***This is the first installment in a blog series focusing on the regulatory environment and
key concerns for persons or businesses operating in the healthcare industry.***

One of the major differences between the healthcare industry and other business sectors is federal regulations covering the inducement of business through referrals with financial incentives. While it may be permissible, and even common, in many industries to obtain business through financial incentive referrals, such arrangements are impermissible when the transaction involves goods or services covered by any of the federal healthcare programs. The Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law) forbid such business arrangements. Accordingly, this installment will provide an introduction to the AKS and the Stark Law, two of the most well-known anti-fraud and -abuse statutes in the healthcare industry, and examine their main differences and respective effects on business relationships and transactions in the healthcare sector. It is critical for government contractors and commercial businesses operating in the healthcare field to be familiar with the AKS and the Stark Law in order to avoid costly litigation, and in some cases, criminal liability.

The Anti-Kickback Statute

The AKS is a criminal statute that prohibits entities from entering into or engaging in transactions intended to induce or reward referrals for goods or services reimbursed under any of the federal healthcare programs. Under the AKS, a “federal healthcare program” is “any plan or program that provides health benefits, whether directly through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government; or any State health care program . . . .” The language of the AKS is intentionally broad because the purpose of the AKS is to protect federal healthcare beneficiaries from receiving goods, services, or care that are the product of financial influence from referral (i.e., kickback) relationships. The government views the exchange and receipt of kickbacks in the healthcare industry as a contributor to overutilization, patient steering, corruption of medical decision making, and increased healthcare costs. Accordingly, the AKS covers the payers of kickbacks (i.e., those who offer or pay for referrals) as well as the recipients of kickbacks (i.e., those who solicit or receive referrals for compensation).

As an anti-fraud and -abuse statue, the AKS is intent-based; thus, a showing that one sought reward or induce referrals for business covered by one of the federal healthcare programs is required to violate its provisions. Accordingly, an individual violates the AKS where they “knowingly and willfully” provide something of value with a purpose to induce a referral, unless the transaction or arrangement is specifically covered by one of the AKS’ “safe harbor” provisions.

Importantly, when a transaction or referral arrangement violates the AKS, the same transaction or arrangement may also be rendered false or fraudulent and violate the False Claims Act (FCA), as a result. For example, payment claims submitted to Medicare that include goods or services resulting from an impermissible arrangement under the AKS are considered to be false claims under the FCA. The government does not need to prove either patient harm or a financial loss to show that a provider or business violated the AKS. A provider or business can be guilty of violating the AKS even if the goods or services provided were medically necessary. The government notes that the purpose of the AKS would be defeated if a provider or business could assert that the goods or services would have still been prescribed to the patient despite the receipt of a kickback.

Criminal penalties and sanctions for violating the AKS include a term of imprisonment, exclusion from further participation in any of the federal healthcare programs, and fines. In addition to criminal penalties, providers and businesses can be subject to civil penalties under the Civil Monetary Penalties Law (CMPL), which authorizes the Secretary of Health and Human Services to impose civil money penalties, an assessment, and program exclusion for fraud and abuse involving the Medicare and Medicaid programs, or triple damages and penalties under the FCA, where applicable.

The Stark Law

The Stark Law is a similar anti-fraud and -abuse law that applies only to referral relationships with physicians. Under the Stark Law, physicians are prohibited from referring patients to receive “designated health services” that are paid for by either Medicare or Medicaid from entities with which the physician has a financial relationship, unless excluded under a “safe harbor” provision. “Designated health services” include, but are not limited to, inpatient and outpatient medical services, lab testing, hospital services, prescription drugs, occupational therapy, and durable medical equipment. The government interprets the term “financial relationship” broadly to include any direct or indirect ownership or investment interest held by the referring physician, as well as those held by any of the physician’s immediate family members, and compensation arrangements.

Unlike the AKS, the Stark Law is not a criminal statute. However, the government can enforce the Stark Law’s provisions through an action brought under the CMPL, or violations of the Stark Law may give rise to civil liability under the FCA. The Stark Law is a strict liability statute, meaning that proof of intent to violate the law is not required in order to impose liability.

Key Differences Between the AKS and the Stark Law

  • The AKS is a criminal statute, whereas the Stark Law is exclusively a civil enforcement statute.
  • The AKS applies to all goods and services provided to beneficiaries in federal healthcare programs, including TRICARE and the Department of Labor’s programs. The Stark Law, on the other hand, is narrower and limited to the Medicare and Medicaid programs.
  • The AKS covers all goods or services for which payment is sought from a federal healthcare program. Conversely, the Stark Law applies only to certain “designated health services.”
  • The Stark Law is limited to referral relationships with physicians, meaning that only physicians can violate the Stark Law’s provisions. The AKS’ provisions apply to everyone and any referral source participating in the federal healthcare programs.
  • The Stark Law is a strict liability statute, while the AKS requires a showing of intent to reward or induce referrals for business covered by one of the federal healthcare programs to violate the statute.

In the next installment in this blog series, we will examine the “safe harbor” provisions under the AKS and Stark Law, common transactions that violate each statute, and recent legislative updates.

For guidance on the AKS and the Stark Law, please contact Matt Kreiser, the author of this blog, or a member of PilieroMazza’s Healthcare Industry Team.