Permissible Payments For Referrals Under The Federal Anti Kickback Statute

By: Karen Davila

The term “payment for referral” strikes fear in the hearts of health care providers throughout the country because of the significant prohibitions under the federal Anti-Kickback Statute (AKS).  And, Florida’s Patient Brokering Act (PBA) casts an even bigger shadow over arrangements involving payment in exchange for referrals.  There are other statutory restrictions as well, which may apply depending upon the services for which a referral is being made.  Those include but are not limited to statutes prohibiting physician fee-splitting and the federal Eliminating Kickbacks in Recovery Act (EKRA) (applicable to referrals to recovery homes, clinical treatment facilities, or laboratories in an effort to stave off growing opioid-related fraud), and the potential collateral damage of a false claim under the federal False Claims Act (FCA) if any of the above statutes are violated.

So, is there any scenario where a payment may be made by a health care provider in exchange for referrals?  The answer is yes- there is a safe harbor under the AKS (42 U.S. C. §1320a-7b(b)) specifically for such arrangements.  This safe harbor is not commonly used and likely means revision to existing arrangements to come into compliance with its specific requirements.  But it may be worth considering if the referral (and payment for that referral) is not otherwise prohibited as noted above.

The federal AKS prohibits the payment of any form of compensation in exchange for the referral of patients who receive services paid in whole or in part by a government payer (Medicare, Medicaid, CHAMPUS Tricare, or Federal Employer Health Benefits Program (FEHBP)).  Under the AKS, there are certain exceptions to enforcement known as “safe harbors.”  Compliance with a safe harbor generally means that that federal law enforcement will not seek to impose penalties for violations of AKS.

On the other hand, Florida’s PBA (F.S. §817.505), while similar, does have some differences.  The PBA prohibits the offer to pay or payment (or receipt) of “a commission, benefit, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind” in exchange for the “referral of a patient … to or from a health care provider or facility.”  However, unlike the AKS, this Florida statute is agnostic as to payer, meaning that it does not matter whether the services for which the patient was referred are paid for by a government payer or otherwise.  Recent amendments were designed to level the playing field to make clear that the PBA applies equally to health care services paid for by commercial insurance as well as government payers.  Unfortunately, recent court decisions have only reinforced the strict interpretation of the statute’s language, indicating it applies to ALL health care services, regardless of who is paying.

Another similarity between the PBA and  the AKS is that the PBA offers an exception, such that if an arrangement involving payment for a referral complies with that exception, there is no violation of the PBA.  The PBA exception exempts from enforcement action any arrangement that is not otherwise prohibited by the AKS.  Therefore, if an arrangement falls within an AKS safe harbor, compliance with that safe harbor is a clear defense to any enforcement under Florida’s PBA.

So, you ask, what is this safe harbor that might save some referral services arrangements from prosecution? While not exactly a magic bullet, the referral services safe harbor (42 CFR 1001.952 (f)) provides protection for arrangements that can meet the following criteria.  In order to fall within this safe harbor, the referral services arrangement must:

• Establish qualifications for individuals/facilities to participate in the referral service and allow participation to any individual/facility that meets the qualifications;
• Prepare and execute written agreements with all individuals/facilities from whom the referral service will receive payment for any referrals;
• Apply a uniform fee structure to all participating facilities, which fee structure is not based upon the volume or value of any referrals to or business otherwise generated by either party for the other party for which payment may be made in whole or in part under a government payer program (a flat fee structure such as a membership fee for a given period of time would suffice);
• Impose no requirements on the manner in which the facility provides services to the individuals referred; and
• Develop and implement a written disclosure to each individual referred (“Referral”) to one of the participating individuals/facilities (the individual referred should sign/acknowledge receipt of same), which disclosure must include the following elements:
  1. The criteria by which the referral service selects individuals/facilities to participate in the referral service (by way of example only, these could include quality, location, amenities, certification/state survey status);
  2. Statement that the referral service receives a referral fee from the individual/facility for the Referral;
  3. The criteria by which the referral service matches each Referral to a participating individual/facility;
  4. The nature of the relationship between the referral service and the participating individual/facilities (as a referral service that receives a referral fee pursuant to a written agreement); and
  5. The criteria by which the referral service would exclude any individual/facility from participating or from continuing to participate in the referral service arrangement.

Interestingly, this safe harbor has been examined and tested by the OIG in its Advisory Opinion #00-8 in connection with a senior referral service.  And, although the opinion is somewhat dated and is applicable only to the arrangement proposed in the request for the opinion, it does offer insight into how the OIG will evaluate similar arrangements.  In the proposed arrangement, the referral service set up two separate payment arrangements: a % compensation arrangement for all private pay participating individuals/facilities and a flat fee for any participating individual/facility that received government payment.  This “carve out” was what saved the arrangement.  After analyzing (and despite expressing its “antipathy to attempts by referring parties to carve out referrals of federal health care beneficiaries”), the OIG concluded that while the arrangement was in violation of the AKS and did not fall squarely within the safe harbor, but because of the minimal risk of federal health care program fraud, the OIG would not pursue enforcement under the AKS.

The proposed referral services arrangement described in the OIG Advisory Opinion was located in Maine, so Florida’s PBA was not applicable.  However, had the same arrangement been proposed in Florida, the carve out of federal health care beneficiaries might not have saved the arrangement from enforcement because, as noted above, the PBA applies to all payers.

The typical issue with most referral arrangements is that the fee is based upon the volume or value of referrals.  The individual/entity to whom a referral is made pays a fee that is either a flat fee per referral (based on the volume) or a % of the revenue generated from the referral (based on the value).  To mitigate this risk, a flat fee membership fee arrangement would suffice.  An organization that offers a referral service that meets all of the above requirements and charges a flat membership fee for a designated period of time would be in compliance with the AKS safe harbor and therefore Florida’s Patient Brokering Act (PBA).

In the alternative, a modification of the arrangements allowing a % compensation arrangement for any referrals to individuals/facilities that do not receive federal health benefits payments and a flat fee (or membership fee) for all others may mitigate the risk, but not eliminate it altogether under the PBA.  As noted above, because the PBA is agnostic as to payer, a referral service would still have risk in Florida if using a % compensation methodology but structuring the payment arrangement to avoid % compensation arrangements with any facilities that receive federal health care benefit payments may mitigate the risk of enforcement and provide a rational basis for defending the referral service arrangement going forward.

Navigating the above safe harbor and the myriad other laws that may apply is no easy task.  And, of course, as noted above, any analysis of a referral services arrangement is not complete without examining all other laws that may apply in the context of the specific services for which a referral is made and payment is received.

If you have any questions about how the referral services safe harbor might assist you in achieving your business objectives, we are available to guide you in this regard.  The Florida Healthcare Law Firm can analyze existing or proposed referral services arrangements and make recommendations to assure those arrangements are structured in a way to mitigate risk of AKS violations and therefore mitigate the risk of prosecution under Florida’s PBA.