This article was originally published by Physician’s News Digest, www.physiciannews.com.
Increased federal investigation into alleged inappropriate arrangements between the pharmaceutical and medical device industries and physicians has led to significant scrutiny over many, even legitimate, consulting, design development and license agreements and other services arrangements. Most recently, the five major medical device manufacturers entered into settlements with the federal government for claims alleging that consulting contracts violated federal fraud and abuse laws. A number of laws, regulations and ethical tenets governing arrangements between physicians and manufacturers could present significant traps for the unwary physician.
The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by a federal health care program, including Medicare and Medicaid. Violations of the Anti-Kickback Statute can result in significant criminal penalties, civil penalties of up to $50,000 for each violation, as well as imprisonment. The primary concern for physician relationships with pharmaceutical and medical device manufacturers under the Anti-Kickback Statute is whether the compensation paid to the consultant physician constitutes disguised remuneration for referrals.
OIG has historically taken the position that fees for hollow consulting services could result in a violation of the Anti-Kickback Statute. The argument is that the transfer of anything of more than nominal value to a physician may induce the physician to recommend to his patients the purchasing or ordering of federal health care program-reimbursed items or services. Since physicians are in a position to prescribe drugs or recommend medical devices to their patients, any value transferred by a manufacturer to physicians with the expectation of a recommendation from such physician to such patients could present significant risk to the parties. Given the severity of the criminal and civil sanctions under the federal Anti-Kickback Statute, physicians need to carefully structure these arrangement and ensure that any such arrangements comply with applicable safe harbor regulations.
Personal Services Safe Harbor
For purposes of the federal Anti-Kickback Statute, under the personal services and management contracts safe harbor, remuneration would not include any payment made by a manufacturer to a physician as compensation for the services of the physician, provided all of the following requirements are satisfied:
Generally, Stark prohibits a physician (or immediate family member) who has a financial relationship with an entity from making referrals to that entity for the furnishing of designated health services for which payment may be made under the federal health care programs, unless an exception or safe harbor is satisfied. Stark is often implicated in the pharmaceutical and medical device contexts because physicians (who have some form of financial relationship with the pharmaceutical and medical device manufacturers) are in a position to influence their patients’ purchasing decisions over federal health care program reimbursed designated health services. For example, physicians may enter into a consulting or other form of services arrangement with the manufacturers such as to provide educational or training services to the physicians’ patients, which could implicate Stark. Any services agreement with physicians for the provision of such services would have to satisfy the requirements of the personal services safe harbor under Stark (which requirements are similar but not the same as the requirements under the personal services and management contracts safe harbor of the federal Anti-Kickback Statute) in order to avoid any risk to physicians. Violations of Stark could result in denial of payment, civil penalties, disgorgement of reimbursements received and exclusion from federal health care program participation.
False Claims Act
The False Claims Act prohibits a physician from submitting or causing to submit a false or fraudulent claim for payment to the government. The False Claims Act could be implicated when claims for payment are submitted based on a false certification that the physician submitting the claim has complied with all applicable laws and regulations. Where claims are submitted pursuant to an otherwise illegal arrangement (for example, an arrangement that violates the federal Anti-Kickback Statute or Stark), it is considered a false claim. Sanctions for violating the False Claims Act include treble damages, fines and administrative penalties.
Physicians also need to consider the ethical tenets and state medical board regulations applicable to any arrangement with a medical device or pharmaceutical manufacturer as well as applicable patient disclosure obligations. Trade associations, including AdvaMed and PhRMA, also have developed codes applicable to these industry relationships and should be considered when structuring these arrangements.
Understanding that there will always be gray areas, physicians and manufacturers should structure their arrangements to comply with applicable federal and state laws and regulations and ethical tenets. Some guidelines to follow include:
John W. Jones, Jr.
The material in this publication is based on laws, court decisions, administrative rulings and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.