Earlier this year, the U.S. District Court for the District of Minnesota approved a new liability theory that would effectively create a private right of action for violations of the federal Anti-Kickback Statute.

The decision, In re: EpiPen Direct Purchaser Litigation, allowed private litigants to bring a lawsuit asserting violations of the AKS, using the Racketeering Influenced and Corrupt Organizations Act and Travel Act as vehicles.[1]

This theory allows private plaintiffs to sue competitors, suppliers or others for treble damages and attorney fees, if they can prove they were injured by the defendants’ AKS violation, and can satisfy the other elements of a RICO claim.

The case, pending in the Minnesota district court, involves the pricing and sale of the EpiPen, an allergy treatment manufactured by Mylan Inc. The plaintiffs are drug wholesalers who purchased the EpiPen from Mylan at list price.

They allege that, as the EpiPen began to face competition, Mylan had to make price concessions to pharmacy benefit managers to maintain favorable formulary status, and did so by paying rebates to the pharmacy benefit managers, thereby reducing the pharmacy benefit managers’ net costs for EpiPen prescriptions covered by their plans, but not reducing the list price paid by the wholesalers.

The wholesalers allege these rebates were kickbacks in violation of the AKS.

Because private litigants cannot bring a lawsuit directly under the AKS, the EpiPen plaintiffs brought their AKS theory before the court with a novel combination of RICO and the Travel Act claims.

RICO — which was originally enacted to combat organized crime, but has since been applied in a variety of commercial contexts — makes it unlawful for any person to conduct or participate in the affairs of a RICO enterprise through a pattern of racketeering activity.[2]

It allows any injured party to bring a civil action for treble damages, as well as attorney fees and costs.[3] RICO defines “racketeering activity” to include violation of numerous federal and state laws, often referred to as RICO predicates, but it does not list the AKS as a predicate. Thus, a violation of the AKS, by itself, does not qualify as a violation of RICO.

To get around this, the plaintiff wholesalers argued that the defendants’ alleged violations of the AKS also violated the Travel Act, a statute that RICO does list as a predicate.[4]

Like RICO, Congress originally enacted the Travel Act to combat organized crime, and its structure is similar to RICO in that it provides a hook for prosecuting violations of other state and federal laws. It is an express violation of the Travel Act if a person “travels in interstate or foreign commerce or uses the mail or any facility in interstate or foreign commerce” to engage in unlawful activity[5] including bribery in violation of federal or state law.[6]

The novel issue in EpiPen was whether a violation of the AKS counts as bribery under the Travel Act. There is precedent for using the Travel Act to prosecute state anti-kickback laws, which the wholesalers in EpiPen also successfully argued. In 1979, in Perrin v. United States, the U.S. Supreme Court held that bribery under the Travel Act is not limited to the common law meaning of bribery of a public official, but also encompasses state laws against commercial bribery of private parties.[7]

In recent years federal prosecutors also have used the Travel Act in health care fraud prosecutions, based on violations of state laws prohibiting kickbacks or payments for referrals.[8] Some of these state laws are not limited to publicly funded health care programs, making them broader in some respects than the AKS. But whether bribery can include violations of the federal AKS appears to be a question of first impression.[9]

The court tentatively accepted the plaintiffs’ argument that a violation of the AKS is bribery in violation of the federal Travel Act, and so violates RICO. The court noted it was unlikely that “Congress would have anticipated” plaintiffs’ novel combination of the Travel Act and AKS, but that the theory seemed nonetheless plausible on the face of the statutes.

The defendants focused much of their argument on cases holding that AKS itself is not a RICO predicate, but, in the court’s view, the defendants did not meaningfully challenge plaintiffs’ argument than an AKS violation is bribery under the Travel Act.[10] The court invited defendants to present a more thorough argument later in the case, but found that the plaintiffs’ AKS and Travel Act theory “at least gets out of the starting gate.”[11]

It remains to be seen if the EpiPen plaintiffs’ theory will make it to the finish line, especially after the additional briefing the court invited. But if it does, and other courts follow, this theory could significantly increase AKS risk and RICO litigation in some areas.

The AKS is a broad, far-reaching law that touches almost every corner of the health care sector. It has been applied to prohibit business practices that are considered ordinary and acceptable in other industries — e.g., paying sales agents on a commission basis — and that do not constitute bribery under a normal understanding of the word.

Read literally, or with even a small amount of imagination, the AKS could encompass and prohibit a sizable amount of activity in the health care industry that almost nobody believes should be prohibited.

Because of the AKS’s breadth, prudent exercise of prosecutorial discretion plays a vital role in defining the outer contours of what is and is not considered permissible under the AKS, and ensuring that the AKS is applied consistently and without undermining important policy goals of federal health care programs.

Currently, only federal agencies (e.g., the U.S. Department of Justice or U.S. Department of Health and Human Services′ Office of Inspector General) and qui tam relators acting under the False Claims Act can prosecute AKS violations.

While qui tam plaintiffs are nominally private parties, they are subject to significant procedural limitations, such as the public disclosure bar and DOJ intervention or dismissal.

For example, the DOJ recently intervened to dismiss a series of lawsuits by qui tam relators alleging that drug manufacturers violated the AKS by offering nurse educator programs to assist patient and prescribers, explaining that the challenged conduct was in fact appropriate and beneficial, and should not be prohibited.[12]

Private litigation of AKS violations through RICO would be outside of such federal government control, and would enable private plaintiffs to pursue novel and aggressive AKS theories over which federal prosecutors historically have exercised discretion.

This risk is illustrated by the EpiPen case itself. The practice at issue in EpiPen — pharmaceutical manufacturer rebate payments to pharmacy benefit managers for favorable formulary placement — is long-standing and well known to government enforcement agencies.

In fact, the Congressional Budget Office recently concluded that if these rebates were prohibited by the AKS, the “direct effect … would be to increase federal spending on [Medicare] Part D premiums by about $170 billion over the 2020-2029 period.”[13] The DOJ itself has moved to dismiss qui tam complaints that allege manufacturer payments to pharmacy benefit managers in violation of the AKS.[14]

Given the exercise of prosecutorial discretion by government enforcement agencies over this AKS theory, if the private plaintiffs in EpiPen had not been permitted to pursue their AKS allegations under RICO, it may not have reached a point where a court could render an opinion as to its merits.

But after permitting the private plaintiffs to press their AKS theory, the court did proceed to rule on its merits, and found it sufficiently plausible as pled to deny a motion to dismiss.

The possibility of private litigants pursuing AKS violations through RICO lawsuits raises a number of questions and concerns.

Will it remain confined to niche areas or fact patterns that are particular susceptible to RICO litigation? Or will private AKS lawsuits become common enough to set the agenda for AKS compliance?

Time will tell on these and other questions, but today we can identify some of the elements inherent to any RICO claim that will affect whether the EpiPen theory has a broad or narrow impact. Two in particular stand out.

RICO’s Enterprise Element

Many RICO cases fail because they cannot satisfy the statute’s requirement of the existence of both an enterprise and a person who committed the predicate act through the enterprise.

An enterprise can be an “individual, partnership, corporation, association, or other legal entity” or an informal association-in-fact that is not a legal entity.[15] The person can be a natural person or a corporation, but must be distinct from the enterprise.[16]

The simplest conception of this element is found in cases where a corporation is alleged to be the enterprise, and there is a basis for holding an employee or officer of the corporation personally liable.

Under these circumstances, the Supreme Court has held that the element is satisfied “when a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner — whether he conducts those affairs within the scope, or beyond the scope, of corporate authority.”[17]

But for cases alleging AKS violations where the plaintiffs seek to hold the corporation liable, they will need to establish an association-in-fact enterprise consisting of multiple entities. An association-in-fact enterprise must have an existence and purpose apart from the alleged RICO violation, and many RICO claims founder on this requirement.

RICO’s Causation Element

RICO plaintiffs must also prove that the predicate act committed by the defendant caused harm to the plaintiffs’ business or property. Because the AKS is intended to protect federally funded health care programs, and not private bystanders, it is far from a given that an AKS violation can be shoehorned into this framework.

By definition, in most AKS fact patterns the harm is caused to the federal government, not to private parties.

That said, as the EpiPen case illustrates, in some situations courts may find that private plaintiffs can show harm from an AKS violation, such as participants in a market allegedly distorted by kickbacks, or providers who lost market share due to a competitor’s allegedly illegal kickbacks. In general, however, RICO’s proximate causation element is likely to be a high hurdle for claims predicated on alleged AKS violations.

[1] In re: EpiPen Direct Purchaser Litig., Case No. 20-cv-02827 (ECT/TNL), 2021 WL 147166 (D. Minn. Jan. 15, 2021).

[2] 18 U.S.C. §1962(c).

[3] 18 U.S.C. §1964(c).

[4] 18 U.S.C. §1961(1).

[5] 18 U.S.C. §1952(a).

[6] 18 U.S.C. §1952(b).

[7] Perrin v. United States, 444 U.S. 37 (1979).

[8] E.g., DOJ Press Release, New Jersey Clinical Lab at Center of Largest Physician Bribery Case Ever Prosecuted Pleads Guilty (June 28, 2016) (available at https://www.justice.gov/usao-nj/pr/new-jersey-clinical-lab-center-largest-physician-bribery-case-ever-prosecuted-pleads); DOJ Press Release, Seven Guilty in Forest Park Healthcare Fraud Trial (April 10, 2019) (available at https://www.justice.gov/usao-ndtx/pr/seven-guilty-forest-park-healthcare-fraud-trial); see also United States v. Barker, Criminal No. 3:16-CR-516-D, 2017 WL 4167512, *15-16 (N.D. Tex. Sept. 20, 2017) (Travel Act prosecution of health care providers predicated on Texas commercial bribery law).

[9] See EpiPen, 2021 WL 147166, *13 (discussing Baglio v. Baska, 940 F. Supp. 819 (W.D. Pa. 1996)).

[10] Id., 2021 WL 147166, *13.

[11] Id.

[12] See The United States Motion to Dismiss Relator’s Second Amended Complaint, at 16, 2018 WL 10704416 (E.D. Tex., Case No. 5:17-cv-00123-RWS-CMS, Dec. 17, 2018).

[13] Congressional Budget Office, Incorporating the Effects of the Proposed Rule on Safe Harbors for Pharmaceutical Rebates in CBO’s Budget Projections—Supplemental Material for Updated Budget Projections: 2019-2029 (May 2019) (available at https://www.cbo.gov/system/files/2019-05/55151-SupplementalMaterial.pdf).

[14] See United States ex rel. Borzilleri v. AbbVie, Inc., et al., -- Fed. Appx. --, 2020 WL 7039048 (2d Cir. Dec. 1, 2020) (affirming grant of DOJ motion to dismiss relator’s complaint); United States ex rel. Borzilleri v. Bayer Healthcare Pharmaceuticals, Inc., et al., 2019 WL 5310209 (D. R.I. 2019) (granting DOJ motion to dismiss relator’s claim).

[15] 18 U.S.C. §1961(4).

[16] See, e.g., Baglio v. Baska, 940 F. Supp. 819, 832 (W.D. Pa. 1996).

[17] Cedric Kushner Promotions, Ltd v. King, 533 U.S. 158, 166 (2001).

Published in Law360 on March 1, 2021. Reprinted here with permission.