Patients for Cash: Kickbacks in Health Care

In October 1972, the U.S. Congress passed landmark legislation that, for the first time, criminalized the use of kickbacks and bribes in health care as misdemeanors. Five years later, Congress upgraded the crimes to felonies, demonstrating the serious nature of the threat to public safety and health that unrestrained greed could have on the medical system. Since then, the Anti-Kickback Statute (AKS) has been a bedrock for ensuring that the health care system is void of any improper arrangements and incentives that could jeopardize the health and safety of patients. 

Health care kickbacks can lead to detrimental consequences for physicians, patients and those involved in the scheme. Overutilization of services may occur, leading to unnecessary medical procedures and treatments. Program costs can increase significantly due to these illicit practices. Through kickback schemes, medical decision-making can become corrupted, as financial incentives can influence treatment choices rather than patient needs. Kickbacks form a secretive, unfair competitive health care environment, creating an imbalanced market.  

What is a Kickback?  

Oxford English Dictionary defines kickback as “a payment made to someone who has facilitated a transaction or appointment, especially illicitly.” The Online Etymology Dictionary indicates that in the mid-1920s, the word became a slang version describing illegal payoffs. Given public concerns about the widespread influence of organized crime and government corruption during that time, kickback became synonymous with underhanded financial activity. 

Kickbacks in the Medical Industry 

According to the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG), “the AKS is a criminal law that prohibits 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.”  

It's a broad and expansive law that has important implications for fraud examiners and auditors. At the heart of the statute is the idea of patient referrals—a form a quid pro quo. If Dr. X refers patients to Lab Y, and Lab Y pays Dr. X in cash for each patient seen by the lab, which is a kickback.  

Liability for kickbacks are severe: those who offer, solicit or receive kickbacks for patient referrals are subject to stiff fines, lengthy jail terms and exclusion from participation in Medicare, Medicaid and other federally funded programs. The financial ramifications include a $50,000 per kickback penalty, as well as treble damages (three times the amount of the kickback itself). In addition, state laws prohibiting similar conduct may be implicated as well, triggering additional sanctions. 

There are “Safe Harbor” provisions that protect certain payment and business practices that could otherwise implicate the AKS; these address personal services and rental agreements, investments in ambulatory surgical centers and payments to bona fide employees but are beyond the scope of this article.  

Case Studies in Kickbacks  

Kickbacks are disguised payments and can be hidden easily, much like other fraudulent activity, in the books and records of a medical practice, provider or ancillary service. Some recent examples may be helpful. 

• In January 2025, a California man admitted to paying kickbacks in connection with a genetic cancer testing regime. The man, who owned and controlled marketing companies, identified Medicare beneficiaries that may be interested in the testing. The man’s company provided personal and medical information for these Medicare beneficiaries to the cancer testing companies, who sent them out to the individuals. Once the tests were completed and returned, other participants in the scheme submitted claims to Medicare for reimbursement—who then paid kickbacks ranging from $1,700 to $2,000 for each test. By using offshore shell companies, sham transactions and circuitous wire transfers between entities, the man and his conspirators were able to conceal a $10 million loss to taxpayers.    
• A company in Puerto Rico settled allegations of kickbacks by agreeing to pay a fine of $15.2 million. In this scheme, the company allegedly provided gift cards to administrative assistants of medical providers to stimulate their referrals to enroll thousands of Medicare beneficiaries in the company’s Medicare Advantage plan. The company entered into a five-year Corporate Integrity Agreement with HHS OIG, taking specific steps for internal control, monitoring and identification of potential misconduct going forward.  
• The owner of a Chicago-based durable medical equipment (DME) company was convicted after a jury trial for defrauding multiple federal health care programs through the illicit use of kickbacks to identify and secure patients for DME equipment. Between 2015 and 2018, the owner illegally acquired patient information through multiple individuals with access to medical histories and information. The group employed deceptive tactics, including tricking patients into agreeing to receive unnecessary or unwanted DME, as well as resorting to aggressive and persistent methods, such as repeated phone calls and faxes to pressure doctors into signing prescriptions for the DME. The scheme participants submitted approximately $87 million in false claims to Medicare, ultimately receiving $23.6 million in fraudulent payments. The owner received a prison sentence of three years, as well as forfeiture of $1.8 million.  

Types of Kickbacks 

Like other corruption schemes, kickbacks come in a variety of shapes and sizes. They can be subtle or obvious, simple or complex, as the examples above indicate. In one case, a lawyer created sham trusts and shell corporations through which he laundered at least $2.7 million in health care kickback proceeds through his law firm’s Interest on Lawyers Trust Account (IOLTA), operating account and a personal bank account to launder and transmit the kickback proceeds to others in the scheme.  

Kickbacks may be discussed as “code words” or other language that is intended to camouflage the true purpose. Forms of kickbacks that auditors and CFEs may encounter include: 

• Lavish expenses: Covering the cost of expensive meals, drinks, luxurious hotel stays and air travel, including improperly paying for continuing medical education or conference attendance. 
• Tangible or monetary benefits: Providing gifts, favors or other items of value, directly to the physician or indirectly to their spouse, children or business associate. 
• Business-related kickbacks: Offering incentives such as “rebates,” free or deeply discounted rent, advertising space or other seemingly legitimate business benefits, typically well below fair market value.
• Disguised payments: Concealing illicit payments as legitimate transactions for goods or services that were never actually provided, including DME, pharmaceutical products, lab tests and others. 

Improperly inducing referrals through illicit payments is a crime that hurts patients and drives up the cost of health care. While many industries use gifts and other benefits to bring in business, in health care the stakes are too high. The U.S. Attorney’s Office in Colorado summarized why deterring and holding accountable those who participate in this misconduct is so important for healthy communities and proper caregiving: “The Anti-Kickback Statute is intended to ensure that medical providers’ judgments are not compromised by improper financial incentives and are instead based on the best interests of their patients.”