Dentons

On April 29, 2020, the U.S. Court of Appeals for the Seventh Circuit issued an opinion in Stop Illinois Health Care Fraud, LLC v. Sayeed reaffirming the court’s broad interpretation of the term “referral” under the federal health care program anti-kickback statute (Anti-Kickback Statute or AKS) as encompassing more than the explicit sending or directing of a patient to a provider. 

Sayeed involves a qui tam action under the federal civil False Claims Act (FCA) (and Illinois’s state law counterpart) predicated on alleged violations of the Anti-Kickback Statute. In Sayeed, the Seventh Circuit vacated the district court’s judgment for the defendants on the grounds that the district court may have applied an overly narrow definition of the term “referral,” and remanded the case for further proceedings consistent with the Seventh Circuit’s broader interpretation of that term. While it remains to be seen how the district court will apply the broader definition to the facts at issue, the Sayeed decision suggests that more arrangements may be subject to potential AKS and FCA liability than previously thought.

Background

The Anti-Kickback Statute is a criminal statute that, among other things, makes it illegal for any person “knowingly and willfully” to solicit, receive, offer, or pay any “remuneration” in return for “referring an individual to a person for the furnishing or arranging for the furnishing” of any items or service reimbursable, in whole or in part, under a federal health care program. The term “referring” is not defined in the statute or its safe harbor regulations.

The Seventh Circuit previously opined on the meaning of “refer” in a 2015 decision, United States v. Patel. Patel involved an arrangement between Kamal Patel, M.D. (Dr. Patel) and Grand Home Health Care (Grand), a home health care provider, in which Grand paid Dr. Patel for each certification or recertification of medical necessity that he signed for patients. (Such certifications and recertifications are required for a home health care provider to receive Medicare reimbursement.) Notably, it was undisputed that (i) Dr. Patel did not influence (or attempt to influence) any patient’s initial decision to receive home health care services from Grand, (ii) Dr. Patel’s medical assistant discussed the selection of providers with patients who required home care services and gave patients an array of brochures from providers, one of which was Grand’s, and (iii) each patient then independently chose a provider from that array.

On appeal, Dr. Patel argued that he was not guilty of violating the Anti-Kickback Statute because the term “refer” meant “to personally recommend to a patient that he seek care from a particular entity,” and the evidence showed that Dr. Patel’s patients independently chose their home health care provider. The Seventh Circuit rejected this argument, however, holding that “refer” includes “not only a doctor’s recommendation of a provider, but also a doctor’s authorization of care by a provider.” Under this “expansive” definition, Dr. Patel “referred” his patients to Grand by signing certifications and recertifications for patients who had independently chosen Grand as their home care provider. In support of this interpretation, the Seventh Circuit emphasized that Dr. Patel acted as a “gatekeeper to federally-reimbursed care” because, regardless of the patient’s exercise of choice, Grand could not bill Medicare for home health care services furnished to the patient without Dr. Patel’s signed certification or recertification.

District Court Decision

Sayeed involves remuneration provided by Management Principles, Inc. (MPI), the parent organization of two home health care companies, to Healthcare Consortium of Illinois (HCI), a non-profit organization (now dissolved) that was contracted with the Illinois Department of Aging to coordinate services for low-income seniors. In the ordinary course, HCI would send caseworkers to seniors’ homes to assess whether they could safely remain living on their own and, if so, whether they needed additional services like meal deliveries or medical services. When a client needed in-home health care, the HCI caseworker would make a referral from a prepared list of providers, which list included MPI’s companies. Notably, the HCI caseworkers made referrals to the providers by “methodically going down the list,” to ensure that each listed provider received a “fair distribution” of referrals.

In the U.S. District Court for the Northern Division of Illinois, the plaintiff/relator brought a qui tam action alleging that HCI, MPI, Asif Sayeed (MPI’s owner), and the two home health care providers owned by MPI violated the Anti-Kickback Statute, FCA, and Illinois False Claims Act. While HCI settled the claims against it, the MPI parties proceeded to a bench trial.

During the trial, the plaintiff mainly focused on a Management Services Agreement (MSA) between HCI and MPI. Under the MSA, MPI paid HCI $5,000 per month for 18 months in exchange for HCI providing vaguely described administrative duties and advice. Sayeed testified that the MSA was intended to cover “data mining,” pursuant to which MPI would be given access to HCI’s caseworker paperwork for all HCI clients, not just those referred to an MPI home health care provider through the rotation system described above. Using this data, MPI called HCI clients that MPI thought would likely need in-home care and offered its services, which allowed MPI to acquire new patients.

The plaintiff also alleged that MPI violated the Anti-Kickback Statute by providing gift cards to certain HCI employees, but the only evidence produced at trial showed that the gift cards were of low value and were only given for special occasions like birthdays.

Following the conclusion of the plaintiff’s case in chief, the defendants moved for a judgment on partial findings on all claims, arguing that the plaintiff had failed to establish a prima facie case of an Anti-Kickback Statute violation. In a brief opinion, the district court granted the defendants’ motion, on the grounds that the plaintiff presented “no evidence” that the gift cards or the MSA fees “were intended to induce referrals or other illegal or inappropriate kickbacks.”

Seventh Circuit Decision

On appeal to the Seventh Circuit, the relator argued that the district court reached an incorrect conclusion of law because it “employed too narrow an understanding of a referral.” Reviewing the district court’s legal conclusions de novo, the Seventh Circuit agreed with the district court that there was “no evidence” that the gift cards were “intended to induce referrals,” but found that the MSA presented a “more difficult issue.”

The Seventh Circuit began by acknowledging that “nothing linked the monthly payments [under the MSA] to HCI caseworkers telling their clients that they should use MPI’s services.” However, according to the Seventh Circuit, there was a question regarding whether the “file-access theory” put forward by the plaintiff―that MPI’s payments were intended to secure access to client information in HCI’s files, which MPI then used to solicit patients―could constitute a prohibited “referral” by HCI under the Anti-Kickback Statute. Simply put, there was a question regarding whether (i) providing MPI with access to HCI’s patient records and (ii) HCI “referring” patients to MPI for the furnishing of covered services were equivalent for AKS purposes.

The Seventh Circuit noted that it had previously expounded on the meaning of “refer” in Patel, and reiterated that, in that case, it had a rejected a “narrow” definition of referral in favor of a “more expansive” one that included a “doctor’s authorization to receive medical care.” While the Seventh Circuit acknowledged that the Patel holding was not “directly controlling” because Sayeed did not concern a “gatekeeping doctor” but rather an organization (HCI) with no certification authority, the Seventh Circuit emphasized that Patel offered an “applicable lesson.” That lesson, according to the court, was that “the definition of a referral under the Anti-Kickback Statute is broad, encapsulating both direct and indirect means of connecting a patient with a provider,” and that it “goes beyond explicit recommendations to include more subtle arrangements.” The Seventh Circuit further emphasized that “the inquiry is a practical one that focuses on substance, not form.”

The Seventh Circuit found that, because the district court’s opinion was so sparse, it could not be certain whether the district court had applied an “erroneously narrow understanding” of the term “referral” or “the more inclusive, practical approach illustrated in Patel.” In the Seventh Circuit’s view, a “practical analysis” of the file-access arrangement “would allow, but perhaps not compel, a finding that it qualifies as a referral.” The rationale for such a finding would be that, even though “no evidence suggested that HCI directed its clients to MPI or its home healthcare companies,” one could conclude that “the effect of the file access was the same.”

While the district court had seemingly rejected this file-access theory of referral, the Seventh Circuit could not discern whether the district court had “applied the correct definition of ‘refer’ but found that the proof fell short of it,” or instead “committed a legal error by adopting an unduly narrow understanding of the term.” Because the Seventh Circuit was unsure of the district court’s reasoning, it opted to vacate the judgment and remand the case for further proceedings.

Conclusion

It remains to be seen whether, on remand, the district court views the file-access theory in Sayeed as giving rise to a “referral” under the broad Patel approach. Given that such a finding could significantly expand the scope of arrangements that may give rise to potential liability under the AKS and FCA, providers, suppliers, and other healthcare entities—indeed, any organization that sells or purchases data of any kind that may be used by the recipient to market clinical services to prospective customers—would be well advised to follow the Sayeed case very closely.

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