Many of our healthcare and business law firm’s clients are in the business of renting expensive medical equipment for use by medical practices. Generally, these arrangements raise compliance questions under the Physician Self-Referral Act, referred to as Stark Law, and the Anti-Kickback Statute (“AKS”). Should a regulator find an arrangement violates either law, the consequences are severe. The perhaps unfortunate truth is that rarely can a sincere and analytical attorney tell you with confidence that an arrangement does or does not violate either law. The analysis usually places an arrangement on a scale of low to high risk of noncompliance. To assist in understanding whether an arrangement complies with Stark Law and AKS, the rules provide specific exceptions and safe harbors, respectively. Both Stark Law’s exceptions and AKS’s safe harbors outline ways in which an equipment rental agreement may satisfy the protections. One question that frequently arises with our clients is whether they can structure an equipment rental agreement to have a per-use (often called a “per-click”) payment term, wherein there is no set monthly amount but, rather, the lessee pays the lessor a predetermined amount for each time the equipment is used.
In this blog post, we outline the basic rules for equipment rental agreements under AKS and whether per-click payment terms satisfy AKS’s Equipment Rental safe harbor. Our previous post analyzed the same question under Stark Law and can be found here. If you have questions regarding this blog post or wish to evaluate the risks in your equipment lease arrangement, you may contact us at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, firstname.lastname@example.org. You may also learn more about our law firm by visiting www.hamillittle.com.
A. AKS’s Equipment Rental Safe Harbor
When the lessor and lessee are potential sources of referrals of Federal health care program business for one another, anything of value exchanged between them potentially implicates AKS. See OIG Advisory Opinion No. 98-18. The AKS makes it a criminal offense 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. 42 U.S.C. § 1320a-7b(b). If one purpose of the arrangement is remuneration to obtain money for the referral of services or to induce further referrals, the statute may be violated. United States v. Kats, 871 F.2d 105 (9th Cir. 1989). Violation of the statute is a felony with high monetary fines and imprisonment, and it allows the OIG to initiate proceedings to exclude the party from the Federal health care programs.
HHS has promulgated safe harbor regulations that define practices not subject to AKS because the practices are unlikely to result in fraud or abuse. See 42 C.F.R. § 1001.952. An arrangement must precisely meet all safe harbor conditions to receive the protection. The safe harbor for equipment rental is found at 42 C.F.R. § 1001.952(c) and has six requirements:
The lease arrangement is set out in writing and signed by the parties.
The lease covers all of the equipment leased between the parties for the term of the lease and specifies the equipment covered by the lease.
If the lease is intended to provide the lessee with use of the equipment for periodic intervals of time, rather than on a full-time basis for the term of the lease, the lease specifies exactly the schedule of such intervals, their precise length, and the exact rent for such interval.
The term of the lease is for not less than one year.
The aggregate rental charge 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 all other Federal health care programs.
The aggregate equipment rental does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental. Note that for the purposes of paragraph (c) of this section, the term fair market value means that the value of the equipment when obtained from a manufacturer or professional distributor, but shall not be adjusted to reflect the additional value one party (either the prospective lessee or lessor) would attribute to the equipment as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.
B. The Equipment Rental Safe-Harbor’s Per-Click Prohibition
Similar to Stark Law, there is an AKS safe harbor for equipment rental (Section 1001.952(c)). The equipment rental safe harbor, however, states that the aggregate compensation to be paid under the contract must be set in advance. In per-click arrangements, the aggregate charges are not set in advance and, therefore, the safe harbor[s] do[es] not apply to the payments from [lessee to lessor].” OIG Advisory Opinion No. 10-14 (Aug. 30, 2010).
C. Other Characteristics May Reflect a Low Risk of Violation AKS
Distinct from Stark Law exceptions where failure to qualify for an exception means noncompliance, “[t]he fact that the [a]rrangement does not fit in a safe harbor does not end the inquiry under the [AKS].” OIG Advisory Opinion No. 10-14, at 5. The OIG makes clear in Advisory Opinion No. 10-14 that per-click pay structures are suspect because they are “inherently reflective of the volume or value of services ordered and provided.” In a per-click rental equipment scenario, however, the OIG examined “the totality of facts and circumstances to determine the risk posed by the [a]rrangement” and found low risk that the arrangement would improperly influence or reward referrals. Some material characteristics of the arrangement were that:
- The compensation was “fair market value (and not at above- or below- market rates)” and negotiated through an arms-length transaction.
- Neither the lessee, nor physicians ordering or interpreting the tests, have any direct or indirect ownership interest in the lessor.
- The lessor charges and collects its fees regardless of the lessee’s ability to collect for its billed charges.
In contrast, the OIG found in OIG Advisory Opinion No. 10-23, at 6 (Oct. 28, 2010), that a similar per-click rental equipment agreement did not present a low risk of violating AKS because the arrangement “involves a fee that covers marketing services, which are ancillary or additional to the sleep testing services that are being furnished “under arrangements.” And because of the marketing aspect, “the [lessor] is in a position to generate referrals for the [lessee]’s sleep services.”
As is clear, whether a per-click equipment rental satisfies AKS even though it does not satisfy a safe harbor is a question of fact and requires an understanding of many details of the arrangement. If you have questions regarding this blog post or wish to evaluate the risks in your equipment lease arrangement, you may contact us at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, email@example.com. You may also learn more about our law firm by visiting www.hamillittle.com.
*Disclaimer: Thoughts shared here do not constitute legal advice.