Washington Scene. Safe Harbor Rules issued for Medicare/Medicaid antikickback law

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1 Washington Scene KATHLEEN A. MICHELS, RN, JD Director of Federal Government Affairs AANA Federal Government Affairs Office Washington, DC Safe Harbor Rules issued for Medicare/Medicaid antikickback law Key words: Medicare/Medicaid antikickback law, Office of Inspector General, Safe Harbor Rules. On July 29, the Office of Inspector General (OIG) of the Department of Health and Human Services published the final Safe Harbor Rules. The Safe Harbor Rules were effective immediately and define what practice arrangements are permissible under the Medicare/Medicaid antikickback law. Failure to fall within a safe harbor does not mean that a practice arrangement is a violation of the law, nor does it mean that it is likely that the OIG will pursue such activities for enforcement purposes. Failure to fall within a safe harbor simply means that a practice arrangement will not have the benefit of the protection afforded by the Safe Harbor Rules. In general, CRNAs who are employees will not have to be concerned about violating the antikickback law because there is a complete exception for payments made between an employer and an employee. The employees' safe harbor will be discussed in more detail later in the article. However, if an employed CRNA is also involved in other practice arrangements, such as moonlighting as a locum tenens, then there may be a need to be familiar with the other safe harbors. The specific 11 safe harbors relate to the following: * Investment interests * Space rental * Equipment rental * Personal services/management contracts l Sale of practice l Referral services l Warranties m Discounts l Employees l Group purchasing organizations l Waiver of beneficiary coinsurance and deductible for inpatient hospital stays Overview of Medicare/Medicaid antikickback law The Medicare/Medicaid antikickback law (Section 1128B(b) of the Social Security Act) is a broad prohibition of the offer, solicitation, payment, or receipt of any remuneration intended to induce a person (1) to refer an individual for items or services reimbursable under Medicare or Medicaid, or (2) to purchase, lease or 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 Medicare or Medicaid. Violations of the law may be prosecuted as a criminal felony, and upon conviction an individual may be fined not more than $25,000 or imprisoned for not more than five years. In 1987, the antikickback law was amended (Public Law ) to permit the OIG to exclude from the Medicare and Medicaid programs any practitioner or supplier who the OIG concludes has engaged in a prohibited practice. The 1987 amendments also authorized the OIG to publish Safe Harbor Rules, which are intended to provide October 1991/ Vol. 59/No

2 standards for relationships which might otherwise run the risk of offending the antikickback law. As long as the parties to an arrangement comply with the appropriate set of standards prescribed by the Safe Harbor Rules, they will know that they are not at any risk under the antikickback law. The AANA requested a law firm to do an analysis of those safe harbors that are the most relevant to the various practices of CRNAs. The following information about those specific safe harbors, including the Questions and Answers section, is based on information contained in the legal analysis provided to AANA. Employees' safe harbor As stated previously, both the antikickback law and the rules provide a complete exception for payments made between an employer and an employee. The rules provide that the standards used to determine if an individual is an employee are identical to the standards applied by the Internal Revenue Service (IRS) for purposes of the tax law. For an in-depth analysis of the current IRS employee standards, please refer to the Legal Briefs column entitled "What is an employee" by Gene Blumenreich, JD, AANA General Counsel, published in the December 1989 issue of the AANA Journal. In the case of a bona fide employment relationship, it is permissible for the employer to claim reimbursement for the CRNA's services and to pay the CRNA on any basis provided in the employment contract. Please note that for purposes of the tax law and the antikickback law, an independent contractor does not qualify as an employee. Investment interests' in small entities safe harbor Some CRNAs may have investments in, or be partial owners of, pain management clinics, ambulatory surgical centers (ASCs), or laboratories. The safe harbor for investment interests in small entities includes the following eight standards: 1. No more than 40% of the entity may be controlled by physicians and others that are in a position to control the flow of business to it. 2. The terms on which the investment interest is offered, e.g., price and quantity of shares, are the same for referrers and nonreferrers. 3. The amount of shares offered cannot be linked to the amount of expected referrals. 4. No requirements to refer. 5. The way services are marketed and furnished cannot preferentially favor investors. 6. No more than 40% of the partnership's business can come from investors. 7. No funds loaned from the entity. 8. The amount of dividends must be directly related to the capital contributed. If the above standards are complied with, both the individuals with an investment interest and the entity will not be at risk. Regardless of the potential liability of a business entity, an investor will only be at risk if, like a physician or a hospital, the investor is in a position to refer patients or influence the referral of patients to the entity. The entity will be at risk if it appears that the opportunity to invest was offered as an inducement for referrals. It is highly unlikely that a CRNA will be in a position to make or influence referrals. If a CRNA has an interest in a pain management clinic, an ASC or a laboratory, it is unlikely that the opportunity to invest was offered to the CRNA in order to generate referrals. Therefore, it is unlikely that an investment interest by a CRNA in a health care entity will be construed by the OIG to be a violation of the antikickback law. Of course, depending upon who the investors are, other than the CRNA, it may be possible that the entity is in violation of the law. In that case, although the CRNA is not at any risk of liability, the profitability of the CRNA's investment could be jeopardized if sanctions were imposed on the entity. Space rental and equipment rental safe harbors Some CRNAs may moonlight or work temporarily at several different facilities in the course of a year. In those instances, they may have space or equipment rental agreements involving periodic usage on a case-by-case or daily basis. The safe harbors for space and equipment rentals include the following five standards: 1. The lease is in writing and signed by the parties. 2. The lease specifies with particularity the premises or equipment covered by the lease. 3. If the lease provides for only periodic access or use, the lease specifies exactly the schedule of such periodic usage, including the length of the intervals and the exact rent. 4. The term of the lease is at least one year. 5. The total of all payments made under the lease is a fixed dollar amount, set in advance, and consistent with fair market value in arms-length transactions (which cannot take into account the volume or value of any referrals between the parties). The critical elements of these two safe harbors are that the relationship be formally set out in writing, rather than be defined as an ad hoc episodic arrangement, and that the payments not reflect the volume or value of referrals, either by permitting the amount to vary based upon revenues or usage or 394 Journal of the American Association of Nurse Anesthetists

3 by being inconsistent with the fair market value of the space or equipment when considered independently of referrals. The requirement that leases be for terms of not less than one year is intended to prevent the parties from making frequent modifications of the payment terms to reflect the cycles in the volume of referrals. However, as long as the terms of a lease are not renegotiated and no additional lease between the parties is executed within any 12-month period, it will not be a problem to have a lease for a shorter term. Obviously, these safe harbors do not cover rental agreements where the periods of usage are unpredictable or subject to fluctuation, where additional agreements between the same parties are executed within any 12-month period, or where the total dollar amount that will be paid under the agreement is not specified in the agreement. It is important to remember that leases not covered by the safe harbor are not necessarily illegal or risky. However, the parties to a lease not covered by a safe harbor are at risk if the circumstances suggest that a hospital, ASC or group of anesthesiologists or surgeons has used the lease as an excuse for soliciting payments from a CRNA in return for giving the CRNA the opportunity to provide services. Personal services and management contracts safe harbors Some CRNAs may have billing arrangements, whereby an individual or entity in a position to generate business for a CRNA is paid by the CRNA for handling the CRNA's billing. The safe harbor for personal services and management contracts includes the same five standards as for space and equipment rental agreements, plus a sixth standard which prohibits the counseling or promotion of a business arrangement that violates any federal or state laws. The important elements of this safe harbor are the same as those for rental agreements. In particular, there should be a written agreement and the payments cannot reflect the volume or value of referrals by varying in proportion to the number of bills or the amount billed or collected. It will not be problematic (1) to have a contract for less than one year, as long as there is no subsequent contract for the same services within any one year period, or (2) to permit the hours or schedule of services to fluctuate, as long as the dollar amount payable under the contract is specified in advance in the contract. Obviously, there is no need to adhere to these standards when a CRNA uses a commercial billing agent, since a billing agent presumably will not be a source of business for a CRNA. Although the standards do not reflect the manner in which billing services typically operate, the OIG does not believe the criteria they have prescribed create a problem since it is only necessary to apply these standards when the billing entity is a referral source rather than a commercial billing service. Questions and answers regarding hypothetical CRNA practice arrangements The legal analysis that AANA had done of the Safe Harbor Rules included the following answers to posed questions regarding various types of hypothetical CRNA practice arrangements: * Question. What constitutes a "referral" to a CRNA? What compensation arrangements would constitute impermissible "referrals" between a CRNA and a hospital, physician (including a surgeon) or ASC? * Answer. In the case of a CRNA, a referral is a request by a hospital, ASC, physician or similar health care provider for the CRNA to provide anesthesia. However, the antikickback law prohibits not only payments intended to induce referrals of individuals for items or services reimbursable under Medicare or Medicaid, but also prohibits financial inducements in return for arranging for the order of items or services payable under those programs. Thus, if a hospital, physician (including a surgeon), or ASC solicits compensation from a CRNA as a prerequisite for arranging to use the CRNA's services (whether on a routine or a case-by-case basis), or as a condition for making the services of the CRNA available to its patients (such as under an exclusive contract), the parties risk the possibility that the OIG will conclude that the compensation is a kickback. * Question. What constitutes "fair market value"? * Answer. Typically, fair market value is not a specific dollar amount. Rather, it represents a range which a reasonable person will pay, based upon market conditions and not including any additional value that is attributable to patient referrals. For example, an independent billing agent may charge a CRNA 3% of the amount billed. The CRNA may expect that in the course of a year, the total cost will be $3,000. However, factors such as convenience may cause a CRNA to use a hospital's billing service at a cost of $5,000. These amounts may both reflect fair market value. But if a CRNA pays a hospital $10,000 for billing services, the OIG is likely to conclude that the amount is excessive, without justification, and therefore beyond the range of fair market value. In that case, the OIG may conclude that the additional amount is in return for the opportunity the hospital provides the CRNA to provide services at the hospital. October 1991/ Vol. 59/No

4 * Question. A surgeon bills for a CRNA's services. If the billing relationship between the surgeon and the CRNA is set in advance and consistent with fair market value, but is based on volume, then is the act of the surgeon asking the CRNA to administer anesthesia per se illegal? * Answer. Payment relationships are not per se illegal simply because they do not meet the applicable safe harbor standards. Of course, it is possible to construe a relationship as a per se violation when payments are clearly made solely in return for referrals. However, in instances where a legitimate service is being provided (such as billing), it will be necessary for the OIG to review all the facts and circumstances to determine if a significant purpose of the payment is to induce referrals. It is permissible for parties to negotiate a fixed fee based upon the expected volume of business, as long as the dollar amount is set in advance and is consistent with fair market value. Obviously, however, if the amount "set in advance" is a percentage of the billings, the arrangement will not comply with the safe harbor standard which requires that the dollar amount be fixed. Such an arrangement will be outside the safe harbor and therefore risky, depending upon the surrounding circumstances. * Question. The fact situation is that (1) a CRNA is either an independent contractor or an employee of a hospital; (2) the hospital assigns the CRNA on a case-by-case basis; and (3) the surgeon does not influence the CRNA's assignments. Can the surgeon base the billing for the CRNA on a volume basis? * Answer. Under these circumstances, the Medicare antikickback law does not apply, because the payments for billing are being made to a physician who is not responsible for the CRNA's assignments. Specifically, a billing agent may be reimbursed on the basis of volume as long as the billing agent is not in a position to refer patients or otherwise generate business for the CRNA, and as long as the billing agent is not responsible for collections. If the billing agent is a physician and is responsible for making collections in the name of the CRNA, his/her compensation cannot be related to the dollar amounts billed or collected. Billing arrangement not only generate questions under the antikickback law when the billing agent is a referral source, but, also under the rules regarding reassignment of claims. For purposes of this column, the term "reassignment" will refer to situations where the CRNA authorizes a hospital, physician, group practice, or ASC that employs or has a contract with the CRNA, to receive payment for the CRNA's services. For purposes of this article, the term "billing" will refer only to the process of preparing and submitting bills or claims. It will not include the authority to receive payment on those bills or claims. In this article, the authority to receive payment is referred to as "collecting." The reassignment rules do not prevent a billing agent from being compensated by a health care provider based upon the volume or value of bills processed, as long as the payments are made directly to the provider. Furthermore, the rules permit a billing agent to do both the billing and the collections in the name of the provider, as long as the compensation to the agent is not related to the specific dollar amount billed or collected. The compensation may be related to the number of bills submitted. * Question. The fact situation is that (1) a CRNA is either an independent contractor or an employee of a hospital; (2) the surgeon assigns the CRNA on a case-by-case basis; and (3) the hospital does not influence the CRNA's assignments. Can the hospital base the billing for the CRNA on a volume basis? * Answer Under this scenario, the surgeon has complete discretion with respect to the choice of CRNA for a case, and the hospital provides the billing service. The analysis provided in response to the preceding question applies here as well. In short, the antikickback law does not apply because the entity which is compensated for the billing services (i.e., the hospital) has no control over the referral of business to the CRNA. There are special rules which permit reassignment of benefits under a contract to a hospital, clinic or other facility or medical group when pursuant to a written contract. Section 1833(1) of the Social Security Act specifically authorizes a hospital, physician, group practice, or ASC to bill for the services of a CRNA when there is a written contract between the parties that provides for it. * Question. If a hospital, physician, or ASC that does the billing for a CRNA refers cases or directs work to a CRNA, then is the act of billing based on volume per se illegal, even if the billing relationship is set in advance and consistent with fair market value? * Answer If the billing agent is reimbursed based upon volume, it is not per se illegal. However, it is risky unless the compensation is specified in advance as a fixed dollar amount. * Question. A self-employed CRNA contracts with a group of surgeons who own and operate an ASC. The surgeon group bills for the CRNA. Is it illegal for the CRNA to retain 80% of the monies collected for anesthesia services and compensate the surgeon group the other 20% to cover the costs of billing, space, rental, equipment, and marketing? 396 Journal of the American Association of Nurse Anesthetists

5 * Answer. This arrangement is not per se illegal, although it is risky. As an independent contractor, the CRNA obviously does not qualify for protection under the safe harbor for employees. The contract between the CRNA and the surgeons who own and operate the ASC is an arrangement whereby the surgeons refer business to the CRNA at the ASC. If the CRNA pays 20% of its receivables to the surgeons, the OIG may conclude that the CRNA has agreed to split the fees with the surgeons in return for the opportunity to obtain the anesthesia business at the ASC. To avoid the risk, it is preferable to have contracts for billing, space rental, equipment rental, and marketing which comply with the applicable safe harbor provisions. * Question. If the contracting CRNA in the above scenario subcontracts with a relief CRNA to provide anesthesia services over a vacation period, can the subcontract be structured to require that the relief CRNA agrees to the existing billing arrangements between the contracting CRNA and the surgeon group, i.e., the 80%/20% split? Alternatively, can the relief CRNA be paid in any fashion whatsoever, e.g. a case-by-case basis, a dollar amount per anesthesia unit, an hourly rate, or a daily rate? * Answer. A fee-splitting arrangement between a relief CRNA and the surgeons will generate the same risks that apply to the primary contract. The claims for the services of the relief CRNA should be submitted using the provider number of the relief CRNA. It is possible for the primary CRNA and the relief CRNA to have an agreement whereby the relief CRNA compensates the primary CRNA on a pro rata basis for the financial obligations the primary CRNA has toward the group of surgeons for billing, rental, and marketing during the period the primary CRNA is absent. * Question. If the contracting CRNA in the above subcontracting scenario is not in a position to affect the volume of cases available to the relief CRNA, can the contracting CRNA profit from the subcontracting arrangement, i.e., keep a percentage of the 80% of the monies collected for anesthesia services that normally would go to the relief CRNA? * Answer The primary CRNA should not share in any revenues generated by the relief CRNA during any period the relief CRNA substitutes for the primary CRNA. Although the primary CRNA is not in a position to affect the volume of cases available to the relief CRNA, the antikickback law prohibits remuneration in return for arrangements which lead to the referral of business. Therefore, the primary CRNA should not profit from the ability to choose a relief CRNA, and thereby "arrange" for the relief CRNA to be the provider of anesthesia services at the ASC. * Question. Some CRNAs work for locum tenens companies which bill for them. Does the fact that a CRNA works for a locum tenens company raise any unique legal questions regarding compensation arrangements that would differ from situations where the billing is done for the CRNA by a physician (including a surgeon), hospital, or ASC? * Answer. If a CRNA is an employee of a locum tenens company, there are no restrictions imposed by the Medicare antikickback law or under the rules pertaining to reassignment that in any way limit the billing, collecting, or compensation arrangements between the parties as employer and employee. If the CRNA is an independent contractor, and the locum tenens company is responsible for the billing, the antikickback law should not pose a problem as long as the company is a bona fide locum tenens company in the business of providing temporary relief CRNAs. * Question. What is "factoring," and is it still illegal? m Answer The term "factoring" came into use as a reference to the practice of selling one's accounts receivable to a third party who purchases them at a discount. The discount is offered because the seller of the accounts receivable can offer no guarantee that all outstanding claims will be paid or that they will be paid on a timely basis. Section 1842(b)(6) of the Social Security Act provides the rules which restrict the reassignment of Medicare claims except under certain circumstances. One effect of these restrictions is to prohibit "factoring." * Question. Some companies allegedly provide free trips and other indirect compensation to CRNAs in exchange for the CRNAs purchasing the companies' products. Does this violate the antikickback law? * Answer Anything of value, such as free trips or other prerequisites, which is provided in exchange for the purchase of products which are reimbursable under Medicare or Medicaid is clearly a violation of the antikickback law. However, it is not illegal for a physician to accept a gift in exchange for the purchase of tongue depressors. Although some of those tongue depressors are used on Medicare beneficiaries, their cost is absorbed in the physician's overhead expenses, and they are not directly reimbursed under Medicare or Medicaid. On the other hand, it is illegal for a physician to accept an inducement for the purchase of an intraocular lens because reimbursement for the intraocular lens is included in the payment for cataract surgery. * Question. An ophthalmology group and a hospital contract with a health maintenance organization (HMO) and agree to provide services to October 1991/ Vol. 59/No

6 HMO patients at a reduced rate. If the ophthalmologists and the hospital encourage the CRNA to also agree to provide services to HMO patients at a reduced rate, does this violate the antikickback law? * Answer. It is not a violation of the antikickback law to contract with an HMO to provide services to HMO enrollers at a reduced price or on a capitated basis. Although the HMO is reimbursed by Medicare for the services it provides to Medicare beneficiaries, the intent of the Medicare HMO program is to generate lower charges by practitioners such as CRNAs. Both the published safe harbor for discounts and the proposed safe harbor for managed care plans make clear that the OIG will not enforce the antikickback law in the case of special pricing plans involving HMOs. * Question. The 11 safe harbors did not deal with exclusive ownership and control issues, e.g., physicians referring patients from their private practices to ASCs that the physicians own. In light of the fact that a safe harbor does not now exist, do you believe that a CRNA who is a part owner or investor in a free-standing pain management clinic should be concerned about referring patients to his/her clinic? * Answer. The OIG has plans to propose several additional safe harbors. One proposal would cover situations involving "exclusive ownership and control"' Another proposal would cover situations involving the "extension of a practice." The proposal for exclusive ownership and control would apply where a hospital, physician, or other referral source refers a patient to a wholly owned entity or subsidiary. In those cases, the OIG does not believe that the profits generated for the parent company or sole owner should be considered to be a kickback. The proposal for the extension of a practice would apply where a physician or other practitioner refers a patient to a facility in which he has an ownership interest for additional care which he provides at that facility. For example, the proposal would make clear that an ophthalmologist can refer patients to an ASC at which the ophthalmologist performs cataract surgery on the patient, even if the ophthalmologist is an investor in the ASC. Although the "referral" will generate revenue for the ASC and, as an investor, the ophthalmologist will share in those profits, the OIG is willing to concede that the ophthalmologist is simply "extending his/her practice" from the office to the ASC. In theory, these analyses can apply as well to CRNAs. First, a CRNA may be the sole owner of a pain management clinic and personally refer patients to that clinic. Second, a CRNA may be an investor in a pain management clinic and refer patients to that clinic as long as the CRNA provides the services at the clinic. Of course, the antikickback law is not applicable if (1) the CRNA is not in a position to make a "professional" referral of a patient for pain management, or (2) the services provided at the pain management clinic are not reimbursable under Medicare or Medicaid. Finally, the OIG has taken the position that, as a matter of law, until a safe harbor that is applicable to a given situation is published in final, and unless all standards in the final safe harbor are complied with, there is no guarantee of protection. However, as a practical matter, although these safe harbors are only proposals, they nevertheless provide insights with respect to OIG enforcement policy. This article offers an overview of the new Safe Harbor Rules and should not be construed as legal advice or opinion on specific practice arrangements. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your professional situation and any specific legal questions you may have. 398 Journal of the American Association of Nurse Anesthetists