Article Summary

The connection between kickbacks and Medicare fraud is clear. Indeed, illegal kickbacks are treated as automatic violations of the False Claims Act, the main statute that protects U.S. taxpayers from healthcare fraud, when they involve services paid by the federal government. Do you know what counts as a kickback, and how to recognize examples? Here's a short primer on the law of kickbacks and Medicare fraud.

This article by former principal David L. Scher and TELG principal Anita Mazumdar Chambers was published by The Employment Law Group, P.C. on November 3, 2017.

Kickbacks and Medicare Fraud

By David L. Scher and Anita Mazumdar Chambers

What Is a Kickback?

A kickback is something of value that’s illicitly given (or promised) in order to guarantee something else in return — usually something more valuable. In one classic scenario, a contractor pays cash under the table to a decision-maker; in return, the decision-maker steers a big project to the contractor.

In the medical context, doctors or other professionals may get kickbacks for referring patients to certain providers or facilities — or for prescribing certain drugs, or for recommending certain medical devices. These decisions are seldom best for whoever is paying the bills and, more important, they don’t put the patient first.

Kickbacks may be paid as straight bribes, but often they’re dressed up as consulting fees, speaker fees, and suchlike. Other common inducements include tickets to concerts or sporting events; meals at fancy restaurants; rounds of golf at expensive clubs; and invitations to all-paid conferences at ritzy locations. The quid pro quo is clear, if sometimes unspoken.

To ensure that decisions are made in the best interest of patients — and because U.S. taxpayers can get stuck with higher bills via programs such as Medicare — medical kickbacks have been targeted by the federal government. Congress has passed two major anti-kickback measures: The Anti-Kickback Statute (AKS) and the Stark Law.

It’s common to see healthcare kickbacks discussed in connection with the False Claims Act (FCA), a powerful law that makes it illegal to defraud the federal government. Courts have often held that the violation of a kickback law automatically triggers liability under the FCA, if the government is paying at least some of the bills — and this connection was written into law in 2010 by the Patient Protection and Affordable Care Act, also known as Obamacare.

Many healthcare FCA cases are filed by whistleblowers who have inside knowledge of kickbacks that are paid by drug companies, hospitals, clinics, medical specialists, device makers, pharmacies, home health providers, nursing homes, hospices — even ambulance companies that get paid by Medicare.

If a whistleblower’s information about kickbacks leads to a recovery by the government, the whistleblower may get a reward of up to 30 percent.

The Anti-Kickback Statute

The Anti-Kickback Statute makes it a crime to pay, offer, or solicit any remuneration to induce or reward any person for referring, recommending, or arranging for the purchase of any item for which payment may be made under a federally-funded healthcare program.

The statute covers bribes and rebates, plus other schemes that are designed — even partly — to get a physician to refer more patients for services that’ll be paid by government programs such as Medicare, Medicaid, or Tricare. There are some exceptions, known as “safe harbors,” but it’s hard to know whether they apply without detailed legal analysis.

Compliance with the AKS is required to participate in Medicare, which makes violations risky for providers that depend on government-insured patients. Fines can be substantial: Up to $25,000 per violation. Anyone can receive an illegal payment, including patients.

What does an AKS violation look like? Following are a few examples of schemes alleged by the U.S. Department of Justice. In each example, the accused wrongdoer settled the case without admitting violations.

  • A medical laboratory was accused of paying kickbacks to physicians and patients to induce the use of its blood-testing services. It had been paying doctors a “processing fee” for referrals and also waiving co-payments owed by patients, according to the DOJ. The lab paid $6 million to settle the case, which was brought under the False Claims Act.
  • A nursing home pharmacy agreed to pay $28 million to settle allegations that it got kickbacks from a drug maker that had disguised its payments as “grants” and “educational funding.” In return, the pharmacy ordered more of the company’s drugs for nursing home patients, according to the DOJ. The case was related to FCA claims that were settled by the drug maker, Abbott Laboratories.
  • A prison healthcare provider paid an administrator at the U.S. Bureau of Prisons for confidential information that helped it win contracts, according to the DOJ. The company settled the case for almost $2.5 million. Again, the case was brought under the FCA.

The Stark Law

The term “Stark Law” refers to a series of related measures that forbid doctors and their family members from referring federally insured patients to use businesses in which the physician has a financial interest, either via ownership or any form of compensation.

Such “self-referral” works just like a kickback: The referrer has a financial incentive to use particular services, possibly compromising patient needs and raising costs.

The Stark Law is narrower than the Anti-Kickback Statute, since it applies only to physicians, to specific health services, and to specific patients — namely, those insured by Medicare or Medicaid. Like the AKS, it has some carve-outs for arrangements that are truly fair; like the AKS, it imposes substantial fines for violations. It requires documentation of financial arrangements between doctors and other entities.

Following are some examples of Stark Law settlements announced by the DOJ:

  • An operator of New York hospitals improperly compensated doctors for referrals, in part by providing them with favorable office leases, the DOJ alleged. The hospital operator paid $4 million to settle the case, which was filed under the False Claims Act.
  • A California hospital overpaid its own chief of staff, in effect giving him an illegal incentive, and had unwritten or otherwise invalid financial arrangements with dozens of local doctors and practices, according to the DOJ. The hospital paid almost $3.3 million to settle the case, which also invoked the FCA.
  • A hospital system in Georgia provided excessive salary and directorship payments to one of its doctors, in violation of the Stark Law and the FCA, according to the DOJ. The hospital system agreed to pay up to $35 million to settle the case, while the doctor himself paid $425,000.

Blowing the Whistle on Kickbacks

If you have evidence of shady payments for medical referrals or prescriptions — including payments in kind, like lavish travel funded by a drug company — or if you know of doctors who refer patients to their own businesses, or businesses owned by family members, you may be able to help the government in its fight against illegal kickbacks and Medicare fraud.

What’s more, if your knowledge leads to a successful outcome under the False Claims Act, you may ultimately be eligible for a reward.

Many whistleblowers are worried about retaliation, including firing, by their managers — who may be the exact people who are giving or receiving kickbacks. The FCA forbids such punishment, and other laws may offer robust protection, too.

Our law firm has represented many medical professionals who became aware of kickbacks and Medicare fraud. Contact us if you’d like a confidential consultation.