CHAPTER §7.03 Area of Government Interest: The Anti-Kickback Statute

• Jurisdiction: United States

§7.03 Area of Government Interest: The Anti-Kickback Statute

[1] Statutory Overview

Between 2009 and 2018, the government collected almost $40 billion in fines and penalties for alleged violations of federal laws relating to health care fraud.⁸¹ Many of these cases utilize some combination of the False Claims Act, the FDCA, and the Anti-Kickback Statute to allege improper marketing or pricing.

The federal Anti-Kickback Statute ("AKS") is part of the Medicare-Medicaid Anti-Fraud and Abuse Statute and is designed to prevent kickbacks, rebates, and bribes in exchange for prescribing or referring pharmaceuticals, products, medical devices, or services. The purpose of the statute is to prevent rising health care costs, over-utilization, and to ensure that pecuniary factors do not influence the quality of patient care and medical decision-making. In general, the law prohibits individuals or entities from knowingly and willfully soliciting, receiving, or offering to pay any remuneration in return for: (1) the referral of an individual to a person for the furnishing of any item or service covered by a federal health care program, or (2) the purchasing, leasing, ordering of any good, facility, or item covered by a federal health care program.⁸² Remunerations include the transfer of anything of value, in cash or in kind, either directly or indirectly, overtly or covertly.⁸³ This means that any cash payments, trips, or other compensation paid to induce a party to refer or prescribe a product or service violates the AKS. The 2010 health care-reform legislation amended the AKS to lower the threshold for culpability under the law. The legislation relaxed the intent requirement for a violation of the statute, opening the door to successful prosecutions without proof that a corporation or individual intended to violate the statute.

A violation of the AKS can result in both civil and criminal liability. Upon conviction, the statute imposes heavy fines, including, for each offense, twice the gain or loss from the proscribed activity, imprisonment up to 5 years, or both. In addition, any person or entity found in violation of the statute is automatically excluded⁸⁴ from billing services to government-funded health care programs such as Medicare, Medicaid, or TRICARE.⁸⁵ The Department of Health and Human Services, Office of the Inspector General ("OIG"), is responsible for overseeing and monitoring changes in the law and potential violations. OIG can also initiate administrative proceedings to impose civil monetary penalties or to exclude a party from the federal health care programs without waiting for a criminal conviction.⁸⁶

[2] Statutory Exceptions to the Anti-Kickback Statute

To protect legitimate business arrangements, Congress has enacted eleven statutory exceptions to the AKS.⁸⁷ Of these, three are particularly relevant to the pharmaceutical industry.

• Properly disclosed discounts or other reductions in price to a provider. The statute does not apply to discounts or other price reductions given to a provider or entity under a federal health care program "if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a Federal health care program."⁸⁸
• Discounts in the price of a drug furnished to a beneficiary. As distinguished from the first discount safe harbor identified above, this one focuses on discounts given directly to beneficiaries who are in the Medicare coverage-gap discount program.⁸⁹
• Payments to bona fide employees. This exception includes "any amount paid by an employer to an employee who has a bona fide relationship with such employer for employment in the provision of covered items or services."⁹⁰

[3] Regulatory Safe-Harbor Provisions

Congress authorized HHS to promulgate regulations establishing safe-harbor pro-visions⁹¹ that will shield certain managements from liability.⁹² These provisions are designed to protect practices that would otherwise implicate the AKS. Safe-harbor protection is only available if the arrangement meets all of the regulatory criteria.⁹³ If any element is not met, it does not necessarily mean the arrangement is per se illegal.⁹⁴ However, outside the safe harbor, an arrangement is not insulated from government-enforcement action. The determination of whether an arrangement is insulated by an exception or safe harbor is determined by the facts of the individual case.⁹⁵ Currently, there are 28 safe-harbor provisions. The following provisions are the most commonly used in the pharmaceutical industry.

[a] Personal Services and Management Contracts⁹⁶

Physicians are often hired by pharmaceutical companies as independent contractors to provide consulting services or speak to other medical personnel about the medical benefits of the company's drug. Although companies should compensate physicians for their services, the compensation must be reasonable for the work actually performed. A consulting or speaker agreement is legitimate if it satisfies the safe-harbor provision for personal services and management contracts. This provision protects any remuneration made by a principle to an agent as compensation for services actually performed. There are seven standards that must all be satisfied to qualify for this safe harbor:⁹⁷

1. The agreement must be put in writing and signed by the parties.
2. The agreement must cover all services the agent will provide to the company for the term of the agreement and specify the services to be provided by the agent.
3. If the agreement is only for a periodic or sporadic time frame, the agreement must specify the exact schedule of each interval, the precise length, and the exact charge for each interval.
4. The term of the agreement cannot be for less than 1 year.
5. The aggregate compensation paid to the agent over the term of the agreement is set in advance and is consistent with fair market value ("FMV").⁹⁸ The compensation cannot take into account the volume or value of any referrals or business generated between the parties for which payment may be made in whole or in part to any federal health care program.
6. The services performed under the agreement cannot involve the counseling or promotion of a business arrangement or other activity that violates state or federal law.
7. The aggregate services contracted for do not exceed those that are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

PhRMA has also issued guidance with regard to physician consulting. PhRMA acknowledges that consultants should be offered reasonable compensation, including travel, lodging, and meal expenses incurred as part of providing consulting services. In 2002, PhRMA established a voluntary code for interactions with health care professionals. The PhRMA Code was last updated in October 2019.⁹⁹ The Code provides guidance to help parties ensure legitimate, professional relationships between health care workers and pharmaceutical companies. Of course, the PhRMA Code is not a safe harbor, nor is failing to satisfy the Code necessarily a violation of the AKS.

[b] Discounts¹⁰⁰

The discounts safe harbor is intended to reach product discounts, rebates, and bundled product arrangements. To meet the safe-harbor provision, the discount must be disclosed by the manufacturer and reported by the purchaser. The safe harbor only applies to true discounts or rebates and not to upfront payments (known as "pre-bates").

[c] Space Rental/Equipment Leases

There are two separate safe harbor provisions addressing space rental and equipment leases.¹⁰¹ These safe harbors contain substantially similar requirements:

1. The agreement must be in writing and signed by the parties;
2. The agreement must specify and cover all the equipment/premises leased;
3. If it is a part-time lease, the agreement must specify the exact schedule of intervals, their precise length, and the rent for each interval;
4. The term of the agreement must be for at least 1 year;
5. The aggregate rental charge must be set in advance, be consistent with FMV, and not be determined in a manner that takes into account the volume or value of referrals or business otherwise generated; and
6. The aggregate equipment/space leased must not exceed what is reasonably necessary to accomplish the commercially reasonable business purpose of the rental.

[d] Employees¹⁰²

The AKS does not apply to remunerations paid by an employer to an employee, where there is a bona fide employment relationship, for furnishing any item or service for which payment in whole or in part is made to a federal health care program.¹⁰³ Generally, for a physician to be considered an employee of the pharmaceutical manufacturer, the physician must be treated as an employee; therefore, management must exert control over both the services the physician performs and how he or she performs the services. However, the government has suggested that the hiring of a physician's friends, family, or significant other could be considered a bribe or kickback if one purpose is to induce the physician to prescribe.

[4] Potential Violations of the Anti-Kickback Statute

OIG regularly releases advisory opinions,¹⁰⁴ bulletins,¹⁰⁵ alerts,¹⁰⁶ and other guidance¹⁰⁷ regarding scenarios that are likely violative of Anti-Kickback laws. These cover a wide range of topics, including patient-assistance programs for Medicare Part D; contractual joint ventures; rental of space in physician offices by persons (or entities) to whom the physician refers; and routine waiver of Part B co-payments/deductibles.

In addition to OIG's guidance, criminal and civil AKS cases involving pharmaceutical manufacturers provide insight into the way the government and the courts construe the AKS in practice. These cases spotlight areas that pharmaceutical manufacturers should scrutinize with regard to business arrangements with medical professionals.

[a] Promotional Speaking

As discussed...