An update on key Anti-Kickback, Stark Act issues for hospitals in 2015

Since the enactment of the Patient Protection and Affordable Care Act, legal and regulatory issues in the healthcare arena have become more complex and more interconnected, necessitating healthcare professionals and executives keep a closer eye out for possible violations.

Notably, there has been a substantial increase in False Claims cases derived from Anti-Kickback and Stark Act violations over the last several years. Traditionally, a False Claims case could only be brought forward by an individual, called a relator, or the government if an individual or organization has truly made false claims. However, the PPACA amended the definition of false claims so any violations under the Stark Act or Anti-Kickback Statute can give rise to False Claim cases, Scott Becker, JD, CPA, partner at McGuireWoods and publisher of Becker's Healthcare, said during a May 21 webinar.

"Under the PPACA, the government codified the definition and made clear that Anti-Kickback Statute or Stark Act violations could be the prerequisite of False Claims," Mr. Becker said, as any claim made to the government that resulted from an illegal referral or procured a kickback is also illegal. "Damages under False Claims are very substantial."

Indeed, the False Claims Act provides liability for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim. Since 2009, there has been approximately $13.4 billion in recoveries under the False Claims Act, compared to $18 billion in total recoveries.

Private relators can bring False Claims cases forward alone, or the government may choose to join as a plaintiff. In these cases, the stakes are much higher and the cases carry more merit. According to Mr. Becker, the percentage of cases with high settlement amounts is significantly higher in cases where the government is involved.

Regulatory precautions, trends today

As a result of heightened awareness surrounding False Claims cases, buyers, investors and lenders are taking a more proactive stance to guard themselves from being implicated in deals with entities with significant violations. Now, prior to a transaction, buyers, investors and lenders are acting much more aggressively about requiring a seller to make a self-disclosure and to maintain reserves as part of a deal.

"Self-disclosure has become much more predictable," said Mr. Becker, noting that in the past, providers were wary of self-disclosure out of fear they would end up with unusual or unexpected results. "Now the government is much more receptive to and encouraging of self-disclosures, and treat people giving self-disclosures more fairly and rationally."

Due diligence processes are more thorough and in-depth

In addition to requiring self-disclosure, buyers, investors and lenders are also implementing much more thorough due diligence processes. The first level preceding a transaction is senior executive diligence, in which a prospective buyer, lender or investor sits down with the senior executives of the organization at hand and discusses numerous questions. Through these conversations, prospective business partners can gain a clear sense of whether the organization takes compliance seriously, performs regular evaluations and understands the core influencers of their business, according to Mr. Becker.

"Regardless of the size of a company, many have Stark Act technical violations," Mr. Becker said. "Sometimes these are endemic to the organization's business challenges. In these instances, the group performing the senior executive diligence can assess whether the organization has inherent risk for violations and if it is doing anything to bring down that risk. Are they on the aggressive side or the lily-white side?"

The second level of this due diligence is a deeper dive in which the prospective buyers, lenders or investors can verify what the senior executives said is happening on the ground. This "deep dive" includes an investigation of all physician relationships, as well as billing and coding audits to ensure there is no upcoding occurring under the radar.

While not always intentional, False Claims violations can have serious impacts on healthcare organizations, both in terms of their valuation and attractiveness to buyers, lenders and investors. Maintaining a regular system of due diligence to catch inadvertent violations, such as thorough external auditing, can help organizations protect themselves.

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