On Aug. 7, 2018, the 11th Circuit Court of Appeals affirmed the dismissal of a whistleblower case brought under the federal False Claims Act. The principal grounds for affirmance was a finding that the employee exemption to the Anti-Kickback Statute (AKS) applied to payments that the defendant, the AIDS Healthcare Foundation (the Foundation) made to employees (Linkage Coordinators) to refer HIV patients to healthcare services offered by the Foundation.

The whistleblowers were three former employees of the Foundation who sued the Foundation under the False Claims Act, alleging that the bonuses paid to the Linkage Coordinators were illegal kickbacks in violation of the Anti-Kickback Statute. The Foundation is a nonprofit group that receives part of its revenue from federal healthcare programs, including Medicare and Medicaid. The Foundation provides HIV testing, clinic and pharmacy services to patients with HIV/AIDS and matches HIV positive patients with healthcare providers. 

In short, the whistleblowers alleged that the Foundation paid some of its Linkage Coordinators, a bonus on a per referral basis to refer HIV/AIDS patients to the Foundation for healthcare service, and that these payments are prohibited “referral” payments under the AKS. The whistleblowers unsuccessfully tried to argue that referrals had to be made on a nondiscriminatory fashion, and that payments made solely for referrals were unprotected.

The 11th Circuit held that under both the statutory exemption (42 U.S.C. § 1320a-7b(b)(3)(B)) and the regulatory safe harbor (42 C.F.R. § 1001.952(i)) regarding payments to employees in connection with providing goods or services covered by Federal healthcare programs, the Foundation was entitled to pay bonuses to its employees for referring patients to the Foundation for healthcare services. 

While the employee exception/safe harbor to the AKS has traditionally been applied to the model of compensating a sales force for a pharmaceutical or medical device company, the 11th Circuit’s holding makes it clear that the employee exception/safe harbor has vitality in a much broader context. The court explained that the exemption covers “any amount paid by employer to an employee,” even when certain practices were “unwise or improper.”