Physician financial relationships in the new regulatory environment

The federal government's scrutiny of physician financial relationships was widely publicized earlier this year when two physicians were indicted for alleged violations of the antikickback law. Under the law, these physicians could be fined or imprisoned. These recent federal enforcement actions have created a growing concern in the physician community that any financial relationships between physicians and drug manufacturers or home care companies will be scrutinized to determine whether they are in compliance with federal and state law. This article provides examples of recent enforcement actions to alert physicians to what the federal government considers to be violative of the Medicare/Medicaid antikickback statute.

Background

Section 1128B(b) of the Social Security Act, commonly referred to as "the antikickback statute," provides criminal penalties(1) for individuals and entities that knowingly and willfully solicit or receive remuneration "in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service" or "in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under [the Medicare program] or a State health care program." The antikickback statute also prohibits a person from knowingly and willfully offering or paying remuneration to any person in order to induce that person to refer or purchase, lease, order, or arrange for or recommend the purchasing, leasing, or ordering of items or services for which payment may be made by the Medicare or state health care programs.(2)

The types of remuneration prohibited by the antikickback statute include, but are not limited to, kickbacks, bribes, and rebates. Additionally, the antikickback statute expressly prohibits both "direct" and "indirect" remuneration. Thus, the proscriptive language of the antikickback statute is extremely broad in its scope, and courts have interpreted it as such. Because of the broad reach of the antikickback statute, any payments made by a drug manufacturer or home care company to physicians could be construed to be "illegal remuneration." Thus, the antikickback statute would apply to a payment by a manufacturer or home care company to a physician if the payment is made to encourage the referral of patients or the ordering of goods or services reimbursed under the Medicare or Medicaid programs.

Given the broad statutory language and its interpretation by the courts, Congress amended the antikickback statute in 1987 to provide the Department of Health and Human Services (HHS) with the authority to specify types of conduct that would not be subject to exclusions or criminal sanctions and to provide the Office of the Inspector General (OIG) with the authority to exclude providers from participating in the Medicare and Medicaid programs if it found that the antikickback statute had been violated.

On July 29, 1991, the final version of the first set of regulations specifying certain legitimate payment practices, termed "safe harbors," became effective. These safe harbor regulations describe certain financial arrangements that OIG has determined fall outside the reach of the antikickback statute. In November 1992, three more safe harbor regulations were published, addressing certain managed care arrangements. On July 21, 1994, OIG published proposed "clarifications" of the first set of safe harbor regulations that, if adopted, will amend the July 29, 1991, issuance. Currently, other safe harbor regulations are being developed by OIG.

Other federal prohibitions, such as the self-referral ban or "Stark law," are also relevant to physician financial relationships. This federal statute prohibits a physician from referring Medicare or Medicaid patients to entities with which the physician has a financial relationship. The law will likely be used in the future by federal investigators.

OIG Special Fraud Alert

In August 1994, OIG published a Special Fraud Alert entitled "Prescription Drug Marketing Schemes." In this fraud alert, OIG identifies three cases it considers to be examples of aggressive drug marketing where a physician or pharmacist is compensated for promoting a specific product. According to the fraud alert, if one purpose of the marketing schemes is to induce the provision of prescription drugs that are reimbursed under the Medicaid program, the criminal Medicare/Medicaid antikickback statute will apply. Specifically, OIG described the following actual cases:

* A "product conversion" program that resulted in 96,000 brand-name conversions. In this scenario, for instance, Drug Company A offered a cash award to pharmacies each time a drug prescription was changed from Drug Company B's product to Drug Company A's product. Pharmacies were induced to help persuade physicians, who were unaware of the pharmacies' financial interests, to change prescriptions.

* A "frequent flier" campaign, in which physicians were given credit toward airline frequent flier mileage each time they completed a questionnaire for a new patient placed on the drug company's product.

* A "research grant" program in which physicians were given substantial payments for minimal recordkeeping tasks. Physician administered the drug manufacturer's product to patients and made brief notes, sometimes a single word, about the treatment outcomes. Upon completion of a limited number of such "studies," physicians received payment from the manufacturer.

In the fraud alert, OIG states that there is no statutory exception or "safe harbor" to protect such activities and that it is investigating such arrangements where the practices affect federal health care programs.

Minnesota Indictment

As stated in OIG's fraud alert, federal investigators have been scrutinizing financial relationships between physicians and drug manufacturers or pharmacies/home care companies. On August 4, 1994, a federal grand jury in Minneapolis issued a 51-count indictment against Genentech, Inc., manufacturer of a genetically engineered version of human growth hormone, and Caremark, Inc., a company that distributes the drug, as well as several Caremark officials for paying more than $1.1 million in illegal kickbacks to a Minneapolis physician.

According to the indictment, payments were made to induce the physician to prescribe Protropin, in violation of the Medicare/Medicaid antikickback statute. The money was paid to the physician in the form of "research grants" and "consulting agreements." The research grant funds were paid despite the fact that the physician had not published any research results and that "his research was not enlightening." The indictment also states that the consulting agreement compensation was for consultation in infusion therapy and that the physician did not have substantial experience in home infusion therapy and related issues." Because the Medicare/Medicaid antikickback statute is a criminal statute, if convicted, the defendants could be subject to five years in prison and/or a $25,000 fine for each count of the indictment.

Ohio Indictment

On the heels of the Minnesota indictment, a federal grand jury in Columbus, Ohio, charged an osteopathic physician, with receiving $134,600 in illegal kickbacks over a four-year period from a home infusion company. The indictment also alleges that the physician received the services of a registered nurse for his office at no cost to him as well as a free computer and fax machine from the home infusion company.

Federal investigators point to an agreement, entitled "Quality Services Agreement," that the Ohio physician entered into with the home infusion company, whereby the physician was paid $200 per hour for no more 25 hours per month to provide consulting services to the infusion company. The indictment does not address whether the physician actually performed any of the consulting services under the agreement or to what extent the agreement failed to meet the requirements of a safe harbor.

Conclusion

It is clear from these enforcement activities that the federal government is taking aggressive steps to preclude any financial relationships that could interfere with a physician's ability to make independent and unbiased treatment decisions. However, despite these enforcement actions, as well as legislative efforts to preclude physician self-referral, such financial relationships are still not prohibited altogether. Any financial relationships between physicians and drug manufacturers or home care companies must be structured carefully to limit liability exposure under the Medicare/Medicaid antikickback statute, as well as other state and federal proscriptions.

Footnotes

(1.) The antikickback statute was enacted in 1972 to provide misdemeanor penalties and was amended substantially in 1977 to render violations a felony. Each felony offense under the antikickback statute is punishable by a fine of up to $25,000 and by imprisonment for up to five years. Violators also are subject to exclusion from the Medicare and Medicaid programs, regardless of whether a criminal conviction has been obtained, upon a determination by the Secretary of Health and Human Services (HHS) that a violation has occurred. The Secretary has delegated responsibility for determining whether a violation has occurred to the Office of the Inspector General of HHS.

(2.) These state health programs include Title V (Maternal and Child Health Block Grants) and Title XX (Social Service Block Grants).

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