I'm tempted to open this article by saying, “government scrutiny of the home care industry is at an all- time high.” All that stops me is that I've already said that each year for most of my 25-year legal career.

But I cannot deny that the feds are watching more carefully than I can remember their doing before, challenging claims more aggressively and targeting financial relationships involving home care companies more frequently.

Lincare just negotiated a $12 million settlement with the feds for allegations of bogus contracts with physicians, supposedly paying for unnecessary or phantom services in order to disguise a supposed payment for referrals. At much smaller levels, I am noticing a disturbing tendency for claims reviewers in the DMERCs' fraud units to characterize imperfect or questionable claims as “fraudulent” with very little evidence to back up such an incendiary contention.

At the same time, I see too many HME providers with dangerous gaps in their knowledge and appreciation of the anti-fraud rules. Small companies are getting hit just as hard and frequently as are bigger companies.

Ignorance is not bliss. It is a disease, which sooner or later will consume your business. This is not just hyperbole on my part. I have had the sad task of attending to the closure of a number of clients, all of whom were unaware of the practical dangers of indifference or carelessness about embracing these rules.

With that in mind, here are answers to the most frequently asked questions about the anti-fraud rules — and why you should care.

Question: What are these anti-fraud rules all about, and why should I care?

Answer: Anti-fraud rules come from a wide range of federal laws. These include the Anti-Kickback Statute, which prohibits any health care provider from giving or receiving anything of value in exchange for referring or receiving referrals of patients, goods or services related to government-funded programs.

There is also the Stark Law, which prohibits physicians from receiving financial benefit from any provider of “designated health services” (including home medical equipment providers) to whom the physician refers Medicare or Medicaid business, unless the relationship or the referral falls into one of the law's exceptions.

Then there is the False Claims Act, which prohibits providers from submitting government-reimbursed health care claims that they know or should know are false; this includes inaccurate claims where the provider didn't put in enough effort to try to do it right. (As the law language states, where the provider was “recklessly indifferent to the accuracy of the claims.”)

And there are literally dozens of other federal statutes and regulations that the government can and does use to attack a provider on whom the feds have set their sights.

Many home care companies tread dangerous waters because they don't realize that these anti-fraud and abuse laws apply to more relationships than the traditional joint venture. While joint ventures have gained the most notoriety and the greatest scrutiny under the laws, virtually every financial relationship between home care companies fall within the anti-fraud rules' embrace.

Because of this, virtually every home care provider is forced to deal with these laws. Those who violate them may face substantial money penalties, loss of license, exclusion from Medicare or even criminal charges. Only careful navigation will permit alert home care companies to seize competitive market opportunities.

Many financial arrangements between providers will not violate the anti-fraud laws, if they are carefully structured. Also, it is important realize that the real costs of government scrutiny are the hassles and embarrassments that flow from the investigation, regardless of its outcome. These can cost dearly in time, money and reputation.

Question: Do I only have to worry about federal law? Most of my business is private pay.

Answer: State law can dramatically affect your marketing and referral options. It's easy to focus so much attention on the federal law that the local rules are forgotten. Even knowledgeable health care attorneys sometimes forget to pay attention to state laws when assessing an arrangement's kickback risks.

Such lapses are dangerous, because as the feds more vigorously pursue health care fraud cases — and they are — state attorneys general around the country are following suit.

Anti-kickback laws vary from state to state. To complicate matters, the laws in any one particular state often aren't as uniform or organized as the federal Medicare laws. The prohibitions in some state fraud-and-abuse laws are broader than the federal prohibitions. Some state laws have few or no safe harbors or exceptions, and there usually is very little case law or other guidance available.

Most states have anti-fee-splitting or anti-kickback laws that apply to one or more payer types. While the federal anti-kickback statute prohibits home care companies from paying or receiving payments in exchange for government-reimbursed services or beneficiary referrals, state laws can apply to patients covered by private health insurance, workers' compensation and auto insurance.

But if you comply with federal anti-kickback and self-referral laws, you can maximize chances that you comply with laws in your state. For example, Pennsylvania's workers' compensation anti-kickback regulations protect a business arrangement if it falls within a federal safe harbor or exception. But not always.

Florida law prohibits referrals to entities (including home care companies) in which the practitioner has an equity interest of at least 10 percent, excluding the physician's own practice, real property interests and interests in publicly-traded corporations. As another example, South Carolina has pursued health organizations under its Unfair Trade Practices Act with a totally different set of rules.

Question: My heart is pure, I am very cautious and conservative in all my dealings and I am always careful. Isn't that enough?

Answer: In my experience, I have found many misconceptions that plague home care companies when deciding which opportunities to pursue. Here are what I call the Seven Deadly Sins of Misunderstanding:

1. Only greedy con men get in trouble. Not true. Home care companies with honorable goals also are at risk. They can be inadvertently engaged in illegal activities despite honorable goals.

   Most of these laws focus on instances of value gained in exchange for referrals or recommendations. Although the purpose of such actions may be for improved clinical care, that doesn't prevent regulatory scrutiny. Even if the value received is simply an opportunity to perform a legitimate service for a legitimate fee, it may be viewed as a “kickback.”

2. Everybody does it this way, so I will not get into trouble. Again, not true. That an activity is common is irrelevant. Also, an arrangement may appear to be the same as that in other practices, but often its fine details make the difference between a plan that passes scrutiny and one that doesn't.

3. Joint ventures are dangerous but everything else is safe. Once again, not true. Among other risky agreements are those concerning managed care, rentals and space, management or professional service relationships, discount arrangements or almost any other relationship where a financial arrangement involves the provision of health care services.

   Even though home care companies may not intend that such services be tied together, such relationships raise the possibility of scrutiny under the law.

4. Only the entrepreneur behind the arrangement is at risk; I'm not at risk if I simply sign on to someone else's plan. No. The law makes equally culpable all who offer or receive anything of value in exchange for a referral or recommendation. Arguably, home care providers may be obligated to report those who make such an offer.

5. If those offering this arrangement went to all this trouble to put it together, they must have looked into all of these issues, and I don't need to check out the details. No. This is a difficult and shifting area of the law, and many people are insensitive to or ignorant of the issues. In addition, some people are willing to take more risks than others. The mastermind behind a plan may be willing to take on far more risk than a home care provider who is fully informed about the deal.

6. If a home care company's personnel submit a false claim or otherwise violate the law without the CEO's personal knowledge, the CEO is safe. Not true. In most contexts, management personnel are personally responsible for staff supervision and must be informed about staff members' activities. They are responsible for all that goes out under their signature or stamp.

7. If I don't know it's against the law, I'm not in trouble. Sorry, but still no. A home care company cannot plead that it was ignorant that a financial arrangement violated the law, so, therefore, the company deserves another chance.

These laws usually hold that a company's knowledge of the details of any financial arrangement constitutes knowledge of the underlying legal issues. A pure heart and clean living will not suffice.

Question: How can I make sense of all this? Are there any general rules or guidelines to keep me out of trouble?

Answer: Here are my Lucky Seven Rules for successfully navigating the fraud-and-abuse waters.

1. All financial arrangements must be commercially reasonable for reasons totally unrelated to referrals. Each detail in an arrangement must be independently justifiable and fully consistent with appropriate business decision-making. Reward should follow risk, and payments should reflect fair value to the HME provider.

2. All financial arrangements should benefit the patient and/or the third-party payer (Medicare, Medicaid or commercial insurers). Even though most of the anti-fraud laws indicate that the violations can occur regardless of whether the arrangement increases costs or utilization, such excesses usually fuel the government's zeal to pursue. The arrangement, therefore, should benefit the community in some way: improved care, cheaper care, better “value” or whatever.

3. KISS — Keep It Simple, Silly. The “trickier” the arrangement appears, the more suspicion it will generate. Remember that the government uses special arithmetic in its investigations. If you have one questionable element in your deal, an adequate explanation may well suffice. If you have a second questionable element, a second explanation may help. But by the time you must explain the third or fourth ambiguous items, the government will apply its own arithmetic: 1 + 1 + 1 = 10.

4. Document. The most honorable motives, the most careful evaluation of commercial reasonableness and the clearest assessment of risk/reward will not help much if documentation is sloppy.

   By the time government representatives are looking at your arrangements, they are not likely to trust undocumented assertions that your motives were appropriate when the deals were formed. Be sure all financial arrangements are clearly documented and have been reviewed by legal counsel.

5. Monitor. Providers must monitor arrangements after they begin. Many activities that start off “safe” subsequently morph into improper reward mechanisms for referrals.

   For example, a space lease between a home care company and a hospital may commence with an amount of space that is initially appropriate for both parties' true needs, but that becomes too much or too little space over time. That lease may raise anti-kickback concerns when it is not appropriate for the legitimate needs of the parties.

   I have seen a hospital sublease thousands of square feet from a physician-owned medical office building for future recruitment needs. If handled casually, this sort of warehoused space creates a fraud concern, because the original justification (reserving space for an upcoming need) does not reflect reality (that is, the space sits around unused for an inappropriate length of time).

   The point is that the government cares about improper activities. It evaluates whether an arrangement is proper based on what the provider is in fact doing, regardless of what the provider claims it intended to do originally. Monitor arrangements carefully.

6. Don't overreact. I've already mentioned the danger of being the proverbial ostrich that buries its head in the ground, ignoring the broad scope of the rules. The converse danger is not to become paralyzed into inaction.

   A home care provider who automatically avoids any alliance involving financial benefit — to avoid having to deal with the anti-fraud and self-referral laws — will miss out on many valuable market opportunities. At worst, the company will be unable to survive in today's competitive home health care climate.

7. Watch the traffic light. In summary, I view these anti-referral laws as a traffic light. Don't pretend the light is green and forge full steam ahead, blind to the dangers of the laws. That course will surely lead to trouble — civil fines, criminal sanctions, etc. On the other hand, don't view the traffic light as being red, urging you to stop all activity. In all likelihood, the rules are too broad to avoid addressing. They cover virtually every financial arrangement you make.

Instead, view the traffic light as showing a yellow signal: Proceed with caution. Identify weaknesses and ambiguities, fix questionable aspects, document motives for everything and pay attention!

Please, please take the importance of rule-compliant behavior to heart. If Big Brother is not watching already, he will be soon — but you can fight back with diligence and common sense.

Materials in this article have been prepared by the Health Law Center for general informational purposes only. This information does not constitute legal advice. You should not act, or refrain from acting, based upon any information in this presentation. Neither our presentation of such information nor your receipt of it creates nor will create an attorney-client relationship.

Neil Caesar is president of the Health Law Center (Neil B. Caesar Law Associates, PA), a national health law practice in Greenville, S.C. He also is a principal with Caesar Cohen Ltd., which offers compliance training, outsourcing and consulting and the author of the Home Care Compliance Answer Book. He can be reached by e-mail at ncaesar@healthlawcenter.com or by telephone at 864/676-9075.

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