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Medicare Fraud &
Abuse/Stark Laws
and Regulations
Presented to University of Virginia
Department of Ophthalmology
September 7, 2011
By Philip M. Sprinkle II, Esquire
Balch & Bingham, LLP
Part I
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History and Development of Government
Activity
Current Enforcement Activity
Focused enforcement

Attorney General Holder Speech at the Detroit Health
Care Fraud Prevention Summit 3/15/2011
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“In just the last fiscal year, we obtained settlements and
judgments amounting to more than $2.5 billion in False
Claims Act matters alleging health care fraud – the largest
annual figure in history and an increase of more than 50%
from fiscal year 2009. We also opened more than 2,000
new criminal and civil health care fraud investigations,
reached an all-time high in the number of health care fraud
defendants charged, stopped numerous large-scale fraud
schemes in their tracks, and returned more than $2.5 billion
to the Medicare Trust Fund and more than $800 million
to cash-strapped state Medicaid programs.”
Focused Enforcement (cont.)
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New Investigative Bodies (RACs, ZPICs,
etc.)
$250 Million Dedicated to Increased
Enforcement
PART II
The History and Development of Fraud and
Abuse in the United States
What is Medicare Fraud?
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Submitting false claims for, or making
misrepresentations related to, reimbursement.
Providing remuneration to induce or in exchange for
referring, arranging for, or recommending healthcare
items or services.
Making improper referrals of healthcare business
between persons or entities having certain preexisting financial relationships with each other.
Providing inducements to beneficiaries to influence the
selection of a healthcare provider or service.
Providing inducements to providers to limit or reduce
service to beneficiaries.
What is Medicare Fraud?
In 1972, Congress first outlawed referral fees in its
amendments to the Social Security Act. The law stated:
Whoever furnishes items or services to an individual for which
payment is or may be made under this title and who solicits,
offers, or receives any -(1) kickback or bribe in connection with the furnishing of such
items or services or the making or receipt of such payment, or
(2) rebate of any fee or charge for referring any such individual
to another person for the furnishing of such items or services,
shall be guilty of a misdemeanor and upon conviction thereof
shall be fined not more than $ 10,000 or imprisoned for not
more than one year, or both.
Limitation On Referrals
42 U.S.C. § 1320a-7b(b)(1)-(2):
The current statute essentially prohibits individuals or
entities from knowingly and willfully offering, paying,
soliciting, or receiving remuneration in order to induce
business reimbursed under the Medicare or Medicaid
programs. Violation of the statute is a felony
punishable by up to five (5) years imprisonment, a
$ 25,000 fine, or both. The statute also gives the
Office of Inspector General of the Department of
Health and Human Services the power to exclude
violators from participation in the Medicare or
Medicaid programs.
Punishment
Sanctions
for violations of the Medicare Fraud & Abuse
laws include imprisonment, criminal and civil monetary
penalties, denial of reimbursement, and exclusion from
government health programs.
This statute is a criminal statute.
Financial penalties arise out of the Federal False Claims
Act
History
United States v. Greber (1985):
Alvin Gerber was a cardiologist in Pennsylvania.
 Formed Cardio-Med, which provided physicians with
diagnostic services such as Holter-monitors.
 Cardio-Med billed Medicare for the monitor service and
then forwarded 40% of the Medicare payment to the
referring physician.
 Standard: If a fee is paid and any purpose of that fee
is to induce referrals, the statute is violated. This is true
even if part of the fee is intended to compensate for
professional services.

History
United States v. Kats (1989):
Medical diagnostics lab contracted with a medical
services company to process lab work. The lab billed
the services company which then billed Medicare. The
lab agreed to pay the services company 50% of the
payment it received from Medicare.
One (1) Purpose Standard: If even one (1) purpose of
a payment is to induce future referrals, there is a
violation of the statute even if the payments were also
intended to compensate for professional services.
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Additional Enforcement
Vehicles
Federal False Claims Act (Tied to Civil Monetary
Penalties Law)
1.
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2.
3.
Qui Tam Litigation: qui tam pro domino rege quam pro se ipso in hac
parte sequitur, meaning "[he] who sues in this matter for the king as
[well as] for himself."
Who are these “Relators?”
Finder’s Fee of 10-30% of total collected
$5,500-11,000 penalty for each violation (beware the low-cost but
repeated error—each single bill is a separate violation)
Treble damages (computed after assessing all amounts due plus all
penalties)
Plus Attorneys’ Fees
Benefits of Self-Reporting
Some Licensure Regulations Require Practitioners to
Self Report
DO NOT FORGET STATE LAW
VIOLATIONS
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Anti-Brokering Statute
Professional Licensure Anti-kickback
Provisions
Active Board of Medicine in Florida and
other jurisdictions
Safe Harbors
In response to demands by the industry for
guidance, the Officer of Inspector General issued the
first safe harbor exclusions to the anti-fraud statute
in 1991. Those exclusions were codified by
Congress in August, 1993, as 42 U.S.C. § 1395nn.
The accompanying regulations are located at 42
C.F.R. § 1001.952. The most common safe harbors
are:
1. Personal Services
2. Bona Fide Employees
3. Small Investments
4. Equipment Rental
5. Leases
Safe Harbors
What are safe harbors?
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If you comply with all elements of a safe harbor, you
will not be scrutinized for prosecution.
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Failure to comply with the safe harbor provisions
does not mean you are breaking the law. It simply
means that you may be scrutinized for a violation of
the Fraud and Abuse laws.
 If any action is taken to induce a referral fee, it
is a violation of the law. This is true even
where inducement of the referral fee was not
the primary purpose of the action.
Safe Harbors
Personal Services:
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The agreement must be set out in writing, signed by
the parties, and specify the services to be covered by
the arrangement.
The agreement must cover all services provided by the
physician to the entity.
The services provided to the entity must be reasonable
and necessary.
The term of the agreement is at least 1 year.
The compensation is set out in advance and does not
exceed the fair market value of the services.
The services provided cannot include promotion of a
business arrangement.
Safe Harbors
Bona Fide Employees:

An employer may pay a physician who has a bona fide
employment relationship with the employer for the
provision of services if:
 The employment is for identifiable services.
 The amount paid to the physician is consistent with
the fair market value of the services and is not
determined in a manner that accounts for the volume
or value of referrals made by the referring physician.
 The agreement between the physician and employer
would be commercially reasonable even if no
referrals were made to the employer.
Safe Harbors
Equipment Rental:

Payments made for use of equipment do not violate the
statute if:
 The lease is set out in a written agreement signed by
the parties which specifies the equipment to be
covered by the lease.
 The equipment leased does not exceed what is
reasonable and necessary for the business purposes
of the lease.
 The equipment is used exclusively by the person
leasing the equipment.
 The term is more than one year.
Safe Harbors
Equipment Rental (continued):
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The rental charges are set out in advance and are
consistent with the fair market value of the
equipment.
The rental charges are not determined in a manner
that accounts for the volume or value of referrals
made between the parties.
The lease would be commercially viable even if no
referrals were made between the parties.
Safe Harbors
Other Safe Harbor Provisions:
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Investment Interest
Space Rental
Sale of Practice
Referral Services
Warranties
Discounts
Group Purchasing Organizations
Waiver of beneficiary coinsurance and deductible amounts
Increased coverage, reduced cost-sharing amounts, or reduced
premium amounts offered by health plans
Price reductions on health plans
Practitioner Recruitment
Safe Harbors
Other Safe Harbor Provisions (Continued):
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Obstetrical malpractice insurance subsidies
Investments in group practices
Cooperative hospital service organizations
Ambulatory surgery centers
Referral arrangements for specialty services
Price reductions offered to eligible managed care organizations
Price reductions offered by contractors with substantial financial risk to
managed care organizations
Ambulance replenishing
Transfers from an individual or entity to a health center
Electronic prescribing items and services
Electronic health records items and services
New Enforcement Flexibility
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Returning Medicare overpayments within
60 days of identification of the
overpayment is now an obligation under
the False Claims Act
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Providers or suppliers who fail to return an
overpayment within 60 days of identification
will be guilty of False Claims Act violations
The 60 day period commences when a person
“knows” of the overpayment
Enforcement Flexibility (cont.)
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Impact of Downstream Contractors Who
have no contract with the federal
government
Emphasis on Officer Liability
Easing of Burdens of Proof
Source: FERA Amendments and Patient
Protection and Affordable Care Act
Useful Tools
Officer of Inspector General:
Advisory Opinions:
http://oig.hhs.gov/fraud/advisoryopinion
s.asp
Congress established the OIG advisory opinion
process as part of HIPAA in 1996. An OIG advisory
opinion is a legal opinion issued by the Office of
Inspector General to a requesting parties about the
application of the OIG’s fraud and abuse authorities
to the party’s existing or proposed business
arrangement. OIG has sixty days to issue an
advisory opinion after it has received all the
information it needs to issue such an opinion.
Useful Tools
Officer of Inspector General:
Work Plan:
http://oig.hhs.gov/publications/workplan.asp
OIG issues a work plan annually, outlining the areas in
which it will focus its investigations for the coming year.
PART III
History of Stark Law and Regulations
Background
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In 1989, Congress passed the Ethics in Patient
Referrals Act (“Stark”) as part of the Omnibus
Budget Reconciliation Act of 1989.
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Prohibited physician referrals to clinical laboratories in
which the physician had a financial interest.
Amended in 1993 to expand the prohibitions from
clinical laboratory services to eleven designated
health services (“DHS”).
Amended again in 1994 to expand the prohibitions to
services payable by Medicaid.
What is Stark?
The current law, 42 U.S.C. § 1395nn, states:
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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 payable by
the federal government; and
The entity may not present or cause to be presented a
claim or bill to any individual, third party payor or
other entity for designated health services furnished
pursuant to a prohibited referral.
What is a Financial Relationship?
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A “Financial Relationship” is
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Ownership or Investment Interest
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A direct or indirect ownership or investment interest;
or
A compensation arrangement with any entity that
furnishes DHS.
Debt, equity or other means. (i.e., stock ownership in
a hospital.)
Compensation Arrangement

Any arrangement involving remuneration, direct or
indirect, between a physician (or a member of a
physician’s immediate family) and an entity. (i.e.,
salary, rent, bonuses.)
What is a Referral?
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Referral means any written, oral, electronic (or any other
form):
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Request
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Order
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Certification/Recertification of Need for DHS
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Request for Consult
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Tests or procedure ordered by or to be performed by (or
under the supervision of) that other physician, but not
personally performed by the referring physician
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The establishment of a plan of care by a physician that
includes the provision of such a DHS, or the certifying or
recertifying of the need for such a DHS
What are Designated Health Services?
Designated Health Services means any of the following
services:
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Clinical laboratory services
Physical therapy services
Occupational therapy services
Certain radiology services
Radiation therapy services and supplies
Durable medical equipment and supplies
Parenteral and enteral nutrients, equipment, and supplies
Prosthetics, orthotics, and prosthetic devices and supplies
Home health services
Outpatient prescription drugs
Inpatient and outpatient hospital services
DHS only refers to services payable, in whole or in part, by Medicare
DHS do not include:
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Services reimbursed by Medicare as part of a composite rate (i.e., SNF
Part A payments or certain ASC services).
What are Designated Health Services?
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Each year CMS publishes an updated "List of codes" in the Federal
Register which contains the list of HCPCS and CPT codes for four (4)
of the DHS to which Stark applies. A list of some, but not all, DHS
by CPT Code is available:
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As an addendum to each Physician Fee Schedule (i.e., 72 Fed. Reg.
66222, 66574 (Nov. 27, 2007); and On the CMS website at:
http://www.cms.hhs.gov/PhysicianSelfReferral/11_List_of_Codes.asp#T
opOfPage
For example:
72126 ................... Ct
72127 ................... Ct
72128 ................... Ct
72129 ................... Ct
72130 ................... Ct
72131 ................... Ct
72132 ................... Ct
neck spine w/dye.
neck spine w/o & w/dye.
chest spine w/o dye.
chest spine w/dye.
chest spine w/o & w/dye.
lumbar spine w/o dye.
lumbar spine w/dye.
Regulations
The Centers for Medicare and Medicaid Services (“CMS”) have issued several regulations
relating to Stark. These regulations interpret the Stark statute and respond to
commentary from the public.
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Stark I Regulations (Incorporated into Stark II)
Stark II Regulations
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Phase I: Created several new exceptions, clarified DHS definitions, defined
“referral,” and clarified indirect financial relationships. 66 Fed. Reg. 856
(January 4, 2001).
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Phase II: Discusses ownership and investment interests, the exceptions for
certain compensation arrangements, and the reporting requirements. 69 Fed.
Reg. 16054 (March 26, 2004).
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Phase III: This rule finalizes, and responds to public comments regarding, the
Phase II interim final rule with comment period. 72 Fed. Reg. 51012
(September 5, 2007). Phase III Notice of Delay for “stand in the shoes” and
other provisions. 72 Fed. Reg. 64161 (November 15, 2007). REVIEW THIS
STATUTE
Anti-Markup Provisions – 2009 Physician Fee Schedule 73 Fed. Reg.
69725, 69799 (November 19, 2008); 42 C.F.R. § 414.50.
Other Updates: (e.g.notices to beneficiaries of imaging options)
Exceptions
Exceptions are separated into three (3) categories
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1.
Exceptions to both Ownership/Investment Interests and
Compensation Relationships
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2.
Exceptions to Ownership/Investment Interests
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3.
42 C.F.R. § 411.355
42 C.F.R. § 411.356
Exceptions to Compensation Relationships
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42 C.F.R. § 411.357
In addition, Stark’s complicated definitions contain
exclusions, too
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The definition of “referral” excludes a physician following
the patient himself (i.e., physician has his or her own x-ray
machine or ultrasound).
The definition of “DHS” excludes payments made under a
composite rate (e.g., managed care plans).
Exceptions
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Most commonly used exceptions
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Physician Services
In-office ancillary services
Personal Services
Bona Fide Employment Relationships
Rental of Equipment
Exceptions
Physician Services
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Physician services that are
Furnished by another member of the referring
physician’s group or
 Under the supervision of another physician who is
a member of the referring physician’s group
practice.
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Exceptions
In-Office Ancillary Services
Services, and some DME, that are:
1.
2.
3.
Personally furnished by a member of the
group;
In the “Same Building” or a “Centralized
Location”; and
Billed by or through the group practice.
Exceptions
In-Office Ancillary Services (cont.)
“Same Building” means (THIS IS AN ABBREVIATED
EXPLANATION):
 Structures sharing a single street address, excluding
exterior areas (i.e., parking lots, courtyards, mobile
vehicles). Not necessarily the same part of the building.
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Physician has an office open to patients 35+ hrs/wk; OR
Physician regularly provides services to patients 30+ hrs/wk; OR
Patient receiving DHS usually receives services from the
physician, and the physician owns or rents an office open to
patients 8+ hrs/wk; OR
Physician is present and orders the DHS during a patient visit at
an office open 8+ hrs/wk and the referring physician sees
patients 6+ hrs/wk.
“Centralized Building” means:
 All or part of a building, including mobile
vehicles/trailers, owned or leased on a full-time basis.
Exceptions
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Impact of Anti-Markup Rules to this and
other exceptions
Need to distinguish between PC
(Professional Component) and TC
(Technical Component)
Location vs. Periodicity Requirements
Exceptions
Personal Services:
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The agreement must be set out in writing, signed by
the parties, and specify the services to be covered by
the arrangement.
The agreement must cover all services provided by the
physician to the entity.
The services provided to the entity must be reasonable
and necessary.
The term of the agreement is at least one (1) year.
The compensation is set out in advance and does not
exceed the fair market value of the services.
The services provided cannot include promotion of a
business arrangement.
Exceptions
Bona Fide Employees:
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A compensation relationship is not a financial
relationship for Stark purposes if:
 The employment is for identifiable services.
 The amount paid to the physician is consistent with
the fair market value of the services and is not
determined in a manner that accounts for the volume
or value of referrals made by the referring physician.
 The agreement between the physician and employer
would be commercially reasonable even if no
referrals were made to the employer.
Productivity Bonuses based on services personally
performed by the physician are permissible under Stark.
Exceptions
Equipment Rental:
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Payments by a lessor to a lessee for the use of
equipment is not a financial relationship if:
 The lease is set out in a written agreement signed by
the parties which specifies the equipment covered by
the lease.
 The equipment leased does not exceed what is
reasonable and necessary for the business purposes
of the lease.
 The equipment is used exclusively by the person
leasing the equipment.
 The term is more than one year.
Exceptions
Equipment Rental (continued):
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The rental charges are set out in advance and are
consistent with the fair market value of the
equipment.
The rental charges are not determined in a manner
that accounts for the volume or value of referrals
made between the parties.
The lease would be commercially reasonable even if
no referrals were made between the parties.
Exceptions
Other Exceptions:
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Services furnished by an organization to enrollees
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Investment in Academic Medical Centers
Implants furnished by an ambulatory surgery center
EPO and EPO dialysis-related drugs
Preventive screening tests, immunizations and vaccines
Eyeglasses and contact lenses following cataract surgery
Intra-family rural referrals
Publicly traded securities
Mutual funds
Specific Providers (Rural, hospitals in Puerto Rico, and whole-hospital
investment)
Office space rental
Physician recruitment
Isolated transaction (i.e., sale of practice)
Certain arrangements with hospitals
Exceptions
Other Exceptions (Continued):
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Group practice arrangements with hospitals
Payments by a physician
Charitable donations by a physician
Non-monetary compensation less than $300
Fair market value compensation
Medical staff incidental benefits
Risk-sharing arrangements
Compliance training
Indirect compensation arrangements
Referral services
Retention payments in underserved areas
Community-wide health information systems
Electronic prescribing items and services
Electronic health records items and services
Violations
The
Stark Law is a “strict liability” statute.
No
knowledge of actual violations required to violate
the statute
A bill can violate Stark even if (a) the patient
requested the referral, (b) the work was high quality,
(c) the results were favorable for the patient, or (d)
the services were cost-effective.
Sanctions
for violations of the Stark Law include
denial of reimbursement, civil monetary penalties,
and exclusion from government health programs.
Stark Law violations are a civil violation. No
intent to violate the law is necessary.
What to Watch Out For
Danger Areas:
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State Stark Laws (“Mini-Stark”) – Some state
laws are broader than federal laws
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Joint Ventures or questionable contracts with
referral sources
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Arrangements permitted under the AntiKickback Statute, but not Stark
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Purchased Services that do not comply with
Anti-Markup Provisions
If You Think You Need Help
Philip M. Sprinkle II
Balch & Bingham, LLP
30 Ivan Allen Jr. Blvd. NW
Atlanta, Georgia 30308
(888) 360-9093
[email protected]