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Avoiding Kickback Schemes: What Your Medical Practice Should Look For


Just because someone is not offering your medical practice cash does not mean what they are offering is any less illegal. So you are right to be skeptical.

As the government continues to work hard to combat fraud and abuse, physicians need to be sure that the financial relationships into which they enter will not make the practice a target for a government investigation. While most physicians know enough to avoid the classic “fee for referral” arrangement, other schemes that might appear legitimate may actually be improper. This has become even more apparent based on some of the schemes that I have come across which are being generated by laboratories, durable medical equipment (DME) suppliers and home health agencies in order to capture physician referrals.

In a recent meeting with a potential new client that operates a laboratory, the owner explained that the lab accepts referrals from all over the country, for all payers, and is currently interested in expanding its services through marketing. As a marketing tool, the lab intends to offer payment to physicians for “handling” the specimens. This would involve paying a per-patient fee in order to compensate the physicians for the time and expense involved in labeling the samples and packaging it to be sent to the lab for testing. Our laboratory client insisted that such a fee was proper and was commonplace in the industry. This means that physicians across the country must be accepting these handling fees!

In another instance, a home health supplier that had previously paid cash to physicians for referrals stopped such payments after witnessing owners of several competitor agencies go to jail for the same activity. In lieu of making cash payments, they decided to provide administrative staff (free of charge) to assist physicians with completing home health referrals and documentation, as well as general office duties. Because no cash was involved, the physicians they approached agreed the arrangement was acceptable.

Finally, a DME provider desired to provide free laptop computers, printers, and supplies (paper and ink cartridges) to physicians to assist them in transmitting data and documentation to the supplier for patients referred by the physician for items/services. Because the equipment would be returned after one year, the supplier took the position that there was no legal concern (although one wonders how used paper and ink cartridges could be returned?!). Many physicians were on board with the arrangement.

What do all three of these scenarios have in common? They are the type of kickbacks that get providers into trouble, whether through an outside audit or due to a disgruntled or terminated employee or competitor who decides to report the fraud. In these “schemes,” the physician is being offered a free item or service for which he or she would otherwise have to pay (free administrative staff and computer equipment). In the case of the proposed “handling” fee, the physician is being compensated for something for which he or she has already received payment since under most payer plans handling and processing of lab specimens typically is bundled under payments for other services provided by the physician. Any of these arrangements likely violate one of more of the federal Anti-Kickback Statute, federal Stark Law, or various state fraud and abuse laws.

Just because someone is not offering “cash,” does not mean that what they are offering is any less illegal. Physicians must be skeptical whenever approached with offers of free or below-cost items or services by someone looking for referrals.

Ask yourself:

Is the offered item or service something the practice would otherwise have to bear?

 Is this offer intended to entice you to refer patients to the offeror over another provider?

 Is the value being offered more than de minimus? (See my previous blog on gift-giving).

While I can steer my clients down the correct path, there are many labs, home health agencies and DME companies that operate without legal guidance and physicians should consider talking with healthcare counsel before accepting anything from an entity to which they refer. Many legitimate companies will also provide physicians with a written legal opinion from their own counsel, showing they spent the time and effort to structure an arrangement that is compliant.

Do your homework and talk to your legal counsel for confirmation. This is the best way to protect yourself and your practice from becoming the next subject of a fraud investigation.

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