Defending FCA Litigation Under the “Swapping” Theory of AKS Liability

Defending FCA Litigation Under the “Swapping” Theory of AKS Liability Defending FCA Litigation Under the “Swapping” Theory of AKS Liability - Start

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Defending FCA Litigation Under the “Swapping” Theory of AKS Liability

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Defending FCA Litigation Under the “Swapping” Theory of AKS Liability

2015 American Health Lawyers Association Fraud and Compliance ForumPresented by:Ben BerkowitzKeker & Van Nest LLPSan Francisco, CaliforniaBrian StimsonAlston & Bird LLPAtlanta, Georgia


About Us

Ben Berkowitz, Keker & Van Nest LLPTrial and appellate lawyer with experience in False Claims Act (FCA) and Anti-Kickback Statute (AKS) investigations and litigationTrial counsel for McKesson in U.S. ex rel. Jamison v. McKesson, et al., 900 F. Supp. 2d 683 (N.D. Miss. 2012)Relator and DOJ sought nearly $1 billion based on “swapping” allegations under AKS and FCAObtained complete defense judgment following three-week bench trial in which court rejected the DOJ’s “swapping” allegations

Brian Stimson, Alston & Bird LLP

Civil litigator who focuses on investigations and disputes in the healthcare industry, including matters involving the FCA and AKS

Defense counsel in

U.S. ex rel. McDonough v. Symphony Diagnostic Services, Inc., et al.

, 36 F.Supp.3d 773 (S.D. Ohio 2014)

Relator sought significant recovery from mobile x-ray provider under theory that it engaged in vast, nationwide “swapping” scheme involving thousands of contracts

Obtained summary judgment on all claims after conducting several years of discovery


The False Claims Act (FCA)

The FCA imposes civil liability on any person or entity who “knowingly presents, or causes to be presented, to an office or employee of the United States Government . . . a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1).A person that: (1) knowingly (2) presents or causes to be presented (3) a false (4) claim may be liable to the Government for civil penalties of $5,500 to $11,000 per claim and three times the amount of damages the Government sustains. 31 U.S.C. § 3729.Qui tam relators are incentivized by bounty of 15-30% of recovery, as well as attorneys’ fees.


Anti-Kickback Statute (AKS)

The Affordable Care Act (ACA) amended 42 U.S.C. 1320-7b(g) to provide that a “claim that includes items or services resulting from a violation of” the AKS “constitutes a false or fraudulent claim” for purposes of the FCA.To prevail under the FCA, Plaintiffs must first prove a violation of the AKS.Defendants face risk of criminal charges, enormous damages and penalties, and exclusion from federal health care programs based on conduct that is lawful in most industries.


Anti-Kickback Statute (AKS)

Under the AKS, it is a felony to knowingly or willfully:offer, pay, solicit, or receive remuneration;directly or indirectly;in cash or in kind;in exchange for;referring an individual; orfurnishing or arranging for a good or service; for which payment may be made under Medicare or Medicaid.42 U.S.C. 1320-7b(b)(1)-(2) (emphasis added).


“Swapping” Theory of FCA Liability

“Swapping” typically refers to arrangements in which providers or suppliers allegedly offer remuneration—such as discounts on goods or services—in order to “induce” referrals for business that is reimbursable under a federal healthcare program, such as Medicare or Medicaid.For example, in a hospital or skilled nursing facility (SNF), the Government might allege that a provider or supplier has discounted Medicare Part A products and services in order to induce referrals of Medicare B or Part D patients, in violation of the AKS.If a violation of the AKS is proven, then the Government will argue that any claims for payment for products or services furnished to the Medicare Part B or Part D patients are “false” under the FCA, resulting in liability for treble damages and civil penalties.


OIG Guidance

The U.S. Department of Health & Human Services—Office of Inspector General (OIG) has issued advisory opinions and other informal guidance setting forth its approach to AKS enforcement for swapping arrangements.The OIG identifies certain “suspect” arrangements:The contracting party can direct a significant amount of non-discounted federal healthcare business to the provider or supplier;Both parties have financial motives to trade discounts for referrals of non-discounted federal healthcare business; andThe linking of discounts and referrals is widespread throughout the industry, or a contracting party is likely to make the referrals to the provider or supplier as a matter of business convenience.If an arrangement is “suspect,” the OIG looks for “indicia” that the discount does not make “business sense ‘standing alone’ without reference to any other business” which the target provider may receive from the other contracting party.


OIG Guidance

According to the OIG, an alleged swapping arrangement may be “particularly suspect” if any of the following are true:The discounted prices are below the provider or supplier’s costs.The discounted prices are lower than the prices offered to a buyer that generates at least the same amount of business, and has no other potentially available federal healthcare program business that it can refer.The discounted prices are coupled with an exclusivity arrangement.The provider or supplier gives the discounts on items or services for capitated or all-inclusive payment patients, in conjunction with reaching an explicit or implicit agreement for the referral of other federal health care program business. But the OIG does not treat “suspect” or “particularly suspect” arrangements as per se violations of the AKS. Instead, such arrangements “may merit further investigation by the OIG depending on the facts and circumstances presented.” OIG AO 99-2, 99-13.


OIG Guidance

The OIG’s advisory opinions are drafted in response to specific facts supplied by the health care providers requesting them. Neither the advisory opinions nor any other informal swapping guidance from the OIG purport to establish a legal standard for AKS compliance that has the force of law. The OIG’s swapping guidance is nevertheless critical for defense attorneys and corporate counsel to understand because it is a frequent starting point from which relators and the DOJ analyze FCA claims premised on a swapping theory.


Klaczak v. Consolidated Medical Transport458 F. Supp. 2d

622 (N.D. Ill. 2006)Qui tam action premised on an alleged swapping scheme between ambulance companies and nonprofit hospitals in the Chicago area.Relator alleged ambulance rates were “discounted” because they were lower than both the Medicare fee schedule (MFS) and the “usual and customary” rates charged by ambulance companies.But can a “discount” from a fee schedule or from competitor pricing be remuneration under the AKS?Judge Filip held that to determine whether a discount has been applied within the meaning of the AKS, we look to fair-market value (FMV) (“the price that a willing buyer would pay a willing seller”).


United States ex rel. Jamison v. McKesson Corporation900 F. Supp. 2d

683 (N.D. Miss. 2012)The Government accused MediNet of discounting contract billing services in order to induce referrals of Medicare Part B enteral services at skilled-nursing facilities (SNFs).Judge Aycock adopted the Klaczak model of FMV pricing, and concluded that MediNet had not discounted services below incremental costs or below FMV, as determined by competitive bidding.Judge Aycock: “The Government sought to highlight the fact that an incremental cost analysis was not the proper way to analyze profitability of a contract; however, Plaintiff failed to present evidence that such analysis was either illegal under the AKS or improper under standard accounting principles.” 900 F. Supp. 2d at 700.


United States ex rel. Gale v. Omnicare, Inc.No. 1:10-cv-127,

(N.D. Ohio, July 23, 2013)Relator alleged that Omnicare, a long term care pharmacy, provided illegal discounts on Medicare Part A business to SNFs in exchange for referrals of Medicare Part D patients.Relator filed a MSJ on a single SNF contract as a pre-trial test case, arguing that the illegal discounts were in the form of per diems below Omnicare’s usual and customary rate.The district court denied summary judgment and held that remuneration means a discount off what Omnicare would have charged in the complete absence of Part D business.Sent the case to the jury to consider Relator’s and Omnicare’s evidence; case settled before trial for $120 MM.


United States ex rel. McDonough v. Symphony Diagnostics Services, Inc.

36 F.Supp.3d 773 (S.D. Ohio 2014)Relator alleged that Mobilex, a national mobile x-ray provider, provided below-cost Part A services to thousands of SNFs in exchange for referrals of Part B patientsRelator’s position was that:FMV approach did not apply because Part A pricing supposedly reflected volume or value of Part B referrals, and mobile x-ray industry was supposedly tainted by widespread swappingFull-loaded cost was the only lawful cost measureJudge Marbley granted Mobilex’s MSJ after adopting Jamison and holding that incremental cost is a lawful measure


United States ex rel. Carlisle v. Pacific Ambulance Inc.No. 3:09-cv-02628 (S.D. Cal. May 7, 2015)

Relator was the CEO of an ambulance company in So. Cal. who alleged that five of his competitors engaged in swapping schemes with hospitals and SNFs.The defendants supposedly offered hospitals and SNFs discounts of 50 to 100 percent on Medicare Part A transports in exchange for access to Medicare Part B business.The defendants collectively paid $11.5 MM to resolve the allegations by the relators.


Unique Issues in Defending FCA Claims Based on “Swapping” Allegations

Defining “remuneration”: A discount from what?Litigating the AKS requirement of criminal intentBurden of ProofStatutory Discount ExceptionDiscount Safe Harbor


Defining “remuneration”: A discount from what?

Since Jamison, the DOJ has argued in Statements of Interest that remuneration is conferred in an exchange where the price is at FMV and exceeds the defendant’s costs.No district court has accepted this “FMV kickback” theory in a swapping cases that has gone to summary judgment or trial.Potential “comparison points” for remuneration:MFS List Prices “Usual and customary” pricing FMV (competitive bidding or market pricing)Total cost or “fully loaded” pricingIncremental cost pricing


Defining “remuneration”: A discount from what?

Takeaways on FMV:MFS, list, and “usual and customary” prices are not necessarily FMV.A reliable and credible competitive market analysis may be critical.Competitive market analysis may look at competitiveness of the market generally, competitor pricing, or both.Relators may argue that the market is tainted based on nothing more than the OIG’s informal guidance, which reaches no such conclusion.Relators and the DOJ use the same putative expert(s), which may eventually present a Daubert problem for them.


Defining “remuneration”: A discount from what?

Takeaways on cost:Pricing decisions are prospective and should be judged based on the information that is available when they are made.The OIG guidance uses the term “fully-loaded cost,” but it is not binding, and involves discrete and simplistic facts.The fully-loaded cost method is not used in the real word precisely because, as Judge Marbley noted, it would produce absurd results.Relators may argue that incremental cost should include at least some subcategories of G&A.It may be impracticable to reliably calculate incremental cost at sub-corporate levels or for specific contracts or transactions.Relators and the DOJ use the same putative expert(s) repeatedly, which may eventually present a Daubert problem for them.


Litigating the AKS requirement of criminal intent

The AKS is a criminal statute; a criminal mens rea is necessary to prove the underlying AKS violation for a FCA claim.The standard of knowing and willful intent conditions liability on proof that the defendant acted “intentionally and purposely and with the intent to do something the law forbids, that is, with the bad purpose to disobey or to disregard the law.” Bryan v. United States, 524 U.S. 184, 190 (1998).Klaczak and McDonough adopt rule that indirect or circumstantial evidence must be “robust” and tend to exclude legitimate or negligent explanations for conduct; a “chain of inferences” is not sufficient.


Burden of Proof

The FCA is a civil statute, subject to a civil, preponderance-of-the-evidence standard of proof.The AKS is a criminal statute, the violation of which must be proven beyond a reasonable doubt.When litigating FCA cases premised on AKS violations, which burden of proof should apply?Because the AKS criminalizes conduct that is lawful in most industries, the reasonable doubt standard is an important part of the law’s protection of defendants.In Jamison, while not reaching the question, Judge Aycock observed that the proper course would likely be to use the criminal standard to prove a civil AKS violation. 900 F. Supp. 2d


698, n. 7


Exceptions and Safe Harbors

Discount Statutory Exception“[I]llegal remuneration” does not include “a discount or other reduction in price obtained by a provider of services or other 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.” 42 U.S.C. § 1320a-7b(b)(3)(A) (emphasis added).Regulatory Discount Safe Harbor“(A) Where a discount is required to be reported to Medicare or a State health care program under paragraph (h)(1) of this section, the seller must fully and accurately report such discount on the invoice, coupon or statement submitted to the buyer; inform the buyer in a manner that is reasonably calculated to give notice to the buyer of its obligations to report such discount and to provide information upon request under paragraph (h)(1) of this section; and refrain from doing anything that would impede the buyer from meeting its obligations under this paragraph.” 42 C.F.R. § 1001.952(h)(2)(ii)(A) (emphasis added).



Contact info:Ben BerkowitzKeker & Van Nest LLP633 Battery StreetSan Francisco, CA 391-5400

Brian Stimson

Alston & Bird LLP

One Atlantic Center

1201 West Peachtree Street

Atlanta, GA



404) 881-4972


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