The fraud and abuse statute in an evolving health care marketplace: Life in the health care speakeasy

American Journal of Law and Medicine

Volumn 22, Issue 2-3, 1996, Pages 205-231

  Blumstein, James F ^a,b,c  

^a VANDERBILT UNIVERSITY LAW SCHOOL   (United States)

^b VANDERBILT UNIVERSITY   (United States)

^c YALE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CONFERENCE PAPER; FORGERY; HEALTH INSURANCE; HEALTH MAINTENANCE ORGANIZATION; HOSPITAL; LAW; MEDICAL FEE; PATIENT REFERRAL; PHYSICIAN; REIMBURSEMENT;

ANTITRUST LAWS; CAPITATION FEE; ECONOMIC COMPETITION; FRAUD; HEALTH POLICY; HUMANS; LIABILITY, LEGAL; MANAGED CARE PROGRAMS; REFERRAL AND CONSULTATION; UNITED STATES;

EID: 0029815494     PISSN: 00988588     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (256)

1. See, e.g., Mark A. Hall, Managed Competition and Integrated Health Care Delivery Systems, 29 WAKE FORESTL. REV. 1, 10-11 (1994) [hereinafter Hall, Managed Competition].
2. See, e.g., Mark A. Hall, Managed Competition and Integrated Health Care Delivery Systems, 29 WAKE FORESTL. REV. 1, 10-11 (1994) [hereinafter Hall, Managed Competition].
3. See discussion infra part II.A.
4. The fraud and abuse statute prohibits many clearly illegal actions such as making claims for services that were not provided or for different services than were provided. See 42 U.S.C. § 1320a-7a (1994). For a thoughtful discussion of these traditional forms of fraud and abuse, see Jerry L. Mashaw & Theodore R. Marmor, Conceptualizing, Estimating, and Refining Fraud, Waste, and Abuse in Healthcare Spending, 11 YALE J. ON REG. 455, 463-70 (1994). This Article is only concerned with a very different set of issues - the prohibitions regarding the use of remuneration for inducing referrals in 42 U.S.C. §1320a-7b (1994). For general discussions of these issues, see David M. Frankford, Creating and Dividing the Fruits of Collective Activity: Referrals Among Health Care Providers, 89 COLUM. L. REV. 1861, 1865 (1989); Mark A. Hall, Making Sense of Referral Fee Statutes, 13 J. HEALTH POL. POL'Y & L. 623 (1988) [hereinafter Hall, Referral Fee Statutes]; Theodore N. McDowell, Note, The Medicare-Medicaid Anti-Fraud and Abuse Amendments: Their Impact on the Present Health Care System, 36 EMORY L.J. 691, 713-52 (1987).
5. The fraud and abuse statute prohibits many clearly illegal actions such as making claims for services that were not provided or for different services than were provided. See 42 U.S.C. § 1320a-7a (1994). For a thoughtful discussion of these traditional forms of fraud and abuse, see Jerry L. Mashaw & Theodore R. Marmor, Conceptualizing, Estimating, and Refining Fraud, Waste, and Abuse in Healthcare Spending, 11 YALE J. ON REG. 455, 463-70 (1994). This Article is only concerned with a very different set of issues - the prohibitions regarding the use of remuneration for inducing referrals in 42 U.S.C. §1320a-7b (1994). For general discussions of these issues, see David M. Frankford, Creating and Dividing the Fruits of Collective Activity: Referrals Among Health Care Providers, 89 COLUM. L. REV. 1861, 1865 (1989); Mark A. Hall, Making Sense of Referral Fee Statutes, 13 J. HEALTH POL. POL'Y & L. 623 (1988) [hereinafter Hall, Referral Fee Statutes]; Theodore N. McDowell, Note, The Medicare-Medicaid Anti-Fraud and Abuse Amendments: Their Impact on the Present Health Care System, 36 EMORY L.J. 691, 713-52 (1987).
6. The fraud and abuse statute prohibits many clearly illegal actions such as making claims for services that were not provided or for different services than were provided. See 42 U.S.C. § 1320a-7a (1994). For a thoughtful discussion of these traditional forms of fraud and abuse, see Jerry L. Mashaw & Theodore R. Marmor, Conceptualizing, Estimating, and Refining Fraud, Waste, and Abuse in Healthcare Spending, 11 YALE J. ON REG. 455, 463-70 (1994). This Article is only concerned with a very different set of issues - the prohibitions regarding the use of remuneration for inducing referrals in 42 U.S.C. §1320a-7b (1994). For general discussions of these issues, see David M. Frankford, Creating and Dividing the Fruits of Collective Activity: Referrals Among Health Care Providers, 89 COLUM. L. REV. 1861, 1865 (1989); Mark A. Hall, Making Sense of Referral Fee Statutes, 13 J. HEALTH POL. POL'Y & L. 623 (1988) [hereinafter Hall, Referral Fee Statutes]; Theodore N. McDowell, Note, The Medicare-Medicaid Anti-Fraud and Abuse Amendments: Their Impact on the Present Health Care System, 36 EMORY L.J. 691, 713-52 (1987).
7. The fraud and abuse statute prohibits many clearly illegal actions such as making claims for services that were not provided or for different services than were provided. See 42 U.S.C. § 1320a-7a (1994). For a thoughtful discussion of these traditional forms of fraud and abuse, see Jerry L. Mashaw & Theodore R. Marmor, Conceptualizing, Estimating, and Refining Fraud, Waste, and Abuse in Healthcare Spending, 11 YALE J. ON REG. 455, 463-70 (1994). This Article is only concerned with a very different set of issues - the prohibitions regarding the use of remuneration for inducing referrals in 42 U.S.C. §1320a-7b (1994). For general discussions of these issues, see David M. Frankford, Creating and Dividing the Fruits of Collective Activity: Referrals Among Health Care Providers, 89 COLUM. L. REV. 1861, 1865 (1989); Mark A. Hall, Making Sense of Referral Fee Statutes, 13 J. HEALTH POL. POL'Y & L. 623 (1988) [hereinafter Hall, Referral Fee Statutes]; Theodore N. McDowell, Note, The Medicare-Medicaid Anti-Fraud and Abuse Amendments: Their Impact on the Present Health Care System, 36 EMORY L.J. 691, 713-52 (1987).
8. The fraud and abuse statute prohibits many clearly illegal actions such as making claims for services that were not provided or for different services than were provided. See 42 U.S.C. § 1320a-7a (1994). For a thoughtful discussion of these traditional forms of fraud and abuse, see Jerry L. Mashaw & Theodore R. Marmor, Conceptualizing, Estimating, and Refining Fraud, Waste, and Abuse in Healthcare Spending, 11 YALE J. ON REG. 455, 463-70 (1994). This Article is only concerned with a very different set of issues - the prohibitions regarding the use of remuneration for inducing referrals in 42 U.S.C. §1320a-7b (1994). For general discussions of these issues, see David M. Frankford, Creating and Dividing the Fruits of Collective Activity: Referrals Among Health Care Providers, 89 COLUM. L. REV. 1861, 1865 (1989); Mark A. Hall, Making Sense of Referral Fee Statutes, 13 J. HEALTH POL. POL'Y & L. 623 (1988) [hereinafter Hall, Referral Fee Statutes]; Theodore N. McDowell, Note, The Medicare-Medicaid Anti-Fraud and Abuse Amendments: Their Impact on the Present Health Care System, 36 EMORY L.J. 691, 713-52 (1987).
9. See Clark C. Havighurst & James F. Blumstein, Coping with Quality/Cost Trade-offs in Medical Care: The Role of PSROs, 70 Nw. U. L. REV. 6, 15-20 (1975).
10. Capitation is "a method of paying health care providers or insurers in which a fixed amount is paid per enrollee to cover a defined set of services over a specified period, regardless of actual services provided." PROSPECTIVE PAYMENT ASSESSMENT COMM'N, MEDICARE AND THE AMERICAN HEALTH CARE SYSTEM: REPORT TO THE CONGRESS 156 (June 1995).
11. Pamela H. Bucy, Health Care Reform and Fraud by Health Care Providers, 38 VILL. L. REV. 1003, 1003 & nn.1-3 (1993) [hereinafter Bucy, Health Care Reform]. Northwestern National Life Insurance Company has estimated health claim fraud at $110 billion a year, approximately 10% of the total health care bill. Restaurant Chain, Insurance Firm to Study Detection of Health Claim Fraud, 4 Health L. Rep. (BNA) No. 23, at 870, 871 (June 8, 1995).
12. Pamela H. Bucy, Health Care Reform and Fraud by Health Care Providers, 38 VILL. L. REV. 1003, 1003 & nn.1-3 (1993) [hereinafter Bucy, Health Care Reform]. Northwestern National Life Insurance Company has estimated health claim fraud at $110 billion a year, approximately 10% of the total health care bill. Restaurant Chain, Insurance Firm to Study Detection of Health Claim Fraud, 4 Health L. Rep. (BNA) No. 23, at 870, 871 (June 8, 1995).
13. Pamela H. Bucy, Health Care Reform and Fraud by Health Care Providers, 38 VILL. L. REV. 1003, 1003 & nn.1-3 (1993) [hereinafter Bucy, Health Care Reform]. Northwestern National Life Insurance Company has estimated health claim fraud at $110 billion a year, approximately 10% of the total health care bill. Restaurant Chain, Insurance Firm to Study Detection of Health Claim Fraud, 4 Health L. Rep. (BNA) No. 23, at 870, 871 (June 8, 1995).
14. Bucy, Health Care Reform, supra note 6, at 1020-21.
15. 42 U.S.C. § 1320a-7b(b) (1994) provides as follows: (b) Illegal remunerations (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 . . . [Medicare] or . . . [Medicaid], 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 . . . [Medicare] or . . . [Medicaid], shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both. (2) Whoever knowingly and willfully offers or pays any remuneration (including 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 . . . [Medicare] or . . . [Medicaid], 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 . . . [Medicare] or . . . [Medicaid], shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both. The statute goes on to provide four specific exceptions: certain discounts, amounts paid by an employer to an employee, amounts paid to a group purchasing agent pursuant to a contract, and the waiver of Medicare part B coinsurance payments by a federally qualified health care center. Id.
16. Medicare-Medicaid Anti-Fraud and Abuse Amendments, Pub. L. No. 92-603, §§ 242(b), 242(c), 86 Stat. 1419(1972).
17. Medicare-Medicaid Anti-Fraud and Abuse Amendments, Pub. L. No. 95-142, §4(b)(1), 91 Stat. 1175 (1977).
18. Medicare and Medicaid Amendment of 1980, Pub. L. No. 96-499, §917, 94 Stat. 2609, 2625 (1981).
19. 42 U.S.C. § 1320a-7b (1994).
20. Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. No. 100-93, § 2, 101 Stat. 680 (1989). The power to promulgate regulatory exceptions (safe harbors) is codified at 42 U.S.C. § 1320a-7b(b)(3)(E) (1994).
21. The 1988 amendment made a technical correction; the 1989 amendment added rural primary care hospitals to a list of entities. 42 U.S.C. § 1320a-7b(c). The 1990 amendment added the present statutory exception allowing the waiver of Medicare coinsurance by a federally qualified health care center. Id. § 1320a-7b(b)(3)(D).
22. Richard P. Kusserow, The Medicare & Medicaid Anti-Kickback Statute and the Safe Harbor Regulations - What's Next?, 7 EXEMPT ORG. TAX REV. 419, 420 (1993). Other objectives sometimes ascribed to the antikickback provisions are the preservation of patient freedom of choice and the protection of competition. See id. These would surely seem to be subordinate goals of the antikickback ban, and it is not altogether clear why they should be viewed as independent objectives of the fraud and abuse law at all. Fraud and abuse, in this context, would appear to relate to overutilization of services and the containment of overall program costs.
23. Id. at 420.
24. Id. From the patient's perspective, there is a legitimate concern that the provider's financial interest rather than the patient's best medical interest will drive referral patterns. Id. This is a well-recognized and altogether valid professional concern with any form of financial system that creates incentives for providers to constrain costs. See, e.g., John C. Fletcher & Carolyn L. Engelhard, Ethical Issues in Managed Care: A Report of the University of Virginia Study Group on Managed Care, 122 VA. MED. Q. 162, 164-65 (1995). At the same time, it is highly questionable that the fraud and abuse law should have much application to that set of questions. They are not limited to Medicare and Medicaid, and the harsh absolutist stance of the fraud and abuse law is fundamentally at odds with the incentives, for example, of health maintenance organizations (HMOs), which have been promoted by the federal government since the HMO law of 1973, Federal Health Maintenance Act of 1973, 42 U.S.C. §§ 300e to 300e-17 (1994). It is, therefore, hard to accept the proposition that ethical considerations on the part of providers underlie enactment of the fraud and abuse law or should govern current implementation. Such an approach would call into question all forms of provider-based economic constraints on medical decisionmaking. The antikickback provision should be given narrower scope, leaving to other provisions the appropriate balancing of interests regarding the fiduciary relationship between doctor and patient. In this regard, disclosure requirements and informed consent rules will be more fruitful policy pathways than outright prohibition.
25. Fletcher & Engelhard, supra note 17, at 163.
26. Id.
27. This is the problem of moral hazard, in which the cost to the patient is substantially below the actual cost of the procedure. For a graphical depiction and discussion of this issue, see Havighurst & Blumstein, supra note 4, at 15-20.
28. Kathryn G. Sophy, Comment, Diagnosis Related Groups and the Price of Cost Containment, 2 J. CONTEMP. HEALTH L. & POL'Y 305, 305 (1986); see Fletcher & Engelhard, supra note 17, at 163.
29. Judith R. Lave, The Impact of the Medicare Prospective Payment System and Recommendations for Change, 7 YALE J. ON REG. 499, 500-01 (1990); see Sophy, supra note 21, at 305-06.
30. See Sophy, supra note 21, at 305.
31. Id. at 305-06; see also Lave, supra note 22, at 499.
32. Sophy, supra note 21, at 306.
33. Lave, supra note 22, at 509; see also Sophy, supra note 21, at 307.
34. See Bruce C. Vladeck, Medicare's Prospective Payment System at Age Eight: Mature Success or Midlife Crisis?, 14 U. PUGET SOUND L. REV. 453, 478-79 (1991).
35. CHARLES G. BENDA & FAY A. ROZOVSKY, MANAGED CARE AND THE LAW: LIABILITY AND RISK MANAGEMENT: A PRACTICAL GUIDE § 1.1, at 1.3 (1996). It is likely that, at least to some significant extent, these technological innovations were impelled by the shift in payment methods. See Sophy, supra note 21, at 319 (suggesting that hospitals would promote less invasive technology to contain costs in response to reimbursement under the DRG system).
36. Vladeck, supra note 27, at 477.
37. See BENDA & ROZOVSKY, supra note 28, at 1.3.
38. For a discussion of hospital/physician relationships, see Jeff Goldsmith, Hospital/Physician Relationships: A Constraint to Health Reform, HEALTH AFF., Fall 1993, at 160, 162.
39. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
40. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
41. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
42. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
43. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
44. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
45. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
46. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
47. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
48. See GENERAL ACCOUNTING OFFICE, REFERRALS TO PHYSICIAN-OWNED IMAGING FACILITIES WARRANT HCFA's SCRUTINY, GAO/HHS-95-2, at 2-3 (1994); GAO Reports on Nonprofit Hospitals' For-Profit Ventures, 8 EXEMPT ORG. TAX REV. 623, 624 (1993); Bruce J. Hillman et al., Frequency and Costs of Diagnostic Imaging in Office Practice - A Comparison of Self-Referring and Radiologist-Referring Physicians, 323 NEW ENG. J. MED. 1604, 1608 (1990); Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 YALE J. ON REG. 489, 519-20 (1992); Jean M. Mitchell & Elton Scott, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80, 80 (1992); Jean M. Mitchell & Elton Scott, Physician Ownership of Physical Therapy Services: Effects on Charges, Utilization, Profits, and Service Characteristics, 268 JAMA 2055, 2055 (1992) [hereinafter Mitchell & Scott, Physician Ownership]; Office of the Inspector General, Financial Arrangements Between Physicians and Health Care Businesses, [1989 Transfer Binder] Medicare & Medicaid Guide (CCH) ¶ 37,838, at 19,925 (May 1989) [hereinafter Office of the Inspector General, Financial Arrangements]. See generally Hearing on Health Care Reform: Physician Ownership and Referral Arrangements and H.R. 345, "The Comprehensive Physician Ownership and Referral Act of 1993," Before the Subcomm. on Health of the House Comm. on Ways and Means, 103d Cong., 1st Sess. 121-344 (1993) (giving testimony on physician ownership of various health services and utilization patterns). The present Stark statute prohibits Medicare and Medicaid payments relating to 11 designated health services if the referring physician has an ownership interest or compensation arrangement in the entity to which the patient was referred unless an exception is applicable. 42 U.S.C. § 1395nn (1994). The statute also imposes civil monetary penalties for knowingly billing for such services. Id. Thus many of the arrangements which were the focus of the above studies are no longer eligible for Medicare and Medicaid reimbursement. See id.
49. Office of the Inspector General, Financial Arrangements, supra note 32, at 19,931-32.
50. Id. at 19,933.
51. GENERAL ACCOUNTING OFFICE, supra note 32, at 10; Hillman et al., supra note 32, at 1604.
52. Mitchell & Scott, Physician Ownership, supra note 32, at 2057.
53. Id. at 2058-59.
54. See United States v. Bay State Ambulance & Hosp. Rental Serv., 874 F.2d 20, 29, 32 & n.21 (1st Cir. 1989); United States v. Greber, 760 F.2d 68, 71 (3d Cir.), cert. denied, 474 U.S. 988 (1985); United States v. Ruttenberg, 625 F.2d 173, 176-77 (7th Cir. 1980).
55. HHS refused to create such a defense. See infra note 147 and accompanying text.
56. See infra note 147 and accompanying text.
57. Stephen M. Shortell et al., The New World of Managed Care: Creating Organized Delivery Systems, HEALTH AFF., Winter 1994, at 46, 47.
58. See PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 156.
59. Id.
60. See Shortell et al., supra note 41, at 48. Capitation also creates incentives to under-provide care. See Fletcher & Engelhard, supra note 17, at 163. However, capitation payments to providers are often modified to have part of the compensation package based on outcome measures and patient satisfaction. See Shortell et al., supra note 41, at 47. Furthermore, sophisticated payers increasingly realize that they must monitor quality and become interested in both cost and quality. Halcomb B. Nobel, Quality is Focus for Health Plans, N.Y. TIMES, July 3, 1995, at A1; see Arnold S. Relman, Medical Insurance and Health, 331 NEW ENG. J. MED. 471, 471 (1994) (analyzing a study which showed that persons insured by an HMO or other pre-paid insurance plans were less likely to have ruptured appendixes than persons insured on a FFS basis because of the HMD's greater emphasis on preventive care); see also KPMG Peat Marwick, Managed Care Study, News Release (June 1, 1995) (showing from a survey of 1300 hospitals that patient deaths were eight percent lower and hospital costs 11.5% lower than expected in cities with a high penetration of managed care). The law of medical malpractice also constrains excessive corner-cutting in the pursuit of cost-containment objectives. See James F. Blumstein, Report of the Panel on Cost Containment, In HEALTH CARE DELIVERY AND TORT: SYSTEMS ON A COLLISION COURSE?: CONFERENCE PROCEEDINGS DALLAS, JUNE 1991, at 76 (Elizabeth Rolph ed., RAND & Institute for Civil Justice 1993).
61. See Shortell et al., supra note 41, at 48. Capitation also creates incentives to under-provide care. See Fletcher & Engelhard, supra note 17, at 163. However, capitation payments to providers are often modified to have part of the compensation package based on outcome measures and patient satisfaction. See Shortell et al., supra note 41, at 47. Furthermore, sophisticated payers increasingly realize that they must monitor quality and become interested in both cost and quality. Halcomb B. Nobel, Quality is Focus for Health Plans, N.Y. TIMES, July 3, 1995, at A1; see Arnold S. Relman, Medical Insurance and Health, 331 NEW ENG. J. MED. 471, 471 (1994) (analyzing a study which showed that persons insured by an HMO or other pre-paid insurance plans were less likely to have ruptured appendixes than persons insured on a FFS basis because of the HMD's greater emphasis on preventive care); see also KPMG Peat Marwick, Managed Care Study, News Release (June 1, 1995) (showing from a survey of 1300 hospitals that patient deaths were eight percent lower and hospital costs 11.5% lower than expected in cities with a high penetration of managed care). The law of medical malpractice also constrains excessive corner-cutting in the pursuit of cost-containment objectives. See James F. Blumstein, Report of the Panel on Cost Containment, In HEALTH CARE DELIVERY AND TORT: SYSTEMS ON A COLLISION COURSE?: CONFERENCE PROCEEDINGS DALLAS, JUNE 1991, at 76 (Elizabeth Rolph ed., RAND & Institute for Civil Justice 1993).
62. See Shortell et al., supra note 41, at 48. Capitation also creates incentives to under-provide care. See Fletcher & Engelhard, supra note 17, at 163. However, capitation payments to providers are often modified to have part of the compensation package based on outcome measures and patient satisfaction. See Shortell et al., supra note 41, at 47. Furthermore, sophisticated payers increasingly realize that they must monitor quality and become interested in both cost and quality. Halcomb B. Nobel, Quality is Focus for Health Plans, N.Y. TIMES, July 3, 1995, at A1; see Arnold S. Relman, Medical Insurance and Health, 331 NEW ENG. J. MED. 471, 471 (1994) (analyzing a study which showed that persons insured by an HMO or other pre-paid insurance plans were less likely to have ruptured appendixes than persons insured on a FFS basis because of the HMD's greater emphasis on preventive care); see also KPMG Peat Marwick, Managed Care Study, News Release (June 1, 1995) (showing from a survey of 1300 hospitals that patient deaths were eight percent lower and hospital costs 11.5% lower than expected in cities with a high penetration of managed care). The law of medical malpractice also constrains excessive corner-cutting in the pursuit of cost-containment objectives. See James F. Blumstein, Report of the Panel on Cost Containment, In HEALTH CARE DELIVERY AND TORT: SYSTEMS ON A COLLISION COURSE?: CONFERENCE PROCEEDINGS DALLAS, JUNE 1991, at 76 (Elizabeth Rolph ed., RAND & Institute for Civil Justice 1993).
63. See Shortell et al., supra note 41, at 48. Capitation also creates incentives to under-provide care. See Fletcher & Engelhard, supra note 17, at 163. However, capitation payments to providers are often modified to have part of the compensation package based on outcome measures and patient satisfaction. See Shortell et al., supra note 41, at 47. Furthermore, sophisticated payers increasingly realize that they must monitor quality and become interested in both cost and quality. Halcomb B. Nobel, Quality is Focus for Health Plans, N.Y. TIMES, July 3, 1995, at A1; see Arnold S. Relman, Medical Insurance and Health, 331 NEW ENG. J. MED. 471, 471 (1994) (analyzing a study which showed that persons insured by an HMO or other pre-paid insurance plans were less likely to have ruptured appendixes than persons insured on a FFS basis because of the HMD's greater emphasis on preventive care); see also KPMG Peat Marwick, Managed Care Study, News Release (June 1, 1995) (showing from a survey of 1300 hospitals that patient deaths were eight percent lower and hospital costs 11.5% lower than expected in cities with a high penetration of managed care). The law of medical malpractice also constrains excessive corner-cutting in the pursuit of cost-containment objectives. See James F. Blumstein, Report of the Panel on Cost Containment, In HEALTH CARE DELIVERY AND TORT: SYSTEMS ON A COLLISION COURSE?: CONFERENCE PROCEEDINGS DALLAS, JUNE 1991, at 76 (Elizabeth Rolph ed., RAND & Institute for Civil Justice 1993).
64. Steven Findlay, California: Edgy at the Cutting Edge, BUS. & HEALTH, July 1995, at 36, 40.
65. See Douglas G. Cave, Vertical Integration Models to Prepare Health Systems for Capitation, HEALTH CARE MGMT. REV., Winter 1995, at 26, 27-28 (1995); Findlay, supra note 45, at 43; Shortell et al., supra note 41, at 51; Daniel K. Zismer & John J. Collins, Jr., Physician Incentives in a Managed Care World, HEALTHCARE F.J., Sept.-Oct. 1994, at 39, 39.
66. See Douglas G. Cave, Vertical Integration Models to Prepare Health Systems for Capitation, HEALTH CARE MGMT. REV., Winter 1995, at 26, 27-28 (1995); Findlay, supra note 45, at 43; Shortell et al., supra note 41, at 51; Daniel K. Zismer & John J. Collins, Jr., Physician Incentives in a Managed Care World, HEALTHCARE F.J., Sept.-Oct. 1994, at 39, 39.
67. Zismer & Collins, supra note 46, at 39.
68. See Barbara Weiss, Managed Care: There's No Stopping It Now, MED. ECON., Mar. 13, 1995, at 26, 36.
69. Id. at 34.
70. Beyond Insurer Scrutiny: Can Capitation Help?, HOSPS. & HEALTH NETWORKS, Dec. 5, 1994, at 30, 30.
71. Fletcher & Engelhard, supra note 17, at 163.
72. Id.
73. There have not been many reported cases under the antikickback provisions of the fraud and abuse statute to guide providers and their advisors. See Pamela H. Bucy, The Poor Fit of Traditional Evidentiary Doctrine and Sophisticated Crime: An Empirical Analysis of Health Care Fraud Prosecutions, 63 FORDHAM L. REV. 383, 487 (1994).
74. The enforcement agency has recognized the extraordinary breadth or overbreadth of the fraud and abuse law. The following reflects comments by HHS relating to the need for safe harbors as protection of innocent conduct that otherwise would be swept up in the fraud and abuse dragnet. Since the statute on its face is so broad, and the court has recognized its full breadth, concern has arisen among a number of health care providers that many relatively innocuous, or even beneficial, commercial arrangements are technically covered by the statute and are, therefore, subject to criminal prosecution. This section [requiring regulations setting forth safe harbors] reflects the generally accepted view that the language proscribing remuneration that induces referrals is so broadly written as to encompass many harmless or efficient arrangements as well.
75. Fed. Reg. 3088, 3088 (1989). "Because the statute is broad, the payment practices described in these safe-harbor provisions would be prohibited by the statute but for their inclusion here." 56 Fed. Reg. 35,952, 35,958 (1991).
76. 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988 (1985).
77. Id. at 72.
78. See id. at 71.
79. Id. at 70.
80. Id.
81. Dr. Greber's company provided the patient with a Holter monitor, which records heart waves over an extended period of time. Id.
82. See id.
83. Id.
84. Id. There was some factual dispute about whether the interpretation was actually performed by the original referring physician. Id. Early commentary suggested that there was a "tainted air of subterfuge to the entire operation" considered by the Greber court. See Hall, Referral Fee Statutes, supra note 3, at 631 n.27 (quoting Greber, 760 F.2d at 70). And, indeed, the facts could have allowed a much narrower analytical focus. See id. However, the court of appeals assumed for the sake of its decision that the work had actually been performed and ruled broadly on that basis. See 760 F.2d at 70-72.
85. 760 F.2d at 70.
86. Id. at 69.
87. Id. at 71.
88. Id. at 71-72. The reasoning of the Greber case has been followed in other cases. See United States v. Kats, 871 F.2d 105 (9th Cir. 1989). Kats was an investor in a medical services company that received kickbacks for referrals. Id. at 107. Although in its instructions the district court used both a one purpose and a one material purpose standard, the circuit court stated its agreement with the reasoning of the Greber case. Id. at 108 & n.1. In United States v. Bay State Ambulance & Hosp. Rental Serv., a hospital employee whose recommendation regarding the awarding of a contract to provide ambulance services was influential was given two cars by a sister shell company of the ambulance company. 874 F.2d 20, 25-26 (1st Cir. 1989). He asserted he was a consultant for the ambulance company; this relationship had not been revealed to the hospital. Id. at 26. The cars were considered illegal remuneration. See id. at 30. The district court instructed the jury that the government must prove that the improper purpose was the primary but not necessarily the only purpose for making the payment. Id. at 29. The circuit court stated that it was impressed by Greber's reasoning but concluded that under the circumstances of the case it did not need to decide the exact reach of the statute. Id. at 29-30.
89. See Hall, Managed Competition, supra note 1, at 4-6.
90. Id.
91. See generally id.
92. Ron Winslow, Is Victory in Sight in Health-Care War?, WALL ST. J., Feb. 27, 1995, at A1.
93. Id. In 1995, the survey showed an increase of only 2.1%. Health Care Costs' Feverish Rise Slows: Managed Plans Called Key, TENNESSEAN, Jan. 30, 1996, at E1.
94. Health Care Costs' Feverish Rise Slows: Managed Plans Called Key, supra note 72, at E1.
95. Id.
96. Robert Wilcox, Quality Coverage, N.Y. TIMES, June 5, 1995, at A10 (letter to editor).
97. Id.
98. The TennCare program, Tennessee's Medicaid demonstration, uses capitation as a means of reducing program costs and expanding access to care. Managed care arrangements are becoming part of the program and will be required by the end of 1996. For a discussion of the concept underlying TennCare, see James F. Blumstein, Health Care Reform: The Policy Context, 29 WAKE FOREST L. REV. 15, 40-42 (1994).
99. Ron Winslow, Medical Upheaval: Welfare Recipients Are a Hot Commodity in Managed Care Now, WALL ST. J., Apr. 12, 1995, at A1.
100. Id.
101. GENERAL ACCOUNTING OFFICE, MEDICARE MANAGED CARE: ENROLLMENT GROWTH UNDERSCORES NEED TO REVAMP HMO PAYMENT METHODS 1, 4 (1995).
102. George Anders & Laurie McGinley, Managed Eldercare: HMOs Are Signing Up New Class of Member: The Group in Medicare, WALL ST. J., Apr. 27, 1995, at A1. Although many think that managed care might slow Medicare cost increases, there has been an understandable hesitancy to coerce Medicare beneficiaries to participate in managed care (and thereby alienate them).
103. Robert H. Miller & Harold S. Luft, Managed Care Plan Performance Since 1980, 271 JAMA 1512, 1517 (1994). There have not been recent studies to verify health care cost reductions by MCOs. Apparently, no peer-reviewed study using post-1982 data provides evidence of the impact of managed care plans on health expenditure growth rates or premium growth rates. See Robert H. Miller & Harold S. Luft, Estimating Health Expenditure Growth Under Managed Competition, 273 JAMA 656, 656 (1995).
104. Robert H. Miller & Harold S. Luft, Managed Care Plan Performance Since 1980, 271 JAMA 1512, 1517 (1994). There have not been recent studies to verify health care cost reductions by MCOs. Apparently, no peer-reviewed study using post-1982 data provides evidence of the impact of managed care plans on health expenditure growth rates or premium growth rates. See Robert H. Miller & Harold S. Luft, Estimating Health Expenditure Growth Under Managed Competition, 273 JAMA 656, 656 (1995).
105. Although fully integrated organizations may affiliate providers as either employees or subcontractors, the employee model is safer from a fraud and abuse perspective because employee status insulates a provider from the application of the fraud and abuse law. 42 U.S.C. § 1320a-7b(b) (1994). Contractual arrangements are protected administratively if certain terms are adhered to, but services may not involve the promotion of a business arrangement. This raises the question of whether referrals are fully insulated even in this model if implemented contractually. 42 C.F.R. § 1001.952(d) (1994).
106. See generally Carl H. Hitchner et al., Integrated Delivery Systems: A Survey of Organizational Models, 29 WAKE FOREST L. REV. 273 (1994) (discussing fraud and abuse issues raised by various partially integrated models). "An integrated delivery system is an organization that furnishes patients with [a continuum of health care services] from affiliated providers and coordinates case management and inter-provider information." Id. at 274. At a minimum it provides hospital, physician, and ancillary services. Id. An integrated system offers health care purchasers a single entity for managed care contracting purposes. Id. The integrated system owns the health care services business and has the right to the revenue from providing the services. See id. at 302. The affiliated providers may be employees or subcontractors. See id. at 274; see also DEAN C. CODDINGTON ET AL., INTEGRATED HEALTH CARE: REORGANIZING THE PHYSICIAN, HOSPITAL AND HEALTH PLAN RELATIONSHIP 7-8 (1994); Gerald R. Peter, A Practical Examination of the IRS and OIG Rules for Integrated Delivery Systems, 7 EXEMPT ORG. TAX REV. 765, 765 n. 1 (1993). In some jurisdictions, employment arrangements for physicians are barred by the prohibition on the corporate practice of medicine. See Berlin v. Sarah Bush Lincoln Health Ctr., 664 N.E.2d 337, 339-40 (Ill. App. Ct. 1996); infra note 91.
107. See generally Carl H. Hitchner et al., Integrated Delivery Systems: A Survey of Organizational Models, 29 WAKE FOREST L. REV. 273 (1994) (discussing fraud and abuse issues raised by various partially integrated models). "An integrated delivery system is an organization that furnishes patients with [a continuum of health care services] from affiliated providers and coordinates case management and inter-provider information." Id. at 274. At a minimum it provides hospital, physician, and ancillary services. Id. An integrated system offers health care purchasers a single entity for managed care contracting purposes. Id. The integrated system owns the health care services business and has the right to the revenue from providing the services. See id. at 302. The affiliated providers may be employees or subcontractors. See id. at 274; see also DEAN C. CODDINGTON ET AL., INTEGRATED HEALTH CARE: REORGANIZING THE PHYSICIAN, HOSPITAL AND HEALTH PLAN RELATIONSHIP 7-8 (1994); Gerald R. Peter, A Practical Examination of the IRS and OIG Rules for Integrated Delivery Systems, 7 EXEMPT ORG. TAX REV. 765, 765 n. 1 (1993). In some jurisdictions, employment arrangements for physicians are barred by the prohibition on the corporate practice of medicine. See Berlin v. Sarah Bush Lincoln Health Ctr., 664 N.E.2d 337, 339-40 (Ill. App. Ct. 1996); infra note 91.
108. See generally Carl H. Hitchner et al., Integrated Delivery Systems: A Survey of Organizational Models, 29 WAKE FOREST L. REV. 273 (1994) (discussing fraud and abuse issues raised by various partially integrated models). "An integrated delivery system is an organization that furnishes patients with [a continuum of health care services] from affiliated providers and coordinates case management and inter-provider information." Id. at 274. At a minimum it provides hospital, physician, and ancillary services. Id. An integrated system offers health care purchasers a single entity for managed care contracting purposes. Id. The integrated system owns the health care services business and has the right to the revenue from providing the services. See id. at 302. The affiliated providers may be employees or subcontractors. See id. at 274; see also DEAN C. CODDINGTON ET AL., INTEGRATED HEALTH CARE: REORGANIZING THE PHYSICIAN, HOSPITAL AND HEALTH PLAN RELATIONSHIP 7-8 (1994); Gerald R. Peter, A Practical Examination of the IRS and OIG Rules for Integrated Delivery Systems, 7 EXEMPT ORG. TAX REV. 765, 765 n. 1 (1993). In some jurisdictions, employment arrangements for physicians are barred by the prohibition on the corporate practice of medicine. See Berlin v. Sarah Bush Lincoln Health Ctr., 664 N.E.2d 337, 339-40 (Ill. App. Ct. 1996); infra note 91.
109. Thomas E. Hermann, Health Care Reform: Will It Address the Problem of Fraud and Abuse, in INTEGRATED DELIVERY SYSTEMS IN A CHANGING HEALTH CARE ENVIRONMENT: NEW LEGAL CHALLENGES, at 91, 99 (Forum on Health Law of the American Bar Ass'n Monograph 1, 1994).
110. There may be a problem of proving the scienter element of the illegal conduct until the lawlessness of the activity becomes more commonly understood. For a discussion of this scienter issue, see infra part III.B.
111. See supra part II.D.
112. See John E. Steiner, Jr. & D. McCarty Thornton, AHA and HHS Exchange Letters, 9 EXEMPT ORG. TAX REV. 526, 526-27 (1994); D. McCarty Thornton, HHS' Thornton Writes IRS' Sullivan, 7 EXEMPT ORG. TAX REV. 705, 705 (1993). In an
113. See John E. Steiner, Jr. & D. McCarty Thornton, AHA and HHS Exchange Letters, 9 EXEMPT ORG. TAX REV. 526, 526-27 (1994); D. McCarty Thornton, HHS' Thornton Writes IRS' Sullivan, 7 EXEMPT ORG. TAX REV. 705, 705 (1993). In an exchange of letters, the OIG refused to state that the purchase price paid by a physician for a practice would be a safe price for a hospital to pay. Id.
114. See 42 U.S.C. § 1320a-7b(b)(3)(B) (1994).
115. See, e.g., Berlin v. Sarah Bush Lincoln Health Ctr., 664 N.E.2d 337, 339-40 (Ill. App. Ct. 1996).
116. See Jeffrey H. Chase-Lubitz, Note, The Corporate Practice of Medicine Doctrine: An Anachronism in the Modern Health Care Industry, 40 VAND. L. REV. 445, 447, 471-74 (1987); Mark A. Hall, Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. REV. 431, 509-10 (1988). The corporate practice doctrine may also prevent corporate entities from billing for physician services. See James F. Blumstein, Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, 79 CORNELL L. REV. 1459, 1471-72 (1994) [hereinafter Blumstein, Competing Visions of Medical Care].
117. See Jeffrey H. Chase-Lubitz, Note, The Corporate Practice of Medicine Doctrine: An Anachronism in the Modern Health Care Industry, 40 VAND. L. REV. 445, 447, 471-74 (1987); Mark A. Hall, Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. REV. 431, 509-10 (1988). The corporate practice doctrine may also prevent corporate entities from billing for physician services. See James F. Blumstein, Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, 79 CORNELL L. REV. 1459, 1471-72 (1994) [hereinafter Blumstein, Competing Visions of Medical Care].
118. See Jeffrey H. Chase-Lubitz, Note, The Corporate Practice of Medicine Doctrine: An Anachronism in the Modern Health Care Industry, 40 VAND. L. REV. 445, 447, 471-74 (1987); Mark A. Hall, Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. REV. 431, 509-10 (1988). The corporate practice doctrine may also prevent corporate entities from billing for physician services. See James F. Blumstein, Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, 79 CORNELL L. REV. 1459, 1471-72 (1994) [hereinafter Blumstein, Competing Visions of Medical Care].
119. See Jeffrey H. Chase-Lubitz, Note, The Corporate Practice of Medicine Doctrine: An Anachronism in the Modern Health Care Industry, 40 VAND. L. REV. 445, 447, 471-74 (1987); Mark A. Hall, Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. REV. 431, 509-10 (1988). The corporate practice doctrine may also prevent corporate entities from billing for physician services. See James F. Blumstein, Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, 79 CORNELL L. REV. 1459, 1471-72 (1994) [hereinafter Blumstein, Competing Visions of Medical Care].
120. See Greber, 760 F.2d at 71-72. For a discussion of physician practice sales and consideration of these side deals regarding post-acquisition referrals, see John D. Colombo, Health Care Reform and Federal Tax Exemption: Rethinking the Issues, 29 WAKE FOREST L. REV. 215, 258-61 (1994).
121. See supra note 88.
122. Thornton, supra note 88, at 706.
123. Hall, Managed Competition, supra note 1, at 5.
124. Id.
125. See supra note 32 and accompanying text. Current law prohibits the type of joint venture that was the focus of the studies that demonstrated increased utilization. See 42 U.S.C. § 1395nn (1994) (the Stark statute).
126. Hall, Managed Competition, supra note 1, at 5-6.
127. ANN N. JAMES & SUSAN B. MURPHY, HEALTH CARE LAW FORUM, TENNESSEE BAR ASS'N, MANAGING MANAGED CARE: LEGAL AND PRACTICAL ISSUES 19 (1995); see Hitchner et al., supra note 84, at 275 & n.4, 277-79.
128. See JAMES & MURPHY, supra note 99, at 20.
129. Compliance with the safe harbor on discounts is tightly defined and narrowly constrained. See 42 C.F.R. § 1001.952(h) (1994); Hitchner et al., supra note 84, at 275-77, 279-80.
130. Hitchner et al., supra note 84, at 275.
131. Id. at 279.
132. Id.
133. Id.
134. JAMES & MURPHY, supra note 99, at 19.
135. Id.
136. Hitchner et al., supra note 84, at 296-97; see also JAMES & MURPHY, supra note 99, at 19.
137. JAMES & MURPHY, supra note 99, at 20.
138. See id.
139. See id. at 19.
140. Id. at 20.
141. JAMES & MURPHY, supra note 99, at 21; Hitchner et al., supra note 84, at 285.
142. JAMES & MURPHY, supra note 99, at 21.
143. Id.
144. Id.
145. Id.
146. See id.
147. Hitchner et al., supra note 84, at 289-91.
148. See id.
149. See id. at 289-90.
150. Id. at 274.
151. See id. at 275.
152. See Colombo, supra note 92, at 236-40.
153. Hitchner et al., supra note 84, at 274.
154. See JAMES & MURPHY, supra note 99, at 23.
155. See Colombo, supra note 92, at 236-40.
156. See Michael W. Peregrine & Bernadette M. Broccolo, Billings Clinic and Harriman Jones: New Resources for 'IDS' Tax Planning, 9 EXEMPT ORG. TAX REV. 789, 789 (1994); Michael W. Peregrine & Bernadette M. Broccolo, New 'IDS' Determination Letter Offers Promise, Sparks Controversy, 7 EXEMPT ORG. TAX REV. 757, 757 (1993) [hereinafter Peregrine & Broccolo, New 'IDS' Determination Letter].
157. See Michael W. Peregrine & Bernadette M. Broccolo, Billings Clinic and Harriman Jones: New Resources for 'IDS' Tax Planning, 9 EXEMPT ORG. TAX REV. 789, 789 (1994); Michael W. Peregrine & Bernadette M. Broccolo, New 'IDS' Determination Letter Offers Promise, Sparks Controversy, 7 EXEMPT ORG. TAX REV. 757, 757 (1993) [hereinafter Peregrine & Broccolo, New 'IDS' Determination Letter].
158. See Michael W. Peregrine & Bernadette M. Broccolo, Billings Clinic and Harriman Jones: New Resources for 'IDS' Tax Planning, 9 EXEMPT ORG. TAX REV. 789, 789 (1994); Michael W. Peregrine & Bernadette M. Broccolo, New 'IDS' Determination Letter Offers Promise, Sparks Controversy, 7 EXEMPT ORG. TAX REV. 757, 757 (1993) [hereinafter Peregrine & Broccolo, New 'IDS' Determination Letter].
159. Full-Text Exemption Ruling - Facey Medical Foundation, 7 EXEMPT ORG. TAX REV. 828, 830 (1993); Full-Text Exemption Ruling - Friendly Hills HealthCare Network, 7 EXEMPT ORG. TAX REV. 490, 491 (1993); Full Text Exemption Ruling of Harriman Jones Medical Foundation Exemption Ruling, 9 EXEMPT ORG. TAX REV. 719, 720 (1994).
160. Full-Text Exemption Ruling - Facey Medical Foundation, 7 EXEMPT ORG. TAX REV. 828, 830 (1993); Full-Text Exemption Ruling - Friendly Hills HealthCare Network, 7 EXEMPT ORG. TAX REV. 490, 491 (1993); Full Text Exemption Ruling of Harriman Jones Medical Foundation Exemption Ruling, 9 EXEMPT ORG. TAX REV. 719, 720 (1994).
161. Full-Text Exemption Ruling - Facey Medical Foundation, 7 EXEMPT ORG. TAX REV. 828, 830 (1993); Full-Text Exemption Ruling - Friendly Hills HealthCare Network, 7 EXEMPT ORG. TAX REV. 490, 491 (1993); Full Text Exemption Ruling of Harriman Jones Medical Foundation Exemption Ruling, 9 EXEMPT ORG. TAX REV. 719, 720 (1994).
162. Peregrine & Broccolo, New 'IDS' Determination Letter, supra note 128, at 763.
163. 914 F. Supp. 1507, 1508 (M.D. Tenn. 1996).
164. 31 U.S.C. §§ 3729-3733 (1994).
165. Pogue, 914 F. Supp. at 1509. If private whistleblowers can sue to enforce the antikickback provisions of the fraud and abuse law, the financial consequences for nonprofit institutions can be, at least in theory, staggering. The IRS has asserted that nonprofit institutions cannot engage in illegal activity without placing their tax-exempt status at risk. General Counsel Memoranda No. 39,862, reprinted in I.R.S. Pos. (CCH) ¶ 2327, at 7767, 7784 (Dec. 6, 1991). This view has been upheld. See Bob Jones Univ. v. United States, 461 U.S. 574, 588 (1983) (stating that tax-exempt status will be provided as long as the organization does not run afoul of local laws and public policy). The IRS has specifically concluded that a violation of the antikickback provision of the fraud and abuse law was inconsistent with exempt status. See Colombo, supra note 92, at 228-31. Thus, a private (qui tam) FCA suit could threaten the tax-exempt status of involved nonprofit health care institutions.
166. Medicare and Medicaid Patient and Program Act, Pub. L. No. 100-93, § 14(a), 101 Stat. 680, 685 (1987). Section 14(a) provided that: The Secretary of Health and Human Services, in consultation with the Attorney General, not later than 1 year after the date of the enactment of this Act [Aug. 18, 1987] shall publish proposed regulations, and not later than 2 years after the date of the enactment of this Act shall promulgate final regulations, specifying payment practices that shall not be treated as a criminal offense under section 1128(b) of the Social Security Act [subsection (b)] and shall not serve as the basis for an exclusion under section 1128(b)(7) of such Act [section 1320a-7(b)(7)]. Any practices specified in regulations pursuant to the preceding sentence shall be in addition to the practices described in subparagraphs (A) through (C) of section 1128B(b)(3) [subsec. (b)(3)].
167. U.S.C. § 1320a-7b(b)(3)(E) (1994) provides: "(3) Paragraphs (1) and (2) [the antireferral provisions] shall not apply to . . . (E) any payment practice specified by the Secretary in regulations promulgated pursuant to section 14(a) of the Medicare and Medicaid Patient and Program Protection Act of 1987."
168. This point was recognized by HHS when it initially proposed the safe-harbor regulations. 54 Fed. Reg. 3088, 3088 (1989); see supra note 54.
169. See, e.g., United States v. Lanier, 73 F.3d 1380 (6th Cir. 1996), cert. granted, 64 U.S.L.W. 3830 (U.S. June 18, 1996) (No. 95-1717).
170. 54 Fed. Reg. 3088.
171. 52 Fed. Reg. 38,794 (1987).
172. The Office of Information and Regulatory Affairs (OIRA), a part of the OMB, was established under President Carter. See Paul A. Gigot, Regulation Cop No Longer Walks His Beat, WALL ST. J., Apr. 13, 1990, at A10. OIRA is charged with regulatory oversight for the executive office of the President and, under the Reagan and Bush Administrations, was charged with serving as a check on unreasonable regulation. Id. However, because of congressional opposition to the office, during the Bush Presidency, it was vacant for over three years, covering much of the time before the initial safe harbors were finally issued. Id.; see also Paul A. Gigot, Return of the Iron Age, WALL ST. J., Oct. 16, 1990, at A26.
173. The Office of Information and Regulatory Affairs (OIRA), a part of the OMB, was established under President Carter. See Paul A. Gigot, Regulation Cop No Longer Walks His Beat, WALL ST. J., Apr. 13, 1990, at A10. OIRA is charged with regulatory oversight for the executive office of the President and, under the Reagan and Bush Administrations, was charged with serving as a check on unreasonable regulation. Id. However, because of congressional opposition to the office, during the Bush Presidency, it was vacant for over three years, covering much of the time before the initial safe harbors were finally issued. Id.; see also Paul A. Gigot, Return of the Iron Age, WALL ST. J., Oct. 16, 1990, at A26.
174. Blumstein, Competing Visions of Medical Care, supra note 91, at 1463-74.
175. 54 Fed. Reg. 3088, 3089 ("[I]t is necessary for the fiscal integrity of the Medicare and Medicaid programs to assure that physicians exercise sound, objective medical judgment when controlling admittance to [the medical] market.").
176. Id. ("We have attempted in these proposed regulations to permit physicians to freely engage in business practices and arrangements that encourage competition, innovation and economy. However, we have added criteria to each 'safe harbor' in order to reduce the potential for abuse.").
177. Between 1987, when the safe harbors were authorized, and 1991, when the first final set of safe harbors was issued, studies were published which showed that the patients of physicians who owned ancillary services were referred to such services more often than the patients of nonowning physicians. See supra note 32 and accompanying text. These studies did not purport to answer the question about which rate of utilization of such services was consistent with good medical practice. Other evidence demonstrated that there was a wide range of divergence in procedure rates in different geographic areas for no observable medical reason. See, e.g., John E. Wennberg, Dealing with Medical Practice Variations: A Proposal for Action, HEALTH AFF., Summer 1984, at 6. Although no firm conclusions could be drawn from the evidence about the medical propriety of the increases in utilization, policymakers drew the perhaps natural inference of overutilization because of the financial self-interest involved. See supra text accompanying note 32. This reasonable conclusion is notably at odds with the traditions of the professional paradigm in medicine, which holds that physicians make decisions based on scientific medical considerations, not financial inducements. See generally Blumstein, Competing Visions of Medical Care, supra note 91, at 1464-66.
178. 56 Fed. Reg. 35,952 (1991) (codified at 42 C.F.R. § 1001.952(a)-(k)).
179. See id. at 35,953-84. It is noteworthy, in this regard, that the position of the Administrator of the OMB OIRA, in charge of regulatory oversight for the executive office of the President, was unfilled during this administrative rulemaking process. See Gigot, Return of the Iron Age, supra note 139, at A26.
180. 56 Fed. Reg. 35,952, 35,954.
181. Id. at 35,954-55.
182. 874 F.2d 20 (1st Cir. 1989).
183. Id. at 32 n.21.
184. Id.
185. Id.
186. The OIG also relied on statements in United States v. Ruttenberg that, under the antikickback law, "increased cost to the government" is not the "sole criterion of corruption." 625 F.2d 173, 177 n.9 (7th Cir. 1980). Two comments about the OIG's use of Ruttenberg are warranted. First, the so-called non-cost-related policies identified by the court in Ruttenberg are in fact related to concerns regarding increased costs. The Ruttenberg court stated that "kickback schemes can freeze competing suppliers from the system, can mask the possibility of government price reductions, can misdirect program funds, and, when proportional, can erect strong temptations to order more drugs and supplies than needed." Id. In the face of such circumstances, it would be impossible for a party to demonstrate non-cost-enhancement for an arrangement that otherwise violated Greber. See Mark V. Pauly, The Ethics and Economics of Kickbacks and Fee Splitting, 10 BELL J. ECON. 344, 351 (1979) (arguing that the presence of kickbacks suggests that the price received for a service exceeds its marginal cost and is thus symptomatic of excessive prices or deficient quality monitoring). Second, Ruttenberg interpreted the statutory term kickback as a "payment for a corrupt purpose." Ruttenberg, 625 F.2d at 176, relying on United States v. Hancock, 604 F.2d 999, 1002 (7th Cir. 1979). A statute aimed exclusively at prohibiting payment for a corrupt purpose could well be designed to combat that conduct even if no financial harm to public programs can be demonstrated. The statutory term kickback construed in Ruttenberg was revised to encompass all forms of remuneration. See supra text accompanying note 10. Whereas a kickback or bribe may always be characterized by a corrupt purpose, the same cannot be said for payment of remuneration. The statutory expansion to encompass remuneration means that not all prohibited conduct can be viewed as characterized by a corrupt purpose. Under those circumstances, it makes little sense to conclude that technical violations of the fraud and abuse law should be punished when no adverse financial consequences to government program budgets exist. If these arrangements are not for a corrupt purpose and do not increase government program costs, then why should they be illegal?
187. 56 Fed. Reg. 35,952, 35,956.
188. Id.
189. Id. Another negative criterion was increased costs to government or program beneficiaries. See supra text accompanying notes 147-52.
190. See 56 Fed. Reg. 35,952, 35,956.
191. Id. at 35,956, 35,959. Through the OIG, HHS issues alerts from time to time. Id. at 35,956-57, 35,959-60. These can aid lawyers in providing advice to clients about HHS's current thinking regarding how it will exercise its prosecutorial discretion. Id. at 35,959-60. However, these alerts do not have the force of law. Conduct is not immunized or made legal by these alerts. Accordingly, these alerts cannot be relied on without risk; the underlying conduct may still constitute a violation of the law, even if the enforcement agency is disinclined to enforce the law in certain circumstances. This will become an increasing problem if private parties are allowed to sue to enforce the antikickback provisions by using the federal FCA, 31 U.S.C. §§ 3729-3733 (1994). See United States ex rel. Pogue v. American Healthcorp, Inc., 914 F. Supp. 1507, 1513 (M.D. Tenn. 1996); see also supra notes 131-33 and accompanying text.
192. 57 Fed. Reg. 52,723 (1992) (codified at 42 C.F.R. § 1001.952 (l)-(m) (1994)). These safe-harbor provisions were modified in January 1996. 61 Fed. Reg. 2122 (1996).
193. An HMO provides comprehensive health services to a defined population, its enrollees, in return for a fixed payment per enrollee, thus integrating health care financing and delivery of services. There are several different organizational models for HMOs. The physicians who provide care to the enrollees may be employed by one HMO and only have those HMO enrollees as their patients; alternatively, the physicians may have contractual relationships with one or more HMOs and may see only HMO enrollees or may also see other patients. Some HMOs are mixed models. Because payment to the HMO is fixed regardless of the medical care needed, the HMO has incentives to use cost-effective care. Thus, HMOs try to reduce hospital-based care and specialist care through oversight and economic incentives to providers and try to contract with providers who offer cost-effective care. Depending on the type of HMO, enrollees may have to pay entirely or partially for care provided by other than HMO providers; enrollees, therefore, have substantial incentives to use the HMO providers. Because of the projected increase in volume for HMO providers, this set of incentives gives HMOs bargaining power with providers regarding price and quality. PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 157; JOHN F. SHEILS ET AL., LEWIN-VHI, INC., THE COST OF LEGISLATIVE RESTRICTIONS ON CONTRACTING PRACTICES: THE COST TO GOVERNMENTS, EMPLOYERS AND FAMILIES ii-iii (1995); Lawrence P. Casalino, Balancing Incentives: How Should Physicians Be Reimbursed?, 267 JAMA 403, 404 (1992). See generally Stephen B. Boochever, Health Maintenance Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPS 5 (Jeanie M. Johnson ed., 1986).
194. An HMO provides comprehensive health services to a defined population, its enrollees, in return for a fixed payment per enrollee, thus integrating health care financing and delivery of services. There are several different organizational models for HMOs. The physicians who provide care to the enrollees may be employed by one HMO and only have those HMO enrollees as their patients; alternatively, the physicians may have contractual relationships with one or more HMOs and may see only HMO enrollees or may also see other patients. Some HMOs are mixed models. Because payment to the HMO is fixed regardless of the medical care needed, the HMO has incentives to use cost-effective care. Thus, HMOs try to reduce hospital-based care and specialist care through oversight and economic incentives to providers and try to contract with providers who offer cost-effective care. Depending on the type of HMO, enrollees may have to pay entirely or partially for care provided by other than HMO providers; enrollees, therefore, have substantial incentives to use the HMO providers. Because of the projected increase in volume for HMO providers, this set of incentives gives HMOs bargaining power with providers regarding price and quality. PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 157; JOHN F. SHEILS ET AL., LEWIN-VHI, INC., THE COST OF LEGISLATIVE RESTRICTIONS ON CONTRACTING PRACTICES: THE COST TO GOVERNMENTS, EMPLOYERS AND FAMILIES ii-iii (1995); Lawrence P. Casalino, Balancing Incentives: How Should Physicians Be Reimbursed?, 267 JAMA 403, 404 (1992). See generally Stephen B. Boochever, Health Maintenance Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPS 5 (Jeanie M. Johnson ed., 1986).
195. An HMO provides comprehensive health services to a defined population, its enrollees, in return for a fixed payment per enrollee, thus integrating health care financing and delivery of services. There are several different organizational models for HMOs. The physicians who provide care to the enrollees may be employed by one HMO and only have those HMO enrollees as their patients; alternatively, the physicians may have contractual relationships with one or more HMOs and may see only HMO enrollees or may also see other patients. Some HMOs are mixed models. Because payment to the HMO is fixed regardless of the medical care needed, the HMO has incentives to use cost-effective care. Thus, HMOs try to reduce hospital-based care and specialist care through oversight and economic incentives to providers and try to contract with providers who offer cost-effective care. Depending on the type of HMO, enrollees may have to pay entirely or partially for care provided by other than HMO providers; enrollees, therefore, have substantial incentives to use the HMO providers. Because of the projected increase in volume for HMO providers, this set of incentives gives HMOs bargaining power with providers regarding price and quality. PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 157; JOHN F. SHEILS ET AL., LEWIN-VHI, INC., THE COST OF LEGISLATIVE RESTRICTIONS ON CONTRACTING PRACTICES: THE COST TO GOVERNMENTS, EMPLOYERS AND FAMILIES ii-iii (1995); Lawrence P. Casalino, Balancing Incentives: How Should Physicians Be Reimbursed?, 267 JAMA 403, 404 (1992). See generally Stephen B. Boochever, Health Maintenance Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPS 5 (Jeanie M. Johnson ed., 1986).
196. An HMO provides comprehensive health services to a defined population, its enrollees, in return for a fixed payment per enrollee, thus integrating health care financing and delivery of services. There are several different organizational models for HMOs. The physicians who provide care to the enrollees may be employed by one HMO and only have those HMO enrollees as their patients; alternatively, the physicians may have contractual relationships with one or more HMOs and may see only HMO enrollees or may also see other patients. Some HMOs are mixed models. Because payment to the HMO is fixed regardless of the medical care needed, the HMO has incentives to use cost-effective care. Thus, HMOs try to reduce hospital-based care and specialist care through oversight and economic incentives to providers and try to contract with providers who offer cost-effective care. Depending on the type of HMO, enrollees may have to pay entirely or partially for care provided by other than HMO providers; enrollees, therefore, have substantial incentives to use the HMO providers. Because of the projected increase in volume for HMO providers, this set of incentives gives HMOs bargaining power with providers regarding price and quality. PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 157; JOHN F. SHEILS ET AL., LEWIN-VHI, INC., THE COST OF LEGISLATIVE RESTRICTIONS ON CONTRACTING PRACTICES: THE COST TO GOVERNMENTS, EMPLOYERS AND FAMILIES ii-iii (1995); Lawrence P. Casalino, Balancing Incentives: How Should Physicians Be Reimbursed?, 267 JAMA 403, 404 (1992). See generally Stephen B. Boochever, Health Maintenance Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPS 5 (Jeanie M. Johnson ed., 1986).
197. A PPO is a discounted FFS system with varying degrees of treatment oversight with regard to hospital and specialist use. Providers in the PPO agree to discount the services they provide to a designated population. If those persons insured under a PPO do not use the designated PPO providers, they are required to pay higher copayments. Providers in a PPO have incentives to provide efficient care because of the discount. The higher copayments that PPO insureds are required to pay to non-PPO providers give the insureds incentives to use PPO providers. This influence over patient behavior, which provides for relatively high volumes of patients for PPO providers, gives PPOs the ability to bargain effectively with providers regarding price and quality. See Michael F. Anthony, Preferred Provider Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPs, supra note 159, at 11, 11-12; see also PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 160; SHEILS ET AL., supra note 159, at ii-iii; Casalino, supra note 159, at 403.
198. A PPO is a discounted FFS system with varying degrees of treatment oversight with regard to hospital and specialist use. Providers in the PPO agree to discount the services they provide to a designated population. If those persons insured under a PPO do not use the designated PPO providers, they are required to pay higher copayments. Providers in a PPO have incentives to provide efficient care because of the discount. The higher copayments that PPO insureds are required to pay to non-PPO providers give the insureds incentives to use PPO providers. This influence over patient behavior, which provides for relatively high volumes of patients for PPO providers, gives PPOs the ability to bargain effectively with providers regarding price and quality. See Michael F. Anthony, Preferred Provider Organizations, in ALTERNATIVE DELIVERY SYSTEMS: HMOs, PPOs & CMPs, supra note 159, at 11, 11-12; see also PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 5, at 160; SHEILS ET AL., supra note 159, at ii-iii; Casalino, supra note 159, at 403.
199. The defined terms for these two regulations are health plan, contract health care provider, and enrollee. Capitation is not a defined term.
200. 42 C.F.R. § 1001.952 (1994).
201. In September 1993, HHS proposed seven new safe harbors which to date are not final but remain only as proposed regulations. 58 Fed. Reg. 49,008 (1993). In July 1994, HHS published the most recent proposed safe-harbor regulations. 59 Fed. Reg. 37,202 (1994). The stated purpose of the 1994 proposed revisions was to clarify ambiguities in the final safe-harbor regulations already published and to add a section prohibiting sham transactions. Id. at 37,203. The clarifications narrow the application of the safe harbors in response to certain possible abuses. Id. The most important change prohibits sham transactions; the substance rather than the form of the transaction will be examined to see if it fits appropriately into a safe harbor. Id. Arrangements formally structured to fit a safe harbor may no longer be sufficient if OIG determines that the substance of the arrangement is not within the safe harbor. Id. These are not final regulations, but the thrust of the regulations, if finally adopted, will require hospitals and other health care providers to reexamine their existing financial arrangements with physicians and to evaluate them to determine substantively as well as formally whether they fit within the safe harbor. In January 1996, HHS issued final revisions of the second-wave safe-harbor provisions. See 61 Fed. Reg. 2122.
202. "Because the statute is broad, the payment practices described in these safe-harbor provisions would be prohibited by the statute but for their inclusion here." 56 Fed. Reg. 35,952, 35,958.
203. 31 U.S.C. § 3730(b)-(c) (1994); see United States ex rel. Pogue v. American Healthcorp, Inc., 914 F. Supp. 1507, 1508 (M.D. Tenn. 1996).
204. See United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989); United States v. Bay State Ambulance & Hosp. Rental Serv., 874 F.2d 20, 29-30 (1st Cir. 1989); United States v. Greber, 760 F.2d 68, 69, 79 (3d Cir.), cert. denied, 474 U.S. 988 (1985).
205. See Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995). A literature has evolved on the role of courts in updating statutes or softening the harsh effects of previous interpretations in light of subsequent developments. See generally GUIDO CALABRESI, A COMMON LAW FOR THE AGE OF STATUTES (1982) (urging judges to update and if necessary invalidate statutes that are no longer applicable under the "prevailing landscape"); William N. Eskridge, Dynamic Statutory Interpretation, 135 U. PA. L. REV. 1479 (1987) (statutes should be interpreted in light of their present societal, political, and legal context).
206. See Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995). A literature has evolved on the role of courts in updating statutes or softening the harsh effects of previous interpretations in light of subsequent developments. See generally GUIDO CALABRESI, A COMMON LAW FOR THE AGE OF STATUTES (1982) (urging judges to update and if necessary invalidate statutes that are no longer applicable under the "prevailing landscape"); William N. Eskridge, Dynamic Statutory Interpretation, 135 U. PA. L. REV. 1479 (1987) (statutes should be interpreted in light of their present societal, political, and legal context).
207. 871 F.2d at 108 & n.1.
208. 51 F.3d at 1399-402.
209. Id. at 1399-400. The interpretive technique of focusing on a different provision of a statute to offset the harsh or ill-adaptive consequences of an earlier interpretation of a distinct statutory term is not unique to the fraud and abuse area. See, e.g., Independent Bankers Ass'n v. Marine Midland Bank, 757 F.2d 453, 459 (2d Cir. 1985), cert. denied, 476 U.S. 1186 (1986). For a thorough and thoughtful discussion of this issue in statutory interpretation and of the Marine Midland decision as an example of this process of dynamic statutory interpretation, see Nicholas S. Zeppos, Judicial Candor and Statutory Interpretation, 78 GEO. L.J. 353, 374-77 (1989). For a comprehensive discussion of judicial accommodation to changes in the marketplace in the process of interpreting statutes, see Donald C. Langevoort, Statutory Obsolescence and the Judicial Process: The Revisionist Role of the Courts in Federal Banking Regulation, 85 MICH. L. REV. 672, 723-29 (1987).
210. Id. at 1399-400. The interpretive technique of focusing on a different provision of a statute to offset the harsh or ill-adaptive consequences of an earlier interpretation of a distinct statutory term is not unique to the fraud and abuse area. See, e.g., Independent Bankers Ass'n v. Marine Midland Bank, 757 F.2d 453, 459 (2d Cir. 1985), cert. denied, 476 U.S. 1186 (1986). For a thorough and thoughtful discussion of this issue in statutory interpretation and of the Marine Midland decision as an example of this process of dynamic statutory interpretation, see Nicholas S. Zeppos, Judicial Candor and Statutory Interpretation, 78 GEO. L.J. 353, 374-77 (1989). For a comprehensive discussion of judicial accommodation to changes in the marketplace in the process of interpreting statutes, see Donald C. Langevoort, Statutory Obsolescence and the Judicial Process: The Revisionist Role of the Courts in Federal Banking Regulation, 85 MICH. L. REV. 672, 723-29 (1987).
211. See 51 F.3d at 1401-02.
212. The Hanlester Network, a California general partnership, marketed limited partnership interests in clinical laboratories to physicians who were potential sources for referrals. See id. at 1394-95. The minimum investment was $1500, and the number of investors was limited to 35 per laboratory. The private placement memorandum informed the investors that they were the primary source of business for the laboratories. The shares of an investor were to be repurchased if the investor retired, died, or relocated. If an investor's referrals were low, the medical director of the laboratory called the physician. The investors received a 50% return on their investment. The Hanlester Network contracted with SmithKline Bio-Science Laboratories, Inc. (SmithKline) to provide management services to the three laboratories. Id. at 1394. In fact, 85-90% of the work sent to the laboratories was performed by SmithKline at its own facility. Id. at 1395. The OIG sought to exclude from the Medicare program the three physician-owned laboratories, the Hanlester Network, four individuals who organized or directed the laboratories, and one corporation owned by one of the individuals. See id. at 1394 n.1.
213. Id. at 1400.
214. Id.
215. See id. at 1399-400. The Ninth Circuit relied on a recent Supreme Court case, which construed similar language in another federal criminal statute. See Ratzlaf v. United States, 114 S. Ct. 655, 657 (1994) (willful violation of anti-structuring statute, which bars structuring financial transactions to avoid currency reporting requirements, requires proof that defendant acted with knowledge that his conduct was unlawful). This type of scienter requirement is relatively stringent; its adoption by the Ninth Circuit can be interpreted as a form of dynamic statutory interpretation, reflecting that court's perception that the fraud and abuse law overreaches and punishes innocuous conduct. See generally Zeppos, supra note 170, at 360-79. This scienter standard places lawyers in an extraordinary ethical dilemma because their provision of advice to clients, in accordance with their normal professional responsibility, could have the effect of transforming innocent into criminal conduct. For a general discussion of this set of ethical issues, see Stephen L. Pepper, Counseling at the Limits of the Law: An Exercise in the Jurisprudence and Ethics of Lawyering, 104 YALE L.J. 1545 (1995).
216. 51 F.3d at 1400.
217. Id. at 1400-02.
218. Id. at 1402.
219. Id.
220. See supra notes 53-67, 147-52 and accompanying text.
221. See United States ex rel. Pogue v. American Healthcorp, Inc., 914 F. Supp. 1507, 1511-12 (M.D. Tenn. 1996).
222. At least one court has declined to follow the Hanlester Network approach. See United States v. Neufeld, 908 F. Supp. 491, 497 (S.D. Ohio 1995).
223. When a hospital purchases physician practices or makes payments to recruit physicians, it may run afoul of the fraud and abuse law if one purpose of the transaction is to flow Medicare or Medicaid patients to that hospital. (It would be a willful use of remuneration to induce future referrals.) See supra notes 64-67 and accompanying text. Such arrangements, however, may enable a hospital to compete with another hospital with respect to price and quality. Such purchases by physician management groups, which negotiate contracts on behalf of their physician members or employees, are not subject to the antikickback provisions of the fraud and abuse law because there is no intent to induce future referrals. The consequence of this legal regime is that hospitals face stiffer obstacles than do physician management companies in competing for the purchase of physician practices. This disadvantages the hospitals in competing for the purchase of physician practices. Another activity that the antikickback provisions of the fraud and abuse statute tend to inhibit is the consolidation, whether through ownership or through contractual arrangements, of various health care providers into larger organizations. The aim of such consolidations is often to enhance the ability of an organization to deliver a broad continuum of care and to be able to compete for managed care contracts. An increase in patient flow to the consolidated entity is typically a strong reason for the consolidation. And, post-consolidation, the use of financial or other incentives to flow patients into the system or network is customarily an important part of the business plan. Such intentional use of remuneration to induce future referrals constitutes a fraud and abuse violation, even if competition between health care providers promotes price or other forms of competition. Formation of organizations to deliver efficient managed care should be beneficial to third-party payers and ultimately to consumers. Under Hanlester Network, such types of useful activities might avoid civil enforcement. The risk of criminal prosecution still looms in the background as a deterrent.
224. The House bill was the Seven-Year Balanced Budget Reconciliation Act of 1995, H.R. 2491, 104th Cong., 1st Sess. (1995), which included the Medicare Preservation Act of 1995, H.R. 2425, 104th Cong., 1st Sess. (1995). The Medicare Preservation Act established a series of federal health care offenses: fraud, theft or embezzlement, false statements, bribery and graft, illegal remuneration, and obstruction. H.R. 2425, §§ 15,121-15,132. The provision relating to illegal remuneration was the present antikickback provision in its entirety (with a slight change in the exception relating to employees). Id. § 15,126. This section would strike the present antikickback provision from the Social Security Act. Id. However, subsequent provisions of the Act, §§ 15,212 and 15,213, amended the antikickback provision in the Social Security Act, the provision purportedly removed by § 15,126, by replacing the phrase "to induce" with "for the significant purpose of inducing" and by adding a statutory exception relating to situations where the provider is at substantial financial risk. Id. Precisely how the two sets of provisions were to interact was never made clear, as § 15,126 was added to the bill (apparently by the Rules Committee) after the bill cleared the Commerce and Ways and Means Committees, which had jurisdiction over the substantive provisions of the legislation.
225. See H.R. 2425, § 15,126.
226. Id. § 15,215. Section 103 of Senator Cohen's bill, the Health Care Fraud and Abuse Prevention Act of 1995, S. 1088, 104th Cong., 1st Sess. (1995), which became part of the Senate reconciliation package, included provisions for interpretive rulings (§ 103(b)) and for special fraud alerts (§ 103(c)).
227. H.R. 2425, § 15,214.
228. 56 Fed. Reg. 35,952, 35,959 (1991) (codified at 42 C.F.R. pt. 1001) (HHS's response to comment requesting criteria for safe-harbor protected activity).
229. H.R. 2425, § 15,212. Under current law, a violation occurs if one purpose of an activity is to induce future referrals. See supra notes 53-67 and accompanying text.
230. H.R. 2425, § 15,213.
231. These provisions were contained in version one of H.R. 2425, § 15,213, but were deleted from later versions.
232. Id.
233. H.R. 2491, 104th Cong., 1st Sess. (1995).
234. Id. § 8105.
235. Id.
236. Id. Similarly, any person would be able to request a fraud alert which, if issued, would be published in the Federal Register. Id.
237. Id.
238. Id. Previously, the Inspector General in conjunction with the Department of Justice (DOJ) has refused to give advisory opinions. See 56 Fed. Reg. 35,952, 35,959; AHA and HHS Exchange Letters, 9 EXEMPT ORG. TAX REV. 526, 527. In the late 1970s and in 1980, HCFA gave some informal advisory letters until required to discontinue the practice by the DOJ. See McDowell, supra note 3, at 728.
239. See H.R. 2491, § 8116(A)(3).
240. MedicarePlus organizations provide services to Medicare beneficiaries and are paid on a capitated basis. See H.R. 2491, § 8001.
241. H.R. 2491, § 8116(A)(3). This proposed statutory exception amends 42 U.S.C. § 1320a-7b(3) (1994) so that the remuneration prohibitions do not apply to: (F) any remuneration between an organization and an individual or entity providing items or services, or a combination thereof, pursuant to a written agreement between the organization and the individual or entity if the organization is a MedicarePlus organization under part C of Title XVIII or if the written agreement places the individual or entity at substantial financial risk for the cost or utilization of the items or services, or a combination thereof, which the individual or entity is obligated to provide, whether through a withhold, capitation, incentive pool, per diem payment, or any other similar risk arrangement which places the individual or entity at substantial financial risk.
242. One objection to use of financial inducements in Medicare or Medicaid is that the inducement is evidence that the government is paying too much for the service. It would, indeed, be a useful starting point for enforcement authorities to determine where federal payments exceed competitive prices. In such circumstances, the existence of financial incentives could (and probably should) trigger review of payment levels - they would serve as an enforcement cuing mechanism. Instead of suppressing the payments (in a noncapitated environment), HHS/OIG might well find that such payments provide good evidence of federal overpayment and could require disclosure as a market-driven way of triggering review of payment levels. Mark Hall has advocated that "[f]ees incidentally related to a referral are nevertheless valid if they are fully earned by legitimate nonreferral services - that is, if they do not exceed the fair market value of necessary services bargained for at arm's length." Hall, Referral Fee Statutes, supra note 3, at 629.
243. See supra parts II.D & E.
244. See supra note 185 and accompanying text.
245. Health Insurance Reform Act of 1996, H.R. 3103, 104th Cong., 2d Sess. (Senate version passed Apr. 24, 1996); Health Coverage Availability and Affordability Act of 1996, H.R. 3103, 104th Cong., 2d Sess. (House version passed Apr. 2, 1996).
246. See Health Insurance Reform Act of 1996, § 516, 104 H.R. 3103 (Senate version); Health Coverage Availability and Affordability Act of 1996, § 216, 104 H.R. 3103 (House version). The provision is virtually identical with § 8116(A)(3) of the Reconciliation bill, H.R. 2491. Only the reference to MedicarePlus organizations has been omitted (because they were never enacted). See supra notes 200-01.
247. See Health Insurance Reform Act of 1996, H.R. 3103, § 505.
248. See supra notes 194-98 and accompanying text.
249. See Health Coverage Availability and Affordability Act of 1996, H.R. 3103, § 205.
250. See 51 F.3d 1390 (9th Cir. 1995); see also supra part III.B for a discussion of Hanlester Network. Whether other courts will follow the lead of the Ninth Circuit in Hanlesler Network is uncertain. See United States v. Neufeld, 908 F. Supp. 491 (S.D. Ohio 1995) (declining to adopt Hanlester Network's definition of willful).
251. 51 F.3d at 1400.
252. See id.
253. Id. at 1402.
254. See supra notes 177-83 and accompanying text. Not all prosecutors are following the Ninth Circuit's no harm, no foul approach. The management company for a psychiatric hospital recently pled guilty to violating the antikickback provisions by paying the plane fare of patients who came to the facility. There was no showing of increased cost to Medicare or that the treatment was not medically necessary or appropriate. Psychiatric Hospital Firm Pleads Guilty to Violating Anti-Kickback Statute, 4 Health L. Rep. (BNA) at 687, 687-88 (May 4, 1995); Telephone Interview with Alan M. Salsbury, Assistant U.S. Attorney (June 1, 1995).
255. See supra text accompanying notes 184-209.
256. See United States ex rel. Pogue v. American Healthcorp, Inc., 914 F. Supp. 1507 (M.D. Tenn. 1996).