Health plans, carriers, and other entities involved in the delivery of health care may often find themselves up against a complex maze of anti-kickback laws and regulations when trying to create new health care programs designed to incentivize quality, cost effective health care. Both federal and state laws are generally intended to protect beneficiaries against poor quality services and high costs, and to encourage free competition designed to facilitate cost effective and high quality care. While anti-kickback laws can often seem like an intricate knot that cannot be untied, much like the famous Gordian Knot, they do not have to be immoveable obstacles to beneficial arrangements between health plans, carriers, and other health care entities. But those arrangements must be carefully structured , as the U.S. Department of Justice (DOJ) is committed to pursuing those who engage in improper financial arrangements. Recently, the DOJ settled two cases for $21 million and $10 million where medical facilities were alleged to have violated federal anti-kickback laws and, as a result of the former, the False Claims Act.
To avoid regulatory scrutiny, those seeking to employ healthcare initiatives in New Jersey should consider the following State and Federal laws in structuring such programs or arrangements.
I. Federal Law
Anti-Kick Back Statute
The Federal Anti-Kickback Statute (“AKS”) (also referred to as section 1128B of the Social Security Act), 42 U.S.C. 1320a-7b is a criminal statute that prohibits the exchange of (or offer to exchange) anything of value, directly or indirectly, overtly or covertly, in an effort to induce or reward the referral of business reimbursable by federal health care programs. 42 U.S.C. 1320a-7b(b)(1),(2). This law has specific applications though: it only applies to federal health care programs (i.e., programs funded in whole or in part by the government), which includes state health care programs (i.e., Medicaid programs, Maternal and Child Health Services Block Grant programs, Social Services Block Grant Programs, and State Children’s Health Insurance programs). 42 U.S.C. 1320a-7b(f); 42 U.S.C. 1320a-7(h)(1)-(4). Likewise, the law is worded so broadly that it applies where federal or state health care programs may be liable for payment – the federal or state program does not actually have to pay. 42 U.S.C. 1320a-7b(b). This means that health plans, carriers, and other entities must be aware of instances where those programs could act as a second payor; in those instances, the AKS will apply.
Civil Monetary Penalties Law
The Civil Monetary Penalties Law (“CMPL”), 42 U.S.C. 1320a-7a prohibits offers or transfers of any remuneration that a person knows or should know is likely to influence an individual eligible for benefits under Medicare or a State health care program (defined above) to order or receive any items or services from a particular medical provider or supplier that may be paid in whole or in part by Medicare or a State health care program. 42 U.S.C. 1320a-7a(a)(5). The CMPL also has an implementing regulation, which provides that a penalty may be imposed if “a physician or other person who enters into any arrangement or scheme (such as a cross-referral arrangement) that the physician or other person knows, or should know, has a principal purpose of ensuring referrals by the physician to a particular person that, if the physician directly made referrals to such person, would be in violation of the prohibitions of 42 C.F.R. 411.353.” 42 C.F.R. 1003.300(b). 42 C.F.R. 411.353 is one of the Stark Law’s implementing regulations, discussed more fully below. In essence, this means that if conduct violates the Stark Law or its implementing regulations, it will violate the CMPL too.
The Stark Law, 42 U.S.C. 1395nn, and its implementing regulations place certain limitations on physician referrals and prohibit physician referrals of Medicare and Medicaid patients to designated health service providers (DHSP) with which the physician has an existing financial relationship. 42 U.S.C. 1395nn(a); 42 C.F.R. 411.353(a). “Financial relationship” means either an ownership or investment interest or a compensation arrangement. 42 U.S.C. 1395nn(a)(2). A “compensation arrangement” is further defined as any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, between a physician and DHSP. 42 U.S.C. 1395nn(h)(1)(A)-(B). DHSPs provide designated health services, which is defined as, among other things, clinical laboratory services, physical therapy services, radiology services (including MRIs), and impatient and outpatient hospital services. 42 U.S.C. 1395nn(h)(6); 42 C.F.R. 411.351.
II. New Jersey Law
New Jersey’s Codey Law
New Jersey’s Codey Law, N.J.S.A. 45:9-22.4 to -22.9, prohibits physicians from referring a patient to “a health care service in which the practitioner, or the practitioner’s immediate family, or the practitioner in combination with the practitioner’s immediate family has a significant beneficial interest.” N.J.S.A. 45:9-22.5(a). A “significant beneficial interest” is defined as “any financial interest.” N.J.S.A. 45:9-22.4. “Any financial interest” is so broad that any health care program that can plausibly be described as conferring a financial benefit to a physician where a patient referral is involved will likely fall within its scope.
N.J.A.C. 13:35-6.17 is very similar to the Codey Law. It prohibits practitioners (defined as all categories of licensees under the jurisdiction of the State Board of Medical Examiners) from referring “a patient to a health care service in which the practitioner or the practitioner's immediate family, or the practitioner in combination with the practitioner's immediate family, has a significant beneficial interest,” which means any financial interest. N.J.A.C. 13:35-6.1(a)(2), (5); N.J.A.C. 13:35-6.1(b). Additionally, a licensee is not permitted, “directly or indirectly, [to] give to or receive from any licensed or unlicensed source a gift of more than nominal (negligible) value, or any fee, commission, rebate or bonus or other compensation however denominated, which a reasonable person would recognize as having been given or received in appreciation for or to promote conduct by a licensee.” N.J.A.C. 13:35-6.17(c)(1).
New Jersey Clinical Laboratory Improvements Act
Under the New Jersey Laboratory Improvements Act, N.J.S.A. 45:9-42.26 to -42.45, no person is permitted to “[e]ither personally, or through an agent, solicit referral of specimens to his or any other clinical laboratory or contract to perform clinical laboratory examinations of specimens in a manner which offers or implies an offer of rebates to a person or persons submitting specimens, other fee-splitting inducements, participation in any fee-splitting arrangements or other unearned remuneration.” N.J.S.A. 45:9-42.42(d). This law will likely apply to any program where clinical laboratories are participants, which includes any facility used for examinations of materials derived from the human body for the purpose of yielding information for the diagnosis, prevention or treatment of disease or the assessment of medical conditions. N.J.S.A. 45:9-42.42(d); N.J.S.A. 45:9-42.27(a).
New Jersey’s Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act
Under the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, N.J.S.A. 26:2SS-1 to -20, an out-of-network care provider cannot “directly or indirectly related to a claim,” knowingly waive, rebate, give, pay, “or offer to waive, rebate give or pay all or part of the deducible copayment, or coinsurance owed by a covered person pursuant to the terms of the covered person’s health benefits plan as an inducement for the covered person to seek health care services from that provider.” N.J.S.A. 26:2SS-15(a). A “pattern of waiving, rebating, giving or paying all or part of the deductible, copayment or coinsurance by a provider shall be considered an inducement for the purposes of this subsection.” N.J.S.A. 26:2SS-15(a).
New Jersey’s Anti-Rebate Laws
New Jersey, as well as most other states, has enacted an anti-rebate law. The law effectively provides that no person is permitted to pay, allow, give, or offer, directly or indirectly, any valuable consideration or inducement to purchase insurance that is not specified in the contract for insurance. N.J.S.A. 17B:30-13. Cost sharing, waiver and incentive payment arrangements implicate this law and should be carefully evaluated.III. Cutting the Knot: Incentivizing Quality, Cost Effective Health Care Compliant with Applicable Laws
The web of federal and state laws that can apply to any endeavor to incentivize quality, cost effective health care seems like an intractable problem. But the key to untying or “cutting the knot” is to find approaches that render the laws’ restrictions moot. There are two principal ways that initiatives can be structured to accomplish that task.
First, any health care program can be structured in a way that the aforementioned laws are not even implicated. For example, the restrictions found within the AKS can be avoided entirely if persons who qualify under a federal or state health care program are disqualified from participation in the program. Likewise, one way to bypass New Jersey’s anti-rebate law is to specify all valuable consideration or inducements in the contract of insurance.
Second, most of the aforementioned laws have statutory exceptions to their prohibitions. For example, to create a health care program compliant with the Stark law or the CMPL, the program can be structured to facilitate value-based health care delivery and payment. 42 C.F.R. 411.357(aa). The exception is intricate, but effectively provides a safe harbor for programs that provide value based arrangements aimed at improving the quality care of a target patient population, among other things.
Likewise, a health care program could avoid the restrictions found within New Jersey’s Codey Law by trying to qualify for one of its five exceptions. One of those exceptions, for example, can apply if participants in an alternative payment model make a bona fide determination that the significant beneficial interest is reasonably related to the alternative payment model standards that are filed with the Department of health. N.J.S.A. 49-22.5(c)(5). An “alternative payment model” refers to a model of payment operated by Medicare, Medicaid or a health insurance carrier that generally (1) provides for payment for covered professional services earned by participating health care practitioners and health care services based on approved quality measures; (2) requires an alternative payment entity (i.e. entity like an organized delivery system) to bear financial risk for monetary losses under the alternative payment model. N.J.S.A. 45:9-22.4.
Finally, some exceptions can apply to more than one law. An exception to New Jersey’s Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act illustrates the point. A health care program can fit its program into one of the safe harbors/exceptions under federal law, like those applicable to the AKS, Stark Law and CMPL. N.J.S.A. 26:2SS-15(b). That means that if a health care program qualifies for an exception to the AKS, Stark Law, or CMPL, then the exception will also apply to the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act.
Navigating the vast web of federal and state laws designed to encourage free competition, equity open disclosure in health care arrangements may seem like an impossible, arduous task. However, those seeking to incentivize quality, cost effective health care decisions have feasible and practical options for structuring their programs to comply with the applicable laws and regulations. The viability of structuring the program to avoid implicating the laws and regulations entirely or meeting an applicable exception is a highly fact-sensitive inquiry that requires a thorough analysis.
Please contact Cynthia Borrelli, Mike Morris or Ryan Allen should you have questions.
 Although not necessarily the entire universe of laws, those identified are the most relevant.