Circuit Court Affirms Payments for Referrals Made to Employees are Protected by the AKS Safe Harbor

By and on August 24, 2018

On August 7, 2018, the 11th Circuit Court of Appeals affirmed a ruling by the United States District Court for the Southern District of Florida dismissing a qui tam suit against the AIDS Healthcare Foundation, Inc. (AHF), finding that the payments made to AHF employees for referring patients to AHF were protected by the employment safe harbor of the federal Anti-Kickback Statute (AKS).

In Jack Carrel, et al. v. AIDS Healthcare Foundation, the relator claimed that AHF, a nonprofit organization that provides medical services to patients with HIV/AIDS, paid kickbacks to employees in exchange for referring HIV-positive patients for health care services billed to federal health care programs in violation of the AKS and both the Florida and federal False Claims Acts (FCA). The relators, each former AHF directors or managers, specifically cited two allegedly representative false claims in which an employee was paid $100 for referring patients to AHF for completing follow up clinical services that were billed to the Ryan White Program. The Department of Justice and the State of Florida declined to intervene.

In response to AHF’s initial motion to dismiss on May 8, 2015, the district court dismissed all but two of the relators’ claims for lack of particularity, but permitted the claims related to payments to employees for referrals to proceed into discovery. In June 2017, after the conclusion of discovery, the district court granted summary judgment to AHF on the remaining two claims based on the applicability of employee safe harbor. Under the AKS employee safe harbor (42 U.S.C. § § 1320a-7b(b)(3)(B); 42 C.F.R. 1001.152(i)), the definition of “remuneration” excludes “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.” 

Notably, the United States filed a statement of interest in support of the AHF’s motion to dismiss, explaining that it had “a significant interest in the proper interpretation and correct application of the False Claims Act … and the Anti-Kickback Statute” and that AHF had correctly interpreted the law. It maintained that “the Ryan White Program … explicitly includes referrals to appropriate providers as covered services,” and that the relevant “statutes and regulations do not restrict grant recipients … from paying employees to refer patients needing medical care to that same grant recipient if, as here, it is an otherwise appropriate Ryan White provider.”

In reviewing the district court’s decision, the 11th Circuit considered the text of the FCA, the AKS and the Ryan White Act, and determined that AHF was entitled to pay its employee for referring patients to its services. Specifically, the court noted “the employee exemption covers ‘any amount paid by an employer to an employee’ without specifying the terms, method, or frequency of payment.” Furthermore, the Ryan White Act treats referrals as a covered service and requires only that referrals be made to an “appropriate provider.” Thus, the 11th Circuit confirmed that the payments to employees for referrals were permitted under the applicable statutes.

The 11th Circuit also affirmed the district court’s earlier dismissal of the relators’ other claims for failure to plead with sufficient particularity, stating that “speculation that false claims ‘must have been submitted’ is insufficient,” as well as the district court’s decision to deny the relators leave to file a fourth amended complaint.

Drew Elizabeth McCormick
Drew Elizabeth McCormick maintains a general health industry and regulatory practice. Drew advises health care clients on a wide variety of health care regulatory issues, including Medicare and Medicaid regulations, the Federal Anti-Kickback Statute, Ethics in Patient Referral Law, False Claims Act and Health Insurance Portability and Accountability Act (HIPAA), as well as state fraud and abuse laws, privacy laws, licensure regulation, research regulation, and health care compliance matters. Drew also has experience counseling clients who are undergoing government audits and investigations. Read Drew Elizabeth McCormicks' full bio.

Tony Maida
Tony Maida counsels health care and life sciences clients on government investigations, regulatory compliance and compliance program development. Having served as a government official, Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal and state Anti-Kickback and Stark Laws and Medicare and Medicaid coverage and payment rules. He represents clients in False Claims Act (FCA) qui tam matters, government audits, civil monetary penalty and exclusion investigations, and Centers for Medicare and Medicaid Services (CMS) suspension, and revocation actions, negotiating and implementing corporate integrity agreements, and making government self-disclosures. Read Tony Maida's full bio.