December 2001 Bulletin

Kickback case is strong reminder to doctors

Law can be violated if ‘any purpose’ of a payment arrangement is to induce referrals

By Robert J. Saner and Anthony Russo

In United States v. LaHue, the U.S. Court of Appeals for the Tenth Circuit recently upheld the criminal conviction of two Kansas City doctors accused of taking kickbacks from Kansas City area hospitals. A hospital executive is also scheduled to serve jail time in connection with consulting payments made to the doctors, ostensibly as a reward for their referrals to the hospital.

While the LaHue case does not make "new law" under the federal kickback statute, it reaffirms prior holdings that the law can be violated if "any purpose" of a payment arrangement is to induce referrals. The case is significant because so few kickback cases actually get litigated–virtually all are settled, and thus opinions at the appellate level are rare.

Also, the case serves as a strong reminder to the physician community that their dealings with hospitals, and other referral relationships, must be carefully structured, appropriately priced and well documented. These principles apply to a wide variety of arrangements that orthopaedic surgeons may have with local hospitals, including leases, ancillary service agreements, medical director contracts and joint investments.

The first step in properly structuring these referral arrangements is understanding the kickback law. By understanding the kickback law, and obtaining appropriate counsel when necessary, physicians can avoid unnecessary headache, expense, and even prison time.

Federal kickback statute

The federal kickback statute prohibits the offer or payment of remuneration, or the receipt of any remuneration, either directly or indirectly, in return for:

Violation of the kickback statute is a felony punishable by fines, imprisonment, or both. In addition, the Office of the Inspector General ("OIG") of HHS may exclude a person or entity from participation in any federal or state health care program, including Medicare and Medicaid, for violating the kickback statute.

The OIG and the courts have construed the provisions of the kickback statute broadly to prohibit any payment if one purpose of the payment is to induce referrals or other prohibited activity. Furthermore, it is not necessary for the government to prove that there was an actual agreement to refer program-related business in exchange for a payment in order to establish a violation of the statute. Rather, the statute is violated whenever a payment is offered as an inducement to refer Medicare or Medicaid business.

A violation of the kickback statute, however, also requires proof that the defendant acted willfully. The Supreme Court has provided guidance for determining willful intent by stating that the element of willful intent in a criminal statute requires a finding "that the defendant acted with an evil meaning mind, that is to say, that he acted with knowledge that his conduct was unlawful."

Statutory exceptions, safe harbors

The kickback statute contains express statutory exceptions to its prohibitions. In addition, because of the breadth of the kickback statute, Congress directed the OIG to issue regulations specifying practices that are not to be treated as violations of the statute. In response to that directive, the OIG has issued several "safe harbor" regulations that protect certain payment practices from prosecution or civil sanction under the kickback statute.

Compliance with a safe harbor virtually ensures protection from prosecution. A payment practice that does not meet a safe harbor would potentially risk scrutiny by the OIG; however, the arrangement is not necessarily illegal.

Paying physicians reasonable rates for administrative or medical director services can be perfectly appropriate, but if those services are not adequately documented, the government may think they were not actually provided. Suddenly, what might have been totally above board looks like a disguised reward for the doctor’s referrals to the hospital. That’s what the government alleged in Kansas City, and the jury believed it. Having that jury verdict upheld on appeal can only embolden government prosecutors to bring other kickback actions elsewhere in the country.

Robert J. Saner is a principal, and Anthony Russo an associate, in Powers, Pyles, Sutter & Verville, PC, a national health care law practice based in Washington, D.C.

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