In recent years, the antikickback statute (AKS) has emerged as an essential legal weapon to combat alleged misconduct in the health care industry. The government’s enforcement patterns reflect how the AKS is increasingly used in tandem with the False Claims Act (FCA) to generate eye-popping civil settlements. In addition, large health care corporations—particularly those in the pharmaceutical sector—face increasing liability exposure for engaging in certain business and marketing arrangements that could be perceived as involving unlawful inducements and referrals. These patterns should inform in-house as well as defense counsel in their efforts to prevent and resolve alleged kickback issues that inevitably arise in the health care setting.
The AKS prohibits the payment or receipt of remuneration in exchange for referrals or the purchase of any item or service that may be covered under a federal health care program. Enacted in 1972, the law prohibits the practice of extending “kickbacks” or provider inducements, which generate conflicted medical decision-making and the provision of unnecessary services that inflate health care costs. Due to the expansive construction of the statute’s prohibition of “remuneration,” the government may use the AKS to challenge a host of business and marketing activities. Given the statute’s broad reach, providers and suppliers are vulnerable to harsh penalties unless their conduct satisfies one of the statutory exceptions or regulatory “safe harbors.”
Although the AKS is a criminal law, statutory violations may also serve as a basis for exclusion from federal health care programs, significant civil money penalties, and damages of up to three times the amount of remuneration at issue. Moreover, with the passage of the Affordable Care Act, it is now well-established that a violation of the AKS qualifies as a “false or fraudulent claim” under the FCA. Now that AKS violations may serve as a predicate offense in an FCA action, the government can target a vast array of transactions and activities, including those located in the remote recesses of the health care world.
Several recent prosecutions reflect how the government is using the AKS and the FCA in a muscular manner to impose massive liability upon health care corporations. In November 2013, Johnson & Johnson and two of its subsidiaries entered into a $2.2 billion settlement to resolve criminal and civil liability arising from allegations involving the off-label promotion of drugs and the payment of kickbacks to physicians and pharmacies to promote prescription sales. As one of the largest health care fraud settlements in history, J&J is required to pay $485 million in criminal fines and forfeiture as well as $1.72 billion in civil damages and penalties under the FCA. Also in 2013, Amgen, Inc. entered into a $24.9 million agreement to settle FCA claims based on allegations that the company paid kickbacks to long-term care pharmacy providers to influence their drug prescribing decisions. Specifically, the company was alleged to have paid performance-based rebates to pharmacies that steered Medicare and Medicaid beneficiaries from using a competitor drug to Amgen’s Aranesp. More recently, Davita HealthCare Partners announced that it will pay $389 million to resolve criminal and civil AKS investigations involving joint venture arrangements with kidney doctors that involved the operation of dialysis centers. The government has maintained that Davita’s joint ventures did not comply with the AKS because the company failed to charge doctors fair-market value in return for the doctors’ ownership stake in certain dialysis centers.
Given the AKS’s compatibility with the FCA and the threat of exclusion from participation in federal health care programs, the government wields extraordinary leverage over corporate defendants. The government is now able to use civil liability—with its lesser standard of proof—to exact far-reaching settlements that have historically been achieved through criminal prosecutions. Additionally, the settlements reveal how the government may use the AKS to target a wide variety of alleged misfeasance and malfeasance in the health care setting, even where the conduct may not resemble “fraud.” This is particularly significant for the pharmaceutical sector, where companies have often used aggressive marketing practices that involve inducements.
While the government’s embrace of the AKS has succeeded in punishing many bad apples, it has also inflated the general cost of doing business in the health care industry. To reduce their vulnerability to government probes and qui tam lawsuits, companies must double-check their business arrangements while doubling-down on their compliance efforts. While these enormous compliance costs may be borne by companies and institutions with sufficient economies of scale, such costs may prove overly burdensome for smaller providers. Moreover, overly aggressive use of the AKS could hamper efforts to engage in the sorts of innovative transactions needed to facilitate the integration of health care delivery—a central desire for industry reform. Nonetheless, regardless of its impact upon health care development and reform, the lure of headlines-grabbing settlements will likely reinforce the government’s embrace of the AKS as one of its primary enforcement tools.