FCA Issues to Watch: Intersection of the FCA and the Anti-Kickback Statute

by Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

In the recent past, the government has racked up a number of FCA settlements based on alleged violations of the Anti-Kickback Statute (AKS).  This focus undoubtedly will remain a high enforcement priority.

In U.S. ex rel. Williams v. Health Management Associates Inc. and U.S. v. Atlanta Medical Center, Inc., Tenet Healthcare Corporation and two of its Atlanta-area hospitals, Atlanta Medical Center and North Fulton Hospital, agreed to pay more than $513 million to resolve civil and criminal allegations of AKS and FCA violations.  Between 2000 and 2013, Atlanta Medical and North Fulton allegedly paid prenatal clinics for referring patients, many of whom were undocumented and indigent, to its labor and delivery, postnatal and infant services.  Using sham contracts, the hospitals allegedly paid the clinics for unnecessary, duplicative or substandard translation services, which in certain cases were not actually provided.  Tenet allegedly concealed the underlying purpose of the contracts from its legal counsel and violated the terms of its previously-entered CIA with HHS-OIG, which related to a 2006 settlement for $900 million to resolve allegations of fraudulent billing and AKS violations.

Atlanta Medical and North Fulton pleaded guilty to one count of conspiracy to defraud the United States and agreed to pay $145 million in criminal forfeiture.  Tenet agreed to pay $368 million to resolve civil FCA allegations related to the two hospitals and two other Tenet hospitals, Spalding Regional Medical Center in Georgia and Hilton Head Hospital in South Carolina.  In its press release announcing the settlement, DOJ warned that such physician relationships “exploit vulnerable populations and threaten to drive up the cost of healthcare for everyone” while emphasizing the department’s intolerance for abusive arrangements.

Tenet sold Atlanta Medical, North Fulton and Spalding Regional.  In return for Tenet’s remedial actions, DOJ agreed to enter a Non-Prosecution Agreement with Tenet under which Tenet will retain an independent compliance monitor for at least three years.

In U.S. ex rel. Herman v. Coloplast Corp.DOJ announced that it reached a $20.9 million settlement with two medical products companies for allegedly accepting kickbacks.  The relator alleged that Hollister Inc., a manufacturer of disposable healthcare products, paid unlawful kickbacks to Byram Healthcare Centers Inc., a supplier of medical products.  The settlement with Hollister resolved allegations that, from 2007 through 2014, Hollister paid kickbacks to Byram in return for marketing promotions, conversion campaigns and other referrals of patients to Hollister’s ostomy and continence care products.  In addition, each year from 2009 to 2014, Hollister purportedly agreed to pay Byram $200,000 for “catalog funding” that was actually intended to induce Byram’s recommendation of Hollister products to patients.

The settlement with Byram resolved the same catalog funding claims, as well as allegations that, in 2012 and 2013, Byram received numerous kickbacks from Hollister and three other manufacturers of ostomy and continence care products in return for Byram’s agreement to conduct promotional campaigns and to refer patients to the manufacturers’ product.  The settlement required the company to pay $127,000 to the state of California to resolve allegations that Byram submitted falsely inflated claims to the state’s Medicaid program, Medi-Cal, in violation of California regulations.  In connection with the FCA settlement, Byram also entered into a CIA. 

Claims against two other defendants in the lawsuit, Coloplast Corp. and Liberator Medical Supply Inc., were resolved in December 2015 for a total of $3.66 million.  The relator alleged that Coloplast, a manufacturer of ostomy and continence care products, paid unlawful kickbacks including discounts and rebates, to CCS Medical Inc., a supplier of ostomy and continence care products for switching patients to Coloplast’s products, or continuing to recommend and sell Coloplast’s products.  While the DOJ declined to intervene, it filed a notable Statement of Interest regarding the scope of the discount safe harbor to the AKS as part of pleadings related to a motion to dismiss filed by CCS.  In its Statement of Interest, the DOJ reasoned that, “Nothing in the AKS or HHS-OIG regulations suggests that a manufacturer and a distributor can hide a personal services contract within a discount, particularly a discount based on volume or market share.  Were such an arrangement found to be permissible, the discount safe harbor would swallow many, if not all, of the other safe harbors.”

In U.S. ex rel. Witkin v. Medtronic, Inc., 2016 WL 2993167 (D. Mass. May 23, 2016), the district court dismissed several of the claims in a qui tam against Medtronic, Inc. and its wholly-owned subsidiary related to its insulin pumps and integrated diabetes management systems.  Notably, however, the district court allowed the relator to proceed with FCA claims related to alleged kickbacks paid to healthcare providers to induce them to prescribe Medtronic’s diabetes insulin pumps.  The district court held that the relator had adequately alleged illegal remuneration and intent to induce physician referrals, and pleaded fraud with sufficient specificity.  For example, the relator alleged that Medtronic paid or offered remuneration by running “iPro” clinics in physicians’ offices, often without physician involvement (Medtronic paying nurses to staff clinics), while promoting ways in which the physician could bill Medicare for patient iPro clinic visits.  The relator alleged that these free services influenced providers to recommend Medtronic insulin pumps to their patients, resulting in government reimbursement in violation of the AKS.

Additionally, the relator alleged that Medtronic paid providers above-market rates to train patients on how to use Medtronic’s insulin pumps and provided a variety of other collateral benefits such as free sample devices, meals and travel and luxury accommodations for conferences.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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