Overview of Issue
The federal Anti-Kickback Statute (“Anti-Kickback Statute”) is a criminal statute that prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce (or reward) the referral of federal health care program business. See 42 U.S.C. § 1320a-7b. The Anti-Kickback Statute is broadly drafted and establishes penalties for individuals and entities on both sides of the prohibited transaction. Conviction for a single violation under the Anti-Kickback Statute may result in a fine of up to $25,000 and imprisonment for up to five (5) years. See 42 U.S.C. § 1320a-7b(b). In addition, conviction results in mandatory exclusion from participation in federal health care programs. 42 U.S.C. § 1320a-7(a). Absent a conviction, individuals who violate the Anti-Kickback Statute may still face exclusion from federal health care programs at the discretion of the Secretary of Health and Human Services. 42 U.S.C. § 1320a-7(b). The government may also assess civil money penalties, which could result in treble damages plus $50,000 for each violation of the Anti-Kickback Statute. 42 U.S.C § 1320a-7a(a)(7). Although the Anti-Kickback Statute does not afford a private right of action, the False Claims Act provides a vehicle whereby individuals may bring qui tam actions alleging violations of the Anti-Kickback Statute. See 31 U.S.C. §§ 3729–3733. When a private citizen sues on behalf of the Federal government and is successful, they receive a percentage of the ultimate recovery for their “whistleblower” efforts. See id.
In recognition of the broad range of transactions potentially implicated by the Anti-Kickback Statute, certain types of payments are excluded from consideration by statute. 42 U.S.C. § 1320a-7b(b)(3). In addition, the U.S. Department of Health & Human Services (“HHS”) Office of Inspector General (“OIG”) has been given authority to adopt “safe harbors” to protect specifically identified business and financial practices from criminal and civil prosecution, provided they fall within parameters defined to minimize the risk for potential corruption. See 42 C.F.R. § 1001.952. Transactions not specifically excluded or granted safe harbor protection are not per se violations of the Anti-Kickback Statute but are evaluated by the OIG on a case-by-case basis. See Office of Public Affairs, Office of Inspector General Department of Health & Human Services, Fact Sheet November 1999, Federal Anti-Kickback Laws and Regulatory Safeharbors. Parties who are uncertain whether their arrangements qualify for exclusion or safe harbor protection may request an advisory opinion from the OIG. See id.
According to the OIG, the Anti-Kickback Statute was originally enacted in 1972 to protect patients and federal health care programs from fraud and abuse. See id. In response to the concerns of health care providers regarding the prohibition of certain types of potentially beneficial arrangements, Congress authorized HHS to designate types of relationships, which would potentially implicate the Anti-Kickback Statute but would not be subject to prosecution. See id. The safe harbors that have been designated by HHS contain specific requirements that relate to each type of relationship. See id.
The Social Security Amendments of 1972 included the original anti-kickback legislation. See Social Security Amendments of 1972, Pub. L. 92-603, 86 Stat. 1329 (1972). In 1977, Congress enacted the Medicare-Medicaid Anti-Fraud and Abuse Amendments, which increased the severity of penalties from a misdemeanor to a felony, and resulted in 42 U.S.C. § 1395nn(b)(2), which includes an expansive list of proscribed payments. See Pub. L. 95-142, 91 Stat. 1175 (1977). The OIG was given authority to issue civil penalties in addition to the already authorized criminal penalties set forth in The Medicare and Medicaid Patient and Program Protection Act of 1987. See Pub. L. 100-93, 101 Stat. 680 (1987) § 3.The Medicare and Medicaid Patient Program Protection Act also contained a mandate that the OIG promulgate regulations specifying permissible practices or safe harbors. See id. at § 14.
Almost four years after the passage of the initial legislation requiring the OIG to promulgate safe harbors, the interim final rule providing the first set of final safe harbor regulations was published. See 56 Fed. Reg. 35932 (July 29, 1991). These early safe harbors addressed the following types of arrangements: investment interests; space rental; equipment rental; personal services and management contracts; sale of practice; referral services; warranties; discounts; employees; and group purchasing organizations. See generally id. Shortly thereafter, the OIG established two new safe harbors and amended one of the early safe harbors to provide protection for certain health care plans, such as health maintenance organizations and preferred provider organizations. See 57 Fed. Reg. 52723 (Nov. 5, 1992). In the next several years, the OIG proposed several new safe harbor regulations as well as clarification of the original safe harbors. Those actions were not finalized until 1999. See Medicare and State Health Care Programs: Fraud and Abuse; Clarification of the Initial OIG Safe Harbor Provisions and Establishment of Additional Safe Harbor Provisions Under the Anti-Kickback Statute; Final Rule, 64 Federal Register 63,518 (Nov. 19, 1999)(to be codified at 42 C.F.R. 1001).
In 1996, Congress passed the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). See Pub. L. 104-191, 110 Stat. 1936 (1996). Although HIPAA’s primary focus was the portability and continuity of health insurance, it also increased the scope of fraud and abuse sanctions and established mechanisms by which HHS might issue guidance relevant to fraud and abuse laws.
In 1999, the OIG issued several sets of regulations finalizing the proposed safe harbors first published in 1993 and the clarifications originally proposed in 1994. 64 Fed. Reg. 63504 (Nov. 19, 1999). Within the next three years, the OIG added a safe harbor for ambulance replenishing, see 66 Fed. Reg. 62979 (December 4, 2001), proposed the expansion of the safe harbor for waivers of certain beneficiary coinsurance and deductible amounts, 67 Fed. Reg. 60202 (September 25, 2002), and the addition of a safe harbor to enable Federally Qualified Health Centers (“FQHCs”) to more readily provide services to underserved populations. See 70 Fed. Reg. 38081 (July 1, 2005) (proposed safe harbors).
Case law applying the Anti-Kickback Statute illustrates the variation in interpretation of the Anti-Kickback Statute. Case law has explored the interplay between seemingly similar statutory exceptions and regulatory safe harbors. See, e.g., United States v. Shaw, 106 F.Supp.2d 103 (D. Mass. 2000) (addressing the interplay between the discount exception and discount safe harbor and finding the exception has independent status and safe harbor will not control the court’s interpretation and application of the related exception).
Perhaps the most noteworthy subject of relevant case law, however, is the scope of the Anti-Kickback Statute’s scienter requirement. In United States v. Greber, the landmark case regarding the scope of the Anti-Kickback Statute, the U.S. Court of Appeals for the Third Circuit established the “one purpose” test. Under the “one purpose” test, “if one purpose of the payment was to induce future referrals, the Medicare statute has been violated.” U.S. v. Greber, 760 F.2d 68, 69 (3rd Cir. 1985), cert. denied, 474 U.S. 988 (1985). This test has also been adopted by the Fifth, Ninth, and Tenth Circuits. See U.S. v. Davis, 132 F.3d 1092 (5th Cir. 1998); U.S. v. Kats, 871 F.2d 105 (9th Cir. 1989); and U.S. v. McClatchey, 217 F.3d 823 (10th Cir. 2000) (reaff'd., U.S. v. LaHue, 261 F.3d 993 (10th Cir. 2001)) In U.S. v. Bay State Ambulance and Hospital Rental, Inc., the First Circuit stopped short of explicitly adopting the “one purpose” test, instead instructing the jury that the “primary purpose” must be improper in order to obtain a conviction under the Anti-Kickback Statute. See U.S. v. Bay State Ambulance and Hospital Rental, Inc., 874 F.2d 20, 32 (1st Cir. 1989). The U.S. Supreme Court has not yet directly addressed the scope of the Anti-Kickback Statute.
The Anti-Kickback Statute is an intent-based statute requiring the party “knowingly and willfully” engage in the prohibited conduct. See 42 U.S.C. § 1320a-7b(a). In 1995, the Ninth Circuit, in Hanlester Network v. Shalala, held that a party may violate the federal fraud and abuse laws “knowingly and willfully” only if he or she (i) knows that the Anti-Kickback Statute prohibits offering or paying remuneration to induce referrals and (ii) engages in the prohibited conduct with the specific intent to disobey the law. Hanlester Network v. Shalala, 51 F.3d 1390, 1400 (9th Cir. 1995) (citing Ratzlaf v. United States, 510 U.S. 135 (1994)) to hold that the government had not proven that the appellants acted with the requisite intent to have received remuneration in return for referrals since the representation in this case which rose to the level of impermissible inducement under the Anti-Kickback Statute was made by the marketing director and violated the organizations’ stated policies). Other courts since Hanlester have failed to follow the Ninth Circuit, instead distinguishing Ratzlaf. See, e.g., U.S. v. Neufeld, 908 F.Supp. 491 (S.D. Ohio 1995) (declining to follow Ninth Circuit’s definition of “willful” and distinguishing the scienter requirement of Ratzlaf as applying to the federal anti-structuring statute, which is different from the Anti-Kickback Statute). The Eighth Circuit, in U.S. v. Jain, interpreted “willfully” to mean “unjustifiably and wrongfully known to be such by the defendant.” U.S. v. Jain, 93 F.3d 436, 440 (8th Cir. 1996).
Although the Supreme Court has yet to rule on the meaning of “willfully” under the Anti-Kickback Statute, it has encountered the term in other contexts and has addressed it in a manner that may provide guidance. The Court granted certiorari in Bryan v. U.S. to resolve a similar split among circuits as to whether “willfully,” as applied to a different statute, required knowledge by the defendant that he was violating the statute at issue or merely required knowledge that the conduct was unlawful. See Bryan v. U.S., 524 U.S. 184 (1998). The Court rejected the narrow Hanlester approach and adopted a broader requirement holding that “willfully” only requires proof that the defendant was aware that his conduct was generally unlawful. See id. at 196. The Court distinguished Ratzlaf as applying to “highly technical statutes that presented the danger of ensnaring individuals engaged in apparently innocent conduct.” See id. at 203. Thus, the classification of the Anti-Kickback Statute in this regard is still unanswered.
The Patient Protection and Affordable Care Act clarified the ambiguity surrounding the intent requirement of the Anti-Kickback Statute by adding a provision which states that actual knowledge of an Anti-Kickback Statute violation or the specific intent to commit a violation of the Anti-Kickback Statute is not necessary for conviction under the statute. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 6402(f)(2), 124 Stat 119 (2010). The government must still prove that a defendant intended to violate the law, but no longer has to prove the defendant intended to violate the Anti-Kickback Statute itself. This amendment eliminates a great deal of the uncertainty regarding the requisite scienter needed to support a conviction under the Anti-Kickback Statute.
Guidance from the OIG relating to the Anti-Kickback Statute and its safe harbors can be found in numerous rulemaking publications. See 52 Fed. Reg. 38794 (Oct. 19, 1987); 53 Fed. Reg. 51856 (Dec. 23, 1988); 53 Fed. Reg. 52448 (Dec. 28, 1988); 54 Fed. Reg. 3088 (Jan. 23, 1989); 56 Fed. Reg. 35932 (July 29, 1991); 57 Fed. Reg. 52723 (Nov. 5, 1992); Health Insurance Portability and Accountability Act of 1996; 58 Fed. Reg. 49008 (Sept. 31, 1993); 59 Fed. Reg. 37202 (July 21, 1994); 61 Fed. Reg. 2122 (Jan. 25, 1996); 64 Fed. Reg. 63504 (Nov. 19, 1999); 66 Fed. Reg. 62979 (December 4, 2001); 67 Fed. Reg. 60202 (September 25, 2002); 70 Fed. Reg. 38081 (July 1, 2005) (proposed safe harbors). The OIG’s website, currently located at www.oig.hhs.gov, provides information on fraud detection and prevention as well as information on the Anti-Kickback Statute safe harbors, fraud alerts, and advisory opinions.
The constantly changing health care industry makes it difficult to predict the future interpretation and application of the Anti-Kickback Statute. Promulgation of new safe harbors can certainly be anticipated as providers’ business practices and relationships change in response to health care reform and advances in information technology. In addition, future attempts by the courts to define the intended scope and required scienter may shape the interpretation and application of the Anti-Kickback Statute.
AHLA would like to thank Terri Sabella for drafting the original version of this article, and Wendi Rogaliner, Amy Kearbey, and Jill Berry for their editorial assistance.