On June 7, 2018, a federal judge in Chicago denied motions to dismiss filed by defendants Roche Diagnostics Corporation (“Roche”) and Humana, Inc. (“Humana”) in a qui tam lawsuit alleging that the defendants’ settlement for allegedly overpaid contractual rebates constituted unlawful remuneration under Anti-Kickback Statute.

The complaint was filed by qui tam relator Crystal Derrek, a former Roche employee responsible for overseeing the Humana account. The allegations focused on a settlement for allegedly overpaid rebates under an agreement between the defendants to place Roche’s glucose monitoring products on formularies for certain government plans managed by Humana. The complaint alleges that after Humana threatened to remove Roche’s products from formulary, Roche discovered that it had overpaid Humana $45 million in rebates. The relator alleged that Roche viewed the overpayments as an opportunity to correct its position on the Humana formularies and that the parties ultimately agreed to settle the amount owed for $11 million. According to the relator, the two agreements were linked. The settlement was finalized during the same week that the parties executed new rebate agreements, which included conditions to exclude competing brand products from Humana’s formularies. Moreover, Roche reserved the right to recover the full overpayment amount if Humana did not satisfactorily perform its obligations under the new formulary agreement.

Roche and Humana moved to dismiss the relator’s complaint on grounds that the relator failed to plead an AKS violation or any false claim with requisite particularity or plausibility and that the conduct described in the complaint fell within the AKS managed care safe harbor. The court rejected both arguments.

In rejecting the argument that the relator did not plead the scienter required for an AKS violation, the court held that the allegations raised a plausible inference that the defendants knew the settlement was unlawful. In support of this conclusion, the court cited allegations that Humana considered, but declined to seek actuarial and legal counsel in negotiating the settlement, and that the relator’s supervisor instructed her to discuss the arrangement with no one but him.

The court also rejected Roche’s argument that the arrangement (and the agreement to settle for less than the amount initially claimed) was a routine-arms-length settlement of a contract dispute that would not amount to remuneration under the AKS, stating, “that defendants had not agreed about the precise amount of Roche’s overpayment before settling the debt for a lesser amount does not compel a contrary conclusion.” In support of its decision, the court pointed to other cases holding that debt forgiveness and billing waivers can amount to remuneration. The court did not, however, cite any cases explicitly holding that settlement of a contract dispute could amount to unlawful remuneration under the AKS. The court also declined to consider the role of the managed care safe harbor, finding that it required addressing facts outside the pleadings and therefore was not appropriate for a motion to dismiss.

The breadth of the opinion is troubling given the frequency with which manufacturers and payors may settle complex overpayment and other multi-faceted rebate disputes, and highlights the AKS risks that can arise when settling such issues. To help mitigate these potential AKS risks, the decision reflects the importance of the following practices, where they can be reasonably implemented: (i) ensuring that the basis for any settlement is well documented and that legal advice is sought where there may be a potential AKS issue; and (ii) carefully considering the potential AKS risks where a settlement could conceivably be viewed as linking the settled amount to the formulary status of products reimbursed by the Federal health care programs.