Feds hit PPMC with anti-kickback violation
June 1, 1998 5 minutes read
Feds hit PPMC with anti-kickback violation
The country's top federal health care fraud cops recently expanded their list of questionable financial relationships by declaring performance-based contracts with physician practice management companies (PPMCs) off limits. Specifically targeted are agreements in which a provider agrees to pay a PPMC a percentage of the practice's net revenues in exchange for such services as managing its office or other administrative functions such as billing or coding.
According to Advisory Opinion No. 98-5, released April 15 by the Department of Health and Human Services' Office of the Inspector General (OIG), any practice management contract in which the PPMC is both reimbursed for its costs and paid a fee based on a percentage of net practice revenues most likely violates federal anti-kickback rules. Providers suspected of engaging in kickback schemes face possible criminal prosecution, civil fines, and exclusion from the Medicare program.
As such, physician practices should immediately review their contractual and financial relationships with any practice management company they do business with, recommend experts.
The April 15 OIG opinion is the result of a request from a solo practitioner who had contracted with a PPMC to help expand the practice. Under the agreement, the physician:
- provided all physician services at the clinic;
- hired additional physicians and other medical personnel with the PPMC's agreement;
- paid all physician compensation and fringe benefits including licensing fees, continuing education, and malpractice premiums.
The PPMC under contract was responsible for:
- finding a suitable location for the clinic;
- providing the initial capital for the office, furniture, and operating expenses;
- providing or arranging for all operating services for the clinic including accounting, billing, purchasing, direct marketing, and hiring of nonmedical personnel and outside vendors;
- providing the physician with management and marketing services for the clinic, including the negotiation and oversight of health care contracts with such payers as indemnity plans, managed care plans, and federal health care programs.
A key element in this case is that the PPMC planned to establish its own provider networks, which would have included the physician. If required by the PPMC, the physician also agreed to refer its patients to the PPMC's other network providers.
According to D. McCarty Thornton, chief counsel to the Inspector General, the OIG is concerned about these revenue-based arrangements because:
- The agreement contains inappropriate incentives. Such contracts often include financial incentives that can lead to inappropriate patient referrals as a result of marketing, or arrangements the PPMC may have with other specialist networks.
- There are a lack of safeguards against overutilization. The OIG feels that because the PPMC was to establish a provider network that the solo practitioner in question would be required to refer patients to, this would lead to overutilization of Medicare and other medical services paid for by the federal government.
- The agreement encourages upcoding. Percentage-of-payment agreements often include financial incentives that increase the risk of abusive billing practices, such as upcoding, by giving the practice management company an incentive to maximize its overall income, the OIG says.
When considering the opinion's impact, it's important to note that "the OIG limited the scope of this opinion's application by stating that it is the referral within provider networks that is problematic, not the actual PPMC structure," concludes an analysis of the ruling prepared by the Medical Group Management Association (MGMA).
Because this kind of arrangement "would not qualify for the managed care exception to the kickback law, this type of encouraged intranetwork referral system in the fee-for-service arena presents real problems for certain PPMC configurations," warns MGMA.
PPMCs run afoul of state law, too
The OIG opinion is not an isolated case. "Florida regulators threw a startling roadblock in the path of the physician practice management juggernaut when the state's Board of Medicine decided that paying a percentage of physician practice revenues in return for comprehensive management services violates Florida's fee-splitting laws," says Ellen H. Moskowitz, a lawyer in the New York City office of Proskauer Rose.
According to the Florida Board of Medicine ruling, handed down in November, a PPMC practicing "enhancement" activities that involve the generation of patient referrals to a physician group is the same as physician fee splitting in return for referrals - an activity that is illegal under state law.
"The board was particularly troubled by the PPMC's promises to create a physician provider network, develop relationships and affiliations with other physician provider networks, develop and provide ancillary services including pharmacy laboratory and diagnostic services, and evaluate, negotiate, and administer managed care contracts, " notes Moskowitz.
"In the board's view, paying the PPMC a percentage of a physician's fees amounted to compensating it, at least in part, on the basis of the referrals it had helped generate for the physicians," which it then linked to the state's criminal anti-kickback law in its ruling, says Edward Kornreich, another Proskauer Rose attorney.
In fact, the Florida Board even concluded that its fee-splitting and anti-kickback laws were similar in both "language and apparent intent."
New York officials also have looked at the issue. In April 1997, the New York State Health Department characterized a per-visit fee paid by physicians to a management company as unacceptable fee splitting, based on the fact that the form of payment was linked to enhanced patient volume as a result of the management company's practice enhancement efforts.
Federal PPMC focus not new
This is not the first time the OIG has looked at the PPMC fee splitting issue.
"In the preamble to the anti-kickback safe harbor rules, the OIG commented on the propriety of compensating individuals and entities for marketing and advertising activities, but did not address the kind of comprehensive practice enhancement activities provided by a full service management company [56 Fed Reg 35,974, (July 29, 1991)]," notes Kornreich.
In this narrower context, the OIG has found that marketing activities "may involve at least technical violations" of the anti-kickback law. However, the OIG has also made very clear that the anti-kickback law is not intended, and does not function, to ban the marketing of items or services funded by the Medicare or Medicaid programs. "It can be perfectly acceptable to compensate an individual or entity for such efforts. Only in certain cases will this otherwise allowable activity become an anti-kickback problem," says Moskowitz.
For example, in 1991 the OIG wrote that "many" marketing and advertising activities "warrant safe harbor protection under the personal services and management contracts safe harbor."
According to Proskauer Rose, this personal services and management contracts safe harbor is available only if a management company's aggregate compensation is:
- not set in advance;
- not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare or a State health care program.
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