MD Ranger Bullseye

May 2016

Health care regulations governing hospital-physician contracts are highly technical, which makes deciphering them difficult. However, knowing the details is essential to preventing your organization from getting dinged with large fines. The two most important regulations to understand are the Stark Law and the Anti-Kickback Statute. While this article focuses on the Anti-Kickback Statute, if you would like more information on Stark law, watch our 11-minute video.

The Anti-Kickback Statute (AKS) was enacted in 1972 to help protect the government from healthcare fraud and abuse. It states:

Receipts and sub-receipts of Federal funds are subject to the strictures of the Medicare and Medicaid anti-kickback statute (42 U.S.C. 1320a - 7b(b) and should be cognizant of the risk of criminal and administrative liability under this statute, specifically under 42 U.S.C. 1320 7b(b) ‘Illegal remunerations’ which states, in part, that whoever knowingly and willfully: (1) solicits or receives (or offers or pays) any remuneration (including kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring (or to induce such person to refer) an individual to a person for the furnishing or arranging for the furnishing of any item or service, OR (2) in return for purchasing, leasing, ordering, or recommending purchasing, leasing, or to purchase, lease, or order, any good, facility, services or item...for which payment may be made in whole or in part under subchapter XIII of this chapter or a State health care program, 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.

To summarize, the Anti-Kickback Statute is a criminal statute that forbids the exchange or offer to exchange anything of value in an effort to entice or reward the referral of federal health care services or business.

Examples of hospital or physician behavior that has resulted in convictions:

  • “If you send us patients from your cardiology private practice, we’ll pay you $5,000 per patient or share 20% of the excess revenue.”
  • “If you just add another zero to that medical directorship annual stipend, you can expect to see 25% more patients from my practice sent your way.”
  • “Thanks for signing on the dotted line. It would be wonderful if we continued to see an increase in your referrals to our hospital.”

There are safe harbors to protect hospitals, health systems, and medical practitioners for certain types of transactions, such as physician ownership of an ASC in which they operate (but shareholder distribution of profits must align with ownership), payments to bona fide employees, practitioner recruitments when community need is documented, certain discounts, etc. You can read more about the safe harbors here.

Comparing AKS and Stark

AKS and the Stark Law are often discussed in tandem. While the two have some similarities, there are also some key differences.


Anti-Kickback StatuteStark Law
Prohibits soliciting or offering anything of value for referrals to any Federal program Prohibits a physician from referring Medicare/Medicaid patients to an entity that has a financial relationship with that physician
Referrals from anyone (e.g. practitioner, supplier, facility) Referrals from a physician
Applies to a referral for any service or item Only applies to referrals for Designated Health Services1
Criminal law Civil law

The Penalties of AKS

AKS criminal penalties can be up to $25,000 and 5 years in prison per kickback violation. Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of the damages sustained by the government. Furthermore, providers can be excluded from federal healthcare programs as a result of AKS violations.

How can you protect your organization from AKS violations?

Have a contract for every physician you engage, with or without a regular payment

Having a written and signed contract with terms and payment rates outlined prior to a physician initiating services ensures that the terms are understood before entering into the relationship. It is a good idea to have contracts for unpaid positions as well, just to make sure you are covered.

Be specific about the duties covered and expected for the position

Describe the services to be provided in detail in the contract. Keep in mind that if a duty is not specifically listed in the contract, it is not technically covered by that contract, and the hospital should not be paying for it as if it were. For administrative position contracts, specify the expected and maximum number of hours that will be reimbursed. Monitor the physician time records to check that the responsibilities and time spent are consistent with the contract.

Document non-monetary compensation

If you provide any non-monetary perks, make sure they are appropriately documented and objectively provided based on non-volume or revenue criteria. These might include: parking spaces, meals, EHRs, technology, infrastructure, etc.

Set rates at FMV

Ensure your negotiated contracts include FMV and commercial reasonableness documentation. If there isn’t documentation, flag the contract for immediate review. If the documentation doesn’t provide clear justification for paying the rate outlined in the contract, flag it as needing additional documentation. Have a consistent method for documenting FMV such as a set of reference benchmarks or outside opinions.

Don’t do anything that could be construed as payment or reward for referrals!

Paying for referrals or bribing physicians in any way is illegal. Make sure when you review physician contracts that no payments take into account number of patients, revenue, or anything that could be construed as a referral.

The regulations that guide physician contracting can be confusing and overwhelming, but it is imperative that you understand the rules and the consequences for violating them.


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