It is a crime for any person to pay or receive anything of value if even one purpose of that payment is to induce the referral of a patient for a health care good or service. This prohibition exists in Federal law and, in various permutations, often exists in states’ laws as well. On the Federal level, this restriction does not apply if and to the extent that the arrangement fits within one of approximately twenty-five fact patterns that appear in Federal law and regulation (each called a “Safe Harbor”). Some, but not all, states’ laws incorporate various versions of the Federal Safe Harbors.

Many of the Safe Harbors require that the aggregate compensation paid by one party to the other over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties. In addition, the contract must be for a term of not less than a year.

The requirements set forth above are usually the most difficult elements of the safe harbor with which to comply. They mean that at the time the parties sign their contract, they must know exactly what the payment between the parties will be paid over the year to come. There is a little latitude for part-time arrangements, but not much. The contract can be terminated on short notice if the arrangement does not meet expectations, but then the parties cannot re-contract until the anniversary of the contract’s commencement date.

Fortunately, arrangements are not necessarily illegal if they fail to meet every requirement of a safe harbor; in my experience most do not. If an arrangement is completely within safe harbor, then the parties are deemed to not have the “bad intent” necessary to support a criminal prosecution. If an arrangement is without safe harbor, then the parties may be called upon to prove their “good intent,” and that proof can be difficult and/or expensive to accomplish.

If an arrangement is without safe harbor then, in order to pass regulatory scrutiny, the parties ought to do everything else they can to assure that the marketing arrangement will not lead to overutilization of medical services or Federal program money.

By David W. Hirshfeld, Esquire. Please contact at DWH@LUBELLROSEN.COM