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Class Four: How to Influence Physicians Without Running Afoul of the Anti-Kickback Act

In the BU Law School Health Care Fraud and Abuse seminar, the topic this week is the anti-bribery law known as the Anti-Kickback Act, a criminal statute. The law prohibits the solicitation, receipt, or offering of “any remuneration,” direct or indirect, in cash or in kind between a vendor of drugs or devices and a provider (doctor or hospital) if such remuneration is tied in some way to referrals of business. It is a sweeping statute, designed to stop economic influences from driving physicians’ medical decisions.


There are all sorts of cases that have arisen under this law, from brazen cash-under-the-table bags of cash to much more subtle forms of “inducement.” Regulated industries have adopted voluntary codes of conduct on this topic, and virtually every pharmaceutical company compliance plan addresses this issue in some form or another. But still companies keep getting in trouble.




Part of the reason is that very few companies have adopted any alternative to the traditional eat-what-you-kill model of compensating their sales representatives. Generous bonus structures usually allow sales reps to greatly increase their compensation if they tear the cover off the ball in selling the product. Reps who hit high numbers that are out of line with their peers are often held up as heroes rather than being subjected to scrutiny about how they achieved such anomalous results. Reps who don’t push the envelope are often treated as laggards or simply let go.


One thing should be clear, though. It is not the sales reps who drive the numbers game; they are simply the troops following the orders. Sales targets are put in place by management, who often has investor and Wall Street expectations in mind. So there is an inherent tension between profit maximization and compliance with the law. Companies that have gotten in trouble with the AKA have failed to manage that tension.


For class this week, the students were given the following assignment to consider: “Assume that there are two similar products on the market, bioequivalent and the same in every way that matters (safety, efficacy, price, ease of administration). They are made by two competing companies who care very much about market share and are willing to be very aggressive in making sure that the other company doesn’t increase its market share to their detriment. The question arises: how can we get more doctors to write our drug rather than the competitor’s? In light of the AKA, what can you do to get their attention and potentially influence their prescription writing practices, without running afoul of the AKA?


Answers included:


Major advertising expenditures, both in television, trade journals, magazines and social media.


Attractive branding and naming of the product.


Making targeted charitable donations to earn goodwill in the community of patients and providers.


Hiring (or continuing to hire) very good looking, outgoing, friendly sales reps. (This suggestion was partly in jest, but only partly!)


Offering free screenings to patients.


Offering direct-to-consumer coupons to prospective patients.


Determining whether any beneficial arrangements can be made with third parties, such as pharmacies, group purchasing associations, wholesalers, and pharmacy benefit managers.



Welcome to the world of trying to make a profit while staying out of serious trouble. It’s tricky out there!

John Oliver Explains Dialysis

John Oliver recently devoted most of his show “Last Week Tonight” to explaining how America funds kidney dialysis.  Oliver admitted the topic was likely to make his viewers push the button on your TV remote marked “Dear God Literally Anything Else.”




But it’s an important topic.  The United States “continues to have one of the industrialized world’s highest mortality rates for dialysis care,” despite spending more on it than other nations.


Since 1972, the federal government has covered all kidney dialysis.  We now spend 1 percent of the federal budget just on kidney dialysis.  That’s half as much as we spend on the entire Department of Education!


Why do we spend so much? You can probably guess, fraud and greed. Two large companies, Fresenius Medical Care and DaVita, control 70 percent of the market.


Megallan Handford, a former DaVita employee who was fired for trying to unionize its employees, explained that:


“When I was working at DaVita, the priorities for transitioning patients was to get them on dialysis and get the next patient on as soon as possible,” Handford told Oliver. “You would have sometimes 15, maybe 25 minutes to get that next patient on the machine, so you were not properly disinfecting.”


This focus on profits above patients is reflected in the nearly $1 Billion in False Claims Act Settlements that DaVita has paid out in the last several years:



Nor do these settlements appear to represent the end of DaVita’s legal issues.  DaVita faces a lawsuit and related government subpoenas over use of a non-profit, the American Kidney Foundation to push patients from government healthcare to Healthcare Exchange-offered private plans in order to dramatically increase its reimbursements.


Nor should you think that Fresenius is without blame.  For example, in 2000,  a team led by Suzanne Durrell  secured the largest global settlement to date in a health care fraud case against Fresenius Medical Care. The investigation resulted in a record-setting $101 million criminal fine; an aggregate civil settlement payment of $385 million; and the withdrawal by the company of more than $130 million in pending claims for reimbursement with the Medicare Program.


If you have concerns about patient harm and fraud against the government by a healthcare company, please contact us to discuss how whistleblower laws including those above can protect and reward you and help ensure that the patients and taxpayers are protected.


Health Care Fraud and Abuse Seminar Wraps Up

After 13 lively sessions and a take home exam, the seminar taught by whistleblower attorney Bob Thomas has finished, with nine 3rd year students and one 2nd year student from BU School of Law showing real sophistication in this complex field.


The course, which is part of BU’s Health Law Program, is structured in two parts.  The first covers the main substantive areas of health care fraud enforcement:  The False Claims Act, the Anti-Kickback Act, The Food Drug & Cosmetic Act, Stark, and the Exclusion & Debarment remedies.  The second part of the course is practice-oriented, with the students hearing from prosecutors, defense attorneys, compliance officers, and whistleblowers and their attorneys, in presentations relating to actual cases they were involved in.


Similarly, the take home exam questions are based upon fact patterns that come up in the cases handled or evaluated by the Whistleblower Law Collaborative.  If you think you’re as smart as a law student, take a look at the questions they answered quite masterfully.  Several of the exams submitted were as good or better than any we could imagine an experienced practitioner writing  — a gratifying thing for a “professor” to see, given the multiple demands on the students’ time.


This is the sixth time that Bob Thomas has taught the course.  Given all the changes in the law in this dynamic field, he intends to keep offering the course indefinitely in future years, as long as student interest remains as high as it has been so far.

Medical Directorships Face False Claims Act Scrutiny

Just last week, HHS-OIG issued a Fraud Alert warning that “Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.”


Then yesterday, the Department of Justice (DOJ) and HHS-OIG announced a record setting $17 million False Claims Act settlement of a whistleblower case against Hebrew Homes Health Network, Inc. alleging that the company improperly paid doctors ostensibly acting as medical directors for referrals of Medicare patients requiring skilled nursing care. Bona fide Medical Directors perform a valuable function at a hospital or a nursing facility, but the position can also be a cover for doctors to steer their patients to a particular facility. For example, in the Hebrew Homes case:


“From 2006 through 2013, Hebrew Homes allegedly operated a sophisticated kickback scheme in which they hired numerous physicians ostensibly as medical directors pursuant to contracts that specified numerous job duties and hourly requirements.  The various facilities had several such medical directors under contract at any given time, paying each several thousand dollars monthly.  The United States alleged that in reality these were ghost positions, and that most of the medical directors were required to perform few, if any, of their contracted job duties.  Instead, they were allegedly paid for their patient referrals to the Hebrew Homes facilities, which increased exponentially once the medical directors were put on the payroll.”


We have written before about the importance of Anti-Kickback Act and its close cousin the Stark Act, and this recent settlement is a perfect example of the evils each law seeks to prevent or punish.  In a nutshell, the Anti-Kickback Act (42 U.S.C. § 1320a-7b(b)) prohibits the making or offering or paying or accepting “remuneration” (defined as any thing of value) if one purpose of the payment is to induce referrals, while Stark (42 U.S.C.§1395nn) prohibits a hospital (or other entity providing healthcare items or services) from submitting claims to Medicare or Medicaid for items or services rendered to patients referred by physicians who have improper financial relationships with the providers of the items or services.


Each law contains certain “safe harbors” which are in essence exceptions to their blanket prohibitions. A violation of each law can be the basis for a civil (e.g., under the FCA) prosecution by DOJ, civil penalties, or an administrative action by HHS. In addition, the Anti-Kickback Act provides criminal penalties. Both laws are designed to ensure that physicians’ judgment about their patients’ care is conflict free (for example, as to whether an item or service is medically necessary, safe, effective, and of good quality), to keep the competitive playing field for health care providers level and fair, and to protect the financial integrity of government health care programs such as Medicare and Medicaid.


We expect this most recent settlement, coupled with HHS-OIG’s recent Fraud Alert, signals an increase in whistleblower cases and investigative and enforcement actions against hospitals, skilled nursing facilities, and other medical facilities that utilize physicians as medical directors.  However, it remains to be seen if these will focus also on the physicians who act improperly as the HHS-OIG Alert suggests or whether it is only the facilities that will be targeted.


As the saying goes, “It takes two to tango” and without physicians willing to accept kickbacks and break self-referral laws, the facilities could not play the game.  In the most recent announced settlement, only the facility (Hebrew Homes) is paying to settle. While HHS-OIG’s Fraud Alert notes that it has recently reached settlements with 12 individual physicians, these were administrative settlements under the Civil Monetary Penalties Law, not False Claims Act or criminal charges. It remains to be seen what further types of actions the United States takes against the individual physicians.

Life Sciences Symposium Held Yesterday

Attendees at yesterday’s Life Sciences Symposium held in Washington, D.C. sponsored by the economic consulting firm of Bates White clearly had a good time at a lunch-time panel discussing the Anti-Kickback Act (“AKA”).  “Greatly entertaining and informative,” said one attendee; “engaging and fantastic discussion” said another.


Attorney Bob Thomas of the Whistleblower Law Collaborative in Boston was one of the featured speakers, along with his Harvard Law School classmate David Rosenbloom of the Chicago office of McDermott, Will, and Emery, and University of Georgia Professor David Bradford.  The panel explored the contours of the statute and its “safe harbors,” and the extent to which economics (the subject matter expertise of most of the attendees) enters into AKA prosecutions and settlements.


The AKA is a criminal statute that seeks to remove the insidious influence of monetary kickbacks in the practice of medicine.  The statute makes it illegal, for example, for doctors or other providers of medical services to “solicit” payment from a third party such as a drug manufacturer in return for referring a patient or purchasing a product.  Similarly, the law makes it illegal for a party to “offer or pay” a doctor or provider payment in any form in an attempt to “induce” that doctor or provider to make a purchase or refer a patient.


Sounds simple enough until you start to think of all the different scenarios in which economic activity can take place between these parties, like volume discounts, for example.  Volume discounts are quite common in a capitalist economy; are they illegal in this setting?  (The AKA has a “safe harbor” allowing such discounts, if they are properly disclosed and accounted for.)  Part of the purpose of the panel was for the attorneys to address the ways in which certain economic activities can be illegal, even if, to an economist thinking of efficiencies, such activities might seem desirable.


The dialogue was far from theoretical.  Bob Thomas and David Rosenbloom not only gave many examples of actual cases, they also spoke at length about the U.S. ex rel. v. Westmoreland v. Amgen litigation in which they were opposing counsel.  The case, which involved a kickback theory, led to an eventual $762 million settlement between the company and the government, and demonstrated the extent to which very subtle forms of economic marketing can run afoul of the AKA.


As for the perspective of economics, the panelists agreed that the most direct application of this expertise would be in the modeling of different damage scenarios, since it is widely acknowledged that kickback damages are different from more easily measured forms of harm.


One big picture thought emerged from the lively discussion:  between defense and in-house lawyers advising their clients how to stay onsides with this law and the cherry-picking practices of prosecutors exercising their discretion to go after only the most egregious conduct, there is a vast middle ground of uncertainty about what is possible and what will be enforced.


In the tens of millions of health care transactions that take place every day, there is only so much that the government enforcement people can monitor.  This is where whistleblowers play a vital role.  As in the Westmoreland case, they shed light on an almost invisible, almost undetectable form of activity and explain to the government investigators what’s really behind it, what a company is really trying to “induce.”   Without whistleblowers, the government wouldn’t have much of a chance to stop the companies that choose to cross the line.