Kusserow’s Corner: How Kickbacks Result in Civil False Claims Fraud Actions

July 2013 provides another reminder that the HHS Office of Inspector General (OIG) and the Department of Justice (DOJ) continue their priority of focusing on False Claims Act (FCA) (31 USC secs. 3729-3733) cases involving violations of the Anti-Kickback Statute (AKS) where remuneration is given in return for referrals.  Hardly a day passed where another case was not announced by these agencies. In the last couple of years, scores of hospitals and physician groups have been implicated with AKS issues.  A great majority of organizations under Corporate Integrity Agreements (CIAs) have involved kickback cases resolved under the Federal False Claims Act. Most of the cases are brought to the attention of DOJ by “whistleblowers,” often physicians or others in a position to witness unlawful arrangements.  (For more on whistleblowers, see section 3730 of the FCA.) AKS cases range from those involving physician practices to hospitals, skilled nursing facilities, emergency transportation companies, DME suppliers, and others.  The AKS is the major cause of action against pharmaceutical companies. Many are unable to see the connection between kickbacks with being charged with submitting false claims to federally financed health care programs.

The AKS was created to ensure that physicians make treatment decisions based on the needs of the patient rather than physicians’ own financial gain.  In short, it was designed to eliminate the corrupt influence of money on patient care decisions.  It prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration to induce or reward the improper referral of items or services reimbursable by a federal health care program. Any arrangement that has a purpose to induce or reward referrals creates a violation of the AKS.  This is so regardless of whether there are legitimate reasons for the arrangement and the services claimed were necessary and performed properly.  For years, the DOJ and the OIG held the view that all claims arising from a corrupt arrangement under the AKS were false and fraudulent. 

The Patient Protection and Affordable Care Act (PPACA) added language reinforcing this position and made it clear that a claim which originates from a referral in violation of the AKS constitutes a “false claim.” Accordingly, in addition to violating the AKS, a violation of the AKS can be the basis for liability under the FCA.  What this means is that the FCA definitely applies to the AKS. The effect of these changes under PPACA is that the OIG and the DOJ have increased their enforcement actions, employing the FCA in connection with the AKS.  All one has to do to see what is occurring is to review the HHS OIG list of Corporate Integrity Agreements.  There you will find that the great majority of the cases are FCA cases predicated and supported by the AKS.

What does this mean for compliance officers?  They should redouble efforts to ensure ongoing monitoring of arrangements with referral sources; and the same holds true for ongoing auditing. In the former, those responsible for developing and managing physician arrangements should (a) be aware of existing applicable laws and regulations relating to such arrangements; (b) develop policies and procedures for ensuring compliance with this; (c) ensure that those overseeing development of these types of arrangements are trained on the written guidance; and (d) verify that the proper written guidance is being properly followed. For ongoing auditing, there needs to be outside oversight of the process to validate that ongoing monitoring is achieving the objectives.

The difficulty for many compliance officers (COs) is that they feel constrained from involving themselves in an area that has been traditionally reserved for legal counsel.  With hundreds of organizations being found violating the AKS with their physician arrangements, COs cannot always avoid this high-risk area and defer to legal counsel. Many COs find turning to outsider experts may be the answer to the problem. In any case, this highest of risk areas must be addressed on an ongoing basis. Things to consider when reviewing physician arrangements:

  1. Ensure there is an “Arrangements Database” that tracks all arrangements and includes the key terms and conditions.
  2. Look to the process by which the medical needs for arrangements and how to fulfill them were determined.
  3. Examine the “four corners” of the agreement for compliance with both the AKS and Stark Laws, especially in the determination of fair market value and the commercial reasonableness of the work to be performed.
  4. Audit the process and controls, ensuring performance under the contract was evidenced before payments were made.
Richard P. Kusserow served as DHHS Inspector General for 11 years.  He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters.  The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2013 Strategic Management Services, LLC.  Published with permission.