Recognizing and Avoiding Fraud Landmines, Part 1

This is Part 1 in this series of articles summarizes federal and state antifraud laws. Parts 2 and 3 will discuss specific fraud landmines to avoid.

Pharmacies operate in a highly regulated environment. They must comply with federal antifraud laws, state antifraud laws, state Board of Pharmacy (BOP) regulations, DEA regulations, accreditation requirements (when applicable) and guidance from Medicare, Medicaid, PBMs and commercial insurers. If a pharmacy is doing something it should not be doing, then ‘someone knows about it.’ That ‘someone’ can be an employee, a competitor, a referral source, a governmental agency, or a third party payor (TPP).

If a pharmacy violates 1 or more of the federal and/or state antifraud laws, then it can have potential criminal liability and potential civil liability, as well as pharmacy license and DEA permit suspension or revocation. The risks are too high for the pharmacy to be cavalier regarding compliance with antifraud laws. It is important that on a day-to-day basis, the pharmacy be aware of the applicable federal and state antifraud laws, and be aware of whether it is in compliance with the laws.

Federal Antifraud Statutes

Federal Antikickback Statute (AKS)—This statute makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any item or service reimbursable by a federal health care program, such as Medicare, Medicare Advantage, Medicaid, Medicaid Managed Care, TRICARE, or to induce such person to purchase or lease or recommend the purchase or lease of any item or service reimbursable by a federal health care program.

Beneficiary Inducement Statute—This statute imposes civil monetary penalties upon a person or entity that offers or gives remuneration to any Medicare/Medicaid beneficiary that the offeror knows or should know is likely to influence the recipient to order an item for which payment may be made under a federal health care program. This statute does not prohibit the giving of incentives that are of ‘nominal value’ (not more than $15 per item or $75 in the aggregate to any 1 beneficiary on an annual basis).

Anti-Solicitation Statute—If a pharmacy also bills Medicare for DME under Part B, then it may not call a Medicare beneficiary regarding the furnishing of a Medicare-covered item unless: the beneficiary has given written permission (‘blue ink’ or electronic) for the call; the pharmacy has previously provided the covered item to the beneficiary and the pharmacy is contacting the beneficiary regarding the covered item; or if the telephone call is regarding the furnishing of a covered item other than an item previously furnished to the beneficiary, then the pharmacy has furnished at least 1 covered item to the beneficiary during the preceding 15 months.

Stark Physician Self-Referral Statute—This statute states that if a physician (or an immediate family member) has a financial relationship with an entity providing designated health services (DHS), then the physician may not refer patients to the entity unless a Stark exception applies. DHS includes prescription drugs. A ‘financial relationship’ includes ownership (i.e., the physician has an ownership interest in the pharmacy) and compensation (i.e., the pharmacy provides ‘something of value’—such as payments or gifts or subsidization of expenses—to the physician).

Federal Safe Harbors

Because of the breadth and scope of the AKS, the Office of Inspector General (OIG) has published a number of ‘safe harbors.’ If an arrangement meets the requirements of a safe harbor, then as a matter of law the arrangement does not violate the AKS. If an arrangement does not meet the requirements of a safe harbor, then it does not mean that the arrangement automatically violates the AKS. Rather, the arrangement must be carefully scrutinized under the wording of the AKS, court decisions, and published OIG guidance. There are 6 safe harbors that are particularly applicable to pharmacies:

Small Investment Interest—For investments in small entities, ‘remuneration’ under the AKS does not include a return on the investment if a number of standards are met, including the following: no more than 40% of the investment can be owned by persons who can generate business for or transact business with the entity, and no more than 40% of the gross revenue may come from business generated by investors.

Space Rental—'Remuneration’ under the AKS does not include a lessee’s payment to a lessor as long as a number of standards are met, including the following: the lease agreement must be in writing and signed by the parties; the lease must specify the premises covered by the lease; if the lease gives the lessee periodic access to the premises, then it must specify exactly the schedule, the intervals, the precise length, and the exact rent for each interval; the term must be for not less than 1 year; and the aggregate rental charge must be set in advance, be consistent with fair market value, and must not take into account business generated between the lessor and the lessee.

Equipment Rental—'Remuneration’ under the AKS does not include any payment by a lessee of equipment to the lessor of equipment as long as a number of standards are met, including the following: the lease agreement must be in writing and signed by the parties; the lease must specify the equipment; for equipment to be leased over periods of time, the lease must specify exactly the scheduled intervals, their precise length, and exact rent for each interval; the term of the lease must be for not less than 1 year; and the rent must be set in advance, be consistent with fair market value, and must not take into account any business generated between the lessor and lessee.

Personal Services and Management Contracts—‘Remuneration’ under the AKS does not include any payment made to an independent contractor as long as a number of standards are met, including the following: the agreement must be in writing and signed by the parties; the agreement must specify the services to be provided; if the agreement provides for services on a sporadic or part-time basis, then it must specify exactly the scheduled intervals, their precise length and the exact charge for each interval; the term of the agreement must be for not less than 1 year; the compensation must be set in advance, be consistent with fair market value, and must not take into account any business generated between the parties; and the services performed must not involve a business arrangement that violates any state or federal law.

Employees—'Remuneration’ under the AKS does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made, in whole or in part, under Medicare or under a state health care program.

EHR Software—'Remuneration’ under the AKS does not include donation of software and training services “necessary and used predominantly to create, maintain, transmit, or receive electronic health records” if 12 specified requirements are met.

Advisory Opinions

A pharmacy may submit to the OIG a request for an advisory opinion concerning a business arrangement that the pharmacy has entered into or wishes to enter into in the future. In submitting the advisory opinion request, the pharmacy must give to the OIG specific facts. In response, the OIG will issue an advisory opinion concerning whether or not there is a likelihood that the arrangement will implicated the AKS. A pharmacy may also submit to CMS a request for an advisory opinion regarding whether a business arrangement complies with Stark.

Special Fraud Alerts and Special Advisory Bulletins

From time to time, the OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be abusive, and educate health care providers concerning fraudulent and/or abusive practices that the OIG has observed and is observing in the industry. A number of the Fraud Alerts and Advisory Bulletins are specific to a particular group of providers: physicians, hospitals, ambulance companies, home health agencies, DME suppliers...and pharmacies.

States

All states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering and self-referrals. Some state antikickback statutes only apply when the payor is a government health care program, such as the state Medicaid program, while other state antikickback statutes apply regardless of the identity of the payor (e.g. they apply even if the payor is a commercial insurer, PBM, or a cash-paying patient). Many states have physician self-referral statutes that are similar to Stark. All states have statutes that are specific to pharmacies and pharmacists; these pharmacy-specific statutes may include prohibitions against kickbacks and self-referrals.

Jeffrey S. Baird, Esq. is Chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm in Amarillo, TX. He represents pharmacies, home medical equipment companies, and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at (806) 345-6320 or jbaird@bf-law.com.