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Fraud and Abuse Regulation of Health Web Sites

By Renee H. Martin, J.D., RN

The proliferation of medically focused web sites on the Internet has been nothing less than dramatic. Web sites serve as dynamic, interactive devices for the provision of health care services to consumers. This “e-health” commerce offers numerous benefits to consumers, including obvious convenience, low barriers to entry and the elimination of geographic boundaries. These same characteristics which define Internet e-health commerce are also giving rise to increased scrutiny by government enforcement agencies which have taken note of this revolution in health care. Concern has grown that consumers may subject themselves to misinformation and that providers may use this information technology for fraudulent purposes.

The U.S. Department of Justice (DOJ) has started to expand enforcement activities in matters related to e-health web sites for both the Health Care Financing Administration (HCFA) and the Food and Drug Administration (FDA).

The DOJ has made it clear that combating fraud and other white collar crimes—particularly those which target the elderly and other vulnerable consumers and those targeting taxpayer-funded health care programs—is a DOJ priority. In 1999 the DOJ collected $524 million in criminal fines, civil settlements and administrative penalties. Further, this health care enforcement activity is expected to intensify significantly in coming years thanks to increased dedicated funding for this activity. The budget for fiscal year 2000 is $158 million and in fiscal year 2001 the figure will increase to $240 million. Enhanced resources means more investigators, auditors and prosecutors focused in health care fraud of all types—including Internet fraud.

Health care providers should take particular care when structuring e-health ventures in that existing federal fraud and abuse provisions apply with equal force to e-health commerce.

Federal Anti-Kickback Statute

The Federal Anti-Kickback Statute is a federal criminal statute that generally proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for referring an individual to another person or entity for the furnishing, or arranging for the furnishing, of any item or service that may be paid for in whole or in part by Medicare, Medicaid or other federally-funded health care programs. Illegal payments (or offers or solicitations of payments) include those in cash or in kind, those made directly or indirectly, and those made overtly or covertly.

In addition to criminal penalties, violation of the Federal Anti-Kickback Statute could result in civil monetary penalties and exclusion from the Medicare and Medicaid programs.

Because of the potential applicability of the Anti-Kickback Statute to many common and necessary business transactions in the health care industry, as required by Congress, the Office of Inspector General, (OIG) has promulgated a number of so-called “Safe Harbor Regulations” identifying business relationships that would not subject the participants to criminal or civil prosecution. The failure of a business relationship to meet the requirements of a safe harbor does not necessarily mean that the relationship is violative of the Anti-Kickback Statute, although there would be some risk that such a relationship could be found to violate the Anti-Kickback Statute. Where a business transaction does not meet the requirements of a safe harbor, the legality of any particular arrangement will be determined by comparing the particular facts of the transaction to the proscriptions of the Anti-Kickback Statute.

No Anti-Kickback Statute enforcement actions have been brought to date which involve physicians and other providers who furnish medical items or services over the Internet, but given the proliferation in the number of Internet sites, the number of potential referral sources involved in these arrangements, and the increasingly aggressive health care fraud and abuse environment, it is only a matter of time before enforcement actions commence.

For instance, an area of government focus could well be the financial arrangements between a medical web site sponsor and the providers or suppliers who advertise on that web site. If a medical web site sponsor solicits fees from these advertisers or sponsors, who either directly or indirectly provide goods or services billed to Medicare as covered services, this revenue source raises the question of whether any payments made by advertisers or sponsors to the web site might be considered a violation of the Anti-Kickback Statute. To the extent that such fees vary based upon the volume or value of Medicare services furnished by the provider or supplier to the web site sponsor, the government could take the position that the Anti-Kickback Statute is implicated.

Stark Laws

The Stark Laws generally prohibit a physician from making a referral to an entity with which the physician has a “financial relationship” for the furnishing of “designated health services” for which payment may be made under the Medicare or Medicaid program, unless one of several enumerated exceptions applies. The term “financial relationship” is defined broadly to include any ownership or investment interest of a physician in an entity or any compensation arrangement between a physician and an entity. More specifically, compensation arrangements encompass any form of remuneration between the two parties, whether direct or indirect, in cash or in kind.

Similar to the Anti-Kickback Statute, the Stark Laws have not been enforced in an e-health context. However, examples of potential enforcement readily emerge. For instance, consider the following scenario: a physician practice establishes a web site to furnish consultations to patients over the Internet, and allows a durable medical equipment (DME) supplier to advertise on the site. Under that circumstance a “per click” advertising fee would likely not be permissible because the fee would relate to the volume of referrals. The physician practice would also be prohibited from ordering Medicare-covered DME equipment from that supplier for a Medicare patient accessing the site unless the financial arrangement between the DME supplier and the practice were to fully satisfy an exception to the Stark Laws.

Excluded Entities or Individuals

The OIG Special Counsel for Health Care Fraud has also publicly stated that providers who form e-health enterprises should be mindful of the prohibition on employing or contracting with individuals or entities that have been excluded from participation in Federal health care programs for misconduct. In particular, in the era of tight labor markets and the “outsourcing” of many business operations, the OIG Special Counsel has indicated that it is easy for providers to overlook the need for careful screening of employees and potential business partners. A health care provider, including an online pharmacy, would be precluded, for example, from hiring or contracting with a pharmacist who has been excluded by the Health and Human Services Office of Inspector General if the provider receives Federal reimbursement for the online sale of drugs.

FDA Enforcement

In partnership with the FDA, the Federal Bureau of Investigation and the Drug Enforcement Agency, the DOJ is focusing on e-health companies and ventures that sell or promote drugs or medical devices on-line.

The FDA has indicated that it believes it has jurisdiction under the Food, Drug and Cosmetic Act, because there is a federally mandated requirement of a physician-patient relationship that is a prerequisite to a valid prescription. The FDA has issued warning letters to approximately twelve international Internet sites, and has indicated that it is investigating sites based in the United States as well.

In May 2000, in federal hearings before the House Commerce Subcommittee on Oversight and Investigations, an FDA official stated that the agency has performed at least a cursory review of 400 web sites and has 54 sites under active review for possible regulatory or civil actions. Additionally, the FDA has sent 38 warning letters to online sellers from its Office of Compliance. Lastly, the FDA’s Office of Chief Counsel has sent 17 “cyber letters” to proprietors of foreign-based Internet sites that sell prescriptions online. (Cyber letters are sent via the Internet to suspect web sites, warning that they may be engaged in illegal activities).

At these same hearings, the DOJ testified that it has filed several cases involving drug sales via the Internet this past year, about 20 of which involve Internet drug sales, some for fraud against individuals who distributed drugs in interstate commerce without a prescription.

The White House FDA Proposal

On May 2, 2000 the White House unveiled legislation to Congress, titled the Internet Prescription Drug Sales Act of 2000 which would provide additional oversight powers to the FDA by amending the Federal Food Drug and Cosmetic Act to require online pharmacy sites to be licensed in each state in which they operate or in which they sell prescription drugs. In essence, the underlying goal of the proposed legislation is to ensure that online pharmacies are licensed and operated under the same regulatory system that Congress and the States have put in place for traditional “brick and mortar” pharmacies. The proposed legislation, among other things, calls for online pharmacies to post information on their web sites about their ownership and state licensure.

The proposed legislation would also provide the FDA with civil and criminal subpoena power over the Internet pharmacy sites and allow for the FDA to levy civil fines of as much as $500,000 against online pharmacies violating the licensure requirements.

There is no doubt that the Internet and e-health commerce will continue to transform the practice of medicine. Those physicians who venture into this evolving marketplace are well advised to remember that, although the regulation of e-commerce will likely continue to lag behind the marketplace, many of the same fundamental fraud and abuse legal restrictions which apply to paper commerce and “brick and mortar” ventures currently pertain to e-health commerce. Therefore, appropriate legal advice should be obtained before entering into this brave new world.

Renee H. Martin, J.D., R.N., is a health care law associate at Reed Smith Shaw & McClay, LLP, in Philadelphia.

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