As you have probably experienced, False Claims Act (“FCA”) cases based on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), have risen sharply in the last few years. Simply stated, the Anti-Kickback Statute (“AKS”) makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward referrals of items or services reimbursable by a Federal health care program, such as Medicare or Medicaid. The AKS has been broadly enforced primarily, in my view, due to the application of the “one purpose” test: that is, to prove that a contract or transaction between health care providers violates the AKS, a relator or the government need only show that “one purpose” of the remuneration involved in the transaction was for the purpose of inducing referrals. See Robert G. Homchick, “Federal Anti-Kickback Statute Primer.” Not surprisingly with a lower standard of proof to prove a “false claim,” enforcement of the AKS through the False Claims Act has expanded its reach into areas that would have been unthinkable years ago when most of the AKS enforcement was on the criminal side. In fact, one commercial blog claims that “Anti-Kickback Statute violations — as well as violations of the Stark Law — now make up most False Claims Act cases.” Becker’s Hospital Review, “20 things to know about the Anti-Kickback Statute,” September 5, 2014.

Amidst these ever growing AKS cases, I came across a remarkable case, United States ex rel Ruscher v. Omnicare, Inc., et al., 2016 WL 6407128, __ Fed. Appx.__ (5th Cir., 10/28/2016), that applied a common sense analysis to this “one purpose” test and refused to extend it to a logical extreme. Ruscher refused to find an AKS violation simply because one of the parties to a contract designed to provide legitimate pharmacy services “merely hoped” or expected referrals as a benefit or by-product of that contract.

Here are some of the key facts: Defendant Omnicare provided pharmacy services to skilled nursing facilities (“SNFs”) and their residents. Omnicare routinely entered into Preferred Provided Agreements with the SNFs, which designated Omnicare as the SNFs’ preferred provider of pharmacy services and set forth, among other things, pricing, payment terms, and billing mechanisms. These SNFs provided medical, nursing, and therapy services to residents who usually had their pharmacy drug costs reimbursed by Medicare Part A, Medicare Part D, or Medicaid. Part A benefits last for 100 days. When providing pharmacy benefits to residents covered by Part A, Omnicare billed the SNF for prescription costs. Medicate, in turn paid the SNFs a per diem amount for each Part A resident’s care, including pharmacy services. After a resident’s Part A benefits expired, any pharmacy services provided to residents by Omnicare were reimbursed by the patient’s Medicare Part D and/or Medicaid coverage.

Omnicare’s billing and collections from these SNFs sometimes resulted in some confusion as to whether Omnicare had properly billed and been paid for the services it provided. This confusion gave rise to billing disputes with the SNFs that sometimes took years to resolve. The relator in Ruscher worked in Omnicare’s Collections Department for a time, collecting past-due accounts from SNFs. She became suspicious of Omnicare’s contract negotiations with these SNF clients over past due accounts receivables, and as a result, filed a False Claims Act qui tam against Omnicare and several other defendants in the Southern District of Texas. Among other things, the relator alleged that Omnicare violated the FCA by purportedly making and causing SNFs to make false claims on the SNFs’ cost reports for Medicare and Medicaid reimbursement that allegedly resulted from kickbacks in violation of the AKS. After pending for several years, the Court granted summary judgment in favor of Omnicare, and the Fifth Circuit affirmed that summary judgment. Among other things, the relator primarily contended that Omnicare paid unlawful kickbacks to the SNFs both by not collecting Part A debt that was allegedly owed it and by offering prompt-payment discounts to induce the SNFs to refer patients to Omnicare who were covered under Medicare Part D and Medicaid. Stated simply, the relator alleged that Omnicare was not collecting all that it was due from the SNFs or offering the SNFs favorable payment terms so that the SNFs in turn would have a favorable opinion of Omnicare, continue to contract with it, and continue to refer the SNF residents whose pharmacy services were reimbursed by Medicare Part D and Medicaid.

The Fifth Circuit acknowledged that the AKS “criminalizes the payment of any funds or benefits designed to encourage an individual to refer another party to a Medicare provider for services to be paid for by the Medicare program" and that the relator needed to only show that “one purpose of the remuneration was to induce such referrals.” Yet, the Court found the Omnicare did not violate the AKS: “there is no AKS violation . . . where the defendant merely hopes or expects referrals from benefits that were designed wholly for other purposes.” Among the reasons cited by Ruscher to support its finding were:

  • OIG – HHS had previously stated that prompt payment discounts were not included among the designated HHS “Safe Harbors” because “by definition, preferred payment discounts are designed to induce prompt payment and thus do not appear to violate” the AKS.
  • Relator’s evidence primarily showed Omnicare was trying to collect verifiable debt and settle billing disputes without unnecessarily aggravating its SNF clients in the midst of ongoing or anticipated contract negotiations.
  • At best, the evidence showed that Omnicare did not want unresolved settlement negotiations to negatively impact its contract negotiations with SNF clients and was avoiding confrontational collection practices that might discourage SNFs from continuing to do business with Omnicare.
  • None of the evidence showed that Omnicare designed its settlement negotiations and debt collection practices to induce SNF clients to continue making Medicare and Medicaid referrals to Omnicare.
  • SNFs were not told they were getting special benefits from Omnicare settlement negotiations and debt collection practices let alone that any such benefits were tied to Medicare and Medicaid referrals. The Court noted that “if purported benefits were designed to encourage SNFs to refer Medicare and Medicaid patients, one might expect to find evidence showing that the SNFs at least knew about those benefits.”
  • While Omnicare “may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practices to induce such referrals, relator cannot show an AKS violation.”
  • Omnicare’s prompt payment discount offers to SNFs did not violate the AKS because there was no evidence they were designed to induce referrals. The relator showing that they were offered in contract negotiations and included in new contracts was not enough in and of itself to show an illegitimate motive for the purpose of inducing referrals rather than the legitimate purpose of inducing payments.

In short, the Court found that Omnicare’s legitimate billing and collections practices with its SNF clients did not run afoul of the AKS simply because a byproduct of its contracts and its collections practices was to promote continued good will with the SNFs and, in turn, their referrals. The Court distinguished such an agreement from other agreements that are designed, at least in part, to induce referrals.

Perhaps the most remarkable result is that the 5th Circuit affirmed summary judgment for Omnicare and did not find this question of Omnicare’s motive or intent to be a jury question. In affirming summary judgment, the Ruscher Court relied on a criminal case, U.S. v. McClatchey, 217 F.3d 823, 834 (10th Cir. 2000), which addressed the AKS in the context of ruling on a jury instruction. According to McClatchey, determinations as to a defendant’s motive in AKS cases are jury determinations. In a footnote, the Court observed that “it may be difficult for a jury to distinguish between a motivating factor and a collateral hope or expectation. Making such difficult determinations, however, is the very role to which our system of justice assigns to the finder of fact.”

Unfortunately, the 5th Circuit decided not to publish Ruscher. Nor did the Court provide any guidance as to how better to distinguish between agreements for which one purpose is the inducement of referrals and legitimate agreements wherein one of the parties hopes that referrals result from the agreement. Nevertheless, it is a good first step, and hopefully one that other courts will expand upon and bring some common sense limitations to the application of the AKS.