By Jay Reyero, JD, Partner, ByrdAdatto

Anyone who has been in the health care industry understands the complexity of compliance. The health care industry is constantly changing as rules, regulations, interpretations and enforcement activities evolve, potentially altering the landscape and requiring modifications to existing arrangements. In addition, compliance is fact-dependent, meaning arrangements must be independently evaluated because changes in facts and circumstances can alter an analysis or conclusion with respect to compliance.

As a result, there are often no clear-cut answers—instead, it requires an assessment of risks, with the decision coming down to one's own risk tolerance. Think of a spectrum where one end is black (illegal conduct and orange jumpsuits), the other end is white (fully compliant, no worries, be happy), and in between are the shades of grey. Frustratingly, most arrangements fall within the shades of grey. So, to ensure compliance you must:

1. Analyze all the facts in light of all of the rules;
2. Narrow down where on the spectrum a particular arrangement falls; and
3. Conduct a risk assessment to make an informed decision.

Simple, right?

As you can imagine, navigating the spectrum and determining compliance can be difficult, even for health care attorneys with decades of experience. This article, then, is not meant to be a tutorial on how to conduct an analysis or a dive deep into the details of all the health care laws. ("I would love to know all there is to know about Stark!" said no one ever.) Instead, the focus is to equip you with enough knowledge to simply be able to spot red flags and ask the right questions.

In health care, there are numerous laws, rules and regulations that exist, and many are so frequently referenced you may feel like they all always apply. Yet, it is critical to understand which laws actually apply to a given situation so you're not left running down a regulatory rabbit hole spotting imaginary red flags.

Federal Law

The first place to start is with federal laws, rules and regulations. These are typically the laws that are most well-known and referenced because of the frequency in enforcement (and media attention) by federal government agencies such as the Office of Inspector General (OIG), Department of Justice (DOJ), Federal Bureau of Investigations (FBI) and Centers for Medicare and Medicaid (CMS). Federal laws also have the most developed guidance for compliance through the publication of regulations, issued advisory opinions and case law.

Even when you conclude certain federal laws won't directly apply, it is important to still be aware of them because state laws can point to, mirror or follow their federal counterparts. The two primary federal health care laws for any arrangement are Stark and Anti-Kickback. However, despite these being the most commonly encountered federal laws, there are numerous other laws that may apply to a particular situation and shouldn't be overlooked, whether it is the Eliminating Kickbacks in Recovery Act of 2018, Physician Payment Sunshine Act or Health Insurance Portability and Accountability Act of 1996.

1. Stark

Stark is the federal physician self-referral prohibition preventing physicians from making referrals for "designated health services" (DHSs) payable by Medicare or Medicaid to entities with whom they (or an immediate family member) have a financial relationship. DHSs are specific types of services that include, among others, clinical laboratory services, inpatient and outpatient hospital services, radiology and certain other imaging services, durable medical equipment, and outpatient prescription services. Financial relationships include both direct or indirect ownership, investment interests or compensation arrangements.

Recognizing the existence of several common, legitimate financial arrangements, exceptions to the general prohibition were created. Therefore, even if an arrangement initially triggers Stark, the arrangement can still be permitted, but only if it meets all the requirements of a specific exception. Failure to meet one element of an exception means the arrangement violates Stark (unless another exception applies) and is therefore prohibited. Because of this bright-line rule (meaning you either meet it or you don't), any regulatory analysis must begin here.

Stark is a civil statute; penalties for physicians who violate it include fines and exclusion from participation in federal programs (defined below).

The most important thing to understand about Stark is that it only applies if referrals involve patients covered by Medicare or Medicaid (in whole or in part, and whether as a primary or secondary payer). Therefore, when no Medicare or Medicaid patients are involved, Stark will not apply. Also, "physician" is a defined term under Stark and only includes doctors of medicine or osteopathy, dental surgery or dental medicine, podiatric medicine, optometry, and chiropractors. This means that Stark does not apply to nurse practitioners, physician assistants, registered nurses, any other licensed professional or unlicensed individuals. While each of these narrow the scope for when Stark will actually apply to a particular arrangement, it still remains the starting point.

2. Anti-kickback

Federal Anti-kickback prohibits any person from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to any person in return for or as inducement to do either of the following:

1. Refer an individual to a person for the furnishing or arranging for the furnishing of an item or service for which payment may be made in whole or in part under Medicare, Medicaid, TRICARE or another federal health care program [as defined by 42 U.S.C. § 1320a-7b(f)] ("Federal Programs"); or
2. Purchase, lease, order, or arrange for or recommend the purchasing, leasing or ordering of any good, facility, service or item for which payment may be made in whole or in part under any Federal Program.

It has been broadly interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. Furthermore, remuneration is more than just payment of funds and has been interpreted to be anything of value.

The OIG enacted "safe harbors" to protect those arrangements it deemed not likely to result in abuse of the Federal Programs. Arrangements that satisfy every element of a particular safe harbor are not considered violations and would not be grounds for prosecution. However, unlike Stark, failure of an arrangement to meet every element of a safe harbor does not make the arrangement illegal, per se, but instead heightens the potential that the arrangement may be scrutinized by the OIG and requires a navigation through the shades of grey.

Federal Anti-kickback is a criminal law with criminal penalties and administrative sanctions for violations, including fines, jail terms and exclusion from participation in the Federal Programs. Additionally, the secretary of the U.S. Department of Health and Human Services (HHS) has the authority to exclude providers, including individuals or entities, who have committed any of the prohibited acts from participation in the Federal Programs.

The broad language of the statute and its interpretations mean the Federal Anti-kickback must be considered when any arrangement or model involves patients covered by Federal Programs. In addition, unlike Stark, which only applies to "physicians," Federal Anti-kickback applies to all sources of referrals, including patients. However, most importantly, Federal Anti-Kickback only applies if referrals involve patients covered by Federal Programs (in whole or in part, and whether as a primary or secondary payer). Therefore, when no Federal Program patients are involved, Federal Anti-kickback will not apply.

3. Travel Act

A brief discussion is needed about the Travel Act, a federal law that criminalizes business activities that are illegal on the state level. The Travel Act generally provides that it's a federal felony to engage in interstate commerce with the intent to promote or carry on any unlawful activity, including violation of a state bribery law (see discussion below). Federal prosecutors in New Jersey and Texas have used the Travel Act to transform violations of state bribery laws into violations of federal law in connection with kickback and payment for referral schemes. Because of this federal strategy, it is important to be aware that health care arrangements must include a risk assessment of the application of the Travel Act, since the possibility of the federal government's involvement naturally increases risk and the specter of scrutiny.

State Law

The next place to navigate—and likely where you will spend the most time—are state laws, rules and regulations. Unlike the federal laws, state laws typically are not as actively enforced publicly, nor do they have as much developed guidance for compliance. This commonly creates two issues:

1. An uncertainty as to how to quantify the level of risk associated with an arrangement in relation to the applicable state laws; and
2. A misperception that a lack of enforcement means no risk at all.

Even residing in a state with no enforcement history by state agencies, it is critical to consider the applicable laws because violations can still be relied upon by third parties, such as licensing boards, insurance payors and even parties with whom you've contracted. When it comes to state laws, the same types of prohibitions as those on the federal level will typically be encountered.

1. State Self-referral

Similar conceptually to Stark, some states can contain laws prohibiting self-referrals, also known as baby Stark… doo doo doo doo doo doo (you know you were thinking the same thing).

In California, the Physician Ownership and Referral Act of 1993 (PORA) and California Labor Code Section 139.3 (workers compensation) contain prohibitions against self-referral, making it unlawful for a licensee to refer a person for laboratory, diagnostic nuclear medicine, radiation oncology, physical therapy, physical rehabilitation, psychometric testing, home infusion therapy or diagnostic imaging goods or services if the licensee or his or her immediate family has a financial interest with the person or in the entity that receives the referral. Florida's Patient Self-referral Act of 1992 provides that a health care provider may not refer a patient:

1. For the provision of designated health services to an entity in which the health care provider is an investor or has an investment interest; and
2. For the provision of any other health care item or service to an entity in which the health care provider is an investor, unless certain exceptions apply.

Finally, Maryland's Health Occupations Code contains broad prohibitions on physician self-referrals. Specifically, the physicians and other health care practitioners licensed by the Maryland State Board of Physicians may not refer a patient—or direct an employee or contractor to refer a patient—to a health care entity about which any of the following are true:

1. The physician, or the physician in combination with their immediate family, owns any beneficial interest;
2. The physician's immediately family owns a beneficial interest of 3% or greater; or
3. The physician, their immediate family or the physician in combination with their immediate family has a compensation arrangement.

These state self-referral laws are implemented on the premises that the referral of a patient by a provider to another provider of services in which the referring provider has a financial interest represents a potential conflict of interest. As was the case with Stark, state self-referral prohibitions may apply to a limited set of payor sources (e.g. state Medicaid programs) or be payor indifferent, in which case it doesn't matter who makes the payment—even cash. They could apply to a limited set of health care services (e.g. designated health services) or to any health care service being referred. Once again, since these self-referral laws tend to be more bright-line rules, similar to Stark, any state level analysis should begin here.

Ancillary to the state self-referral prohibitions are state laws requiring certain disclosures be made to patients. In Texas, a person commits an offense if they accept remuneration to secure or solicit a patient or patronage for a person licensed, certified or registered by a state health care regulatory agency and do not, at the time of initial contact and at the time of referral, disclose to the patient:

1. The person's affiliation, if any, with the person for whom the patient is secured or solicited; and
2. That the person will receive, directly or indirectly, remuneration for securing or soliciting the patient.

The most basic disclosure requirement in California is contained in Business and Professions Code §654.2, which requires all licensed health care providers to disclose to patients "significant beneficial interests" that a licensee or any member of the licensee's immediate family may have in any organization to which the licensee refers patients. The disclosure must be made before the referral is made.

These types of state disclosure requirements may not necessarily prohibit a particular arrangement, but they put forth important steps that must be followed.

2. State Anti-kickback

More so than baby Stark, states often have some form of state law, rule or regulation prohibiting payments for referrals.

In Texas, the Texas Occupation Code states that a person commits an offense if the person knowingly offers to pay or agrees to accept, directly or indirectly, overtly or covertly, any remuneration, in cash or in kind, to or from another for securing or soliciting a patient or patronage for or from a person licensed, certified or registered by a state health care regulatory agency. The exception to this rule permits any payment, business arrangement or payment practice permitted by the Federal Anti-kickback or any regulation adopted under it, such as the safe harbors. Florida's Patient Brokering Act makes it unlawful for any person, including any health care provider or health care facility, to:

• Offer or pay a commission, benefit, bonus, rebate, kickback or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, to induce the referral of a patient or patronage to or from a health care provider or health care facility;
• Solicit or receive a commission, benefit, bonus, rebate, kickback or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, in return for referring a patient or patronage to or from a health care provider or health care facility;
• Solicit or receive a commission, benefit, bonus, rebate, kickback or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, in return for the acceptance or acknowledgment of treatment from a health care provider or health care facility; or
• Aid, abet, advise, or otherwise participate in the conduct prohibited under the previously stated conditions.

Meanwhile, California has two primary prohibitions on kickbacks. The one that is most commonly referenced is California Business and Professions Code Section 650, which states that the offer, delivery, receipt or acceptance by any person licensed under the Healing Arts division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage dividend, discount or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients or customers to any person, irrespective of any membership, proprietary interest, or co-ownership in or with any person to whom these patients, clients or customers are referred, is unlawful. California's Health & Safety Code Section 445 also provides that no person, firm, partnership, association or corporation, or agent or employee thereof, shall, for profit, refer or recommend a person to a physician, hospital, health-related facility or dispensary for any form of medical care or treatment of any ailment or physical condition.

The difficulty of navigating the state anti-kickback laws is that they not only tend to be broadly written, but also provide little public guidance or enforcement, which can make it difficult to understand the nuances and safe harbors for compliance. For example, Texas's anti-kickback law is a broadly written, payor indifferent statute that is known within the industry for lacking any meaningful enforcement from a state governmental agency. However, an apparent lack of enforcement doesn't negate the application of the law to a particular arrangement; instead, it may be a factor to consider when determining the level of risk of involved.

3. State Bribery

State bribery statutes include not only those prohibiting commercial bribery, but also those addressing illegal remuneration regarding improper payments in connection with referrals for services. As discussed above, both Texas and New Jersey have played a major role in enforcement.

Under the Texas Commercial Bribery Statute, a person who is a fiduciary commits an offense if, without the consent of his beneficiary, he intentionally or knowingly solicits, accepts or agrees to accept any benefit from another person on agreement or understanding that the benefit will influence the conduct of the fiduciary in relation to the affairs of his beneficiary; a "fiduciary" specifically includes a physician, and a "beneficiary" means a person for whom a fiduciary is acting. An offense under the Texas Commercial Bribery Statute is a state jail felony. Similarly, in New Jersey, a person commits a crime if he solicits, accepts or agrees to accept any benefit as consideration for knowingly violating or agreeing to violate a duty of fidelity to which he is subject, including as a physician.

Both of these state bribery laws led to the novel use of the Travel Act (described above) by the federal government to prosecute actions that are otherwise strictly state focused. This is why any risk assessment of an arrangement, even if only dealing with state-level issues and no Federal Programs, must not only assess the risk from a state enforcement perspective, but also take into account the possibility that the federal government could become involved.

Conclusion

If there is any one thing to take away from this article, it is that navigating the health care regulatory environment is not easy. There are numerous factors that must be taken into account, and there can be several paths needed to ultimately get to a conclusion regarding compliance. While the first step is to put yourself in position to spot the red flags by generally understanding the federal laws, state laws, and other rules and regulations that may apply, the work doesn't stop there.

Because compliance is so fact-dependent, you must be prepared to disclose all aspects of a potential arrangement, including describing in detail all parties and relationships involved. Even though a particular arrangement in a vacuum may appear to be compliant, the presence of other factors can quickly change that conclusion. A healthy and solid regulatory analysis is one that has considered all facts and circumstances involved; this includes the intent of the parties or past discussions that have been involved. When dealing with intent-based statutes (e.g. Federal Anti-kickback), the intent of the parties can be key pieces of evidence despite the documents themselves appearing to be fully compliant on their face.

Finally, once you've obtained an analysis and understand what is necessary to establish a compliant arrangement, you must be prepared to implement the arrangement exactly as described in the documents themselves. Deviation from the terms of an arrangement or understanding, even ever so slightly, immediately creates a potential issue with the underlying compliance analysis (again, fact-dependent). Prior to any deviation or change in terms, such change must be evaluated separately in the context of the overall model to determine whether a compliance issue will arise and if there is any increase in the overall risk.

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Jay Reyero, JD, is a partner at the business, health care, and aesthetic law firm of ByrdAdatto. He has a background as both a litigator and transactional attorney, bringing a unique and balanced perspective to the firm's clients. His health care and regulatory expertise involves the counseling and advising of physicians, physician groups, other medical service providers and non-professionals. His specific areas of expertise include federal and state health care regulations and how they impact investments, transactions and various contractual arrangements, particularly in the areas of federal and state anti-referral, anti-kickback and HIPAA compliance.