In the game of musical chairs, the person left standing when the music stops isn’t the one who cheated. It’s the one who wasn’t paying attention to how many chairs were left.
We’re about to focus on not paying attention and how it could lead to indictment.
On June 23 of this year, the Department of Justice announced the largest health care fraud takedown in history. 455 defendants across 56 federal districts and 45 states were charged in connection with more than $6.5 billion in alleged fraud. 90 of those defendants were doctors and other licensed medical professionals.
If you were to read the DOJ’s press release, you’d find the highlighted cases the DOJ wants you to read about. A wound care executive who allegedly paid kickbacks equal to roughly 40% of a $4 billion fraudulent billing scheme, letting marketers and various clinicians pocket $500-$600 per square centimeter of allograft product that was marked up 2,000%. Or a behavioral health operator charged with billing Medicare for 500 or more hours of therapy a day that no staff could physically provide.
Stories like that are easy to tell and, unfortunately, easy to understand, but the chance that any physician reading or watching or listening to this is such a person is slim. And in a sense, that’s actually the problem because most of the 90 doctors and other clinicians on the list of those indicted didn’t get into the mess by being obvious criminals. It’s not like most healthcare fraud prosecutions start with a criminal mastermind. They usually start with an ordinary, far too busy physician who said yes to something that looked like a normal business opportunity and never took time to have his or her lawyer vet whether it actually was one.
The AKS: two different questions, and the government only has to ask one.
Let’s focus on the federal Anti-Kickback Statute (AKS), because the AKS can be quite dangerous to otherwise well-intentioned physicians.
As a quick and shorthand refresher, the AKS makes it illegal to solicit or receive remuneration of any sort in exchange for referring a patient for services or items paid for by a federal healthcare program.
Think of the AKS as asking two separate questions:
The first is what the payment, that is the remuneration, was for. Under the so-called “one purpose” test that courts have applied since the 1980s, the government only has to prove that inducing referrals was one purpose behind a payment. It doesn’t have to be the only purpose. It doesn’t have to be the main purpose. An additional completely real and completely legitimate business reason, or even 20 such additional reasons, for the arrangement don’t save you. So, the question become, was one reason for the payment to induce referrals?
The second question surrounds what the physician had to know. For years, a physician facing AKS prosecution had a real argument that the government had to prove that he or she knew that his or her specific arrangement violated the AKS; in other words, actual knowledge of the law itself.
Congress killed that argument for good in 2010, adding language to the AKS that in essence provides that a person doesn’t have to have actual knowledge of the AKS, or even any specific intent to violate it, for the government to get a conviction. In other words, prosecutors don’t have to prove that you understood that you were breaking the law. They only have to prove that you knowingly and voluntarily entered into the arrangement, with inducing referrals as one of its purposes.
Putting those two questions together illustrates the trap. You don’t need to know that the AKS exists. You don’t need any intent to defraud anyone. You just need to have knowingly signed an agreement that on investigation, has inducing your referrals as one of its purposes.
To drive this home, here’s an example of a fairly common fact situation that trips up physicians.
Some physician, we’ll use the name Dr. Oliver, runs a busy and highly thought of internal medicine practice. Although he’s never referred any of his patients to “Yard Art Clinical Labs”, some of his colleagues in his group began making referrals to the regional lab last month.
Yard Art now offers Dr. Oliver the position of “National Medical Director of Quality”. The position comes with compensation of $6,500 a month, that fancy title for his CV and LinkedIn profile, and a vague description of duties involving “clinical oversight” and “quarterly quality reviews”.
Dr. Oliver is flattered and the money is real. But he’s busy enough with his practice that he doesn’t ask why a regional diagnostic lab needs a $78,000 a year outside medical director for a testing operation to which he’s referred exactly zero patients to date, or why the offer arrived after his colleagues began referring to it last month.
So, Dr. Oliver signs on the dotted line and he shows on a phone call every quarter. He never attempts to negotiate the amount of the payment, he never questions whether it reflects fair market value for the actual time required to perform his duties. He never asks why the position was created in the first place or whether it was priced with an eye toward how many referrals his group could be expected to generate.
In fact, Dr. Oliver never once mentions, or even thinks, the words “Anti-Kickback Statute”.
But under the AKS as it currently exists, all of that is irrelevant. None of what he didn’t know or didn’t intend makes him some sort of criminal mastermind, and none of it has to be proven by anyone. It makes him precisely the kind of defendant the DOJ’s health care fraud strike force, or a False Claims Act relator’s attorney, is built to find; not the person who structured the scheme, but the physician whose name is on the check and whose signature is on the medical directorship agreement that has no real relationship between the pay and the work.
Multiply our avatar Dr. Oliver by a few thousand medical directorships, consulting agreements, and marketing arrangements signed across the country every year, and you start to understand where next year’s version of the health care fraud strike force DOJ press release is going to come from.
Here are some best practices and other takeaways for you:
- Every medical directorship, consulting agreement, and similar arrangement you or anyone in your group has signed with a company to which you also refer needs a fair market value opinion and an actual job description with duties that are actually performed and actually documented, duties that are actually necessary. The timing for that is now, not eventually.
- “I didn’t know it was illegal” stopped being a meaningful explanation more than 15 years ago. The government doesn’t have to prove that you knew the AKS existed, let alone that your arrangement violated it. Plan accordingly, which means before you sign, not after the FBI, OIG, IRS, and who knows how many other agencies burst through your door, guns drawn.
- Compensation tied, directly or indirectly, to the volume or value of referrals is the single fastest route from consulting income to kickback. If even one reason for the payment was to induce referrals, the rest don’t matter.
- Fitting within an AKS safe harbor isn’t decoration. If your arrangement doesn’t fit within an AKS safe harbor that doesn’t automatically make it illegal, but it does mean you’re litigating the one purpose question with no place to hide.
- If a marketer, a vendor, or even a hospital administrator tells you not to worry about the paperwork because “everybody structures it this way” or “our lawyers have already vetted it”, assume they’re lying.
Now back to that game of music chairs. The music is going to stop again next summer and when it does, the DOJ is not going to announce that it found the people who meant to commit fraud, or even the people who knew they were breaking the law. It’s going to announce that it found the people who weren’t paying attention to how many chairs were actually left.
Make sure they’re not talking about you.
Contact me to discuss a compliance review of your group’s medical directorships, consulting agreements, or marketing arrangements.
