Home Health & Hospice Week

But don't take the decision as a free ride on outside marketers' pay. 

In a surprising move, a federal appeals court has overturned home health agency owners' kickback convictions in one of the biggest HHA fraud cases in recent memory.

In a Feb. 13 ruling, the U.S. 5th Circuit Court of Appeals reversed 11 kickback counts against Carrie Hamilton and Alice Miles of the former Houston-based Affiliated Professional Home Health. Hamilton and Miles were convicted of 28 and 29 fraud counts, respectively, in October 1999 in U.S. v. Miles. They were sentenced to 17 years and 14 years in prison, respectively, and ordered to repay more than $4 million to Medicare.

Affiliated, which closed its doors in June 1998, engaged Premier Public Relations to distribute marketing literature and HHA business cards to area physicians, according to the decision. The convictions came about based on Affiliated's agreement to pay Premier $300 for each patient referral generated from the marketing activity.

Prosecutors charged that such a volume-based marketing arrangement violated the anti-kickback statute's prohibition on paying for referrals, and the jury agreed.

But the appeals court said that in fact, the arrangement doesn't violate the anti-kickback statute provisions prosecutors invoked. Premier distributed marketing materials for 10 different HHAs to physicians, and the only inducement offered to docs was an occasional plate of cookies, the court noted.

Further, physicians contacted Premier only once they had made a decision on which HHA to refer to. Thus, it was the physician who made the referral decision, not Premier, the court reasoned. And neither Affiliated nor Premier paid the physicians for the referrals, so kickbacks between the physician and HHA didn't take place, the court ruled.

"Tying payments to the number of Medicare patients is done at your own peril," says attorney Mark Langdon. "The government views any percentage arrangement as risky."

The decision "is a somewhat surprising, but certainly welcome, development," observes attorney John Wester with Sidley Austin Brown & Wood in Washington DC. "The defendants' payments to a firm for marketing their home health services to physicians could not constitute payment for referrals because the physicians, not the marketing firm, actually determined which home healthcare provider would be selected," Wester notes.

"The fact that the PR firm had no say over which doctor selected which home care agency and ... that those doctors received nothing of value for their referrals ... goes to the very heart of what is not a kickback," says attorney Virginia Caudill with Indianapolis-based Gilliland & Caudill.

The decision that Premier did not unduly influence referrals to Affiliated "is critical because the kickback statute applies only when payments are made to a referral source, or one in a position to arrange referrals," stresses attorney Mark Langdon with Arent Fox Kintner Plotkin & Khan in Washington, DC. "It appears that Premier simply supplied marketing materials to the doctor, but took no actions to influence the decision-making process."

The point of anti-kickback legislation "has never been to prohibit advertising or other legitimate business operations," Caudill adds.

And the court decided the arrangement involved only "innocuous marketing activities," Wester points out.

Prosecutors probably were successful with the jury and the lower court on the kickback charges because the scope of fraud in the case was "so offensive" that "the minor details -- like what the law actually says -- got lost," notes Caudill.

Hamilton and Miles were convicted of inflating costs on Affiliated's cost report and spending the proceeds on cars, casino trips, homes and other personal expenses. At one point, the defendants gave extra funds to employees in checks, then made them hand the cash back, the court notes.

Warning: Providers shouldn't take this decision as blanket approval of per-patient marketing compensation arrangement, warns attorney Bob Ramsey with Buchanan Ingersoll in Pittsburgh.

As the court notes in a footnote to the decision, prosecutors charged Hamilton and Miles only under the first part of the Anti-Kickback Statute. The second part of the law prohibits payments in exchange for arranging for or recommending referrals as well as directly referring patients, which may have caught up the Affiliated-Premier arrangement, Ramsey notes.

"Tying payments to the number of Medicare patients is done at your own peril," agrees Langdon. "The government views any percentage arrangement as risky."

Ramsey also notes that this decision is binding only in the 5th Circuit.

"Providers will have to await subsequent decisions to learn whether Miles represents the start of a narrowing of the Statute's reach or a one-shot decision that is limited to its particular facts," Wester forecasts.