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CHAPTER

3 Legal Implications of

Business Arrangements in the Healthcare Industry

Gabriel L. Imperato, Lester J. Perling, and Mike Segal

Healthcare reform, rising costs, and an increased number of health management organizations have led healthcare providers to seek new and more pro�itable business relationships. These relationships include, among others, hospital mergers, hospital—physician joint ventures, and other types of hospital-af�iliated physician networks. These types of arrangements often raise legal issues surrounding possible kickbacks, self-referrals, false claims, and even antitrust violations. Therefore, it is important that all applicable legal issues be understood, and that potential business relations be analyzed, not only from a �inancial perspective, but also from a legal and regulatory perspective. Taking such matters into account during the planning stage will help businesses and individuals structure organizations in a manner that avoids potential civil and criminal consequences of violating the law.

Legal Structure of the Healthcare Delivery System

Historically, the legal structure of the healthcare delivery system in the United States consisted almost exclusively of personal interactions between patients and physicians. Today, the healthcare delivery system is almost completely composed of corporate entities, many of which are invester owned. As a result, the industry has evolved from one made up mostly of individual physicians to an industry dominated by medical groups such as physician-owned entities, independent practice associations (IPAs), hospitals, and ancillary providers.

The authors wish to thank Barbara Viota-Sawisch, Esq., for her invaluable assistance in the preparation of this chapter.

Physician-Owned Entities

Physician-owned entities that provide medical care range in nature from those entities that are owned solely by physicians to those owned partly, or wholly, by nonphysicians. Generally, these entities are formed as professional corporations, limited liability companies, or business corporations. When deciding

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on a legal structure for a given medical practice, it is important to keep in mind what is referred to as the Corporate Practice of Medicine Doctrine (CPMD). In general terms, the CPMD prohibits unlicensed individuals or entities from practicing medicine. The term “practicing medicine” can range from employing healthcare professionals to owning professional practices, providing medical diagnoses, or treating patients. As a result, the doctrine prohibits the ownership of diagnostic testing facilities by someone other than a licensed physician.

Historically, the CPMD arose from physicians' fear that corporations might unduly in�luence their decisions regarding level of care and amount of treatment, in an effort to increase corporate pro�its. Consequently, some jurisdictions prohibit physicians from splitting professional fees with unlicensed entities or individuals.

State corporate practice of medicine laws can potentially affect the ability of a risk-sharing organization to offer both facility and professional services, or to create a single provider risk-sharing organization. The scope and effects of the CPMD vary from state to state and must be analyzed on an individual state level. In certain states, such as Florida, any person or entity can employ or contract with a physician. However, Florida does apply the CPMD to dentistry. Other states have created narrow exceptions dealing with speci�ic types of organizations, such as not-for-pro�it corporations or hospitals. Still others will allow certain entities to contract with physicians, but only under an independent contractor arrangement. Finally, some states allow only licensed entities composed of physicians to employ or even contract with other physicians. Any exceptions to the CPMD, and whether a CPMD exists in a particular state, are state- speci�ic issues that require individualized analysis.

Independent Practice Associations

In the late 1980s and early 1990s managed care contracts were very complex. It was no longer a situation in which physicians simply offered discounts to particular insurance carriers. In an effort to better control costs and help increase pro�its, insurance carriers began to take a greater role in the supervision of patient treatment. Soon, insurance carriers became so involved in the supervision of patient care that physicians began to feel that their physician—patient relationships were being adversely affected. Consequently, physicians approached insurance carriers in an attempt to �ind a way to regain the authority to independently manage their patients' care. The effect was the creation of what is known as an independent practice association (IPA).

IPAs are a form of business organization (generally formed as a limited liability company, professional corporation, business corporation, or partnership) that provides a very limited degree of integration between medical practices. They were created by physicians primarily to obtain capitated or other risk- sharing payer contracts. They are also often used to obtain pricing bene�its for insurance and other items. All medical practices contained within a particular IPA continue to operate as independent business enterprises. In fact, many physicians within an IPA continue to compete among themselves. Thus, an IPA is simply a means of supplementing a physician's existing private patient base, not a vehicle to completely integrate their practices.

Nevertheless, each IPA is different and can choose to implement its own level of operational integration. Consequently, there are many “types” of IPAs, depending on the individual level of integration. IPAs do not actually provide medical care to patients; they simply arrange for the provision of healthcare services by independent physicians or small group practices. Some mature IPAs have created complex rules to govern clinical procedures provided under its contracts, called “clinical integration.”

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Generally, ownership interests in an IPA are sold to physicians in exchange for start-up working capital. The IPA then enters into payer contracts and collects fees related to professional services. Thereafter, the IPA enters into professional service agreements with its owners (physicians), who in return employ the majority of personnel that they need in order to operate their private practice. To the extent that an IPA takes over individual physicians' billing and collection activities and becomes clinically integrated, the IPA moves closer to becoming an integrated group practice.

The utilization of an IPA has both advantages and disadvantages. Some physicians prefer the IPA over a large medical practice because there is no need to transfer their existing practice to a new organization, and it allows them to retain a signi�icant amount of control over their practice. Unfortunately, many IPAs have failed or have been disappointments. The reasons for this include undercapitalization, absence of management or administrative experience, an overemphasis on specialists in markets that need more primary care doctors, lack of effective cost controls, the inability of physicians to agree on an acceptable compensation plan that also is consistent with the goals of the IPA, and the inability of the IPA to be able to be effectively used to contract in a fee-for-service environment.

The main problem with IPAs is that they represent a group of physicians that are neither truly integrated nor completely independent. In fact, the competition among owners remains high. The result is a group of individual practitioners with competing interests and a lack of motivation to completely integrate their practices. With integration could come greater economies of scale, which could mean greater pro�its for the owners. Without greater integration the IPA owner will continue to work for the best interests of his or her independent practice rather than the best interests of the IPA as a whole.

Hospitals continue to develop new strategies to remain competitive in the rapidly expanding healthcare industry. This has resulted in hospitals utilizing a variety of legal and business structures. These structures include pro�it hospitals, not-for-pro�it hospitals, the acquisition and/or management of medical practices, and greater emphasis on freestanding outpatient facilities, often in competition with those created by the medical community, but sometimes as joint ventures with physicians.

A for-pro�it hospital is a hospital that is incorporated and run like any other for-pro�it organization. It has shareholders who demand a return on their investment, and is thus pro�it oriented. A portion of those pro�its eventually make their way down to shareholders in the form of dividends. A for-pro�it hospital must also pay taxes on its pro�its and dividend payouts.

The most signi�icant distinction between a for-pro�it and a not-for-pro�it hospital is the not-for-pro�it hospital's tax-exempt status. Typically, healthcare organizations (e.g., hospitals) organize themselves and operate for “charitable” purposes in order to qualify for tax-exempt status. According to the Internal Revenue Service (IRS), a charitable purpose includes the provision of healthcare services, even if the class of bene�iciaries receiving bene�its from the hospital does not include the entire community, provided that the class of individuals is not so small as to be determined not to be of bene�it to the community in which it operates. Generally, the IRS requires something more than simply the provision of healthcare services in order to qualify for tax-exempt status. As it concerns hospitals, the IRS used to require that hospitals provide charity health care in order to qualify for tax-exempt status. Since the late 1960s and early 1970s, the IRS has granted exempt status to hospitals that meet the “community bene�it” or “public bene�it” standard.

According to this standard, a hospital must show that it provides an overall bene�it to the community in which it operates. This standard requires a facts and circumstances examination of, among other things, whether the hospital has a board of directors that is representative of the community, refrains from

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engaging in the practice of patient dumping, has an inclusive medical staff, provides community education programs, and provides health services to a broad class of individuals, regardless of ability to pay.

Apart from being required to provide a charitable or public purpose, in order to qualify for tax-exempt status a hospital is prohibited from providing a private bene�it to those who operate it. In other words, no part of the net pro�its of a tax-exempt organization may inure to the bene�it of a private individual. If any tax-exempt organization (including tax-exempt hospitals) violates the prohibition on private bene�it or private inurement then that organization will be at risk of losing its status as a tax-exempt organization.

It is important to note that in 1991 the IRS released a general counsel memorandum in which it addressed issues related to fraud and kickback schemes in the context of tax-exempt organizations. It stated that tax-exempt organizations taking part in fraud and abuse or kickback schemes are at risk of losing their tax-exempt status because they may also be violating the IRS prohibition on private inurement and private bene�it within tax-exempt organizations.1 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft1) Therefore, it is very important that tax-exempt hospitals consider fraud and abuse and kickback regulations when evaluating their relationships with healthcare providers.

More recently, there has been considerable pressure, on both the federal and state level, for not-for- pro�it hospitals to adequately demonstrate that they actually bene�it the community and deserve tax- exempt status. Not-for-pro�it entities must �ile an annual public IRS report, called a Form 990. The 990 has been expanded signi�icantly, much more than not-for-pro�it entities would prefer.

Not-for-pro�it entities should also be aware of Section 4958 of the Internal Revenue Code. Section 4958 basically allows for the imposition of an excise “tax” as a penalty on “insiders” (i.e., those in a position to exercise substantial in�luence over the organization) and those connected to them, known as “disquali�ied persons,” who receive an “excess bene�it” from transactions with a tax-exempt organization. “Excess bene�it” occurs whenever “the value of the economic bene�it provided exceeds the value of the consideration received for providing the bene�it,” without regard to motive or intent.2 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft2) This provision was intended to give the IRS additional means by which to �ight corruption in the charitable sector.

Yet another way for hospitals to become involved in the delivery of health care is through the use of hospital-owned or hospital-controlled medical practices. Although hospitals that own medical practices often �ind them dif�icult to manage and dif�icult to operate pro�itably, these structures are effective ways of creating a fully integrated healthcare delivery system. They allow a hospital and medical group to be combined within a single organization.

The hospital, or a subsidiary or af�iliate, directly employs the physicians, or an entirely new entity can be created by the hospital to serve as the hospital's medical services component. A number of business entities may be used to achieve such goals, including limited liability companies, limited partnerships, standard business corporations, professional associations, professional corporations, nonpro�it corporations, trusts, foundations, and standard business corporations. Generally, the most important factor in choosing an appropriate entity is the applicable state law concerning an entity's ability to employ physicians. As previously discussed, corporate practice of medicine prohibitions may eliminate the ability to use separate entities, prohibit the direct employment of physicians by hospitals, or even limit the types of entities from which to choose. Because the corporate practice of medicine is a state law issue, it is important that individuals contemplating this option �irst research the law of their particular state. If state

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law does prohibit a hospital from owning a medical practice, a hospital may be able to circumvent the prohibition by utilizing a management services organization (MSO).

An MSO is an entity set up to provide assets and services to a medical practice. In most cases, the MSO purchases all the tangible assets of a medical practice and thereafter leases them back to a medical practice as part of a management services agreement. Other times, an MSO purchases new equipment and leases it to the practice. There are a variety of MSO types, but the overall concept remains the same. The distinction between the various types of MSOs is based on the MSO's speci�ic combination of purpose (e.g., who will it serve, �inancial goals), function (e.g., degree of services offered), and ownership structure (e.g., subsidiary, joint venture).

Whenever hospitals have an ownership interest in medical practices, it is important to consider possible kickback and self-referral implications (both anti-kickback and self-referral laws are discussed later in this chapter). If a hospital (or any other entity that receives patient referrals) subsidizes an MSO (and by implication the medical group) and the medical group thereafter refers patients to the hospital, then the MSO arrangement could be considered indirect payment by the hospital to the MSO in an effort to obtain patient referrals, resulting in a possible violation of the anti-kickback statute.

Alternatively, if the MSO is owned by the hospital, then the physicians' patient referrals from the MSO for designated health services to the hospital could raise possible Stark Law violations. Even if the MSO is established as a separate and distinct entity from the hospital, the activities of the MSO may be attributed to the hospital for purposes of analyzing anti-kickback and self-referral laws if it is capitalized or controlled by the hospital. These are very complicated issues that need to be addressed prior to forming an MSO. Most importantly, attorneys should be strict in cautioning their clients with respect to MSO arrangements, especially if the MSO operates at a �inancial loss.

To minimize the risks of violating these federal laws, it is important to be aware of, and comply with, all “safe harbors” applicable to each component of the MSO arrangement. These safe harbors are discussed in more detail later in this chapter.

Ancillary Providers

Spurred by reimbursement incentives during the 1980s and rapidly growing levels of technological innovation, health care is being transformed from a hospital-based system to a less expensive outpatient- based system. This trend has been encouraging to health management organizations, corporations, and even the federal government, who have been working hard to �ind new ways of controlling the rising cost of health care in this country. This development has resulted in exponential growth in the number of ancillary healthcare providers.

Ancillary delivery systems can be divided into two major groups—outpatient delivery systems (e.g., surgical centers) and all other ancillary delivery systems (e.g., diagnostic centers, cardiac catherization centers, and radiation therapy centers). Outpatient delivery systems typically are owned by physicians or hospitals or as a joint venture between physicians and hospitals.

Generally, all other ancillary delivery systems are organized and funded through outside business entities. Often the ancillary opportunities are structured as joint ventures with physicians. Some of these ventures have been very successful. However, today the trend in regulation is to make these joint ventures more dif�icult, often impossible, to pursue.

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Because of the ownership structure of these ancillary systems, fraud, abuse, and self-referral issues are common. It is important to fully analyze all payments to be sure that none con�lict with the anti-kickback statute or the patient self-referral statute. These issues are discussed in more detail later in this chapter. It is also helpful to seek guidance from previously released advisory opinions issued by the Health and Human Services Of�ice of Inspector General (OIG). Even though OIG advisory opinions speci�ically state that they may not be relied upon by anyone other than the requester, it is nonetheless a way to obtain an indicator of how the OIG would view certain types of business arrangements.3 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft3)

Legal Entities

Physicians and medical groups forming and operating under legal entities must be aware of the tax and personal liability consequences that the various entity structures entail. Generally, the two broad categories of entity structures available, incorporated and unincorporated entities, will afford the physician different levels of protections in those crucial areas. Although no business structure will protect or afford the physician immunity from liability stemming from his own professional actions, some entities provide better personal protection than others in the event the actions of a partner, colleague, or employee of a physician were the cause of a suit. A closer examination of the advantages and drawbacks of each entity is required to provide physicians and medical groups with a better idea of how to structure their business. However, one should not solely rely on the following brief overview regarding the choice of optimal physician entity. Laws and tax regulations concerning the various entities can vary from state to state and it is therefore crucial that a physician consult a legal expert from his or her own state before making the ultimate decision of which entity to operate.

Sole Proprietorship

For physicians who do not plan to work in a group or form a practice entity with other physicians, the sole proprietorship presents itself as a convenient choice of entity. Setting up a sole proprietorship involves minimal effort and expenses and provides the advantage that entity and physician are treated as one and the same for tax purposes. However, the sole proprietorship has the considerable drawback that it offers no form of personal liability protection whatsoever, and a physician's personal assets are subject to exposure to satisfy judgments against the business. For those reasons, a sole proprietorship is rare.

General Partnership (GP)

Physicians who plan on working together and forming small medical groups may be tempted to form a general partnership since they are uncomplicated and inexpensive to create and are not subject to federal income taxations. However, the general partnership presents the same considerable drawback of the sole proprietorship; personal assets are subject to company judgments. In addition to that downside, each physician is also personally liable for claims rendered against his or her partner. Due to the negative liability characteristics of a general partnership, general partnerships of individuals are not popular. However, often the structure of a general partnership of entities (such as professional corporations) owned by individual physicians is utilized to shield physicians from liability.

Limited Liability Company (LLC) and Limited Liability Partnership (LLP)

Limited liability companies and limited liability partnerships are relatively new forms of incorporated entity that did not emerge until the 1990s. They have attributes of both a partnership and corporation,

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offering limited liability to their members, �low-through of taxation on pro�its and losses, and, like the C corporation (see below), �lexibility on the amount and nature of their owners. Additionally, pro�it distributions are not as rigid as with an S corporation (see below) since they may be distributed disproportionately to membership in the entity. Likewise, the limited liability company and limited liability partnership do not require the observation of corporate formalities like minutes or annual shareholder meetings. Due to the novelty of these structures, their liability protection has not faced the extensive court challenges and scrutiny that corporations have, and therefore their protection is not as judicially recognized.

Unlike the established corporate structure, some states might not recognize all rights and privileges afforded to the LLC or LLP by other states. There is a perception that upon receipt of considerable revenue, the risk of an IRS audit is higher with a limited liability company than it would be with a corporation. Moreover, if the members of a limited liability company wish to maintain earnings within the company rather than distributing them, a corporation might be a more suitable choice of entity to retain savings since, depending on the amount of income, the corporate tax rates could be lower than the individual income tax rates incurred upon distribution.

Like other forms of unincorporated entities, the limited liability partnership has the distinct advantage of not being subject to federal taxation. That is, all income �lows directly to the partners and must only be reported by them as income. The limited liability partnership is unique, however, in the respect that it shields the physician's assets from liability caused by partners' malpractice. Nevertheless, a physician partner must be aware that the LLP's assets could still be lost to an unfavorable malpractice judgment, if such a judgment exceeds the amount guaranteed by the insurance policy. Limited liability partnerships also offer the advantage of �lexible structuring by limiting a partner's decision-making rights, regardless of his or her individual income or status within the partnership.

Incorporated Entities

Despite the increased cost and the more formal structure of incorporated entities, to most physicians they represent favorable alternatives to unincorporated entities for the simple reason that a physician's personal assets are secure and will not be subject to any judgments against the business resulting from colleagues' malpractice. The most a physician could lose is his or her investment in the business. However, a physician must be aware that his or her own personal assets are not secure if judgment has been rendered against the practice as a result of the physician's own negligence.

C Corporation

The C corporation is a fairly �lexible entity structure that may issue stock. Different forms of stock are allowed. Depending on the type of stock, different voting and distribution rights are assigned, allowing greater consideration for shareholder seniority. Since stock ownership represents one's interest in the entity, physicians may easily buy in or buy out of the entity by acquiring or selling stock. The C corporation is often a choice entity for large medical groups since the law imposes no limit on the amount and nature of the corporation's shareholders. The major drawback of the C corporation concerns its tax liability. Any income the corporation receives is taxed twice, �irst to the corporation and then to the shareholders receiving dividends on their shares. C corporations may seek to avoid the taxation to shareholders by distributing all of its pro�its to its physicians as “bonuses.” However, if such bonuses are disproportionately large, the physician receiving the bonus may come under IRS scrutiny.

S Corporation

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The S corporation has become a favorable alternative to the C corporation since it limits personal liability to the corporate investment and all pro�its �low through the corporation directly to the shareholders and, as such, are subject to only one layer of taxation. Election of an S corporation physician entity or group practice is often limited to smaller local physician entities as the corporation may not have more than 100 shareholders or have any nonresident aliens or (with very limited exceptions) entities as its shareholders. Another drawback concerns the limitation that an S corporation may only issue one class of stock (other than with respect to voting rights, which inhibits �lexibility). However, the S corporation has the advantage that any losses incurred during the start-up of the entity are passed directly to the shareholder and therefore can be set off from taxable income derived from other sources. In a C corporation, such losses remain within the corporation and cannot be used to the bene�it of its shareholders.

Federal Anti-Kickback Statute

The federal anti-kickback statute states in part:

1. whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind:

a. in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program, or

b. 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 a federal healthcare program, shall be guilty of a felony and upon conviction thereof, shall be �ined not more than $25,000 or imprisoned for not more than 5 years, or both.

2. whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person:

a. to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program, or

b. to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program, shall be guilty of a felony and upon conviction thereof, shall be �ined not more than $25,000 or imprisoned for not more than 5 years, or both.4 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft4)

Additionally, if the person submitted claims to the Medicare program because of an unlawful referral, he or she may be found to have violated the federal Civil False Claims Act (FCA).5 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft5) A person found to have submitted false Medicare claims may be subject to civil monetary penalties for each item or service for which a fraudulent claim was submitted, and an assessment in lieu of damages of up to triple the amount of the claim submitted (see Table 3.1 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_tab3_1) ).

The anti-kickback statute also sets forth certain statutory exemptions (e.g., discounts, payments to employees, payments to group purchasing organizations), and authorizes the secretary of the Department

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of Health and Human Services to exempt speci�ied transactions by safe harbor regulations.6 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft6) It is very important to note that the anti-kickback safe harbors are extremely narrow in scope. Transactions that do not �it squarely within the regulatory safe harbors are not illegal per se, but must be analyzed according to the particular facts and circumstances of each transaction.7 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft7)

Table 3.1 Comparison of Anti-Kickback Safe Harbors and Stark Law Exceptions

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The 1996 amendments under the Health Insurance Portability and Accountability Act (HIPAA) extended the anti-kickback statute to all “federal healthcare programs,” added a statutory exception for certain risk-sharing arrangements, and established several methods designed to increase the �low of information between the OIG and the public about the application of the statute to various transactions. Included among these methods was the requirement that the OIG establish a procedure whereby providers could apply for advisory opinions pertaining to the applicability of the anti-kickback statute or a particular safe harbor to a particular transaction.8 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft8) Such a procedure has been established and a number of advisory opinions have been issued.9 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft9)

All requests for OIG advisory opinions must be submitted in writing, the requestor must be a party to the existing or proposed arrangement, and an initial �iling fee must be enclosed.10 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft10) It is important to note that no individual other than the requestor(s) may rely on any advisory opinion issued by the OIG.11 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft11) The OIG has developed a list of those subject matters appropriate for advisory opinions and those that are not. The OIG will issue advisory opinions regarding what constitutes prohibited remuneration; whether an existing or proposed arrangement satis�ies the criteria under HIPAA and safe harbor regulations as an activity that does not result in prohibited remuneration; what constitutes inducement to reduce or limit services to Medicare bene�iciaries or Medicaid recipients; and whether existing or proposed activity quali�ies for imposition of civil or criminal sanction.12 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft12) On the other hand, the OIG will not issue advisory opinions regarding questions related to fair market value of

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goods, services, or property; whether an individual is a bona �ide employee under the Internal Revenue Code; or whether a course of action is the same or substantially the same as a matter under investigation or that has been the subject of a proceeding involving Health and Human Services (HHS) or another government agency.13 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft13)

Tests and Requirements Under the Federal Anti-Kickback Statute

The One Purpose Test

As demonstrated by its plain language, the anti-kickback statute is extremely broad. In United States v. Greber,14 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft14) the United States Court of Appeals for the Third Circuit announced the “one purpose test.” The court addressed whether payments made to a physician for professional services related to tests performed by a laboratory could be the basis for Medicare fraud. A laboratory providing physicians with diagnostic services billed the Medicare program for the services. When the laboratory received payment, the laboratory forwarded a portion of the payment to the referring physician. The defendant (an osteopathic physician who owned the diagnostic laboratory) contended that the laboratory was merely paying the referring physicians “interpretation fees” for their initial consultation services, as well as for explaining the test results to patients. However, the amount paid to the referring physician was more than Medicare allowed for such services. The court stressed that the anti-kickback statute “is aimed at the inducement factor” and held that “if one purpose of the payment was to induce the physician to use [the laboratory's] services, the statute was violated, even if the payments were also intended to compensate for professional services.”15 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft15)

The OIG has since adopted the Greber “one purpose” standard as the test in its advisory opinions.16 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft16) If any purpose of the transaction is to induce Medicare or Medicaid referrals, the position of the OIG is that the anti-kickback statute is violated.17 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft17) Similarly, in its 1999 “General Comments” to the 1999 Final Safe Harbor Regulations, the OIG states, “Payment practices that do not fully comply with a safe harbor may still be lawful if no purpose of the payment practice is to induce referrals of federal health care program business.”18 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft18)

The Greber one purpose test also has been adopted by the Ninth Circuit in United States v. Kats and by the Fifth Circuit in United States v. Davis.19 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft19) In United States v. Kats, the court concluded that when a payment is not incidental to the delivery of healthcare services or goods, the anti- kickback statute is violated.20 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft20) In that case, the owner of a diagnostic laboratory “agreed to ‘kick back' 50 percent of Medicare payments received by the laboratory as a result of referrals” from a medical services company. The appellate court held that the trial court's instruction that the “jury could convict [the defendant] unless it found the payment ‘wholly, and not incidentally attributable to the delivery of goods or services' accurately stated the law.”21 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft21) The court quoted with favor the Greber one purpose test, opining that the Greber interpretation “is consistent with the legislative history.”22 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft22)

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In United States v. Lahue,23 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft23) the Tenth Circuit also adopted the one purpose test. Greber was applied and relied on in a series of related anti-kickback cases closely followed by healthcare lawyers and practitioners. In that case, the court upheld the convictions of two physicians after they entered into a contract to provide consulting services to a hospital in return for a signi�icant yearly �inancial payment per physician per year, for which they provided little to no services. As long as one purpose of payments from the hospital to the La Hues was to induce referrals back to Baptist Medical, according to the court, the convictions would stand. The US Supreme Court ended the saga in 2002 when it denied certiorari on the issue of whether the defendants could be convicted of violating anti-kickback laws and the application of the one purpose test.

In United States v. Anderson,24 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft24) the US District Court in Kansas also adopted Greber. In a companion case, United States v. McClatchey,25 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft25) the Tenth Circuit of�icially adopted Greber, but with a caveat. A jury instruction in McClatchey provided that the defendant “cannot be convicted merely because [he] hoped or expected, or believed that referrals may ensue from remuneration that was designed wholly for other purposes.”26 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft26) In a somewhat analogous holding, the US District Court for the Middle District of Florida, in United States v. Siegel, held that if “one material purpose” of the payment was for illegal remuneration, the anti-kickback statute was violated.27 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft27)

The Primary Purpose Test

The case of United States v. Bay State Ambulance and Hosp. Rental Serv., Inc. looked at the primary purpose, rather than any or one purpose, of a payment to determine its illegality.28 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft28) Bay State contained a complicated set of facts, which involved a series of gifts and payments made by an ambulance company to a well-placed employee of a city hospital. The apparent purpose of the gifts was to in�luence the hospital's decision concerning its choice of ambulance services.

One issue under consideration concerned the correctness of the following jury instructions given by the trial court judge:

[T]he government has to prove that the payments were made with a corrupt intent, that they were made for an improper purpose. If you �ind that payments were made for two or more purposes, then the Government has to prove that the improper purpose is the primary purpose or was the primary purpose in making and receiving the payments. It need not be the only purpose, but it must be the primary purpose for making the payments and for receiving them. You cannot convict if you �ind that the improper purpose was an incidental or minor one in making the payments.29 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft29)

The appellate court agreed that the defendant's payments were made primarily for inducing referrals; therefore, it upheld the trial court's jury instructions, recognizing that the test applied by the trial court was less expansive than the Greber one purpose rule. The Bay State appellate court, citing Greber with favor, stated “the gravamen of Medicare fraud is inducement,” and that the “key to a Medicare fraud case is

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the reason for the payment—was the purpose of the payments primarily for inducement.”30 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft30) However, the court chose not to adopt the Greber test.

Scienter Requirement

The anti-kickback statute also requires that the government establish scienter (i.e., criminal intent) under a “knowingly and willfully” standard.31 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft31) The circuits are split as to the proper interpretation of these words. In Hanlester Network v. Shalala, a clinical laboratory established joint ventures with physician partners who made nominal investments.32 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft32) Substantially all of the �inancial risk was borne by SmithKline Beecham Clinical Laboratories, the organizer and manager of the joint ventures. The joint venture agreements required the physicians to resell their interests at nominal prices if they moved out of the trade area, retired, or lost their licenses. As the joint venture manager, SmithKline took a management fee equal to 76% of revenues. The joint venture had no employees, and the laboratory work was done at SmithKline. The OIG alleged that the physicians were paid a disproportionate return (more than 50% annually) for their investment, which was �inanced by the manager, and that the physician investors were selected from among physicians expected to make referrals to the laboratories. There was, however, no requirement that physician investors make referrals to the labs.

The fundamental issue before the court was whether the “inducement” prohibition of the anti-kickback statute was met on the basis that the structure and operations of the joint venture laboratories “merely encouraged” the physician partners to refer patients to the laboratory, which may not violate the law (as opposed to “induced” the referral of business, which clearly would violate the statute). The Ninth Circuit Court of Appeal held that, in order for an individual to violate the Medicare anti-kickback statute, there must be a “knowing and willful” intention to violate a law.33 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft33) In this case, the court found proof lacking that the defendant physicians knew that it was illegal to be paid for referrals or that they engaged in conduct with the speci�ic intent to violate the law.

All courts that subsequently considered the issue have rejected the Hanlester Network holding. These courts have held that the defendant need not have intended to violate or known that he or she was violating the Medicare anti-kickback statute in particular. Rather, he or she needs only to have intended to engage in conduct that was unlawful.

In a typical case, the Florida Fourth District Court of Appeal easily set aside Hanlester when determining that a percentage commission paid to a marketing company by a durable medical equipment supplier was an illegal kickback:

The Anti-Kickback Statute is directed at punishment of those who perform speci�ic acts and does not require that one engage in the prohibited conduct with the speci�ic intent to violate the statute. We therefore decline to follow the Hanlester interpretation of the Anti-Kickback Statute.34 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft34)

Also in contrast to Hanlester, the court in United States v. Jain supported the position that the government must prove only that the defendant knew his conduct was wrong.35

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(http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft35) However, the court noted that the defendant's good faith belief that he was being paid for services rather than patient promotion would be a defense.36 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft36)

In United States v. Starks, the Eleventh Circuit con�irmed that payments of $250 for each referral from Future Steps to Project Support employees violated the anti-kickback statute.37 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft37) Future Steps treated drug addicts. Two Project Support employees were paid for referrals that cost the Medicaid program $323,000. The Eleventh Circuit rejected the argument that the anti-kickback statute was technically complex and ruled that the defendant's speci�ic knowledge of the statute did not have to be proved, especially in view of the fact that the payments for the referral were made to the employees in a clandestine fashion (cash under the table).38 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft38)

In United States v. Anderson, hospital of�icials and doctors were convicted under the anti-kickback statute for fees paid by a hospital under consulting agreements to physicians.39 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft39) The fees were excessive for the services rendered and the court therefore concluded that the consulting agreements were shams to disguise payments for patient referrals. The court found that although the anti-kickback statute was not a simple statute, it was not highly technical. It therefore adopted the general knowledge standard.

Although the Supreme Court has not interpreted the words knowingly and willfully in the context of the anti-kickback statute, it has done so in connection with another criminal statute. In the case of Bryan v. United States, the Supreme Court concluded that an individual acts willfully when he or she acts with knowledge that his or her conduct is unlawful.40 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft40)

The question raised in the Bryan case was whether the defendant had to know that he was violating a speci�ic statute prohibiting the unlicensed sale of �irearms. The Court distinguished complex statutes that are highly technical and capable of entrapping people engaged in conduct they believed to be innocent from other statutes. When the law is complex and capable of trapping people, the Court concluded that a defendant had to have speci�ic knowledge of the law being violated. The Court stated that when it came to the statute before it, the government had only to prove that the defendant acted with the knowledge that his conduct was unlawful. The Court held that as “a general matter, when used in the criminal context, a ‘willful’ act is one undertaken for a ‘bad purpose.’”41 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft41) The Bryan case lends support to the majority view that speci�ic intent to violate the anti-kickback statute is not necessary for conviction.

Penalties for Violation of the Anti-Kickback Statute

The stakes in running afoul of the anti-kickback statute are high. Section 4304 (b) of the Balanced Budget Act of 1997 (BBA) granted HHS the authority to impose civil money penalties of (1) up to $50,000, and (2) three times the amount of remuneration in question, for each violation of the statute.42 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft42)

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In addition to the criminal and civil penalties under the anti-kickback statute, violations of the statute can lead to exclusion from participation in federal healthcare programs.43 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft43) In 1998, the OIG issued a �inal rule extending its exclusion authority to “indirect providers” such as drug and device manufacturers.44 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft44) The effect of such exclusion would be to eliminate coverage for any products of the excluded manufacturer. However, signi�icant questions remain regarding the OIG's legal and practical authority to exclude manufacturers involved in the distribution of, or billing for, covered drugs.

Enforcement Action

An increase in criminal enforcement of the healthcare fraud and abuse laws has, not surprisingly, resulted in a greater number of successful enforcement actions under the anti-kickback statute. However, the increasing number of successful prosecutions is due not only to the greater number of enforcement actions initiated by the OIG and United States Attorneys, but also the government's increasingly creative application of the broadly worded statute. The anti-kickback statute establishes criminal penalties for anyone offering, soliciting, receiving, or paying remuneration, directly or indirectly, in cash or in kind, in return for the referral of a patient for whom healthcare services are paid by a federal healthcare program.

Since its inception, many legal practitioners predicted that this statute could be applied in a manner unforeseen by its original authors. This is because the statute's broad language allows it to be interpreted to prohibit not only egregious kickback schemes, but also seemingly innocuous transactions.

Joint venture transactions and compensation arrangements that implicate the anti-kickback statute may be viewed on a continuum ranging from blatant violations of the law to �inancial arrangements that implicate the law in less obvious ways. The recent enforcement efforts by the United States Attorneys and the OIG throughout the country evidence a trend to apply the anti-kickback statute not only to the most egregious forms of abuse, but also in those instances where its application may not be directly supported by prior case law and do not involve an obvious threat to patient and program abuse. Furthermore, perhaps due to the signi�icant criminal and civil money penalties available to the federal agencies, enforcement actions have been aimed at small and large, as well as simple and sophisticated, transactions. In short, the recent enforcement actions of the United States Attorneys' of�ice and the OIG signify an expansion of the applicability of the anti-kickback statute in as broad a fashion as its language permits and in a manner probably unforeseen by the original authors of the law.

Perhaps the most aggressive enforcement actions involving the anti-kickback statute have been undertaken in the Middle District of Florida, focusing on the mental health and substance abuse sector of the healthcare industry, and more recently including payments for referrals between physicians and ancillary service providers such as clinical laboratory, durable medical equipment, and mobile diagnostic providers.45 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft45) These cases all involved alleged violations of the federal anti-kickback statute involving payment for remuneration in various forms in return for the referral of patients under the Medicare and Medicaid programs. The following are the alleged types of illegal payment for referrals that have been re�lected in the indictments and plea agreements in these cases:

1. The solicitation and receipt of payment from hospitals providing inpatient care to psychiatric and substance abuse patients in return for the referral of those patients to the hospitals.

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2. These payments were allegedly made by disguising their illegal nature in the form of fraudulent contracts and agreements falsely characterizing the payments made for the referral of patients as payment for management services, marketing services, initial psychiatric clinical assessments, aftercare treatment, and other purported services.

3. The hospitals that were paying remuneration in return for the referral of psychiatric and substance abuse patients would also request fraudulent claims for reimbursement on their cost reports for the salaries of persons who had entered into �ictitious employment contracts with the hospitals.

4. There were also alleged payments for referrals in the form of the routine waiver of co-payments for patients and payments for their transportation, often involving air travel, from their cities of residence (which were often in the northern part of the United States) to the facilities (which were in Florida).

5. The payments for referrals of patients for clinical lab and other ancillary services were often purported to be for equipment and space rentals, phlebotomists and other employee salaries, and compensation for professional services, such as doctors acting as “testing review of�icers” or “medical review of�icers” for clinical lab work.

These cases represent the enforcement of the anti-kickback statute against arrangements that may appear on their face to be arrangements for legitimate services or for equipment or space and may also appear to �it into federal “safe harbors” under the anti-kickback statute. Nevertheless, these arrangements have formed the basis for indictments and successful prosecutions involving plea agreements based on the theory that they were “sham” arrangements that were designed to mask the intent to make payment for referrals. These enforcement actions underscore the idea that facial compliance with safe harbor criteria, such as personal services arrangements, equipment and space leases, and even employment agreements must be necessary, commercially reasonable, and bona �ide in all respects; otherwise, they could be as vulnerable to attack as if payments were made in cash for the referral of patients.

Perhaps the most dramatic example of the use of criminal sanctions under the federal anti-kickback statute was the criminal plea agreements in United States of Am. v. Kimberly Home Health Care, Inc. d/b/a/ Olsten Kimberly Quality Care, a wholly owned subsidiary of The Olsten Corp. (Olsten) (SD of FL and MD of FL 1999). In Olsten, the company agreed to the sale of home health agencies to a large unnamed hospital company in return for a management agreement to manage those same home health agencies and others, which the hospital would purchase in the future. The government alleged that the transaction violated the federal anti-kickback statute because the sale of the home health agencies was for a price below fair market value, which was in return for an agreement to enter into a lucrative management contract under which Olsten would be paid on a per-visit basis for serving the patients of the hospital-owned home health agencies. The cost of acquisition of the home health agencies is not reimbursable by the Medicare program, but the costs of management services are reimbursable. In plea agreements executed to resolve two separate proceedings in the Middle District of Florida and the Southern District of Florida, Olsten pled guilty to mail fraud and several violations of the anti-kickback statute. Olsten agreed to pay $61 million in criminal restitution and �ines and civil penalties. Olsten further agreed to implement a corporate integrity agreement that was separately negotiated with the Of�ice of Inspector General of the Department of Health and Human Services.

The anti-kickback statute remains actively enforced, routinely resulting in the imposition of criminal, administrative, and civil sanctions. These enforcement actions represent an effort by government agencies to expand the reach of the anti-kickback statute to be as broad as its language permits. The government's increasingly aggressive use of criminal penalties demonstrates its willingness to use all the tools at its

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disposal to eliminate healthcare fraud. Because seemingly small or simple transactions may later become the subject of a government investigation, it is imperative that healthcare providers have quali�ied counsel review all of their proposed transactions for compliance with applicable federal and state fraud and abuse laws.

Physician Self-Referral—Stark Law

The Stark Law generally prohibits a physician's referral of Medicare patients to an entity for the furnishing of designated health services (DHS) if there is a �inancial relationship between the referring physician or an immediate family member and the entity, unless an enumerated exception applies.46 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft46)

Unlike other statutes and regulations that are applicable to the healthcare industry as a whole, Stark Laws apply only to physicians (which also includes dentists, podiatrists, and chiro-practors).47 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft47) The underlying purpose behind the Stark Laws was to deter physicians from referring patients only to facilities in which they had an ownership interest, rather than to a facility that could provide the patient with the best medical care. It was also believed that self-referrals could, and would, lead to physicians ordering unnecessary services/procedures based on the physician's �inancial interest in a given facility. By establishing the Stark Law, Congress was attempting to create a “bright line” rule whereby physicians would know, in advance, which types of business arrangements were illegal.

On January 4, 2001, the Centers for Medicare and Medicaid Services (CMS) issued Phase I of the �inal Stark II regulations (Phase I Final Rule).48 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft48) The Phase I Final Rule, which became effective March 4, 2002, relates to the Ethics in Patient Referral Act of 1989 (Stark I) as amended by the Omnibus Budget and Reconciliation Act of 1993 (Stark II) (these are collectively known as the “Stark Law”). Phase I of the Final Rule concerns the Stark Law's prohibition and exceptions to the ownership and investment interests, compensation arrangements, and statutory de�initions. Phase II of the �inal Stark II regulations (Phase II Final Rule) became effective on July 24, 2004, and addressed additional ownership interest and compensation arrangement exceptions, reporting requirements, sanctions, and the Stark Law's application to Medicaid.49 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft49) In it, CMS clari�ies and modi�ies the de�inition of several statutory terms in the Final Rule and creates a new exception for entities that submit claims for DHS where the entities could not have been aware of the physician who made the referral.50 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft50) Phase III of the �inal Stark regulations (Phase III Final Rule) was published on September 5, 2007, and became effective on December 4, 2007.51 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft51)

The most signi�icant change in the Phase III Final Rule was CMS's broadening of the types of arrangements that fall within the scope of prohibited direct compensation arrangements by way of the physician “stand in the shoes” provisions. As a result of these provisions, arrangements that were previously not subject to the regulations, or subject to the less stringent rules for indirect compensation arrangements, became prohibited unless they met one of the exceptions to direct compensation arrangements.

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Most recently, on August 19, 2008, CMS published its �inal rule regarding the Hospital Inpatient Prospective Payment System (IPPS Rule), which contained a lengthy section �inalizing proposed revisions to the Stark regulations.52 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft52) In it, CMS �inalized revisions to the physician “stand in the shoes” provisions and its proposals to restrict certain “under arrangements” transactions and percentage-based compensation arrangements. Certain provisions in the Phase III Final Rule were not effective until October 1, 2009, to give the parties to newly prohibited arrangements time to restructure. The remaining provisions were effective October 1, 2008.

Sanctions for violating the Stark Law include the denial of payment, requiring refunds of claims that were billed in violation of the statute, civil monetary penalties of not more than $15,000 for services billed pursuant to a prohibited patient referral, and civil monetary penalties of not more than $100,000 for each unlawful arrangement or scheme that the physician or entity knows or should know has a principal purpose of ensuring referrals by the physician to a particular entity which, if the physician directly made referrals to such entity, would be a violation of the Stark Law.53 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft53) Additionally, any person who fails to meet the reporting requirements under the act may be assessed a civil monetary penalty in the amount of not more than $10,000 for each day for which reporting is required to have been made.

De�initions

Statutes and regulations de�ine DHS to include clinical laboratory services; physical therapy; occupational therapy; speech-language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; par-enteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.54 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft54)

The de�inition of referral does not include services performed personally by the referring physician.55 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft55) This allows a physician to initiate and personally perform services without these services being deemed “referrals to an entity.” However, all other Medicare-covered DHS performed at the request of a physician are still considered physician referrals. For example, services performed by a physician's employees and “incident to” services are still considered performed as a result of the physician's referrals.56 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft56) CMS has taken the position that a referral is imputed to a physician if the physician directs or controls the referral. The regulations contain an exception to the referral de�inition for pathologists, radiologists, and radiation oncologists. The request for consultation may be made to a party with which the specialist is af�iliated.57 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft57)

Under the regulations, the de�inition of “entity” does not include referring physicians, but does include their medical practices. The regulations de�ine entity to include any person or entity receiving payment for DHS.58 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft58) Speci�ically, the Phase I Final Rule reasoned that the “payee” is the entity for purposes of determining to whom the bene�iciary was referred. Additionally, the entity to which the patient has reassigned his or her Medicare bene�its will be considered the entity furnishing the DHS service. Managed care organizations (MCOs), health plans, and IPAs are deemed entities if they employ a supplier or operate a facility that could accept reassignment

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from a physician or supplier.59 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft59) The IPPS Rule further expands the de�inition of entity to include an entity that performs services that are billed as DHS by another entity.60 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft60)

The Stark Law only addresses situations in which the referring physician has a �inancial relationship with the DHS entity. The two types of �inancial arrangements that the statute focuses on are (1) compensation arrangements and (2) an ownership or investment interest in the en-tity.61 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft61) The Phase I Final Rule expanded the de�inition of “�inancial relationship,” and made a distinction between a “direct” and an “indirect” �inancial relationship.62 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft62) A direct ownership or investment interest exists if remuneration passes directly from the physician (or immediate family member of the physician) and the DHS entity without any intervening person or entity. An indirect ownership interest exists if there is (1) an unbroken chain of any number of persons or entities between the referring physician and the DHS entity with linked ownership or investment interests between them and (2) the entity furnishing DHS has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician has some direct or indirect ownership interest in the DHS entity. Ownership interest includes ownership or investment through equity, debt, or other means, including ownership in an entity that holds an ownership interest in another entity that provides DHS.63 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft63) However, ownership in a subsidiary entity does not constitute ownership in a parent entity unless the subsidiary owns an interest in the parent.64 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft64)

The de�inition of indirect ownership interest includes a knowledge requirement, which must be met before a DHS provider may be held liable for receiving a tainted referral. As a result, under the regulations, a physician must have had knowledge (or acted in reckless disregard or deliberate ignorance of ) the existence of such an ownership interest in order to be held liable for receiving a tainted referral. Thus, a DHS provider without “knowledge” will not be liable for providing services originated by an impermissible referral.65 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft65)

An ownership or investment interest is de�ined to include stock, partnership shares, limited liability company memberships, loans, bonds, or other instruments secured by an entity's property or revenues.66 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft66) An unsecured loan, however, is not an ownership interest under the regula-tions.67 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft67) Accordingly, if a physician provides secured �inancing to an entity, the physician possesses an ownership interest in the entity, and not a compensation arrangement.68 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft68) Further, the Phase I Final Rule speci�ied that interest in a retirement plan, stock options and convertible securities (until exercised), unsecured loans, and “under arrangements” between a hospital and an entity owned by a physician or physician group are not ownership or investment interests.69 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft69)

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The Phase I Final Rule added an exception that allows an entity lacking the requisite culpable mental state to submit a claim for DHS even when the services originate from an impermissible referral. The exception provides:

Payment may be made to an entity that submits a claim for designated health services if—(a) the entity did not have actual knowledge of, and did not act in reckless disregard or deliberate ignorance of, the identity of the physician who made the referral of the designated health service to the entity; and (b) the claim otherwise complies with all applicable Federal laws, rules and regulations.70 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft70)

This rule protects a DHS provider who is unaware or does not have reason to know that an oral or indirect referral originated from a party with a �inancial relationship with the DHS provider. CMS has stated that the new “knowledge exception” applies to indirect and oral referral where there is no written documentation of the referral. The Phase I Final Rule's language, however, does not speci�ically limit the knowledge exception to oral and indirect referrals. The DHS provider is not under an af�irmative duty to investigate the origination of a referral unless the DHS provider has reason to suspect that such a �inancial relationship exists with the referring physician. It must be noted that although this exception allows the DHS provider to bill for the services, arguably, the physician remains liable for his or her prohibited referral.

The Stark Law broadly de�ines compensation arrangements to include any arrangement involving remuneration, direct or indirect, between a physician and an entity.71 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft71) Remuneration can consist of (1) the forgiveness of amounts owed for inaccurate tests or procedures, mistakenly performed tests or procedures, or the correction of minor billing errors; (2) the provision of items or supplies used to collect or transport specimens for the entity, or orders to communicate the results of tests and procedures to the entity; and (3) a payment made by an insurer to a physician to satisfy a claim, submitted on a fee-for- service basis, for the furnishing of health services by that physician to an individual who is covered by a policy with the insurer if (a) the health services and the payment therefore are not furnished pursuant to a contract arrangements, (b) the payment which otherwise would be made to the individual was made to the physician on his behalf, and (c) the payment amount was set in advance and did not exceed market value.72 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft72) The de�inition of the term “set in advance” was modi�ied in the Phase II Final Rule to permit percentage compensation arrangements if the methodology for calculating the compensation is set in advance and does not change over the course of the arrangement in any manner that re�lects the volume or value of referrals.73 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft73)

Under the Stark regulations, a direct compensation arrangement exists if remuneration passes between the referring physician (or a member of his or her immediate family) and the entity furnishing DHS without any intervening persons or entities.74 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft74) The Phase I Final Rule also sets forth three requirements that must be present in order for an “indirect compensation arrangement” to exist. The elements are: (1) the unbroken chain requirement, (2) the volume or value requirement, and (3) the knowledge requirement.75 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft75) The unbroken chain test requires “an unbroken chain of any number (but not fewer than one) of persons or entities that have �inancial relationships between them.” The second requirement is that:

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The referring physician…receive aggregate compensation from the person or entity in the chain with which the physician has a direct �inancial relationship that varies with, or otherwise re�lects the volume or value of referrals or other business generated by the referring physician for the entity furnishing the DHS.76 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft76)

If total payments to the physician rise or fall based on the volume or value of referrals, it is an “indirect compensation arrangement” that triggers the referral prohibition unless it complies with an exception. This requirement examines the entity's direct �inancial relationship with the referring physician. Once a direct �inancial relationship is found, it must be determined whether the compensation arrangement varies with the volume or value of referrals or “business otherwise generated.” If the arrangement varies in the aforementioned manner, then an indirect compensation agreement exists. Almost all contracts between physician groups—in which the physicians have an ownership interest—and hospitals will be subject to the volume or value test. However, if the physicians do not have an ownership interest, the volume or value test will be applied to the compensation physicians receive to determine whether their compensation is based on the physicians' referrals to the hospital.

The regulations also provide that, for an indirect compensation arrangement to exist, the DHS provider must have “knowledge” that the referring physician's compensation is based on the physician's volume or value referrals or “other business generated by the referring physician” to the DHS provider.77 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft77)

In the Phase III Final Rule, CMS introduced the “stand in the shoes” provisions for purposes of determining whether a physician has a direct or indirect compensation arrangement with an entity to which the physician refers.78 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft78) A physician who has an ownership or investment interest in a physician organization will be viewed as “standing in the shoes” of his or her physician organization. In other words, the referring physician is considered to have the same compensation arrangements as the physician organization in whose shoes the referring physician stands. On the other hand, if the entity interposed between the physician and the entity to which the physician refers is not a “physician organization,” then the indirect compensation arrangement rules still apply. The rules de�ine a “physician organization” to mean a physician, including a professional corporation of which the physician is the sole owner, a physician practice, or a group practice. In the IPPS Rule, CMS scaled back on the “stand in the shoes” concept by limiting it to physician owners of a physician organization.79 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft79) Physicians with only a titular ownership interest (physicians without the ability or right to receive the �inancial bene�its of ownership or investment, including, but not limited to, the distribution of pro�its, dividends, proceeds of sale, or similar returns on investment) are not required to stand in the shoes of their physician organizations. Note that where a physician is viewed as standing in the shoes of a physician organization, arrangements must meet a direct compensation exception in order not to violate the Stark Law.

Where an indirect compensation arrangement exists, DHS referrals are prohibited unless the arrangement �its within the indirect compensation exception. The indirect compensation exception requires that:

1. The compensation received by the referring physician (or immediate family member) is fair market value for services and items actually provided, not taking into account the value or volume of referrals or other business generated by the referring physician for the entity furnishing DHS.

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2. The compensation arrangement is set out in writing, signed by the parties, and speci�ies the services covered by the arrangement, except in the case of a bona �ide employment relationship between an employer and an employee, in which case the arrangement need not be set out in a written contract, but must be for identi�iable services and be commercially reasonable even if no referrals are made to the employer.

3. The compensation arrangement does not violate the anti-kickback statute or any laws or regulations governing billing or claims submission.80 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft80)

The Stark Law also provides for various compensation arrangement exceptions which require that the arrangements set compensation in advance and not take into account the volume or value of referrals, other business generated between the parties, or condition compensation on referrals to a particular provider.

Exceptions81 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft81)

The Stark Law provides for various enumerated exceptions to the general prohibition on �inancial relationships between the referring physician and DHS entity. General exceptions to both ownership interest and compensation arrangements apply to physician services in which the services are provided by a physician in the same group practice as the referring physician.82 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft82)

A group practice is a group of two or more physicians legally organized as a partnership, professional corporation, foundation, not-for-pro�it corporation, faculty practice plan, or similar association.83 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft83) A physician's referrals are excepted from the Stark Law's referral prohibition as long as the service is performed in the same building in which the nondesignated health services are performed, or in the case of a group practice, in a building used by the group exclusively for the provision of the group's designated health services. The services must be billed by the physician performing or supervising the services, the practice group, or the entity that is owned by the physician or the physician practice group.84 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft84) The �inal overall exception concerns prepaid plans. Referrals for DHS services made by certain managed care organizations (health maintenance organization, Medicare + Choice organization) to individuals enrolled within the organization will not constitute a �inancial relationship under the Stark Law.85 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft85)

The law further provides that the referring physician's ownership of publicly traded investment securities and mutual funds will not constitute ownership or investment interest if the securities are traded on a public market and the corporation that issued the securities has stockholder equity exceeding $75 million for the past three years.86 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft86) Shares issued by a regulated investment company are also excluded if the company has total assets exceeding $75 million for the past year, or on average during the previous three years.87 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft87) Ownership or investment

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interest in hospitals will not constitute ownership interest under the Stark Law if the referring physician is authorized to perform services at the hospital and the interest the physician owns is interest in the hospital itself, and not a hospital subdivision.88 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft88) Furthermore, if any referrals for designated health services are made to hospitals in Puerto Rico or to rural providers, any investment or ownership interest the referring physician may have in such entities will not constitute a violation of the Stark Law.89 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft89)

The Stark Law also lists various types of compensation arrangement exceptions that are permitted. Compensation arrangements between the referring physician and the entity providing the designated health services are allowed if the compensation is for the rental of of�ice space or the rental of equipment.90 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft90) Both rental exceptions require that there be an agreement in writing, that space or equipment rented does not exceed what is necessary for legitimate business purposes, and that the duration of the lease be for at least one year.91 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft91) Compensation arrangements involving bona �ide employment arrangements and personal service arrangements are also permitted. Amounts paid by an employer to a physician under a bona �ide employment relationship do not constitute compensation arrangements under the statute as long as the employment is for identi�iable services, the amount of remuneration is consistent with the fair market value, and the remuneration is provided pursuant to an agreement.92 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft92) Amounts compensated under a personal service arrangement qualify as an exception if the arrangement is in writing, covers the services to be furnished by the physician, the services are reasonable and necessary for the legitimate business purposes of the arrangement, the duration of the arrangement is at least one year, the compensation to be paid is set in advance and does not exceed the fair market value, and the services performed under the arrangement do not involve counseling or promotion of a business arrangement or other illegal activity.93 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft93)

Additional remuneration that does not qualify as compensation is remuneration received that is unrelated to the provision of designated health services, remuneration provided for physician recruitment by a hospital as long as the recruited physician is not required to provide the hospital with referrals, and isolated transactions between a hospital and physician, such as a one-time sale of practice if the remuneration is consistent with fair market value and is provided pursuant to an agreement.94 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft94) The statute further provides that compensation received in certain practice arrangements between a group performing designated health services and a hospital billing for them is exempt if such an arrangement had been entered into and has been uninterrupted since December 19, 1989.95 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft95) For such an arrangement to meet the exception, the arrangement has to be in writing, the group must substantially furnish all designated health services covered by the arrangement, and the amount of compensation must be consistent with fair market value.96 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft96) Finally, any payments made by a physician to a laboratory in exchange for the provision of clinical laboratory services or payments made to an entity as compensation for other services or items furnished at a price consistent with the fair market

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value is exempted from a compensation arrangement.97 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft97)

It is important to note that any remuneration received for the rental of of�ice space exception, the rental of equipment exception, the bona �ide employment relationship exception, the personal service arrangement exception, the exception concerning physician recruitment, and the certain practice arrangements with hospitals exception may not take into account the volume or value of referrals between the parties in determining the amount of remuneration.98 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft98) An exception exists, however, for personal service arrangements that qualify as physician incentive plans. There, the compensation between physician and entity may consider the volume and value of referrals in establishing the amount of remuneration. However, no speci�ic payment may be made that serves as an inducement to reduce or limit the medically necessary services provided by the physician enrolled in the entity.99 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft99)

In addition to the above-mentioned exceptions that do not violate the Stark Law's general prohibition regarding �inancial relationships, Congress included in the Stark Law a provision giving the secretary of Health and Human Services authority to issue regulations creating additional exceptions to the general prohibition against physician referrals to entities with which the physician has a �inancial relationship if the secretary determines that the �inancial relationship “does not pose a risk of program or patient abuse.” Accordingly, the Phase I and Phase II Final Rules contained several additional exceptions.

Under the Stark Law, physicians practicing in academic medical centers would have to conform to the personal service arrangement or employment exceptions, or the group practice de�inition. The Phase I Final Rule recognized that these exceptions and de�initions do not �it the multiple relationships and monetary transfers inherent in most academic medical centers and has issued a new exception protecting those relationships if certain conditions are met. An academic medical center, for these purposes, consists of an accredited medical school, an af�iliated tax-exempt faculty practice plan, and one or more af�iliated hospitals in which the majority of medical staff members are faculty members and in which a majority of admissions are made by faculty members. The Phase I Final Rule included a fair market value exception, which requires:

1. The agreement must be in writing, must be signed by the parties, and must cover only identi�iable items and services, all of which are speci�ied in the agreement.

2. The agreement must specify the timeframe, which can be for any period of time and which may include a termination provision, but the parties may enter into only one arrangement for the same items or services during the course of a year. If the term is for less than one year, the parties may renew it any number of times if the terms and compensation do not change.

3. The agreement must specify the compensation, which must be set in advance, must be consistent with fair market value, and must not be determined in a manner that takes into account the volume or value of any referrals or any other business generated by the referring physician.

4. The arrangement must be commercially reasonable, taking into account the nature and scope of the transaction, and must further the legitimate business purposes of the parties.

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5. The arrangement must meet an anti-kickback safe harbor, or must not otherwise violate the anti- kickback statute, or the parties must have received a favorable advisory opinion (note that only the parties requesting an advisory opinion may rely on it for these purposes).

6. The services must not involve the counseling or promotion of a business arrangement or other activity that violates a state or federal law.100 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft100)

Yet another exception to the Stark Law pertains to nonmonetary compensation up to $300. This exception protects compensation from an entity in the form of items or services (not cash or cash equivalents) that do not exceed $300 per year, if certain conditions are met. In other words, the $50 limit has been dropped, and a physician may receive a single gift valued at $300, or several gifts totaling no more than $300, in a single year. The Phase II Final Rule added that the $300 will be adjusted annually for in�lation to the nearest whole dollar effective January 1 of each year.101 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft101) The other conditions of this exception are: (1) the compensation may not be determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician, (2) the compensation may not be solicited by the physician or the physician's practice, and (3) the compensation arrangement must not violate the anti-kickback statute.102 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft102)

This exception applies only to gifts to individual physicians, not to group practices. All physicians in a group practice could receive gifts up to the $300 per year maximum, so long as the group did not solicit the gifts (i.e., make them a condition of the group doing business with the entity), and so long as they did not violate the anti-kickback statute.

The Phase I Final Rule recognized that it is common in the industry for hospitals to provide certain bene�its to its medical staff members and that such bene�its largely serve to bene�it the patients and the hospital. Examples are free parking spaces for medical staff members while they are seeing patients in the hospital, free computer and Internet access on the hospital campus to enhance record keeping, and occasional meals for medical staff members while on hospital or patient business. Accordingly, CMS created an exception for such bene�its, if all of the following conditions are met:

1. the compensation is offered to all members of the medical staff without regard to the volume or value of referrals or other business generated between the parties.

2. the compensation is offered only during periods when the medical staff members are making rounds or performing other duties that bene�it the hospital or its patients.

3. the compensation is provided by the hospital and used by the medical staff members only on the hospital's campus.

4. the compensation is reasonably related to the provision of, or designed to facilitate directly or indirectly the delivery of medical services at the hospital.

5. the compensation is consistent with the types of bene�its offered to medical staff members by other hospitals within the same local region, or by comparable hospitals in comparable regions.

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6. the compensation is of low value—less than $25 (adjusted each calendar year for in�lation to the nearest whole dollar effective January 1 of each year)—with respect to each occurrence of the bene�it (i.e., each meal given to a physician while he or she is serving hospital patients).

7. the compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated between the parties.

8. the compensation arrangement does not violate the anti-kickback statute.71 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft71)

The Phase II Final Rule added the additional condition that the compensation be offered to all members of the medical staff practicing in the same specialty, even if some members do not accept it.103 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft103)

This exception protects many medical staff bene�its that could not be covered under the fair market value exception (because there is often no written agreement), and which may, in the aggregate, constitute a value greater than $300 per year, taking it out of the de minimis exception. Note, however, that CMS explicitly states that medical transcription services are not considered to be of incidental bene�it or nominal value and would not be covered under this exception. In the Phase I Final Rule, CMS recognized that many hospitals are offering compliance training to their medical staffs. The secretary believes that such training programs are bene�icial and pose no risk of fraud or abuse. Therefore, the Phase I Final Rule contained an exception for compliance training provided by a hospital to a physician that practices in the hospital's local community or service area, provided the training is held in the local area or service area. Compliance training is de�ined as training regarding the basic elements of a compliance program (not setting up a compliance program for the physician), or speci�ic training regarding Medicare or Medicaid requirements (such as billing or coding).104 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft104) In the Phase II Final Rule, CMS also added a number of new exceptions. Among them, CMS created a speci�ic exception for the provision of valuable information technology items and services, such as computer hardware or software, by a DHS entity to a physician to participate in a community-wide health information system designed to enhance the overall health of the community. The healthcare system must be one that allows community providers and practitioners to access and share electronic healthcare records. In addition to healthcare records, the system may permit access to, and sharing of, complementary drug information systems, general health information, medical alerts, and related information for patients served by community providers and practitioners.105 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft105)

Another important exception included for the �irst time in the Phase II Final Rule is the professional courtesy exception.106 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft106) Professional courtesy is de�ined as the provision of free or discounted healthcare items or services to a physician or his or her immediate family members or staff. To qualify for the exception, the arrangement must meet the following conditions: (1) The professional courtesy is offered to all physicians on the entity's bona �ide medical staff or in the entity's local community without regard to the volume or value of referrals or other business generated between the parties; (2) the healthcare items and services provided are of a type routinely provided by the entity; (3) the entity's professional courtesy policy is set out in writing and approved in advance by the governing body of the healthcare provider; (4) the professional courtesy is not offered to any physician (or immediate family member) who is a federal healthcare program bene�iciary, unless there has been a good faith showing of �inancial need; (5) if the professional

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courtesy involves any whole or partial waiver of any coinsurance obligation, the insurer is informed in writing of that reduction so that the insurer is aware of the arrangement; (6) the professional courtesy arrangement does not violate the anti-kickback statute or any billing or claims submission laws or regulations.1 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft1)

The Phase II Final Rule also included a new exception for charitable donations by a physician. Under this exception, bona �ide charitable donations made by a physician to a DHS entity will not constitute a �inancial relationship if the donation is made to a tax-exempt organization, does not take into account the volume or value of referrals, and does not violate the anti-kickback statute.2 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft2)

Finally, in the Phase I Final Rule, CMS stated that it would consider an exception for relationships that �it “squarely into an anti-kickback safe harbor.” In the Phase II Final Rule, however, CMS asserted that it had decided against it, and was opting instead to consider whether any safe harbored arrangements should be incorporated as exceptions to the Stark regulations from time to time as the anti-kickback safe harbors are amended. Moreover, after a review of the existing safe harbors for which there were no analogous exceptions under the Stark regulations, CMS concluded it would incorporate by reference the safe harbors for referral services and obstetrical malpractice insurance subsidies, thereby adding two new exceptions to the Stark regulations.3 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft3)

Comparison of the Federal Anti-Kickback Statute to the Physician Self- Referral Act

The anti-kickback statute and the Physician Self-Referral Act (Stark Law) are two different statutes passed by Congress at different times that, nevertheless, target the same problem in our healthcare delivery system. The goal behind each statute is to eliminate the prospect of �inancial inducements as a factor in the referral of patients and the ordering of goods or services paid for, in whole or in part, by federal health programs. An ancillary purpose behind both laws is to eliminate �inancial considerations in the making of clinical and medical judgments involving patient care, which Congress has concluded lead to overutilization of services and potential overcharges, in addition to undermining the quality of care, all of which increase the costs to federal health programs. The goal of both statutes is to eliminate the �inancial inducement factor from clinical decision making in the care and treatment of patients so there is a positive effect on the escalating costs to federal healthcare programs. This section will examine these two statutes in detail to highlight their similarities, but even more importantly, their differences, in attempting to address the similar problems under federal healthcare programs. The antikickback statute prohibits the following:

• Soliciting or receiving remuneration for referrals of Medicare or Medicaid patients, or for referrals for services or items that are paid for, in whole or in part, by Medicare or Medicaid.110 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft110)

• Soliciting or receiving remuneration in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any goods, facility, service, or item for which payment may be made, in whole or in part, by Medicare or Medicaid.111 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft111)

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• Offering or paying remuneration for referrals of Medicare or Medicaid patients, or for referrals for services or items that are paid for, in whole or in part, by Medicare or Medicaid.112 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft112)

• Offering or paying remuneration in return for purchasing, leasing, ordering, arranging for, or recommending purchasing, leasing, or ordering any goods, facility, service, or item for which payment may be made, in whole or in part, by Medicare or Medicaid.113 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft113)

The basic prohibition under the anti-kickback statute is against remuneration in return for the referral of patients or the ordering of goods or services paid for, in whole or in part, by federal health programs, whether it be direct or indirect, overt or covert, or cash or in-kind.114 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft114)

In comparison, the Stark Law prohibits a physician or his or her immediate family member from having a �inancial relationship with an entity to which he or she may refer Medicare and Medicaid patients to receive any one of the statutorily de�ined designated health services.115 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft115) A �inancial relationship can exist as an ownership or investment interest or as a compensation arrangement with such an entity.116 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft116) An entity may not present a claim for payment for services provided to a patient as a result of a prohibited referral under the law.117 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft117)

The anti-kickback statute is �irst and foremost a criminal statute that, upon conviction, may result in a penalty of up to $25,000, imprisonment of up to �ive years, or both.118 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft118) The anti-kickback statute also has civil remedies, including the imposition of civil money penalties of up to three times the amount of remuneration paid for referrals, plus up to a $50,000 penalty for each kickback payment.119 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft119) Additionally, the anti-kickback statute allows for discretionary exclusion from federal healthcare programs.120 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft120) A conviction under the anti- kickback statute could, conceivably, include a felony with �ine and imprisonment, a civil money penalty amount, and exclusion from federal healthcare programs, all for the same underlying offense.

In contrast, the Stark Law is a civil statute only, which carries with it a civil money penalty of a maximum of $15,000 for each service billed or furnished as a result of a prohibited referral.121 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft121) Additionally, because the Stark Law's terms explicitly preclude an entity from presenting a claim for payment for services provided to a prohibited referral, it raises the specter of liability under the United States Civil False Claims Act and the Civil Money Penalty law for submission of an improper claim.

The anti-kickback statute is a broad-based statute which, potentially, could encompass conduct involving anyone arranging for, offering, or receiving remuneration in return for refer-rals.122

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(http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft122) Because the anti-kickback statute is primarily a criminal statute with criminal penalties, it is necessary for the government to prove that a party intended to violate the anti-kickback statute's prohibition with evidence beyond a reasonable doubt (the “intent standard”). This standard of proof would require proof beyond a reasonable doubt in a criminal prosecution, although in an action to impose civil money penalties or an exclusion from federal healthcare programs, the intent to pay remuneration in return for referrals may only be required to be established by a preponderance of the evidence.123 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft123)

The Stark Law, on the other hand, is a “strict liability” statute, which does not require proof of intent to offer or receive remuneration in return for a referral.124 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft124) The law merely requires proof that a physician referred a federal healthcare program patient to an entity that provides any one of a number of designated health services.125 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft125) If the physician or an immediate family member has a �inancial relationship with this entity, then the law is violated, unless an exception in the Stark Law would apply. This is an important distinction between the anti-kickback statute and the Stark Law, which fundamentally affects the scope of either law's application and the ability of the government to impose liability through either of these statutes.

Finally, the anti-kickback statute prohibits certain activity and relationships between two or more parties, whereas the Stark Law, in addition to addressing relationships between physicians and another party, also focuses on what is commonly referred to as “physician self-referral,” in that it addresses referrals for designated health services within a physician's own practice.126 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft126) The Stark Law prohibits physicians from being compensated for services in their own practice, or as a member of a group practice, where such compensation is related, directly or indirectly, to the volume or value of referrals for designated health services, even if those ancillary services are performed within the medical practice.127 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft127)

The following chart sets out the anti-kickback statute's safe harbor regulations and the Stark Law's exceptions, which address similar �inancial relationships, highlighting the similarities and differences between the two.

There are several safe harbors to the anti-kickback statute that do not have corresponding exceptions to the Stark Law. These exceptions are as follows:

• Warranties—Buyers must report any price reduction on the cost report or claim and must provide the secretary, upon request, the warranty information provided by the manufacturer or supplier. Manufacturers and suppliers must report the price reduction of the item on the invoice or statement submitted to the buyer and must not pay any remuneration to any individual or entity for any medical, surgical, or hospital expense incurred by a bene�iciary other than for the cost of the item itself.146 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft146)

• Discounts—If the entity reports the costs on a required cost report, discounts are not prohibited if the discount is earned based on goods and services bought within a single year; the buyer claims the

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discount in the year earned or the following year; the buyer reports the discount; and the buyer provides, upon request, information provided by the seller. If the buyer is an HMO or CMP, then there is no need to report the discount except as provided under the risk contract. For all other entities, discounts are not prohibited if they are made at the time of the sale or service; the buyer reports the discount when the item is separately reimbursed; and the buyer provides, upon request, any information provided by the seller.147 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft147)

• Payments to Group Purchasing Organizations (GPOs)—These payments are not prohibited if there is a written agreement for which items and services are furnished and the agreement contains certain speci�ications. Where the entity receiving the goods or services is a healthcare provider, the GPO must disclose in writing the amount received from each vendor with respect to purchases made by or on behalf of the entity.148 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft148)

• Waiver of Bene�iciary Deductible and Co-Insurance Payments for Inpatient Hospital Services Under the Prospective Payment Plan—The hospital must not claim the amount reduced or waived as a bad debt for payment purposes, and it must offer the waiver without regard to the length of stay or diagnosis-related group for which the claim is �iled. The waiver must not be made as part of a price reduction agreement between the hospital and third-party payer, unless the agreement is part of a contract for items or services under a Medicare supplemental policy.149 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft149)

• Increased Coverage, Reduced Cost-Sharing Amounts, or Reduced Premium Amounts Offered by Health Plans—Risk-based HMOs, CMPs, and prepaid plans must offer the same increased coverage, reduced cost-sharing, or premium to all enrollees. If the health plan is not risk-based then the plan must not claim the cost as a bad debt for payment purposes.150 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft150)

• Price Reductions Offered by a Contract Healthcare Provider to Health Plans in a Written Agreement for the Sole Purpose of Furnishing Covered Items or Services—The contract healthcare provider must not claim payment in any form from the department or the state agency for items or services furnished in accordance with the agreement except as approved by CMS or the state healthcare program, or otherwise shift the burden of such an agreement to the extent that increased payments are claimed from Medicare or a state healthcare program.151 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft151)

• Arrangements for Ambulatory Surgical Centers (ASCs) to Cover Payments Received from Investments in Medicare-Certi�ied ASCs—Certain joint ventures and the ownership of ASCs are permitted between various physicians as well as certain physicians and hospitals. Certain other requirements must be met in order to �it with the safe harbor.152 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft152)

• Referral Agreements for Specialty Services—Referral agreements for specialty services allow physicians to agree to refer a patient to the other party for the provision of specialty services covered by a Medicare or a state healthcare program in return for an agreement by the other party

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to refer that patient back at a mutually agreed-upon time or circumstance as long as the four standards listed are met.153 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft153)

• Cooperative Hospital Service Organizations (CHSOs)—Cooperative hospital service organizations (CHSOs) protect payments made between a tax-exempt CHSO and its tax-exempt patron hospital, where the CHSO is wholly owned by two or more patron hospitals, as long as payments from the patron hospital are for the purpose of paying for the bona �ide operating expenses of the CHSO; or if the CHSO makes a payment to the patron hospital, the payments are for the purpose of paying a distribution of net earnings as required by the IRS.154 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft154)

Similarly, there are several exceptions to the Stark Law that do not have corresponding anti-kickback statute safe harbors. These exceptions are as follows:

• Physicians' Services—Ownership and compensation arrangement prohibitions do not apply to physicians' services provided personally by another physician in the same group practice as the referring physician.155 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft155)

• Prepaid Plans—Ownership and compensation arrangement prohibitions do not apply to services furnished to an individual enrolled in the organization if the services are furnished by an organization with a contract under § 1876 and described in § 1833(a)(1)(A). The prohibitions do not apply to services furnished to an individual enrolled in the organization if the organization is receiving payments on a prepaid basis.156 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft156)

• Hospital Ownership—A prohibited ownership or investment interest does not include designated health services provided by a hospital if the referring physician is authorized to perform services at the hospital and the ownership or investment interest is in the hospital itself (and not merely in a subdivision of the hospital).122 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft122)

• Hospitals in Puerto Rico—A prohibited ownership or investment interest does not include designated health services provided by a hospital located in Puerto Rico.157 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft157)

• Remuneration Unrelated to the Provision of Designated Health Services—A prohibited compensation arrangement does not include remuneration that is provided by a hospital to a physician if such remuneration does not relate to the provision of designated health services.158 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft158)

• Certain Group Practice Arrangements with a Hospital—A prohibited compensation arrangement does not include an arrangement between a hospital and a group under which designated health services are provided by the group but are billed by the hospital if the requirements listed in the statute are met.159 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft159)

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• Payments by a Physician for Items and Services—A prohibited compensation arrangement does not include payments made by a physician to a laboratory in exchange for the provision of clinical laboratory services, or to an entity as compensation for other items or services if the items or services are furnished at a price that is consistent with fair market value.160 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft160)

• Academic Medical Centers—A prohibited compensation arrangement does not include payments to faculty of academic medical centers that meet certain conditions. These conditions, listed in the rule, ensure that the arrangement poses essentially no risk of fraud or abuse.161 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft161)

• Fair Market Value—Certain compensation relationships that are based on fair market value are not prohibited. This exception is available for compensation arrangements between an entity and either a physician or any group of physicians as long as the compensation arrangement meets the requirements set out in the rule.162 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft162)

• Nonmonetary Compensation up to $300—A prohibited compensation arrangement does not include noncash items or services that have a relatively low value and are not part of a formal written agreement, as long as the items or services do not exceed $50 per gift and an aggregate of $300 per year. The compensation must also be made available to all similarly situated individuals, regardless of whether these individuals refer patients to the entity for services. The compensation must not be determined in any way that would take into account the volume or value of the physician's referrals to the entity.163 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft163)

Healthcare attorneys have debated whether it would be enough to meet an exception to the Stark Law to be protected from prosecution under the anti-kickback statute, even if the relationship at issue did not meet one of the safe harbors. In the preamble to Phase I of the �inal regulations governing the Stark Law (the Final Rule), the Center for Medicare and Medicaid Services (CMS) makes fairly clear that it believes that compliance with a Stark Law exception is not enough to protect a relationship under the anti- kickback statute. It repeatedly states that relationships that are permitted under the Stark Law could still be a violation of the anti-kickback statute and “may merit prosecution,” although it points out that the conduct prohibited by the Stark Law may not violate the anti-kickback statute.164 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft164) CMS goes on to state that the Stark Law “provides only a threshold check against fraud and abuse,” but relationships still may involve an impermissible kickback.165 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft165)

Several of the Stark Law exceptions require compliance speci�ically with the anti-kickback statute or compliance with one of its safe harbors. The following are some of the Stark Law's exceptions that CMS discusses in the Phase I and Phase II Final Rules in relation to the anti-kickback statute:

• Indirect Compensation Exception—This exception to the Stark Law, created in the Phase I Final Rule, protects compensation arrangements in which there is at least one entity between the referring physician and the entity providing the designated health service. One of the elements of this exception is that the arrangement cannot violate the anti-kickback statute.166 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft166)

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• Employment Exception—One of the requirements for the employment exception is that employees' compensation not vary with the volume or value of referrals made to the employer. CMS states that if the relationship otherwise complies with the requirement of the exception, the fact that the employer requires referrals to certain providers will not vitiate the exception, so long as certain other requirements are made. CMS goes on to speci�ically “caution that these mandatory arrangements could still implicate the anti-kickback statute, depending on the facts and circumstances.”167 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft167)

• Lease and Personal Services Exceptions—In the Phase I Final Rule, CMS states its approval of lease and personal services arrangements in which the payment to or by the physician is on a per-use basis, rather than a �ixed monthly, annual, or similar fee. CMS states that its opinion would not change even if the physician is generating referrals. CMS points out, however, that these arrangements may violate the anti-kickback statute. Obviously, this would be particularly true if per- use payments vary with the volume or value of the physician's referrals.168 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft168)

• Professional Courtesy Exception—CMS permits the provision of free or discounted healthcare items or services to a physician or his or her immediate family members or staff. Among the several conditions discussed in the Phase II Final Rule applicable to this exception is the requirement that the professional courtesy arrangement not violate the anti-kickback statute.169 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft169)

• Durable Medical Equipment Exception—As part of the in-of�ice ancillary services exception, CMS permits the dispensing of certain durable medical equipment (DME) by physicians in their of�ices for patients to use in their homes. CMS speci�ically points out that the arrangement may not violate the anti-kickback statute. CMS discusses speci�ically the issue of the DME company using consignment closets in the physician's of�ice. This is a situation in which the DME company provides the physician with the DME at no cost. The physician does not pay for the DME until she dispenses it. CMS states, with regard to consignment closets, that the DME “raise signi�icant questions” under the anti-kickback statute.170 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft170)

• Fair Market Value Exception—CMS created an exception in the Phase I Final Rule for compensation arrangements between an entity and a physician for services provided by the physician to the entity. This is one of the exceptions that speci�ically requires, among other things, that the relationship either (1) meet a safe harbor to the anti-kickback statute, (2) not violate the anti-kickback statute, or (3) be “approved by the OIG pursuant to a favorable advisory opinion.”171 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft171)

• Charitable Donations Exception—The Phase II Final Rule created an exception for charitable donations made by a physician to a DHS entity. In order to qualify for the exception, donations must be made to a tax-exempt organization, may not take into account the volume or value of referrals, and cannot violate the anti-kickback statute.172 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft172)

• Medical Staff Incidental Bene�its—Another exception created by the Phase I Final Rule pertains to incidental bene�its provided by a hospital to its medical staff members. These incidental bene�its must be of low value. Once again, CMS points out that any such relationship also should be reviewed

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to ensure compliance with the anti-kickback statute. This includes professional courtesy discounts.173 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft173)

• Services Provided to Hospitals “Under Arrangement”—In the Phase I Final Rule, CMS discusses a comment that suggested a special exception be created for compensation related to services provided to a hospital “under arrangement.” CMS declines to create such a special exception because of signi�icant issues under the anti-kickback statute associated with services rendered to a hospital under arrangement. CMS states that it will monitor such relationships for abuse and that they remain subject to the anti-kickback statute.174 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft174)

Based on the above, it is clear that CMS does not believe that compliance with the Stark Law would necessarily mean compliance with the anti-kickback statute or protect parties from prosecution under the anti-kickback statute. Although CMS does not enforce the anti-kickback statute directly, the Final Rule was approved by the OIG prior to publication and, therefore, undoubtedly re�lects the OIG's opinion on this issue as well. Consequently, this counsels healthcare providers in �inancial relationships with referral sources or providers to whom they refer to carefully review the implications for the relationships under both the Stark Law and the anti-kickback statute.

False Claims Act

The Civil False Claims Act (FCA) was originally enacted in 1863 and amended signi�icantly in 1986. Liability under the FCA is statutory and requires showing that one of the relevant statutory provisions has been violated. In recent years, the FCA increasingly has been employed in matters of healthcare fraud. This is due, in part, to the greater awareness and publicity of fraud and abuse in the healthcare system, which brings forth individuals who serve as qui tam relators (whistle-blowers). The penalty structure of the FCA provides penalties for each claim.175 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft175) This makes the FCA especially favorable in healthcare cases where providers typically submit thousands of claims, accruing high FCA penalties. The federal government, previously hostile to qui tam actions, has become more solicitous of such cases. This change is likely due to a recognition that detection and investigation of complex frauds, such as healthcare fraud, requires “insiders” who can provide detailed information about the facts and participants. Qui tam relators are a good source of insiders. Additionally, it makes sense for prosecutors to use the FCA instead of criminal prosecution because it is more dif�icult to prove intentional commission of healthcare fraud. Not only is the burden of proof less in an FCA case (preponderance, rather than beyond a reasonable doubt), but the mens rea requirement (knowing, reckless disregard for the truth, deliberate disregard of the truth) is less than “willfulness,” which must be proven for many criminal causes of action.

In 2007, a bipartisan bill entitled the False Claims Correction Act that would make sweeping changes to the FCA was proposed to Congress. That legislation is the result of concern among legislators that court decisions in recent years, many of which are discussed in the following sections, have weakened the FCA and impaired its usefulness in �ighting fraud. The False Claims Correction Act would expand liability under the FCA by broadening the pool of potential whistle-blowers, increasing the statute of limitations, reducing the pleading requirements under the FCA, and expanding the money sources subject to the FCA, among other things. Though the bill has not yet passed in either house, its existence is representative of the tension between Congress, who would like to see a broadening of liability under the FCA, and the courts, who have demonstrated in recent decisions a general trend toward limiting the FCA's reach.

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Liability under the FCA arises under one or more of seven subsections of 31 U.S.C. § 3729(a), although not all are applicable to most medical practices.176 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft176)

Section 3729(a)(1)

Section 3729(a)(1) is one of the most commonly cited sources of liability under the FCA, and provides that “[a]ny person who knowingly presents, or causes to be presented, to an of�icer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval…is liable to the United States Government.” Most courts have ruled that the essential elements to a cause of action under § 3729(a)(1) include the presentation of a claim for payment or approval to the United States government, falsity or fraudulence of the claim, and knowing presentation of the claim.

Courts are split over whether an additional element, damages, is required to prove liability under § 3729(a)(1). The majority of courts have held that the plaintiff need not prove damages under this section of the FCA. However, many of these courts, �inding no need for speci�ic proof of damages, apparently do consider the fact that indirect costs are imposed on the US Treasury by false or fraudulent claims. Although some argue that the plain language of the FCA supports those courts �inding that damages are a required element (e.g., in setting out the burden of proof, § 3731(c) refers to damages as a required element), a number of courts have ruled otherwise. The Supreme Court has yet to decide this issue. As a matter of policy, the imposition of signi�icant penalties in cases for which no economic damages were suffered by the federal government raises serious questions about whether the nature of the statute is transformed into a punitive, rather than remedial, law.

Section 3729(a)(2)

Section 3729(a)(2) provides that any person who “knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; is liable to the United States Government.” For liability to be imposed under § 3729(a)(2), each of the elements of § 3729(a)(1) must also be proven. The relator or government must also demonstrate that a false claim was knowingly presented to the government for payment. The overlap between §§ 3729(a)(1) and (2) is signi�icant. Section 3729(a)(2) may theoretically give rise to greater liability if, for example, numerous false records are made to support a single false invoice to the government. Only the single invoice is subject to liability under § 3729(a)(1), but the underlying records supporting the false claim are arguably individual sources of liability under § 3729(a)(2). In practice, however, courts have almost universally found that penalties are imposed only for each payment demand, rather than for each false document supporting the false claim.

Section 3729(a)(3)

Section 3729(a)(3) imposes liability on any person who conspires to defraud the government by obtaining approval or payment for a false or fraudulent claim. To prove a violation of § 3729(a)(3), the government or relator must demonstrate a false or fraudulent claim to the United States, payment or approval by the government, an agreement to submit the false claim, an act in furtherance of the agreement, and intent to defraud. Unlike §§ 3729(a)(1), and (2), § 3729(a)(3) requires speci�ic intent to defraud the government. The clear language of the statute provides that the claim must be “allowed or paid.” Most courts have noted correctly that damages are a required element of liability under § 3729(a)(3). Proof of all the

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elements necessary to impose liability under this provision must be proven by a preponderance of the evidence.

Section 3729(a)(7)

Section 3729(a)(7), referred to as the “reverse false claim” provision of the FCA, provides liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.” The reverse false claim provision is the newest basis for liability under the FCA, adopted in 1986 because of a con�lict in the case law as to whether false statements that resulted in loss to the government were actionable under the pre-1986 FCA in the absence of an af�irmative claim for payment. To recover under subsection (a)(7), the government or relator must prove that: (1) an obligation exists to pay money to the United States; (2) a false statement was made; (3) the defendant “knew” (under Section 3729 [c]) that the statement was false; (4) the statement was intended to, and did, avoid, conceal, or decrease the obligation; and (5) this caused some direct �inancial impact on the federal treasury. Alleged reverse false claims violations have been the source of signi�icant litigation since the 1986 amendments to the FCA.

Standards for Liability

To successfully make out a claim under the FCA, the following elements must be alleged in the complaint: (1) the defendant submitted or caused another person to submit a claim for payment to the federal government; (2) the claim was false or fraudulent and/or the defendant made or used a false or fraudulent record or statement to obtain payment or approval of the false or fraudulent claim; and (3) the person submitting the claim had actual knowledge of its falsity, or acted in reckless disregard of its falsity.177 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft177) The two most hotly debated elements of the FCA claim are in the areas that deal with the “falsity” of the claim and “knowledge” requirements.

“Knowingly,” for purposes of the FCA, means that a person, with respect to information, either “has actual knowledge of the information,” “acts in deliberate ignorance of the truth or falsity of the information,” or “acts in reckless disregard of the truth or falsity of the informa-tion.”178 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft178) No proof of speci�ic intent to defraud is required to make out a case.

A 1998 Justice Department memorandum concerning the handling of healthcare false claims cases listed a series of factors that should be evaluated in determining whether a claim was made “knowingly.” The memorandum included the following factors:

• Notice to the provider—Was the provider on actual or constructive notice, as appropriate, of the rule or policy upon which a potential case would be based?

• The clarity of the rule or policy—Under the circumstances, is it reasonable to conclude that the provider understood the rule or policy?

• The pervasiveness and magnitude of the false claims—Is the pervasiveness or magnitude of the false claims suf�icient to support an inference that they resulted from deliberate ignorance or intentional or reckless conduct rather than mere mistakes?

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• Compliance plans and other steps to comply with billing rules—Does the healthcare provider have a compliance plan in place? Is the provider adhering to the compliance plan? What relationship exists between the compliance plan and the conduct at issue? What other steps, if any, has the provider taken to comply with billing rules in general, or the billing rule at issue in particular?

• Past remedial efforts—Has the provider previously on its own identi�ied the wrongful conduct currently under examination and taken steps to remedy the problem? Did the provider report the wrongful conduct to a government agency?

• Guidance by the program agency or its agents—Did the provider directly contact either the program agency (e.g., CMS) or its agents regarding the billing rule at issue? If so, was the provider forthcoming and accurate, and did the provider disclose all material facts regarding the billing issue for which the provider sought guidance? Did the program agency or its agents, with disclosure of all relevant, material facts, provide clear guidance? Did the provider reasonably rely on such guidance in submitting the false claims?

• Prior audits—Have there been prior audits or other notice to the provider of the same or similar billing practices?

• Other information—Is there any other information that bears on the provider's state of mind in submitting the false claims?179 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft179)

As discussed above, recent court decisions interpreting the FCA have demonstrated a generalized trend toward narrowing the scope of liability under the act. One of the cases in which this trend is apparent is Rockwell International Corp. v. United States ex rel. Stone,180 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft180) which involved the FCA's mandate that a relator be the “original source of the information.”181 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft181) The relator's knowledge, according to the FCA, cannot come from public sources such as criminal, civil, or administrative hearings, audits, investigations, or the news media. Rather, the FCA requires that the original source have “direct and independent knowledge of the information on which the allegations are based.”

In its lengthy opinion in Rockwell, the Supreme Court de�ined the “direct and independent knowledge” requirement. Prior to the Rockwell decision, the circuit courts were split as to whether the FCA required knowledge of actual facts about the fraud, or merely knowledge of the fraud alleged in the original complaint, whether or not those allegations ultimately prevailed. The Supreme Court held that the “direct and independent knowledge” requirement applies at every stage of the case and is not limited to the allegations in the original complaint. Therefore, according to the Court, the relator must have independent knowledge of the allegations in each amended complaint, including those in the pretrial order. The practical effects of Supreme Court's decision in Rockwell are signi�icant, and restrict not only whistle- blower candidates under the FCA, but also the scope of recovery which a whistle-blower may be entitled to.182 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft182)

In a unanimous decision, the Supreme Court in Allison Engine Co. v. United States ex rel. Sanders,182 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft182) issued another major opinion signi�icantly limiting liability under the FCA. That case involved an FCA claim in which the relators did not

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introduce any evidence that Allison Engine's claims were ever submitted to the federal government for payment. Instead, the relators argued that Allison Engine violated the False Claims Act because the shipyard used government funds to pay the invoices. The district court concluded that the relator's evidence was legally insuf�icient because false claims were never presented to the government.

The Sixth Circuit reversed the district court and held that Allison Engine violated the False Claims Act because the use of government funds to pay the invoices was suf�icient to establish liability under the FCA. This holding con�licted with the decision in United States ex rel. Totten v. Bombardier Corp.183 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft183) The Supreme Court granted certiorari to resolve the con�lict and decide what a plaintiff must prove regarding the relationship between the making of a “false record or statement” and the payment or approval of a “false or fraudulent claim…by the Government.”184 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft184) The United States participated in the Supreme Court appeal as amicus.185 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft185) In Allison Engine, the Supreme Court held that a plaintiff suing under the False Claims Act must prove that the defendant intended that the false statement be material to the government's decision to pay or approve the false claim. Thus, in order to successfully establish False Claims Act liability, a plaintiff cannot merely show (as had been allowed in several circuits) that a false claim was ultimately paid with government funds or that the false statement's use resulted in obtaining or getting payment or approval of the claim. This change in the requisite burden of proof represents a signi�icant departure from past precedent and will make False Claims Act cases much harder for plaintiffs to successfully prosecute.

Finally, in K & R Partnership v. Massachusetts Financing Agency,186 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft186) the United States Circuit Court for the District of Columbia further narrowed the scope of FCA liability. In that case, the court relied on the Supreme Court's decision in Safeco Insurance Co. v. Burr,187 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft187) a non-FCA case, to de�ine “reckless disregard” under the FCA. In Safeco, a case involving the Fair Credit Reporting Act, the Supreme Court held that “reckless disregard” was an objective standard, and could not be met in cases where the text of a statute is ambiguous, no authoritative guidance has been given on it, and the defendant's interpretation was reasonable.188 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft188)

In K & R, the relator alleged that MassHousing, an organization that assists low-income families in obtaining housing, overbilled the Department of Housing and Urban Development in the amount of $28 million by certifying in its claims that interest reduction payments were calculated in accordance with interest rates established in mortgage notes. The court concluded that the mortgage notes were ambiguous because changes in its debt service varied the interest rates therein. The court, applying the Supreme Court's analysis in Safeco, concluded that MassHousing's interpretation of an ambiguous requirement was reasonable, and as such, the reckless disregard requirement had not been met.189 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft189) More summary dispositions in FCA cases involving ambiguous requirements and (unless the proposed amendments to the FCA discussed above are successfully adopted) further limitations on liability under the FCA is expected as a result of these and other important decisions interpreting the act.

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Three Major Categories of FCA Cases

FCA cases fall into one of three major categories—“classic” false claims, “standard of care” false claims, and “tainted” claims.

Classic FCA Cases

Classic false claims occur when reimbursement is being requested for services that either were never provided, were not provided as claimed, were not provided by the individual whose provider number appears on the reimbursement form, or were duplicate claims for the same service. Under these circumstances, “[n]o certi�ication, implied or otherwise, is necessary when the liability stems from the [defendants' activities of billing for procedures which they did not perform. This would plainly constitute fraud.”190 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft190) These “classic” false claims are re�lected in the following cases.

In United States v. Krizek, the United States �iled suit against George Krizek, a psychiatrist, and his wife, Blanka Krizek, for violations of the civil FCA. The government alleged that between 1986 and 1992, Dr. Krizek submitted 8,002 false or unlawful requests for reimbursement in an amount exceeding $245,392. The government alleged that the Krizeks “upcoded” the reimbursement requests; that is, they billed the government for more extensive services than were, in fact, rendered.191 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft191)

The court found that because of a “seriously de�icient” system of record keeping, the Krizeks “submitted bills for 45–50 minute psychotherapy sessions…when Dr. Krizek could not have spent the requisite time providing services, face-to-face, or otherwise.”192 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft192) For instance, on some occasions within the seven-patient sample, Dr. Krizek submitted claims for more than 21 hours of patient treatment within a 24-hour period.193 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft193) The court stated, “While Dr. Krizek may have been a tireless worker, it is dif�icult for the Court to comprehend how he could have spent more than even ten hours in a single day serving patients.”194 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft194) The court stated that these false statements were not “mistakes” nor merely negligent conduct. Under the statutory de�inition of “knowing” conduct the Court is compelled to conclude that the defendants acted with reckless disregard as to the truth or falsity of the submissions. As such, they [were] deemed to have violated the False Claims Act.195 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft195)

Accordingly, both Dr. Krizek and his wife, Blanka Krizek, were found to have violated the FCA. The court remanded the case back to the circuit court for a recalculation of damages consistent with its written decision.196 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft196)

In United States v. Cabrera-Diaz, Dr. Cabrera, a physician, provided anesthesia services to patients. Anesthesia services are covered services under Medicare Part B. As Dr. Cabrera's Part B carrier, Triple S, Inc. conducted a postpayment audit of the claims for anesthesia service provided by Dr. Cabrera to Medicare patients between 1994 and 1995. For statistical purposes, Triple S selected a random sample of

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230 claims �iled by Dr. Cabrera for the year 1994 and 231 claims for the year 1995.197 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft197)

Once a valid random sample was chosen, Triple S requested the hospital medical records associated with those patients in the sample. The medical records of 73 of the patients included in the sample were unable to be produced. Therefore, the entire amount paid to Dr. Cabrera for those 73 claims was considered as an overpayment.198 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft198)

Next, the remaining claim forms were compared to the time reported in the records obtained from the hospital. This audit revealed that Dr. Cabrera had overstated, falsely reported, unsupported, or undocumented the anesthesia time in all but 6 of the 461 sampled claims. In 1994, looking only at the sample data, Dr. Cabrera billed for 99,270 minutes of anesthesia time, when the evidence provided to Triple S supported only 21,371 minutes, for a difference of 77,899 minutes. In 1995, again using only the sample data, Dr. Cabrera billed for 90,930 minutes of anesthesia time, when the evidence provided to Triple S supported only 20,987 minutes, for a difference of 69,943 minutes.199 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft199)

The amount overpaid to Dr. Cabrera based on the overstated, falsely reported, undocumented, or unsupported anesthesia time was $75,338.75 in 1994 and $56,448.99 in 1995, on the sampled claims only.200 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft200) The results of the audit were then extrapolated to the universe of claims paid to Dr. Cabrera for the years 1994 and 1995. The result was an estimated overpayment to Dr. Cabrera of $237,600.39 for the year 1994 and $211,773.89 for 1995.201 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft201)

Equally important, the audit revealed that in all but six (455 of the 461) of the sampled claims the anesthesia time had been overstated, falsely reported, unsupported, or undocumented. The court found that these results were enough to demonstrate that Dr. Cabrera had either actual knowledge or constructive knowledge of the falsity, in that he acted in reckless disregard of the truth.202 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft202)

Dr. Cabrera failed to appear, answer, plead, or otherwise defend this case more than 120 days after receiving personal notice. As a result, the court entered a default judgment against Dr. Cabrera for treble damages in the amount of $1,348,122.80.203 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft203)

In United States v. Mackby, Peter Mackby was the owner and managing director of a physical therapy clinic called Asher Clinic. Asher Clinic's operations included treatment of Medicare Part B bene�iciaries. After a 3-day bench trial, the district court found that Mackby knowingly caused false claims to be submitted to Medicare between 1992 and 1996 in violation of the FCA.204 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft204)

Medicare pays for physical therapy services under Part B “when rendered by a physician, by a quali�ied employee of a physician or physician-directed clinic, or by a quali�ied physical therapist in independent practice.”205 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft205) A physical

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therapist in independent practice (PTIP) is de�ined in relevant part as one who “renders services free from the administrative and professional control of an employer such as a physician, institution, agency, etc.”206 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft206) Medicare caps the amount it will pay a PTIP on behalf of any one Medicare bene�iciary in any calendar year. From 1992 through 1993, the limit was $750 per year. From 1994 through 1996, the limit was $900 per year.207 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft207) There is no payment limit on physical therapy services furnished by or under the supervision of a physician or incident to a physician's services.

In 1982, defendant Peter Mackby formed a partnership with Michael Leary, a licensed physical therapist, for the purposes of owning and operating Asher Clinic. Subsequent to the formation of the partnership, Asher Clinic billed Medicare Part B for services provided to Medicare patients by various physical therapists employed by Asher Clinic, using Leary's provider identi�ication number (PIN). Consequently, Medicare checks were sent to Asher Clinic made payable to Michael Leary, RPT.208 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft208)

In June 1988, Mackby purchased Leary's interest in the clinic. He incorporated the clinic under the name M1 Enterprises, and became its sole of�icer and shareholder. Mackby, a nonprofessional, did not provide any physical therapy or other services to patients.209 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft209) After taking complete control of the clinic, Mackby directed Medicom, the clinic's billing service, to substitute the PIN of his father, Dr. Judson Mackby, for Leary's PIN on the clinic's Medicare Part B claims. Mackby also told Maridy Barnett, the clinic's of�ice manager, to use his father's PIN in billing third-party payers, including Medicare.210 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft210) The court found that Dr. Mackby did not know that his PIN was being used by Asher Clinic to bill Medicare for physical therapy services. It is undisputed that Dr. Mackby never provided medical services at or for Asher Clinic, never referred any patients to the clinic, and was never involved with the care or treatment of its patients.211 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft211) For approximately eight years, Asher Clinic submitted claims to Medicare for physical therapy services using Dr. Mackby's PIN. Medicare reimbursement checks were made payable to “M. Judson Mackby, MD” and sent to the Asher Clinic address. Asher Clinic used a rubber endorsement stamp containing Dr. Mackby's name to endorse and deposit Medicare payments to its bank account.212 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft212)

Dr. Mackby's PIN was inserted in boxes 24k and 33 on the Asher Clinic forms. Although the purpose of box 24k is not speci�ied on the form itself, Medicare bulletins sent to Asher Clinic state that the box is to be used for the PIN of the performing physician or supplier. Placing Dr. Mackby's PIN in box 24k indicated that Dr. Mackby was the performing physician or supplier and therefore constituted a false statement. Box 33 is clearly labeled as requiring the PIN or group number of the physician or supplier providing the treatment, and Dr. Mackby was neither of these. Therefore, placing his PIN number in this box was a false statement as well.213 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft213)

The court found that by instructing Medicom, Asher Clinic's Medicare billing service, and Ms. Barnett, Asher Clinic's of�ice manager, to use Dr. Mackby's PIN, Peter Mackby “caused” the claims to be submitted

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to Medicare. In doing so, he caused the claims to be submitted with false information.214 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft214)

Finally, the court found an obligation on the part of Mackby to be familiar with the legal requirements for obtaining reimbursement from Medicare for physical therapy services, and to ensure that the clinic was run in accordance with all laws. By breaching this obligation, he acted in reckless disregard or in deliberate ignorance of those requirements, either of which was suf�icient to charge him with knowledge of the falsity of the claims in question. (See Krizek earlier in this section, where failing “utterly” to review false submissions prepared by his wife, the doctor acted with reckless disregard.215 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft215) )

There have certainly been additional “classic” FCA cases since the decisions discussed above. However, these remain representative of the typical “classic” false claim and how cases involving such claims are resolved in the courts.

Standard of Care FCA Cases

The second major category of cases includes those where the Medicare Part B services were in fact provided, but the quality of care involved in the procedure is alleged to fall below that required by the Medicare program. These claims are premised on implied false certi�ication of compliance with applicable standards of care, and are therefore called “standard of care” false claims. They are displayed in the following cases:

In United States ex rel. Aranda v. Cmty. Psychiatric Ctrs. of Okla., Inc.,216 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft216) the government brought an FCA action on behalf of a psychiatric patient who was under the care of the defendant. The government alleged that the defendant knowingly failed to provide a reasonably safe, secure, and quality environment for its residents and yet impliedly certi�ied that it did by way of submitting bills to Medicare when it had previously agreed to abide by all statutes, rules, and regulations required under the Medicare programs.217 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft217) The hospital submitted a motion to dismiss, which was denied by the court, stating that the failure of the hospital to meet recognized professional standards could conceivably constitute an FCA violation.218 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft218) Thereafter, the case was settled and the government's theory was never challenged on a fully developed set of facts.

In United States ex. rel Luckey v. Baxter Healthcare Corp., a qui tam action was brought by the plaintiff, a former laboratory technician, against her former employer (Baxter).219 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft219) The plaintiff alleged that she had communicated to Baxter that its failure to test colorless blood plasma samples for saline contamination created a risk of inaccurate results that were later transmitted to the Food and Drug Administration (FDA). Raising an implied certi�ication theory, the plaintiff argued that Baxter's noncompliance with the regulatory standard of care put the defendant in violation of federal statutes and regulations.220 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft220) In effect, the plaintiff argued that every time the defendant submitted a claim to the federal government, it impliedly claimed adherence to those regulations, and therefore, its claims were necessarily fraudulent.

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The court declined to accept this argument stating that “[e]quating ‘imperfect tests' with ‘no tests' would strain language past the breaking point.”221 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft221) In addition, according to the record, there was no indication that the government was anything less than 100% satis�ied with the product or the representations made in relation to the sale.222 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft222) Moreover, there is nothing in the record to even suggest that Baxter had the required intent to deceive the government.223 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft223) The record simply indicates that there is a dispute as to “whether Baxter's testing protocols could be improved.”224 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft224) Accordingly, the court granted Baxter's motion for summary judgment.

In United States ex rel. Mikes v. Straus, a qui tam action was brought by a former physician employee (the relator) of defendant Straus' medical group practice. The relator alleged that Straus violated the FCA by submitting Medicare payments for spirometry tests, which did not meet the standard of care. It was alleged that the defendant knew the machinery was not calibrated correctly and yet nonetheless conducted and billed the federal healthcare program for the tests. Therefore, the relator alleged that all Medicare claims amounted to false claims under the FCA.225 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft225) The district court, on the defendant's motion, entered summary judgment for the defense stating that FCA liability pertaining to certi�ication of compliance with regulatory and industry standards could only exist, as a matter of law, where “the claimant's adherence to the relevant statutory or regulatory mandates lies at the core of its agreement with the Government….”226 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft226)

The district court determined that the relator failed to establish that Medicare reimbursement was in any way tied to compliance with § 1320c-5(a) of the Social Security Act (SSA). Essentially, the court adopted the Luckey analysis and declined to follow the Aranda court's rationale.

The district court's decision to grant summary judgment was af�irmed on appeal.227 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft227) In evaluating the relator's claim of implied false certi�ication, the circuit court construed § 1395y(a)(1)(A) together with § 1320c-5(a). Section 1395y(a)(1)(A) of the Medicare statute states that “no payment may be made under [the Medicare statute] for items or services which…are not reasonable and necessary.…” Because there is an express condition of payment—that is, “no payment may be made”—it explicitly links Medicare payments to the requirement that the particular item or service be “reasonable and necessary.”228 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft228) Accordingly, defendants' submission of the claim forms implicitly certi�ied the procedure as “reasonable and necessary.”

On the other hand, § 1320c-5(a) contains no such express condition of payment. Instead, § 1320c-5(a) simply states that “it shall be the obligation” of a practitioner who provides a medical service “for which payment may be made…to assure” compliance with the section. Therefore, § 1320c-5(a) appears to act prospectively, setting forth obligations for a provider to be eligible to participate in the Medicare program.229 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft229)

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Accordingly, the court reasoned that § 1320c-5(a) is a condition of participation in the Medicare program. Because § 1320c-5(a) does not expressly condition payment on compliance with its terms, defendants' certi�ications on the CMS-1500 forms are not legally false. Consequently, defendants did not submit impliedly false claims by requesting reimbursement for tests that allegedly were not performed according to the recognized standards.230 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft230)

Alternatively, the relator alleged that the defendant violated the FCA by submitting claims for worthless services. A worthless services claim is a distinct claim that alleges that the services provided were so lacking that, for all practical purposes, they are equivalent to no performance at all.231 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft231)

The court stated that the “requisite intent is the knowing presentation of what is known to be false,” not simply the result of negligence or an innocent mistake.232 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft232) Mere allegations that the defendant submitted Medicare claims knowing they did not conform to the ATS guidelines were alone insuf�icient to satisfy the standard for a worthless services claim. The idea of presenting a claim known to be false does not mean the claim is incorrect as a matter of accounting, but rather that it is a lie.233 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft233)

Overwhelming evidence of the defendant's genuine belief that its services had real medical value caused the court to conclude, as a matter of law, that it did not submit its claims with the requisite scienter. Therefore, the court concluded, there was no triable issue of fact suf�icient to bar summary judgment.234 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft234)

In United States ex rel. Swafford v. Borgess Med. Ctr.,235 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft235) Swafford was a registered vascular technologist employed by the defendants. Accordingly, plaintiff participated in venous ultrasound studies ordered by defendant physicians and observed defendants' practices regarding the submission of Medicare/Medicaid reimbursement forms for ultrasounds performed on defendant physicians' patients.

For patients suspected of suffering from risk factors for blood clots, defendant physicians would order a venous ultrasound study. Using ultrasound, the patient's venous system would be examined to determine the presence or absence of certain “normal” characteristics for �ive blood clot risk factors. Typically, the procedure would be performed by either a technician or a technologist, who would then indicate the presence or absence of the �ive factors on a worksheet. The technician/technologist was assigned to determine either the presence or absence of the characteristics, and to indicate either “positive” or “negative” for each factor.236 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft236)

Defendant physicians would review the technician/technologists' worksheet and then prepare a �inal report setting forth their �indings and conclusions. Afterward, defendant physicians signed the following statement prior to submitting the results for reimbursement: “I certify that the services listed above were medically indicated and necessary to the health of this patient and were personally furnished by me or my employee under my personal direction.”237 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft237)

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The plaintiff alleged defendant physicians did not review any hard copy data (videotape results) generated by the studies. Instead, the plaintiff contends the physicians merely reworded the technician's or technologist's “worksheet” to prepare a physician's ultrasound report. Defendant physicians then billed the government for these “interpretations” that, according to the plaintiff, constituted mere plagiarism of the worksheet prepared by the technician/technologist.238 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft238)

The defendants sought summary judgment from the district court claiming that there was no issue of material fact, and that they should prevail as a matter of law. To succeed under an FCA theory, a plaintiff must establish at least three elements: �irst, that the defendant knowingly presented or caused to be presented a claim to the United States for payment or approval; second, that the claim was false or fraudulent; and third, that the defendant knew the claim was false or fraudulent.239 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft239)

The parties did not dispute that the defendants presented “claims” as de�ined under the FCA by submitting CMS-1500 forms seeking reimbursement from Medicare. Therefore, there is no genuine issue of material fact as to the �irst element of the FCA claim.240 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft240)

As to the second element of the FCA claim, the plaintiff argued that the defendants' practices fell short of the standard of care by (1) failing to review the underlying data of the ultrasound studies—the photographs, prints, or videotape of the ultrasounds taken by the technologist/technician; (2) assuming the accuracy of the worksheet information provided by the technician/technologist, a number of whom lack working knowledge of physics; and (3) failing to perform an independent review of the hard copy data, thus increasing the risk of unnoticed interpretative error. Therefore, by submitting claims for reimbursement that represent substandard care, plaintiff argued defendants impliedly presented false claims under the FCA.241 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft241)

The court concluded that the plaintiff could not demonstrate a genuine issue of material fact with respect to false claims under the FCA, even if he could demonstrate the defendants' practice failed to conform to the applicable standard of care.242 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft242) The court agreed with the Seventh Circuit decision in Luckey v. Baxter Healthcare Corp.24 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft24) when it stated that “[e]quating ‘imperfect tests' with ‘no tests' would strain language past the breaking point.” Consequently, the court found no genuine issue of material fact regarding the falsity of the claim.244 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft244)

The court next considered the issue of scienter. To succeed under the FCA, a relator need not demonstrate speci�ic intent to defraud the government. The FCA's scienter requirement, set forth in § 3729(b), requires either “‘actual knowledge' that one is submitting a false or fraudulent claim for payment or approval, acts in deliberate ignorance of the truth or falsity of one's false claim, or acts in reckless disregard of the truth or falsity of the claim.”245 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft245)

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Accordingly, the plaintiff must demonstrate more than mere innocent mistakes or negligence on the part of defendants. Furthermore, “what constitutes the offense is not intent to deceive but knowing presentation of a claim that is either fraudulent or simply false. The requisite intent is the knowing presentation of what is known to be false.”246 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft246)

The plaintiff conceded that on at least three occasions the defendant contacted CMS seeking any “published guidelines” speci�ic to the procedures in dispute. The answer from CMS was that no such published guidelines existed. The court concluded that this evidence demonstrated that defendants evinced concern and investigated the question of what procedures were required to submit a proper claim for reimbursement. Consequently, the court ruled that there was no genuine issue of material fact as to scienter.247 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft247)

Finding no genuine issues of material fact at issue in the case, the court ruled in favor of the defendant's motion for summary judgment. On appeal, the Court of Appeal for the Sixth Circuit af�irmed the lower court decision, �inding no error in the granting of summary judgment.248 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft248)

There have been a number of �ilings since these decisions, most of which have resulted in settlements or remain under seal, but the decisions discussed above are illustrative of typical “standard of care” false claims cases.

Tainted Claim FCA Cases

The third major category of FCA-based improper Medicare Part B reimbursement claims involves patients obtained, and services provided, that result from violations of the federal anti-kickback statute or the federal Stark Law.249 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft249) These cases involve procedures that are billed to

Medicare Part B that are entirely proper except for the fact that the services, and therefore the subsequent claim, was a result of an illegal kickback, remuneration, or self-referral arrangement. These are the so-called “tainted” claims.

In United States ex rel. Pogue v. Am. Healthcorp, Inc.,250 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft250) the plaintiff, Pogue, �iled a qui tam action under the FCA, naming as defendants his former employer, Diabetes Treatment Centers of America (DTCA); American Healthcorp, Inc. (AHC), parent company of DTCA; West Paces Medical Center; �ive individual physicians; and a number of John Doe defendant hospitals and physicians.

The plaintiff alleged that the defendants were involved in a scheme by which individual physicians would refer their Medicare and Medicaid patients to West Paces for treatment in violation of federal anti- kickback and self-referral statutes. As a consequence of these referrals, the plaintiff alleged that defendants caused to be submitted to the government false and fraudulent claims. The plaintiff alleged that these claims are false and fraudulent because, had the government been aware of these violations, defendants would not have been able to participate in the Medicare and Medicaid programs.251 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft251)

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The defendants �iled a motion to dismiss for failure to state a claim upon which relief can be granted. The court ruled that Pogue failed in his complaint to allege either actual damages or that defendants' conduct was fraudulent with the purpose of inducing payment from the government. Consequently, the district court granted the defendants' motion to dismiss.252 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft252)

Upon the plaintiff 's motion for reconsideration, the court vacated its earlier order to dismiss the complaint, holding that the plaintiff need not allege actual damages in order to recover under the FCA and that the plaintiff need not show false claims, but only that the defendants' conduct was fraudulent with the purpose of inducing payment from the government.253 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft253)

The plaintiff, in Pogue, relied on the decision in Ab-Tech Constr., Inc. v. United States,254 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft254) wherein the government brought a counterclaim under the FCA against a company that had been awarded a government contract for construction of a building pursuant to the Small Business Administration's (SBA) program for minority- owned businesses. The purpose of the SBA program was to assist minority-owned businesses in gaining the skill and experience necessary to be competitive in the marketplace. Consequently, the SBA required approval of any management agreement, joint venture, or other agreement relevant to the performance of a subcontract formed under the SBA program. The government alleged that the plaintiff had entered into a �inancial arrangement with a nonminority-owned enterprise without getting SBA approval, and thereby submitted false claims in the form of payment vouchers for services performed. The court agreed, �inding that “the payment vouchers represented an implied certi�ication by [the plaintiff ] of its continuing adherence to the requirements for participation in the [SBA] program.”255 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft255) Stating that the FCA reaches beyond monetary claims that fraudulently overstate the amount due, the court reiterated that the FCA extends “to all fraudulent attempts to cause the Government to pay out sums of money.”256 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft256)

“By deliberately withholding from the SBA knowledge of the prohibited contract arrangement with [the nonminority-owned enterprise], [the plaintiff ] not only dishonored the terms of its agreement with that agency but, more importantly, caused the Government to pay out funds in the mistaken belief that it was furthering the aims of the [SBA] program.” In effect, “the Government was duped” by (the plaintiff 's) active concealment of a fact vital to the integrity of that program. The withholding of such information— information critical to the decision to pay—is the essence of a false claim.257 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft257)

Pogue argued that Ab-Tech governed in his case as well. The payment vouchers at issue in Ab-Tech were not themselves false in that the work was performed according to speci�ications and the government was properly charged. Rather, the court found that the plaintiff 's assertion that he had complied with the regulations governing the SBA program, when in reality he had not, rendered the payment vouchers false. Similarly, Pogue argued that although there is no allegation that defendants overcharged Medicare, or charged it for services not rendered, defendants' failure to comply with Medicare laws prohibiting kickbacks and self-referrals rendered the Medicare claims submitted by defendants false or fraudulent. The court agreed.

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Secondly, Pogue had not alleged that the government suffered any loss due to the defendants' alleged illegal activities. He had not asserted that the alleged kickbacks or self-referral pro�its were improperly included in the claims submitted by defendants to the government, nor any other facts that would suggest that the claims were somehow tainted. Apparently, the government would have paid these healthcare charges regardless of who performed the services and regardless of the reason the patients chose the provider.

Nonetheless, the court in Ab-Tech, and in the related case of United States v. Inc. Vill. of Island Park,258 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft258) found that the defendants had violated the FCA despite a lack of risk to government funds. In Ab-Tech, the court noted that the government had suffered no loss because it still received a building built to its speci�ications.259 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft259) In Island Park, the government would have paid the same amount for subsidized housing regardless of who eventually occupied those homes. In its ruling, the court said that the FCA “is violated not only by a person who makes a false statement or a false record to get the government to pay a claim, but also by one who engages in a fraudulent course of conduct that causes the government to pay a claim for money.”260 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft260) Therefore, Pogue alleged, the FCA clearly prohibits fraudulent acts even if they do not cause a loss to the government.

The court concluded that the FCA was intended to govern not only fraudulent acts that create a loss to the government, but also those fraudulent acts that cause the government to pay out sums of money to claimants it did not intend to bene�it.261 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft261)

Consequently, in order to bring his claim under the FCA, Pogue had to show that defendants engaged in the fraudulent conduct with the purpose of inducing payment from the government. If defendants' fraudulent conduct was not committed with the purpose of inducing payment from the government, that conduct does not operate to taint their Medicare claims and render the claims false or fraudulent under the FCA.262 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft262)

In the present case, Pogue suf�iciently alleged that the government would not have paid the claims submitted by defendants if it had been aware of the alleged kickback and self-referral violations. Thus, Pogue alleged that defendants concealed their illegal activities from the government in an effort to defraud the government into paying Medicare claims it would not have otherwise paid.263 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft263) Thereafter, the court granted Pogue's motion to reconsider and vacated its earlier decision dismissing the case.264 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft264)

The Pogue case was later transferred to the United States District Court for the District of Columbia pursuant to 28 U.S.C. § 1407(a), which provides for transfer of the actions pending in different courts to a single district to permit coordinated or consolidated pretrial proceedings. The defendant in Pogue again raised defenses similar to the ones raised earlier before the United States District Court for the Middle District of Tennessee. The District of Columbia court rejected these defenses and made it clear in its decision that the violation of the Medicare anti-kickback and self-referral laws can form the basis for a violation of the FCA.265 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft265) The

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court's opinion went to great lengths to demonstrate that the “implied certi�ication” theory of liability under the FCA has not been rejected by the other courts. The court concluded that this theory of liability was viable where compliance with laws such as the anti-kickback statute and the Stark Law would affect the government's decision to pay on claims to the Medicare and Medicaid programs.

In United States ex rel. Scott Barrett v. Columbia/HCA Healthcare Corp.,266 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft266) the United States District Court for the District of Columbia followed in the footsteps of the Pogue court ruling that violations of the anti- kickback statute can form the basis of an FCA violation, and reaf�irming its view that implied certi�ication is a viable FCA theory in the DC Circuit.267 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft267) In so ruling, the court stated that the “implied certi�ication of compliance with the statute or regulation alleged to be violated must be so important to the contract that the government would not have honored the claim presented to it if it were aware of the violation.”268 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft268)

In United States ex rel. Thompson v. Columbia/HCA Healthcare Corp.,169 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft169) James M. Thompson, MD, alleged that defendants submitted false or fraudulent claims under the FCA by submitting Medicare claims for services rendered in violation of the Medicare anti-kickback statute, and two versions of a self-referral statute. He further alleged that defendants made false statements to obtain payment of false or fraudulent claims in violation of the FCA by falsely certifying in annual cost reports that the Medicare services identi�ied therein were provided in compliance with the laws and regulations regarding the provision of healthcare services.270 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft270) Speci�ically, Thompson alleged that defendants violated the Medicare anti-kickback statute by inducing physicians to refer Medicare patients to Columbia/HCA hospitals.

On remand from the Fifth Circuit Court of Appeal, the district court denied the defendants' motion to dismiss and motion for summary judgment. First, the court concluded that the plaintiffs had stated a claim for violation of the FCA by the defendants' alleged false certi�ication that the Medicare services identi�ied in the annual hospital cost reports complied with the laws and regulations dealing with the provision of healthcare services. The alleged prohibited �inancial relationships among defendants and referring physicians made the certi�ications false statements. In addition to highlighting express statements in the relevant statutes and CMS form 2552, the plaintiffs provided evidence that CMS relied on the certi�ications in determining the issues of payment and retention of payment as well as continued eligibility for participation in the Medicare program. The evidence established a clear nexus between the certi�ications and the injury to the government.271 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft271)

The second issue is whether the Stark Law's express prohibition on payment for services rendered in violation of its own terms makes such alleged violations actionable under the FCA. The court concluded that it does. The court ruled that Thompson had successfully stated a claim under the FCA for violation of the express terms of § 1395nn of the Stark Laws in alleging that the government was injured by the Columbia defendants' submissions for Medicare payments that they knew they were statutorily prohibited from receiving, because the claims came out of an alleged scheme of illegal self-referrals among the Columbia entities and physicians linked by illicit �inancial relationships. The court agreed with the

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plaintiffs that a pecuniary injury to the public is not required for an actionable claim under the FCA. In addition, the court found additional monetary losses to the government in investigative and administrative costs requiring expenditure of government funds.272 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft272)

The court further found that Thompson had also stated a claim for a violation of the FCA based on the alleged scheme of self-remuneration in violation of the anti-kickback statute, which prohibits the making of any false statements, failing to disclose material information, or making false statements or representations to qualify as a certi�ied Medicare provider in applying for Medicare payments.273 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft273)

Thompson alleged that the explicit certi�ications of compliance with relevant healthcare laws and regulations were false and fraudulent, and provided evidence that the government conditioned its approval, payment, and defendants' retention of payment funds on those certi�ications. The court agreed that Thompson presented evidence of injury to the government and alleged that the government would not have paid the claims submitted by these defendants, in knowing violation of the statutory provisions, had it known of the alleged self-referral and kickback violations, which defendants allegedly concealed from the government.

The Thompson court cited Pogue, concluding that the FCA “was intended to include not only situations in which a claimant makes a false statement or submits a false record in order to receive payment but also those situations in which the claimant engaged in fraudulent conduct in order to receive payment.”274 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft274) Thus, it concluded “that the False Claims Act was intended to govern not only fraudulent acts that create a loss to the government[,] but also those fraudulent acts that cause the government to pay out sums of money to claimants it did not intend to bene�it.”275 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft275) Consequently, the court denied the defendant's motion to dismiss.

In United States ex rel. Barmak v. Sutter Corp., David Barmak brought an FCA claim against defendants alleging that the defendants fraudulently obtained Medicare overpayments by waiving co-payments for sales of continuous passive motion exercisers and related equipment, by forging certi�icates of medical need, and by paying kickbacks to hospitals and doctors for patient referrals.276 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft276) As a result of a six-year investigation by the United States Attorney's Of�ice, the government decided to intervene only on the claims regarding waiver of co-payments.

On the defendant's motion to dismiss, the court ruled that the complaint was so vague and overbroad that it failed to meet the speci�icity requirements of Federal Rules of Civil Procedure 9(b), which state that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”

In addressing the plaintiff 's attempt to claim violations of the anti-kickback statute as a basis for an FCA claim, the court stated that it was “not convinced that a qui tam Plaintiff can use the FCA as a vehicle for pursuing a violation of the anti-kickback statute in this Circuit.”277 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft277) The court went on to state that

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it was “aware that some courts have permitted it, but that it remains a hotly disputed and controversial area of the law.”278 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft278)

First and foremost, the court pointed out that the anti-kickback statute is a criminal felony statute. As such, the court claimed that there is absolutely no private right of action provided, and the statute is to be enforced by the Department of Justice (DOJ). Furthermore, the court stated that it has “no reason to believe, nor have the parties provided any, that Congress intended to subvert the DOJ's exclusive jurisdiction over the anti-kickback statute by grafting the FCA's qui tam provisions onto it.” This is a strong departure from the earlier decisions in Pogue and Thompson. Most importantly, the court indicated that it was “unwilling to presume…that a violation of the anti-kickback statute is ipso facto a violation of the FCA.”279 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft279)

In this particular case, assuming a right of action, the plaintiff failed to plead a causal relation between the violation of the anti-kickback statute and violation of the FCA. As stated by the court, the plaintiffs “have not alleged any certi�ication of compliance with the anti-kickback statute, or that the Government relied on such certi�ication in making payments to Defendants.”280 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft280) Consequently, the court dismissed plaintiff 's claims for illegal kickbacks in violation of the anti-kickback statute.

More recently, in United States ex rel. McNutt v. Haleyville Medical Supplies, Inc.,281 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft281) the Eleventh Circuit held that a violation of the anti-kickback statute can serve as the basis for an FCA claim. In that case, the relator, a former employee, �iled a qui tam against a medical services company alleging that it had submitted to Medicare requests for reimbursement even though it knew it was not eligible for payment. Speci�ically, the relator alleged that the defendant had paid kickbacks camou�laged as rental payments in order to attract referrals from pharmacists and others. The government intervened and argued that the defendants' anti- kickback violations were actionable as false claims because the defendants had certi�ied in their Medicare enrollment agreements that they would comply with the anti-kickback statute and that compliance was a prerequisite to payment. The district court denied the defendants' motion to dismiss and certi�ied for interlocutory appeal the issue of whether a violation of the anti-kickback statute could serve as the predicate for an FCA action.

With little discussion, the Eleventh Circuit accepted the government's argument and concluded that it had alleged suf�iciently that compliance with the anti-kickback statute is a condition of payment, that the defendants were aware of this condition, and had submitted claims “knowing that they were ineligible for the payments demanded.”282 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft282) The court focused not on the certi�ication and its alleged falsehood, but rather the simple fact of submission of a claim by the defendants as forming the basis of an FCA violation. The Eleventh Circuit's holding in McNutt is signi�icant because it suggests that once a provider signs the enrollment certi�ication, it opens itself up to be sued under the False Claims Act for a violation of any Medicare law, regulation, or program instruction at any time. The decision further solidi�ies the idea that violations of the anti- kickback statute or the Stark Law can support claims against providers under the FCA.

Restitution Regarding FCA and Receipt of Referral Fees

In 2001, the Eleventh Circuit reviewed a criminal conviction regarding the district court's decision ordering a physician to pay restitution to Medicare for monies received in exchange for patient referrals in

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violation of the federal anti-kickback statute. The issue on appeal was whether a physician receiving remuneration for making patient referrals should be ordered to pay restitution in the amount of the illegal remuneration.

In United States v. Liss, a Florida laboratory (CCL) and its employees developed a scheme to defraud Medicare by paying doctors to refer their Medicare patients in return for kickbacks. CCL created a scheme of consulting agreements with doctors acting as testing review of�icers (TROs). The agreements allowed the doctors to authorize lab work for an individual without having to seek authorization from the individual's own physician. As such, the TRO agreements disguised the kickbacks that were given in return for the patient referrals.283 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft283)

In August 1996, CCL signed a TRO agreement with a codefendant physician named Michael Spuza, in which Spuza was paid $600 a month. Between August 1996 and April 1998, CCL paid $12,000 to Spuza under the TRO agreement. In addition, CCL made 28 equipment sublease and of�ice rental payments on behalf of Spuza totaling $55,371.36. Medicare reimbursed CCL $269,004.73 as a result of the referrals made by Spuza for clinical laboratory work. The court found that all the associated referrals were made for legitimate medical reasons.284 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft284)

The government claimed that according to the anti-kickback statute, Spuza was required to pay the full amount of remuneration he had been paid by CCL for the referrals. The court agreed with the government's argument, but failed to make any �indings of fact on the issue. Accordingly, Spuza was ordered to pay $55,371.36 in restitution.285 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft285)

On appeal, Spuza contended that the district court erred in ordering him to pay restitution because the government offered no evidence to suggest that the Medicare program suffered any loss attributable to the illegal remuneration from CCL. Spuza argued that because the referrals made to CCL were medically necessary and because he was not involved in fraudulent billing, it was an error for the court to assume that Medicare suffered a loss that was attributable to his receipt of remuneration.286 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft286)

According to United States v. Martin287 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft287) an award of restitution must be based on the amount of loss actually caused by the defendant's conduct. The government bears the burden of proving the amount of the loss.288 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft288) In Spuza's case, the government offered no evidence to prove that the Medicare program suffered any loss attributable to Spuza's receipt of remuneration. The amount paid by Medicare to CCL was not affected by what CCL did with the money it received. Although CCL may owe restitution if it fraudulently billed for the services allegedly referred by Spuza, billing fraud is not a part of Spuza's offense conduct.289 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft289)

The court found there was no basis for such an assumption of loss to Medicare because the medical necessity of the referrals was unquestioned. Accordingly, the court vacated the district court's restitution order.290 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft290)

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In United States v. Rogan, the Seventh Circuit reached the opposite conclusion.291 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft291) The defendant in that case, Peter Rogan, at one time owned Edgewater Hospital and later sold it, but continued to control the hospital and medical center through various management companies he owned. The hospital entered bankruptcy when four doctors, a vice president, and the management company pled guilty to federal criminal healthcare fraud charges involving the payment of kickbacks for patient referrals and medically unnecessary hospital admissions, tests, and services. Rogan was not charged criminally at that time, but in 2002, the United States �iled a civil lawsuit against him alleging that he was responsible for Edgewater's submission of millions of dollars of false claims for reimbursement under the Medicare and Medicaid programs. The theory of the government's case was that Rogan conspired with the six indicted persons to defraud the United States by concealing the fact that many patients came to Edgewater only because of referrals that violated the Stark Law and the anti-kickback statute. The physicians' improper �inancial interests were created through a variety of contracts, such as medical director agreements, physician recruiting contracts, teaching contracts, EKG-reading contracts, and physician loan agreements, which provided the doctors with compensation that the court found was “grossly” above fair market value for services never substantially performed.

Rogan lost the civil FCA action after a bench trial. The district court concluded that the measure of damages under the FCA is three times the amount of money the government paid out by reason of the false claims over and above what it would have paid out if the claims had not been false or fraudulent, plus a per-claim penalty. It noted that the government did not need to prove actual damages in order to recover, but needed to show only that the claims were false. After calculating that Edgewater received approximately $17 million on its false claims and subtracting the amount of restitution paid by one of the defendants, the district court assessed damages at $64 million.292 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft292)

At the appellate court level, Rogan did not deny that illegal referrals occurred, that kickbacks were paid, that the bills sent to the United States omitted this information, and that he knew what was going on. Instead he argued that the omissions were not “material” because prosecutors failed to offer testimony that a federal employee in a position to make a decision on behalf of the government was sure to enforce the statute.293 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft293)

The appeals court rejected that argument, clarifying that such testimony was unnecessary because the proper inquiry is not whether Edgewater was sure to be caught, but whether the omission could have in�luenced the agency's decision, an objective standard. And in response to Rogan's argument that the damages assessed were excessive because most of the patients for which claims were submitted received some (and perhaps all) the medical care re�lected in the claim forms, the district court observed that federal healthcare programs offer payment based upon a series of conditions. “When the conditions are not satis�ied, nothing is due.”294 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft294)

Antitrust Laws and the Healthcare Industry

Antitrust laws were established to promote and protect competition, thereby ensuring lower consumer prices and new and better products available at market. In a freely competitive market, businesses tend to lower prices and create better quality products in an effort to attract a greater number of consumers. The

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idea is that greater competition and an increased potential for pro�its will stimulate product innovation and more ef�icient methods of production, both of which bene�it the ultimate consumer.

While operating within a competitive market, there is no need for government intervention. On the other hand, when competitors collude to �ix prices, limit output, divide business between or among themselves, or make other anticompetitive arrangements that provide no bene�its to consumers, the government has the power to act to protect the interests of consumers and taxpayers.

In response to changes in the healthcare industry, many healthcare providers are merging or consolidating their practices. These mergers potentially can have a negative effect on competition among providers within the healthcare industry, and thereby run the risk of violating antitrust laws.295 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft295) In recent years, at least two physician group practices have been attacked by the FTC based on alleged antitrust violations, and more are likely to come. The antitrust laws under which mergers in the healthcare industry are most likely to be challenged are Section 1 of the Sherman Act and Section 7 of the Clayton Act.

The Sherman Act

Enacted in 1890 and named after the late US Senator John Sherman, the Sherman Act296 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft296) was designed to curb the public's concerns about the dangers of concentrating economic power in the hands of a limited number of individuals, predatory practices used by companies to restrain rivals, and extreme methods used by companies to achieve unjust ends or eliminate competitors.

Section 1 of the Sherman Act provides the following: Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engages in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a �ine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.297 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft297)

Examples of such activities include horizontal price �ixing, competitively motivated group boycotts, tying agreements, and other broadly interpreted activities unreasonably affecting commerce. By its very de�inition, Section 1 does not reach those actions that are unilateral in nature.

A preliminary question for analyzing a particular practice under Section 1 of the Sherman Act is whether the practice in question requires the concerted effort of two or more parties. In horizontal markets, courts generally consider conduct between competitors a per se violation when that conduct includes price �ixing, market division, group boycotts, and coerced tie-in agreements.

On the other hand, if it is determined that the conduct in question is not a per se violation, then the court will apply the “rule of reason” analysis. This means that the court will balance the harmful conduct against pro-competitive activity such as the activity's effect on lowering costs. In applying this analysis, the court will consider the following factors: market share, ease of market entry, competitive effects, and ef�iciencies achieved by the questioned activity.

An example of an illegal combination would be an explicit agreement between producers to limit their output in such a way as to arti�icially “�ix” the price of their product above the market-clearing price found

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in a truly competitive market. This is not to say that the Sherman Act cannot be violated without an explicit agreement between competitors. Implicit collusion can be construed as violating the law. Two companies need not have direct communication to violate the Sherman Act; the publication of pricing information in an effort to establish an implied understanding to “�ix” prices can be suf�icient.

The Clayton Act

Enacted in 1914, the Clayton Act298 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft298) outlawed price discrimination, tying and exclusive dealing contracts, mergers of competing companies, and interlocking directorates. Section 7 of the Clayton Act deals with mergers of two or more entities. It prohibits mergers and acquisitions where the effect “may be substantially to lessen competition” or tends to create a monopolistic environment in the market.299 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft299) According to the Hart-Scott- Rodino Act, parties to certain mergers and acquisitions must notify the federal government in advance if the parties and the transaction are of a suf�icient size, as de�ined by the statute.300 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft300)

In 1950, Congress modi�ied Section 7 of the Clayton Act to prohibit one company from acquiring part or all of the assets of a competitor if it could result in substantially lessening competition or creating a monopolistic market. Prior to the 1950 amendment, the Clayton Act only prevented a corporation acquiring stock of a competitor, not other assets. In 1980, Congress further amended Section 7 of the Clayton Act, extending its reach to any person subject to Federal Trade Commission (FTC) jurisdiction, thus adding partnerships and sole proprietorships.

Unlike the Sherman Act, acts prohibited by the Clayton Act were not subject to criminal penalties, but rather only civil remedies. Whereas the DOJ directly enforces actions of the Sherman Act, both the DOJ and the FTC have the authority to enforce the Clayton Act. In addition, private parties may seek treble damages for injuries resulting from Section 7 violations.

Hart-Scott-Rodino Act

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 modi�ied the Clayton Act to require parties to a merger to notify the FTC and the DOJ prior to entering into certain transactions. A premerger noti�ication must be �iled if two parties merge, one party acquires the stock or assets of another party, or a new entity is set up to operate an enterprise, and all of the following three conditions are met: (1) at least one participant in the transaction is engaged in or affects commerce; (2) the transaction involves the acquisition of assets or voting securities and either (a) the acquired form is engaged in manufacturing and has total assets or annual net sales of $10 million or more, and the acquiring �irm has annual net sales or total assets of $100 million or more; or (b) the acquired �irm has total assets or annual net sales of $100 million or more, and the acquiring �irm has total assets or annual net sales of $10 million; and (3) as a result of the transaction, the acquiring �irm obtains 15% or more of the voting securities or assets of the acquired �irm, or obtains voting securities or assets of the acquired party that in the aggregate exceed $15 million.

Notwithstanding the reporting requirements mentioned above, there are a number of transactions that may be exempt from such requirements, including transactions between related entities for investment purposes, by creditors and insurers involving nonvoting and convertible securities, and those involving

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acquisitions made in the ordinary course of business. It is also important to be aware of the existence of regulations that explicitly prohibit structuring a transaction to avoid the Hart-Scott-Rodino reporting requirements.301 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft301) The DOJ and the FTC keep a sharp lookout for noncompliance with this regulation and are vigilant to prosecute such behavior.

In addition to the notice requirement, for transactions other than cash tender offers, the agencies implemented a 30-day waiting period before a merger could be �inalized, or a 15-day waiting period for cash tender offers. The agencies are not prohibited from bringing actions subsequent to the applicable review period, but they generally do not intervene to undo a merger after the expiration of the review period.

Antitrust Safety Zones

In August 1996, the FTC and the DOJ issued a joint statement discussing six newly implemented antitrust enforcement policies regarding mergers and consolidations in the healthcare industry. The six policies discussed in the joint statement include safety zones related to hospital mergers, hospital joint ventures involving high technology or other expensive medical equipment, physicians' provision of information to purchasers of healthcare services, hospital participation in exchanges of price and cost information, healthcare providers' joint purchasing arrangements, and physician network joint ventures. Safety zones are to antitrust as safe harbor exceptions are to the federal anti-kickback statute. Similar to the anti- kickback statute, any arrangements that fall outside of a safety zone do not necessarily violate antitrust laws, but unless a situation �its squarely within the safety zone, the parties involved can never be sure that they will not be investigated and possibly prosecuted.

The safety zone dealing with hospital mergers is perhaps the most important. With respect to hospital merger safety zones, the DOJ and the FTC will not challenge any merger between two general acute-care hospitals if one of the hospitals (1) has an average of fewer than 100 licensed beds over the 3 most recent years, and (2) has an average daily inpatient census of fewer than 40 patients over the 3 most recent years, absent extraordinary circumstances. This particular antitrust safety zone will not apply if that hospital is less than 5 years old.

Historically, antitrust challenges to hospital mergers have been uncommon. That being said, procedures have been established by the FTC and the DOJ in which hospitals that are considering a merger can seek an advisory opinion (FTC) or a business review (DOJ) to verify whether they �it within an enumerated safety zone.302 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_ft302) Responses to such requests are issued within 90 days of submission.

In reaction to changes in the healthcare industry, many providers and hospitals are responding by merging or consolidating their operations. This being the case, it is important for physicians and hospitals alike to be aware of potential antitrust implications involved in their decisions.

Other Considerations

The legal issues discussed herein have focused almost entirely on federal laws and regulations. This is not to imply that states do not have their own laws pertaining to kickbacks, physician self-referrals, and patient brokering. It is important to be aware that state laws also must be considered when evaluating certain types of business arrangements, such as those described herein.

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References 1 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn1) . Gen Couns Mem

39,862 (November 21, 1991). 2 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn2) . IRC § 4958. 3 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn3) . OIG advisory

opinions can be obtained on the Internet at http://www.oig.hhs.gov/fraud/advisoryopinions.html (http://www.oig.hhs.gov/fraud/advisoryopinions.html) .

4 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn4) . 42 USC § 1320a- 7b(b).

5 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn5) . 31 USC §§ 3729- 3733; see also 45 CFR § 79.

6 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn6) . Id; 42 CFR § 1001.952.

7 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn7) . See 56 Fed Reg 35952, 35954 (July 29, 1991).

8 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn8) . 62 Fed Reg 7,350 (February 19, 1977).

9 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn9) . Pursuant to authority under Section 205 of HIPAA and regulations under 42 CFR Part 1008.

10 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn10) . 42 CFR § 1008.36; 42 CFR § 1008.11; 42 CFR § 1008.31.

11 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn11) . 42 CFR § 1008.53. 12 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn12) . 42 CFR §

1008.5(a). 13 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn13) . 42 CFR §

1008.5(b). 14 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn14) . United States v

Greber, 760 F.2d 68 (3d Cir 1985). 15 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn15) . Id at 71–72. 16 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn16) . OIG advisory

opinions available at http://www.oig.hhs.gov/fraud/advisoryopinions.html (http://www.oig.hhs.gov/fraud/advisoryopinions.html) .

17 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn17) . See Carrie Valiant and David Matyas, Legal Issues in Health Care Fraud and Abuse: Navigating the Uncertainties 30 (1997).

18 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn18) . 64 Fed Reg 63518, 63519 (November 19, 1999) (emphasis added).

19 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn19) . United States v Kats, 871 F.2d 105 (9th Cir 1989); United States v Davis, 132 F.3d 1092 (5th Cir 1998).

20 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn20) . Kats, 871 F.2d 105 (9th Cir 1989).

21 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn21) . Id at 108. 22 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn22) . Id. 23 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn23) . United States v

Lahue, 261 F.3d 993 (10th Cir Kan 2001). 24 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn24) . United States v

Anderson, 85 F Supp 2d 1047 (D Kan 1999). 25 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn25) . United States v

McClatchey, 217 F.3d 823 (10th Cir 2000). 26 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn26) . Id at 834 (citing

the district court's Jury Instruction 32).

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27 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn27) . United States v Siegel, No. 94-156-CR-T-23C (MD FL 1996) (emphasis added).

28 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn28) . United States v Bay State Ambulance and Hosp. Rental Serv, Inc., 874 F.2d 20 (1st Cir 1989).

29 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn29) . Id at 29 (citing the district court's jury instruction)

30 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn30) . Id at 32-33. 31 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn31) . 42 USC § 1320a-

7b. 32 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn32) . Hanlester Network

v Shalala, 51 F.3d 1390 (9th Cir 1995). 33 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn33) . Id at 1399. 34 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn34) . Med Dev Network,

Inc, v Prof'l Respiratory Care/Home Med. Equip Serv, Inc 673 So. 2d 565, 567 (FL App 4th Dist1996); see also United States v Jain, 93 F.3d 436 (8th Cir 1996), cert denied, 520 US 1273 (1997); United States v Neu�ield, 908 F Supp 491 (SD Ohio 1995).

35 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn35) . Jain, 93 F.3d at 436. 36 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn36) . Id. 37 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn37) . United States v

Starks, 157 F.3d 833 (11th Cir 1998). 38 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn38) . Id at 838. 39 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn39) . Anderson, 85 F

Supp 2d at 1047. 40 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn40) . Bryan v United

States, 524 US 184 (1998). 41 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn41) . Id at 191. 42 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn42) . 42 USC § 1320a-

7a(a)(7). 43 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn43) . See 42 USC §

1320a-7; 42 USC § 1320a-7a. 44 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn44) . See 63 Fed Reg

46,676 (Sept. 2, 1998). 45 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn45) . See United States v

DavidHutto (MD FL 1998); United States v Lindsey Huttleston (MD FL 1998); United States v Clearwater Clinical Lab, Inc., et al. (MD FL); and United States v Jackie Krome (MD FL 1998).

46 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn46) . 42 CFR § 411.350. 47 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn47) . 42 CFR § 411.351. 48 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn48) . 66 Fed Reg 856

(Jan. 4, 2001). 49 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn49) . 69 Fed Reg 16054. 50 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn50) . 73 Fed Reg 48434. 51 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn51) . 72 Fed Reg 51012. 52 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn52) . 73 Fed Reg 48434. 53 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn53) . 42 USC §

1395nn(g). 54 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn54) . 42 USC §

1395nn(a); 42 CFR § 411.351. 55 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn55) . See 42 CFR §

411.351. 56 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn56) . See 42 CFR §

411.355(a).

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57 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn57) . See 42 CFR § 411.351.

58 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn58) . Id. 59 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn59) . Id. 60 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn60) . 73 Fed Reg 48721. 61 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn61) . See generally 42

USC §1395nn. 62 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn62) . 42 CFR §

411.354(a). 63 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn63) . 42 CFR §

411.354(b). 64 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn64) . 42 CFR §

411.354(b)(2). 65 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn65) . 42 CFR §

411.353(e). 66 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn66) . 42 CFR §

411.354(b)(1). 67 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn67) . 42 CFR §

411.354(b)(3)(iii). 68 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn68) . 42 CFR §

411.354(b)(4). 69 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn69) . See 42 CFR §

411.354(b)(3). 70 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn70) . 42 CFR §

411.354(b)(5). 71 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn71) . 42 CFR §

411.354(c). 72 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn72) . 42 CFR § 411.351. 73 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn73) . 69 Fed Reg 16066. 74 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn74) . 42 CFR § 411.354. 75 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn75) . 66 Fed Reg 865. 76 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn76) . 42 CFR §

411.354(c)(2)(ii). 77 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn77) . 42 CFR §

411.354(c)(2)(iii). 78 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn78) . 72 Fed Reg 51026. 79 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn79) . 73 Fed Reg 48693 80 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn80) . 42 CFR §

411.357(p). 81 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn81) . See next section for

a more complete list of exceptions and comparison to the anti-kickback statute safe harbors. 82 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn82) . 42 USC §

1395nn(b)(1). 83 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn83) . 42 USC §

1395nn(h(4)(a). 84 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn84) . 42 USC §

1395nn(b)(2). 85 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn85) . 42 USC §

1395nn(b)(3). 86 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn86) . 42 USC §

1395nn(c). 87 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn87) . Id.

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88 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn88) . 42 USC § 1395nn(d)(3).

89 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn89) . 42 USC § 1395nn(d)(1), (2).

90 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn90) . 42 USC § 1395nn(e)(1).

91 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn91) . Id. 92 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn92) . 42 USC §

1395nn(e)(2). 93 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn93) . 42 USC §

1395nn(e)(3). 94 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn94) . 42 USC §

1395nn(e)(4), (5), (6). 95 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn95) . 42 USC §

1395nn(e)(7). 96 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn96) . Id. 97 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn97) . 42 USC §

1395nn(e)(8). 98 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn98) . 42 USC §

1395nn(e)(1), (2), (3), (5), (7). 99 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn99) . 42 USC §

1395nn(3)(B). 100 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn100) . 42 CFR §

411.357(d). 101 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn101) . 69 Fed Reg

16112. 102 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn102) . 42 CFR §

411.357(k). 103 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn103) . 42 CFR §

411.357(m); see also 69 Fed Reg 16112. 104 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn104) . 69 Fed Reg

16112. 105 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn105) . 42 CFR §

411.357(o). 106 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn106) . 69 Fed Reg

16113. 107. 69 Fed Reg 16116. 108. Id. 109. 69 Fed Reg 16115. 110 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn110) . 42 USC § 1320a-

7b(b)(1)(A). 111 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn111) . 42 USC § 1320a-

7b(b)(1)(B). 112 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn112) . 42 USC § 1320a-

7b(b)(2)(A). 113 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn113) . 42 USC § 1320a-

7b(b)(2)(B). 114 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn114) . See 42 USC §

1320a-7b(b). 115 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn115) . 42 USC §

1395nn(a)(1); 42 CFR § 411.350. 116 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn116) . 42 USC §

1395nn(a)(2); 42 CFR § 411.354(a)(1).

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117 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn117) . 42 USC § 1395nn(a)(1)(B); 42 CFR § 411.353(b).

118 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn118) . 42 USC § 1320a- 7b(b).

119 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn119) . 42 USC § 1320a- 7a(a).

120 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn120) . Id. 121 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn121) . 42 USC §

1395nn(g)(3). 122 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn122) . See 42 USC §

1320a-7b(b). 123 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn123) . See 42 CFR §

1005.15(d). 124 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn124) . See 42 USC §

1395nn(g). 125 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn125) . Id. 126 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn126) . See 42 USC §

1320a-7b; 42 USC § 1395nn. 127 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn127) . See 42 USC §

1395nn(e)(3). 128. 42 CFR § 1001.952(a). 129. 42 USC § 1395nn(c); 42 CFR § 411.356. 130. 42 CFR §§ 1001.952(b)-(c). 131. 42 USC § 1395nn(e)(1); 42 CFR §§ 411.357(a)-(b). 132. 42 CFR § 1001.952(d). 133. 42 USC § 1395nn(e)(3); 42 CFR § 411.357(d). 134. 42 CFR § 1001.952(e). 135. 42 USC § 1395nn(e)(6); 42 CFR § 411.357(f ). 136. 42 CFR § 1001.952(i). 137. 42 USC § 1395nn(e)(2); 42 CFR § 411.357(c). 138. 42 CFR § 1001.952(a)(3)(i). 139. 42 USC § 1395nn(d)(2); 42 CFR § 411.356(c). 140. 42 CFR § 1001.952(n). 141. 42 USC § 1395nn(e)(5); 42 CFR § 411.357(e). 142. 42 CFR § 1001.952(p). 143. 42 USC § 1395nn(b)(2); 42 CFR § 411.355(b). 144. 42 CFR § 1001.952(u). 145. 42 USC § 1395nn(e)(3)(B); 42 CFR § 411.357(n); 42 CFR § 411.356(d)(2). 146 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn146) . 42 CFR §

1001.952(g). 147 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn147) . 42 CFR §

1001.952(h). 148 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn148) . 42 CFR §

1001.952(j). 149 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn149) . 42 CFR §

1001.952(k). 150 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn150) . 42 CFR §

1001.952(l). 151 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn151) . 42 CFR §

1001.952(m). 152 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn152) . 42 CFR §

1001.952(r).

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153 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn153) . 42 CFR § 1001.952(s).

154 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn154) . 42 CFR § 1001.952(q).

155 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn155) . 42 USC § 1395nn(b)(1).

156 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn156) . 42 USC § 1395nn(b)(3).

157 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn157) . 42 USC § 1395nn(d)(3).

158 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn158) . 42 USC § 1395nn(d)(1).

159 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn159) . 42 USC § 1395nn(e)(4).

160 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn160) . 42 USC § 1395nn(e)(7).

161 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn161) . 42 USC § 1395nn(e)(8).

162 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn162) . 42 CFR § 411.355(e).

163 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn163) . 42 CFR § 411.357(l).

164 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn164) . 42 CFR § 411.357(k).

165 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn165) . 66 Fed Reg 856, 860 (January 4, 2001).

166 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn166) . Id at 861. 167 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn167) . Id at 879. 168 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn168) . Id at 877. 169 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn169) . Id at 875-76. 170 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn170) . 69 Fed Reg

16116. 171 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn171) . 66 Fed. Reg 884-

885. 172 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn172) . 66 Fed Reg 856,

917-18 (January 4, 2001). 173 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn173) . 69 Fed Reg

16116. 174 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn174) . 66 Fed Reg 962. 175 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn175) . Id at 941-942. 176 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn176) . See generally 31

USC §§ 3729-3733. 177 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn177) . BlusalMeats, Inc.

v United States, 638 F Supp 824, 827 (SDN.Y. 1986). 178 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn178) . 31 USC §

3729(b). 179 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn179) . Eric J. Holder, Jr.,

Deputy Attorney General, Guidance on the Use of the False Claims Act in Civil Health Care Matters (June 3, 1998).

180 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn180) . Rockwell International Corp v. United States ex rel Stone, 127 S Ct 1397 (2007).

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180 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn181) . 31 USC § 3730(e) (4)(A).

182 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn182) . Rockwell, 127 S Ct at 1397.

183 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn183) . Allison Engine Co v. United States ex rel Sanders, No. 07-214 slip op (US June 9, 2008).

184 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn184) . United States ex rel Totten v. Bombardier Corp, 380 F.3d 488 (DC Cir 2004).

185 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn185) . Id. 186 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn186) . K & R Partnership

v. Massachusetts Financing Agency, No. 07-7014, 2008 WL 2651008 (DC Cir July 8, 2008). 187 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn187) . Safeco Ins. Co. v.

Burr, 127 S Ct 2201 (2007). 188 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn188) . Id. 189 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn189) . Id. 190 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn190) . United States v.

NCH Health Care Corp, 163 F Supp 2d 1051 (W.D. Mo. 2001). 191 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn191) . United States v.

Krizek, 111 F.3d 934, 936 (DC Cir 1997). 192 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn192) . Id. 193 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn193) . Id. 194 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn194) . Id at 936-37. 195 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn195) . Id at 937. 196 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn196) . Id at 943. 197 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn197) . United States v.

Cabrera-Diaz, 106 F Supp 2d 234, 237 (DPR 2000). 198 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn198) . Id. 199 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn199) . Cabrera-Diaz,

106 F Supp 2d at 237. 200 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn200) . Id. 201 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn201) . Id. 202 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn202) . Id at 238. 203 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn203) . Id at 243. 204 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn204) . United States v.

Mackby, 261 F.3d 821, 824 (9th Cir 2001). 205 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn205) . Id at 824 (citing

Medicare Bulletin [Chico, CA], Mar 1993, at 22). 206 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn206) . 42 CFR §

410.60(c)(1). 207 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn207) . 42 CFR §

410.60(c)(2). 208 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn208) . Mackby, 261 F.3d

at 825. 209 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn209) . Id. 210 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn210) . Id. 211 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn211) . Id. 212 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn212) . Id. 213 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn213) . Id. 214 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn214) . Mackby, 261 F.3d

at 828. 215 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn215) . Id (quoting

Krizek, 111 F.3d at 942).

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216 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn216) . United States ex rel Aranda v. Cmt. Psychiatric Ctrs of Okl., Inc, 945 F Supp 1485 (WD Okla 1996).

217 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn217) . Id. 218 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn218) . Id at 1488. 219 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn219) . United States ex

rel Luckey v. Baxter Healthcare Corp, 183 F.3d 730 (7th Cir 1999). 220 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn220) . Id at 731. 221 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn221) . Id at 732. 222 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn222) . Id at 733. 223 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn223) . Luckey, 183 F.3d

at 733. 224 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn224) . Id. 225 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn225) . United States v. ex

rel Mikes v. Straus, 84 F Supp 2d 427 (SDN.Y. 1999), aff 'd, 274 F.3d 687 (2d Cir 2001). 226 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn226) . Id at 435. 227 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn227) . United States v. ex

rel Mikes v. Straus, 274 F.3d 687 (2d Cir 2001). 228 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn228) . Id at 700. 229 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn229) . Id at 701. 230 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn230) . Id. 231 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn231) . Id at 702. 232 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn232) . Mikes, 274 F.3d at

703. 233 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn233) . Id. 234 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn234) . Id at 704. 235 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn235) . United States ex

rel Swafford v. Borgess Med Ctr, 98 F Supp 2d 822 (WD Mich. 2000), aff 'd, 24 Fed. Appx. 491 (6th Cir 2001), cert denied, 535 US 1096 (2002).

236 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn236) . Id at 824-25. 237 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn237) . Id at 825. 238 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn238) . Id at 826. 239 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn239) . Id at 827. 240 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn240) . Id. 241 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn241) . Swafford, 98 F

Supp 2d at 829. 242 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn242) . Id at 828. 243. United States ex rel Luckey v. Baxter Healthcare Corp, 183 F.3d 730 (7th Cir 1999). 244 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn244) . Swafford, 98 F

Supp 2d at 831. 245 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn245) . Id at 832. 246 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn246) . Id. 247 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn247) . Id at 833. 248 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn248) . See 24 Fed. Appx.

491 (6th Cir 2001), cert denied, 535 US 1096 (2002). 249 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn249) . See 42 USC §

1395nn. 250 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn250) . US ex rel Pogue v.

Am Healthcorp, Inc, 914 F Supp 1507 (MD Tenn. 1996). 251 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn251) . US ex rel Pogue v.

Am Healthcorp, Inc., 1995 US Dist. LEXIS 16710, 3-4 (MD Tenn 1995), vacated, 914 F Supp 1507 (MD Tenn. 1996).

252 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn252) . Id at *16-7.

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253 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn253) . Pogue, 914 F Supp at 1513.

254 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn254) . Ab-Tech Constr, Inc. v. United States, 31 Fed. Cl. 429 (1994), aff'd, 57 F.3d 1084 (Fed Cir 1995).

255 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn255) . Id at 434. 256 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn256) . Id at 433. 257 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn257) . Id at 434. 258 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn258) . United States v.

Inc Vill of IslandPark, 888 F Supp 419, 439 (EDNY 1995). 259 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn259) . Ab-Tech, 31 Fed

Cl at 434. 260 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn260) . Inc Village of

Island Park, 888 F Supp at 439. 261 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn261) . Pogue, 914 F

Supp at 1513. 262 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn262) . Id. 263 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn263) . Id. 264 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn264) . Id. 265 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn265) . See United States

ex rel Pogue v. Diabetes Treatment Ctrs of Am, 238 F Supp 2d 258 (DDC 2002). 266 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn266) . United States ex

rel Scott Barrett v Columbia/HCA Healthcare Corp, 251 F Supp 2d 28 (DDC 2003). 267 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn267) . Id at *4-7. 268 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn268) . Id at *5. 269. United States ex rel Thompson v Columbia/HCA Healthcare Corp, 125 F.3d 899 (SD Tex 1997). 270 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn270) . Id at 900-01. 271 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn271) . United States ex

rel Thompson v Columbia/HCA Healthcare Corp, 20 F Supp 2d 1017, 1046 (SD Tex 1998.) 272 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn272) . Id at 1047. 273 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn273) . Id. 274 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn274) . Id at 1048 (citing

Pogue, 914 F Supp 1507, 1511 [MD Tenn 1996]). 275 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn275) . Id at 1048-49. 276 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn276) . United States ex

rel Barmak v Sutter Corp, 2002 US Dist LEXIS 8509, *1 (SD NY 2002). 277 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn277) . Id at *17. 278 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn278) . Id at *17-18. 279 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn279) . Id. 280 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn280) . Id. 281 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn281) . United States ex

rel McNutt v Haleyville Medical Supplies, Inc., 423 F. 3d 1256 (11th Cir 2005). 282 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn282) . Id at 1260. 283 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn283) . United States v

Liss, 265 F.3d 1220, 1224 (11th Cir 2001). 284 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn284) . Id at 1224-25. 285 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn285) . Id at 1231. 286 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn286) . Id. 287 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn287) . United States v

Martin, 195 F.3d 961, 968 (7th Cir 1999). 288 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn288) . 18 USC §

3664(e); United States v McIntosh, 198 F.3d 995, 1003 (7th Cir 2000).

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289 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn289) . Liss, 265 F.3d at 1232.

290 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn290) . Id. 291 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn291) . United States v

Rogan, 517 F. 3d 449 (7th Cir 2008). 292 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn292) . United States v

Rogan, 459 F Supp 2d 692 (N.D. Ill. 2006). 293 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn293) . Rogan, 517 F. 3d

at 449. 294 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn294) . Id at 453. 295 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn295) . See United States

v RockfordMem'l Corp, 898 F.2d 1278 (7th Cir 1990), cert denied, 498 US 920 (1990). 296 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn296) . 15 USC §§ 1-7. 297 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn297) . 15 USC § 1. 298 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn298) . 15 USC §§ 12-27. 299 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn299) . 15 USC § 18. 300 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn300) . 15 USC § 18a. 301 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn301) . See 16 CFR §

801.90. 302 (http://content.thuzelearning.com/books/Wolper.3070.17.1/sections/navpoint11#chap3_fn302) . See 28 CFR §

50.6; 16 CFR §§ 1.1-1.4.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the service of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.)

Biographical Information

Gabriel L. Imperato, JD, has practiced healthcare law in both the public and private sectors for more than 20 years and is board certi�ied as a specialist in health law by the Florida Bar. Mr. Imperato presently represents individuals and organizations accused of criminal and civil health care fraud in jurisdictions throughout the United States. Prior to joining Broad and Cassel, Mr. Imperato was the Deputy Chief Counsel, Of�ice of the General Counsel, United States Department of Health and Human Services, where he advised and represented various agencies of the Department of Health and Human Services, including the Health Care Financing Administration (Medicare and Medicaid), the Public Health Service, the Social Security Administration, and the Of�ice of the Inspector General. Mr. Imperato has extensive criminal and civil trial and appellate experience in administrative, state, and federal courts, and has personally handled leading national cases concerning criminal and civil healthcare fraud and abuse and healthcare law and policy. He also has handled numerous matters involving the formation of integrated delivery systems and managed care organizations. He is considered a national expert on fraud and abuse, reimbursement, and antitrust matters in the healthcare �ield. He is a frequent lecturer and has published numerous articles on such issues as medical staff proceedings, antitrust in the healthcare �ield, handling a healthcare fraud investigation and administrative and judicial procedural rights and the fraud and abuse laws under Medicare, Medicaid, and private health insurance programs. He is a member of the Illinois, Florida, and District of Columbia Bars, the American Health Lawyers Association, the Health Law Section of the Florida Bar, the American Bar Association Antitrust Health Care Committee, the White Collar Crime Committee, and the Subcommittee on Health Care Fraud, where he has been a member of the Planning Committee of the American Bar Association Health Care Fraud Institution. Mr. Imperato was a long-time member of the

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now dissolved American Academy of Hospital Attorneys, where he was Chairman of the Reimbursement and Payment Committee and the Health Care Reform Task Force.

Mike Segal, JD, LLM, is a Florida native, born in Jacksonville and raised in Orlando. He attended the University of Florida, receiving his Bachelor of Arts in political science in 1967 and his Juris Doctorate in law in 1969. In 1971, he received an LLM in taxation from New York University. Thereafter, he was an attorney advisor for the US Tax Court in Washington, DC. He has been associated with Broad and Cassel for 25 years and has been a partner of the �irm for more than 20 years. Mr. Segal is the managing partner of the Miami of�ice of Broad and Cassel, serves on the �irm's executive committee, and is cochairman of the �irm's healthcare practice group. Mr. Segal's practice is primarily devoted to healthcare transactional matters, including structuring medical group practices throughout the United States, forming integrated delivery systems between physicians and hospitals, and representing buyers and sellers in complex purchases and sales of healthcare-related businesses. He is a member of AHLA, the healthcare sections of the American and Florida Bar Associations, and MGMA.

Matthew T. Staab, MA, JD, was born and raised in Montpelier, Vermont. He attended Saint Michael's College, where he received a Bachelor of Science degree in business administration in 1993. Mr. Staab later attended Florida International University where, in 1999, he received his Master of Arts degree in economics. In 2002, he attained his Juris Doctorate, with honors, from Nova Southeastern University. Mr. Staab is currently of counsel in the Ft. Lauderdale of�ice of Broad and Cassel.

The authors wish to thank Barbara Viota-Sawisch, Esq., for her invaluable assistance in the preparation of this chapter.