Anti-Kickback Statute / Stark Law

A key area of dispute in False Claims Act (FCA) cases based on Anti-Kickback Statute (AKS) violations is what degree of connection plaintiffs must allege between alleged kickbacks and “false claims.” The AKS states that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the FCA].”

The government and relators typically argue that the mere fact that claims were submitted during the period of alleged kickbacks is sufficient. Defendants argue that the law requires plaintiffs to specifically identify claims “resulting from” an alleged kickback – i.e., that there is proof that the alleged kickback caused the referral or recommendation of the item or service contained in the claim. The Third Circuit’s recent decision in United States ex rel. Greenfield v. Medco Health Systems, Inc. articulated a middle of the road approach.  In affirming summary judgment for the defendants, the Court held that to prevail, plaintiffs must establish that a claim submitted to a federal health care program was “exposed to a referral or recommendation” in violation of the AKS.

The relator, a former area vice president for Accredo, a specialty pharmacy that sells blood clotting drugs and provides nursing assistants to hemophiliacs in their homes, filed a qui tam suit alleging that Accredo violated the AKS and FCA in connection with donations to two charitable organizations that assist the hemophiliac community: Hemophilia Services, Inc. (HSI) and Hemophilia Association of New Jersey (HANJ).  During the time Accredo made monetary donations to HSI and HANJ, the HANJ website allegedly listed Accredo as one of four “approved providers” or “approved vendors” and directed users to “remember to work with our HSI [approved] providers.” In 2010, Accredo notified both charities that it was decreasing its donation the following year. In response, HSI allegedly engaged in activities to persuade Accredo to restore its donation level to previous years, including encouraging its members to contact Accredo to protest the funding cut. The relator was involved in purportedly analyzing the return on investment for returning to previous donation levels. After the relator’s report allegedly projected a significant decline in business in New Jersey if donation levels were not restored, Accredo restored the donation level and relator filed his suit.

The government declined to intervene in this case, but the relator continued the litigation. He argued the expansive view: that the donations amounted to kickbacks, and since Accredo certified compliance with the AKS when submitting Medicare claims, the FCA was violated and, therefore, every claim submitted by Accredo was false. The district court granted summary judgment to Accredo.  The district court declined to decide whether the relator had established an AKS violation, but instead held that the relator did not show sufficient evidence of causation of an FCA violation. The district court held that the relator’s evidence that Accredo submitted claims for 24 federal beneficiaries during the relevant time period, by itself, “did not provide the link between defendants’ 24 federally insured customers and the donations.” The court held that “[a]bsent some evidence….that those patients chose Accredo because of its donations to HANJ/HSI,” the relator could not carry his burden.

On appeal, the government argued that the district court erred to the extent it required proof that patients chose Accredo because of the referrals and recommendations. In the government’s view, all the relator needed to establish was the existence of “a claim that sought reimbursement for medical care that was provided in violation” of the AKS.

The Third Circuit affirmed the district court’s ruling, but for different reasons than those offered by the parties, the government, and the district court. The Third Circuit rejected the relator’s and government’s position that the alleged kickbacks tainted all claims as false by virtue of the kickback.  However, the Court declined to read the “resulting from” language in the AKS to require, as advocated by Accredo and found by the district court, that the relator needed to prove the patients purchased prescriptions from Accredo because of Accredo’s donations to HSI and HANJ. Instead, the Court held that the relator “must show, at minimum, that at least one of the 24 federally insured patients for whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation of Accredo by HSI/HANJ in violation of the AKS.” As explained by the Court, “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”

This decision is helpful confirmation that relators and the government cannot simply rely on an alleged kickback to demonstrate that a defendant who submits claims to Medicare, violated the FCA.  Defending this type of allegation should include examination of the evidence relied upon to show the connection between the alleged kickback and the purported false claim.  Whether other courts will follow the Third Circuit’s reasoning or follow the “resulting from” language in the AKS and require a stronger connection between a kickback and claim remains to be seen.  This issue will be a continued subject of litigation in these cases.

In a two-page memorandum, the US Department of Justice (DOJ) announced a broad policy statement prohibiting the use of agency guidance documents as the basis for proving legal violations in civil enforcement actions, including actions brought under the False Claims Act (FCA). The extent to which these policy changes ultimately create relief for health care defendants in FCA actions is unclear at this time. That said, the memo provides defendants with a valuable tool in defending FCA actions, either brought by DOJ or relator’s counsel, that attempt to use alleged noncompliance with agency sub-regulatory guidance as support for an FCA theory.

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As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator. Continue Reading DOJ Issues Memorandum Outlining Factors for Evaluating Dismissal of Qui Tam FCA Cases in Which the Government Has Declined to Intervene

Eventually, any health care organization with an effective compliance program is very likely to discover an issue that raises potential liability and requires disclosure to a government entity. While we largely discuss False Claims Act (FCA) litigation and defense issues on this blog, a complementary issue is how to address matters that raise potential liability risks for an organization proactively.

On August 11, 2017, a group of affiliated home health providers in Tennessee (referred to collectively as “Home Health Providers”) entered into an FCA settlement agreement with the US Department of Justice (DOJ) and the US Department of Health and Human Services Office of Inspector General (OIG) for $1.8 million to resolve self-disclosed, potential violations of the Stark Law, the Federal Anti-Kickback Statute, and a failure to meet certain Medicare coverage and payment requirements for home health services. This settlement agreement underscores the strategic considerations that providers must weigh as they face self-disclosing potential violations to the US government. Continue Reading DOJ Settlement with Home Health Providers Underscores Strategic Considerations for Self-Disclosure

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set.  The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA.  42 U.S.C. § 1320a-7b(g).  Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of “remuneration” in return for, or to induce, the referral of federal health care program-reimbursed business.  Remuneration can be anything of value and can be direct or indirect.  In interpreting the “in return for/to induce” element, a number of federal courts across the country have adopted the “One Purpose Test,” in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration. Continue Reading Recent Developments on the Fair Market Value Front – Part 1

A hospital system in Missouri recently agreed to settle with the US Department of Justice (DOJ) for $34 million to resolve claims related to alleged violations of the Stark Law. On May 18, 2017, DOJ announced a settlement agreement with Mercy Hospital Springfield (Hospital) and its affiliate, Mercy Clinic Springfield Communities (Clinic). The Hospital and Clinic are both located in Springfield, Missouri. The relator’s complaint was filed in the Western District of Missouri’s Southern Division on June 30, 2015.

The complaint’s allegations center on compensation arrangements with physicians who provided services in an infusion center. According to the complaint, until 2009 the infusion center was operated as part of the Clinic, and the physicians who practiced at the infusion center shared in its profits under a collection compensation model. In 2009, ownership of the infusion center was transferred to Mercy Hospital so that it could participate in the 340B drug pricing program, substantially reducing the cost of chemotherapy drugs. The complaint alleges that the physicians “expressed concern about losing a substantial portion of the income they had received under the collection compensation model as a result of the loss of ownership of the Infusion Center.” In response, the Hospital allegedly assured them that they would be “made whole” for any such losses. While it doesn’t provide precise details, the complaint alleges that the Hospital addressed the shortfall by establishing a new work Relative Value Unit (wRVU) for drug administration in the infusion center, which now operated as part of the Hospital. The value of this new wRVU was allegedly calculated by “solving for” the amount of the physician’s loss and “working backwards from a desired level of overall compensation.” Physicians were able to earn the wRVU for the patients they referred to the infusion center. The complaint alleges that the drug administration wRVU rate was 500 percent of the comparable wRVU for in-clinic work. In its announcement of the settlement agreement, DOJ characterized the compensation arrangement as being “based in part on a formula that improperly took into account the value of [the physicians’] referrals of patients to the infusion center operated by [the Hospital].” Continue Reading Physician Compensation Scrutiny Continues in Recent FCA Settlement

On May 31, 2017, the US Department of Justice announced a Settlement Agreement under which eClinicalWorks, a vendor of electronic health record software, agreed to pay $155 million and enter into a five-year Corporate Integrity Agreement to resolve allegations that it caused its customers to submit false claims for Medicare and Medicaid meaningful use payments in violation of the False Claims Act.

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This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.

Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system. Continue Reading A Hospital’s Deserving Stark and AKS Victory—But At What Cost?

In a case of first impression, a federal court found that the federal physician self-referral law’s (Stark Law) requirement that financial arrangements with physicians be memorialized in a signed writing could be material to the government’s payment decision. This case raises troubling questions about applying the False Claims Act (FCA) to what many in the industry consider “technical” Stark issues, especially given the Supreme Court’s description of the materiality test as “demanding” and not satisfied by “minor or insubstantial” regulatory noncompliance.

United States ex rel. Tullio Emanuele v. Medicor Associates (Emanuele), in the US District Court for the Western District of Pennsylvania, involves Medicor Associates, Inc., a private medical group practice (Medicor), and Hamot Medical Center’s (Hamot) exclusive provider of cardiology coverage. Tullio Emanuele, a qui tam relator and former physician member of Medicor, alleged that Hamot, Medicor, and four of Medicor’s shareholder-employee cardiologists (the Physicians) violated the FCA and Stark Law because Hamot’s multiple medical director compensation arrangements with Medicor failed to satisfy the signed writing requirement in the Stark Law’s personal services or fair market value exceptions during various periods of time. The US Department of Justice declined to intervene in the case, but filed a statement of interest in the summary judgment stage supporting the relator’s position. Continue Reading Is the Stark Law’s “Signed Writing” Requirement Material to Payment: One Federal Court Says Yes

On March 20, 2017, the US District Court for the Southern District of Mississippi denied a motion to permanently seal the record of previously dismissed False Claims Act (FCA) claims.  The three relators, who initially brought the claims in US v. Apothetech Rx Specialty Pharmacy Corp., claimed they would face potential reputational damage and retaliatory actions if the case was not permanently sealed. The court ultimately held, however, that such “generalized apprehensions of future retaliation” were not enough to overcome the strong public right of access to judicial proceedings.

The underlying qui tam complaint was initially filed on August 14, 2015, and alleged the defendants engaged in a fraudulent scheme of improperly compensating independently contracted sales representatives for referrals. The relators voluntarily dismissed the complaint a year later in August 2016. Upon dismissal, however, the court temporarily sealed all case records related to the case to permit the relators time to file the present motion to seal.  Continue Reading Relators Denied Permanent Seal on FCA Case Record after Voluntary Dismissal