Safe Harbor Defenses to Health Care Fraud Kickback Charges

Posted on November 14, 2023 by Michael Lowe.

Evolving Safe Harbor Provisions to the Federal Anti-Kickback Law can form the Basis for a Defense to Health Care Fraud Charges

Kickbacks are illegal activities that can happen in all sorts of endeavors, from construction and real estate development to banking or politics. The term is broadly defined by Cornell Law School, citing Fischer v. United States, 529 U.S. 667 (2000), as:

a misappropriation of funds that enriches a person of power or influence who uses the power or influence to make a different individual, organization, or company richer. Often, kickbacks result from a corrupt bidding scheme. Through corrupt bidding, the official can award the contract to a company, even though the company did not place the lowest bid. The company profits by having been awarded the bid and getting to perform the contract. In exchange for this corrupt practice, the company pays the official a portion of the profits. This portion is the “kickback.”

Such a practice falls within a sphere of practices often referred to as “anti-competitive practices.” Organized crime has been traced using kickbacks for many years. Some also consider kickbacks to be a type of bribery.

Kickbacks are a known temptation in the health care industry. For physicians and others involved in medical care or treatment in this country, there are specific laws defining felony crimes when the “misappropriation of funds” deals with any application for any benefit or payment under a federal health care program. See, 42 U.S.C. § 1320a–7b (federal Anti-Kickback Statute) and Section 1128B(b) of the Social Security Act.

Federal Anti-Kickback Statute (AKS)

The federal Anti-Kickback Statute (“AKS”) defines “illegal remunerations” in 42 U.S.C. § 1320a-7b(b) as follows:

(1) whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind–

(A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,

shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

(2) whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person–

(A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,

shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

For more on the overall criminal defense perspective of this complex statute, read our earlier discussion in Texas Physicians’ Risk of Arrest: Criminal Defense Overview of Federal Anti-Kickback Statute (AKS).

In sum, the AKS is federal law defining criminal activity as felony crimes when proof is provided of prohibited financial incentives being given for things like patient referrals. It creates crimes that are considered to protect the patient’s best interests by outlawing even the offer to exchange any kind of remuneration (even if it never happens) to get referrals for services or to get items that are eligible for monetary reimbursement under federal healthcare programs (e.g., Medicare, Medicaid, Tricare).

Examples of serious felony AKS criminal charges can involve factual scenarios like:

Joint ventures between hospitals or clinics and other health care providers, where referrals are confined solely within their group;
Lab or pharmacy referrals where incentives are given to doctors and others for patient referrals; or
Drug company incentives (including speaking fees or trips) given to physicians or other health care providers in promotion of prescribing their drugs or pharmaceuticals over the competition.

These can be very serious criminal matters. From a criminal defense standpoint, of key importance here are regulatory definitions that exclude some financial arrangements or agreements as being outside the AKS.

These are defined as “safe harbors,” and they are legally defined defenses to any kickback charge against a physician or other health care provider. See 42 CFR §1001.952.

AKS Safe Harbor Defenses

The AKS safe harbor regulations involve a laundry list of situations where various payments or business practices that by definition cannot be used by the prosecution in defining kickbacks in violation of the Anti-Kickback Statute. The safe harbors are legally acceptable dealings between doctors or physicians and other members of the health care industry.

If the facts support a safe harbor, then criminal AKS charges should not be brought, and if they have been brought, they should be dismissed.

The Ribbon of Fair Market Value

Defense review of the underlying facts in any health care fraud investigation must consider all the transactions at issue. One thing to keep in mind: a sweeping characteristic of all AKS safe harbors is the existence of fair market value within the subject transaction. If things were done at market rate, then the incentive to influence another’s actions (or failure to act) arguably does not exist and there is no kickback by definition.

Growing List of Regulatory Safe Harbors

The list of situations where federal law blocks the prosecution of health care providers from AKS charges continues to grow over time. Amendments can, and do, occur.

Defense strategy must include a review of the current regulation list to confirm whether or not the facts in a particular case are covered by a safe harbor.

The safe harbors as of November 7, 2023, appearing in 42 CFR §1001.952 are as follows:

Investment interests. As used in section 1128B of the Act, “remuneration” does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor as long as all of the applicable standards are met within one of the following three categories of entities (details here).
Space rental. As used in section 1128B of the Act, “remuneration” does not include any payment made by a lessee to a lessor for the use of premises, as long as all of the following six standards are met (details here).
Equipment rental. As used in section 1128B of the Act, “remuneration” does not include any payment made by a lessee of equipment to the lessor of the equipment for the use of the equipment, as long as all of the following six standards are met (details here).
Personal services and management contracts and outcomes-based payment arrangements. As used in section 1128B of the Act, “remuneration” does not include any payment made by a principal to an agent as compensation for the services of the agent, as long as all of the following standards are met: (details here).
Sale of practice. As used in section 1128B of the Act, “remuneration” does not include any payment made to a practitioner by another practitioner where the former practitioner is selling his or her practice to the latter practitioner, as long as both of the following two standards are met (details here) and it also does not include any payment made to a practitioner by a hospital or other entity where the practitioner is selling his or her practice to the hospital or other entity, so long as the following four standards are met (details here).
Referral services. As used in section 1128B of the Act, “remuneration” does not include any payment or exchange of anything of value between an individual or entity (“participant”) and another entity serving as a referral service (“referral service”), as long as all of the following four standards are met (details here)
Warranties. As used in section 1128B of the Act, “remuneration” does not include any payment or exchange of anything of value under a warranty provided by a manufacturer or supplier of one or more items and services (provided the warranty covers at least one item) to the buyer (such as a health care provider or beneficiary) of the items and services, as long as the buyer complies with all of the following standards in paragraphs (g)(1) and (2) of this section and the manufacturer or supplier complies with all of the following standards in paragraphs (g)(3) through (6) of this section (details here).
Discounts. As used in section 1128B of the Act, “remuneration” does not include a discount, as defined in paragraph (h)(5) of this section, on an item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs for a buyer as long as the buyer complies with the applicable standards of paragraph (h)(1) of this section; a seller as long as the seller complies with the applicable standards of paragraph (h)(2) of this section; and an offeror of a discount who is not a seller under paragraph (h)(2) of this section so long as such offeror complies with the applicable standards of paragraph (h)(3) of this section (details here).
Employees. As used in section 1128B of the Act, “remuneration” does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs. For purposes of paragraph (i) of this section, the term employee has the same meaning as it does for purposes of 26 U.S.C. 3121(d)(2) (details here).
Group purchasing organizations. As used in section 1128B of the Act, “remuneration” does not include any payment by a vendor of goods or services to a group purchasing organization (GPO), as part of an agreement to furnish such goods or services to an individual or entity as long as both of the following two standards are met (details here).
Waiver of beneficiary copayment, coinsurance and deductible amounts. As used in section 1128B of the Act, “remuneration” does not include any reduction or waiver of a Federal health care program beneficiary’s obligation to pay copayment, coinsurance or deductible (for purposes of this subparagraph (k) “cost-sharing”) amounts as long as all the standards are met within one of the following categories of health care providers or suppliers (details here).
Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans. (1) As used in section 1128B of the Act, “remuneration” does not include the additional coverage of any item or service offered by a health plan to an enrollee or the reduction of some or all of the enrollee’s obligation to pay the health plan or a contract health care provider for cost-sharing amounts (such as coinsurance, deductible, or copayment amounts) or for premium amounts attributable to items or services covered by the health plan, the Medicare program, or a State health care program, as long as the health plan complies with all of the standards within one of the following two categories of health plans (details here).
Price reductions offered to health plans. (1) As used in section 1128B of the Act, “remuneration” does not include a reduction in price a contract health care provider offers to a health plan in accordance with the terms of a written agreement between the contract health care provider and the health plan for the sole purpose of furnishing to enrollees items or services that are covered by the health plan, Medicare, or a State health care program, as long as both the health plan and contract health care provider comply with all of the applicable standards within one of the following four categories of health plans (details here).
Practitioner recruitment. As used in section 1128B of the Act, “remuneration” does not include any payment or exchange of anything of value by an entity in order to induce a practitioner who has been practicing within his or her current specialty for less than one year to locate, or to induce any other practitioner to relocate, his or her primary place of practice into a HPSA for his or her specialty area, as defined in Departmental regulations, that is served by the entity, as long as all of the following nine standards are met (details here).
Obstetrical malpractice insurance subsidies. As used in section 1128B of the Act, “remuneration” does not include any payment made by a hospital or other entity to another entity that is providing malpractice insurance (including a self-funded entity), where such payment is used to pay for some or all of the costs of malpractice insurance premiums for a practitioner (including a certified nurse-midwife as defined in section 1861(gg) of the Act) who engages in obstetrical practice as a routine part of his or her medical practice in a primary care HPSA, as long as all of the following seven standards are met (details here).
Investments in group practices. As used in section 1128B of the Act, “remuneration” does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to a solo or group practitioner investing in his or her own practice or group practice if the following four standards are met (details here).
Cooperative hospital service organizations. As used in section 1128B of the Act, “remuneration” does not include any payment made between a cooperative hospital service organization (CHSO) and its patron-hospital, both of which are described in section 501(e) of the Internal Revenue Code of 1986 and are tax-exempt under section 501(c)(3) of the Internal Revenue Code, where the CHSO is wholly owned by two or more patron-hospitals, as long as the following standards are met (details here).
Ambulatory surgical centers. As used in section 1128B of the Act, “remuneration” does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor, as long as the investment entity is a certified ambulatory surgical center (ASC) under part 416 of this title, whose operating and recovery room space is dedicated exclusively to the ASC, patients referred to the investment entity by an investor are fully informed of the investor’s investment interest, and all of the applicable standards are met within one of the following four categories (details here).
Referral arrangements for specialty services. As used in section 1128B of the Act, “remuneration” does not include any exchange of value among individuals and entities where one party agrees to refer a patient to the other party for the provision of a specialty service payable in whole or in part under Medicare, Medicaid or any other Federal health care programs in return for an agreement on the part of the other party to refer that patient back at a mutually agreed upon time or circumstance as long as the following four standards are met (details here).
Price reductions offered to eligible managed care organizations. (1) As used in section 1128(B) of the Act, “remuneration” does not include any payment between: (i) An eligible managed care organization and any first tier contractor for providing or arranging for items or services, as long as the following three standards are met (details here).
Price reductions offered by contractors with substantial financial risk to managed care organizations. (1) As used in section 1128(B) of the Act, “remuneration” does not include any payment between: (i) A qualified managed care plan and a first-tier contractor for providing or arranging for items or services, where the following five standards are met (details here).
Ambulance replenishing. (1) As used in section 1128B of the Act, “remuneration” does not include any gift or transfer of drugs or medical supplies (including linens) by a hospital or other receiving facility to an ambulance provider for the purpose of replenishing comparable drugs or medical supplies (including linens) used by the ambulance provider (or a first responder) in connection with the transport of a patient by ambulance to the hospital or other receiving facility if all of the standards in paragraph (v)(2) of this section are satisfied and all of the applicable standards in either paragraph (v)(3)(i), (v)(3)(ii) or (v)(3)(iii) of this section are satisfied. However, to qualify under paragraph (v), the ambulance that is replenished must be used to provide emergency ambulance services an average of three times per week, as measured over a reasonable period of time. Drugs and medical supplies (including linens) initially used by a first responder and replenished at the scene of the illness or injury by the ambulance provider that transports the patient to the hospital or other receiving facility will be deemed to have been used by the ambulance provider (details here).
Health centers. As used in section 1128B of the Act, “remuneration” does not include the transfer of any goods, items, services, donations or loans (whether the donation or loan is in cash or in-kind), or combination thereof from an individual or entity to a health center (as defined in this paragraph), as long as the following nine standards are met (details here).
Electronic prescribing items and services. As used in section 1128B of the Act, “remuneration” does not include nonmonetary remuneration (consisting of items and services in the form of hardware, software, or information technology and training services) necessary and used solely to receive and transmit electronic prescription information, if all of the following conditions are met (details here)
Electronic health records items and services. As used in section 1128B of the Act, “remuneration” does not include nonmonetary remuneration (consisting of items and services in the form of software or information technology and training services, including cybersecurity software and services) necessary and used predominantly to create, maintain, transmit, receive, or protect electronic health records, if all of the conditions in paragraphs (y)(1) through (13) of this section are met (details here)
Federally Qualified Health Centers and Medicare Advantage Organizations. As used in section 1128B of the Act, “remuneration” does not include any remuneration between a federally qualified health center (or an entity controlled by such a health center) and a Medicare Advantage organization pursuant to a written agreement described in section 1853(a)(4) of the Act (details here)
Medicare Coverage Gap Discount Program. As used in section 1128B of the Act, “remuneration” does not include a discount in the price of a drug when the discount is furnished to a beneficiary under the Medicare Coverage Gap Discount Program established in section 1860D–14A of the Act, as long as all the following requirements are met (details here)
Local Transportation. As used in section 1128B of the Act, “remuneration” does not include free or discounted local transportation made available by an eligible entity (as defined in this paragraph (bb)) (1) To Federal health care program beneficiaries if all the following conditions are met (details here)
Point-of-sale reductions in price for prescription pharmaceutical products. (1) As used in section 1128B of the Act, “remuneration” does not include a reduction in price from a manufacturer to a plan sponsor under Medicare Part D or a Medicaid Managed Care Organization for a prescription pharmaceutical product that is payable, in whole or in part, by a plan sponsor under Medicare Part D or a Medicaid Managed Care Organization, provided the following conditions are met with regard to that reduction in price (details here)
PBM service fees. (1) As used in section 1128B of the Act, “remuneration” does not include any payment by a pharmaceutical manufacturer to a pharmacy benefit manager (PBM) for services the PBM provides to the pharmaceutical manufacturer related to the pharmacy benefit management services that the PBM furnishes to one or more health plans as long as the following conditions are met (details here)
Care coordination arrangements to improve quality, health outcomes, and efficiency. As used in section 1128B of the Act, “remuneration” does not include the exchange of anything of value between a VBE and VBE participant or between VBE participants pursuant to a value-based arrangement if all of the standards in paragraphs (ee)(1) through (13) of this section are met (details here)
Value-based arrangements with substantial downside financial risk. As used in section 1128B of the Act, “remuneration” does not include the exchange of payments or anything of value between a VBE and a VBE participant pursuant to a value-based arrangement if all of the following standards in paragraphs (ff)(1) through (8) of this section are met (details here)
Value-based arrangements with full financial risk. As used in section 1128B of the Act, “remuneration” does not include the exchange of payments or anything of value between the VBE and a VBE participant pursuant to a value-based arrangement if all of the standards in paragraphs (gg)(1) through (9) of this section are met (details here)
Arrangements for patient engagement and support to improve quality, health outcomes, and efficiency. As used in section 1128B of the Act, “remuneration” does not include a patient engagement tool or support furnished by a VBE participant to a patient in the target patient population of a value-based arrangement to which the VBE participant is a party if all of the conditions in paragraphs (hh)(1) through (9) of this section are met (details here)
CMS-sponsored model arrangements and CMS-sponsored model patient incentives. As used in section 1128B of the Act, “remuneration” does not include an exchange of anything of value between or among CMS-sponsored model parties under a CMS-sponsored model arrangement for which CMS has determined that this safe harbor is available if all of the following conditions are met (details here)
Cybersecurity technology and related services. As used in section 1128B of the Act, “remuneration” does not include nonmonetary remuneration (consisting of cybersecurity technology and services) that is necessary and used predominantly to implement, maintain, or reestablish effective cybersecurity if all of the conditions in paragraphs (jj)(1) through (4) of this section are met (details here)
ACO Beneficiary Incentive Program. As used in section 1128B of the Act, “remuneration” does not include an incentive payment made by an ACO to an assigned beneficiary under a beneficiary incentive program established under section 1899(m) of the Act, as amended by Congress from time to time, if the incentive payment is made in accordance with the requirements found in such subsection (details here).

Complexity Requires Careful Review of Business Dealings

All safe harbor categories within this regulatory list are complex. Experienced criminal defense counsel is important for any health care provider in the evaluation and determination of a possible business decision as being within these regulatory guidelines and outside the AKS.

For instance, when considering employees and the AKS, there are two statutory provisions that provide for a viable safe harbor defense: (1) the employee safe harbor defense found in 42 CFR §1001.952(i) (employee-employer safe harbor) and (2) the statutory defense to the anti-kickback statute for employees provided in the AKS itself (42 U.S.C. Section 1320a-7b(b)(3)).

Office of Inspector General Advisory Opinions on Safe Harbor Defenses to AKS

Furthermore, the defense attorney is wise to review advisory opinions released by the Department of Health and Human Services’ Office of the Inspector General for additional guidance on potential safe harbor protections available to health care providers under federal law.

OIG Safe Harbor Opinion: October 10, 2023

A recent example: on October 10, 2023, the Office of the Inspector General (OIG) published its Advisory Opinion 23-07 which answered the question of whether or not a multi-specialty physician practice can pay its employed doctors bonuses connected to the net profits of the practice’s ambulatory surgery centers (ASCs) outpatient procedures. The OIG approves this practice as a safe harbor under the AKS.

Specifically, the OIG explains that “…the bonus compensation under the Proposed Arrangement would be protected by the statutory exception and regulatory safe harbor for employees because…the bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs.”

The OIG went on to point out that “… a similar arrangement involving bonus payments to independent contractor physicians or other nonemployees or under a different corporate structure (in which, for example, the physicians were owners of the ASCs and paid themselves the bonuses contemplated by the Proposed Arrangement as ownership distributions) may raise fraud and abuse concerns under the Federal anti-kickback statute.”

OIG Safe Harbor Opinion: September 25, 2023

Another recent example: the September 25, 2023 opinion from the OIG that even if there is no billing to a federal health care program (it is “carved out”), the AKS will still apply to the business dealing if the prosecutor can show a link to services that are billable to the federal health care program.

The OIG opines that business dealings must be considered for the existence of fair market value and that they have a “commercially reasonable business purpose.” Both of these characteristics must exist for a safe harbor defense.

Criminal Defense Help In Business Planning and In Criminal Investigations

Health care professionals across the State of Texas are facing a rapidly evolving industry where new strategies and technologies are consistently appearing. Being savvy in a medical practice is important, but it is equally shrewd to consider potential legal consequences to innovative business dealings.

Confirm Compliance

Experienced federal health care defense lawyers can help assess and analyze compliance with the AKS and its Safe Harbor defenses when things are still on the drawing board.

You can make referrals that are in compliance with the AKS. Payments can be made that do not break the anti-kickback laws. It is simply a matter of understanding your legal parameters as they are currently defined by the authorities.

Defend Against Criminal Investigation or AKS Charges

Additionally, it is smart for those in the health care industry to be aware not only that Safe Harbor Defenses exist but that the law changes. Maybe you are involved in something where, despite everyone’s positive approach to things, there have been arguable violations of the AKS. Perhaps you suspect that your enterprise, or entities with which you have a business relationship, are under scrutiny for kickback violations.

In these circumstances, the advocacy of a criminal defense lawyer with experience in health care fraud matters can be invaluable both personally and professionally. In health care fraud investigations, it is arguably never too early to have criminal defense representation.

For more, read:

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For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth articles ”Pre-Arrest Criminal Investigations” and “Top 10 Defense Mistakes In Federal Conspiracy Cases And How To Avoid Them.”

Posted on November 14, 2023 by Michael Lowe , on Health Care Fraud, InDepth Articles

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