What Types of Financial Relationships Between a Referring Physician and a Pharmacy Are Prohibited Under the Anti-Kickback Statute??

The federal statute that contains these prohibitions is 42 U.S.C. § 1320a-7b(b). The statute reads:

“The Anti-Kickback Statute prohibits knowingly and willfully soliciting or receiving remuneration in return for referrals or for purchasing, leasing, ordering, or arranging for or recommending federally reimbursable items or services, and prohibits knowingly and willfully offering or paying remuneration to induce those acts.”

The statute contains two principal prohibitions: soliciting or receiving remuneration, and offering or paying remuneration, in connection with federally reimbursable referrals or other specified business.

• Offering to pay remuneration,
• Paying, paying, or providing “any remuneration,”
• Soliciting, receiving, or requesting “any remuneration,”
• Offering or paying remuneration to induce a physician to refer a patient to a pharmacy,
• And offering or paying remuneration to induce a physician to arrange for or recommend the purchasing, leasing, or ordering of an item or service from a pharmacy.

Scope of the Statute

The statute’s prohibitions reach all items and services that are federally reimbursable, including prescription items and services covered under Medicare, Medicaid, the U.S. Department of Veterans Affairs, Tricare, and other federal healthcare programs.

Sole Purpose of Influencing Federally Reimbursable Referrals

The statute’s language states that this payment need not be the sole purpose of influencing referrals; if the payment is offered, paid, solicited, or received with a prohibited purpose even as one of multiple purposes, the statute’s prohibitions should still apply.

The Anti-Kickback Statute’s Requirement of Knowing and Willful Conduct

The Anti-Kickback Statute also requires that the parties to the transaction knowingly and willfully commit the prohibited conduct. “Knowingly and willfully” means that the parties know their conduct is illegal and intend to commit an illegal act; in other words, they know they are engaging in a kickback arrangement that improperly influences the physician’s referral of federally reimbursable prescription items and services.

It is also important to note that under the Anti-Kickback Statute, individuals and companies can both be subject to criminal and civil penalties for unlawful referrals or arrangements.

When does a prescription create a prohibited pharmacy referral instead of ordinary business compensation?

What Types of Compensation Can Constitute Remuneration?

Remuneration can include not only cash and similar financial compensation, but also other items and services for which cash compensation would normally be required. For example, remuneration could include:

• Free or below-market items and services,
• Cash gifts, travel, meals, entertainment,
• Speaking fees that are excessive in comparison to similar services provided by physicians in the same or similar medical markets,
• Rent paid by a pharmacy that is below market rate,
• Software or other services that are provided to a physician for free or at below-market rates,
• Marketing or consulting expenses,
• Co-payment waivers or discounts,
• And various other benefits or incentives.

When Does a Physician’s Prescribing Activity Create a Prohibited Pharmacy Referral?

The Anti-Kickback Statute also applies when physician prescribing activity is incentivized by a pharmacy. In some cases, this will involve payments for referrals; however, this also applies when there is no direct cash payment between a pharmacy and a referring physician. For example, in some cases, physician prescribing activity may involve a rebate to the pharmacy. While a rebate is still a form of financial compensation, it is one that is provided to the pharmacy rather than directly to the referring physician. Still, this is the type of arrangement that can be scrutinized for its effect on the physician’s referral of patient prescriptions to a specific pharmacy.

Does Use of Affiliated Entities Shield a Pharmacy from Anti-Kickback Statute Liability?

The Anti-Kickback Statute’s prohibitions extend to payments and remunerations that the parties to a referral agreement receive “either directly or indirectly.” This means that pharmacies cannot necessarily shield referral payments from statutory scrutiny by arranging for the payment to be made to a referring physician’s affiliated entity, such as a business entity owned or controlled by the physician.

When Does Compensation Create an Unlawful Influence on the Physician’s Referral of Patient Prescriptions to a Pharmacy?

If the compensation for services or items is significantly above fair market value, this can be strong evidence of the compensation’s purpose of inducing a prohibited referral. Conversely, if the compensation is consistent with the fair market value of the items or services, this may reduce the risk but does not establish the lack of the prohibited purpose.

Does the Anti-Kickback Statute apply in cases where there is no federal-program reimbursement for the prescriptions in question?

No, the Anti-Kickback Statute does not apply in cases where the patient’s prescription would be paid entirely by a commercial insurance company (or by the patient).

How can compensation remain potentially lawful when no safe harbor applies?

When Does an Arrangement Qualify for Safe-Harbor Protection?

To qualify for safe-harbor protection, an arrangement must satisfy each of the applicable safe-harbor’s regulatory conditions. Partial compliance with a safe harbor does not grant any partial safe-harbor protection. For example, under the personal services and management contracts safe harbor, “payment in accordance with fair market value without taking into account the volume or value of any referrals or business generated” (42 C.F.R. § 1001.952(d)(1)(iv)) is one of six standards that must be met in order to obtain safe-harbor protection. This is not the only condition that must be satisfied. Instead, all six standards must be met in order to qualify for safe-harbor protection.

Does a Safe Harbor Impose a Legal Prerequisite for Lawful Arrangements?

Safe-harbor compliance is voluntary rather than a prerequisite for lawful physician-pharmacy arrangements. If an arrangement does not meet the criteria to qualify for protection under a particular safe harbor, this does not automatically establish an Anti-Kickback Statute violation. Instead, in cases where no safe harbor is applicable, a determination regarding the arrangement’s legality must take into account the circumstances surrounding the arrangement. This includes determining what purpose is at issue. The statute says that payments or remunerations between pharmacies and referring physicians are unlawful when offered, paid, solicited or received “on purpose to induce or reward” prohibited referrals or arrangements.

Conversely, if an arrangement does qualify for safe-harbor protection, this constitutes a defense that protects the arrangement from being characterized as an unlawful kickback under the Anti-Kickback Statute. As the Centers for Medicare and Medicaid Services (CMS) explains: “The "safe harbor" regulations describe various payment and business practices that, although they potentially implicate the Federal anti-kickback statute, are not treated as offenses under the statute. The proposed regulation indicated that in order for a business arrangement to comply with one of the ten safe harbors, each standard of that safe harbor provision would have to be met.”

The attorneys at Spodek Law Group carry more than fifty years of combined experience between them.

What Penalties Can Follow When Physician-Pharmacy Compensation is Treated as an Unlawful Kickback?

The Anti-Kickback Statute carries severe criminal, administrative, and civil penalties. Here are examples of these penalties:

Criminal Penalties

The criminal Anti-Kickback Statute is a felony violation. Penalties for criminal convictions under the statute can include:

• Up to 10 years of imprisonment per violation
• A statutory fine of up to $100,000 per violation (though actual criminal fines may be higher if appropriate under the U.S. Sentencing Guidelines)

Administrative Penalties

An Anti-Kickback conviction also gives the federal government grounds to seek administrative penalties. These penalties include (but are not limited to) exclusion from participation in federal healthcare programs (i.e., Medicare, Medicaid). For most pharmacies and physician groups, exclusion can be a far more devastating punishment than a fine, as it may essentially end their ability to operate.

Civil Penalties

The federal Anti-Kickback Statute also includes provisions for civil enforcement. The civil monetary penalties for Anti-Kickback Statute violations can include:

• Up to $100,000 per unlawful kickback
• Civil monetary penalties of three times (triple) the remunerations involved

False Claims Act (FCA) Penalties

Finally, for healthcare providers and companies that have been accused of paying kickbacks, the Anti-Kickback Statute often serves as the underpinning of a False Claims Act (FCA) enforcement action. The FCA is one of the government’s most powerful tools for combating fraud, waste, and abuse in the healthcare industry, and it carries its own substantial financial penalties. For example, in federal healthcare fraud cases involving kickbacks to referring physicians, the federal government typically imposes treble damages (three times the value of the federal government’s actual losses) and per-claim civil penalties (currently, between $14,308 to $28,618 per claim).

Which Stark and State Referral Laws Can Apply Alongside the Federal Anti-Kickback Statute?

If you are facing an inquiry or investigation related to the Anti-Kickback Statute (AKS), it is important to evaluate whether other referral prohibitions apply as well. The federal government can seek penalties under the AKS in conjunction with other relevant statutes, and the federal Stark Law is the federal physician self-referral law.

The Federal Stark Law

The federal Stark Law, located at 42 U.S.C. § 1395nn, provides:

“If a physician or an immediate family member has a financial relationship with an entity, the physician may not refer a patient to that entity for designated health services payable by Medicare, and the entity may not present a claim for those services, unless an applicable exception applies.”

Unlike the Anti-Kickback Statute, which requires a showing that the remuneration at issue was accepted in exchange for a referral of a patient’s prescription to a pharmacy, Stark does not have a similar requirement. Instead, Stark’s liability arises from the mere fact that a physician refers a patient to a pharmacy with which the physician or the physician’s immediate family member has a financial relationship, unless an applicable exception applies.

The Federal Stark Framework: Medicare and Medicaid Applications

The federal Stark framework is unique in that it only applies to referrals that result in Medicare reimbursement. Unlike other statutes that are more broad, Stark does not impose a general prohibition against self-referrals involving Medicaid or other federal healthcare programs. However, as a result of this unique focus, federal law is far from comprehensive when it comes to prohibiting self-referrals and referrals between medical entities.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 888 348 8028.