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Can Medical Marketers Legally Pay Patients?

The majority of our clients are notified that they are subject to a government investigation in one of two ways: either they get a notice saying that they are subpoenaed to testify in front of a Grand Jury or they found out when federal investigators from the Office of Inspector General or the FBI unexpectedly arrive at their house or business with a request for an interview. In this article, we will lay out the reasons why paying patients is risky and may lead to criminal charges.

About the Anti-Kickback Statute

The federal Anti-Kickback Statute is fundamental to patient bribery cases.  (42 U.S.C. § 1320a-7b(b)). The Anti-Kickback Statute deems it a federal crime for an individual or entity (e.g. physicians, marketers, pharmacies, patients etc.) to knowingly or deliberately pay or receive remuneration in exchange for referrals or the purchase of any item or service that might be paid for by a federal health insurance program. Indirect remuneration as well as direct remuneration (both also referred to as kickbacks) are prohibited. Additionally, the Anti-Kickback Statute is reciprocal, meaning that both the payer of kickbacks and the recipient of kickbacks are implicated under the statute.

Exceptions: The federal Anti-Kickback Statute only applies in situations where the beneficiary participates in a federal healthcare program, but nearly all 50 states have onboarded the federal Anti-Kickback Statute as a state offense as well. Additionally, the Anti-Kickback Statute includes an itemized list of “safe harbors,” or exceptions to the utilization of the statute, including for “referral services,” which we touch upon in more detail below.

Remuneration: The Department of Health and Human Services’ Office of the Inspector General (OIG) defines “remuneration” very broadly as “the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or kind.” OIG Advisory Opinion No. 12-21 (OIG AO 12-21) (emphasis added). Thus, remuneration can encompass more than just cash.  It can include gifts, gift cards, waiver of fees, complimentary equipment, prizes, etc.

Remuneration is considered inappropriate if it is remitted to a patient to persuade that patient to choose a particular provider, prescription, or medical service. See OIG Special Fraud Alert regarding the Anti-Kickback Statute (Dec. 19, 1994) (“OIG SFA 1994”). Under the “One Purpose Rule,” OIG has interpreted the Anti-Kickback Statute “to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals.” OIG AO No. 12-21.

Examples: Recent cases of inappropriate remuneration from marketers include furnishing gift cards to patients so they would provide their Medicare or Tricare details. This information was then used to bill for lab testing and establishing fictitious medical studies as a shroud for disbursing payments to patients in order to coax them to employ a particular provider.

More examples of remuneration that could potentially be classed as improper include reimbursing patients for their co-pay, co-insurance, or deductible as a reward for selecting particular products or services (or refunding pharmacies or physicians when they waive patients’ co-pays, co-insurance, or deductibles) and patient assistance programs, which help needy patients obtain prescriptions. See OIG SFA 1994.

Penalties: A breach of the Anti-Kickback statute is a federal felony offense that can render heavy penalties including: 1) up to five years jail time; 2) fines as much as $25,000 for each infraction; and 3) compulsory exclusion from federal healthcare programs.  Of paramount importance is the fact that pursuant to the Affordable Care Act, any violation of the Anti-Kickback Statute is automatically considered a violation of the False Claims Act (described below).

About The Beneficiary Inducement Statute

The Beneficiary Inducement Statute (42 U.S.C. § 1320a-7a(a)(5) imposes lofty civil cash penalties on anyone who offers to or furnishes remuneration to a federal healthcare beneficiary which that person is aware (or should be aware) is likely to bias that beneficiary to order or receive any product or service from a particular provider, practitioner, or supplier.

The OIG has explained that offering valuable gifts to beneficiaries “raises quality and cost concerns” because “providers may have an economic incentive to offset the additional costs attributable to the giveaway by providing unnecessary services or by substituting cheaper or lower quality services” and “the use of giveaways to attract business also favors large providers with greater financial resources for such activities, disadvantaging smaller providers and businesses.” OIG Special Advisory Bulletin that covers Offering Gifts and Other Inducements to Beneficiaries (August 2002) (OIG SPB 2002).

Exemptions: The Beneficiary Inducement Statute specifies a number of exemptions to the scope of the regulations.  The most important exceptions are: 1) the waiving of a coinsurance or deductible provided on an individualized basis based on a good faith determination of financial need; 2) remunerations of a nominal value – defined as less than $15 per item or less than $75 annually [1] (i.e. a t-shirt). (OIG SPB 2002). These exceptions are subject to interpretation and restrictions.

Penalties: Sanctions for breaches of the Beneficiary Inducement Statute includes: 1) monetary penalties of as much as $10,000 for each product or service billed to a federal healthcare program in violation of the statute; 2) recompense equal to as much as three times the government’s damages or three times the amount billed for each item or service; and 3) temporary, or in some cases, permanent exclusion from participation in federal healthcare programs.

About The False Claims Act

In the False Claims Act (31 U.S.C. § 3729 et seq.) individuals and entities can be held liabel for submitting false or fraudulent payment claims to government healthcare programs.  Examples of claims qualifying under the False Claims Act include a physician who bills Medicare for unnecessary treatments to a patient or laboratories who bill Medicare for tests that were never administered.  As noted above, any claim submitted in violation of the Anti-Kickback Statute also qualifies as a false claim for purposes of the False Claims Act.

Penalties: Punishment for violation of the False Claims Act includes: 1) financial penalties ranging from as much as $10,781.40 on the low end to as lofty as $21,562.80 on the high end for every false claim; 2) three times the amount of damages inflicted on the government as a result of the false claims; and 3) temporary, and in some cases, permanent exclusion from participation in federal healthcare programs. Criminal prosecution is also a possibility.

In the eyes of the federal government, payments to patients in exchange for their choice of a certain product or provider is a criminal offense. The Department of Justice has significantly ramped up the number of investigations and prosecutions of individuals that are involved in marketing-patient arrangements. Under those circumstances, where the federal Anti-Kickback Statute cannot be applied because payments were made to private insurance patients, the government has employed alternative legislation including mail fraud, wire fraud, and money laundering. 

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