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Kickback, Referral Rules Coming and Doctors Seek Clarity

Oct. 8, 2019, 2:16 PM

The Trump administration is on the verge of issuing two rules that attorneys hope will allow health-care providers, drugmakers, and medical device manufacturers more easily to coordinate care for patients.

The Department of Health and Human Services is expected to come out with its proposed changes to its implementation of two laws—the physician self-referral law and anti-kickback statute—as early as Oct. 8, as the rules both cleared by the Office of Management and Budget Oct. 3.

The changes will need to go through a notice-and-comment period before being finalized. They will be among the most scrutinized proposals to pass through the department. Attorneys told Bloomberg Law the current system discourages physician practices and hospitals from experimenting with business models that allow them to share information on patients. Watchers are wary that the proposed rules won’t clarify the law enough to truly allow innovative practices.

The penalties for both laws are steep and attorneys say the laws currently prevent doctors from trying to find better ways to work together. A hospital could run afoul of the law if it offers incentive payments to attending physicians for providing more efficient and cost-effective care, for example.

The Trump administration has made it a top priority to pay for patient outcomes rather than the number of services provided. It is concerned the current laws prevent coordination of care.

The physician self-referral law—also known by the Stark law after its congressional sponsor, former Rep. Pete Stark (D-Calif.)—prevents physicians from referring patients to medical facilities where they or their immediate family members have financial interests. Penalties for violating the law can include $15,000 for each medical service and three times the amount of Medicare payments received for services.

The anti-kickback statute prohibits payments for recommending products or services to patients covered by Medicare or Medicaid and is meant to protect against fraud and abuse. Penalties can be up to $25,000 and a potential five-year prison sentence per violation in addition to $50,000 in civil penalties per violation and three times the amount of government overpayment.

Here are the parts of the proposal that are top of mind for health attorneys:

Exemptions for Business Relationships

The biggest change that attorneys are watching for are any new exemptions to the law. HHS Deputy Secretary Eric Hargan told Bloomberg Law in 2018 his goal is to be as bold as possible in making changes to the Stark law.

The department’s 2018 request for information suggested the administration is considering an exemption to the law for payment arrangements involving financial risk-sharing, such as allowing doctors to take on monetary risk for what their patients spend on health care. In one theoretical model, doctors get money back if they coordinate their patient’s care and lower the cost to the system as a result. On the other hand, they would share in the cost if the patient’s care is more expensive than projected.

The administration is also exploring multiple exemptions for “novel financial arrangements,” such as paying doctors more for better patient outcomes.

The Federation of American Hospitals suggested the department create a waiver for all alternative payment models that include shared savings for providers.

Hargan said the department had received comments asking for more flexibility on relationships between hospitals and doctors, laboratory service use, diagnostics, and evaluations.

Providers also are asking how the law applies to rental and leasing agreements. Sutter Health, one of the nation’s largest hospital systems, said the government should not consider hospitals renting office space to physicians a financial relationship under the Stark law.

Safe Harbors

Attorneys are watching to see if the department adds any new safe harbors under the anti-kickback law that could give doctors and hospitals the green light to conduct business in ways they previously feared would get them in trouble.

Safe harbors already exist for some coordinated care initiatives, like certain demonstration projects out of the Center for Medicare & Medicaid Innovation and the Medicare Shared Savings Program. The program consists of groups of doctors, hospitals, and other health-care providers who coordinate care for patients and share in financial risk for their patients’ health-care spending to receive savings. Because the program is run through HHS, those providers are allowed to share the savings for providing better care.

The department’s request for information on the anti-kickback law asked participants in those programs about the difficulties they face complying with their waivers. Participants in the pilot programs receive a waiver for the anti-kickback statute.

Separately, medical device and drug manufacturers want a safe harbor to allow them to participate in coordinated care. They are willing to accept financial risk for patient outcomes as a preventative measure against fraud and abuse. The manufacturers want to participate in coordinated care because it gives them an in with doctors who are also involved in these programs. Manufacturers have been asking for this safe harbor since the development of the Affordable Care Act.

Hospitals are also interested in seeing a safe harbor allowing them to provide physicians’ offices with cybersecurity-related items and services. Right now, providing those doctors’ offices with cybersecurity measures could lead to violations of the anti-kickback statute.


Under the law, any financial arrangement a hospital has with a physician has to meet one of the statutory exceptions or it triggers penalties. To meet an exception, most require the financial arrangement to be consistent with “fair market value,” not directly or indirectly based on the volume or value of referrals. The arrangements must be considered “commercially reasonable” even if no referrals were made between the parties.

But attorneys say there’s a lot of ambiguity in what constitutes fair market value and commercially reasonable arrangements. They say the government needs “bright line” definitions clearly spelling out how to meet those requirements.

The American Hospital Association wants the department to remove language referring to business relationships as it determines what is “bona fide bargaining between well-informed buyers and sellers.”

An overarching question about any changes made to the anti-kickback statute is how to define the “value” of patient care. Currently, there is no definition, and the administration wants to be able to evaluate whether its exceptions to the law are working. Without a definition, it can’t do so, but an overly narrow definition could limit the rule’s effectiveness.


The administration is also considering public reporting requirements that could eliminate potential harms from relaxing the law. If providers are required to disclose their business relationships, that might take some of the sting out of the sense that they may be defrauding taxpayers.

Device and drug manufacturers are already required to report payments they make each year to physicians and teaching hospitals, such as for food and beverages, consulting fees, and royalty or licensing fees

—With assistance from Lydia Wheeler

To contact the reporter on this story: Shira Stein in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Andrew Childers at