Self-Referrals and Kickbacks: Navigating Federal and State Healthcare Laws

How do you comply with both state and federal laws governing kickbacks and self-referrals—especially when those laws don’t perfectly align? We summarize some of the state laws and discuss how to navigate the differences with federal law.

The federal Anti-Kickback Statute criminalizes willful offers to pay, solicit, or receive remuneration for referring or inducing business that’s payable by Medicare or Medicaid. Those who violate the Anti-Kickback Statute may face hefty fines, prison, or exclusion from federal health programs.

The federal Stark Law also centers around business payable by Medicare or Medicaid. It prohibits physicians from referring patients to receive “designated health services” at entities (like labs or imaging centers) with which the physician or an immediate family member has a financial relationship, unless an explicit exception applies. 

Conflicts Between State and Federal Regulations

When state and federal regulations don’t align, your practice usually needs to comply with the more restrictive laws. Your compliance with a federal requirement isn’t a defense to your non-compliance with a state requirement—and vice versa. 

Thus, the best strategy is to hold all relevant regulations side-by-side, and wherever they differ, be sure you comply with the stricter version. Where would you even begin to find these distinctions?

Find the triggers and hooks.

Sometimes, state and federal laws prohibit the same behavior but have different triggers or hooks. For example, the Stark Law prohibits certain referrals when the services are being billed to a federal payor. In contrast, a state law may prohibit the same conduct regardless of whether the services are being billed to a private or government payor.  Another example arises when one law prohibits behavior by a specifically-licensed healthcare provider while the corollary law prohibits the same conduct for any member of that provider’s staff. These details—the payor, the service, or the license—are what “triggers” enforcement or creates the “hook” for government oversight.

Identify whether wrongful conduct must be intentional.

Some laws require strict compliance. This means that your best efforts at compliance aren’t good enough if you still unintentionally violate the law. Because some of the federal healthcare fraud, waste, and abuse laws are structured this way, it’s particularly important to maintain strict compliance policies that create checks on everyone’s conduct at your practice and catch misconduct immediately.

In contrast, other laws require that a violation be accompanied by a particular type of intent. For example, maybe only “knowingly” violating the law is problematic, or even only intentional wrongdoing is punishable. Many laws penalize behavior that the individual “knew or should have known” was wrong—a legal construction that’s difficult to disprove. (And no, ignorance of the law isn’t an excuse!)

Determine how aggressively it’s enforced.

Some laws are allegedly “not enforced.” However, counting on the government to not enforce any civil or criminal law or regulation is a risky game. We can’t emphasize this forcefully enough: providers and practices should never ignore laws that regulate the healthcare industry. Compliance is especially crucial for activities surrounding patient care or billing practices. 

Here, we briefly discuss some of the state versions of Stark and AKS in the jurisdictions where Jackson LLP practices. Just don’t forget that this list is far from all-inclusive!

Illinois

Illinois Health Care Worker Self-Referral Act

The Illinois Health Care Worker Self-Referral Act prohibits providers from referring patients for services at a facility or business in which the provider is an investor. There are some important caveats, and it’s imperative that practices be able to define each applicable provider’s “investments,” and the contours of patient services that fall under this rule. There’s also an exception for when the referring provider is personally involved in providing the patient’s care at that facility, but this requires some threading-the-needle legal finesse. 

Additionally, practices and providers cannot make referrals on the condition that the recipient will return the favor. This also prohibits referrals that are made to a third party with the intent to evade the law’s prohibition on inducing patient referrals which, if they’d been made directly by the practice or provider, would be prohibited.

Penalties: Illinois Health Care Worker Self-Referral Act

• Civil penalties of up to $20,000 for each referral, bill, or claim
• Disciplinary action by the applicable board or committee

Insurance Claims Fraud Protection Act

Illinois’ Insurance Claims Fraud Protection Act makes it illegal to knowingly offer something of value to induce someone to obtain services or benefits that will be billed to insurance. This law isn’t intended to limit contracts or arrangements between or among insuring entities, including health maintenance organizations, health care professionals, or health care facilities.

Penalties: Insurance Claims Fraud Protection Act

• Civil penalties of $5,000 to $10,000 for each claim
• Civil penalties of up to 3 times the amount of each claim
• Court-ordered remedies like temporary injunctive relief that could halt that practice’s ability to submit insurance claims until the case is resolved
• Penalties for practices that retaliate against, fire, threaten, harass, or demote employees who report wrongdoing (whistleblowers), including reinstatement and 2 times the amount of back pay owed plus interest

New York

Prohibition of Financial Arrangements and Referrals

New York’s Prohibition of Financial Arrangements and Referrals says that if a provider is authorized to order clinical laboratory, pharmacy, physical therapy, or imaging services (to name a few), they cannot make that referral to a business with which the ordering practitioner or their immediate family member has a financial relationship.

Additionally, a healthcare provider or a referring practitioner submit a claim, bill, or demand for payment for services if they were provided pursuant to a referral that’s prohibited by this regulation.

Penalties: Prohibition of Financial Arrangements and Referrals

• Civil monetary penalties
• Professional disciplinary action (including license revocation) by the appropriate State licensing authority

Connecticut

Anti-Kickback Penal Code Provisions

Connecticut’s anti-kickback provisions are ensconced in its penal code—that is, it’s criminal law. In most other ways, the law mirrors the federal AKS.

Penalties: Kickbacks In Connecticut

• Receiving and paying kickbacks are felonies punishable by imprisonment

Self-Referrals

Connecticut requires that providers who have ownership or investment interests in businesses offering diagnostic or therapeutic services disclose that information to any patient who they refer to that business. They should also provide the patient with alternative referrals. The scope of what constitutes an ownership or investment interest is broad, and the law also applies to referring practitioners who obtain some form of compensation from the receiving entity.

Penalties: Self-referral schemes in Connecticut

• Civil penalties of up to $25,000 per violation

Texas

Texas laws concerning kickbacks and self-referrals largely mirror the federal versions of those statutes.

Texas Patient Solicitation Act

The Texas Patient Solicitation Act prohibits making or receiving a payment for a patient referral for or from someone who is licensed, certified, or registered by a state health care regulatory agency.

Penalties: Texas Patient Solicitation Act

• Depending upon the severity of the offense, this may result in misdemeanor or felony criminal penalties.

Michigan

Medicaid False Claims Act

Under the Medicaid False Claims Act, paying or receiving kickbacks or bribes for referrals that will be paid by Medicaid (or submitted to Medicaid for payment) is prohibited.

Penalties: Medicaid False Claims Act

• Imprisonment of up to 4 years per violation
• Fines of up to $30,000 per violation

Health Care False Claims Act

Michigan criminalizes the payment or receipt of kickbacks or bribes in exchange for referrals for healthcare services when those services will be billed to any third-party insurance company, entity, or payor.

Penalties: Health Care False Claims Act

• Imprisonment of up to 4 years per violation
• Fines of up to $50,000 per violation

Billing for Clinical Laboratory Services

Physicians cannot be paid by clinical laboratories—or by an intermediary—for sending their patients’ specimens or referrals to that lab.

Continual Compliance

It’s crucial that healthcare practices simultaneously comply with applicable federal and state laws. And when those laws appear to conflict with one another, your ongoing compliance will rely upon counsel from your healthcare attorney and your adherence to your established policies and procedures.

Unfortunately, compliance with the strictest requirement may not always satisfy your obligations. For example, overlapping laws that vary in leniency may have entirely different reporting or documentation requirements. So while your compliance with the stricter law may get you 90% of the way to compliance, you’ll still need to follow the documentation requirements of the more lenient law. It’s easy to feel overwhelmed, but compliance need not be a burden.

Jackson LLP’s primary goal is to help you avoid regulatory compliance problems—and to help you do so in a manageable, organized, and common-sense way. Your policies must be sufficiently straightforward to allow your team to follow them, and the procedures need to jive with your practice operations and available technology.

If you’re ready to learn more about how our attorneys can help you perform a compliance check-up and streamline this aspect of your practice, book a complimentary consultation.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.