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How Did We Get Here? An Exploration Of Anti-Kickback Statute Case Studies

By Ronald Chapman II, Esq.

The Anti-Kickback Statute 42 USC 1320a-7b(b) prohibits any remuneration of any form or any kind in exchange for referrals to Federal Health Care Programs. An important case in this area is United States v. Universal Trade & Industries (UTI) which discusses the mens rea, or intent requirement for a criminal violation of the Anti-Kickback Statute. This case involves a transaction between a lab and a physician where the physician was paid a percentage of revenue which was treated as a salary. The lab was indicted, and the essential question was whether the lab had a “specific intent.” The Court ultimately found that there was sufficient intent because UTI offered to set up the lab, and suggested the use of its corporation to pay the fees. We can compare this case to United States v. Hanlester in which the Court found that there was no specific intent for a Kickback.

United States v. Greber, 3rd Cir. is really the landmark Anti-Kickback case and is the case that formulated the “one purpose test.” The Court in Greber determined that there may be multiple purposes for Kickback, but if even one purpose is to induce referrals, then it constitutes a Kickback. Dr. Greber was a cardiologist and paid referring physicians a fee for Holter Monitor tests. Physicians would get 40% of the total payment, or $65. The problem is that Dr. Greber was a cardiologist and was the one who should have been interpreting the tests. The government presented evidence of specific intent by way of deposition where Dr. Greber admitted that if he did not provide a fee, the physicians would not have referred to him. The government also claimed that some services were not medically necessary. Dr. Greber argued that the interpretation of the test was a legitimate purpose, but the Court disagreed.

There are many examples of relationships that could violate the “one purpose” test:

  • Could be paid for services rendered
  • Compensation of sales agents
  • Provision of pricing terms
  • Joint ventures
  • Rental of space
  • Purchase of services

Physicians and other health professionals must be very careful in engaging in the transactions above to avoid violating the Anti-Kickback Statute.

Lab relationships frequently trigger Anti-Kickback issues. In United States v. Kats, THC labs collected blood and urine samples that were sent to a tech lab to conduct the test. The tech lab billed THC labs, and THC labs billed third party payers. 42 USC 1320a-7b(b). Kats was convicted but challenged the jury instructions. The Court applied Greber and found a Kickback.

The Anti-Kickback statute can also be implicated when Kickbacks are not paid in cash but paid in favors or other services. In United States v. Bay State, Mr. Felci was employed by Quincy Hospital as a contract administrator. Quincy Hospital selected Bay State as its ambulance provider in 1981. Quincy Hospital did not pay Bay State, and Bay State billed patients and payers for services. Mr. Felci administered the contract for Quincy Hospital. The issue here is the relationship between Bay State & Mr. Felci. After the contract was awarded by Mr. Felci to Bay State, Bay State hired him as a consultant, bought him a car, paid for him to attend conferences, paid for additional work related to promotion of the ambulance service, paid him for feasibility studies, and finally, he was compensated for computer work. Interestingly, Mr. Felci did not vote for renewal. Regardless, the government said that all payments made to Mr. Felci were financial inducements for the 1984 contract. Bay State argued that they were fair compensation. The Court of Appeals stated that the gravamen of fraud is inducement and the opportunity to earn a living may be an inducement, and that the jury instructions did not constitute reversible error. The defendants also claimed a consulting “safe harbor” which was also rejected by the Court. Finally, the Court found that the Anti-Kickback Statute was not unconstitutionally vague and there is a “knowing” and “willful” requirement.

Attorneys can also be implicated in Anti-Kickback violations as a result of bad advice to their clients. Two important cases here are United States v. McClatchey and United States v. LaHue. In 1985, Baptist Hospital offered the LaHue brothers $75,000 to move patients to Baptist Hospital. Baptist was initially interested in purchasing the hospital but decided to pay $75,000 in consulting fees instead and paid these fees until 1991. The hospital was later sold and during the due diligence phase, the attorneys determined that the contract between the hospital and the LaHue brothers was potentially problematic. The attorneys began re-structuring the contract post-1991, and the contract ultimately did not require the LaHues to preform work for the $75,000. The administrators, attorneys, and the LaHue brothers were all indicted. The case proceeded to trial and at the conclusion of the case, counsel for the two attorney defendants moved for a directed verdict and the District Court Judge granted the motion. Later, the Judge also entered an order of acquittal against Mr. McClatchey and the other administrators.

Attorneys should always provide advice in writing and be prepared to properly advise clients of the implications of the Anti-Kickback Statute. The Government appealed the McClatchey ruling and determined that the LaHues had not performed services up to that point, and that Baptist would not have an interest in obtaining any other services from LaHues. Therefore, the Court determined that the jury could infer that no one really intended the contracts to be a true commercial arrangement. McClatchey also raised an advice of counsel defense where Mr. McClatchey did not adhere to his attorney’s advice.

Price discounts can also lead to Anti-Kickback issues – this includes a waiver of co-pays, price discounts, pre-payment discounts, and bulk discounts. In United States v. Shaw, Mr. Shaw was the president of NMC Products that provided medical products to providers. The government alleged that NMC offered discounts on dialysis supplies that were tied to referral of lab tests to sister lab companies. The supplies were covered under the dialysis composite rate. Lab tests were separately billable to Medicare. The allegations were that Mr. Shaw induced the dialysis providers to use the labs by way of the use of discounts. The issue here is whether or not public policy should prohibit making a price discount a Kickback. There is a statutory exception for discounts and a safe harbor for discounts. Mr. Shaw argued the discount exception should apply because Mr. Shaw attempted to apply the safe harbor. Interestingly, the Court said that the Office of Inspector General’s safe harbors are not controlling, but are something that the jury could look to in order to determine intent. The Court found that a discount that does not satisfy either the discount exception or the discount safe harbor likely violates the law. The Court further stated that a rebate is not necessarily an illegal remuneration per se, and that the requisite state of mind is more important than the label.

Anti-Kickback enforcement continues to shift and this is precisely it is important to obtain counsel that is knowledgeable in the Anti-Kickback Statute and has the ability to guide you through the murky waters of Health Care Compliance. Failure to do so could net you or your company huge fines, exclusion, or even jail time. Contact our Anti-Kickback expert attorneys today.