Authors: Fred M. Lara, CFA, ASA, CVA, David W. Sands, CVA, and William G. Kaufmann, Jr., JD/MBA
The Anti-Kickback Statute, Stark Law, and False Claims Act have been the primary enforcement tools used by federal prosecutors to curb healthcare fraud in the hospital sector. These regulations have been used to focus on waste, fraud, and abuse prevention in federal healthcare programs, (i.e., Medicare and Medicaid). Until recently, industry participants not participating in these federal healthcare programs were seen to be outside of the purview of federal regulators.
A recent enforcement action from the Department of Justice (“DOJ”) in the Northern District of Texas exemplifies the lengths to which regulators will go to protect patients from providers that use cash to steer patients in a manner not solely focused on patient care, regardless of such providers’ participation in federal healthcare programs. Specifically, the DOJ relied on “a relatively obscure federal law that appears to expand the reach of federal prosecutors to include commercial and private-pay business that many assumed would fall outside of federal jurisdiction”[1] to help take down a nearly $200 million kickback scheme surrounding a high-reimbursement patient population.[2] The convictions derived from arrangements between Forest Park Medical Center and local physician practices whereby the hospital provided physicians with advertising dollars in exchange for surgeries through “marketing arrangements.” Although the arrangements appeared to be a “standard” exchange of services for dollars, the DOJ argued that the objective of the marketing arrangements was to steer referrals in exchange for dollars. The “relatively obscure federal law” referenced above, known as the Travel Act,[3] originally aimed at combatting organized crime across state lines.[4]
The Travel Act prohibits use of travel, mail “‘or any facility’ in interstate or foreign commerce with the intent to (1) distribute the proceeds of unlawful activity, (2) commit violent crime in furtherance of unlawful activity, or (3) ‘otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity.’”[5] As applied to Forest Park, a facility executive “violated the Travel Act when he used email to facilitate the payment of bribes and kickbacks prohibited by the Texas commercial bribery statute.”[6] In essence, regulators shoehorned the Texas state commercial bribery laws into a federal Anti-kickback enforcement action (i.e., “federalization” of state law).[7]
Ensuring commercial reasonableness and fair market value (“FMV”) of referral source physician arrangements remains the primary methodology for maintaining regulatory compliance. The Forest Park case indicates that enforcement actions are no longer limited to designated health services under federal regulations, but healthcare services rendered to patients of all payors under state commercial bribery laws and federal Stark, Anti-Kickback and False Claims Act regulatory schemes.[8]
FMV Pitfall: When determining the FMV of compensation and commercial reasonableness of professional services, healthcare operators must consider the underlying motivations for the arrangements in addition to the federal and state regulatory requirements. In the context of arrangements that carve out federal healthcare programs, particular attention should be focused on the purpose and rationale of the relationship.