Moving the HME Industry Forward


The Anti-Kickback Statute and Arrangements Between Commonly-Owned Companies

March 6, 2017

AMARILLO, TX – The Medicare anti-kickback statute (“AKS”) makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. Under the guise of “you cannot kick back to yourself,” in order for the AKS to be violated, there needs to be two parties involved (e.g., Company A and Company B).

It is well accepted that if Company A and Company B have no commonality of ownership, and if Company A generates government program patients to Company B, and if Company B pays money to Company A, then the AKS will be implicated. But now let’s change the facts a bit and assume that Company A and Company B have commonality of ownership.

For example, assume that John Smith owns 45% of Company A and owns 65% of Company B. Under the guise of “you cannot kick back to yourself,” can the companies take the position that the AKS does not apply to compensation paid by Company B to Company A? The answer is “no.” The AKS applies to companies that have commonality of ownership.

OIG’s Common Ownership Guidance
In the preamble to the Final Rule promulgating the initial AKS safe harbors in 1991, the OIG responded to comments requesting a safe harbor or definitional change to protect payments between corporations having common ownership. 56 Fed. Reg. 35952, 35983 (July 29, 1991. In the OIG’s response, it acknowledged that “the statute is not implicated when payments are transferred within a single entity,” but it went on to state that “the statute is implicated when payments are made from one entity to another even though the payments are made between entities with common ownership …” Id. And while OIG said in that preamble that it thought safe harbor protection may be appropriate in some instances for commonly-owned entities, it later backed off that position in another preamble when it stated the following:

With respect to integrated delivery systems and payments between wholly-owned entities, we have stated previously that the anti-kickback statute is not implicated when payments are transferred within a single corporate entity, for example, from one division to another, and therefore no explicit safe harbor is needed for such payments (56 FR 35983). We recognize that there are many lawful integrated delivery system arrangements and arrangements between wholly-owned entities in the marketplace today and that many of these arrangements may be beneficial to the Federal health care programs and their beneficiaries. We are concerned, however, that integrated delivery systems, including arrangements involving wholly-owned subsidiaries, may present opportunities for the payment of improper financial incentives that result in overutilization of services and increased program costs and that may adversely affect quality of care and patient freedom of choice among providers. This is primarily of concern where payment by the Federal health care programs is on a fee-for-service basis, as may occur, for example, with a hospital’s referrals to a wholly-owned home health care agency (see, for example, Medicare Hospital Discharge Planning, OEI-02-94-00320 (December 1997)). Accordingly, we do not anticipate providing safe harbor protection for integrated delivery systems and arrangements between wholly-owned entities at this time. The advisory opinion process (42 CFR part 1008) is available for parties wishing to obtain OIG review of their particular integrated delivery or wholly-owned arrangements.

64 Fed. Reg. 63518, 63520 (Nov. 19, 1999.

These are the clearest statements of the OIG’s position on the AKS and commonly-owned entities, and they indicate that arrangements involving the exchange of referrals and remuneration between commonly-owned entities are subject to AKS scrutiny. But, I am aware of one example of an OIG Advisory Opinion tangentially discussing the issue of common-ownership or control that could indicate there is room to argue otherwise. The Opinion deals with a private, non-profit hospital’s donation of its ownership interest in a medical office building to a state agency for use by a medical school operated by the state agency. See OIG Advisory Opinion 00-6 (“Opinion”).

The OIG saw clear issues with the donation of the ownership interest by the hospital to the state agency whose medical school and physician groups were a referral source to the hospital, but, in the OIG’s description of the state agency and the medical school, it said it considered the agency, the university, the medical school, and the medical school’s faculty practice group to be a single entity. This indicates that there could be instances when commonly-owned or controlled entities are considered one entity by the OIG for AKS purposes. But, the relationship scrutinized in the Opinion was not the relationship between those entities the OIG considered as one; rather it was the relationship between the separately-owned hospital and the state entities. And while the hospital did share a common mission with the state agency, the hospital apparently was not sufficiently related to be considered as the same entity as the agency for purposes of AKS analysis.

When considered together, this guidance suggests that the OIG is likely to consider an arrangement involving the exchange of referrals and remuneration between two commonly-owned, but separate, legal entities to be subject to AKS scrutiny.

Investment Interest Safe Harbor
One other potentially applicable safeguard, however, is the AKS investment interest safe harbor found at 42 C.F.R. § 1001.952(a). This safe harbor protects any payment that is a return on investment, such as dividends made to an investor if certain elements are met. If one entity invests in another entity that does not either (i) possess more than $50,000,000 in undepreciated net tangible assets related to the furnishing of health care items and services or (ii) reside in an underserved area, then there are eight standards that must be met. Id. The criteria that are often most difficult to satisfy are as follows:

• No more than 40% of the entity invested in may be held by investors in a position to make or influence referrals to the entity; and
• No more than 40% of the gross revenue related to furnishing health care items and services for the entity invested in may come from referrals from investors.

Id. at § 1001.952(a)(2)(i), (vi).

Often, these 40% limitations are what prevent entities from taking advantage of the investment interest safe harbor.

Jeff Baird and Mark Higley will be presenting the following webinar:
Competitive Bidding: “Buying Into” a Contract, Exiting a Contract, Meeting Capacity, and Other Important Issues
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Mark J. Higley, Vice President – Regulatory Affairs, VGM Group, Inc.
Tuesday, March 14, 2017
2:30-4:00 p.m. EASTERN TIME
Now that competitive bidding has…unfortunately … been in place for several years, a number of legal issues have arisen and have been addressed by CMS. This webinar will discuss these legal issues. In particular: (i) we will examine if the DME supplier can cease serving competitive bid patients if the supplier’s business has exceeded the capacity stated in the supplier’s bid package; (ii) we will look at the options the contract supplier has if it concludes that it simply cannot profitably continue to serving patients under the competitive bid contract; (iii) we will examine what the supplier must do if it discovers that it has not met the “physical location” requirements of a state; (iv) we will look at the requirements a contract supplier must follow in order to “carve out” a portion of its competitive bid contract; and (v) will examine how a contract supplier should prepare a Corrective Action Plan when CMS threatens to terminate the competitive bid contract.

Register for Competitive Bidding: “Buying Into” a Contract, Exiting a Contract, Meeting Capacity, and Other Important Issues on Tuesday, March 14, 2017, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC and Mark Higley, Vice President – Regulatory Affairs, VGM Group, Inc.

Contact Ika Sukh at if you experience any difficulties registering.
Member: $99.00    
Non-Member: $129.00

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or