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MPM Publications

New Federal Anti-Kickback Law - Safe Harbor Provisions

In late November, the Office of the Inspector General (OIG) of the Department of Health and Human Services published eight new final safe harbors under the federal anti-kickback law, as well as two additional interim final safe harbors directed at managed care. These new safe harbor provisions are codified at 42 CFR 1001.952.

The Federal Anti-Kickback Law is a broadly worded criminal statute that was originally passed to prevent the use of payments (or other compensation) to induce patient referrals and/or the purchase of medical items or services, as well as payments to induce the recommendation of a particular provider, supplier or plan. The law applies to all health care items or services that may be paid for in-whole or in-part by the federal government. For example, this includes Medicare, Medicaid and CHAMPUS programs, as well as federal or state workers compensation programs.

Because of this broad language and sweeping coverage of the provisions of this law, the government has endeavored to carve out exceptions to the plain language of the statute, which are known as "safe harbors." Transactions and arrangements that meet the criteria of a safe harbor are exempt from the law's prohibitions even though they might otherwise violate the plain language of the law. Examples of safe harbors include a hospital's payment of a salary to a physician-employee who refers to the hospital.

Eight New Provisions. The recent announcement of eight new final safe harbors is the finalization of safe harbors that have been in proposed form since 1993. These eight new final safe harbors protect:

1. Payments that take the form of returns on investments in a joint venture in a medically under-served area;
2. Payments to recruit physicians to medically under-served areas;
3. Payments made to a physician by a hospital in a medically under-served area for the purchase of the physician's practice;
4. Payments made by a hospital or other entity to cover the malpractice insurance of a physician engaged in an obstetrical practice in a medically under-served area;
5. Payments made between tax-exempt hospitals and "cooperative hospital service organizations" that provide purchasing, billing, and related services to such hospitals;
6. Remuneration that takes the form of a patient referral (i.e., situations in which a primary care physician refers a patient to a specialist with the understanding or provision that the specialist will refer the patient back to the primary care physician under certain conditions or at a certain time);
7. Payments taking the form of a return on investment in an ambulatory surgical center;
8. The investment returns paid to physicians by their own solo or group practices.

The last two safe harbors noted received the most commentary when initially proposed by the government.

The eighth safe harbor was published to clarify that the payment of investment returns to physicians by their own solo or group practices does not fall within the ambit of the Anti-Kickback statute. This new safe harbor also will shield solo practitioners who conduct their practice through a professional corporation or some other form of separate legal entity. The protection of the safe harbor is available only for a physician's return on his or her investments in a group practice if three conditions are met:

1. The practice meets the federal physician self-referral (or "Stark Law") definition of group practice;
2. The equity interest of the physician is in the practice itself, and
3. The equity interest in the practice is held by licensed professionals practicing in the group.

Ambulatory Surgical Centers. The safe harbor for ambulatory surgical centers has been expanded from its original proposed form in response to the comments received by the OIG. The safe harbor now covers four types of ambulatory surgical centers (ASCs), which are: surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs and hospital/physician ASCs.

The information noted above summarizes the requirements of the new safe harbor rules. Practitioners and facilities should carefully consider, with the advice of counsel, all aspects of the new rules and their particular circumstances before acting in reliance on them.