Patient referrals and physician referrals: what the federal fraud and abuse laws say

Referrals are how many independent practices grow. A physical therapy clinic depends on physicians who send patients; a specialist depends on primary care; almost every practice gets new patients because an existing patient told a friend. Referrals are also the area of healthcare marketing with the heaviest federal law behind it.

This guide sets out what the main federal laws say, quoted or closely paraphrased from the primary sources, and then what referral marketing can focus on. It deliberately does not suggest referral reward programs or describe arrangements as safe. Whether a specific arrangement is lawful depends on its facts, and that is a question for a health care attorney. The Stark nonmonetary compensation limit, lunches and holiday gifts for referring offices are covered in our guide to gifts and meals for referring physicians. Paying and training the staff who call on referring offices is covered in our guide to physician liaison programs. Peer advocate and ambassador programs are covered in patient ambassador programs.

Two kinds of referrals

Professional referrals come from other clinicians: a physician sending a patient to physical therapy, a general dentist sending a patient to an oral surgeon, a primary care practice sending a patient to a specialist. Patient referrals come from patients and families who recommend you. The same federal laws can apply to both, because they focus on anything of value given to influence where patients go.

The Anti-Kickback Statute

The Anti-Kickback Statute is at 42 U.S.C. 1320a-7b(b). HHS’s Office of Inspector General (OIG) describes it as a criminal law that prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by the federal health care programs, such as Medicare and Medicaid. OIG explains that remuneration includes anything of value, not only cash, and gives examples such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships.

Two points from OIG’s explanation matter most for marketing:

• It applies to both sides. The statute covers soliciting or receiving remuneration as well as offering or paying it.
• It applies to all sources of referrals, even patients. OIG says this directly, and uses routine copay waivers as an example: you may not advertise that you will forgive copayments.

OIG lists penalties for violations that include fines, jail terms and exclusion from the federal health care programs, along with civil monetary penalties. The statute is accompanied by safe harbor regulations. OIG says that to be protected, an arrangement must fit squarely in a safe harbor and satisfy all of its requirements. Whether any arrangement fits is a legal question, and this guide does not try to answer it.

The beneficiary inducement law

Separately, the Civil Monetary Penalties Law at 42 U.S.C. 1320a-7a(a)(5) imposes civil monetary penalties on a person who offers or transfers remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary to choose a particular provider, practitioner or supplier. OIG has published a policy statement on gifts of nominal value to beneficiaries under this law. Read it with counsel before offering patients anything of value connected to choosing your practice.

The Stark law

The Physician Self-Referral Law, known as the Stark law, is at 42 U.S.C. 1395nn. OIG describes it as prohibiting physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include ownership and investment interests and compensation arrangements.

OIG’s list of designated health services includes clinical laboratory services; physical therapy, occupational therapy and outpatient speech-language pathology services; radiology and certain other imaging services; durable medical equipment; home health services; outpatient prescription drugs; and hospital services, among others. OIG describes Stark as a strict liability statute: proof of specific intent to violate it is not required. CMS administers the Stark exceptions and publishes guidance on its physician self-referral pages.

For a physical therapy practice marketing to physicians, this means any financial relationship with a referring physician, whether ownership, rent, staffing or payment for services, is something to review with counsel before it starts, not after referrals begin. Clinical labs have their own OIG fraud alerts on free items and payments to referring physicians; see our guide to clinical lab marketing to physicians.

EKRA and state law

The Eliminating Kickbacks in Recovery Act, at 18 U.S.C. 220, makes it a crime to pay or receive remuneration for referrals to recovery homes, clinical treatment facilities and laboratories. Unlike the Anti-Kickback Statute, it is not limited to federal health care program business. If your practice runs a laboratory or provides addiction treatment, ask counsel how it applies to you.

State law can have its own anti-kickback, fee-splitting and self-referral rules, and they can apply to patients with commercial insurance or who pay cash. These differ by state, so check yours. Professional boards also have rules on paying for referrals. A program that a federal law does not reach can still be prohibited by state law.

What referral marketing can focus on

The laws above are about remuneration. Much of what earns referrals involves none: it is about being easy to refer to and doing good work that the referring clinician and the patient can see. These are general practices, not a legal review of any arrangement.

1. Make referring easy. A page on your website for referring clinicians: what you treat, what you do not, how to send a referral, the fax number or portal, what information you need and how fast you schedule. Before you send referral sources announcements by fax, read our guide to junk fax rules for healthcare practices.
2. Communicate back. Send the referring clinician a timely consult or progress note. The HIPAA Privacy Rule at 45 CFR 164.506(c) permits a covered entity to disclose protected health information for the treatment activities of a health care provider.
3. Be clear about access. Accurate insurance lists, real availability and a phone that is answered. A referral that waits two weeks for a call back tends not to be repeated.
4. Track where patients come from. Ask every new patient how they found you and record referring clinicians, so you know which relationships matter.
5. Let patients share honestly. Patients recommend practices that treat them well. Asking satisfied patients to tell others who might need care, without offering anything for it, is different from a reward program. Any reward needs legal review first.

Whenever an idea involves giving anything of value to a referral source, including meals, gifts, discounts, free services, rent, staff time, sponsorships or payments to marketers based on referrals, stop and take it to counsel before you start.

Questions to take to a health care attorney

• Does anything of value flow, directly or indirectly, to anyone who refers patients to us, or from us to anyone we refer to?
• Do we have any financial relationship with a physician who refers to us for a designated health service?
• Do we offer patients anything connected to choosing us or referring others, and are any of them Medicare or Medicaid beneficiaries?
• How are our marketing staff or vendors paid, and is any of it tied to the number of patients or referrals?
• Which state laws apply to us, and do they reach commercial and cash patients?
• Would an OIG advisory opinion be worth seeking for a specific arrangement?

OIG runs an advisory opinion process through which parties can ask whether a specific arrangement would draw sanctions. Its published opinions and the safe harbor regulations are on OIG’s website, listed below.

Rewards offered to patients for referring friends, and other loyalty perks, are covered in more detail in our guide to patient rewards program rules.

How we approach it

We do not design referral reward programs or advise on whether an arrangement is lawful. What we build is the part of referral marketing that is about information and access: referral pages and forms for clinicians, clear insurance and availability information, source tracking and a front desk that answers. See our patient lead generation service, the practice marketing strategies guide, and our guide to new patient offers, which covers the OIG rules on offers and copay waivers.

Frequently asked questions

Sources

• HHS OIG: A Roadmap for New Physicians: Fraud and Abuse Laws
• 42 U.S.C. 1320a-7b(b): Anti-Kickback Statute
• 42 U.S.C. 1320a-7a(a)(5): Civil monetary penalties, beneficiary inducement
• 42 U.S.C. 1395nn: Physician self-referral (Stark law)
• 18 U.S.C. 220: Eliminating Kickbacks in Recovery Act
• HHS OIG: Safe Harbor Regulations
• HHS OIG: Advisory Opinions
• HHS OIG: Policy Statement Regarding Gifts of Nominal Value to Medicare and Medicaid Beneficiaries
• CMS: Physician Self-Referral
• 45 CFR 164.506: Uses and disclosures to carry out treatment, payment, or health care operations

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