In a prior post, we discussed the federal anti-kickback statute (the “AKS”) and the implications for ketamine clinics. In short, the federal AKS prohibits anyone from paying or receiving anything of value for the referral of patients where a federal government healthcare payment program is the payor (e.g., Medicare, Medicaid, VA, etc.). 42 U.S.C. § 1320a–7b. While there are many safe harbors that can apply in these situations, one of the fundamental questions is what constitutes a “referral” under the AKS? To help answer and illuminate this question, in 2020, the Seventh Circuit Court of Appeals rendered its decision in Stop Illinois Health Care Fraud, LLC v. Sayeed (No. 12-cv-09306).
Stop Illinois Health Care Fraud, LLC (“Plaintiff”) brought a qui tam action against Management Principles, Inc. (“MPI”) and some of its associates, including its owner and manager, Asif Sayeed, M.D. (“Dr. Sayeed”), as well as the Healthcare Consortium of Illinois (“HCI”, and collectively with MPI and Dr. Sayeed, the “Defendants”). Plaintiff alleged that Defendants had an illegal referral practice that violated the AKS and, by implication, the federal and state False Claims Acts (the “FCA”). After a bench trial, the federal District Court found no violation of the foregoing statutes.
HCI was an organization that contracted with the Illinois Department of Aging to coordinate services to low-income seniors to keep them home and out of nursing homes. HCI would sometimes refer clients who needed in-home services to two companies owned by MPI. Plaintiff brought its claims under the state and federal FCAs. Neither the United States nor Illinois intervened in this qui tam action, so Plaintiff prosecuted this matter.
The material facts include:
The operative complaint alleged that MPI and HCI had a contract and that MPI paid HCI gift cards in substantial amounts in return for the ability to access the detailed information that HCI employees gathered about clients during in-home assessments. Using that information, MPI called Medicare-eligible seniors and offered them the services of its two home healthcare companies. MPI’s payments to HCI, the complaint alleged, ran afoul of the [AKS].
Most of the trial testimony focused… on a 2010 Management Services Agreement [(“MSA”)] under which MPI paid HCI $5,000 a month. What HCI was paying MPI to do was the topic of much discussion, since the [MSA] itself was vague. HCI’s only stated obligations were to “assist MPI in the management of the case management Program and appoint personnel as Associate Managers.” For their part, HCI’s associate managers had to “[d]evote sufficient time for the performance of all assigned duties” and “[p]rovide periodic written reports of activities.” The [P]laintiff’s theory, as laid out in its opening statement, was that the ambiguous [MSA] was a sham contract meant to disguise a kickback offered for patient referral.
Dr. Sayeed further testified that the genesis for the MSA was because HCI needed financial help and MPI was trying to become an Accountable Care Organization, which requires a minimum of 5,000 Medicare recipients as patients.
Under the MSA, HCI was required to do two things: (1) give MPI access to the comprehensive forms that caseworkers filled out when assessing clients, and (2) teach MPI about how it coordinated care. And Dr. Sayeed’s testimony showed that his companies did use the information obtained from HCI’s files to solicit and acquire new patients. Dr. Sayeed referred to reviewing the HCI records as “data mining”.
The trial court issued a brief written order following trial whereby it found that Plaintiff failed to meet its burden of proof. The order did not go into detail regarding many of the material issues that were in dispute, thus leaving the Court of Appeals with many unanswered questions.
Court of Appeal’s Analysis
Ultimately, the Court of Appeals had to decide what “refer” means under the federal AKS. Plaintiff contended that MPI’s payments under the MSA were intended to secure access to the client information in the HCI files that it then used to place solicitation calls. Thus, Plaintiff claimed that this was, in fact, a referral.
In a prior landmark decision of the Seventh Circuit Court of Appeals, United States v. Patel, 778 F.3d 607 (7th Cir. 2015), the court likewise dealt with the definition of “refer” under the AKS. As the Court of Appeals noted from its Patel decision:
The central characteristic of the referral, we explained, was that the doctor “facilitate[d] or authorize[d]” the patient’s choice of provider. A doctor stands between the patient and his chosen provider because his approval is necessary to obtain the services, and “[e]xercising this gatekeeping role is one way that doctors refer their patients to a specific provider.” In so concluding, we observed that our holding was consistent with Congress’s broad objectives in the [AKS] of preventing Medicare and Medicaid fraud and protecting patient choice. (internal citations omitted.)
Patel’s holding that a physician “refers” patients to a home healthcare provider when he approves them for services does not directly control this case, which concerns not a gatekeeping doctor but an organization (here, HCI) with no certification authority. The applicable lesson is instead that the definition of a referral under the [AKS] is broad, encapsulating both direct and indirect means of connecting a patient with a provider. It goes beyond explicit recommendations to include more subtle arrangements. And the inquiry is a practical one that focuses on substance, not form.
The foregoing laid the groundwork for the Court of Appeal’s decision in this matter. The Court of Appeals inferred from the district court’s order (since the order was not very detailed) that it may have employed a narrower definition of referral that was inconsistent with the Patel holding. The Court of Appeals noted that if the district court had employed the Patel standard, then this case would be a close call.
Moreover, the district court’s order contained no mention of the evidence showing that MPI used access to HCI’s files to solicit and obtain patients, even though testimony on that point was considerable and unambiguous. As the Court of Appeals noted, “[a] practical analysis of this arrangement would allow, but perhaps not compel, a finding that it qualifies as a referral.” Left with too much uncertainty, the Court of Appeals reversed and remanded the district court’s order.
Take-Aways and Lessons Learned
The definition of “refer” is vitally important in the healthcare field. It can have implications for federal and state AKS, as well as federal and state FCAs. While this case is certainly a close call, it also helps to illustrate how courts view this issue. Some of the more important lessons include:
MSAs must be clearly written with the parties’ duties clearly outlined. As the Court of Appeals noted, the MSA in question was vague. A party never wants a vague agreement because it leads to questions regarding interpretation and the intent of the parties.
Any time there is a question regarding the AKS or any of the other federal fraud and abuse laws, it is imperative to question whether the arrangement violates or frustrates the purpose of these laws. The Court of Appeals noted, “we observed that our holding [in Patel] was consistent with Congress’s broad objectives in the [AKS] of preventing Medicare and Medicaid fraud and protecting patient choice.” Thus, when reviewing these types of issues, always remember the twin goals of the federal fraud and abuse laws – (a) to prevent over-utilization of healthcare services, and (b) to prevent unnecessary services, both of which can lead to poor quality outcomes and excessive costs for the federal government.
Any time there is an AKS violation, an FCA claim is almost a given. They literally go hand-in-hand.
To quote the Court of Appeals once again, “The applicable lesson is instead that the definition of a referral under the [AKS] is broad, encapsulating both direct and indirect means of connecting a patient with a provider. It goes beyond explicit recommendations to include more subtle arrangements. And the inquiry is a practical one that focuses on substance, not form.” This is really the gravamen of this case. The term “refer” is intended to be very broad, and it is very easy to overlook this issue. Certainly, in this case, at first glance, it is hard to see how this arrangement was a “referral” arrangement. But, after reviewing the Court of Appeal’s rationale, it becomes much clearer.
The AKS is a criminal statute with criminal penalties. Thus, it is vitally important to understand the AKS and all of its nuances – which is no small feat. Any ketamine clinic that accepts Medicare or any other federal healthcare program reimbursement needs to understand these issues to avoid criminal penalties (among other things).
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