The One Purpose Test for Healthcare

Original story posted on: February 12, 2020

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Law professor Dershowitz tests the “one purpose test.”

During the recent impeachment trial of President Trump, Alan Dershowitz made a statement that was widely interpreted as saying that if a politician had multiple motives for a particular activity, but one of the motives was benefiting the public interest, any nefarious or improper motives are irrelevant.

As I listened to him, I hoped that no medical professionals would think that Dershowitz’s logic applied to financial relationships in the healthcare industry – because he was articulating the exact opposite of principle courts have used when interpreting the Medicare anti-kickback statute.

The statute makes it a felony to offer, pay, solicit, or receive anything of value with an intent to influence referrals. First, I’ll just mention that the law uses the term “remuneration,” but when describing the law, it is better to avoid that unnecessarily confusing word. Remuneration is defined as compensation for work. As used in the anti-kickback statute, “remuneration” is any cash or in-kind exchange, which is why I use the term “value.”

In 1995, the Second Circuit Court of Appeals, which is a federal appeals court for the northeastern United States, reviewed a case in which a board-certified cardiologist had established a Holter monitor company. When the company performed an interpretation of the readings, it forwarded 40 percent of the reimbursement to the physician who had referred the patient to the company. The defendant, Dr. Greber, had testified in an earlier case, “if the doctor didn’t get his consulting fee, he wouldn’t be using our service, so the doctor got the consulting fee.” The defendant argued that since there was some work being done by the physician, as a matter of law, the payment couldn’t be an improper kickback. Much like the Dershowitz argument, he was saying “if there is any legitimate reason for the payment, the payment is legal.” The Court of Appeals rejected that argument, and stated, “we do not agree, and hold that if one purpose of the payment was to induce future referrals, the Medicare statute has been violated.”

This case created what is commonly called the “one purpose test.” Under it, no matter how many legitimate reasons there are for payment, if one of the motivations is to incentivize referrals, the transaction is a felony.

From a practical standpoint, this principle is really important. It means that one bad email or comment at a meeting can convert a legal transaction into an illegal relationship. For example, imagine that a hospital is going to set up a gainsharing or shared savings program with some orthopedic surgeons. The hospital is going to pay the orthopedic group for its time working on the program. That’s totally fine. An email explains the many legitimate reasons for the relationship. It will lower healthcare costs and improve the quality of care. But if the email ends with “and paying the doctors will encourage them to send patients to the hospital,” all of the other reasons become irrelevant.

As soon as a participant in a transaction talks about how the finances create incentives for referrals, the entire relationship is tainted.

Programming Note: Listen to David Glaser’s live reporting on Monitor Mondays, 10-10:30 a.m. EST.

David M. Glaser, Esq.

David M. Glaser, Esq., is a shareholder in Fredrikson & Byron’s Health Law Group. David helps clinics, hospitals, and other healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David’s goal is to explain the government’s enforcement position and to analyze whether the law supports this position. David is a popular panelist on Monitor Mondays and a member of the RACmonitor editorial board.


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