Kicking it up a notch: Anti-kickback statute gets expanded . . . by the tax code

Starting on January 1, 2014, it is very likely that the federal anti-kickback statute (AKS) will directly apply to items and services covered by private health insurance, which it has never done before. Currently, the AKS applies to items and services furnished under health care programs such as Medicare, Medicaid (and similar programs), TriCare, and Veteran’s Administration (VA) benefits (and indirectly to items and services covered by private health insurance in certain circumstances).

Below is a brief look at what the AKS is, penalties under the AKS, why the new tax credit causes the AKS to be implicated in a wider range of items and services than it has been historically, and finally, the potential real-world impact of the change. If you’re familiar with the AKS already, feel free to skip to the “expansion” section below.

Executive Summary

January 1, 2014 is the effective date of a new refundable tax credit in the Internal Revenue Code (26 U.S.C. § 36B) that provides for direct payments from the federal government to private health insurance companies to cover at least some of the health insurance premiums for certain taxpayers with incomes under 400% of the federal poverty level. The Congressional Budget Office estimates (PDF) that this will describe about 8 million people in 2014, increasing to approximately 20 million people in 2022.* As explained below, under the explicit terms of the AKS, this almost certainly makes the items and services furnished under those health insurance plans subject to the AKS.

Because of how the tax credit is calculated and how AKS is enforced (discussed below), this also likely means that people and organizations in the health care industry—including landlords for health care providers—should treat the AKS as applicable to all items and services, regardless of whether they are reimbursable by Medicare, Medicaid, subsidized private insurance, or unsubsidized private insurance. Health care providers and their suppliers who deal exclusively with private-pay patients and do not accept any insurance whatsoever are less likely affected for patients under their direct care, but will still need to be careful about referral arrangements. 

What is the AKS?

The AKS, very generally, is a federal law that penalizes “whoever” offers, pays, solicits, or receives “any remuneration” in exchange for patient referrals or the furnishing, receiving, or recommendation of items or services even partially covered by a “Federal health care program” (FHCP) to which the government even partially makes direct payments. 42 U.S.C. § 1320a-7b(b)(1), (2).

And yes, “whoever”, really means “whoever”: from doctors, to nurses, radiology clinics, laboratories, pharmacists, pharmaceutical sales representatives, delivery drivers, custodial staff, landlords for health care items and service providers, and even patients; likewise, “any remuneration” really means “any”: from season tickets to baseball games, to envelopes full of cash, a landlord charging higher rent to a doctor (as compared to an accountant) for an office across the street from a hospital, a physical therapist waiving copayments for patients, or even a pharmacy giving out coupons for $0.50 off of a movie ticket. 

In the more than 40 years of the existence of the AKS and its predecessors, there has never been a minimum threshold for an FHCP’s partial coverage of an item or service, the government’s partial payment to an FHCP, or the amount of “remuneration” at issue: a fraction of a penny for any of those purposes is theoretically enough to implicate the AKS. See https://oig.hhs.gov/fraud/docs/safeharborregulations/072991.htm (search for de minimis).

AKS (and other) penalties

The penalties for violating the AKS are stiff: a felony conviction plus up to a $25,000 fine, five years in prison, possible exclusion from being reimbursed for providing items or services to anyone enrolled in an FHCP, plus assessment of additional “civil monetary penalties” (CMPs). CMPs are also applicable in certain broader situations and will be the subject of another post. 

On top of that, the AKS explicitly provides that any claims filed that result from an arrangement that violates the AKS are now automatically deemed “false claims”, which brings additional penalties under the False Claims Act (FCA). See 42 U.S.C. § 1320a-7b(g). There are some additional FCA-related issues that will be discussed in a future post.

Finally, the AKS explicitly does not require any specific intent to violate it—meaning that you only need to be aware that you're doing something, but you do not need to know that that “something” is prohibited by the AKS. The AKS also explicitly provides that you don’t need to know that the AKS even exists to be guilty of violating it. So if you are involved in any way with delivering or receiving health care items or services, now, more than ever, you ignore the AKS at your peril. See 42 U.S.C. § 1320a-7b(h).

AKS expansion beyond its historical reach

The AKS directly applies only to items and services services furnished under FHCPs, which are commonly—yet not entirely accurately—understood to mean programs such as Medicare, Medicaid (and similar programs), TriCare, and the VA.

So, what is an FHCP? An FHCP is defined by statute as:

any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the health insurance program under chapter 89 of title 5 [of the United States Code])...

42 U.S.C. 1320a-7b(f)(1) (emphasis added). An FHCP also specifically includes Medicaid and Title V and XX programs. See 42 U.S.C. § 1320a-7b(f)(2); 42 C.F.R. § 1001.2.

The “health insurance program under chapter 89 of title 5”, is otherwise known as the “Federal Employees Health Benefits Program”, or FEHBP. The FEHBP is the private health insurance program for federal civilian employees, under which the federal government makes direct payments to health insurance companies to cover part of the premiums for eligible beneficiaries. The applicable statute and regulations specifically exempt only the FEHBP from the definition of FHCP, implying that the FEHBP would otherwise be included in the AKS’s definition of an FHCP.

Starting January 1, 2014, 26 U.S.C. § 36B (enacted by Pub. L. 111-148 § 1401) provides a refundable tax credit for individuals whose health insurance costs exceed certain thresholds as a proportion of income. It is not clear whether this credit alone would cause these individuals’ insurance to become an FHCP (my view: likely yes, because the credit is issued specifically to subsidize health insurance premiums, but this will be fully explored in yet another future post), but coupled with how this credit is paid on behalf of taxpayers (below), and without a specific statutory exception, in my view it almost certainly makes certain private health insurance qualify as an FHCP under the AKS.

42 U.S.C. § 18082(c)(2)(A) (enacted by Pub. L. 111-148 § 1411) provides that the Secretary of the Treasury shall make “advance payment” in the amount of the applicable credit “to the issuer of a qualified health plan” on a monthly basis to cover partial health insurance premiums on behalf of eligible taxpayers. See also 26 C.F.R. § 1.36B-2 (affirming the Secretary’s decision to make monthly advance premium payments).

Because the government makes direct payments to private health insurers, anyone who has government-subsidized insurance through those insurers is enrolled in a “program that provides health benefits ... through insurance ... which is funded directly, in whole or in part, by the United States Government” and which is not described in Title 5, Chapter 89 of the US Code. Assuming that “payment . . . to the issuer of a qualified health plan” from the Treasury is equivalent to “funded directly” by the Government—and without serious contortions of the English language, that seems to be a fair assumption, particularly given the specific exclusion of only the FEHBP from the definition of FHCP, but no specific exclusion for advance premium payments from the definition of FHCP—the AKS applies.

Still, how can one be sure of whether a health insurance plan or benefit qualifies as an FHCP? A question was recently raised on an American Health Lawyers Association email list that I moderate about whether the federal government maintains a public list of FHCPs to which the AKS applies. One benefit of such list would be that if the government maintained such a list, people could definitively know whether or not they are subject to the AKS.

The answer appears to be that there is no such official list, and the government presumably has little incentive to maintain such a list. Why? Two reasons: 1) The AKS is intentionally broad, so publishing a list might implicitly narrow its possible scope of enforcement in a manner not authorized or intended by Congress; and 2) The definition of FHCP is so broad that it is really only feasible to explain what an FHCP is not, as shown by this flow chart (start in the bottom left):

This makes the advance premium payment issue essentially a two-step inquiry (putting aside the tax credit offered to taxpayers without advance premium payments, and assuming that we are not discussing the FEHBP): 1) Is that insurance “any . . . insurance . . . other than” the FEHBP? Yes. 2) Through advance premium payments to health insurers, does the government directly pay for any portion of health insurance or health care? Yes. Therefore it is an FHCP and the AKS is directly implicated. 

For those who may be interested in seeing a non-exclusive list of other programs that likely qualify as FHCPs (with one exception), it is available here: 42 U.S.C. § 14402(d) (prohibiting federal funding for assisted suicide). However, that list is not specifically incorporated into the AKS, so it is best to not rely on the list for anything other than its stated purpose.

Interesting, but what does this mean in the real world?

One problem for anyone involved in patient care is that the Treasury’s advance premium payments can fluctuate on a monthly basis with respect to any person depending on their income; that is, the Treasury could make payments in some months, but not others. Because under the AKS’s definition of FHCP, the advance premium payment makes the applicable insurance program an FHCP, it is not possible to tell who is or will be enrolled in an FHCP at any given time. Therefore, because of the high stakes involved in violating the AKS, it may be appropriate to treat all privately-insured patients as if the advance premium payment is being made on their behalf, and thus, as if they are enrolled in an FHCP. This would mean that any items or services furnished to them or their health care providers or suppliers would be treated as subject to the AKS.

What does this really mean, in practice, though? Honestly, probably not much for health care items and services providers who already serve or treat a mix of Medicare, Medicaid, etc., and privately-insured patients: they probably already are (or at least, should be) treading lightly around AKS issues because of the AKS’s longstanding indirect applicability to private insurance benefits.

The AKS currently indirectly applies to private insurance benefits in certain circumstances because the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS), the entity responsible for enforcing the AKS, has consistently explained for many years that any remuneration arrangement related only to private insurance benefits that could possibly influence FHCP referrals or other business would likely implicate the AKS as well. See https://oig.hhs.gov/fraud/docs/advisoryopinions/2000/ao00_8.pdf; https://oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-06.pdf. Specifically, the OIG has relatively consistently declined to extend “safe harbor” protection to remuneration arrangements that apply to privately-reimbursable items and services but “carve out” FHCP-covered items and services, meaning that OIG is essentially reserving the right to pursue penalties at any time for remuneration arrangements subject to “carve outs”.

If this stance is any guide, then although the AKS will directly apply only to items and services reimbursable by subsidized private insurance, by extension, it should indirectly apply also to items and services reimbursable by unsubsidized private insurance, because of the potential influence on subsidized referrals.

Therefore, for people or organizations who do not typically deal with currently-recognized FHCPs, e.g., physicians in independent practices that don’t participate in Medicare, Medicaid, or similar programs, the advance premium payment system should be cause to seriously and thoroughly evaluate all of their business and referral relationships.

Remaining questions

There are many remaining questions about potential exceptions, the full scope of the changes, and effects in conjunction with related laws. Stay tuned...

* See Table 3. These figures are the sum of the “Exchanges” population less “Number of Unsubsidized Exchange Enrollees”.

© 2013 Alex M. Hendler. All Rights Reserved. This post is not legal advice. Please consult an attorney to discuss you particular facts or circumstances.