Kickback Allegations Illustrate Compliance Challenges of Complex Transactions.

This spring, the Department of Justice (DOJ) intervened in a two-year-old qui tam whistleblower lawsuit against a hospital and oncology practice in Memphis, Tennessee. DOJ accused the hospital of violating the Anti-Kickback Statute (AKS) and the False Claims Act (FCA) by paying the oncology practice for its patient referrals. The hospital and the practice have maintained that the complex series of contracts between them represented a lawful business relationship meant to create a new cancer treatment center.

The AKS is a criminal statute that prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by federal health care programs. Remuneration goes beyond cash payments and includes anything of value. If the AKS applies, conduct may still be lawful if it falls into one of several “safe harbors.” Some of the most common safe harbors are the investment interest safe harbor, specific types of rental agreements for office space or equipment, and contracts for personal services that meet certain criteria. The AKS is often enforced in conjunction with the FCA, which imposes civil liability for knowingly submitting false claims to the government. Importantly, the FCA carries severe consequences, including treble damages and a per-claim penalty that increases each year with inflation ($12,537 per claim for 2022).

In this case, the arrangement between the hospital and practice involved several distinct agreements. First, the hospital purchased many of the assets of the practice, including offices and equipment. Second, the hospital leased approximately 200 physician and non-physician employees from the practice. These first two agreements were supported by fair market value (FMV) opinions. Third, the hospital paid the physicians for management services under a Management Services Agreement (MSA). Lastly, the hospital made a several-million-dollar investment in a for-profit research entity controlled by the practice’s owners.

This case illustrates some of the compliance challenges involved in complex transactions. Any time an entity provides compensation to a referral source, it should perform a risk analysis regarding compliance with the AKS and other healthcare laws, such as the Stark Law or EKRA. This includes purchases, joint ventures, and many other types of relationships and transactions. If the arrangement with the referral source is multifaceted, then each individual agreement and revenue stream should be analyzed as well as the arrangement as a whole. The intent of the parties and the practical effects of the arrangement are also often essential to the analysis. A thorough risk analysis may lead to a more efficient and compliant structure and decrease the likelihood of government enforcement.

For over 35 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding the healthcare regulatory landscape. If you or your healthcare entity has any questions pertaining to healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com.