The federal Anti-Kickback Statute (“AKS”) imposes penalties on anyone who, knowingly or willfully, offers, pays, solicits, or accepts remuneration in exchange for referrals or payments for goods or services reimbursable under a federal healthcare program.[i]
Congress enacted the AKS in 1972, and its primary purpose is “to protect patients and the federal health care programs from fraud and abuse by curtailing the corrupting influence of money on health care decisions.”[ii]
Violating the AKS is a felony and punishable by a fine of up to $100,000 and up to 10 years imprisonment.[iii] AKS violators are also subject to civil penalties of up to $50,000, along with up to 3 times the total amount of remuneration offered, paid, solicited, or received, regardless of whether a portion of the remuneration was lawful.[iv]
Additionally, the Department of Health and Human Services (“HHS”) Secretary may exclude AKS violators from participation in federal healthcare programs, and may also direct particular state agencies to exclude violators from state healthcare programs.[v]
Anti-Kickback Safe Harbors – The Basics
In its original 1972 form, the AKS specifically targeted “kickbacks or bribes” and “rebates.” In 1977, Congress expanded the statute’s scope by prohibiting “any remuneration” exchanged for purchasing or referring federally funded goods or services.
In the decades since the 1977 expansion, Congress has, from time to time, added “safe harbor” provisions to the AKS to ensure that providers do not face criminal liability for beneficial or innocuous types of remunerations.
In 1987, Congress authorized HHS to create regulatory safe harbors and to clarify the statutory safe harbors.[vi] The Health Insurance Portability and Accountability Act (“HIPAA”) of 1996 established the procedure that HHS currently follows to issue safe harbor regulations and advisory opinions.[vii]
Safe harbors exempt certain kinds of transactions from AKS liability. Business arrangements must “fit squarely” into a safe harbor in order to receive its protection.[viii] Compliance with AKS safe harbor provisions, whether statutory or regulatory, is voluntary.[ix] Since the provisions are voluntary, business arrangements that do not fit into a safe harbor category are not automatically AKS violations, and must be assessed for AKS compliance on a case-by-case basis.[x]
Consequently, the AKS’s safe harbors come from two sources: the safe harbors enumerated in the statute itself,[xi] and additional safe harbors created by regulations issued by the HHS Office of the Inspector General (“OIG”).[xii]
Statutory Safe Harbors
Under the current statutory language, AKS liability expressly does not apply to several types of business arrangements. Some of the prominent statutory safe harbors include:
Discounts: “[A] discount or other reduction in price obtained by a provider of services or other entity under a Federal health care program if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a Federal health care program.”[xiii]
Employment relationships: “[A]ny amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.”[xiv]
Written contracts: “Payments based on valid written contracts from vendors of goods or services to authorized federal health care program purchasing agents, where the relevant providers of services disclose the amount received from each vendor, also qualify for safe harbor protection.”[xv]
For a complete list of the statutory safe harbors, see 42 U.S.C. §1320a-7b(b)(3)(A)–(K).
Regulatory Safe Harbors
Regulatory safe harbors are expressly incorporated into the AKS by one of the statutory safe harbors.[xvi] The OIC has carved out regulatory safe harbors for many types of business arrangements, including: “investments in large publicly held health care companies; investments in small health care joint ventures; space rental; equipment rental; personal services and management contracts; sales of retiring physicians’ practices to other physicians; referral services; warranties; discounts; employee compensation; group purchasing organizations; and waivers of Medicare Part A inpatient cost-sharing amounts.”[xvii]
For a complete list of the current regulatory safe harbors, see CFR § 1001.952(a)–(bb).
In United States v. Greber, the Third Circuit introduced the “one purpose” test.[xviii] According to the one purpose test, a payment constitutes a kickback for AKS purposes even if only one purpose of that payment is to induce or compensate a referral or payment funded by a federal healthcare program.[xix]
In addition to the Third Circuit, the Fifth, Seventh, Ninth, and Tenth Circuits have also established the one purpose test.[xx] By contrast, the First Circuit has established a “primary purpose” test, according to which a payment constitutes a kickback under the AKS if a primary purpose of the payment is to induce a referral or another payment reimbursable under a federal healthcare program.[xxi]
In United States ex rel. Banigan v. Organon USA Inc., the court determined that discounts and rebates given by a pharmaceutical manufacturer to a pharmacy provider in exchange for modifications to the provider’s preferred drugs did not qualify for the discount regulatory safe harbor.[xxii] The court reasoned that the savings were not passed on to Medicaid, and the complete terms and conditions of the rebates and discounts had been concealed.[xxiii]
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[i] 42 U.S.C. § 1320a-7b(b).
[ii] Office of Inspector General, Fact Sheet: Federal Anti-Kickback Law and Regulatory Safe Harbors, https://oig.hhs.gov/fraud/docs/safeharborregulations/safefs.htm (“OIG Fact Sheet”).
[iii] 42 U.S.C. § 1320a-7b(b).
[iv] Id. § 1320a-7a(a).
[vi] OIG Fact Sheet, supra note 2.
[vii] Office of Inspector General, Medicare and State Health Care Programs: Fraud and Abuse, 81 Federal Register No. 235 (Dec. 7 2016); see also 42 U.S.C. § 1320a-7d(a).
[viii] OIG Fact Sheet, supra note 2.
[xi] See 42 U.S.C. §1320a-7b(b)(3)(A)–(K).
[xii] See 42 CFR § 1001.952(a)–(bb).
[xiii] 42 U.S.C. § 1320a-7b(b)(3)(A).
[xiv] Id. § 1320a-7b(b)(3)(B).
[xv] Id. § 1320a-7b(b)(3)(C).
[xvi] See id. § 1320a-7b(b)(3)(E) (“[A]ny payment practice specified by the Secretary in regulations . . .”).
[xvii] OIG Fact Sheet, supra note 2.
[xviii] United States v. Greber, 760 F.2d 68, 69 (3d Cir. 1985).
[xx] See United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998); United States v. Borrasi, 639 F.3d 774, 782 (7th Cir. 2011); United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989); United States v. McClatchey, 217 F.3d 823, 835 (10th Cir. 2000).
[xxi] See U.S. v. Bay State Ambulance and Hospital Rental, Inc., 874 F.2d 20, 32 (1st Cir. 1989).
[xxii] United States ex rel. Banigan v. Organon USA Inc., 883 F. Supp. 2d 277, 296 (D. Mass. 2012).