[author: Jaclyn Jaeger]
What is healthcare compliance?
Healthcare compliance is the process of following the laws, regulations and ethical standards that govern the healthcare industry. It ensures that healthcare organizations protect patient safety, maintain data privacy and operate with integrity in areas such as billing, referrals, and patient care.
A major part of compliance involves understanding and adhering to the healthcare compliance laws that set these standards. Failure to comply can lead to fines, penalties, reputational damage, and even exclusion from federal healthcare programs.
For compliance professionals, there are several essential healthcare compliance laws to be familiar with. Covered below are five of the most critical regulations shaping compliance in the healthcare industry today.
Why healthcare compliance laws matter
As with any industry, it’s essential to stay on the right side of compliance laws and regulations, and the healthcare industry is no exception. A failure to comply with the myriad healthcare laws and regulations that exist carries risks not only for patients’ care and safety, but also exposes the healthcare organization to hefty fines, sanctions~,~ and reputational damage.
An effective compliance program in the healthcare industry applies to all types of healthcare organizations, including hospitals, managed care providers and other medical facilities, pharmacies, pharmaceutical companies, laboratories, and physicians.
What are the five essential healthcare compliance laws?
The following are five essential healthcare laws that compliance professionals in the healthcare industry should familiarize themselves with, if they have not done so already.
Read on for more detail on each healthcare law, and what your organization needs to do to comply.
1. HIPAA compliance basics
As one of the most critical healthcare compliance laws, the Health Insurance Portability Accountability Act (HIPAA) of 1996 establishes federal standards for protecting patients’ sensitive health information from disclosure without patient consent. To implement the HIPAA requirements, the U.S. Department of Health and Human Services published the following two additional rules:
- HIPAA Privacy Rule: Establishes standards addressing the use and disclosure of protected health information (PHI) by healthcare providers, health plans~,~ and healthcare clearinghouses.
- HIPAA Security Rule: Establishes standards to protect individuals’ electronic PHI that is “created, received, used, or maintained by a covered entity.” The Security Rule requires administrative, physical and technical safeguards to ensure the confidentiality, integrity and security of electronic PHI.
When a covered entity uses the services or activities of a “business associate,” as defined by the Privacy Rule, the covered entity must impose specified written safeguards for the individually identifiable health information used or disclosed by its business associates in a “business associate contract.” The Privacy Rule also contains standards for individuals’ rights to control how their health information is used.
Civil and criminal penalties for HIPAA Privacy Rule violations vary, depending on several factors, such as whether the covered entity knew or should have known of the failure to comply, or whether the covered entity’s failure to comply was due to willful neglect. Under HIPAA, criminal penalties could result in fines of up to $250,000 and 10 years in prison for “disclosing or obtaining health information with the intent to sell, transfer or use it for commercial advantage, personal gain, or malicious harm.”
2. HITECH Act
The Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 makes up part of the American Recovery and Reinvestment Act of 2009, an economic stimulus package introduced under the Obama administration. The stated aim of the HITECH Act is to promote the “widespread adoption of health information technology,” including electronic health records (EHRs), “to support the electronic sharing of clinical data among hospitals, physicians, and other healthcare stakeholders.”
To encourage the adoption and use of EHRs, the HITECH Act introduced financial incentives for healthcare providers, but it also strengthened enforcement of the HIPAA Privacy and Security Rules and emphasized the importance of healthcare compliance laws by, among other things, establishing a breach notification requirement for non-encrypted health information and significantly increased civil monetary penalties for violations.
3. Anti-Kickback Statute (AKS)
The Anti-Kickback Statute (AKS) is a criminal law prohibiting the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by the federal health care programs. Remuneration includes anything of value and can take many forms, including money, referrals, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies. Both the payers of remuneration and those who solicit or receive remuneration can be held liable.
Criminal penalties and administrative sanctions for violations of the AKS include fines, imprisonment, and exclusion from participation in federal healthcare programs. Physicians who pay or accept remuneration also could face penalties of up to $50,000 per kickback, plus three times the amount of the remuneration. These strict penalties highlight why the AKS is considered a cornerstone among key healthcare compliance laws for organizations.
4. Stark Law
The Stark Law, also known as the Physician Self-Referral Law, applies when a physician makes a referral for certain “designated health services” (DHS) payable under Medicare to an entity with which the physician or an “immediate family member” has a “financial relationship,” such as direct or indirect ownership or investment interests.
The Stark Law designates a wide and complex range of items and services as DHS. Additionally, it establishes several complex regulatory exceptions for what constitutes a financial relationship, such as referrals for in-office ancillary services and referrals to other physicians in the same group practice.
The Stark Law further prohibits entities from filing claims with Medicare or billing another individual, entity, or third-party payor for prohibited referrals. As a strict liability statute, the Stark Law establishes severe civil monetary penalties and sanctions for violations. Each claim for a service that is knowingly made in violation of the Stark Law could result in penalties of up to $15,000. Denial of Medicare payments, required refunds of overpayments, and potential exclusion from all federal healthcare programs may also result.
Any physician or other entity that enters into an arrangement or scheme, such as a cross-referral arrangement, could be subject to a civil money penalty of up to $100,000 for each such arrangement or scheme. Healthcare providers could additionally face civil false claims under the False Claims Act (FCA) that are brought by whistleblowers.
5. False Claims Act
The False Claims Act (FCA) makes it illegal to knowingly submit, or cause to submit, false or fraudulent claims to the government. In the context of the healthcare industry, the FCA makes it illegal to submit for payment false or fraudulent claims to Medicare or Medicaid and is one of the most frequently enforced healthcare compliance laws.
The FCA does not require an intent to defraud. It defines “knowing” to include not only actual knowledge but also instances of deliberate ignorance or reckless disregard of the truth or falsity of the information.
Filing a false claim could result in fines of up to three times the government’s damages, plus a penalty that is adjusted for inflation, so fines can be significant. Submitting false or fraudulent healthcare claims could also result in imprisonment and criminal fines. Violators may also simultaneously face liability under the AKS or Stark Law.
According to the Department of Justice, settlements and judgments for FCA violations exceeded $2.9 billion in the fiscal year ending September 30, 2024. Of that amount, over $1.67 billion concerned matters involving the healthcare industry, “including managed care providers, hospitals and other medical facilities, pharmacies, pharmaceutical companies, laboratories, and physicians,” the DOJ stated.
The FCA also contains incentives for whistleblowers (called “relators”) to file lawsuits alleging false claims on behalf of the U.S. government (called “qui tam” actions). A private citizen who successfully brings a qui tam action typically receives a portion of the recovery ranging between 15% and 30%.
Qui tam actions comprise a significant percentage of FCA cases. According to the DOJ, whistleblowers filed a record 979 qui tam actions in fiscal year 2024, breaking the prior record set in 2013. In the healthcare industry, potential whistleblowers could include current and former hospital employees, patients, industry competitors, or others.
