NCDS Letter

From NCDS Written By: Patrick D. Craig, JD - McGill & Hill Group (www.mcgillhilgroup.com)

Are Thank You Gifts for Referrals Legal?

A 2015 Orthodontic Practice Study published in the Journal of Clinical Orthodontics found that ninetytwo percent (92%) of orthodontists responding to the survey questionnaire indicated that they used entertainment and gifts to seek referrals from general dentists. Further, seventy-four percent (74%) of responders indicated that they used referral awards to seek referrals from patients and parents. This gifting trend is not limited to the orthodontic specialty, either. A quick Internet search reveals dozens of patient referral reward programs being implemented by various types of practices across the country. These programs promise rewards to patients such as pre-paid credit cards, chances to win vacations, gift cards, discounted dental services, movie tickets, gift baskets and even an iPad Mini, in exchange for referring their friends and family members. But, aren’t pay-for-referral schemes illegal? If that is the case, what constitutes a pay-for-referral scheme? Unfortunately, the answer isn’t always black and white.

Federal Laws

At the federal level, there are two primary statutes that attempt to prohibit pay-for-referral schemes: the Stark Law and the Anti-kickback Statute. The Stark Law prohibits a physician from referring a Medicare or Medicaid beneficiary to an entity for certain designated health services, if the physician (or an immediate family member of the physician) has a financial relationship with the entity. The term “financial relationship” is defined quite broadly in the statute, and includes “any arrangement involving remuneration of any kind.” However, certain de minimis gifts are excepted from the definition of “financial relationship” provided that the gift: (i) does not exceed a certain statutory limit, which is adjusted for inflation each year ($392 for calendar year 2016); (ii) is not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician; (iii) is not solicited by the referring physician or his or her staff; and (iv) does not otherwise violate the Anti-kickback Statute, or other state or federal law. A gifting arrangement between two practitioners that does not fall under this exception can create a financial relationship between the doctors. Each of the doctors would then be precluded from referring a Medicare or Medicaid beneficiary to the other for certain designated health services, unless another exception to the Stark Law applied. The federal Anti-kickback Statute (AKS) generally prohibits anyone from knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward referrals of services reimbursable by a healthcare program funded in whole or in part by the federal government (e.g., Medicaid, CHIP). The Anti-kickback Statute’s restrictions apply to both the giver and receiver of the gift, and are not limited to arrangements between doctors. Although the Anti-kickback Statute does not have an explicit exception for de minimis gifts, guidance from the Office of the Inspector General (OIG) has indicated that non-monetary gifts of nominal value will not be considered a violation of the statute. The OIG has interpreted “nominal value” to mean no more than $10 per item or $50 in the aggregate on an annual basis.

State Laws

Most states have also adopted some version of the federal Stark Law and Anti-kickback Statute. While some of these laws do mirror their federal counterparts, a number of them differ from the federal versions in some significant ways. For example, some of the state laws extend beyond programs that are funded by the government, and cover private pay patients. State laws are also much less likely to have the same extensive regulations and interpretive guidance that their federal counterparts do. While that may seem to simplify the law, it can also mean that the scope of activities prohibited by the statute is less clearly defined. In response to questions about the permissibility of referral rewards, some state dental boards and professional associations have issued guidance on gifting programs. For example, the North Carolina State Board of Dental Examiners currently provides the following question and answer in the FAQ section of its website: “Is there a law against rewarding others for referring new patients to your practice? Yes, there is. A law prohibits a health care provider from offering rewards for patient referrals. This is not to say that a ‘thank you’ cannot be made; however a prearranged agreement to compensate someone (financially, with a ‘gift,’ or by crediting their account, for instance) is unlawful.” The Oregon Board of Dentistry has provided similar guidance, indicating that a nominal gift after a referral has been completed is acceptable, while a pre-arranged reward program for referrals constitutes impermissible fee splitting. Although this type of guidance can be helpful in interpreting state dental laws and rules, it is important to keep in mind there may be state or federal laws implicated that are outside of the purview of the dental board and therefore subject to the interpretation of a different government agency.

Recommendation

Doctors should familiarize themselves with both state and federal laws that may be applicable to their practice before considering any gifting or reward program. Doctors that participate in reimbursement programs funded in whole or in part by the federal government (e.g., Medicaid or CHIP) should be particularly wary of giving or receiving gifts or rewards for patient referrals, and should ensure that any gifts that are made strictly comply with the exceptions applicable to the federal Stark Law and Antikickback Statute, as well as any relevant state laws. Doctors that do not participate in government-funded payor programs should focus on state law restrictions applicable to private pay patients. In the case of any such state laws that are vague and/or have limited enforcement guidance, doctors should keep in mind that all gifts to patients and referral sources are not necessarily created equal. Instead, a regulatory body considering the enforcement of the law may consider a number of factors in determining whether or not the gift is permissible, such as the timing (pre-arranged vs. unexpected), amount and frequency of the gift. By taking time to understand the laws applicable to their practice, doctors can make an informed decision about the appropriate scope of any referral-related gifts to patients and referring doctors.