Health Law Opinion Letters: A Primer for Physician Investors

April 20, 2014
Martin Merritt

If properly done, a health law opinion letter may insulate physicians from prosecution or penalties associated with their investment decisions.

I have written previously about the regulatory dangers physicians face from investments in passive income opportunities, where one motivating factor may be to capture a stream of referrals in the investment.

There is a big danger. During the fiscal year ending Sept. 30, 2013, the Department of Justice (DOJ) secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government. As in previous years, the largest recoveries related to healthcare fraud, which reached $2.6 billion, according to the DOJ.  

This is because regulations must take the place of the free market. In the field of healthcare, the law of “supply and demand” is replaced by Stark Law and the Anti-kickback Statute, which is made actionable by either the False Claims Act or the Civil Monetary Penalties Law.

It is commonly understood that physicians are in control of both the “supply” side, (goods and services), and in control of the “demand” side, which is created whenever a physician writes a prescription, or refers a patient for additional care.

There is yet another component to consider. Ordinarily, price is controlled by an individual's ability to pay. If individuals cannot afford the product, the price must be lowered until there is a market for the service at that price. But in healthcare, a third party frequently pays for the cost of patient care. This creates an imbalance in the market, which Stark Law and the Anti-kickback Statute seek to control, but not completely eliminate.

Adding to the complexity, these laws contain a mind-numbing array of regulations that must be carefully followed if an investment or other arrangement is to pass as legitimate. Providers must certify compliance with these regulations as a condition of payment for Medicare and Medicaid services.

In simplest terms, this means that if a physician, or a physician's close family member has an ownership or financial relationship with another entity, and he is in a position to refer patients back and forth, that could implicate Stark Law and the Anti-kickback Statute. Physicians must certify that they have not violated these laws before they present a claim to the government for payment.

How can physicians be certain their certification of compliance is accurate when they, as the treating physician, are in a position to both earn income from the diagnosis, and from the fees earned from the referral of the patient for ancillary services? What happens when the bill is being paid by a private third party or a governmental third party? If this arrangement is legal under federal law, is it also legal under state law? Will the arrangement pass an insurance audit?

This is where a health law opinion letter can be invaluable for doctors.

Properly done, a health law opinion letter may insulate a party involved in a transaction from prosecution or penalties, particularly when the matter concerns an uncertain area of the law, or an uncertain application of the law to the facts.

In order for an opinion letter to be properly written, however, all of the facts must be fully disclosed to the health lawyer, and the analysis must be a good faith application of the known law, (to the extent it is knowable) to the known facts. In other words, even if the party got it wrong, it helps if the party did so in good faith after consulting a health lawyer.

A word of caution: As a physician, it is typically a bad idea for you to rely on someone else to obtain an opinion from an attorney for a group of investors. I am not suggesting there is any bad motive here. I am suggesting that an opinion is only as good as the information provided. 

If you aren’t in control of the information going to the health lawyer, then how do you know you can rely upon the opinion coming out? Remember, “Junk in/junk out.” Many times, I have spoken to United States Attorneys in the prosecution of a felony kickback scheme. Over and over again they see cases in which a party went to as many as five different lawyers, before he found one who would say the arrangement met a safe harbor.

United States Attorneys aren’t often persuaded that such an opinion is accurate. More often, government agents believe that important facts were left out when the opinion was obtained. 

As a physician considering making an investment, you would have no idea of the history, or facts provided, which went into the opinion.

Again, I am not saying there is any bad motive involved, but I urge great caution. When your license is on the line, get your own opinion.