Just when you thought you had a handle on all the federal healthcare laws out there – lo and behold, now you have California’s versions to deal with. The two most dangerous federal laws healthcare providers and entities need to understand and comply with are the Anti-Kickback Statute and the Stark Law. We’ve addressed these two in other articles. But if you’re involved in healthcare in the Golden State, you’re going to need to understand the California laws that are even more restrictive.
It’s unclear why California felt so insecure that it had to pass its own version of the federal laws. But it wouldn’t be California if the legislature didn’t overregulate everything. Be that as it may, the laws exist, and failing to understand and comply with them will land you in a world of trouble. So, sit back and enjoy this brief overview of the three most hated and dangerous healthcare laws in California.
Anti-Kickback Statute
As you may know, the federal Anti-Kickback Statute makes it a crime for any person to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward referrals for services or items reimbursable by federal healthcare programs like Medicare and Medicaid. In short, if you pay for patients or other business reimbursed by Medicare, you have violated the federal AKS.
However, the California Anti-Kickback Statute (AKS) takes things even further. Business and Professions Code Section 650(a) prohibits licensed healthcare providers from offering, delivering, receiving, or accepting anything of value as compensation or inducement for referring patients, clients, or customers to any person or entity. How’s that for raising the bar! Unlike the federal AKS, this version does not require a service to be reimbursed by a federal healthcare program. Instead, it applies to federal, commercial, or even cash-pay. Also, it includes any clients or customers, not just patients. On the bright side, it only applies to licensed healthcare providers, as opposed to the federal AKS, which includes anybody.
The Section goes on to clarify that paying for services other than the referral of patients – even based on a percentage of gross revenue or similar type of contractual arrangement – is legal if the compensation is “commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payor.”
This Section also permits a healthcare provider to refer a person to any laboratory, pharmacy, clinic or healthcare facility, even if the provider has a financial interest or ownership in the entity. However, three requirements must be met. First, the provider’s return on investment for that interest or ownership must be equal to the percentage investment or ownership. Second, the return on investment cannot be based on the number or value of patients referred. And third, every referral must be based on a valid medical reason.
For example, a doctor is not violating the California AKS for referring a patient to a clinic or other healthcare entity that she has some financial interest in. So long as she isn’t getting paid just for the referral but based on her percentage of ownership or investment, and she has a valid medical reason for the referral.
It is important to understand that while referral activities may not violate the state’s AKS, they still may run afoul of California’s version of the federal Stark law. This is called the Physician Ownership Referral Act (PORA).
PORA
Like the federal Stark law, PORA prohibits licensees of the healing arts from referring patients to certain Designated Health Services (DHS) that the licensee has any financial interest in. This includes ownership, partial ownership, payment arrangements, or ownership by an immediate family member. Unlike Stark, the list of licensees affected by PORA include: physicians and surgeons, psychologists, acupuncturists, optometrists, dentists, podiatrists, and chiropractors. And coming soon, Nurse Practitioners will be added to the list in 2026.
PORA also differs from Stark in the following ways:
- PORA applies to all payors, not just Medicare and Medicaid; it includes referrals of patients with commercial insurance or who pay cash.
- PORA has a broader definition of “financial relationship” than Stark
- PORA has a slightly different list of DHS.
Fee Splitting
And to round out our list of the most vexing California healthcare laws, we come to fee splitting. Thankfully, the federal government does not have a fee splitting law. But many states do. The purpose of this law is to prevent Fraud, Waste, and Abuse of the healthcare system that occurs when a healthcare professional shares a portion of patient collectibles with another person or entity in exchange for patient referrals.
California Business and Professions Code Section 650 once again rules here. Any referral arrangements based on a percentage of revenue or per-patient reward is strictly illegal. However, the following are legal compensation arrangements based on percentage or per patient models:
- Bonuses for employees referring or treating patients
- Flat Fee Arrangements for Services
- Cost-Sharing Agreements
- Management Service Agreements (MSAs).
Conclusion
Understanding federal and state healthcare laws is indispensable for a provider or healthcare entity. Non-compliance with any one of these laws will eventually land anyone in serious legal trouble and can even lead to criminal charges, fines, and the loss of a business you’ve worked long and hard to build.
Let us help you understand the stay compliant with California’s healthcare laws.