The Second Circuit Court of Appeals recently issued a decision with significant implications for healthcare companies and providers facing allegations of violations of the Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b). In United States ex rel. Hart v. McKesson Corp.,1 the Second Circuit interpreted the portion of AKS’s intent element that relates to “willfulness.” The court ruled that to act willfully under the AKS, a defendant must act with knowledge that its conduct is unlawful in some way, even if it is not aware its conduct specifically violates the AKS.2 This ruling highlights the challenging balance between the broad and often evolving reach of the AKS, the numerous exceptions recognized by the Department of Health and Human Services (HHS)’s various safe harbors, and the difficulties healthcare professionals face in determining whether a particular arrangement complies with the AKS. In the end, the Second Circuit attempts to strike this balance by requiring defendants to act with a “bad purpose,” a relatively high intent standard, in order to violate the AKS.3
The AKS makes it a felony to “knowingly and willfully” offer or pay any remuneration to any person to induce such person to purchase any good, facility or service for which payment may be made in whole or in part under a federal health care program.4 Furthermore, a claim for payment to a federal health care program that covers items or services resulting from a violation of the AKS “constitutes a false or fraudulent claim for purposes of” the False Claims Act. (FCA).5 In McKesson¸the relator, a former employee of McKesson, alleged that the company violated the FCA by providing business management tools for free to oncology practices in exchange for those practices committing to use McKesson as their primary wholesale pharmaceutical supplier.6 According to the relator, McKesson would allow only practices that agreed to use McKesson as their primary pharmaceutical supplier to use the business management tools, turning down other practices that offered to pay to use those tools.7
Following the U.S. government’s decision not to intervene in the case, the district court dismissed the relator’s complaint ruling that to act “willfully” under the AKS, a defendant must act knowing that its conduct was unlawful. The court concluded that the relator’s allegations did not plausibly plead that McKesson acted willfully under that standard.8 In so ruling, the district court found that the relator had not made allegations similar to those that other courts have concluded support inferences of willfulness in AKS cases.9 This included, for example, a lack of allegations that “McKesson took steps to conceal its behavior, had notice that its sales practices might be unlawful, stopped offering the Business Management Tools for no charge out of a concern that doing so might be unlawful, or believed that the Business Management Tools were shams.”10 While the district court specified that those specific allegations would not have been necessary to establish an inference of willfulness, it nonetheless found their absences compelling.11
On appeal, the Second Circuit concurred with the district court and held that a defendant may only be liable under the AKS when he acts with knowledge that his conduct is, in some way, unlawful. The Second Circuit further agreed that the defendant need not know his conduct violated the AKS specifically or have an intention to violate the AKS in particular.12 By doing so, the court rejected the relator’s proposed approach that the willfulness requirement may be satisfied merely by showing that the defendant intentionally provided something of value in connection with a medical purchase reimbursed by the government while knowing generally that it is illegal to provide things of value in connection with such purchases.13 The court found that the relator’s interpretation “would criminalize too much innocent conduct.”14 The court hypothesized that a company, while aware of the AKS’s prohibitions on kickbacks generally, could create a customer hotline allowing providers to ask questions about its products out of a good faith desire to help providers.15 Under the relator’s approach however, this company could be held liable under the AKS if the hotline was deemed prohibited remuneration even though “one could hardly say that the company acted with [a] ‘vicious will.’”16 The Second Circuit’s interpretation of the willfulness requirement aligns with the interpretation made by several other circuits, including the Third, Fifth, Sixth, Seventh, Eight and Eleventh Circuits.17 In reaching its conclusion, the Second Cricut noted that the “the reach of the AKS is far from settled,” and that the HHS is authorized to establish safe harbors that exempt certain arrangements from the AKS (more than 35 have been established to date) and to issue advisory opinions as to whether specific arrangements violate the AKS.18 The Second Circuit recognized the complexity in complying with the AKS, and stated that a defendant could in good-faith inadvertently violate the law. Accordingly, the court concluded that “defining ‘willfully’ to require that a defendant act knowing that her conduct is in some way unlawful avoids sweeping in such innocent conduct.”19
After having established the definition of willfulness, the Second Circuit analyzed plaintiff’s allegations and concluded that they did not, separately or in combination, give rise to a plausible inference that McKesson believed that its offering of the free business management tools was unlawful.20 The relator pointed out that the company scrubbed relator’s company-issued laptop after he left the company.21 The court concluded that this conduct did not suggest that McKesson was trying to conceal information, because (1) the scrubbing of the relator’s laptop occurred after the Department of Justice sent the company document requests in the case (the Second Circuit found that concealment of potential evidence is generally probative of wrongful intent when it happens during, and not after, a violation); (2) the relator did not allege that it was not standard practice for McKesson to scrub laptops previously used by former employees; and (3) the relator did not suggest that other laptops were scrubbed, despite claiming McKesson was engaged in a “nationwide” scheme.22 The court was similarly unpersuaded by the relator’s allegations that he raised concerns to a supervisor about the issue, finding that, at most, this suggested that the relator had concerns and not that his supervisor or anyone else at the company shared those concerns.23 Finally, the Second Circuit did not agree with the relator that an email between two sales executives (in which one wrote: “You didn’t get this from me .... ok?”) that included a 170-page attachment that addressed many topics, and included only five references to the business management tools, conveyed any concerns about the provision of those tools to oncology practices.24 As a result, the Second Circuit ruled that the district court did not err in dismissing plaintiff’s federal FCA claim for failure to state a claim.
The McKesson decision reinforces the notion that a relatively high standard is necessary to meet the intent requirements of the AKS, and also suggests that good faith attempts to comply with the law will likely help avoid liability. At the same time, however, the court emphasized the importance of the HHS-created safe harbors and advisory opinions for demonstrating efforts to comply with the AKS. A strong understanding of both the safe harbors and advisory opinions is key in developing a strong AKS-compliance program. Proper trainings are equally important; these trainings should explain the legitimate and appropriate motivations for various business decisions and programs such that employees understand the company is not acting with a “bad purpose” that would give rise to AKS violations.
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