No Time to "Kick Back" and Relax
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Of the $5.6 billion recovered in fraud by the United States Department of Justice last year, more than half ($2.9 billion) was attributed to healthcare fraud.1 The Obama Administration has greatly expanded the use of Medicare Fraud Strike Forces, specialized teams of agents and prosecutors who focus on identifying healthcare fraud. The government reports that for every dollar spent on such enforcement efforts, it has recovered seven dollars.2
The costs related to healthcare reform, coupled with the growing need and demand for medical services due to America’s aging population, make it easy to see why the healthcare sector’s importance to the overall economy will likely increase even further. As federal programs such as Medicare and Medicaid continue to experience increasing costs, those filing claims under federal healthcare programs can expect regulators to be on the alert for, and proactively pursue, potential fraud and abuse. Indeed, in light of the government’s recent successful enforcement efforts, healthcare fraud and abuse is an increasingly high enforcement priority. The increase in enforcement activity may also be attributed to claims made by whistleblowers (i.e., qui tam “relators”) that can bring actions on behalf of the government under provisions of the False Claims Act.
Healthcare fraud can take many forms, from illegal prescription drug sales to overbilling for services. Yet of the enforcement actions taken by the government last year, a large portion involved kickbacks.
At first blush, it might seem self-evident to point out that kickbacks are considered a form of healthcare fraud. Arguably, the healthcare industry is one of the most highly regulated industries in the United States and anti-kickback regulations have existed for years. Yet the sheer magnitude of settlements paid and kickback cases prosecuted in 2011, many involving seemingly sophisticated industry players, suggests that an examination of recent commercial activities that have given rise to such prosecutions is warranted.
THE LAW
Although an in-depth analysis of the applicable law is well beyond the scope of this paper, a brief overview of the anti-kickback legal framework facing the healthcare industry is instructive.
The federal government began to target kickbacks in the healthcare industry as early as the 1970s.3 Since that time, additional federal laws have been enacted to address healthcare fraud and abuse, and these and other laws have been frequently cited in kickback claims. Among them are the Federal Anti-Kickback Statute (“AKS”), the False Claims Act, and the Stark Law.
The Federal Anti-Kickback Statute (42 U.S.C . §1320a-7b) is a criminal statute that prohibits knowing or willful solicitation or acceptance of certain remuneration to induce recommendations for health services which are reimbursable by the US government. The statute provides for criminal penalties for certain acts impacting Medicare and state healthcare (e.g., Medicaid) reimbursable services. Specifically, Section 1320a-7b(b) provides:
(1) whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind - (A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal healthcare program or (B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under Federal healthcare program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.4
Section 6402 (f) (1) of the Patient Protection and Affordable Care Act (“PPACA”) of 2010, among other matters, clarified that claims submitted in violation of the AKS are “false and fraudulent” under the False Claims Act.5; The False Claims Act (“FCA”) prohibits the knowing submission of false or fraudulent claims to the government for payment and also authorizes “qui tam “ suits, or “whistleblowers” to bring an action on behalf of the US government. The government has used the FCA to recover nearly $6.6 billion over the past three years in cases involving fraud against federal healthcare programs.6 Many of these cases involved alleged kickbacks.
Another law designed to protect Federally funded healthcare programs from fraud and abuse is the Stark Law, officially known as the Physician Self-Referral Law (Social Security Act § 1877; 42 U.S.C. § 1395nn). The Stark Law prohibits physicians from referring Medicare patients for the furnishing of certain types of healthcare services (called “designated health ser vices” or “DHS”)7 to an entity with which the physician or a member of the physician’s immediate family has a financial relationship. It complements the AKS, serving as a means of preventing healthcare providers from taking actions for the purpose of financial benefit to themselves rather than the benefit of a patient.
Each of these laws is complex, and there exists extensive case law and other guidance regarding such laws. For example, there exist regulatory safe harbors to the AKS. In essence, such safe harbors immunize certain payment and business practices that may otherwise be implicated by the AKS from prosecution under the statute. Additionally, the Office of Inspector General has issued numerous Advisory Opinions with respect to the acceptability of certain practices.
ANALYSIS OF RECENT KICKBACK CASES
Notwithstanding the availability of legislative history, case law and other interpretations of anti-kickback aspects of the healthcare fraud and abuse laws, experienced healthcare organizations and providers continue to find their business practices challenged as forms of kickbacks.
In 2011, allegations involving kickbacks focused on drug marketing, improper payments to physicians, and, illegal patient referrals, among others. Consider a sampling of the settlements that involved kickbacks last year.
1. A large pharmaceutical manufacturer settled claims with the Department of Justice related to False Claims Act allegations in connection with the marketing of one of its drugs. The company allegedly paid healthcare providers for the purpose of inducing them to prescribe a particular drug.
2. A medical device manufacturer reached a settlement related to payments that were made to physicians by the company allegedly in connection with inducing them into using its devices in treatment of their patients.
3. An imaging facility allegedly submitted false claims to Medicare by entering into certain leasing and professional services agreements with referring physicians and physician groups in violation of kickback laws. In the case of the pharmaceutical manufacturer, the settlement resolved allegations that the company submitted false claims to federal healthcare programs including Medicare and Medicaid for the payment of one of its prescription drugs. The company allegedly made claims that were “tainted by payments to healthcare professionals in the form of promotional speaking engagements; speakers’ training, and advisory and consultant meetings; expense reimbursement; independent medical and educational grants; sponsorships and charitable contributions.”8 The company settled, resolving False Claims Act allegations and denying wrongdoing. It contended that there were no allegations of patient harm or of conduct that adversely affected patient care.9
Allegations involving the medical device manufacturer centered on arrangements with physicians who used its devices. The settlement resolved allegations contained in two whistleblower lawsuits filed under the False Claims Act.10 The manufacturer was accused of having violated the FCA through its payments to physicians for device registries and post-market studies regarding the clinical performance of its medical devices. In challenging this practice, the government alleged that the manufacturer’s payment for the studies and registries represented improper kickbacks intended to encourage physicians to use the manufacturer’s medical devices. In its settlement, the company made no admission that any studies were improper or unlawful.11
Similarly, the government asserted that certain business practices of the above-mentioned imaging facility company violated anti-kickback provisions of the law. Specifically, the government challenged the facility’s owners’ practices of providing a physician group with free use of equipment and a facility in excess of the time and payments contemplated in the lease agreement between the facility and the group.
These cases reflect the government’s tough stance on business practices that it considers to be kickbacks. In general, the Department of Justice has focused its attention to the following areas:
a) Payment rendered to physicians in connection with prescribing a specific drug or using a particular device in patient care.
b) Payments received for patient referrals.
c) Providing services or benefits in excess of agreed-upon contracts (e.g., free or discounted products or services)
However, while these may sound like simple concepts, as is evident from the above case studies, the government challenges and prosecutes as kickbacks business practices going well beyond a direct payments for prescriptions, device usage and referrals.
To date, healthcare entities have sought to defend themselves against these allegations on the grounds that the alleged actions were part of their normal course of business. Some have asserted that the primary motive of the questioned commercial arrangement was legitimate (or otherwise exempt from AKS) and, thus, it should not be viewed as a kickback. Defendants have further argued that in instances of alleged kickbacks, that there were, in fact, no adverse effects on the quality of patient care. However, oftentimes these defenses have not been successful nor prevented the organization from incurring substantial penalties.
CONCLUSION
The healthcare industry continues to face a great deal of scrutiny for potential fraud and abuse. A wide variety of commercial arrangements have been challenged as violating the anti-kickback provisions of the law. The government has demonstrated an intent and ability to aggressively pursue perceived healthcare fraud and abuse. The False Claims Act and other legislation encourages whistleblowers to report allegations of kickbacks.
In this environment, it is important for those in the healthcare industry to stay abreast of recent developments in the area of anti-kickback enforcement. As new commercial arrangements are designed or existing arrangements are evaluated, companies should fully evaluate the underlying economics and business purposes of such arrangements. In evaluating the legality of such arrangements, it may be advisable to consult with experienced outside counsel and other professionals as to whether the transactions likely comply with applicable anti-kickback laws governing the healthcare industry.
END NOTES
1 Department of Health and Human Services Office of Inspector General Semi-annual Report to Congress, Fall 2011.
2 Press release, The White House, December 13, 2011, http://www.whitehouse.gov/the-press-office/2011/12/13/campaign-cut-waste-vice-president-biden-announces-us-will-halt-productio
3 “Beyond the Healthcare Kickback Statute: New Entities, New Theories, in Healthcare Fraud Prosecutions,” Journal of Health Law Vol. 40 No. 2, James G. Sheehan and Jesse A. Goldner and Social Security Amendments of 1972, P.L. 92-603, § 242(b), (c), 86 Stat. 1329, 1419–1420; Also Prosecuting and Defending Health Care Fraud Cases, Michael K. Loucks and Carol C. Lam, 145 BNA Books 2001).
4 42 U.S.C. §1320a-7b
5 Section 6402(f )(1) of PPACA
6 News release, United States Department of Justice, Dec. 19, 2011 http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html
7 Social Security Act § 1877; 42 U.S.C. § 1395nn
8 News release, USDOJ, May 4, 2011,http://www.justice.gov/opa/pr/2011/May/11-civ-565.html
9 News release, USDOJ, May 4, 2011, http://www.justice.gov/usao/md/Public-Affairs/press_releases/press08/SeronotoPay44.3MilliontoResolveFalseClaimsActAllegations.html and Serono press release, May 4, 2011, http://www.businesswire.com/news/home/20110504006869/en/EMD-Serono-Announces-Civil-Settlement
10 News release, USDOJ, Dec. 12, 2011, http://www.justice.gov/opa/pr/2011/December/11-civ-1623.html
11 “Medtronic Agrees to $23.5M Kickback Settlement,” Bloomberg News, Dec. 12, 2011 and Medtronic press release, Dec. 12, 2011, http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1323731263053&lang=en_US