In addition to IRS and taxation considerations, tax-exempt healthcare entities must comply with the same federal and state regulations regarding the transfer of property or services as for-profit entities. Outlined in The BVR/AHLA Guide to Healthcare Industry Finance and Valuation, 4th edition, the chapter author Robert F. Reilly, MBA, CPA/ABV/CFF, provides a brief overview of some of the regulatory considerations that a valuation analyst should be aware of in property or services transfer transactions.
Numerous federal laws govern Medicare fraud and abuse. Most of the provisions of these laws do not encompass the property or services transfer transactions considered in this discussion. Therefore, the analyst does not have to be familiar with most of these laws. However, healthcare providers have to be familiar with—and comply with—all of these laws. For this discussion, these laws are referred to collectively as the Medicare fraud and abuse statutes (or, simply, the statutes).
These statutes specify the criminal and/or civil remedies that the government can impose on individuals or provider entities that commit fraud and abuse in the Medicare program, including Medicare Parts C and D, as well as the Medicaid program. Violations of any of these statutes may result in the nonpayment of claims, civil monetary penalties, exclusion from participation in federal healthcare programs, and criminal and civil liabilities. A healthcare provider’s liability can exist without proof of actual knowledge or a specific intent to violate the law. Each of these statutes is briefly discussed below.
The False Claims Act
The False Claims Act protects the government from being overcharged or sold substandard goods or services. The False Claims Act imposes civil liability on any “person” who knowingly submits, or causes the submission of, a false or fraudulent claim to the federal government. The “knowing” standard includes acting in deliberate ignorance of—or reckless disregard of—the truth related to the claim. There is also a criminal False Claims Act statute through which an individual or entity healthcare provider that submits false claims can face criminal penalties.
The Anti-Kickback Statute
The anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward referrals of items or services reimbursable by a federal healthcare program. An example of an anti-kickback statute violation would be a healthcare provider who benefits from a below fair market value rent on a hospital-owned medical office building in exchange for patient referrals.
Civil penalties for violating the anti-kickback statute can include fines up to three times the amount of the kickback. Criminal penalties for violating the anti-kickback statute can include fines, imprisonment, or both. If certain types of healthcare provider arrangements satisfy regulatory safe harbors, then the anti-kickback statute will not treat these arrangements as offenses.
Physician Self-Referral Law (Stark Law)
The Physician Self-Referral Law, often called the Stark Law, prohibits a physician from making a referral for certain designated health services to a healthcare provider entity in which the physician (or member of his or her immediate family) has an ownership/investment interest or with which he or she has a compensation arrangement, unless an exception applies.
Criminal Health Care Fraud Statute
The Criminal Health Care Fraud Statute prohibits knowingly and willfully executing, or attempting to execute, a scheme or artifice in connection with the delivery of or payment for healthcare benefits, items, or services to:
- Defraud any healthcare benefit program; or
- Obtain (by means of false or fraudulent pretenses, representations, or promises) any of the money or property owned by, or under the custody or control of, any healthcare benefit program.
The landscape of the healthcare industry is dynamic and constantly evolving, especially in a time of increasing consolidation in the post-healthcare reform era. For more on valuation issues affecting tax-exempt healthcare entities, be sure to check out the comprehensive resource, The BVR/AHLA Guide to Healthcare Industry Finance and Valuation, 4th edition, edited by healthcare expert Mark Dietrich. This guide is a collection of tried-and-true methods infused with innovative approaches that will challenge the direction of the future of healthcare valuation.