Author: Morgan Price

The Anti-Kickback Statute and The Stark Law: Laws Working to Limit Health Fraud

In February 2020, Dominic Trumbo, a patient recruiter based out of Lexington, Kentucky was sentenced to 60 months in prison for receiving over $1 million in illegal kickback money from several home health agencies throughout the nation in exchange for information on Medicare beneficiaries. Trumbo instructed his employees to cold-call Medicare beneficiaries and offer incentives to get them to sign up for home health care. Trumbo then sold the Medicare beneficiary information to home health agencies around the country in exchange for illegal kickback payments. The evidence at trial further showed that Trumbo and his co-conspirators went to great lengths to conceal their scheme to defraud Medicare, creating sham contracts and fake invoices to cover their tracks

The Anti-Kickback Statute (AKS), enacted in 1972, is the criminal law that took down the Trumbo empire. The AKS prohibits the “knowing and willful payment” of so-called “remuneration” (essentially gifts; such as free rent, expensive hotels, meals, etc.) to induce and/or reward patient referrals. Criminal penalties for violating the AKS include large fines, prison time, and exclusion from participation in federal health care programs. The government need not even prove patient harm or financial loss to programs to prove a violation of AKS; taking money or gifts from medical sales companies, for example, can land physicians in serious trouble. Kickbacks can lead to overutilization, increased costs of healthcare services, and corrupt medical decision-making, steering patients away from medically valid services and/or therapies and unfair service delivery.

In December 2023, Community Health Network Inc., based out of Indianapolis, Indiana, was required to pay $345 million in a settlement to resolve allegations that it violated the False Claims Act by knowingly submitting claims to Medicare for services that were referred in violation of the Stark Law. The U.S. government alleged that the scheme began in 2008 when Community Health Network began to recruit physicians for employment for the purpose of capturing their “downstream referrals.” Over the years, Community Health Network successfully recruited hundreds of local doctors, in an array of specialties, by paying salaries significantly higher than market-rate at their own practices. 

The Physician Self-Referral Law, also commonly referred to as the Stark law, was first enacted in 1992 to limit the financial relationships that physicians may enter into, Stark further expanded in 1995 to encompass the “designated health services” (DHS) that patients receive. The DHS refers to the health facility or institution that performs services such as occupational therapies, clinical laboratory testing, radiology services, medical equipment, inpatient hospital services, outpatient prescription services, or home health services. The Stark law broadly seeks to prevent doctors from referring patients to the DHS if there is a financial relationship present between the physician and the healthcare entity, their immediate family member, and the healthcare entity. 

            On November 20, 2020, the Centers for Medicare & Medicaid Services (CMS) released a final rule in hopes of modernizing and clarifying the regulations that interpret Stark law which has not been significantly updated since 1995. According to CMS, the final rule notes that “for the first time, the regulations will support the necessary evolution of the American healthcare delivery and payment system.”  Using this final rule, in 2022, CMS settled a record-breaking 104 Stark law self-disclosures, which totaled over $9.2 million, almost quadruple the 2021 settlements

Hospital Mergers: Anticompetitive Consolidations in the Landscape of American Healthcare

Between 1970 and 2019, the number of local hospitals that consolidated into a larger healthcare system increased from 10% to 67%. The healthcare industry is slowly monopolizing. Some believe that this merger-centric healthcare economy is good for patients, especially those in rural communities, where mergers are especially prevalent. One particular characteristic of rural acquisitions stands out: the healthcare organizations involved in these mergers come from out-of-market. A recent study found that 17% of rural hospitals merged with healthcare organizations outside of the local geographic market. These out-of-market mergers increase large healthcare corporations’ market share, lowering the amount of potential competition, and further monopolizing the landscape. Supporters of both in-market and out-of-market mergers argue that they play a vital role in preserving rural communities’ access to care. Small and financially vulnerable hospitals in rural areas may seek out a merger with a large healthcare organization to improve their financial outcomes or to increase the quality of their services to patients.

While supporters insist that mergers are a logical solution to getting patients better access to specialty care, skeptics worry about the downsides. Primarily, these mergers often shift the costs of care to the patients. One study found that after examining 366 mergers and acquisitions of hospitals occurring between 2007 and 2011, prices for patients increased by over 6%. Adding insult to injury, the same study found that prices at hospitals with a monopoly of patients were on average 12% higher than those in markets with four or more competing care centers.

How should we address the financial burden patients endure from hospital mergers? Well, this is where we look to anti-trust oversight and enforcement procedures. Anti-trust laws exist to protect consumers by preventing monopolies and encouraging competition to drive efficiency, improve quality, and lower prices for the everyday American. Three primary cornerstone federal antitrust laws collectively govern the regulation of competition: the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and the Federal Trade Commission Act of 1914. Additionally, most states possess parallel statutes that provide antitrust enforcement procedures within their jurisdiction. To address antitrust-related activities that occur in out-of-market merger scenarios, Congress has passed the Hart-Scott-Rodino Antitrust Improvement Act, which mandates that notice be sent to the Federal Trade Commission when a transaction exceeds $101 million. This threshold is concerning when looking through the lens of hospital mergers, where acquisitions rarely exceed the threshold for reporting. Today, eleven states lack processes for tracking and/or challenging healthcare provider transactions that go beyond the aforementioned federal antitrust laws. In contrast, only four states require notice of all transactions between healthcare entities.

State legislatures have a few options to remedy this issue, though one is particularly compelling: state policymakers can develop state statutes that prohibit anti-competitive clauses in health merger and acquisition contracts, thus preventing providers from using their enormous market power to strongarm patients into paying more. By taking this step, legislators can protect their states from mass consolidation of their healthcare markets and protect their constituent’s access to affordable healthcare.