Health Law Center Library
Articles of the Month
THE ART OF BUYING AND GROWING LEADS
By Neil B. Caesar, Esq.
President, Health Law Center
Healthcare providers are increasingly seeking to gather information about potential customers interested in the providerís services, and then communicating with these leads with the hope to convert them. Such leads can be a highly lucrative source of revenue. However, if customer leads are developed or pursued improperly, healthcare providers can find themselves in serious legal trouble because of the anti-kickback statute, HIPAA privacy laws, Medicare supplier standards, the Fair Credit Reporting Act and state law. This article will identify the opportunities and dangers of leads contracts, so that healthcare providers may obtain, pursue and convert potential customers both safely and effectively.
"Leads" are not customers for the healthcare provider, but rather potential customers. They are people who have indicated an interest in particular types of services or products, such as rehab services, cosmetic procedures or diabetic supplies, but have not yet made any decision. Sometimes these leads are acquired by the providerís personnel, who gathers information about interested potential customers at education programs, health fairs, or by word of mouth. Other times the leads come in the form of lists purchased from organizations who gather such information for resale. Leads may be part of the Medicare or other government programs, or they may be covered by commercial insurance.
Leads may come from advertisements, membership organizations, the Internet or most anywhere else. Potential customers may initiate contact via a toll-free telephone line, or they may sign and return forms with their contact information from direct mail or print media. They may click on a box in a website to give consent, or on an email hyperlink. Regardless, the lead information Ė name, address, telephone number, email, product categories of interest Ė are compiled, perhaps screened, and then passed on to the healthcare provider for pursuit.
Medicare rules restrict the methods by which healthcare providers may contact potential customers. Medicare has an anti-solicitation statute which prohibits healthcare providers from contacting Medicare beneficiaries by telephone concerning the provision of healthcare services or products. Exceptions to this prohibition are limited to contacts in connection with an existing or past relationship between the healthcare provider and the patient, and circumstances when the healthcare provider has received "written permission" from the beneficiary for the contact.
For DMEPOS suppliers, this issue is also addressed in the Medicare Supplier Standards. Standard Number 11 prohibits a supplier from impermissibly contacting potential customers. When CMS released in 2010 its most recent changes to the supplier standards, CMS changed this supplier standard to include not only telephone solicitations of new business, but also in-person contacts and, perhaps, some Internet contacts as well. But, under industry pressure, CMS backed away from this expansion, and Supplier Standard 11 is again limited to telephone solicitation.
So, for example, the cold call rules would allow a potential customer who approaches a sales rep at a job fair or educational seminar and consents to further communication to be contacted in person, by phone or by USPS mail or email. But if Jane Doe asks the company to contact her friend Mary, such contact is not permitted other than by mail, unless and until Mary herself consents to the contact. The company rep may give literature to Jane Doe to pass on to her friend, or a request for contact card, or an email address for Mary to use to request further contact. It would also be permissible for Jane to ask for further contact for herself, to gather more information to pass on to her friend.
These "cold call" rules are also important when developing or purchasing lead lists. In order for a healthcare provider to be permitted by the Medicare rules to contact the names supplied from the lead lists, it must be clear that the lead has consented to the contact. Sometimes the lead-generating company will obtain such consent when potential customers respond to an advertisement or a mailing, by returning a card expressing interest in a particular product line or service. As long as the wording on the consent card is clear, this method should be sufficient to satisfy the Medicare rules. Regardless, be sure the consent specifically allows contacts by telephone, in person or whatever other means is contemplated.
Further, written consent may include both permission to be contacted as a potential lead as well as subsequent permission to be contacted by the healthcare provider, once the lead company is able to verify the potential customerís interest in the healthcare providerís product lines.
The Anti-Kickback Statute also has direct application to lead generation and development. This statute, which applies to Medicare and other government-reimbursed programs, prohibits a person or entity from knowingly, willfully, or recklessly offering to pay anything of value in order to induce another person or entity to refer a patient for, or to arrange the furnishing of, any item for which payment may be made under a federal healthcare reimbursement program, or to purchase or lease (or recommend the purchase or lease of) any item covered by the programs. Further, the law is clear that the statute is violated even if one purpose of the payment is to induce referrals. So, while the purchase of leads is permitted under appropriate circumstances, the purchase of referrals is not permitted.
What, then, is the difference between a referral and a lead? Someone who intends to become a customer and whom the healthcare provider intends to serve once reimbursement qualifications are satisfied, is a referral. A lead, in contrast, would be someone who may or may not be a patient, may or may not qualify, may or may not be interested in further contact or receipt of information for his or her own purposes, and may or may not be seeking information purely for educational purposes, or to pass on to a friend, or whatever.
We realize that this definition of a "lead" is not standard, and that may companies who sell leads also offer to "qualify them" by verifying their medical condition, their insurance coverage, or other information necessary before the healthcare provider will be able to provide reimbursable services to that person. However, this level of interrogation to a prospective customer almost certainly crosses the line from creating a legal lead purchase to creating an impermissible payment for referrals.
This issue was addressed for the first time in the specific context of the healthcare anti-fraud rules in November 2008, when the Office of Inspector General issued an Advisory Opinion concerning Internet leads. That Advisory Opinion focused on a proposed arrangement wherein websites targeting people interesting in chiropractic services would invite browsers to enter their zip codes. The websites would then create lists of telephone numbers and email addresses of chiropractors who practiced within the indicated zip codes. When the lead then called the number or sent an email, the communication would be routed to the listed chiropractor, for which the advertiser would be paid a "per lead" fee based on the quantity of routed communications.
The OIG indicated in its opinion that it would not seek enforcement action under the anti-kickback statute for this proposed arrangement. The OIG focused on several key factors that it deemed important to its comfort level. First, the arrangement did not actively steer patients to a particular provider through hard-sell or other pressure tactics. Second, no "health care information" was collected by the website concerning the potential patient. Third, the proposed system would passively route the emails or calls initiated by the lead.
This Advisory Opinion, in combination with the anti-kickback statute and the cold-call rules, appears to suggest that the OIG is comfortable with lead-generating mechanisms, payment for leads, and so forth as long as there is no pressure put on the lead and as long as the lead is "unqualified." In other words, a healthcare provider or lead-generating company must limit its communications to persons who have explicitly consented to be contacted by the company (or by "a company that provides the products and services" of interest). Further, specific personal information such as the leadís age, illness, products currently being used, physician name, insurance coverage, etc., will likely push the person from being a raw lead over to being a "referral" for whom payment is prohibited.
We have had several clients ask whether they can engage the lead generating company to create the leads and then subsequently also use the company to try to qualify the leads as customers for the healthcare provider. This is problematic. First, it must be clear to the lead, at the time of the second contact, that the lead is acting as an agent of the healthcare provider, pursuant to the leadís consent to receive further information. Second, even if the lead company truly could wear the proverbial "two different hats," one as itself and one as the healthcare providerís agent, this will still appear very suspicious to the government. It would be very difficult to prove persuasively (and with 100 percent consistency) that the two roles were distinct. It is far better to avoid the danger by having the lead companyís role be limited to producing a legally compliant lead list.
HIPAA also applies to the purchase of lead lists. HIPAA prohibits the disclosure or use of protected health information (PHI), except as specifically permitted or required by the rules. Such PHI includes information created or received by or on behalf of the healthcare provider that identifies the person specifically and that relates to the provision of healthcare for the person; or, to the past, present or future payment for services; or, that relates to past, present or future medical conditions. This definition thus clearly applies to information generated from a lead, particularly if the information relates to the leadís interest or entitlement to DMEPOS. Thus, a healthcare providerís use of the information is subject to HIPAA, and any work a lead company does on behalf of a healthcare provider is similarly subject to that law.
A potential customer is certainly allowed to give out personal health information to a lead company, via telephone conversation or Internet checklist. However, the lead company is only permitted to pass on that information to a healthcare provider if the patient has consented to that release. HIPAA considers such communication "marketing", which it defines as "a communication about a product or service that encourages recipients of the communication to purchase or use the product or service." HIPAA prohibits the lead company from marketing its lead information to healthcare providers, unless written authorization from the lead is obtained prior to that transmission of information. So, once again, the rules require explicit verification of consent. But, remember: the anti-kickback rules still apply. Payment for a qualified lead is still likely a prohibited payment for referral, regardless of the customerís consent.
Further, for any such relationships which involve the communication of protected health information, a Business Associateís Agreement between the lead generating company and the healthcare provider is highly recommended. In fact, even when the parties do not intend to include the gathering or transmission of protected health information as a part of their relationship, it probably makes sense to include HIPAA-compliant business associate language in the contract.
The Fair Credit Reporting Act also applies to lead contracts. This Act applies substantial regulatory and reporting requirements on "consumer reporting agencies", defined as any person or entity which for a fee "regularly engages ... in the practice of assembling or evaluating consumer credit information or other information on consumer for the purpose of furnishing consumer reports to third parties, and uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports." A "consumer report" is defined by the FCRA as any communication of any information by a consumer reporting entity that bears "on a consumerís creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or is expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumerís eligibility for [credit, insurance, or other authorized purposes.]." Thus, any information concerning a leadís coverage eligibility, payment for insurance details, etc. would likely render the lead company as a "consumer reporting agency" and the transmission of that information a "consumer report."
On the other hand, if the information is limited to name, address, contact information, and general interest in receiving further discussion, it is likely that the lead list would not be considered a consumer report. Further, the lead list is permitted if the transmission of information is pursuant to the leadís consent, "orally or in writing to the nature and scope of the communication." Thus, lead contacts that do not "qualify" the lead, that is, do not gather insurance information or medical information, would seem to be outside the scope of the FCRA requirements. On the other hand, lead sheets which include such information would appear to constitute a consumer report potentially triggering the substantial obligations, reporting and otherwise, under the FCRA.
Finally, donít forget that state law may have something to say about lead contracts. Be sure to check the law for both the healthcare providerís and lead companyís states, to see whether they have anything to say about lead contracts in their consumer protection rules, state privacy laws, or healthcare anti-referral rules.
Special Internet Issues
Special considerations arise when we look at leads generated from the Internet. Leads clearly agree to be contacted by a healthcare provider when they submit explicit written verification of their consent via a mail-in response postcard, a membership application, a new user response card, etc. But when consent takes the form of clicking on a hyperlink or a "yes box" on an Internet website, consent is far less clear. Did the person click accidentally? Did he understand specifically that he was asking for communication about healthcare issues from a healthcare provider? Did he wish to change his mind, but was blocked from doing so by the websiteís limitations?
It is important that all of these concerns be alleviated in the email or website structure. Potential leads should have to verify that they intended to ask for further communication. It is important that they be required affirmatively to "opt in" to the communication, instead of merely inferring their consent because they didnít "opt out" from further communication. In this regard, note that the FCRA clearly stated (in a different provision of the law) that it did not view an electronic click on the Internet as meeting the requirements inherent in the "written instructions" requirement. While there are other provisions of the rule that seem to back away from this concern, it is clear that the leadís decision to "opt in" for further communication must be clear. I usually recommend a "double click" procedure by which the user must verify both consent to be contacted and that the giving of consent was not misunderstood or accidental.
There must be no ambiguity in the nature of this consent. Do not talk vaguely about some sort of future communication from unidentified persons. The consent must clearly verify their willingness to have their information be passed on to "affiliated companies," and to have such companies contact them with product or service information tied to their specific interests. This is not a time to be "cute." Be clear and explicit.
Any business relationship with a lead company should be reflected in a written contract, carefully constructed to cover all of the relevant legal concerns. The contract should clearly identify the relationship, by which the healthcare provider will purchase from the lead company information from leads that clearly gave their consent to be contacted. The lead company should verify that it is following the necessary script and procedures to ensure proof and clarify of such consent. The healthcare provider should have the clear right to audit the lead companyís operations to verify compliance Ė and it should exercise this right. The lead company should indemnify the healthcare provider against any claims made against under the argument that the lead did not give consent. Also, the contract should allow the healthcare provider to terminate the agreement immediately in the event of any failure to follow the protocols. All scripts used by the lead company should be shared with and approved by the healthcare provider.
I expect that healthcare providers will continue to purchase leads for the indefinite future. They are a profitable investment and, when handled correctly, offer information and convenience to prospective customers. But the legal issues raised by careless lead generation relationships are real and substantial. Care and caution can yield big dividends without big risks.
Script Dos and Doníts Here are some examples of script language that addresses the legal concerns attendant to lead generations. They apply equally to telephone, mailing or Internet scripts.
Donít say "Please tell us what your needs are." Say "Please tell us what information [or healthcare resources] you may want."
Donít say "Do you or anyone in your household have diabetes?" Say "Are you or any of your friends or family interested in learning about supplies or resources for people with diabetes?"
Donít ask if anybody in their household needs equipment, has certain diseases, is covered by certain insurances, etc.
Donít inquire about problems requiring mobility devices or other equipment or services.
Donít inquire about prescription or other coverage.
Donít offer discounts or incentives if they "act now."
Donít ask about family medical history.
I also suggest that, if the caller tries to discuss personal clinical or insurance information at any time during the lead-generating telephone call, the lead company should be instructed to alert the prospective customer that they are not allowed to discuss with them the medical details during this call. Rather, when they match the lead up with the healthcare provider, the customer will at that point be able to share the medical information.
Perils for Healthcare Companies: A Case for Compliance Programs
Marketing Alternatives to Medical Equipment Joint Ventures
What is "Fair Market Value"? The Feds Will Nail You If Your Deals Are Unfair
How to Stay Out of Trouble Ė Secrets of the Anti-Fraud Laws
Legal Insight You Can Use - What You Need To Know To Defend Yourself When The Government Comes Knocking!
The Advantages of Accreditation in Meeting Compliance While Avoiding Fraud and Abuse
Prior Articles of the Month
Perils For Healthcare Companies
A Case for Compliance Programs
By Neil B. Caesar, Esq.
President, Health Law Center
While the most obvious form of scrutiny remains a "direct and focused inquiry from government because of a specific concern about a bill," today healthcare companies face a number of areas of vulnerability that have little to do with malicious, evil intent and wrong-doing.
Mistakes without intent may not be enough to avoid liability. Changes to the False Claims Act made by the Health Insurance Portability and Accountability Act of 1996 create fraud risk for a healthcare company who acts in "reckless disregard" of Medicareís rules. Under this law, the "see no evil, hear no evil" monkeys would still be in trouble.
HIPAA has also created a "bounty system" for federal fraud investigators, in which CMS, the OIG and the Justice Department get to keep a substantial amount of the money recovered and penalties paid from fraud and abuse investigation settlements.
Iím not suggesting that the government is filled with people looking to maximize profit.
But, at some level, when the feds have an incentive to extract payment from every investigation, the government is going to be far less willing to abandon an investigation or to settle for less than they think they can extract.
And the government isnít the only one who can benefit financially from a successful fraud and abuse claim. The False Claims Actís qui tam provision provides cash rewards (usually 10 percent to 20 percent of the settlement amount) for inside (employee) whistle-blowers.
In addition, healthcare companies may find themselves found guilty by association when they become the target of investigations that began with another healthcare company or provider with whom they have a contractual relationship.
Healthcare companies should take a pro-active approach toward preventing fraud and abuse. Procedural analysis done under legal supervision is the first step. Donít poke if youíre not prepared to fix. The only thing the government hates worse than a wrong-doer is someone who knows there is a problem and doesnít do anything about it.
Rather than "plug holes," healthcare companies are safest when they implement a permanent, pro-active compliance program, with procedures for fixing problems and dealing with their consequences.
A pro-active compliance program creates and enforces standards, policies and procedures, which clearly define how the company handles its service, billing, contracting and related activities.
It must also have an enforcement portion; effective programs discipline both the wrong-doer and the supervisor who allowed the wrong-doing to go unnoticed.
When potential fraud does surface, the government will be more lenient with companies with pro-active compliance plans.
A company that has a plan in place and in effective operation is more likely to warrant presumption that it made an inadvertent error rather than committed a deliberate or reckless act of fraud.
Also, because potential partners look favorably upon healthcare companies with pro-active compliance plans, you also stand a better chance of winning contracts and forming alliances.
Having this stuff in place doesnít just suggest a good attitude and pro-active vision with regard to fraud issues.
Letís face it, an organization that has its act together in this context is more likely to have its act together across the board.
The Advantages of Accreditation in Meeting Compliance While Avoiding Fraud and Abuse
By Neil B. Caesar, Esq.
President, Health Law Center
Progressive healthcare companies seek accreditation to refine and validate their quality assurance risk management and utilization review activities. At the same time, agencies and suppliers seek to create policies and procedures to avert violations of federal/state fraud and abuse rules, and to satisfy reimbursement requirements. Progressive organizations are developing Accurate Billing and Anti-Fraud Compliance Programs to encourage regulatory compliance and reduce the risk of serious government challenge. A key motivator for these Compliance Programs is the fact that when properly structured, accreditation standards and accreditation preparation complement and overlap the compliance process in many ways.
Healthcare companies generally believe their operations are correct, proper and legal. However, very often they or their employees have done things that may violate federal or state rules or, at least, that could trigger a Medicare or Medicaid investigation. Most healthcare companies are unaware of the extent of their exposure. They may be ignorant of the illegal activities. Or they may engage in conduct that can be questioned and challenged, even though it is common in the industry.
A compliance program is essentially an internal communications system. Its purpose is to establish a framework for identifying operational policies; assessing compliance with those policies; identifying problems to evaluate; investigating the problems; fixing the problems; and educating and training personnel about the operational policies and the compliance programís procedures. It has six basic purposes:
1. To enable the healthcare company to assess its compliance with laws, fraud and abuse laws, payment/service rules, coding requirements, etc.;
2. To enable the healthcare company to identify exposure to government or payer scrutiny;
3. To enable the healthcare company to formulate a plan of action to reduce exposure on ongoing basis;
4. To enable the healthcare company to educate its executives and its personnel about these issues;
5. To enable the healthcare company to implement the necessary systemic and operational changes to minimize risk of future violations; and
6. To enable the healthcare company to monitor and revise the program on an ongoing basis.
In addition, the internal communication system which defines an effective Accurate Billing and Anti-Fraud Compliance Program may be used to address other healthcare company needs as well. These include personnel policies, such as those contained in policy manuals and procedure manuals; safety/OSHA issues; sexual harassment policies, termination issues, discrimination issues, and so forth. Other examples include using the Compliance Program to address risk management activities, antitrust concerns, environmental issues, tax- exemption issues, CLIA, FDA, etc.
There is much overlap between these compliance activities and accreditation efforts.
The process for obtaining and maintaining accreditation also requires the healthcare company to identify its operational policies; assess its compliance with those policies; identify, investigate and fix problems; educate and train personnel; etc. The healthcare companyís compliance program thus offers a pre-existing framework for assessment, investigation, training, problem-solving, etc. Conversely, the accreditation process identifies most of the topics to be addressed in the compliance program.
Indeed, a number of benefits which flow from an effective Compliance Program also correlate to accreditation benefits. Both programs, when run effectively:
<Improve internal communication;
<Encourage effective employee feedback;
<Reduce the likelihood of wrongdoing;
<Create efficient structures for disseminating information;
<Heighten awareness of ethics issues;
<Improve employee skills in dealing with ethics issues;
<Provide "self-policing" reassurance to the agencyís or supplierís board of directors, alliance partners, payors, or investment community;
<Constitute an increasingly important part of due diligence for acquisitions, mergers, etc.;
<Demonstrate the healthcare company "has its act together;" this is important to demonstrate value in alliances, mergers, etc.; it is also useful to help obtain the "benefit of the doubt" with the government; at a minimum, it can help turn a long investigation into a short inquiry;
<Create the ability to respond quickly to problems; and
<Develop reporting mechanism for problems, to protect the healthcare company without evading its reporting responsibilities to the government. Remember, too, it makes good business sense to adhere to approved standards of conduct.
Not unexpectedly, there is much overlap between compliance and accreditation efforts, both substantively and procedurally. Compliance make accreditation easier. Accreditation makes compliance easier.
MARKETING ALTERNATIVES TO MEDICAL EQUIPMENT JOINT VENTURES
By Neil B. Caesar, Esq.
President, Health Law Center
There is good news and there is bad news with the Anti-Fraud and Stark laws and other anti-referral rules. The good news is that these laws permit many viable arrangements between healthcare providers. The bad news is that the arrangements must be carefully structured and monitored to avoid legal challenge.
Even though the anti-fraud laws apply to virtually every financial relationship between providers, the most notoriety and the greatest scrutiny have focused on healthcare joint ventures. Joint ventures in the medical equipment and supply market are riskier because of this scrutiny. Fortunately, there are alternative financial arrangements between providers, other than traditional "joint ventures," which will not violate the anti-referral or Stark laws if they are carefully structured and monitored. This article explores some of these arrangements.
Note that virtually all of the following options are simpler in operation than are typical joint venture partnerships, corporations or limited liability companies. This greater simplicity often reduces the legal risks, because there are fewer issues and "tricky" complexities which might raise the governmentís suspicions. Many times, these arrangements are preferable financially as well, because the fees (and profits) can be determined precisely and paid quickly. Further, the relationship may be cancelled more easily, with minimal unwinding problems.
1 Preferred Provider Agreement. This seemingly simple relationship between two providers (for instance, a hospital and a C-PAP supplier) basically says, "If you refer patients to me, I promise to do a good job servicing them." Often, the promise is a little broader: "If you give our name to most or all of your patients, we promise to do a good job servicing them."
Under this arrangement, the referred provider (the C-PAP supplier, in our example) makes certain promises about the quality, delivery, accessibility and/or accountability of the services to be provided. The referring entity may itself be a service provider (hospital, home health agency, physician, etc.) or it may be a payor (HMO, PPO, etc.). Typically, the contract contemplates that the referred supplier will accept most or all of the referring entityís "default" patients, that is, those patients who express no preference for an alternate supplier.
It is important for the relationship to acknowledge true patient choice, so that the patient is prompted to offer preferences for other suppliers. I have seen relationships where the patient is not told of suppliers other than the preferred provider, but I find it safer to give the patient a choice even when no prior preference is indicated. Also, I encourage that the relationship allow patient family members or physicians to express preferences, although I have seen relationships where the physician (or, occasionally, family) preference is ignored.
Also, I have seen relationships where the patient must affirmatively request an alternate supplier; the discharge planner does not prompt the patient to exercise choice. I believe this approach skirts the boundaries of the disclosure rules. Regardless, it is greedy. A well-structured preferred provider relationship will easily capture 75%-80% of the business. This is both because most patients donít have a preference, and because many patients will assume that the referring entityís "preferred provider" must be of high quality in order to become preferred. Thus, efforts to restrict choice seem like an unnecessary avarice. Remember the old saying: "Pigs get fat, but hogs get slaughtered."
The legal safety net for preferred provider agreements is premised on there being no financial relationship between the referring entity and the preferred provider. If there must be some other relationship, such as a space rental, it is essential that it be made to fall within the specific requirements of the anti-kickback safe harbor. Even then, the safe harbor protections will apply only to the financial relationship at issue. They will not serve as a complete protection if the government suspects that the preferred provider is getting referrals in exchange for the other financial relationship. Still, despite this caution (and my reservations), I am aware of preferred provider relationships which are accompanied by space rental or other financial intertwining.
Preferred Provider Agreements raise virtually no legal concerns if they are properly structured, marketed and implemented. Many times, a referring provider or payor primarily seeks assurances of quality, accessibility and accountability. So, the Preferred Provider Agreement can often establish a relationship which is mutually beneficial, but which requires no financial concessions by the service provider. One caution, though: A preferred provider agreement will usually impose on the default supplier an obligation to take all patients. Agreeing to such a clause may result in so many no-pay or slow-pay patients that profitability is lost. A supplier considering this sort of relationship may wish to negotiate limits on the indigency obligation. The limits may be tied to a financial ceiling, a maximum percentage of patients, or some similar benchmark.
2. Professional Services Agreement. Under this arrangement, a provider (for example, a respiratory therapy supplier) will utilize professional support personnel employed by another provider (for example, a pulmonologist in private practice) to provide clinical support on behalf of the supplier. The range of clinical support services which might be offered includes respiratory or infusion therapy; nursing services; C-PAP set ups; patient education and instruction; pharmaceutical mixing; case management, etc. Under this relationship, the provider supplying the support personnel will be paid a specific fee for the services rendered. This fee must be at fair market value (typically ranging from $50-$140 per visit, depending on many factors), and is typically payable thirty to sixty days after invoice.
The provider utilizing the support personnel must be able to justify that it is less costly to engage the contracted support personnel than to use existing personnel on payroll. For example, if many patients reside far from a respiratory supplierís office, it will be expensive for the supplier to pay its personnel to travel to those patientsí homes. The supplier can provide services more profitably if it purchases clinical support from a source located near to the patients Ė such as the other provider. Another justification for use of a Professional Services Agreement occurs when a supplier has temporarily more business than it can handle with its existing work force, but not yet enough extra activity to justify hiring additional full-time clinical support personnel.
The key to creating a professional service agreement which will withstand scrutiny is to use the contract consistent with the justification for its creation, and to avoid using it solely with the referral sourceís own patients. This is essential for relationships that include government-reimbursed patients, and highly recommended for private-pay referrals as well. (Many state laws will apply legal restrictions similar to the federal rules.) You must be able to show that your ostensible justification for the relationship (for example, geographic inaccessibility) reflects the operational reality. For example, if a patient is located far from the supplierís office, but is located near to a "contractor providerís" office, that providerís support personnel (nurses, respiratory therapists, etc.) should service the patient regardless of whether that provider originally referred the patient to the supplier. On the other hand, if a "contractor provider" refers to the supplier a patient who resides reasonably close to the supplierís office, the patient should be seen by the supplierís own employees and not by the referring providerís personnel.
Of course, the parties must carefully document and monitor this relationship, to ensure that it will stand up to legal scrutiny.
Properly marketed, Professional Services Agreements can be a valuable resource Ė at times, even more productive than are joint ventures. Professional Services Agreements can augment each providerís profits. The provider initiating the relationship (the supplier, in our example) pays less for the contracted personnel. The "contractor provider" gains a continuity of patient care and a diversified visibility in the community, as well as payment of a specific sum of money, paid on a timely basis. This avoids much of the ill-will which occurs when a joint venture generates less profits (or slower profits) than were expected.
3. Support Services Agreement. This arrangement is quite similar to the Professional Services Agreement discussed above. With this contract, however, payment is made for operational support services rather than for professional support services.
The sort of services provided under this type of arrangement include: insurance verification; pick-up and delivery services; collection assistance; space rental for display, operations and/or storage, as well as telephone, janitorial, maintenance, security, furniture and other services and supplies in connection with the rental; clerical and administrative assistance in preparing claims for reimbursement; providing advertising space and/or materials; assisting in marketing; etc.
As with the Professional Services Agreement, fees must be based on fair market value, and the providers must be able to justify the need for the agreement according to geographic inconvenience, incremental needs, or some other reason not tied to whether the "contractor provider" is also a referral source. Also, the justification should be applied in a manner that demonstrates its use for all relevant patients, not just those tied to the referral source/support services subcontractor. Again, careful documentation and monitoring is recommended.
A Support Services Agreement can present an attractive source of legitimate revenue for the "contractor provider", and is often more cost effective for the supplier than is the typical joint venture.
4. Advisor Agreement. This arrangement targets key "experts" to provide advisory/consulting services to the provider. For example, a long-term care supplier might target a renowned nursing home executive or a gerontologist; a respiratory therapy or a DME supplier might target a renowned pulmonologist, neonatologist, cardiologist or internist; an infusion therapy supplier might target a renowned oncologist, infectious disease specialist, or gastroenterologist.
This relationship typically uses the "expert" to provide advisory services such as: reviewing clinical protocols; evaluating the providerís marketing efforts; developing educational programs; evaluating new technology and new products; developing programs to improve communication between the provider and referral sources; assisting in planning efforts; discussing new trends and breakthroughs, etc.
For the provider, the arrangement offers a valuable resource for planning and marketing insights. A well-chosen expert can increase the providerís visibility and credibility in the market. Finally, the arrangement creates the possibility of referrals from the advisor himself/herself, or from people who work with or know of the advisor.
For this type of arrangement to pass legal muster, fees must be reasonable in relation to the amount of time required to provide the necessary services. Advisory services should be well documented, and the provider should monitor the arrangement to verify that the fees continue to reflect value. As with all of these arrangements, compensation should in no way be tied to referrals.
Parties utilizing this arrangement will want to make sure that proprietary information remains confidential. A restrictive covenant may be appropriate in certain circumstances. Also, the parties will need to provide adequate written disclosure to all patients referred by the advisor, and ensure that the patient has freedom of choice in his or her selection of a supplier. This disclosure/choice requirement is an important component of the other arrangements described above as well.
Finally, be very careful about including certain forms of "marketing services" among the advisorís duties. Public speaking, assistance with brochures, developing targeted ads are typically safe marketing obligations to give to an advisor. But direct marketing to potential patients or referrals sources can lead to danger. If such marketing needs to be part of the package, it is important to roll it in with other duties, and pay a set fee for a set quantity of hours which includes (but by no means is limited to) the marketing activities. Under no circumstances should the physician be paid on a percentage of collections or per patient basis.
5. Management Subcontract. Under this arrangement, one provider performs various management or support services for another provider. For example, a hospital might create a home medical equipment company, which then contracts with an existing HME supplier to provide certain management services. Services provided under this arrangement include: wholesale equipment purchase and/or rental; billing and collection services; pick up and delivery services; nursing services; mixing services; warehousing; and so forth.
The key to this arrangement is that the contractor (the hospitalís HME company, in our example) is itself the provider of reimbursed services. The contractor determines the rates to charge, the contractor enjoys all of the opportunities for profit, and the contractor bears all of the risks from no payment, slow payment, market downturn, etc. To minimize legal risk, the management fee should be a fixed dollar amount, rather than a percentage of the contractorís retail price. Also, for legal safety the sub-contract fee should be paid within a fixed, reasonable time frame, and must not be tied to whether the contractor has yet been reimbursed.
Another danger arises if too many services are funneled into the sub-contract arrangement. If virtually all of the contractorís costs are rolled into the sub-contract, the government may wonder whether the so-called "management arrangement" is actually a disguised kickback where the subcontractor is actually the patientís supplier, with the contractor simply being the referral source. The government looks closely at whether such arrangements are essentially "turn-key" operations, and is particularly suspicious when the subcontractor is engaging in essentially the same services it handles (or formerly handled) on its own. Therefore, one of the key ingredients for the safe management subcontract is for the owner to take on as many responsibilities as is practical. These may include responsibility for all or some of the staffing (hiring/firing, payroll, etc.), pricing decisions, marketing decisions, some or all equipment purchasing, legal and accounting, etc.
Nonetheless, when properly structured and carefully handled, management services agreements are profitable, legally viable arrangements.
The above list describes only a few of the arrangements additional to joint ventures which remain available in todayís volatile healthcare market. Other arrangements include: space leases and/or "loan closets" in long-term care institutions, physician offices, pharmacies, etc.; paying pharmacies for assistance with claims submissions paperwork; marketing services agreements; and research grants.
Each of these relationships is risky legally if carelessly structured and/or implemented. But, when utilized effectively, all of these arrangements can present a legitimate, profitable and valuable alternative to the currently disfavored joint venture relationships.
WHAT IS "FAIR MARKET VALUE"?
THE FEDS WILL NAIL YOU IF YOUR DEALS ARE UNFAIR
By Neil B. Caesar, Esq.
President, Health Law Center
The anti-fraud rules require that financial relationships between independent parties be at "fair market value (FMV)." This concept is often misunderstood by homecare companies, even though this failure to understand can lead to big trouble for unsuspecting suppliers. If you donít know all the different meanings for FMV, rest assured Ė the government does.
The reason all of this matters is because the anti-kickback rules (as well as other laws, regulations and policies) try to ensure that providers do not disguise payments for referrals as if they were fees for services or items supplied. "Fair market value" is the measure by which a payment may be evaluated to verify that it was truly for services or items provided, and not a disguised kickback.
"Fair market value" is essentially the commercially reasonable payment one would make for products and services rendered. It sounds simple. But, as with so much in the healthcare industry, reality is more complex. First, fair market value rarely means a specific, single, unchanging, fixed price. There is usually a range of acceptable dollar amounts within the realm of fair value. Second, fair market value requires that the purchased items or services actually be provided. Third, fair market value requires the recipient of the items or services actually to need them. So, perhaps the better definition for fair market value is the range of prices one would reasonably pay for items or services needed and used by the recipient.
Letís examine the danger zones created by FMV abuse in more detail.
Fair market value is actually a range of values. Many people donít realize that "fair market value" is rarely a single immutable amount. What would be a fair rent for office space in the physician-owned medical office building? Comparable rents around town range from $13-$22 a square foot. So, technically, any rent within that range might be within fair market value. But be careful:
"Fair Market Value" requires that services or goods actually be provided. In 2006, two Lincare companies agreed to pay the government $10 million and to enter into a five-year company-wide Compliance Integrity Agreement (CIA). Among the settled allegations was the contention that physicians were paid "pursuant to purported consulting agreements", even though the physicians rarely or never actually provided any consultations.
In 2005, I was an expert witness for a cardiologist suing the University of Medicine and Dentistry in New Jersey (Newark) for unlawful termination. He alleged that he was fired because he spoke up against the Universityís plan to offer professorships to community cardiologists. The plaintiff contended that this plan violated federal law, because the physicians did little or no work in exchange for the academic positions. He argued that these salaries were instead disguised kickbacks for referrals. Ultimately, the case settled for several million dollars, the feds got involved, and fines, firings and heightened government scrutiny followed.
The point is that paying fair market value for services means paying fair value for services actually rendered. Few suppliers would feel safe entering into a sham consulting agreement. However, it is not uncommon for homecare companies to seek a medical director relationship or some other sort of service agreement that contemplates a certain amount of use. If the anticipated utilization upon which the contract was premised does not actually occur, then the homecare company in effect is paying for unrendered services. (This is why I recommend that service agreements be on a "pay as you go" basis.) Other examples are paying for rental space that turns out not to be needed, or paying for more space than is needed, or paying full rent for space that you only need part time. Each of these scenarios, not uncommon, create problems under the anti-fraud rules because they do not reflect fair market value.
Donít pay for goods or services you donít need. It is not enough for services or goods actually to be provided. They must actually be needed as well. If you are paying for space you donít really need, it doesnít matter whether you figure out some way to make use of that space. If you have a branch operation one-half mile away, it may be hard to justify a second space rental in a referral sourceís offices. ("Why would you need that space, except to obtain referrals in exchange for the rent?").
Similar risks arise when paying a consultant to give you information you already know, or to make recommendations you never implement. Another example would be paying setup and instruction fees to a physician for setups done in the doctorís offices, while you own personnel sit underutilized because you are paying someone else to do their work.
In all of these examples, the unnecessary services fail the fair market value test. In my experience, this is a frequent problem for home care companies, who pay for services they donít really need or who pay for a lot of service when only a small amount is required. If you only need hamburger but keep paying for prime rib, the government will take notice.
Things change. Remember that fair market value is a reflection of current realities. Market comparables change within a course of a year or two. Changes must be acknowledged to ensure that this yearís fair market value continues to hold up next year. Or, perhaps you are paying a physician group to provide setup services to customers who live quite a distance away, convenient to the subcontracted physician but not to you. In this instance, it may be fair value to pay that physician for those remote setups. But, if you subsequently open a branch office or hire a rep nearby, it is no longer fair market value to pay for that physician relationship, because you no longer need those services.
Write it down. Be sure to memorialize into written documents all of your financial relationships. Well drafted documents can identify the commercial justification for the relationship as well as the evident reasonableness of the fair value between fees and items or services rendered. Further, relationships that implicate the Stark laws must be in writing, and relationships that implicate the Anti-kickback Statutes need to be in writing to fall into one of the safe harbors.
I also recommend that you establish a file memo discussing how you came up with a reasonable fair market value. Sometimes this means looking at market comparables in noting them in the file memo. Sometimes this requires you to identify costs expended in offering the service, with a reasonable profit margin on top. The file memo can also identify any triggering events that may warrant renegotiation. For example, if a support services subcontract was created because of geographic inaccessibility, the opening of a new branch office might require a re-evaluation. Consequently, I also recommend that you put a copy of the internal memo into you tickler system, so that it may be re-evaluated periodically.
Vertical Rent. Finally, allow me to close with my favorite real life example of FMV abuse. I represented a DMEPOS supplier whose new owner had inherited certain contracts, including one with a physician group which, perhaps not coincidentally, was a heavy referrer. The financial relationship was purportedly a space rental. However, the supplier was paying a rate reflecting premium office space when in fact all that was being rented was a closet and portions of a rarely used storage room. More important, every shelf that held equipment was counted as separate square footage for the rent. Every desk drawer was counted as separate square footage. So, if a 4 foot by 8 foot closet contained floor space and 8 shelves, the square footage was calculated to be 288 sq. ft.! As I recall, the parties to this crazy lease managed to carve out over 1,000 square feet from a tiny unused office and a closet.
There is a rule of thumb lawyers use known as the "straight face test." It is very simple: Can you describe your relationship out loud without cracking up or looking extremely embarrassed? Needless to say, the above example did not satisfy the test.
I realize these rules about Fair Market Value may not always be easy to follow. There are subtleties that often require a competent health lawyerís assistance to unravel. But the effort is worth the time. If you donít believe me, just ask the feds.
How to Stay Out of Trouble Ė Secrets of the Anti-Fraud Laws
By Neil B. Caesar, Esq.
President, Health Law Center
Iím very tempted to open this article by saying, "government scrutiny of the homecare industry is at an all time high." All that stops me is that Iíve already said that each year for most of my 28-year legal career. But I cannot deny that the feds are watching more carefully than I can remember them doing before, challenging claims more aggressively than I can remember, and targeting financial relationships in healthcare more frequently. National and regional companies negotiate multi-million dollar settlements with the feds. At much smaller levels, I am noticing a disturbing tendency for claims reviewers in third-party payersí fraud units to characterize imperfect or questionable claims as "fraudulent" with very little evidence to back up such an incendiary contention.
At the same time, I see too many healthcare providers with dangerous gaps in their knowledge and appreciation of the anti-fraud rules. Smaller companies are getting hit just as hard and frequently as are bigger companies. Ignorance is not bliss. It is a disease, which sooner or later will consume your business. This is not just hyperbole on my part. I have had the sad task of attending to the closure of a number of clients, all of whom were not aware of the practical dangers of indifference or carelessness about embracing these rules.
So letís commit to seeking knowledge, to learning how to navigate choppy waters and ill winds. With that in mind, here are my answers to the Four Questions that Unlock the Secrets to the Anti-Fraud Rules Ė and Why You Should Care.
Question One: What are these anti-fraud rules all about, and why should I care?
Answer: Anti-fraud rules come from a wide range of federal laws. They include the Anti-Kickback Statute (AKS) which prohibits any healthcare provider from giving or receiving anything of value in exchange for referring or receiving referrals of patients, goods or services related to government-funded programs. There is also the Stark Law, which prohibits physicians from receiving financial benefit from any provider of "designated health services" (including healthcare companies) to whom the physician refers Medicare or Medicaid business, unless the relationship or the referral falls into one of the lawís exceptions. There is the False Claims Act, which prohibits providers from submitting government-reimbursed healthcare claims that they know or should know are false; this includes inaccurate claims where the provider didnít put in enough effort to try to do it right. (As the law language states, where the provider was "recklessly indifferent to the accuracy of the claims.") And there are, literally, dozens of other federal statutes and regulations that the government can and does use to attack a provider on whom the feds have set their sights.
Many healthcare companies tread dangerous waters, because they donít realize that the Anti-Fraud and Abuse laws apply to more relationships than the traditional "joint venture." While joint ventures have gained the most notoriety and the greatest scrutiny under the laws, virtually every financial relationship between healthcare companies fall within these anti-fraud rulesí embrace.
Because of this, virtually every healthcare company is forced to deal with these laws. Those who violate them may face substantial money penalties, loss of license, exclusion from Medicare, or criminal charges. Only careful navigation will permit alert healthcare companies to seize competitive market opportunities.
Many financial arrangements between providers will not violate the anti-fraud laws, if they are carefully structured. Also, it is very important realize that the real costs of government scrutiny are the hassles and embarrassments which flow from the investigation, regardless of its outcome. These will cost dearly in time, money and reputation.
Question Two: Do I only have to worry about federal law? Most of my business is private pay.
Answer: State law can dramatically affect your marketing and referral options. Itís easy to focus so much attention on the federal law that the local rules are forgotten. Even knowledgeable healthcare attorneys sometimes forget to pay attention to state laws when assessing an arrangementís kickback risks. Such lapses are dangerous, because as the feds more vigorously pursue healthcare fraud cases, state attorneys general around the country are following suit.
Anti-kickback laws vary from state to state. To complicate matters, the laws in any one particular state often arenít as uniform or organized as the federal Medicare laws. The prohibitions in some state fraud and abuse laws are broader than the federal prohibitions. Some state laws have few or no safe harbors or exceptions, and there usually is very little case law or other guidance available.
Most states have anti-fee-splitting or anti-kickback laws that apply to one or more payor types. While the federal anti-kickback statute prohibits healthcare companies from paying or receiving payments in exchange for government reimbursed services or beneficiary referrals, state laws can apply to patients covered by private health insurance, workersí compensation, and auto insurance.
If you comply with federal anti-kickback and self-referral laws, you can maximize chances that you comply with laws in your state. For example, Pennsylvaniaís workersí compensation anti-kickback regulations protect a business arrangement if it falls within a federal safe harbor or exception.
But not always.
Florida law prohibits referrals to healthcare entities in which the practitioner has an equity interest of at least 10%, excluding the physicianís own practice, real property interests, and interests in publicly-traded corporations. As another example, South Carolina has pursued health organizations under its Unfair Trade Practices Act, with a totally different set of rules.
Question Three: My heart is pure, I am very cautious and conservative in all my dealings, and I am always careful. Isnít that enough?
Answer: In my experience, I have found many misconceptions that plague healthcare companies when deciding which opportunities to pursue. Here are my Seven Deadly Sins of misunderstanding:
Only greedy con men get in trouble. Not true. Healthcare companies with honorable goals also are at risk. They can be inadvertently engaged in illegal activities despite honorable goals. Most of these laws focus on instances of value gained in exchange for referrals or recommendations. Although the purpose of such actions may be for improved clinical care, that doesn't present regulatory scrutiny. Even if the value received is simply an opportunity to perform a legitimate service for a legitimate fee. it may be viewed as a "kickback."
Everybody does it this way so I will not get into trouble. Again, not true. That an activity is common is irrelevant. Also, an arrangement may appear to be the same as that in other practices, but often its fine details make the difference between a plan that passes scrutiny and one that doesn't.
Joint ventures are dangerous but everything else is safe. Not true. Among other risky agreements are those concerning managed care, rentals and space, management or professional service relationships, discount arrangements, or almost any other relationship where a financial arrangement involves the provision of healthcare services. Even though healthcare companies don't intend that such services be tied together, such relationship raises the possibility of scrutiny under the law.
Only the entrepreneur behind the arrangement is at risk; Iím not at risk if I simply "sign on" to someone else's plan. No. The law makes equally culpable all who offer or receive anything of value in exchange for a referral or recommendation. Arguably, healthcare companies may be obligated to report those who make such an offer.
If those offering this arrangement went to all this trouble to put it together, they must have looked into all of these issues, and I donít need to check out the details. No. This is a difficult and shifting area of the law, and many people are insensitive to or ignorant of the issues. In addition, some persons are willing to take more risks than others. The mastermind behind a plan may be willing to take on far more risk than would a healthcare company fully informed about it.
If a healthcare companyís personnel submit a raise claim or otherwise violate the law without the CEOís personal knowledge, the CEO is safe. Not true. In most contexts, management personnel are personally responsible for staff supervision and must be informed about staff membersí activities. They are responsible for all that goes out under their signature or stamp.
If I donít know itís against the law, Iím not in trouble. Sorry, but no. A healthcare company cannot plead that it was ignorant that a financial arrangement violated the law, and that the healthcare company therefore deserves another chance. These laws usually hold that a healthcare companyís knowledge of the details of its financial arrangement constitutes knowledge of the underlying legal issues. A pure heart and clean living will not suffice!
Question Four: How can I make sense of all this? Do you have any general rules or guidelines to keep me out of trouble?
Answer: Here are my "lucky seven" rules for successfully navigating the fraud and abuse waters?
All financial arrangements must be commercially reasonable, for reasons totally unrelated to referrals. Each detail in an arrangement must be independently justifiable and fully consistent with appropriate business decision-making. Reward should follow risk, and payments should reflect fair value to the healthcare company.
All financial arrangements should benefit the patient and/or the third-party payer (Medicare, Medicaid or commercial insurers). Even though most of the anti-fraud laws indicate that the violations can occur regardless of whether the arrangement increases costs or utilization, such excesses usually fuel the governmentís zeal to pursue. The arrangement, therefore, should benefit the community in some wayóimproved care, cheaper care, better "value," or whatever.
KISS. Keep It Simple, Silly. The "trickier" the arrangement appears, the more suspicion it will generate. Remember that the government uses special arithmetic in its investigations. If you have one "questionable" element in your deal, an adequate explanation may well suffice. If you have a second "questionable" element, a second explanation may help. But by the time you must explain the third and fourth ambiguous items, the government will apply its own arithmetic: 1 + 1 + 1 +1 = 10.
Document. The most honorable motives, the most careful evaluation of commercial reasonableness, and the clearest assessment of risk/reward will not help much if documentation is sloppy. By the time government representatives are looking at your arrangements, they are not likely to trust undocumented assertions that your motives were appropriate when the deals were formed. Be sure all financial arrangements are clearly documented and have been reviewed by legal counsel.
Monitor. Healthcare companies must monitor arrangements after they begin. Many activities that start off "safe" subsequently morph into improper reward mechanisms for referrals. For example, a space lease with one provider as landlord and another as tenant may commence with an amount of space which is initially appropriate for the partiesí true needs, but which becomes too much or too little space over time. This space lease will raise anti-kickback concerns when it is not appropriate for the legitimate needs of the parties. I have seen a hospital sublease thousands of square feet from a physician-owned medical office building for the "future" recruitment needs. If handled casually, this sort of "warehoused space" creates a fraud concern, because the original justification (reserving space for an upcoming need) does not reflect reality (that is, the space sits around unused for an inappropriate length of time).
The point is that the government cares about improper activities. It evaluates whether an arrangement is proper based on what the provider is in fact doing, regardless of what the provider claims it intended to do originally. Monitor arrangements carefully.
Donít overreact. I already mentioned the danger of being the proverbial ostrich who buries its head in the ground, ignoring the broad scope of the rules. The converse danger is not to become paralyzed into inaction. A healthcare company who automatically avoids any alliance involving financial benefit, so as to avoid even having to deal with the anti-fraud and self-referral laws, will miss out on many valuable market opportunities. At worst, the healthcare company will be unable to survive in todayís competitive health care climate.
Watch the "traffic light." This is the summary rule. I view these anti-referral laws as a traffic light. Donít pretend the light is green and forge full steam ahead, blind to the dangers of the laws. That course will surely lead to troubleócivil fines, criminal sanctions, etc. On the other hand, donít view the traffic light as being red, urging you to stop all activity. In all likelihood, the rules are too broad to avoid addressing. They cover virtually every financial arrangement.
What I recommend is that you view this traffic light as showing a yellow signal. "Proceed with caution." Identify weaknesses and ambiguities, fix questionable aspects and document motives for everything, and pay attention!
I hope these questions and answers give you some insight and guidance to the importance of rule compliant behavior. Please, please take them to heart. If Big Brother is not watching already, he will be soon. Fight back by removing your diligence and common sense.
LEGAL INSIGHT YOU CAN USE - WHAT YOU NEED TO KNOW TO DEFEND YOURSELF WHEN THE GOVERNMENT COMES KNOCKING!
President, Health Law Center
A team of dark-suited gentlemen stride purposefully into your reception area, and ask to see the person in charge. When you come out to meet the visitors, they announce that they are with the Federal Government -- your carrier's, intermediary's or DMERC's fraud unit, or the United States Attorney's Office, perhaps, or the FBI or the Office of Inspector General -- and that they want to see patient files and other documents. Perhaps they even have a warrant to seize documents and other materials. What do you do?
Providers who think this is a far-fetched scenario which could never happen to them are, to be blunt, naive. Government enforcement efforts are more aggressive and plentiful than ever before. Government scrutiny of possible fraud goes far beyond looking at intentional duplicity by venal healthcare providers. Virtually every provider violates federal or state rules from time to time, frequently inadvertently. Repeated patterns of errors, utilization or coding decisions that vary significantly from normal parameters, and problems caused by other parties with whom you have financial dealings - all of these can lead to focused scrutiny by the government.
If the agents will not sign your notes as the receipt, it is often helpful to follow up the visit with a letter to the official in charge, including a copy of your receipt and noting that the agents were unwilling to sign it at the time of the search.
This will help demonstrate contemporaneously that you have kept a detailed inventory. This is an imperfect solution, and you should try to obtain both sides' signature on the "receipt" whenever possible.
Often, agents executing a search warrant will try to take documents which are outside the scope of an investigation or a search warrant. You (or, hopefully, your attorney if he or she has arrived) should point out that such seizure is outside the warrant, and is inappropriate.
If the agents do not have a court-ordered search warrant or subpoena permitting immediate seizure, they must comply with these refusals. (They may give you a hard time, however. Be polite, but firm.) Even if the agents are executing a search warrant, they still will frequently comply with these requests, as long as they are precise and reasonable. If they persist, however, do not attempt to prevent the seizure. Rather, just make sure that your notes clearly reflect the details of the seizure, for later appeal.
PERSONS EXECUTING THE INVESTIGATIONS WILL OFTEN TRY TO TAKE PRIVILEGED DOCUMENTS. In this case, advise them that the material is subject to attorney-client privilege. This danger also highlights the importance of working with your lawyer to identify and segregate privileged information - before inspection!
If you ask that the materials be kept in a sealed envelope (providing one for them) and maintained separately from the other seized items until the matter can be resolved, the agents will typically comply.
A safer course of action is to keep your privileged materials in dedicated legal files. When you co-mingle business documents and legal documents, it becomes harder to maintain the attorney-client privilege.
Regardless, it is more likely that materials will be taken -- and, often, kept -- if you mix business and legal information.
STEP 4: THE THREE MOST IMPORTANT RULES
Throughout the entire process, it is essential that you help your organization by remembering the three interrelated keys to surviving a government investigation:
∑ Behave in a businesslike manner.
∑ Be courteous.
∑ Shut up!
Later in the process, the "shut up" principle will be replaced by the "prepare-carefully,-explain-well,-and-offer-mitigating-evidence" principle.
HERE'S THE KEY INSIGHT FOR YOU TO REMEMBER: Agents are allowed to look for evidence. They do not require you to confess, explain or annotate. Therefore, don't, don't and don't.
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