Federal Fraud and Abuse Laws:

####### A Summary

####### For Community Access Program Grantees

Prepared for the Health Resources and Services Administration

*by:*

Powell, Goldstein, Frazer & Murphy, LLP

*with the assistance of*

Feldesman, Tucker, Leifer, Fidell & Bank, LLP

June 15, 2001

*This document has been prepared for HRSA by the law firms listed above.
The U.S. Department of Health and Human Services has not verified the
accuracy of the data or analysis presented in the document. The opinions
expressed in this document are the views of the authors and do not
necessarily reflect the official position the Health Resources and
Services Administration or the Department of Health and Human Services.
This document is designed to provide accurate and authoritative
information in regard to the subject matter covered. It is issued with
the understanding that the authors are not engaged in rendering legal or
other professional services. If legal advice or other expert assistance
is required, the services of a competent professional should be sought.
This paper has been designed for general educational purposes and should
not be considered a comprehensive treatment of the subject. It is not
intended to provide legal advice. Readers should not act or rely on
information contained in the paper without seeking specific legal advice
on matters of concern.*

**Federal Fraud and Abuse Statutes:**

**A Summary for Community Access Program Grantees**

######## EXECUTIVE SUMMARY

CAP grantees, like all providers participating in federal healthcare
programs, have the responsibility of complying with the various federal
fraud and abuse statutes. This technical advisory paper addresses the
three major laws of which CAP Grantees must be cognizant.

*The Federal Anti-Kickback Statute*: This statute seeks to prevent
fraudulent or abusive business arrangements that may compromise
independent clinical judgment or raise costs for federal health care
programs. The anti-kickback law prohibits any person from paying or
receiving remuneration (something of value) in return for referrals for
patient services (or the purchase or lease of goods or services) payable
by a federal health care program. There are exceptions to this law,
which were created to protect truly legitimate practices that do not
give rise to these potentially fraudulent business associations. These
"safe harbors" protect arrangements such as personal services and
management contracts, referral services agreements, and space and
equipment rental agreements so long as all of the pre-requisites are
met, thereby assuring the legitimacy of the business venture. Failure to
fall within one of these "safe harbors" does not make the arrangement
illegal per se; however, CAP consortia should be prepared to respond to
potential review by the Office of the Inspector General ("OIG"). If
grantees want greater certainty for an arrangement that falls outside a
safe harbor, they can apply for an advisory opinion from the OIG.

*The Federal Physician Self-Referral Laws*: The "Stark Law," as this
statute is known as, prohibits physicians from making referrals for
certain designated services to entities with whom the physician has a
financial relationship. For the purposes of this statute, physicians,
group practices, partnerships, and corporations are all treated as
"entities," thereby broadening the scope of this law from its initial
appearance. There are statutory and regulatory exceptions to this broad
prohibition that provide protection to those arrangements which meet
certain requirements. For example, exceptions exist for fair market
value agreements, compliance training, and preventative screening
agreements. However, unlike the anti-kickback statute, if an arrangement
fails to comply with the Stark Law and does not meet an exception, it
[is]{.underline} *per se* illegal.

*Federal False Claims Laws*: Both the Social Security Act and the
Federal False Claims Act prohibit filing false reimbursement claims with
the federal health care programs. Criminal penalties include up to
\$25,000 in fines and/or five years imprisonment, and the act authorizes
civil fines of treble damages, plus \$5,000 or \$10,000 *[per false
claim submitted.]{.underline}* In addition, the statute contains a
whistleblower provision which allows a private citizen to bring suit on
behalf of the government for violations of the law and receive between
15-25% of the government's ultimate recovery. This "whistleblower
provision" creates no additional legal obligations for federal grant
recipients; however, it creates a strong incentive for insiders to
report illicit behavior.

As CAP grantees negotiate arrangements, they need to ensure that the
business relationships comply with these requirements and that systems
are in place to ensure that claims submitted to federal programs are
accurate. Further, grantees need to review state fraud and abuse law to
ensure that they do not impose additional requirements.

######## INTRODUCTION

As CAP Grantees consider creating and restructuring relationships among
themselves and with third parties, they need to be mindful of the
federal fraud and abuse statutes. This technical advisory paper
addresses the three principal fraud and abuse laws that could affect CAP
Grant recipients. The Federal Anti-kickback Statute is designed
primarily to prevent one entity from offering or receiving remuneration
in exchange for referrals to or from another entity or purchase or lease
of goods and services paid for by federal health care programs. The
Federal Prohibition on Physicians Self-referrals ("Stark II") creates
limits on the ability of the physician to refer patients for designated
health services if the physician has a financial relationship with that
entity. The Federal False Claims Act provides potentially severe
sanctions for the "knowing" submission of False Claims to a federal
government program. In the sections below, the paper provides
information regarding the requirements established under these laws and
the exceptions or safe harbors available to providers.

######## FEDERAL ANTI-KICKBACK STATUTE

The Federal Anti-kickback Statute seeks to prevent fraudulent and
abusive business arrangements, which might cause conflicts of interest
in patient care decisions, create unfair advantages for certain health
care providers in a competitive market place, or result in higher costs
for the federal government's health care program. The statute prohibits:

-   Knowingly or willfully

-   Soliciting, receiving, offering to pay, or paying

-   Any remuneration (something of value), whether directly or
    indirectly, overtly or covertly, in cash or in kind,

-   In return for referring or inducing a referral for

-   Patient services OR purchases or leases of equipment, goods, or
    services

-   Any of which is payable in whole or in part by a federal health care
    program.[^1]

Penalties include \$25,000 fines, five-year prison sentences, and/or
exclusion from federal health care programs. In addition, violating the
anti-kickback statute could be grounds for a civil False Claims Act
suit, which authorizes recoveries of up to treble damages and \$5,000 or
\$10,000 per claim.

The statutory language is very broad, and court decisions interpreting
the law have not narrowed its scope. In fact, courts have found
violations of the anti-kickback statute when this knowing or willful
intent to induce referrals was ***only one reason*** amongst several
(otherwise permissible) motivations behind an arrangement. Similarly,
the intent to induce referrals need not be the primary purpose behind an
agreement for the anti-kickback statute to be triggered,[^2] and paying
fair-market value for services rendered may not necessarily \"rescue\"
an arrangement tainted by this unlawful intent. In other words, any
business arrangement can potentially violate the anti-kickback statute
if a single motivation behind the agreement is the intent to induce
referrals for services or purchases/lease of equipment.

There are regulations that create exceptions to this otherwise broad
prohibition. These \"safe harbors\" are narrowly drafted to protect
truly legitimate practices that pose no threat of harm to the Medicare
or Medicaid programs. To be protected under a specific safe harbor rule,
the arrangement must meet each and every requirement of that rule;
practices requiring the protection of two safe harbors must meet the
requirements of both regulations.

It is important to note that failing to meet the exact requirements of a
safe harbor regulation does not mean that an arrangement violates the
anti-kickback statute *per se*. Rather, the Office of the Inspector
General (\"OIG\") of the U.S. Department of Health and Human Services
(\"HHS\") reserves the right to review non-qualifying arrangements on a
case-by-case basis and decide whether prosecution is warranted. Given
the narrow breadth of the safe harbor provisions, many legitimate
relationships may appear to be in technical violation of the
anti-kickback statute and therefore subject to case-by-case review for
compliance. For arrangements outside a safe harbor, CAP consortia should
be prepared to respond to potential review by the OIG at a later date.

##### A. Safe Harbor Regulations {#a.-safe-harbor-regulations .unnumbered}

The following are general descriptions of some of the safe harbor rules
that are most likely to be relevant to the CAP program. The appendix
includes the specific requirements for each safe harbor rule described.

1\. Personal Services and Management Contracts Safe Harbor:

The Personal Services and Management Contracts rule excludes from the
anti-kickback statute contracts for personal services as long as the
service agreement meets the threshold requirements and the written
agreement contains certain provisions. For example, there must be a
written contract, signed by all parties, which specifies all of the
services that will be provided. The minimum term of the service
agreement must be one year. Compensation paid over the term of the
agreement must be set in advance, cannot exceed fair market value of the
service, and cannot take into account the volume or value of business
generated between the parties.

2\. Referral Services Agreements Safe Harbor:

The referral services agreements safe harbor insulates agreements where
a general practitioner or specialist agrees to refer particular patients
to a specialist or sub-specialist with the expectation that the patient
will be referred back when the patient has reached a particular level of
recovery. Certain criteria must be met before an arrangement will
qualify for the safe harbor. For example, both referrals must be proper
in that the referral to the specialist is for services the referring
doctor cannot provide, and the same patient is referred back at an
agreed time or circumstance that is clinically appropriate. Payment
cannot be based on the volume or value of the referrals or business
otherwise generated based on the relationship between the two entities,
and the only permissible remuneration in this setting is the payments
received from patients or third-party payers (including Medicare or
Medicaid).

3\. Obstetrical Malpractice Insurance Subsidies Safe Harbor:

An arrangement in which a hospital or other entity pays for the
malpractice insurance premiums for a provider of obstetrical services in
a primary care Health Professional Shortage Area (\"HPSA\") [^3] can be
excluded from the anti-kickback statute under the Obstetrical
Malpractice Insurance Subsidies Safe Harbor. The practitioner must
ensure that seventy-five percent of the obstetrical patients treated
under the insurance policy either reside in a HPSA or Medically
Underserved Area (\"MUA\") or are a part of a Medically Underserved
Population (\"MUP\").[^4] Moreover, the written agreement between the
parties must set out the terms for providing the premiums as well as the
amount of the premiums.

4\. Space and Equipment Rental Safe Harbors:

Rental agreements for either space or equipment can be protected under
the respective safe harbors as long as the requirements for the safe
harbor are met. For example, the term of the rental agreement must be
for at least one year, and the agreement must be written and signed by
all parties.

There are other safe harbors addressing a variety of topics. Prior to
entering into transactions, particularly with other providers, the CAP
entity shall seek legal advice as to whether the transaction might run
afoul of the anti-kickback law or possibly be "safe harbored."

##### B. OIG Advisory Opinions {#b.-oig-advisory-opinions .unnumbered}

If an arrangement does not fall within a safe harbor and a CAP
consortium wants to be absolutely certain that an arrangement is
permissible, the consortium or a provider can apply for an OIG advisory
opinion. The OIG will consider requests for advisory opinions from
individuals or entities regarding an existing arrangement or one that
the requestor(s) intends to undertake. In general, OIG Advisory Opinions
are binding only on the OIG and the requesting party; however many
opinions are made available to the public for guidance. There are both
procedural and substantive constraints placed upon requests for advisory
opinions. The appendix contains the OIG\'s Preliminary Checklist For
Advisory Opinion Requests which provides a detailed list of requirements
that must be met in order to request these opinions. The most salient
concepts are set forth below.

> 1\. Substantive Requirements

The OIG will accept requests for advisory opinions only on certain
topics. Requests regarding the application of the law to a specific set
of facts relating to existing or intended arrangements will be
considered as long as the requesting party is related to the entity.
However, requests concerning general interpretations, hypothetical
situations, or third parties will not be accepted nor will the OIG
accept requests regarding the same or substantially similar action that
is under investigation by HHS or another government agency. The OIG has
created a list of preliminary questions interested parties should review
before submitting requests for an advisory opinion. Note that in many
instances, parties to a transaction will go through with an arrangement
pending an advisory opinion being issued, but they must be prepared to
unwind the deal quickly if the opinion outcome is negative.

> 2\. Procedural Requirements

Before the OIG will consider advisory opinion requests, certain
procedural requirements must be met. For example, the requesting party
or parties (who, again, must be a party or parties to the arrangement)
must submit a letter and two copies which lists the names and addresses
of the requestor and all other parties involved in the arrangement. The
letter must contain a statement of the statute governing the question
and a complete and specific description of the arrangement for which the
request is made. This description should contain all relevant
information with a bearing on the arrangement including background
information, detailed statements of all collateral and oral
understandings, the operative documents for existing arrangements, and
for proposed endeavors, copies of the operative documents or their
proposed description.[^5] Every request must contain a certification
signed by the requesting party or parties, as well as a check for \$250,
which will cover the initial review. Moreover, the requesting party (or
parties) is responsible for covering the costs incurred by the OIG in
issuing the advisory opinion should the OIG accept the request.

Upon receipt of a request, OIG has ten days to formally accept or
decline a request or notify the requesting party or parties if
additional information is necessary to complete the processing of the
request. Should the OIG accept the request, an advisory opinion should
be issued within sixty days. Realistically, however, these opinions may
take six months or more to obtain. Again, these advisory opinions are
only binding on the OIG and the requesting party (or parties). However,
advisory opinions are made available to the public, though names and
certain information will be redacted to protect the parties, thereby
providing valuable guidance concerning the OIG's enforcement
considerations regarding a particular type of transaction.

> 3\. Evolving Trends

The OIG regularly posts redacted copies of issued advisory opinions,[^6]
and a review of these opinions reveals an encouraging trend:
arrangements which offer a positive benefit to communities and/or
medically under-served populations are more likely to receive the OIG's
stamp of approval for otherwise questionable arrangements.

In 1999, the OIG issued fourteen advisory opinions. Five opinions
specifically acknowledged the significant benefit bestowed upon
communities by arrangements which did fall within an anti-kickback safe
harbor but would not be prosecuted by the OIG. Similarly, in 2000, the
OIG issued eleven advisory opinions, and three of these opinions relied
upon "community benefit" as one reason why the OIG would not take action
against parties to a specific arrangement (a trend which has continued
into the first quarter of 2001). [^7]

This is not to say that arrangements that violate the anti-kickback
statute can be saved from prosecution if they confer a benefit upon a
medically under-served population. However, given the community outreach
goals of the CAP programs, in many instances, grantees could be good
candidates for favorable opinions.

## Internal Communications

The anti-kickback statute creates a crime of intent. The fact that one
of the purposes behind an arrangement may be to garner illicit referrals
(or purchases or leases of goods and services) can taint the entire
transaction. Consequently, CAP grantees must be mindful as to how they
communicate both internally and externally regarding what they are
trying to accomplish in creating CAP networks.

More specifically, the Health Resources and Services Administration has
provided federal funding to enable a consortium of providers to come
together to rationalize health care delivery to indigent and
under-served individuals in one way or another. It is not providing
funds so that providers can reward each other for making referrals or
steering purchases/leases of goods and services. Executives and managers
planning for implementation need to ensure that their communications
regarding strategies and implementation focus exclusively on the
legitimate purposes behind the grant funding. For instance, one
arrangement may be perfectly permissible under the anti-kickback statute
if its purpose is to provide more coordinated care to indigent patients.
On the other hand, the same arrangement can become a felony if internal
staff communication indicates that one purpose behind the deal is to
reward (or induce) one provider for sending its patients to another.

Consequently, at the start of the CAP planning and implementation
process, it is worthwhile to talk very explicitly about what is and is
not allowed with respect to the use of grant funds. Given that people
tend to be particularly careless with what they say in emails,
voicemails or internal conversations, staff should be warned not to say
anything or write anything that they would not want to see on the front
page of a newspaper. From time to time, it may be worthwhile to provide
refresher education on the restrictions imposed by the anti-kickback
statute and to explain where people with questions regarding the statute
restrictions can turn for answers.

######## FEDERAL PHYSICIAN SELF-REFERRAL LAWS

In 1990, Congress acknowledged the concern that a physician may
over-utilize referrals for Medicare or Medicaid services if that
physician is in a position to personally benefit from the referral. In
response, legislation was passed to regulate physician referrals to
entities with which the physician or an immediate family member has a
direct or indirect financial relationship. Named after Congressman
Fortney \"Pete\" Stark of California, the \"Stark Law\" initially
related only to clinical laboratories.[^8] \"Stark II\", effective
January 1, 1995, is the governing prohibition of self-referrals for a
variety of designated services payable by Medicare and Medicaid.
Corresponding final regulations were issued in January 2001 and will
become effective on January 4, 2002.

At the date of this paper, the only specific guidance available on the
"Stark" law is the statute itself, the Stark I regulations, the Stark II
proposed regulations, and the Stark II "Phase I" final regulations
issued in January 2001. These Phase I regulations apply only to
Medicare. A second set of regulations that are being referred to as
"Phase II" are currently being drafted and will address other topics,
including Medicaid and certain exceptions to the self-referral
prohibitions. Phase II regulations will potentially affect CAP grant
recipients, but the specifics are not yet known. Thus, CAP grantee
recipients need to monitor regulatory developments in this area.

## A. The Statutory Prohibition

The Stark II Law states that if a physician has a \"financial
relationship\" with an entity, then the physician may not make a
referral to the entity for \"designated health services\" for which
payment may be made under Medicare or Medicaid.[^9] Moreover, the entity
may not present a claim to Medicare or Medicaid if the claim is based on
a referral that violates this prohibition. No wrongful intent or
culpable conduct is required to violate the Stark Law, but knowledge of
the prohibited relationship is necessary to be prosecuted.

The list of \"designated health services\" includes:

-   Clinical laboratory,

-   Physical and occupational therapy,

-   Radiology and other diagnostic imaging services,

-   Radiation therapy,

-   Parenteral and enteral nutrition,

-   Outpatient prescription drugs,

-   Durable medical equipment and supplies,

-   Prosthetics, orthotics and prosthetic devices,

-   Home health services and supplies, and

-   Inpatient and outpatient services.[^10]

The primary remedy is non-payment or recovery of payments made. However,
penalties can include fines of up to \$15,000 per claim and exclusion
from Medicare or Medicaid. In addition, if wrongful intent is found,
then the individual or entity can be subject to criminal charges and
civil penalties under the federal false claims laws.

A Stark Law analysis breaks down into three essential questions: (1)
does the relationship between the doctor and entity constitute a
prohibited \"financial relationship;\" (2) has the doctor made or will
the doctor make referrals for any of the \"designated services;\" and
(3) are there any applicable exceptions.

For the purposes of the Stark Law, physicians include health care
entities, as well as health care providers organized as group practices,
partnerships, or corporations. Thus, the first question, whether the
relationship between the doctor and referred entity constitutes a
prohibited \"financial relationship,\" is actually broader in scope than
it may appear at first glance. A financial relationship includes an
ownership or investment interest in an entity or a \"compensation
arrangement\" between an entity and the referring physician or a member
of his or her family.

The second question - whether the doctor has or will make referrals for
any of the designated health services - breaks down into one simple
concept: so long as a physician does not make referrals to entities with
which he or she has a financial relationship, then no problem exists.

##### B. Stark II Exceptions {#b.-stark-ii-exceptions .unnumbered}

Regarding the third question, there are a number of statutory and
regulatory exceptions to the ownership and compensation arrangement
prohibition. The following are some examples of available exceptions:

-   Rental of office space or equipment,

-   Bona fide employment arrangements,

-   Fair market value compensation,

-   Indirect compensation arrangements,

-   Preventative screening,

-   Non-monetary compensation arrangements,

-   Compliance training, and

-   Personal services arrangements.

Every exception contains specific requirements, all of which must be met
before a particular arrangement qualifies for the exception (much like
the "safe harbors" in federal anti-kickback law). As an example, the
Stark II Personal Services Exception applies to arrangements that meet
each of the following criteria:

-   The arrangement is set out in writing, signed by all parties, and
    specifies the services covered in the arrangement;

-   The arrangement applies to all of the services to be referred by the
    physician to the entity;

-   The aggregate services contracted for do not exceed those that are
    reasonable and necessary for the legitimate business purposes of the
    arrangement;

-   The term of the arrangement is for at least one year;

-   The compensation to be paid over the duration of the arrangement is
    established in advance, does not exceed fair market value, and . . .
    does not account for the volume or value of any referrals or other
    business generated between the parties; and

-   The services to be performed under the arrangement do not involve
    the counseling or promotion of a business arrangement or other
    activity that violates any state or federal law.[^11]

> 1\. Fair Market Value Compensation Exception

The fair market value compensation exception protects arrangements that
benefit both physicians and related entities but do not pose a risk of
program abuse. Certain requirements must be met, including setting
compensation in advance, ensuring that the compensation is consistent
with fair market value, and making certain the compensation does not
take into account the value or volume of referrals generated for the
business by the referring physician.

> 2\. Preventative Screening Test Exception

Referrals for preventative screening tests, immunizations, and vaccines
are protected from prosecution under the Stark II Law so long as the
criteria for the exception are met. For example, the tests must be
within recommended frequency limits, reimbursed by Medicare based on a
fee schedule, and the arrangement cannot violate the anti-kickback
statute.

> 3\. Non-Monetary Compensation Exception

The non-monetary compensation exception essentially carves out of the
prohibition a niche for gifts or benefits provided to a referring
physician. To comply with the exception and avoid triggering the Stark
II law, the gift or benefit cannot be cash or cash equivalent, nor may
it be determined so as to take into account the volume or value of
referrals generated by the referring physician. The physician cannot
receive more than \$300 worth of gifts or benefits in a given year, nor
can the physician or his practice solicit the benefit. And, as always,
the gift or benefit must comply with the anti-kickback statute.

> 4\. Compliance Training Exception

The compliance training exception protects training provided by a
hospital to a referring physician who practices in the same community.
The exception requires that such training must either cover the basic
elements of a compliance program or the specific rules of a federal
health care program. The compliance training exception appears to be
very narrow in that it protects compliance training activities but does
not appear to protect other components of compliance programs supported
by the OIG such as physician assistance or creating self-audit policies.
Nonetheless this exception may be particularly useful to CAP grantees
that intend to provide physician training, as part of their services.

The specific requirements for each of the above-mentioned exceptions are
stated in Appendix C.

Finally, though the Stark II and anti-kickback statutes have striking
similarities, the two statutes differ in that the Stark II statute has
fewer gray areas. More specifically, under Stark II, if there is a
financial relationship between an entity and a physician and the
physician refers patients to the entity for designated services, then
the arrangement must fall within one of the statutorily defined
exceptions or it is *per se* illegal. By comparison, the failure of an
arrangement to fall within an anti-kickback statute safe harbor does not
mean the arrangement is prohibited. Rather, the relationships are
examined on a case-by-case basis. Thus, the Stark physician
self-referral statutes usually impose more clear limitations on business
transactions than the anti-kickback statute.

Again, this summary relates to the Stark Law and Phase I of the
implementing regulations. Phase II of the regulations are currently
being drafted, and once effective, these regulations are likely to
affect CAP grantees.

##### C. Advisory Opinion Process {#c.-advisory-opinion-process .unnumbered}

As is the case with the anti-kickback statute, there is a regulatory
structure for requesting an advisory opinion under the Stark II statute.
However, the Health Care Financing Administration has indicated that it
will not issue any further advisory opinions until the Phase II
regulations under the Stark law are finalized. Consequently, this paper
does not cover the Stark advisory opinion process. For further updates
on advisory opinions in this area, as well as for the opportunity to
review the only two opinions ever issued, go to
www.[hcfa.gov/regs/aop/default.html]{.underline}.

######## FEDERAL FALSE CLAIMS LAWS

The Social Security Act and federal False Claims Act prohibit filing
false reimbursement claims to federal health care programs, including
Medicare and Medicaid.

##### A. The Social Security Act {#a.-the-social-security-act .unnumbered}

Under the Social Security Act, an individual or entity can be subject to
criminal penalties of up to \$25,000 in fines and/or imprisoned for up
to five years for

-   knowingly and willfully

-   making a false statement or representation of material fact
    regarding an application for benefits or payment OR failing to
    report any sums received to which the individual or entity is not
    entitled with the intent of fraudulently keeping these sums

-   under a federal health care program.

Additional civil liability and penalties may be imposed if HHS
determines that the individual or entity knew or should have known that
the claim was false or fraudulent. Monetary penalties can be assessed
for as much as \$10,000 for each claim that is falsely or fraudulently
submitted.

## B. The False Claims Act

The False Claims Act (\"FCA\") was drafted to protect the Federal
government from false claims in every arena, including but not limited
to federal health care programs. The FCA prohibits any individual or
entity from knowingly presenting a materially false or fraudulent claim
to the government for reimbursement. The term \"knowingly\" has been
interpreted by federal courts to mean that the person submitting the
claim (1) has actual knowledge that the claim contains false
information; (2) deliberately ignores information regarding the truth or
falsity of the claim; or (3) deliberately acts in reckless disregard of
the truth or falsity of the information. However, [no proof of specific
intent to defraud the government is required for a party to be liable
under the False Claims Act]{.underline}.[^12]

## C. Whistleblower Provisions of the Federal False Claims Act

The FCA contains provisions that allow a private citizen to bring a suit
on behalf of the government for violations of the False Claims Act.
Those so called "*qui tam*" actions, or "whistleblower suits" allow an
individual to bring a suit based on previously undisclosed information,
and potentially receive anywhere between 15% and 25% of the government's
ultimate recovery. While the whistleblower provisions create no new
legal obligations for a federal grant recipient and CAP providers, they
do provide powerful incentives for insiders or competitors to report
illicit behavior. Disgruntled employees have been the most frequent
source of these lawsuits. Given the powerful financial incentives for an
individual to report False Claim Act violations (which authorize treble
damages, plus \$5,000 or \$10,000 per claim), grant recipients and
providers need to understand that violations of the law are likely to be
detected and reported.

######## STATE LAWS

The foregoing summaries all relate to federal laws regulating fraud and
abuse in federal health care programs. However, it is important that all
CAP consortia recognize that every state has its own set of laws and
regulations, which may affect the structure of a particular arrangement.
Similarly, states have their own false claims acts, which CAP
individuals and entities will be subject to in addition to the federal
laws. Therefore, CAP entities are strongly encouraged to seek legal
advice regarding both federal and state laws that will affect their
organizations.

#### APPENDIX A

**FEDERAL ANTI-KICKBACK STATUTORY SAFE HARBORS**

[Personal Services Safe Harbor]{.underline}

The Personal Services and Management Contracts Safe Harbor protects
those contracts which:

(1) Are in writing and signed by all parties;

(2) Covers all services to be provided and the specifics of each
    service;

(3) If the services are not to be provided on a full time basis, the
    contract must specifically describe the scheduled interval of the
    services provided, the length of each service interval, and the
    exact charge for each interval;[^13]

(4) The term of all agreements (full and part-time) must be at minimum
    one year long;

(5) The total compensation for the term of the agreement must be
    established in advance and cannot exceed fair market value for the
    provided services. Moreover, compensation cannot account for the
    value or volume of referrals generated;

(6) The services provided pursuant to the agreement cannot involve
    counseling or promotion of activities which violate state or federal
    laws;

(7) And the combined services provided cannot exceed what is reasonably
    necessary to accomplish the business purpose of the services.

# Referral Services Safe Harbor

The following criteria must be met before a particular arrangement may
qualify for the referral services safe harbor:

(1) The referring entity does not exclude participants who otherwise
    qualify to receive referrals;

(2) The payment made to the referring entity equals the cost of
    operating the referral service and is not based upon volume or value
    of referrals or other business otherwise generated by either party
    for the other;

(3) The referring service does not impose requirements on the manner in
    which the provider treats the referred person other than requiring
    the provider to charge the same rate as non-referred persons;

(4) The referring service makes the following disclosures to persons
    seeking referrals to providers:

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(i) The way the referring service chooses the providers it refers
    persons to;

(ii) Whether the provider has paid a fee to receive referrals;

(iii) The manner in which the referring service selects the provider for
      the individual being referred;

(iv) The nature of the relationship between the referring service and
     the group of participants to whom it could make referrals;

(v) Any restrictions which would exclude an individual or entity from
    continuing as a participant.

[Obstetrical Malpractice Insurance Subsidies Safe Harbor]{.underline}

To qualify for safe harbor protection, the obstetrical malpractice
arrangement must meet the following seven requirements:

(1) the subsidy payment must be made pursuant to a written agreement
    that specifies the terms under which the payments are to be made;

(2) the provider must certify that for each year of the agreement, there
    is a reasonable basis for believing that at least 75% of the
    obstetrical patients treated will reside in a HPSA or MUA, or be
    part of a MUP;

(3) there can be no requirement that the practitioner make referrals to
    the entity providing the subsidy or generate business for such other
    entity in exchange for the subsidy;

(4) the practitioner cannot be restricted from referring patients,
    generating business, or obtaining staff privileges with another
    hospital;

(5) the amount of the subsidy cannot be related to either the value or
    volume of any referrals or other business generated between the
    practitioner and the entity providing the subsidy that may be paid
    by the Medicare or Medicaid program;

(6) the practitioner may not discriminate against any beneficiary of a
    federally-funded health care program;

(7) the subsidy must be for *bona fide* obstetrical malpractice coverage
    only; in the case of practitioners who do not engage in a full-time
    obstetrical practice in a primary care HPSA, the costs must be
    allocated to the non-obstetrical practice and/or to the non-HPSA
    portion of the practice.

[Space and Equipment Rental Safe Harbors]{.underline}

Though separate and distinct safe harbors, the space and equipment
rental safe harbors share the same pre-requisites for protection:

(1) the lease agreement is written and signed by all parties;

(2) the lease specifies the equipment or premises to be leased, the term
    of the lease, and it covers the entire agreement;

(3) if the rental agreement is not for full time use of the equipment or
    premises, the agreement shall specify exactly the schedule of use,
    the length of each interval, and the payment for each interval;

(4) the term of agreement is a minimum of one year;

(5) the aggregate rental charge is set in advance, is consistent with
    the fair market value for the premises or equipment, and is not
    determined in a manner that takes into account the volume or value
    of any referrals or business otherwise generated between the parties
    for which payment may be made in whole or in part under a federal
    health care program;

(6) the aggregate premises or equipment rented does not exceed what is
    reasonably necessary to accomplish the commercially reasonable
    business purpose of the rental.

#### APPENDIX B

#### PRELIMINARY CHECKLIST FOR ADVISORY OPINION REQUESTS[^14]

Updated July 1999, this checklist reflects the OIG final regulations
published in the [Federal Register]{.underline} on July 16, 1998 (63 FR
38311). This version of the checklist is not substantially different
from the previous versions set forth. The checklist is for informational
purposes only, and should not be a substitute for reading the
regulations on issuance of OIG advisory opinions.

*A. Technical Requirements*

1.  The requestor is a party to the arrangement. (42 CFR 1008.11)
    \_\_\_\_

### The request is for an existing arrangement or one which the requestor in good faith plans to undertake. (42 CFR 1008.15(a)) \_\_\_\_

2.  The requestor has included:

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a.  A non-refundable check or money order for \$250, payable to the
    Treasury of the United States. (42 CFR 1008.31(b) and 1008.36(b)(6))
    \_\_\_\_

b.  A request for a written estimate of the cost involved in processing
    the advisory opinion. (Optional) (42 CFR 1008.31(d)(2))

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c.  A designated triggering dollar amount. (Optional)\
    (42 CFR 1008.31(d)(3)) \_\_\_\_

d.  An original and two copies. (Optional) (42 CFR 1008.36(a)) \_\_\_\_

e.  The name and addresses of the requestor and all other actual and
    potential parties to the extent known to the requestor. (42 CFR
    1008.36(b)(1)) \_\_\_\_

f.  The name, title, address, and daytime telephone number of a contact
    person.\
    (42 CFR 1008.36(b)(2)) \_\_\_\_

g.  Each requesting party\'s Taxpayer Identification Number.\
    (42 CFR 1008.36(b)(8)) \_\_\_\_\_\_

h.  Full and complete information as to the identity of each entity
    owned or controlled by the individual, and of each person with an
    ownership or control interest in the entity. (42 CFR 1008.37)
    \_\_\_\_

i.  If applicable, a statement that some or all of the information or
    documents provided are trade secrets or are privileged or
    confidential commercial or financial information and are not subject
    to disclosure under the Freedom of Information Act. (42 CFR
    1008.36(b)(4)(v)) \_\_\_\_

##### B. Describing the Issues and the Arrangement {#b.-describing-the-issues-and-the-arrangement .unnumbered}

The request includes:

1.  A declaration of the subject category or categories for which the
    opinion is requested. (42 CFR 1008.36(b)(3)) \_\_\_\_

2.  A complete and specific description of all relevant information
    bearing on the arrangement and on the circumstances of the conduct.\
    (42 CFR 1008.36(b)(4)) \_\_\_\_

3.  All relevant background information. (42 CFR 1008.36(b)(4)(i))
    \_\_\_\_

4.  Complete copies of all operative documents, if applicable, or
    narrative descriptions of those documents. (42 CFR 1008.36(b)(4))
    \_\_\_\_

5.  Detailed statements of all collateral or oral understandings (if
    any).\
    (42 CFR 1008.36(b)(4)(iii)) \_\_\_\_

*C. Certifications*

1.  The request includes a signed certification that all of the
    information provided is true and correct and constitutes a complete
    description of the facts regarding which an advisory opinion is
    sought. (42 CFR 1008.38(a)) \_\_\_\_

2.  The certification is signed by --

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a.  The requestor if the requestor is an individual. (42 CFR
    1008.38(c)(1)) \_\_\_\_

b.  The CEO or comparable officer if the requestor is a corporation.

(42 CFR 1008.38(c)(2)) \_\_\_\_

c.  The managing partner if the requestor is a partnership.

> (42 CFR 1008.38(c)(3)) \_\_\_\_

3.  If the request is for a proposed arrangement, it contains a signed
    certification that the arrangement is one that the requestor in good
    faith plans to undertake.

(42 CFR 1008.38(b)) \_\_\_\_\_\_

**[APPENDIX C]{.underline}**

**STARK II PHYSICIAN SELF-REFERRAL PROHIBITION EXCEPTIONS**

# Preventative Screening Tests, Immunizations, and Vaccines

Preventive screening tests, immunizations, and vaccines may be excepted
if the following conditions are met:

(1) The preventive screening tests, immunizations, and vaccines are
    covered by Medicare and identified by the CPT and HCPCS codes;[^15]

(2) The preventive screening tests, immunizations, and vaccines are
    subject to HCFA-mandated frequency limits;

(3) They are reimbursed by Medicare based on a fee schedule;

(4) The arrangement for the provision of these services does not violate
    the Federal anti-kickback statute, section 1128B(b) of the Act; and

(5) Billing and claims submission for the preventive screening tests,
    immunizations, and vaccines complies with all federal and state laws
    and regulations.

# Non-Monetary Compensation Exception

Compensation from an entity in the form of items or services (not
including cash or cash equivalents) that does not exceed an aggregate of
\$300 per year may be excepted from the Stark II Law if all of the
following conditions are satisfied:

(1) The compensation is not determined in any manner that takes into
    account the volume or value of referrals or other business generated
    by the referring physician;

(2) The compensation may not be solicited by the physician or the
    physician\'s practice (including employees and staff members); and

(3) The compensation arrangement does not violate the federal
    anti-kickback statute.

[Fair Market Value Compensation Exception]{.underline}

Compensation resulting from an arrangement between an entity and a
physician (or an immediate family member) or any group of physicians
(regardless of whether the group meets the definition of a group
practice set forth in Sec. 411.351) for the provision of items or
services by the physician or group practice to the entity may be
excluded from the Stark Law prohibition if the arrangement meets the
following conditions:

(1) The arrangement must be in writing, signed by the parties, and
    covers only identifiable items or services, all of which are
    specified in the agreement;

(2) The agreement specifies the duration of the arrangement, which can
    be for any period of time and can contain a termination clause
    provided the parties have only one arrangement in effect at any
    given time for the same items or services;

(3) The duration of the agreement may be for less than one year and may
    be renewed any number of times as long as the terms of the
    arrangement and compensation for the same items or services do not
    change;

(4) The compensation must be arranged in advance, be consistent with
    fair market value, and cannot be determined in a manner that takes
    into account the volume or value of any referrals or any other
    business generated by the referring position;

(5) The compensation must be specified in the written agreement;

(6) The arrangement must be commercially reasonable in terms of both the
    nature and scope of the transaction, and the arrangement must
    further the legitimate business purposes of all the parties;

(7) The arrangement must be in compliance with the federal anti-kickback
    statute (it must not violate the statute or it must meet a safe
    harbor or have been approved by the OIG under a favorable advisory
    opinion issued specifically for the arrangement); and

(8) The services to be performed under the agreement may not involve the
    counseling or promotion of a business arrangement or other activity
    that violates state or federal law.

[Compliance Training Exception]{.underline}

Compliance training provided by a hospital to a physician (or an
immediate family member) who practices in the hospital\'s local
community or service area does not violate the Stark II Law so long as
the training is held in the local community or service area. For the
purposes of this exception, \"compliance training\" means training
regarding the basic elements of a compliance program -- such as
establishing policies and procedures, training of staff, internal
monitoring, reporting -- or specific training regarding the requirements
of federal health care programs, including billing, coding, reasonable
and necessary services, documentation, unlawful referral arrangements.

/media/pszemraj/PeterTrove/project-files/DATA/ms-word-files/big-DOC/800907.doc

[^1]: 42 U.S.C. §1320a-7b (1994).

[^2]: [United States v. Kats]{.underline}, 871 F.2d 105 (9^th^ Cir.
    1989)

[^3]: HPSA is a designation given by the Secretary of HHS to identify
    geographic areas or populations groups with a shortage of primary
    health care services. The HPSA designation is a prerequisite to
    apply for National Health Service Corps assistance and can include
    primary medical care, mental health, and/or dental care.

[^4]: MUAs and MUPs are areas and populations designated by the
    Secretary of HHS as having a shortage of available health care
    services based on such factors as the ratio of the local population
    to primary care physicians, infant mortality rates, poverty rates,
    or the percentage of the local population over age 65.

[^5]: For greater detail on the advisory opinion process, go to
    <http://www.oig.hhs.gov/>.

[^6]: These opinions can be found at
    [www.oig.hhs.gov/advopn/index.htm]{.underline}.

[^7]: Note that a "community benefit" alone has not been a sufficient
    justification in any advisory opinion for OIG approval. The
    proposals also have needed to demonstrate that there is a minimal
    risk of abuse of Federal health care programs (i.e., does not
    present a high risk of overutilization of services or increased
    costs to the programs) and have generally included certain
    safeguards to protect against prohibited activities.

[^8]: This initial prohibition was passed as part of the Omnibus Budget
    Reconciliation Act of 1989 and became effective on January 1, 1992.

[^9]: 42 U.S.C. § 1395nn (1994).

[^10]: Please see the appendix for a complete description of the
    prohibition and the services which it covers.

[^11]: The space rental and equipment lease exceptions to Stark II
    impose similar standards.

[^12]: [United States v. Pediatric Serv. of Am., Inc.]{.underline}, 2001
    WL 435799 (W.D.N.C. 2001) at 11-12.

[^13]: For example, if the services are to be provided for twelve weeks
    in each calendar year, the service contract must specify that
    services will be provided during the first full week of each
    calendar month, from 9am through 5pm, Monday through Friday, and for
    a rate of X number of dollars for each week of service.

[^14]: The OIG reserves the right to modify this checklist at any time
    or to request additional information not specified on this
    checklist.

[^15]: The HCPCS and CPT codes can be found on the web site of the
    Health Care Financing Administration (\"HCFA\") and in annual
    updates published in the Federal Register.