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Kickbacks Under the False Claims Act

June 27, 2023

What Is Kickback?

In simple terms, a kickback refers to the act of offering or providing something valuable in exchange for receiving business referrals. While kickbacks are legal in certain sectors of the business world and regulated in others, under the False Claims Act (FCA) it is strictly prohibited when the referred business is paid for by the federal government either with one of its health programs like Medicare or Medicaid or for a defense contract.   Behavior involving kickbacks may have criminal consequences as well depending on how far along the spectrum the government views it as an outright bribe or if the conduct is in conjunction with inducing business to provide a lesser quality or worthless service.  Some of the largest cases under the False Claims Act and SEC have involved kickbacks, especially in the pharmaceutical fraud world where elaborate schemes are used to gain inroads to have physicians prescribe a particular product.  The FCA allows whistleblowers to report kickbacks under the Anti-Kickback Statute (AKS) And receive up to 30% of what the government recovers, and in some instances kickback cases have resulted in hundreds of millions of dollars of whistleblower rewards for those that report it promptly in the right manner. 

Kickbacks can take many different forms, such as:

  • Cash payments: In exchange for referrals, healthcare providers may not pay cash to patients, referring physicians, or other healthcare providers.
  • Gifts: Healthcare providers are prohibited from giving gifts to patients, referring physicians, or other healthcare providers, such as travel, meals, or entertainment.
  • Discounts or Rebates: Healthcare providers may be  prohibited from offering discounts on the cost of goods or services to patients, referring physicians, or other healthcare providers as a hidden form of compensation.  This also dovetails into cases involving best pricing in which sometimes one set of pricing goes to the government and hidden factors reduce the cost to non-government payers. 
  • Freebies: Healthcare providers may not offer free goods or services to patients, referring physicians, or other healthcare providers as a form of compensation.
  • Waiver of Copays: People don’t like paying co-pays, but they are essential to keep the system in balance, deter unnecessary visits and cross-check whether the physician is actually performing the service, however, the waiver of a co-pay could be considered a kickback since it’s something of value to the patient to induce continued business. 
  • Bribes: Sometimes an entity will outright pay to have business steered in its direction which could trigger multiple whistleblower statutes like the False Claims act and SEC Whistleblower statute.  Recently, an SEC whistleblower received a $279 million whistleblower award for disclosing bribes a company paid to foreign entities to induce business which violates the Foreign Corrupt Practices Act (FCPA) as well as potentially the False Claims Act if U.S. government business is implicated.
  • Fair Market Value (“FMV”): FMV is a concept that if the pricing given to induce business deviates substantially below what the fair price is for the goods or services it could be considered a kickback.

Kickbacks under the false claims act

Examples of Kickbacks

There are numerous examples of kickbacks that have been found to violate the False Claims Act. Some common examples are:

  • A healthcare provider pays a patient $100 for each referral made to the healthcare provider or provides the patient with a credit towards her co-pay or gives a gift card or other items of value for referrals.
  • In exchange for prescribing the company’s drugs, a pharmaceutical company provides a referring physician with a free vacation or speaking fees or a fake directorship with compensation
  • In exchange for the hospital using the devices, a medical device company gives a referring hospital a discount on the cost of its devices.

The Policy Behind Prohibiting Kickbacks

The prohibition of kickbacks is driven by logical considerations that have real world consequences of behavior and perception. . First, the FCA and the AKS aim to prevent the excessive use of healthcare resources and services, which can occur when parties profit from a cycle of referrals for business which encourages overutilization. This in turn can lead to increased program costs when amplified client count is churned for billings sake. If money is exchanged for referrals, these costs are likely to be passed on to government healthcare programs in some way. Moreover, the Anti-Kickback Statute (AKS) seeks to prevent improper considerations from influencing medical decision-making, particularly when additional profit opportunities are involved that may be opaque.  The objectivity of the medical provider is questioned when a third party is economically induced to send patients in his direction as the referrer’s best interest may be in the referral fee, not the patient herself.  For example, in a case where a dentist is paying referral fees for new Medicare patients a “runner” may encourage people to go to the dentist and coach them to say things like they have a dull pain or a tooth ache when it’s cold to amplify and obtain a referral fee. The coaching may be unbeknownst to the dentist who then subjects the patient to unnecessary risks of additional x-rays, but is able to bill Medicare more and consequently may be a bigger referral fee and the cycle of kickback abuses corrupts the system

The Anti-Kickback Statute

The AKS is the federal statute that addresses kickbacks in the healthcare industry. Under the AKS (42 U.S.C. § 1320a-7b(b)), it is unlawful to knowingly and willfully offer or receive “remuneration” to induce referrals or generate business related to any item or service reimbursable by Federal healthcare programs as well as for other government contracts The AKS cannot be invoked in isolation and requires pleading the FCA.

Understanding “Remuneration” and Violations of the AKS

The term “remuneration” is broadly defined and encompasses more than just cash payments. Violations of the AKS can involve providing free or discounted rent, travel expenses, meals, or excessive compensation for legitimate medical advisory or consulting services or any of endless different schemes to scurry payments for business. 

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Penalties of Violating the AKS

Under the statute those who offer or pay kickbacks and those who solicit or accept them are subject to civil and criminal penalties and administrative sanctions under the AKS.  However, even though there is a criminal component, most of the time unless there are kickbacks with other conduct such as worthless services, and bad intent beyond normal scienter, generally the cases just resolve civilly along the FCA.  Further, it’s rare for patients to incur criminal liability, and the criminal charges tend to flow to the healthcare provider or defense contractor who offers and pays the kickbacks.  Anything can happen though. Penalties for kickbacks can include fines, imprisonment, and exclusion from participation in Federal healthcare programs. In the Miami hospital scheme case, the perpetrators are facing prison terms exceeding three years.

Kickback schemes can also be civilly prosecuted under the federal False Claims Act (FCA) (31 U.S.C. § 3729 et seq.)through the use of a whistleblower lawyer. FCA claims can be filed by the government or whistleblowers. For instance, if a medical device company incentivizes a hospital to use its products by providing compensation, claims for payment related to those products would violate the False Claims Act. Similarly, a drug manufacturer can violate the FCA by offering free goods or services to a hospital in exchange for preferred status on the hospital’s drug formulary. An FCA whistleblower stands to gain quite a bit if they blow the whistle in the right way. 

Kickback Schemes and Physicians

Physicians are often targeted in kickback schemes because they have the potential to refer patients to other healthcare providers and suppliers. Physicians play a significant role in determining prescriptions, specialist referrals, and healthcare services provided. Consequently, a hospital cannot offer free services or facilities to a physician group in exchange for patient referrals to the hospital. 

Similarly, providing excessive payments to physicians for serving on a medical advisory board, contingent on their performance of specific tests or prescription of certain drugs, can implicate the FCA when claims for payment are submitted for those tests or drugs. In the Miami case involving the director of outreach programs at Larkin Community Hospital, the director induced physicians to discharge patients to assisted-care communities or nursing homes owned by her co-conspirators, even if the patients didn’t require or receive the claimed services.

It is important to note that kickbacks can occur between any two parties, including relationships with patients. For instance, healthcare providers cannot advertise that they won’t collect copayments required by Medicare and Medicaid programs to entice patients to choose them. Furthermore, a provider can be found to have violated the AKS or the FCA even if a medical service was provided and deemed medically necessary.

Kickback Whistleblower Settlements

Settlements and judgments under the False Claims Act surpassed $2.2 billion in the fiscal year ending September 30, 2022. The government and whistleblowers were parties to 351 settlements and judgments, the second-highest number in a single year. Since 1986, when Congress significantly strengthened the civil False Claims Act, recoveries have totaled more than $72 billion.

In 2022, Fifteen additional doctors in Texas reached settlements, collectively paying $2.83 million, to resolve allegations under the False Claims Act which brought the total to 33. These doctors were accused of participating in illegal kickback schemes that violated the Anti-Kickback Statute and Stark Law. The allegations revolve around doctors who allegedly received substantial remuneration from nine management service organizations (MSOs) and in exchange for this remuneration, the doctors were accused of ordering laboratory tests from Rockdale Hospital, also known as Little River Healthcare, True Health Diagnostics LLC, and/or Boston Heart Diagnostics Corporation.

These funds were allegedly in the form of volume-based commissions paid to independent contractor recruiters who utilized MSOs to compensate multiple doctors for their referrals. Although the MSO payments to the doctors were purportedly disguised as investment returns, they were ultimately based on and offered in exchange for the doctors’ referrals. https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-2-billion-fiscal-year-2022

Kickback Whistleblower Awards

Whistleblowers who file a lawsuit under the FCA that leads to a successful recovery can receive 15% and 30% of the government’s recovery as a whistleblower reward.

Kickbacks are a simple concept, but if you’re aware of one the consequences could be complex.  If you have information about a kickback scheme you should take the time to speak with one of the best whistleblower law firms as this area of law is best handled by firms with significant experience in the False Claims Act space and there’s very few firms that have a consistent track record of success with the FCA.   When there’s criminal consequences too, the longer you wait, the more exposure you may have, so the earlier you have a whistleblower consultation the better position you will be to make an educated decision about how to report a kickback scheme.