What is a Kickback Scheme?

Quite simply, a kickback is an inducement – offering or giving something of value in exchange for getting business referrals. Although that type of behavior can be perfectly legal in some segments of the commercial world, it is not permitted when the business that is being referred is paid for by government healthcare programs.

The policy behind prohibiting kickbacks is based on several concerns. First, the government wants to avoid overutilization of healthcare resources and services, which can occur if parties are making additional profit from unnecessary healthcare services. Both through overutilization and otherwise, kickbacks can also increase program costs. If money is being funneled back and forth for referrals, those costs are likely to be passed on to the government healthcare programs in some fashion. The AKS is also intended to avoid improper considerations from entering medical decision-making, which comes into play with additional profit opportunities for more players.

The Anti-Kickback Statute

The federal statute that prohibits kickbacks in the healthcare arena is known as the Anti-Kickback Statute (“AKS”). The AKS, 42 U.S.C. § 1320a-7b(b), is a criminal law that prohibits the knowing and willful payment of “remuneration” to induce referrals or the generation of business involving any item or service payable by the Federal healthcare programs (e.g., items such as medical devices, supplies or drugs, or healthcare services).

“Remuneration” is broadly defined to include anything of value, meaning it encompasses much more than a straight cash payment. The AKS can be violated by companies providing free or reduced-cost rent, travel expenses or meals, and excessive compensation for otherwise legitimate medical advisory or consulting services. In a recent criminal case in Miami where several defendants pled guilty, for example, the kickbacks included charitable donations, payments for female escorts, payments for coaching services provided to the defendant’s son and sham medical directorship contracts.

The statute applies to both those who offer or pay kickbacks and those who solicit or accept the kickbacks. Criminal penalties and administrative sanctions for violating the AKS include fines, jail terms, and exclusion from participation in the Federal healthcare programs. The perpetrators of the Miami hospital scheme are facing prison terms in excess of three years.

Kickback Schemes as False Claims

In addition to the criminal and administrative penalties, violations of the AKS can also be prosecuted under the federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. Either the government or a whistleblower can file these FCA claims.

Essentially, if a provider submits claims for government payment that are tainted by a kickback violation, those claims can be actionable under the FCA. If a medical device company is inducing use of its products by compensating the hospital in some fashion, for example, claims for payment for those products would violate the False Claims Act. A drug manufacturer can run afoul of the FCA by providing free goods or services to a hospital in exchange for favored status on the hospital’s drug formulary.

Physicians are often targets for kickback schemes because they can be a source of referrals for fellow physicians or other healthcare providers and suppliers. Most frequently, a physician decides what drugs will be prescribed, what specialists will be seen and often what healthcare services and supplies are provided. Thus, a hospital is generally not permitted to provide free services or facilities to a physician group in order to have that group refer its patients to the hospital.

Similarly, providing excessive payments to physicians to serve on a medical advisory board – tied to that physician performing certain tests or prescribing certain drugs – implicates the FCA when claims for payments for those tests or drugs are submitted to government healthcare programs. For example, in the Miami case involving the director of outreach programs at Larkin Community Hospital, the director induced physicians to discharge patients from the hospital to assisted-care communities or nursing homes owned or controlled by her co-conspirators. Many of those patients did not need or never even received the services claimed.

However, payments or inducements can flow between any two parties. Kickbacks can even come into play in relationships with patients. For example, where the Medicare and Medicaid programs require patients to pay copays, the healthcare provider is not permitted to advertise that it will not collect the copayment, as a means of inducing patients to utilize that provider. Further, a provider can be found to have violated the AKS or the FCA even when a medical service was actually provided and even if the service was medically necessary or appropriate. Thus, accepting gifts or payments from a medical device company cannot be justified by claiming that the same device (or an equally expensive device) would have been provided even without the inducement from the company.

Notably, if even one purpose of an offered payment is to induce referrals or utilization of certain products, that payment is unlawful and a claim for reimbursement will violate the False Claims Act. Due to the many permutations of arrangements between and among different types of providers and drug or device manufacturers, however, there are several specific “safe harbors” that protect certain types of employment or other arrangements.

Even more than in other instances of suspected fraud, consultation with an experienced FCA lawyer is necessary to evaluate a proposed offer or a possible action against an entity believed to be engaging in illegal kickbacks.

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