Two federal laws often get invoked in health care fraud cases, and they get confused constantly as well. The Stark Law and the Anti-Kickback Statute (AKS) both regulate financial relationships between physicians and the people or entities they refer patients to — but they work differently, require different proof, and carry different consequences. If you’re a practice administrator, biller, compliance officer, or physician who has noticed a compensation arrangement, lease, or referral pattern that feels off, understanding which statute you’re actually looking at matters, because it changes what has to be proven and what your options are.

This guide breaks down what each law actually prohibits, how they differ, and how violations of either one typically come to light.

Two Laws, One Underlying Problem: Referrals Driven by Money, Not Medicine

Both statutes exist to address the same basic risk: that a physician’s referral decisions might be influenced by financial self-interest rather than what’s best for the patient — and that federal health care programs end up paying the bill for it. Where they diverge is in what conduct they reach, who they apply to, and what has to be shown to prove a violation.

The Stark Law: Strict Liability for Physician Self-Referral

The Physician Self-Referral Law, commonly called the Stark Law (42 U.S.C. § 1395nn), prohibits a physician from referring Medicare patients for certain designated health services (DHS) — things like clinical lab services, physical therapy, imaging, durable medical equipment, and home health services — to an entity with which the physician (or an immediate family member) has a financial relationship, unless that relationship fits squarely within a specific regulatory exception.

A few things make Stark distinctive:

• It’s a strict liability statute. The government doesn’t have to prove the physician intended to violate it, or even knew the arrangement was improper. If the financial relationship exists, the referral happened, and no exception applies, it can be a violation — full stop.
• It only applies to physicians (and DHS entities billing for services referred by them) — not hospitals, device companies, or other referral sources in isolation.
• Exceptions must be fully satisfied. Stark exceptions (for things like bona fide employment relationships, fair market value compensation, or in-office ancillary services) have detailed technical requirements. Missing even one element — a lease that isn’t in writing, a compensation formula that isn’t set in advance, a term that runs month-to-month when it should be for at least a year — can knock an otherwise legitimate arrangement outside the exception entirely.

What this looks like in practice: A physician who has a financial interest in an imaging center (through ownership, a lease payment, or a medical directorship) and refers his own Medicare patients there. A compensation arrangement between a hospital and an employed physician where pay increases directly track the physician’s referral volume rather than actual work performed (RVUs for personally performed services, for example, are generally fine; compensation tied to referrals for DHS is not).

The Anti-Kickback Statute: A Criminal Law That Requires Intent

The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) is broader and, in some ways, harder to prove. It makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive remuneration — money, free services, excessive lease payments, sham consulting fees, anything of value — in exchange for referring, or in exchange for arranging or recommending, business reimbursable by a federal health care program.

Key differences from Stark:

• Intent matters. The government has to show the payment was knowingly and willfully made or accepted with at least one purpose being to induce or reward referrals. If remuneration flows for a legitimate reason and inducing referrals isn’t even one of the intended purposes, it may not violate the AKS — even if referrals happened to follow.
• It applies to anyone, not just physicians — device manufacturers, pharmaceutical companies, home health agencies, hospitals, and marketers can all be liable.
• It has safe harbors, not exceptions. Safe harbors describe arrangements that are protected if every element is met, but falling outside a safe harbor doesn’t automatically mean a violation occurred — it just means the arrangement gets evaluated under the statute’s intent standard instead of getting automatic protection.

What this looks like in practice: A hospital covering the salary of a referring physician’s office staff. A device company paying “speaker fees” to physicians who are, in substance, being compensated for using and recommending the product.

Where They Overlap — and Where the False Claims Act Comes In

Neither statute creates a private right of action on its own. What makes both of them relevant to whistleblowers is that claims submitted to Medicare or Medicaid resulting from a Stark or AKS violation can also become false claims under the False Claims Act (31 U.S.C. §§ 3729–3733):

• Stark Law itself provides that no Medicare payment may be made for a DHS referral made in violation of the statute — billing for it anyway creates FCA exposure.
• The AKS, as amended by the Affordable Care Act, expressly states that a claim resulting from a kickback violation constitutes a false claim for FCA purposes.

That connection is what allows a private individual with inside knowledge — a relator — to bring a qui tam lawsuit on the government’s behalf over conduct that, standing alone, only the government could otherwise prosecute or pursue civilly.

How These Violations Typically Come to Light

Unlike upcoding or phantom billing, Stark and AKS violations usually aren’t visible in the claims data itself — the claim submitted often looks completely normal. The problem lives in the underlying business relationship, which means the people most likely to spot it are the people who see the paperwork behind the referral, not the billing:

• Practice administrators and office managers, who see the actual lease terms, management agreements, or medical directorship contracts — and notice when payment amounts don’t track any documented work product or fair market value analysis
• In-house counsel and compliance officers, who are often asked to review (or paper over) arrangements after the fact rather than before they’re signed
• Physicians themselves, who are offered a compensation structure and recognize that their pay is quietly tied to how many patients they send to a particular lab, imaging center, or specialist
• Billing and coding staff, who notice a referral pattern that consistently and disproportionately favors one entity — especially one with an ownership or leadership overlap with the practice
• Sales and marketing employees at device, pharmaceutical, or home health companies, who are told to structure a payment as a “consulting fee” or “speaker fee” for work that isn’t actually happening, or is far out of proportion to any legitimate service

Because these arrangements are often documented in contracts, compensation formulas, and emails rather than hidden entirely, the evidence frequently already exists — the person who has seen it usually just doesn’t recognize its legal significance until later.

What to Do If You’ve Noticed One of These Arrangements

• Preserve what you’ve already seen in the ordinary course of your job — compensation formulas, lease terms, referral logs, emails discussing the structure of a deal — without accessing files or systems outside your normal duties to go looking for more
• Write down the specifics while they’re fresh, including who set up the arrangement, how compensation is calculated, and whether it was ever explained to you as being tied to referral volume
• Understand that Stark and AKS analysis may be technical — an arrangement that looks improper on its face sometimes fits squarely within an exception or safe harbor, and one that looks routine sometimes doesn’t
• Talk to an attorney, particularly if you’re weighing whether to pursue a qui tam claim — how and when you report can affect both your legal protections and your standing to bring a claim later

Talk to a Michigan Health Care Fraud Attorney

Stark Law and Anti-Kickback Statute cases turn on details most people never get trained to spot — a compensation formula, a lease term, a directorship agreement that doesn’t match the work being done. At Szura & Delonis, PLC, our qui tam practice draws on the same health care regulatory background we use to advise physicians and practices on Stark and AKS compliance — so when you describe what you’ve seen, we recognize immediately whether it fits a known violation pattern or falls into a genuine compliance gray area.

Every initial conversation is confidential and free of charge. Learn more about our Qui Tam and False Claims Act practice, or call us directly to discuss what you’ve observed.

Phone: (248) 716-3600

Email: admin@szuradelonis.com

Address: 29777 Telegraph Rd #2401, Southfield, MI 48034

This article is provided for general informational purposes only and does not constitute legal advice. Whether a specific arrangement violates the Stark Law or the Anti-Kickback Statute depends on the facts involved, including the precise terms of any compensation arrangement and, for AKS purposes, intent. If you believe you have information about a Stark Law or Anti-Kickback Statute violation, consult an attorney about your specific situation before taking any action.

This guide walks through the three most common forms of Medicare billing fraud — upcoding, unbundling, and phantom billing — what each one looks like in practice, and how they typically come to light.

Why Billing Fraud Is Different From a Billing Mistake

Not every coding error is fraud. Medicare billing is genuinely complicated, and honest mistakes — a coder misreading documentation, a new employee applying the wrong modifier, an EHR template defaulting to the wrong code — happen constantly in every legitimate practice. The False Claims Act (31 U.S.C. §§ 3729–3733) targets knowing submission of false claims, which generally means the provider knew the claim was false, acted in deliberate ignorance of its truth or falsity, or acted in reckless disregard of the truth.

The distinction that usually separates an honest error from fraud is pattern and intent: a single miscoded claim caught and corrected looks like a mistake. The same error repeated across thousands of claims, especially when it consistently favors higher reimbursement and persists after being flagged internally, starts to look like a business practice.

Upcoding: Billing for More Than What Happened

Upcoding occurs when a provider bills for a higher level of service, a more complex procedure, or a higher-acuity patient than what the medical record actually supports. Common examples include:

• Billing a routine office visit under a higher-level Evaluation and Management (E/M) code than the documented complexity supports
• Coding a straightforward outpatient procedure as though it required significantly more physician time or medical decision-making
• Assigning diagnosis codes to Medicare Advantage patients that inflate their risk-adjustment score without supporting clinical documentation
• Billing an assistant-level service as though a physician personally performed it

How it typically gets caught: Upcoding leaves a paper trail by definition — the mismatch exists between the documentation and the code submitted. It’s most often flagged by internal coders or auditors who notice a provider’s coding consistently skews toward higher-paying codes with unusually little supporting documentation, or by comparing an individual provider’s coding distribution against national or regional Medicare billing norms, which the Centers for Medicare & Medicaid Services (CMS) and its contractors routinely analyze. A biller or coder who is instructed to “just code it higher” — or who is quietly discouraged from querying a physician about thin documentation — is often the first person to recognize the pattern, long before any government audit does.

Unbundling: Billing Separately for What Should Be Billed Together

Unbundling occurs when a provider separately bills for individual components of a procedure that Medicare requires to be billed together under a single, lower-paying comprehensive code. Medicare’s National Correct Coding Initiative (NCCI) edits exist specifically to prevent this, but schemes still emerge, including:

• Billing separate CPT codes for each step of a single surgical procedure instead of the comprehensive code that covers the full procedure
• Splitting a single lab panel into its individual component tests to increase total reimbursement
• Billing pre- and post-operative care separately when it’s supposed to be bundled into the global surgical package
• Using modifiers (like modifier 59) to bypass NCCI edits without a legitimate clinical basis for treating the services as separately billable

How it typically gets caught: Unbundling is often the easiest of the three to detect at scale, because it shows up as a statistical anomaly — a practice or facility that consistently bills bundled-code pairs separately, at a rate far outside its peers, is exactly what claims-data analytics are built to flag. Internally, it’s frequently a biller who notices the same override or modifier being applied as a default rather than case-by-case, especially if leadership discourages questions about it.

Phantom Billing: Billing for Services Never Provided

Phantom billing is the most direct form of fraud: billing Medicare or Medicaid for services, equipment, tests, or visits that never actually happened, or that were provided to a patient who was never seen. Variations include:

• Billing for appointments a patient never attended (a “no-show” billed anyway)
• Billing for durable medical equipment that was never delivered
• Billing for lab tests never run, or diagnostic imaging never performed
• Continuing to bill for services after a patient has died or been discharged
• “Ghost” patient billing, where claims are submitted for individuals who were never actually treated by the provider at all

How it typically gets caught: Phantom billing is often the easiest scheme to prove, once someone comes forward, because it’s the most falsifiable against objective records — appointment logs, equipment delivery records, lab requisitions, and even a patient’s own account of their care. It’s frequently discovered by front-desk or scheduling staff who notice billed visits that don’t match the appointment calendar, or by patients themselves who receive an Explanation of Benefits for care they never received and mention it to an employee rather than reporting it themselves.

The Common Thread: Insiders See It First

Government auditors and CMS data-analytics contractors do catch fraud through statistical outlier detection, but by the time a claims-data anomaly triggers a formal government audit, the scheme has often been running — and generating illegitimate Medicare payments — for months or years. The earliest and clearest evidence almost always exists inside the organization first: in the gap between what the chart says and what was billed, in the coder who was told not to ask questions, in the scheduling log that doesn’t match the claims submitted.

That’s precisely why the False Claims Act allows private individuals with inside knowledge to bring a qui tam lawsuit on the government’s behalf — the people positioned to catch this early are rarely the government’s own auditors. They’re billing specialists, coders, nurses, office managers, and compliance staff who saw the mismatch before anyone else did.

What to Do If You’ve Noticed One of These Patterns

If you’re recognizing your own workplace in this article, a few things are worth doing before you decide how — or whether — to act:

• Document what you’ve observed, including dates, specific claims or patients where possible, and whether you raised the issue internally and what response you got
• Distinguish between what you personally witnessed and what you were told secondhand — this matters significantly for your legal standing if you later pursue a qui tam claim (see our guide on the False Claims Act’s “original source” requirement)
• Be cautious about how you gather evidence — accessing records outside your normal job duties, even to document fraud, can create its own legal complications
• Talk to an attorney before reporting internally, if you believe the conduct may rise to the level of fraud rather than a correctable error — how and when you report can affect both your legal protections and your standing to bring a claim later

Talk to a Michigan Healthcare Fraud Attorney

Recognizing a billing pattern that looks like fraud is unsettling, and deciding what to do next shouldn’t be a decision you make without understanding your options. At Szura & Delonis, PLC, our qui tam practice draws on the same health care regulatory background we use to advise providers on Medicare and Medicaid billing compliance — which means when you describe what you’ve seen, we recognize immediately whether it fits a known fraud pattern or falls into a genuine compliance gray area.

Every initial conversation is confidential and free of charge. Learn more about our Qui Tam and False Claims Act practice, or call us directly to discuss what you’ve observed.

Phone: (248) 716-3600

Email: admin@szuradelonis.com

Address: 29777 Telegraph Rd #2401, Southfield, MI 48034

This article is provided for general informational purposes only and does not constitute legal advice. Whether a specific billing pattern constitutes fraud under the False Claims Act depends on the facts involved, including intent. If you believe you have information about health care billing fraud, consult an attorney about your specific situation before taking any action.

Who Wants Arbitration, and Why

That’s the first thing to consider. If your potential adversary presses for arbitration you can assume they’re doing so for reasons of self interest. You should try to surmise what those reasons are, and, more importantly, how such considerations may affect your interests.

Many aspects of arbitration may be mutually beneficial, presenting a win-win scenario. Other aspects of arbitration may not be mutually beneficial. The parties’ interests may be tied together in an inversely proportional way such that a particular aspect of arbitration that benefits your adversary may harm you, or vice versa.

The analysis can be nuanced or straightforward. For example, one consideration is the privacy of arbitration versus the public nature of court proceedings. Defendants accused of wrongdoing generally don’t want allegations against them publicly aired in a trial, especially if a bad result is expected. Nor do they want evidence of their wrongdoing disclosed to other potential plaintiffs. These considerations may steer defendants to arbitrate. Plaintiffs, on the other hand, may desire publicity to heighten awareness of defendants’ bad conduct, or they may desire to use the threat of publicity as leverage to settle their cases for more.

Arbitrator Interest and Repeat Players

Arbitration is a for-profit business that is not paid for with tax dollars. Arbitrators are paid very well generally, and they’re paid by the parties who mutually select them. Parties generally have a right to veto prospective arbitrators for any reason. Thus, one must be mindful of the economic clout that repeat players to arbitration have. An arbitrator who rules against a repeat player in the arbitration arena stands to lose out on future appointments to be an arbitrator by that party.

The Process: Arbitration vs. Court

How does an arbitration compare to a trial? Our court system is mature. The court rules and case law governing trials have been refined over generations. From these refinements of process, reliability and predictability have emerged. Trial courts, then, generally get things right, and if they don’t, appeals may be taken to fix mistakes. No such right of appeal exists in arbitration, there, you get one shot.

The refined processes of trials may come at a cost as the more formal requirements for submitting proofs in court may be more time consuming, tedious, and costly than in arbitration. But if those proofs are to be used against you, you may want your adversary to jump through every possible legal hoop. One must also be mindful of parties who would take liberties with evidence. In arbitration the rules are more relaxed and counsel can push boundaries. Sometimes they need to be restrained and judges generally wield more clout than arbitrators and can mete out harsher penalties.

One should consider how an adversary is likely to behave when the rules are relaxed. This is especially important with discovery, the process by which parties gain information and “discover” relevant facts. Discovery is critical to any fair dispute resolution and rests largely on an honor system. If discovery is likely to be hotly contested or if one is pitted against an adversary who would corner-cut and cheat, the procedural safeguards offered by trial courts may be preferable.

Also, if a dispute turns on esoteric and specialized knowledge the parties may benefit by choosing an arbitrator with strong knowledge of the subject matter.

Fees and Costs

Many fees and costs are greater in arbitration proceedings than court proceedings. Those fees and costs add up, especially if a panel of several arbitrators is required. In a Michigan court it costs $235 to file a complaint and jury demand for claims exceeding $25,000. In arbitration, filing costs can run into the thousands of dollars.[2]

Conclusion

The debate over the advisability of arbitration rages on. In a professional journal article published to all Michigan attorneys, Timothy H. Howlett and Christina K. McDonald delved deep into the research before concluding that arbitration “may not necessarily be more efficient or less expensive than going to trial.”[3] Their article was about employment arbitration but its logic applies to other types of arbitration too. Whether you choose to be in arbitration, or not to be, hopefully your fortunes will not be too outrageous.

(This post is intended for general information purposes and should not be construed as legal advice. All Rights Reserved. Copyright 2018.)

[1] On October 2, 2017, the U.S. Supreme Court heard arguments in a case about whether an employment arbitration agreement is enforceable. Epic Systems Corp. v. Lewis.

[2] The American Arbitration Association’s fees depend on the arbitration type and are graduated. Commercial and construction arbitration fees increase from $1,550 for claims under $75,000 to $7,500 for claims of between $300-500,000 (through first hearings).

[3] Mandatory Arbitration of Employment Claims; An Update, at p. 41, Michigan Bar Journal Magazine, September 2013.

Some see jury trials as riskier and more unpredictable, viewing juries as more easily manipulated than judges, who would be more reasoned and dispassionate. But whether a single judge is more likely than a group of jurors to reach an aberrant result is debatable given that jury deliberations are tempered by a wisdom of crowds dynamic not in play with a judge (though others might say there’s a madness of crowds dynamic to consider too).

Then there’s the perception that juries overvalue monetary damage awards, but that may be wrong too. Hans and Albertson found that “media coverage and advertising campaigns have led to a gross overestimation of the typical jury award.”[2] As Hans and fellow researcher Thomas Eisenberg explain, citing Amos Tversky and Daniel Kahneman’s Nobel prize winning research, “the more readily we can call an instance of a phenomenon to mind, the more frequent we assume it is.”[3] That large awards are disproportionately featured in the news is not surprising. After all, who wants to hear about no cause verdicts?

Jury trials are certainly more work for the attorneys, and cost more. The breadth of a jury trial is necessarily greater, more evidentiary issues arise, and opposing attorneys must research and argue over principles of law to be given as jury instructions before deliberations begin. Preparing jury instructions is demanding. That said, doing such work provides an important opportunity for good lawyering to make a difference in advancing a client’s cause.

Do juries get it right? The data says yes. A whopping 98.6% of 594 federal trial judges surveyed thought that jurors did “very well” or “moderately well” in reaching a just and fair verdict.[4] Most telling, however, were their answers to this question: “If you were personally a litigant in a civil case, how would you prefer the dispute be decided?” By a 3 to 1 margin the federal trial judges expressed a preference for juries over judges to decide matters in which they were litigants.[5] Why this result? Maybe they see that the group dynamics of juries really work, the novelty and gravitas of jury service brings out the best in people. Maybe it has to do with the law’s growing complexity, judicial caseloads, and the effects of something known as “decision fatigue” about which some interesting research is being done.[6] For whatever reasons, trial judges – who best know the risks of civil jury trials – seem to recognize that having well-guided groups of engaged, fresh decision makers pass judgment is often preferable to having individuals do so, even very talented judges. Perhaps they understand better than the rest of us the degree to which the work of judging can become more challenging once the bloom is off the rose.

(* Del A. Szura is a member of Szura & Delonis, PLC. This post is intended for general information and educational purposes and should not be construed as legal advice. All Rights Reserved. Copyright 2017.)

[1] “Empirical Research and Civil Jury Reform,” 78 Notre Dame L. Review 5, at 1507 (2003), citing Valerie Hans, Business on Trial: The Civil Jury and Corporate Responsibility (2000), Yale University Press.

[2] Id. at 1522.

[3] “The Predictability of Juries” (2011), Cornell Law Faculty Publications, Paper 202.

[4] John B. Attanasio, “Foreword: Juries Rule” (2001), 54 SMU Law Review 1681, (See also, Allen Pusey, “Appendix: Methodology – State and Federal Judge Surveys” (2001), Id. at 1903).

[5] Only 20.7% surveyed preferred a judge, 59.3% preferred a jury, and smaller percentages preferred arbitration, or said that it would depend on the case. Id. at 1684, fn. 15.

[6] S. Danziger, J. Levav, L. Avnaim-Pesso, “Extraneous Factors in Judicial Decisions” (2011), Proceedings of the National Academy of Sciences in the United States.

In the 1970’s Congress enacted ERISA and made union employers quasi-insurers of the continued viability of defined benefit pension plans by imposing withdrawal liability on employers who would quit a union and withdraw from multiemployer pension plans that are underfunded. Those withdrawing employers must pay sums calculated to represent their proportional share of the current sums necessary to make good on future pension promises, that is, their estimated share of the shortfall.

Part of the impetus for enacting ERISA was to shore up private pension plans and help prevent a potential death spiral for plans that might lose contributing employers at an accelerating pace, leaving remaining employers to go down with a sinking ship. But however beneficial this private rescue of pension plans by union employers might have seemed at first blush, it raised issues of fairness and had several unintended consequences. The fix was unfair because it did not cause costs to be borne by actors responsible for the underfunding. Underfunding’s causes are many and complex but underfunding often results from errors of judgment by actuaries, investors and trustees. Too often, however, employers whose conduct was blameless, who faithfully paid required contributions to pension funds for years, would find themselves saddled with liability caused by others. The more underfunded (and mismanaged?) a multiemployer pension fund, the harder it may be for an employer to extricate itself and quit the fund. And the most loyal employers who stuck it out and stayed in the union the longest were often the biggest losers as their competitors who first bolted the union often came out ahead.

The law could be unduly harsh on employers in other ways too. As originally passed, ERISA limited liability for underfunding to 30% of an employer’s net worth. In 1980 Congress removed that liability cap with the Multiemployer Pension Plan Amendments Act to ERISA. Since then all employer assets are subject to takeover by underfunded pension funds. All of this must have been difficult for employers to anticipate in the 1950’s and 60’s when many collective bargaining agreements were first entered. Union employers have been made, in effect, insurers of some bad deals – on an ex post facto basis. And Congress also authorized underfunded pension funds to reach an employer’s unrelated business interests through imposition of control group liability, by which all businesses controlled by an owner and spouse are subject to seizure to satisfy the underfunding. These changes to national labor policy have left a lasting impression on union businesses. Even the most committed union employers have lost faith in federal labor and pension law to ensure their fair treatment.

An unintended consequence of such policies has been to likely accelerate the pace of the decline of unions, and, possibly, to widen the gap between the numbers of persons with defined benefit pensions and those not entitled to such benefits. There are political consequences to this, and a political solution may be necessary. (David Blitzstein, Multiemployer Pension Plans In Crisis: Troubled Plans Need Public Resources To Survive, FORBES, January 11, 2017.) It makes sense that resentments may arise among the growing numbers of younger workers who are not entitled to such benefits. And it is difficult to explain to a millennial why he should approve a political solution to shore up the pensions of earlier generations when that millennial and his cohort are unlikely to ever have a defined benefit pension.

A promise of a defined benefit pension decades into the future is always speculative and depends on many unknown variables. It seems obvious that such promises may, in some cases, have to be recalibrated. In addition to more recent changes to the law allowing for benefits to be reduced in some cases, an obvious answer to this problem is to convert defined benefit plans to defined contribution plans.

(This post is intended for general information and educational purposes and should not be construed as legal advice. All Rights Reserved. Copyright 2017.)