Anti-Kickback Statute Explained

The federal government utilizes many resources in its quest to eliminate fraud and abuse in healthcare, including audits, investigations, and prosecution under several federal laws. In addition to the False Claims Act (FCA) and Stark Law, the Anti-Kickback Statute (AKS) is one of the most important tools in the government’s enforcement arsenal.

At Hendershot Cowart P.C., our Houston attorneys are recognized industry leaders in health and medical law. In addition to providing proactive counsel to help providers ensure compliance and mitigate exposure to penalties, we also deliver immediate and strategic representation to defend against healthcare fraud enforcement and investigations under the federal Anti-Kickback Statute.

Understanding the AKS is critical to avoiding violations and taking the right steps when regulators come knocking on your door. Call (713) 783-3110 today to learn more.

On This Page

• What is the Anti-Kickback Statute?
• AKS Enforcement & Prosecution
• Penalties for Anti-Kickback Statute Violations
• AKS Safe Harbors
• How Our Attorneys Can Help

What is the Anti-Kickback Statute?

In some industries, it is acceptable to reward those who refer business to you. Paying for referrals for federal healthcare program business, however, is a crime.

The Anti-Kickback Statute makes it illegal to willfully and knowingly exchange payment (or anything of value) to influence referrals of federal healthcare program business, such as:

• Healthcare services for patients covered by Medicare or Medicaid
• Healthcare services for military members or families (i.e., TRICARE)
• Drugs, including compounded drugs and specialty creams
• Medical supplies or equipment covered by federal payors

Under the AKS, both payors of kickbacks (those who pay or offer payment) and recipients of kickbacks (those who receive or solicit payment) can be prosecuted and subject to punishment.

Even at the state level, physician relationships are heavily scrutinized. In 1999, Texas passed its Solicitation of Patients Act, a criminal provision that is roughly analogous to the federal Anti-Kickback Statute. This state law, however, takes it a step further – prohibiting remuneration for referrals involving private insurance companies or self-pay, as well as state-funded health programs. While the state Attorney General enforces this law, many insurance companies also conduct investigations that can lead to exclusion from the insurer’s covered network.

AKS Enforcement & Prosecution

Federal authorities have become increasingly aggressive in fighting healthcare fraud and are very active in investigating and prosecuting providers for suspected violations.

While any health care provider or non-licensed healthcare business owners can be prosecuted under the AKS, federal authorities pay particular attention to arrangements involving compounding pharmacies, individual physicians, imaging or surgical centers, laboratories, medical device companies, and home health and hospice care providers.

As with any criminal case, it is the government’s burden to prove beyond a reasonable doubt that a defendant violated the Anti-Kickback Statute. Here are some facts about prosecution under the AKS:

• Intent – The Anti-Kickback Statute is an intent-based law. This means individuals must have acted knowingly and willfully to be convicted. Arguing intent is important, as not every remuneration paid, offered, or accepted will constitute a violation – provided no single purpose of a payment or offer was to induce referrals, and that parties demonstrate clear and good intent.
• Medical necessity – Even if a physician provided services that were medically necessary, they can still be guilty of violating the AKS. Arguing that a provider who received payment or other gifts of value from a company would have rendered certain services, written a prescription, or ordered medical equipment even without a kickback is not a viable defense.
• Harm or losses – There is no requirement for the government to prove patients suffered harm as a result of a defendant’s conduct or that a federal health care program suffered losses to prove a violation.

Because the law provides for both civil and criminal prosecution, early intervention to dissuade the government from pursuing criminal indictment is a top priority. This keeps investigations civil and allows providers to explore their options for reaching a positive resolution.

Penalties for Anti-Kickback Statute Violations

Penalties for violating the Anti-Kickback Statute are steep and extend well beyond fines. The AKS imposes both criminal and civil penalties, and a conviction can have a profound impact on your personal freedom, professional standing, and ability to participate in federal healthcare programs.

On the criminal side, an AKS violation is a felony. Upon conviction, a person who furnishes items or services reimbursed by a federal healthcare program faces a fine of up to $100,000 per violation and up to 10 years in federal prison. Conviction also results in mandatory exclusion from Medicare, Medicaid, and other federal healthcare programs.

Civil penalties are separate and can compound the financial consequences significantly. Under federal law, a person who commits an act described in the AKS's illegal remuneration provisions is subject to civil monetary penalties of up to $100,000 per violation, plus damages of up to three times the total amount of remuneration offered, paid, solicited, or received – regardless of whether any portion of that remuneration was for a lawful purpose. The government may also seek exclusion from federal healthcare programs in the same proceeding.

Taken together, AKS violations may result in:

• Criminal fines up to $100,000 per violation
• Up to 10 years in federal prison per violation
• Civil monetary penalties up to $100,000 per act
• Treble damages – up to three times the amount of remuneration at issue
• Mandatory exclusion from Medicare, Medicaid, and other federal healthcare programs
• Loss of medical license and professional standing

These penalties make proactive AKS compliance essential for any healthcare provider, practice, or business that participates in federal healthcare programs. They also underscore the importance of taking immediate action if you receive a Medicare audit notice, subpoena, Civil Investigative Demand, or other signal of government scrutiny.

AKS Safe Harbors

The AKS is intentionally broad. It reaches any remuneration – cash or in-kind, direct or indirect – offered or paid to induce or reward referrals or purchases of items and services reimbursable by a federal healthcare program. Taken literally, that scope would sweep in countless ordinary, legitimate business arrangements that healthcare providers enter into every day.

To address this, Congress created statutory exceptions and directed the OIG to develop regulatory safe harbors – defined categories of arrangements that, if structured correctly, are protected from AKS scrutiny. These safe harbors cover a wide range of common healthcare business relationships.

Safe harbor protection is not automatic. An arrangement must precisely meet every condition of the applicable safe harbor to receive protection. An arrangement that falls outside a safe harbor is not automatically illegal, but it loses its guaranteed protection and will be evaluated by the OIG on a facts-and-circumstances basis – a far less certain position to be in.

The safe harbors most relevant to Texas healthcare providers, practices, pharmacies, DME companies, and diagnostic labs include the following.

• Discounts. Reductions in price for items and services reimbursable by a federal healthcare program are protected if properly disclosed and accurately reflected in costs or charges submitted to federal programs. The discount safe harbor covers upfront price reductions, prompt-payment discounts, and – under certain conditions – rebates and bundled pricing arrangements. OIG Advisory Opinion 25-11 provides the most detailed recent guidance on how this safe harbor applies in practice.
• Bona fide employment. Amounts paid by an employer to a bona fide employee for employment in the provision of covered items or services are expressly excluded from the definition of prohibited remuneration under the statute. This is one of the AKS's statutory exceptions, and it protects standard employment compensation – including salary, benefits, and bonuses – from AKS liability, provided a genuine employment relationship exists.
• Personal services and management contracts. Payments made under a personal services or management contract are protected if the arrangement is set out in writing for a term of no less than one year, covers all services the agent provides to the principal, specifies aggregate compensation in advance, does not exceed fair market value for commercially reasonable services, and is not determined in a manner that takes into account the volume or value of referrals. This safe harbor is critical for medical directorships, consulting arrangements, and management services agreements between healthcare entities.
• Space and equipment rental. Lease arrangements for office space or equipment are protected if the lease is in writing, covers all space or equipment leased, specifies the premises or equipment and the rental rate in advance, has a term of at least one year, and sets rent at fair market value that does not reflect the volume or value of referrals. Percentage-based rent arrangements tied to revenues generated from referral sources fall outside this safe harbor.
• Waiver of coinsurance and deductibles. Routine waiver of cost-sharing obligations is not protected and raises significant AKS risk. However, waivers may be protected in limited circumstances – including when the waiver follows a good-faith determination of financial need, when collection efforts have been genuinely exhausted, or when the waiver is not advertised or used as a marketing tool.
• Ambulatory surgical center (ASC) investment interests. Returns on investment in a certified ASC – such as dividends or interest income – are protected, provided the ASC's operating and recovery room space is dedicated exclusively to the ASC, referred patients are fully informed of the investor's ownership interest, and the arrangement meets all conditions within one of four recognized ownership structures. ASC ownership arrangements are common targets of OIG scrutiny, and Texas physicians and surgical groups considering investment in an ASC should have their ownership structure reviewed against these standards before any investment is made.
• Referral services. Payments to a referral service may be protected if the service does not exclude any qualified providers, the payment is not based on the volume or value of referrals, and the service makes disclosures to patients about participating providers.
• Specialty pharmacy and drug discount programs. Additional safe harbors address certain point-of-sale drug discounts, pharmacy benefit manager arrangements, and Part D cost-sharing waivers, each with its own detailed requirements.

A critical compliance point. Many of the safe harbors share common structural requirements: the arrangement must be in writing, compensation must be set in advance, compensation must reflect fair market value, and compensation must not vary with the volume or value of referrals or business generated between the parties. When any of these elements are missing or compromised, safe harbor protection is lost – even if the arrangement would otherwise qualify.

Understanding which safe harbor, if any, applies to a given arrangement – and whether that arrangement is structured to meet every required condition – is the foundation of AKS compliance. When an arrangement falls outside a safe harbor, the analysis does not end there, but the risk profile rises significantly and proactive legal review becomes essential.

How Our Attorneys Can Help

If you find yourself entangled in an Anti-Kickback Statute scheme or investigation, we can help:

• Proactive legal counsel. Don’t wait for the Office of the Inspector General (OIG) or another state or federal authority to raise concerns. We can work with you today to ensure your practice or facility complies with the Anti-Kickback Statute and its “safe harbor” exceptions.
• Guide you to safe harbors. It is possible to make referrals that do not violate the Anti-Kickback Statute through protections provided by “safe harbors” within the law. Our health law team can examine the structure of existing referral arrangements or payment practices – or guide you in establishing these arrangements for your enterprise – to ensure they fall within a safe harbor.
• Identify potential violations. Even when an arrangement is made with mostly good intentions, if one single purpose of a payment or offer was to induce referrals, then the entire arrangement is in violation. This is known among regulators as the “one-purpose” test and can implicate all parties involved in the business arrangement. If you are concerned about violating the Anti-Kickback Statute, we will work with you to identify and address any breaches, so you and your practice remain safe from regulatory fallout.
• Navigate private insurance company investigations. In Texas, the Patient Solicitation Act follows the Anti-Kickback Statute, prohibiting financial payments and rewards for patient referrals. The state law, however, takes it a step further – prohibiting remuneration for referrals involving private insurance companies or self-pay. While the state Attorney General enforces this law, many insurance companies are also conducting investigations that can lead to exclusion from the insurer’s covered network. Our attorneys can help you navigate such investigations and minimize your time away from serving your patients.

Should you find yourself the subject of an audit or healthcare fraud investigation, Hendershot Cowart P.C. can step in immediately to defend your livelihood and professional reputation. Our award-winning attorneys counsel clients throughout the United States. Contact us for an initial consultation.