The American entrepreneurial spirit is alive and well in the healthcare industry. However, unlike most other industries, heavy government regulation plays a major and, oftentimes, deciding role in the structuring of business relationships and transactions between healthcare entities and providers who participate in the Medicare and Medicaid programs. The Stark Law and/or the Anti-Kickback Statute control, in many respects, the matters for which parties can contract and the monetary amounts that can be exchanged under those contracts. 

Sometimes a healthcare provider may be tempted to enter into a kickback-styled arrangement with another provider or supplier that, in an attempt to be compliant, specifically carves out its application to Medicare or Medicaid patients. The Office of Inspector General, however, has advised that the mere fact that a kickback-styled arrangement intentionally excludes Medicare or Medicaid patients does not automatically make the arrangement otherwise compliant.

As an example, in OIG Advisory Opinion 12-06, the OIG dealt with a kickback-styled arrangement relating to the exclusive provision of anesthesia services and a corresponding per patient management fee (characterized in the opinion as “Arrangement A”). Under this arrangement, a physician group would serve as a medical center’s exclusive provider of anesthesia services and would also begin paying the medical center a per-patient fee for “management services” rendered by the center. The parties agreed to specifically exclude Federal health care program patients from that management fee.

In analyzing this arrangement, the OIG wrote:

“The OIG has a long-standing concern about arrangements under which the parties ‘carve out’ Federal health care program beneficiaries or business generated by Federal health care programs from otherwise questionable financial arrangements. Such arrangements implicate, and may violate, the anti-kickback statute by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.”  Id., pg. 6.

In its advisory opinion, the OIG recognized that carving out Federally-insured patients does not reduce the risk that the payments involved would otherwise have the effect of inducing prohibited referrals. The OIG expressed concern that the additional remuneration paid to the center in the form of a management services fee could unduly influence the center to select and retain the physician group as the center’s exclusive provider of anesthesia services to all of the center’s patients, including those who are Federally-insured.

Thus, medical providers and legal practitioners should be aware that having a kickback-styled arrangement carve out Medicare or Medicaid patients does not necessarily make the arrangement compliant.