Medicaid Managed Care Kickbacks: When the Rate Pays for Referrals

Medicaid managed care kickbacks can hide in physician capitation rates or a share of pharmacy revenue, and safe harbor protection depends on the arrangement meeting every applicable condition. If you negotiated the contract, approved the rate or processed the payment, you may know what the business was actually buying. The question reaches beyond the invoice’s description to the referrals, services and Medicaid money behind it.

What the Plan Pays and What the Payment Buys

A state pays a managed care plan a fixed periodic amount for each enrolled beneficiary. That capitation payment finances the plan’s obligations under its contract. The plan’s payments to physicians and vendors are the next part of the money trail, where a higher rate or a revenue-sharing agreement can carry an alleged kickback.

The National Health Law Program’s A Guide to Oversight, Transparency, and Accountability in Medicaid Managed Care, published in 2015, explains the financial incentive behind this managed-care payment model. The plan bears the risk that care will cost more than its capitation payments:

Paying a physician for care, paying a pharmacy benefit manager for services and paying someone to bring in business are different transactions. A contracting or finance employee may see all of them in the same account relationship.

The distinction has been understood for decades. Controlling Fraud and Abuse in Medicaid: Innovations and Obstacles, a 1999 report from seminars sponsored by the Health Care Financing Administration, described agencies failing to distinguish fraud against a plan from fraud by the plan. Its concern included diverting capitation away from frontline health care. We see the problem: the plan watching the money can also be the one diverting it. Medicaid patients lose care, and taxpayers pay for money that never reaches it.

Medicaid Managed Care Kickbacks Safe Harbor

Safe harbor protection requires the arrangement to meet every condition of the particular protection it claims. The Department of Health and Human Services’ Office of Inspector General, in its explanation of the Anti-Kickback Statute, describes the underlying prohibition as knowingly and willfully offering, paying, soliciting or receiving something of value to induce or reward federal healthcare program business. Medicaid is included.

The benefit can be cash or something supplied in kind, and it can pass directly or through another party. The relevant business can be a patient referral, a purchase, an order or a recommendation. For an insider, that puts the payment’s purpose beside its amount: what was the recipient expected to deliver, and what made the payment increase?

The conditions differ by arrangement. A physician’s services agreement, a provider’s discount to a health plan and a value-based incentive each raise their own questions. We examine the contract and the payment facts together, including who wanted the business and who approved the compensation.

A Services Fee Has to Connect to Services

The personal-services safe harbor requires a signed agreement describing the services and lasting at least a year. The payment formula must be set in advance, reflect fair market value and leave out the volume or value of referrals and other federally paid business between the parties. The work must serve a reasonable business need.

The 2020 final rule, effective January 19, 2021, changed what must be set in advance: the payment formula, rather than the total fee. A contract heading that says consulting tells us much less than the work it purchased and how the fee was calculated.

Health-Plan Discounts Must Pay for Covered Care

The 1992 health-plan safe-harbor rule distinguished benefits offered to enrollees from price reductions offered by providers to plans. Its provider-price protection required a written agreement for covered items and services. It did not cover contracts for marketing or pre-enrollment screening.

For risk-based plans under federal or state contracts, the provider could not separately bill the program for those services without the program’s approval, or pass the agreement’s cost to other payers or individuals. For plans paid according to their costs, the rule also required advance payment terms and accurate reporting of payments to providers.

A reduction offered to a plan member, a lower provider price and a payment made to someone who brings the plan business each have a different recipient and purpose. The label discount cannot do that work by itself.

Value-Based Payments and the PBM Exclusion

Pharmacy benefit managers are excluded from the 2020 rule’s three value-based safe harbors, which address care coordination and arrangements with different levels of financial risk. The rule also excludes payments made by PBMs from its separate outcomes-based payment protection.

For PBMs and pharmacy contracting staff, calling a revenue share value-based leaves the central questions unanswered: which entity paid, which protection is claimed and what the recipient did for the money. The entity’s role and the payment formula matter together.

When the Capitation Rate Pays for Referrals

Molina Healthcare of Florida agreed to pay $257,111 in a September 2013 Inspector General settlement concerning alleged physician referral payments. Molina had brought the matter to the agency itself. The Inspector General alleged that Molina offered above-fair-market-value capitation to four physicians and increased the rates paid to two, to induce referrals.

The alleged benefit sat inside the rate paid to the physician. We see the problem with looking only for a separate referral-fee invoice. The rate itself was the alleged kickback.

For someone in provider contracting, that makes the rate-setting file particularly useful. What services did the physician agree to provide? What supported the proposed rate? Who requested the increase, and what business did they expect it to bring? We connect those questions to the agreement, the valuation work and the actual payments. An ordinary payment mechanism. An alleged referral reward inside it.

A Share of Medicaid Pharmacy Revenue

WellDyneRx and HillCour agreed to pay $7,053,650 in a December 2018 Inspector General settlement after bringing the matter to the agency itself. The Inspector General alleged that the companies paid an entity a percentage of the compensation they received from a Florida Medicaid managed care plan.

That compensation covered pharmacy benefit management, mail-order pharmacy and specialty-pharmacy services for the plan and its Medicaid members. The public money paid for the pharmacy services. According to the Inspector General’s allegation, a percentage of the resulting compensation went to another entity.

The percentage is the feature an insider can recognize. Under the alleged formula, the recipient’s payment tracked the companies’ managed-care compensation. Someone reconciling the plan’s payments and the recipient’s invoices could see that connection even if the invoice description said little about it.

We would want to understand the recipient’s promised work, the formula that determined its fee and the business the payment was meant to secure. The agency resolved kickback allegations under the Civil Monetary Penalties Law. The commercial question behind them is precise: why did that recipient get a share of Medicaid pharmacy revenue?

Affiliate Payments and the Cost Passed to Medicaid

A separate managed-care safe harbor requires that neither party pass the cost of its agreement back to a federal healthcare program through increased payments. The question is whether the deal makes the public pay more.

An affiliate arrangement adds another place to follow that burden. The plan’s reported costs, the affiliated vendor’s compensation and the data used to set capitation can sit in different records. State rate-setting uses plan data, and plan certifications cover financial information supplied to the state.

If an affiliate charge raises the plan’s reported cost and that cost feeds into higher state capitation, we would examine whether the agreement shifted its burden to Medicaid.

A capitation rate includes reasonable operating costs as well as the cost of benefits, and its non-benefit component can include administration, reserves, risk margin and cost of capital. The accounting classification and the reason for the payment therefore both matter. Calling an expense administration tells us where it was booked. We still want to know what it bought.

What the Contract and Payment Records Show

The useful evidence connects the payer, recipient, compensation formula, work and business generated. The contract describes the proposed exchange. Amendments show how it changed. Invoices and payment records show what the parties actually paid.

In a physician-rate arrangement, the comparison includes the services promised, the valuation behind the rate and communications about the expected referrals. In a pharmacy revenue-share arrangement, it includes the managed-care contract, the revenue used to calculate the fee, the recipient’s work and the payments that followed. An affiliate agreement adds the ownership relationship and the treatment of the expense in the plan’s financial submissions.

You do not need every record to talk with us. These are connected records, often seen by different people. A contracting employee may know why a term was added. A finance employee may know which revenue drove the payment. A compliance employee may know what management was asked to explain. We work with that knowledge to assess the potential Medicaid False Claims Act case, including how the alleged kickback connects to government-paid business.

When a Marketing Fee Depends on the Patient Visit

A provider-side parallel shows how the payment trigger can expose the arrangement. In the whistleblower complaint concerning MB2 Dental Solutions, the former employee alleged that referral workers received payment only when a Medicaid patient registered at the dental office and received services. The complaint also alleged that a referral company operated from the same office as the dental management business and had that business as its only customer.

Those are allegations about dental patient recruitment, a different transaction from a plan’s physician rate or a pharmacy vendor’s revenue share. They make the same records question visible: what event released the money?

The Justice Department’s January 2017 announcement described a settlement that included allegations of kickbacks to patients and marketers. The complaint’s payment trigger gives an insider something more useful than a generic description of marketing. It connects the expense to the patient visit that generated business.

Can You Get Paid for Reporting Medicaid Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you know why a physician’s rate went up or why a vendor received a share of Medicaid revenue, speak with our whistleblower experts about the payment and the business behind it. We build your strongest case with you, bring in Medicaid fraud whistleblower lawyers who understand managed-care contracts and pharmacy payments, and stay beside you through the process.