Fifth Circuit Refuses to Take the “One Purpose” Test of the Anti-Kickback Statute to Its Logical Extreme: United States ex rel Ruscher v. Omnicare, Inc.

Dear Readers:

As you have probably experienced, False Claims Act (“FCA”) cases based on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), have risen sharply in the last few years. Simply stated, the Anti-Kickback Statute (“AKS”) makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward referrals of items or services reimbursable by a Federal health care program, such as Medicare or Medicaid. The AKS has been broadly enforced primarily, in my view, due to the application of the “one purpose” test: that is, to prove that a contract or transaction between health care providers violates the AKS, a relator or the government need only show that “one purpose” of the remuneration involved in the transaction was for the purpose of inducing referrals. See Robert G. Homchick, “Federal Anti-Kickback Statute Primer.” Not surprisingly with a lower standard of proof to prove a “false claim,” enforcement of the AKS through the False Claims Act has expanded its reach into areas that would have been unthinkable years ago when most of the AKS enforcement was on the criminal side. In fact, one commercial blog claims that “Anti-Kickback Statute violations — as well as violations of the Stark Law — now make up most False Claims Act cases.” Becker’s Hospital Review, “20 things to know about the Anti-Kickback Statute,” September 5, 2014.

Amidst these ever growing AKS cases, I came across a remarkable case, United States ex rel Ruscher v. Omnicare, Inc., et al., 2016 WL 6407128, __ Fed. Appx.__ (5th Cir., 10/28/2016), that applied a common sense analysis to this “one purpose” test and refused to extend it to a logical extreme.  Ruscher refused to find an AKS violation simply because one of the parties to a contract designed to provide legitimate pharmacy services “merely hoped” or expected referrals as a benefit or by-product of that contract. 

Here are some of the key facts: Defendant Omnicare provided pharmacy services to skilled nursing facilities (“SNFs”) and their residents. Omnicare routinely entered into Preferred Provided Agreements with the SNFs, which designated Omnicare as the SNFs’ preferred provider of pharmacy services and set forth, among other things, pricing, payment terms, and billing mechanisms. These SNFs provided medical, nursing, and therapy services to residents who usually had their pharmacy drug costs reimbursed by Medicare Part A, Medicare Part D, or Medicaid. Part A benefits last for 100 days. When providing pharmacy benefits to residents covered by Part A, Omnicare billed the SNF for prescription costs. Medicate, in turn paid the SNFs a per diem amount for each Part A resident’s care, including pharmacy services. After a resident’s Part A benefits expired, any pharmacy services provided to residents by Omnicare were reimbursed by the patient’s Medicare Part D and/or Medicaid coverage. 

Omnicare’s billing and collections from these SNFs sometimes resulted in some confusion as to whether Omnicare had properly billed and been paid for the services it provided. This confusion gave rise to billing disputes with the SNFs that sometimes took years to resolve.  The relator in Ruscher worked in Omnicare’s Collections Department for a time, collecting past-due accounts from SNFs. She became suspicious of Omnicare’s contract negotiations with these SNF clients over past due accounts receivables, and as a result, filed a False Claims Act qui tam against Omnicare and several other defendants in the Southern District of Texas. Among other things, the relator alleged that Omnicare violated the FCA by purportedly making and causing SNFs to make false claims on the SNFs’ cost reports for Medicare and Medicaid reimbursement that allegedly resulted from kickbacks in violation of the AKS. After pending for several years, the Court granted summary judgment in favor of Omnicare, and the Fifth Circuit affirmed that summary judgment. Among other things, the relator primarily contended that Omnicare paid unlawful kickbacks to the SNFs both by not collecting Part A debt that was allegedly owed it and by offering prompt-payment discounts to induce the SNFs to refer patients to Omnicare who were covered under Medicare Part D and Medicaid. Stated simply, the relator alleged that Omnicare was not collecting all that it was due from the SNFs or offering the SNFs favorable payment terms so that the SNFs in turn would have a favorable opinion of Omnicare, continue to contract with it, and continue to refer the SNF residents whose pharmacy services were reimbursed by Medicare Part D and Medicaid.

The Fifth Circuit acknowledged that the AKS “criminalizes the payment of any funds or benefits designed to encourage an individual to refer another party to a Medicare provider for services to be paid for by the Medicare program" and that the relator needed to only show that “one purpose of the remuneration was to induce such referrals.” Yet, the Court found the Omnicare did not violate the AKS: “there is no AKS violation . . . where the defendant merely hopes or expects referrals from benefits that were designed wholly for other purposes.” Among the reasons cited by Ruscher to support its finding were:

• OIG – HHS had previously stated that prompt payment discounts were not included among the designated HHS “Safe Harbors” because “by definition, preferred payment discounts are designed to induce prompt payment and thus do not appear to violate” the AKS.
• Relator’s evidence primarily showed Omnicare was trying to collect verifiable debt and settle billing disputes without unnecessarily aggravating its SNF clients in the midst of ongoing or anticipated contract negotiations.
• At best, the evidence showed that Omnicare did not want unresolved settlement negotiations to negatively impact its contract negotiations with SNF clients and was avoiding confrontational collection practices that might discourage SNFs from continuing to do business with Omnicare.
• None of the evidence showed that Omnicare designed its settlement negotiations and debt collection practices to induce SNF clients to continue making Medicare and Medicaid referrals to Omnicare.
• SNFs were not told they were getting special benefits from Omnicare settlement negotiations and debt collection practices let alone that any such benefits were tied to Medicare and Medicaid referrals.  The Court noted that “if purported benefits were designed to encourage SNFs to refer Medicare and Medicaid patients, one might expect to find evidence showing that the SNFs at least knew about those benefits.”
• While Omnicare “may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practices to induce such referrals, relator cannot show an AKS violation.”
• Omnicare’s prompt payment discount offers to SNFs did not violate the AKS because there was no evidence they were designed to induce referrals.  The relator showing that they were offered in contract negotiations and included in new contracts was not enough in and of itself to show an illegitimate motive for the purpose of inducing referrals rather than the legitimate purpose of inducing payments.  

In short, the Court found that Omnicare’s legitimate billing and collections practices with its SNF clients did not run afoul of the AKS simply because a byproduct of its contracts and its collections practices was to promote continued good will with the SNFs and, in turn, their referrals. The Court distinguished such an agreement from other agreements that are designed, at least in part, to induce referrals. 

Perhaps the most remarkable result is that the 5th Circuit affirmed summary judgment for Omnicare and did not find this question of Omnicare’s motive or intent to be a jury question. In affirming summary judgment, the Ruscher Court relied on a criminal case, U.S. v. McClatchey, 217 F.3d 823, 834 (10th Cir. 2000), which addressed the AKS in the context of ruling on a jury instruction. According to McClatchey, determinations as to a defendant’s motive in AKS cases are jury determinations. In a footnote, the Court observed that “it may be difficult for a jury to distinguish between a motivating factor and a collateral hope or expectation. Making such difficult determinations, however, is the very role to which our system of justice assigns to the finder of fact.”  

Unfortunately, the 5th Circuit decided not to publish Ruscher. Nor did the Court provide any guidance as to how better to distinguish between agreements for which one purpose is the inducement of referrals and legitimate agreements wherein one of the parties hopes that referrals result from the agreement.  Nevertheless, it is a good first step, and hopefully one that other courts will expand upon and bring some common sense limitations to the application of the AKS. 

A. Brian Albritton
December 1, 2016 

Applying a "We're-Just-Not-Buying-It" Standard in False Claims Act Retaliation Cases: Jones-McNamara v. Holzer Health Systems

Dear Readers:

False Claims Act ("FCA") retaliation cases are increasingly common. And, a plaintiff does not have to allege very much to bring a FCA retaliation claim and defeat a motion to dismiss: Rule 9(b)'s requirement that the plaintiff plead fraud with particularity does not apply to retaliation cases, so the bar for a plaintiff to successfully state a FCA retaliation claim is often quite low. The FCA's anti-retaliation provision, 33 USC 3730(h), protects former employees who were discharged "because of lawful acts done . . . in furtherance of an action under [33 USC 3729] or efforts to stop 1 or more violations under this subchapter." Essentially, it protects "all efforts [by an employee] to stop" an FCA violation, including where the employee was simply collecting information about a possible fraud. Jones-McNamara v. Holzer Health Systems, 2015 WL 6685302 *4 (6th Cir. Nov. 2, 2015).

Yet, even with a permissive standard for bringing retaliation claims, the 6th Circuit recently instructed that there is a limit to the deference afforded plaintiffs in retaliation cases. As the Court found in Jones-McNamara, to show that an employer retaliated against an employee, the plaintiff must first "show that allegations of fraud [committed by their employer] grew out of a reasonable belief in such fraud." Translation: the Court isn't just going to allow a plaintiff to cast anything done by the employer as a potential fraud; a plaintiff's belief that his or her employer committed a fraud in violation of the FCA must be objectively reasonable.

In Jones-McNamara, a hospital compliance officer alleged that the hospital violated the Anti-Kickback statute ("AKS") and FCA because a patient transport company with whom the hospital had been dealing had given one of the hospital's emergency room physicians a "jacket valued at $23.50" and had provided "free hotdogs and hamburgers" at the hospital's "employee health and wellness fair" that was held in 2008 and 2009. Applying what appears to be a "we're just not buying it" standard, the 6th Circuit in a 2-1 decision found:  "It cannot plausibly be suggested that one jacket valued at $23.50 and occasional servings of hotdogs and hamburgers could induce a reasonable person to prefer one provider over another. In fact, these items represent such a low monetary value they can only be characterized as 'token' gestures of good will under OIG guidance." Contrasting the plaintiff's complaint with the litany of serious and exorbitant entertainment featured in HHS-OIG reports and reported cases, the Court observed: "[i]t is ludicrous to believe that a person would be tempted to make illegal referrals in exchange for a couple hotdogs once a year."

The Court challenged the plaintiff's attempt to cast these de minimis gifts as giving rise to anti-kickback violations because the plaintiff had not shown any connection between the "gifts" and any alleged referrals by the hospital to the patient transport company. Moreover, the Court complained that the plaintiff had not shown that the employees who ate the hotdogs or the physician who received a jacket were even in a position to make referrals on behalf of the hospital to the patient transport company. While the plaintiff claimed that the physician who received the jacket was in a position to make referrals, the Court observed that the plaintiff provided no evidence that was in fact true --the plaintiff just wanted it to be that way. As the Court observed further, the plaintiff reported that the hospital violated the AKS based on her "unquestioned, unconfirmed, and thus unreasonable assumption that [the doctors] not only had the authority but in fact routinely made the decision to refer business to [the transport company] in knowing and willful return for illegal kickbacks" --an allegation that had no factual basis.

Jones-McNamara is a helpful decision for defending FCA retaliation cases. First, the Court essentially says that isolated de minimis gifts simply will not give rise to an anti-kickback violation and that complaints about such gifts by an employee as being "fraudulent" certainly do not qualify as reasonable evidence that the employer is engaged in fraudulent conduct. Second, and as importantly, the Court further suggests that district courts should closely scrutinize the assumptions made by plaintiffs who allege that their employer committed fraud and determine whether such accusations are reasonable or plausible. Here, the Court simply did not find it reasonable or plausible that eating hotdogs or accepting a single jacket provided by a vendor would lead hospital employees to engage in serious violations of the law. 

A. Brian Albritton

November 19, 2015

A Helpful Primer on the False Claims Act and the Anti-Kickback Act

I commend the PowerPoint presentation "The Evolution of the False Claims Act and Anti-Kickback Allegations and Theories of Liability in FCA Litigation" posted today by Antonia Giuliana on the FCA Alert blog.  Her presentation (1) discusses how the legal standards applicable to the Anti-Kickback Act and False Claims Act  ("FCA") have changed, especially as a result of the 2010 Patient Protection and Affordable Care Act amendments and the use of Anti-Kickback claims as a basis for "false certification" theories of liability; (2) how kickback allegations have evolved in FCA cases for the period of 1995 - 2009 along with a helpful chart; and (3) uses the case of US ex rel Jamison v. McKesson Corp. et al., (N.D. Miss) to illustrate the application of the Anti-Kickback Act to a False Claims Act case.  This is a useful primer on the subject.

by A. Brian Albritton
     March 27, 2012

Supreme Court Passes on Opportunity to Clarify False Claims Act's Implied False Certification Theory of Liability

The blog Health Law & Policy Matters ("Health Policy") reports that the Supreme Court recently turned down a chance to clarify and define the contours of how and when a claimant seeking payment from the government may be subject to False Claims Act liability for an "implied false certification"  “Implied false certification,"  the blog explained, "generally means that a claim for payment to the government (i.e. to Medicare, Medicaid, or CHIP) is legally false if that party had, and failed to meet, an ongoing obligation to comply with an underlying law — regardless of whether that party submitted a claim that was false on its face or expressly certified compliance with that law when it submitted the claim."  Health Policy previously highlighted two petitions for certiorari filed this fall that sought to bring this matter to the Supreme Court:  Amgen Inc. et al., v. State of New York et al. and  Blackstone Medical Inc., v. U.S. ex rel. Hutcheson, No. 11-269.  Health Policy reports, however, that the Supreme Court recently denied certiorari in Hutcheson and that the Court will likely not hear Amgen since the company informed the Court that it had settled the False Claims Act claims

False Claims Act liability based on an implied false certification can be quite broadly applied, and the circuit courts, as the blog False Claims Alert noted, have not applied a consistent test for implied false certification liability.  We recently discussed United States ex rel. Wilkins v. United Health Group, Inc.,  659 F.3d 295 (3^rd Cir. 2011) and the Third Circuit's adoption of the implied certification theory of  liability.  In Wilkins, the Third Circuit found the False Claims Act was not a “blunt instrument” to enforce compliance with all regulations, just those “regulations that are a precondition to payment.”  In that case, as in other circuits, the Court found that the claimant's violation of the Anti-Kickback Act legally tainted its claims for payments, regardless of whether the services billed were actually rendered. See e.g., McNutt ex rel. United States v. Haleyville Medical Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).