Ketamine Clinics and the Federal Anti-Kickback Statute: Beware!

In a prior post, we discussed some of the various Federal laws that apply when a ketamine clinic is a Medicare provider (or accepts reimbursement from another Federal program, like Medicaid, the VA, etc.). Click here to review the post. While other Federal laws apply in these situations (e.g., the Stark Law, the Federal False Claims Act, etc.), the Federal anti-kickback statute (“AKS”) is a criminal statute. Thus, extra scrutiny applies in these situations. While many states have an AKS corollary based on state law, they vary tremendously. However, anyone who is contemplating a purchase of a ketamine clinic must review all applicable healthcare laws to ensure prior and future compliance. That is no small feat.

Overview of the AKS

So, what does the AKS say? In relevant part, the AKS provides are follows:

(1)        Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind—

(A)       in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B)       in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $100,000 or imprisoned for not more than 10 years, or both.

42 U.S.C. § 1320a–7b(b)(1).

The immediately succeeding section provides the same but focuses on those who “offer[] or pay[] any remuneration” for “furnishing or arranging” or to “purchase, lease, order, or arrange for or recommend purchasing, leasing or ordering” items or services that are payable by a Federal health care program. 42 U.S. Code § 1320a–7b(b)(2).

Additional Penalties for Violating the AKS and Purpose of AKS

In addition to the penalties outlined in the AKS, there are possible additional penalties under the Civil Monetary Penalty Law. 42 U.S.C. 1320a-7a(a)(7). Moreover, when there is an AKS violation, the Federal government can also bring claims under the Federal False Claims Act. A provider who is convicted of an AKS violation also faces exclusion from Medicare, Medicaid, and other Federally funded health care programs.

Thus, the golden rule is “thou shall not pay for referrals” – unless you enjoy spending time in prison and paying tremendous monetary penalties.

Why do we have an AKS? The fundamental purpose behind many of the Federal fraud and abuse laws centers on over-utilization and unnecessary medical services, which in turn, drive health care costs higher. Providers who are incentivized to provide more services may compromise quality patient care in the pursuit of money. Any time profit drives medical decisions, one can see the danger in those situations. Plus, we already have an incredibly expensive health care system. According to the Centers for Medicare & Medicaid Services, “U.S. health care spending grew 4.6 percent in 2019, reaching $3.8 trillion or $11,582 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.7 percent.”

Safe Harbors for the AKS

While the AKS is very broad in its reach, there are “safe harbors” under the AKS. To avoid prosecution under the AKS, an arrangement must meet every element of the safe harbor. Otherwise, an individual or entity is not immune from prosecution.

Given the corporate practice of medicine doctrine, which is a state-based law, many ketamine clinics are owned by the providers but managed by a management services organization (“MSO”). The operative document is typically a management services agreement (“MSA”) to effectuate this relationship.

There is a regulatory safe harbor for MSAs to ensure a clinic will not have any issues under the AKS. The regulation states:

As used in [the AKS], “remuneration” does not include any payment made by a principal to an agent as compensation for the services of the agent, as long as all of the following seven standards are met—

  • The agency agreement is set out in writing and signed by the parties.
  • The agency agreement covers all of the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent.
  • If the agency agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a full-time basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.
  • The term of the agreement is for not less than one year.
  • The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions and is 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, Medicaid or other Federal health care programs.
  • The services performed under the agreement do not involve the counselling or promotion of a business arrangement or other activity that violates any State or Federal law.
  • The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

42 C.F.R. § 1001.952(d)

Again, to enjoy the protections under the MSA safe harbor, every element must be met. While some of the elements are easy to understand and apply – like the requirement that the MSA has a term of at least one year – other elements are trickier. Perhaps the most difficult element to meet is the requirement that the payments are “consistent with fair market value.” To meet this element, we typically recommend the retention of a healthcare appraiser to assist in setting the compensation between the providers and the MSO. An appraisal is the “gold standard” for those who enter into MSAs, and one of the few ways to truly protect the parties from an AKS claim.

The AKS is a complex statute with many nuances. Additionally, there are Office of Inspector (“OIG”) opinions, OIG Fraud Alerts, the preamble to the regulations, case law, and other sources to review for AKS-related issues. Ultimately, the AKS is a very fact-intensive inquiry. But, for those who want to enter the U.S. health care sector, understanding the Federal fraud and abuse laws is paramount and can impact how relationships are structured.