Intent Matters: Can Fair Market Value Payments For Speaker Programs Be Illegal?

The Federal Anti-Kickback Statute (the “AKS”) prohibits the payment or receipt of remuneration to induce or reward referrals of items or services reimbursable by a federal health care program (including, but not limited to, Medicare and Medicaid).  Given the expansive nature of the AKS, the U.S. Department of Health & Human Services, Office of Inspector General (“OIG”) has promulgated myriad “safe harbor” regulations that define practices that are not subject to the AKS because they would be unlikely to result in fraud or abuse.  See 42 C.F.R. § 1001.952.  Prior to February 2022, it was widely accepted that if a safe harbor’s requirements were met, those involved qualified for protection from the AKS, regardless of their intent.

Departing from established precedent, however, a California federal court opined recently that the parties’ intent may strip an otherwise compliant arrangement from safe harbor protection.  In U.S. ex rel. Chao v. Medtronic PLC, No. 217CV01903ODWSSX, 2022 WL 541604 (C.D. Ca. Feb. 23, 2022), the defendant was alleged to have paid kickbacks to physicians – partially through Medtronic’s “proctoring program,”  which operated much like ordinary speaker programs  – to recommend a medical device for the treatment of brain aneurysms.  Medtronic moved to dismiss the complaint, arguing that its arrangements with the physicians fell within safe harbor exceptions to the AKS, as the documents on their face established.

Specifically, Medtronic argued that its arrangements with physicians fell within the “personal services” safe harbor exception to the AKS.  Consistent with past precedent, Medtronic argued that the safe harbor does not contain an intent element, and that intent is irrelevant to the analysis.  The court opined to the contrary, stating that a party’s improper intent can remove an arrangement that otherwise fits squarely within a safe harbor from the protections of that safe harbor. Specifically, the court stated that when the payor “intends for the compensation to function as an inducement for more business” or otherwise acts with an “illegal purpose,” a fair-market-value payment may be considered an illegal kickback. Medtronic, 2022 WL 541604, at *7.  In so doing, the Court threatened the stability of the AKS safe harbors by calling into question the long-standing notion that actual intent is irrelevant in the context of the AKS safe harbors.  Although this portion of the Court’s order was dicta, it will no doubt be relied upon by the government to remove what were once considered protected arrangements from safe harbor protections.

In light of the foregoing, all parties involved in the submission of claims for reimbursement to federal or state health care programs should engage competent healthcare counsel to review all existing or future referral arrangements to ensure that each arrangement complies with the AKS and the Medtronic standard.  Transactions that should be reviewed or re-reviewed for compliance include but are not limited to:

• Healthcare provider lease arrangements;
• Marketing arrangements;
• Consulting and speaking arrangements;
• Management arrangements;
• Copay waiver and other forms of patient assistance;
• Fee-splitting arrangements;
• Laboratory arrangements;
• Telehealth arrangements; and
• Arrangements with pharmaceutical manufacturers.

How Frier Levitt Can Help

Frier Levitt’s team of seasoned healthcare attorneys routinely evaluate complex healthcare arrangements and counsel clients on all aspects of the AKS as well as a myriad of other state and federal healthcare laws.  The penalties for violating these laws are often severe, and may include exclusion from federal health care programs, civil monetary damages, and criminal sanctions.  Contact us for advice on whether you or your healthcare entity is maintaining proper referral relationships under federal and state law.