Navigating Health Care Fraud Regulations for Contracting and Referral Arrangements

Health care providers navigate a myriad of regulations around contracting and referral arrangements with physicians because of the strict, evolving, and sometimes complicated laws governing such actions. These include the False Claims Act, Stark Law, and Anti-Kickback Statute as well as the Eliminating Kickback in Recovery Act of 2018.

In the first quarter of 2021, Moss Adams and Foley & Lardner presented a webcast, Navigate Contracting Amid Health-Care Fraud Regulations. They discussed how best to monitor and complete internal audits of referral contracts to mitigate chances of running afoul of these regulations, some of which have been recently updated. They also addressed how these laws can affect the following:

  • Fair market value
  • Physician contracts
  • Remuneration
  • Other risk areas

This article provides highlights from the webcast, which provides deeper details on case studies.

Changes to Stark Law and the Anti-Kickback Statute

To better navigate these complicated regulatory waters, health care providers may want to consider performing regular internal audits of their arrangements with referral sources—particularly physicians. While many providers have been understandably focused on meeting the challenges of COVID-19 and vaccine distribution, they also need to understand important updates to two major regulatory structures published on December 2, 2020. The Department of Health and Human Services released revisions to further the efforts to create a more hospitable regulatory climate for innovation of care. The revisions related to the rules governing:

  • Stark Law physician self-referral exceptions
  • Medicare Anti-Kickback Statute (AKS) safe harbors

What Is Stark Law?

Stark Law, also referred to as the physician self-referral law, prohibits a physician who has financial relationships with an entity from making referrals to that entity for what is defined as designated health services (DHS) covered by Medicare unless the relationship fits within a exception of the Stark Law. Learn more about DHS in our article.

The original intent of the Stark Law was to eliminate financial motivation for physician to send patients for unnecessary services that could raise overall health care costs. Recent changes made to Stark Law are designed to improve patient access to care and health outcomes, reduce burden on providers, and better support CMS’s broader push to advance coordinate care and innovate payment models.

What Are Physician Self-Referral Exceptions Under the Stark Law?

The new exception for limited remuneration to a physician refers to payments from an entity to a physician for the provision of items or services provided by a physician to an entity that doesn’t exceed an aggregate of $5,000 per calendar year, as adjusted for inflation. Remuneration must be made personally or through an employee, a wholly owned entity, or a locum tenens physician, but not through an independent contractor.

The exception applies only if the following terms are met:

  • The compensation isn’t determined by taking into account the volume or value of referrals or other business generated by the physician
  • The compensation doesn’t exceed the fair market value of the items or services
  • The arrangement is commercially reasonable
  • Arrangements for the lease of or use of office space or equipment don’t violate the prohibitions on per-click and percentage-based compensation formulas

Learn more about contract compliance as well as avoiding penalties and overpayment.

What Are the Anti-Kickback Statute (AKS) Safe Harbors?

The AKS covers a broader range of activity than the Stark Law and extends to all medical providers in a position to arrange or recommend medical services.

With the recent changes, the safe-harbor amendment for personal services and management contracts now provides protection to certain payment structures that no longer require that aggregate compensation be set in advance. The final rule also eliminates the requirement that any agreement set for a periodic, sporadic, or part-time basis specifies the following:

  • Exact schedule of such intervals
  • Their precise length
  • The exact charge for such intervals

How Was Guidance Around COVID Blanket Waivers Clarified?

The Centers for Medicare & Medicaid Services (CMS) issued helpful guidance for providers at the beginning of the pandemic specific to the COVID blanket waivers regarding physician financial relationships. CMS clarified that organizations who meet the requirements for Stark Act blanket waivers will also be protected from anti-kickback risk under a policy statement from the Office of the Inspector General of the US Department of Health & Human Services.

Among the key changes, CMS ensured the regulations interpreting the Stark Law finalized the following:

  • Exceptions for value-based arrangements
  • Physician self-referral law
  • Beneficial-arrangement protections
  • Reduced administrative burden

Exceptions for Value-Based Arrangements

There are new, permanent exceptions for value-based arrangements that permit physicians and other health care providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs might violate the physician self-referral law.

This supports CMS’s broader push to advance coordinated care and innovative payment models across Medicare, Medicaid, and private plans.

Physician Self-Referral Law

CMS provided additional guidance on key requirements for exceptions to the physician self-referral law to make it easier for physicians and other health-care providers to comply.

Beneficial-Arrangement Protections

CMS included protections for non-abusive, beneficial arrangements that apply whether the parties operate in fee-for-service or value-based payment systems. The latter systems may include payments, such as donations of cybersecurity technology that safeguard the integrity of the health care ecosystem.

Reduced Administrative Burden

The changes reduce certain administrative burdens that drive up costs by taking money previously spent on administrative compliance and redirecting it to patient care.

Health care organizations auditing their transactions during the public health emergency or soon thereafter can benefit from checking twice to verify they meet the waiver requirements.

Revised Definitions: Fair Market Value, Volume, and Commercial Reasonableness

Providers who are auditing their referral arrangements will benefit from heeding the revised definitions of important terms as they relate to the new rules:

  • Fair market value
  • Volume or value
  • Commercial reasonableness

Fair Market Value

Fair market value is defined as “value in an arm’s length transaction, consistent with general market value of the subject transaction.” Additionally, the fair market value of equipment and office space leases are determined without accounting for intended use or, in the case of office space, proximity to the lessor if the lessor is a potential source of referrals.

Additionally, a revised definition to general market value recognizes that fair market value is an individualized determination, but key considerations include the following:

  • Assets
  • Compensation
  • Rental of equipment or office space

Commercial Reasonableness

Commercial reasonableness is any arrangement that furthers a legitimate business purpose and is sensible in light of the characteristics of the parties, including the following:

  • Size
  • Type
  • Scope
  • Specialty

Although legitimate business purpose isn’t specifically defined, it’s clear that conduct that violates the Anti-Kickback Statute wouldn’t qualify. Additionally, providers who have entered into an arrangement that doesn’t generate a profit but further legitimizes the business purpose can still be considered commercially reasonable.

Value or Volume

Compensation will only be considered when taking into account the volume or value of referrals or other generated business if the mathematical formula used to calculate compensation includes the referrals or other generated business as a variable. It must either increase or decrease compensation in a way that directly correlates the compensation with a physician’s referrals or other generated business.

Auditing Questions to Consider

When auditing physician arrangements and payments, it’s important to create a list of audit attributes based on the legal requirements of the physician arrangements.

The list of audit attributes can be a mix of regulations and internal organizational policy requirements. An incorrect scope can create additional work if an organization is redoing the work or restarting an audit entirely. Consider the following questions:

  • What type of arrangements will the audit focus on, for instance medical director arrangements?
  • What’s the population for the selection payments or contracts?
  • How is the size of the sample determined?

Samples may be chosen using a judgmental, random, or other methodology. The time frame of the sample is just as important as method. The time frame can be based on how many physician payments are made over the course of a year—if there aren’t many, going back a full year is advisable. However, if an organization is processing hundreds of payments a month, only auditing a small percent would suffice.

We’re Here to Help

For more information about navigating fraud regulations in contracting and referral relationships, contact your Moss Adams provider.