The Anti-Kickback Statute (“AKS”) has long been one of the federal government’s most powerful tools when it comes to healthcare fraud and abuse. Not only is the AKS a felony statute, imposing a sentence of up to ten years in prison per violation, but a violation of the AKS can also lead to significant civil liability under the False Claims Act (“FCA”) (including treble damages and per claim penalties), as well as serious administrative sanctions up to and including exclusion from federal healthcare programs. In other words, it is crucial that healthcare providers, and everyone else in the healthcare industry, understand the AKS and what it prohibits.
Despite the fact that the AKS is one of the most utilized statutes in the government’s broad arsenal, it is also one of the most misunderstood. Having defended hundreds of cases that included allegations of AKS violations, ranging from civil to criminal to administrative, my experience suggests that if you ask most healthcare providers or others in the healthcare industry what the AKS prohibits, assuming they know at all, they will respond with something like this: “it says you cannot pay doctors for referrals.” And while that, of course, is correct, it is a greatly oversimplified, and in fact incomplete, reading of the AKS. In reality, the AKS prohibits a lot more than simply paying a doctor for referrals.
Let’s start with the text of the statute itself. On the “payee” side, the AKS prohibits knowingly and willfully soliciting or receiving –
[A]ny remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind –
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 health care program, or
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 a Federal health care program[.]
Similarly, on the “payor” side, the AKS prohibits knowingly and willfully offering or paying any remuneration –
to refer 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 health care program, orto purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,
As is clear from the text of the statute itself, the AKS prohibits a lot more than simply paying a doctor for a referral.
The textual breadth of the AKS is made worse by the Department of Justice’s broad application of the statute in practice. Take, for example, the case of Floyd Calhoun “Cal” Dent III and his company, BlueWave. BlueWave was a marketing company that performed work for several clinical laboratories under written marketing contracts. In exchange for providing marketing services to these laboratories (i.e., marketing the labs’ services to various physician groups similar to how a sales representative for a pharmaceutical company would market the company’s drugs to physicians), the laboratories would pay BlueWave a commission equal to a certain percentage of the revenue that the laboratory received for the resulting lab tests, including those reimbursed by federal healthcare programs. BlueWave and its owner, Mr. Dent, would then turn around and pay the individual sales reps on the same commission basis.
For those who are not familiar with the breadth of the AKS, such an arrangement likely would not cause much concern. After all, commission-based payments to salespeople are extremely common over a wide variety of industries, so why should this context be any different?
The DOJ and federal courts, however, take a very different view. In 2015, the DOJ filed a civil FCA suit against Mr. Dent, alleging that he violated the AKS (and therefore the FCA) by accepting these commissions from the laboratories, and again by paying his sales representatives on the same basis. Using the text of the AKS itself, the DOJ argued that Mr. Dent violated the statute when he received and paid remuneration in order to “arrange for or recommend the ordering” of items reimbursed by a federal healthcare program.
After a trial, a jury found that Mr. Dent violated the AKS and the court eventually entered a judgment of $114 million, which was upheld by the Fourth Circuit Court of Appeals.
This is just one of many cases that illustrates the breadth of the AKS and the reality that business arrangements that are common in just about every other industry could expose those in the healthcare industry to significant liability, both civil and criminal. Other examples include:
- A Durable Medical Equipment (DME) supplier paying for Medicare beneficiary “leads” in order to market their products to these individuals;
- A telehealth company paying a physician to review and approve orders for DME, laboratory services, or other items or services that are reimbursed by a federal healthcare program;
- A physician practice receiving payment from a clinical laboratory in order to reimburse the practice for the salary paid to a phlebotomist whose job it is to collect and process urine samples being sent to the laboratory for testing.
These are just a few of countless examples of arrangements that may not, on their face, appear to be problematic, but that the DOJ views as potentially violative of the AKS.
Thankfully, there are exceptions to the AKS’ broad prohibitions, in the form of “Safe Harbors.” These Safe Harbors cover various types of arrangements that the federal government has deemed, in its infinite wisdom, acceptable, including but not limited to personal services contracts, rental arrangements, and bona fide employment arrangements. It is important to note, however, that these safe harbors are narrowly construed, and, in the context of litigation, the burden is on the provider to prove that the Safe Harbor applies. Even where a provider can make such a showing, it is often after years of investigation and litigation, resulting in significant legal fees and reputational damage in the process.
Cases like those of Mr. Dent and BlueWave illustrate the importance of vetting any and all arrangements that in any way affect federal healthcare program business through healthcare counsel prior to entering into any such arrangement. While doing so might be frustrating in that it slows things down and, of course, costs money, the cost and interruption of doing so will not hold a candle to the cost and interruption of a government investigation, or worse.
The attorneys at Chilivis Grubman represent healthcare providers of all types and sizes in connection with government investigation and litigation, both civil and criminal, including cases involving the AKS and the FCA. If you need assistance with such a case, please contact us today.