Lost amid the hoopla over the consumer provisions of the Kassebaum-Kennedy healthcare reform legislation are some positive developments on fraud-and-abuse rules.
In addition to measures regarding portability of medical insurance, mandating the sale of insurance to those with pre-existing conditions and the establishment of a limited demonstration of medical savings accounts, important provisions modify the anti-kickback portion of the federal fraud-and-abuse laws (Sept. 9, p. 3).
The anti-kickback component of the fraud-and-abuse law makes it illegal to knowingly and willfully solicit or receive remuneration (direct or indirect, in cash or in kind) to induce referrals.
The law has been interpreted to prohibit the intentional use of remuneration to induce future referrals even if the inducement factor is only one of many factors in the decision, the medical services are appropriate and the fees charged are reasonable. Thus, the intentional use of financial incentives to induce future referrals of Medicaid or Medicare business is a felony and can result in debarment from those programs.
Further, at least one federal trial court has held that this rule can be enforced by a private whistleblower in an action under the False Claims Act, even if the government doesn't lose money or there's no diminution in the quality of services rendered.
As interpreted, the fraud-and-abuse law makes illegal much appropriate restructuring in the healthcare marketplace. In the current environment, it's a truism that the fraud-and-abuse law is being violated routinely but that those violations are acknowledged as not threatening the public interest.
Such arrangements, though technically illegal, often are necessary to improve the functioning of the healthcare marketplace, for example, by creating incentives for patient flow in return for quality assurances or price concessions.
These violations typically have gone unprosecuted, partly because securing convictions is difficult given the nature of the necessary evidence and because prosecutors often recognize that the conduct, while a felony, is economically and socially appropriate.
In a recent article, I concluded that "the modern American healthcare industry is akin to a speakeasy-conduct that is illegal is rampant and countenanced by law enforcement officials because the law is so out of sync with the conventional norms and realities of the marketplace and because respected leaders of the industry are performing tasks that, while illegal, are desirable in improving the functioning of the market." I noted the "formidable civil liberties concern as prosecutors exercise enormous prosecutorial discretion."
The anti-kickback component of the fraud-and-abuse law was aimed at prohibiting incentives for the overutilization of medical services, with the resultant increase in the costs of Medicaid and Medicare. This is a reasonable concern in the world of cost-based reimbursement and fee-for-service medicine in which financial incentives stimulate increased use of services and can result in overutilization.
But the law did not adequately recognize the impact of changes in the healthcare market. As a result, practices such as capitation, which encourage cost-effective care, and the formation of organizations to provide care on a capitated basis, have been poorly insulated from the strictures of the statute.
Under capitation, a health plan or provider receives a fixed amount of money for an individual or a group to provide a defined set of healthcare services. This provides a financial incentive to providers to deliver care at the lowest cost consistent with the desired healthcare outcome. Concerns focus on the risk of underprovision rather than overprovision of care (as is the case in fee-for-service arrangements).
The fraud-and-abuse law made no provision for capitation or other risk-sharing arrangements in which the risk of overutilization was not great. Even if efficiency and cost reductions were achieved with no diminution in quality, the intentional use of financial incentives to induce referrals was illegal.
Kassebaum-Kennedy has made some significant modifications. Most fundamentally, it provides a "safe harbor" from the fraud-and-abuse law for situations in which an individual or an entity is at substantial financial risk for the cost or utilization of the items or services to be provided. And it requires an expedited, negotiated rulemaking process to put implementing regulations in place.
This "at-risk" provision recognizes the different incentives that exist when providers are financially at risk. Overutilization is not so much a concern as underutilization. The fraud-and-abuse law suffered from a case of hardening of the intellectual arteries because it did not adequately accommodate the evolving market-driven reforms in the healthcare arena. When providers are financially at risk, the payment system itself inhibits overutilization and other costly practices.
Kassebaum-Kennedy also requires that HHS solicit proposals for new safe harbors from fraud-and-abuse coverage and for modifications of existing safe harbors. HHS must report annually the proposals that have been made and, if rejected, why the proposals were not adopted. Further, in a major break with prior practice, the department will be required to provide binding advisory opinions on the applicability of the fraud-and-abuse law to certain transactions.
Thus, in addition to issuing generis safe harbor laws, HHS will have the opportunity to review specific proposals to determine whether they are consistent with a set of statutory objectives now spelled out in the law. This will allow for more fine-tuning in the implementation and enforcement of the law, since HHS will have a chance to review proposals on a case-by-case basis and evaluate these proposals in light of the statute's cost-containment objectives.
This also is a plus for civil liberties and the rule of law since the advisory opinion will be binding on the parties; providers will not be left in the speakeasy hoping not to be prosecuted. Instead, they will have the advantage of knowing that a proposed innovation can be reviewed and, if in the public interest, approved ahead of time.*n
The project upon which this article is based was supported by a grant from the Robert Wood Johnson Foundation.