Government Cracks Down on Manufacturers Gifting Patient Referral Services to Healthcare Providers

At the turn of the century, several pharmaceutical companies outright bribed healthcare providers with cash payments. However, after a parade of False Claims Act settlements predicated on Anti-kickback violations, dishonest companies have adopted various in-kind kickback tactics, ostensibly with the goal of disguising the illegal kickbacks. However, with the assistance of qui tam relators, even these kickback arrangements are being exposed and prosecuted under the False Claims Act.

Simply put, the Anti-Kickback Statute is violated when anything of value is exchanged for the purpose of acquiring additional government healthcare dollars. According to the Webster’s Dictionary, “in kind” simply means “paid or given in goods, commodities, or services instead of money.” The federal Anti-Kickback Statute prohibits anyone from “solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind . . . in return for referring an individual to a person for the furnishing . . . of any item or service for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7(b)(1)(A) (emphasis added).

In the current competitive healthcare market, healthcare providers have increasingly valued patient referral services as the most coveted in-kind kickback, valued even more than cash payments. The reason makes economic sense–because patients tend to visit healthcare providers on an ongoing, regular basis, a patient referral represents a recurring source of income for healthcare providers. In contrast, cash payment kickbacks are oftentimes conditioned on some kind of performance requirement (e.g., speaking engagements), which demands physician hours for dollars. Some pharmaceutical and medical device makers have responded to this kickback preference by offering a broad range of services and programs that are specifically designed to reward loyal prescribers with increased patient referrals

However, the Department of Justice has responded in recent years by successfully arguing that such patient referral schemes violate the Anti-Kickback Statute. For example, DOJ convinced a court that a defendant-hospital provided an “in-kind” kickback when it gave a high-referring medical group a “stream of patients.” According to the Government, handing a health care provider “a stream of patients . . . is like receiving a voucher.” Similarly, the First Circuit recognized that “[g]iving a person an opportunity to earn money may well be an inducement to that person to channel potential Medicare payments toward a particular recipient.”

Most recently, the Justice Department wielded the False Claims Act to successfully recover nearly $10 million from Medtronic for allegedly providing various patient referral opportunities to providers, in violation of the Anti-Kickback Statute. Specifically, according to the Government, “Medtronic allegedly induced physicians to use its products by: 1) paying implanting physicians to speak at events intended to increase the flow of referral business; [and] 2) developing marketing/business development plans for physicians at no cost.” With the Government now fully embracing the Anti-Kickback Statute to reach patient referral services, this recovery likely signals an impending wave of similar FCA recoveries.