suggested that gifts of nominal value will not be a violation of the Anti-Kickback Statute, since such nominal gifts are unlikely to induce an impermissible referral.

Further, even if an arrangement that would otherwise fall within the general prohibition does not fit within a defined “safe harbor”, it does not necessarily mean that the Anti-Kickback Statute has been violated.  Unlike the Stark Law, the Anti-Kickback Statute is a criminal statute and requires that a practitioner act with a specific intent to violate the law.  Accordingly, the Anti-Kickback Statute will not be violated by a practitioner who is acting in good faith without any intent to violate the law or illegally generate referrals, even if the practitioner’s actions do not fall within a “safe harbor” under the statute.

Because the Anti-Kickback Statute is a criminal statute, violations can result in criminal sanctions, including a fine of up to $25,000 and imprisonment of up to five years for each violation.  In addition, a violator may be excluded from participation in the applicable government health care program, and face civil monetary penalties.

A number of states have also enacted their own versions of the Anti-Kickback Statute. Like the mini-Stark laws, these laws can vary significantly from state-to-state.  Practitioners should therefore familiarize themselves with the general scope of their state’s Anti-Kickback Statute.

Recommendations

We recommend that dental professionals take the following actions to better protect themselves from potential violations of the federal Stark Law and Anti-Kickback Statute as well as their state law counterparts:

1. Know the Basics - The statutory schemes discussed above are complicated and the accompanying regulations can be overwhelming.  While it likely isn’t practical for you to learn the intricacies of each one, knowing the general purpose of each law and their basic elements can help you to spot a potential issue and seek further legal counsel.

2. Get State Specific - As discussed above, the state law equivalents to the federal Stark Law and Anti-Kickback Statute vary significantly from state to state.  Get familiar with your state’s statutory scheme.  Is it more inclusive than its federal counterpart? Less?  Knowing can help to ensure that you are in compliance with both state and federal law.

3. Put it in Writing - A number of exceptions to the Stark Law and safe harbors to the Anti-Kickback Statute (e.g. lease agreements, personal service agreements, etc.) require that an agreement be in writing to qualify as an exception.  For that reason (along with a number of others) it is a good idea to set out all business arrangements in writing.

4. Consult Legal Counsel - If you have a question about a referral relationship, it is better to consult legal counsel at the outset than to potentially expose yourself to significant penalties (and potential jail time) down the road.


* Patrick Craig is an associate attorney at McGill and Hassan, P.A., a law firm that specializes in providing legal services to dental professionals. For more information call 704.424.5450.

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The McGill Advisory is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.

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