State and federal prohibitions of referral fees have long plagued the health care sector because their broadly worded provisions threaten established and socially valuable business arrangements. Congress has recently instructed the Department of Health and Human Services to issue regulations that clarify the scope of the most threatening of these prohibitions, the Medicare and Medicaid felony referral fee statute. This article examines three possible analytical models for imposing a limiting construction on referral fee statutes by testing the models against three beneficial practices that the statute jeopardizes: physician recruitment, fee discounting, and efficiency bonuses. The article recommends primary reliance on an earned/unearned analysis that detects a prohibited referral fee by asking whether the fee is fully earned by legitimate, nonreferral services.

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