Monthly Archives: January 2020

In anti-kickback prosecutions, the Government has increasingly sought to suppress the introduction of safe harbor defenses. One of the primary and often cited safe-harbor defense to the anti-kickback statute is the employee safe harbor defense, i.e., the defense that the client was a bona fide employee.

There are not one, but two provisions which permit a client to raise an employee safe harbor defense: (1) the employee safe harbor defense and (2) the statutory defense to the anti kickback statute for employees. See 42 C.F.R. Section 1001.952(i) (employee-employer safe harbor to the Anti-Kickback Statute; 42 U.S.C. Section 1320a-7b(b)(3) (the statutory exception to AKS).

Both provisions are set forth below:

The plain language of the AKS states that the AKS does not apply to:

Any amount paid by an employer to an employee (who has a bona fide relationship with such employer) for employment in the provision of covered items or service

See 42 U.S.C. Section 1320a-7b(b)(3). (emphasis ours).

The safe-harbor states that:

As used in section 1128B of the Act, “remuneration” does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs. For purposes of paragraph (i) of this section, the term employee has the same meaning as it does for purposes of 26 U.S.C. 3121(d)(2) (“That provision of the statute states: “any individual who, under the usual common law rules applicable in determining the employer–employee relationship, has the status of an employee.”). See 42 C.F.R. Section 1001.952(i). (emphasis ours).

In raising the employee safe harbor defense, a client retains the burden of proof, by a preponderance of the evidence, to show that the challenged payment was from an employer to an employee with whom there is a bona fide employment relationship. See State v. Harden, 938 So.2d 480, 488–89 (Fla. 2006).

In recent cases, the Government has not hesitated to file motions to strike this safe harbor defenses as a defense, to exclude it from jury instructions, and/or seek to conduct discovery in order to ferret out the factual basis for the defense.

There are some cases where the clients’ safe harbor defense is akin to that Fourth quarter Hail Mary in the big game. You might get it, but it is very unlikely. Perhaps that is the reason for the Government’s dogged insistence on eliminating these defenses. But, as we all know, not every case is the same. They are nuanced. Facts, even small but critical facts, are dissimilar. There is no one size fits all approach.

​Despite this, the Government (at least in our District) continues to employ aone-size-fits-all approach to the application of the employee safe-harbor by citing two cases: United States v. Luis, 966 F. Supp. 2d 1321, 1330-31 (S.D. Fla. 2013); United States v. Starks, 157 F.3d 833 (11th Cir.1998).

Sadly, prosecutors continue to rely on these two cases from the Eleventh Circuit which misinterpreted the scope and application of the employee-safe harbor.

In Starks, defense counsel did not request an employee safe harbor instruction at trial and there was no briefing or litigation at the trial court level regarding the application of the safe-harbor. The facts in Starks were unsettling too. Two employees of a drug treatment program were paid cash in a parking lot to recruit struggling addicts so that they received treatment at a particular facility. They provided no medical services and were not health care professionals. On appeal, the Eleventh Circuit considered a vagueness challenge to the employee safe-harbor provisions because defendants contended that the safe-harbor provision contained in § 1320a-7b was unconstitutionally vague. Starks., at 839. Rejecting this argument, the court found that, even if defendants believed they were bona fide employees, the safe-harbor was not vague, as applied, because defendants were not compensated for providing “covered items or services.” Id.

Luis applied this same rationale in a case involving a civil action under 18 U.S.C. Section 1345 which permits the government to obtain pre-trial restraining orders against assets which are derived directly or indirectly from the fruits of a federal health care offense which includes anti-kickback violations. The defense claimed that the government could not restrain assets because, as employees, they qualified for the employee safe-harbor to the AKS. Again though, the facts in Luis were atypical – payments were made directly to nurse/recruiters in return from bringing patients to receive home health covered by Medicare.

In quickly rejecting the safe-harbor defense, the trial judge relied heavily on Starks and found that:

For either safe-harbor provision to apply, the remuneration must have been made to the employee for furnishing or providing covered items or services or for items or services payable under Medicare.

This is evident from the text of the safe-harbor provisions, as well as the Eleventh Circuit’s decision in United States v. Starks, 157 F.3d 833 (11th Cir.1998). The text of the safe-harbor provision upon which Luis relies states that “remuneration”  does not include “any amount paid by an employer to an employee … in the furnishing of any item or service for which payment may be made in whole or in part under Medicare.” 42 C.F.R. § 1001.952 (emphasis added). Similarly, the safe harbor contained in § 1320a-7b states that it will apply to “any amount paid by an employer to an employee … for employment in the provision of covered items or services.” § 1320a-7b(b)(3)(B) (emphasis added). The emphasized language in both of these provisions makes clear that the safe-harbor provisions will only apply when payments made to an employee compensate the employee for furnishing or providing covered items or services or items or services payable by Medicare, not simply for referring patients.

Luis, at 1330-31.

The underlined language has been rejected by other courts discussed belowand, in this author’s view, is a fundamental misinterpretation of the scope of the employee safe harbor. Indeed, if this extraordinarily sweeping approach to the defense were applied to any sales and marketing professional in the United States, that sales and marketing professional would fail the safe-harbor test every time because sales and marketing professionals do not provide a covered service. They are sales professionals, not health care professionals. Thus, any W-2 employee in the U.S. marketing, for example, pharmaceuticals or durable medical equipment, or medical devices, or laboratory tests for cancer, would be subject to a criminal AKS prosecution with no recourse under the employee safe-harbor defense.

One example of a proper instruction was in United States v. Monty Grow, 16-cr-20893-FAM (S.D.Fla.) (Dkt 112 at 18). There, the district court included a juryinstruction on the employee safe-harbor to the AKS, for receipt of kickbacks, stating: “remuneration does not include any amount paid by an employer to an employee, who has a good faith bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.” Dkt 112 at 18.

This instruction is supported by holdings from district courts and appellate courts. Each of those courts have underscored the breadth of the employee-employer safe harbor in prosecutions based on the AKS. See United States v. Aids Healthcare Found., Inc., 262 F. Supp. 3d 1353, 1362 (S.D. Fla. 2017), aff’d sub nom. Carrel v. AIDS Healthcare Found., Inc., 898 F.3d 1267 (11th Cir. 2018) (granting motion for summary judgment in False Claims Act prosecution predicated on AKS finding that defendants satisfied the employee safe harbor to the AKS). See  Harden, 938 So.2d at 480, 488–89 (Finding that “per head” compensation was protected by employee safe-harbor and noting that “[t]he employee safe harbor presumes a reduced potential for program abuse because of the greater degree of control that employers are presumed to exercise over their employees.”); United States ex rel v. Halifax Hospital Med. Center, 2013 U.S. Dist. Lexis 167882 (M.D.Fla. 2013) (granting motion for partial summary judgment in False Claims Act prosecution based on employee safe harbor to Anti-Kickback Statute); Hericks v. Lincare, Inc.,  2014 U.S. Dist. Lexis 39706 at *54, n.17 (E.D. Pa. 2014) (dismissing part of a False Claims Act action based on an AKS violation finding that the employee safe harbor applied to the sales representatives in the case).

In Hericks, the district court noted:

as Defendants point out, under Hericks’s reasoning, all payments to sales representatives who sell healthcare goods and services would be improper because those payments would result from referrals. Because the safe harbor language applies to payment to  individuals for employment in the provision of covered items and services, and because the Lincare employees are employed in the provision of covered items and services, the cash bonuses for referrals are not necessarily illegal remuneration in violation of the Anti-Kickback Act, providing an additional reason for the Court to dismiss this claim.

Hericks, 2014 U.S. Dist. Lexis 39706 at *54, n.17.

The highlighted language from Hericks is also critical because the court in Hericks properly recognized that, as discussed further below, the employee safe-harbor was not intended to exclude sales representatives from its application but was instead specifically promulgated to apply to sales and marketing arrangements. Hericks, at *54, n.17. If a different result had been envisioned, then, in practice, every single employed sales representative in the United States would be a potential AKS target. Certainly, Congress did not intend such an absurd result.

Halifax is also instructive. In Halifax, the Middle District of Florida pronounced that:

[T]he Bona Fide Employment Exception provides that the normal prohibition on payments to induce referrals does not apply where the payments are made to a (for lack of a better word) legitimate employee. 42 U.S.C. § 1320a-7b(b)(3). The Relator would change that to read that the prohibition on payments to induce referrals does not apply where the payments are made to a (for a lack of a better word) legitimate employee. The Relator would change that to read the prohibition on payments to induce referrals does not apply where payments are made to a legitimate employee unless they are payments to induce referrals. The exceptions set forth in the Anti-Kickback Statute and accompanying regulations “provide immunity from prosecution for behavior that might have violated the Anti-Kickback Statute.” State v. Harden, 938 So. 2d 480, 488-89 (Fla. 2006). The Relator’s interpretation of the Bona Fide Employment Exception would eviscerate it.

Halifax, 2013 U.S. Dist. LEXIS 167882 at *21

Stated differently, the court in Halifax rejected the relators’ interpretation of the employee safe-harbor because, to apply that strained interpretation, would be akin to eliminating the safe-harbor altogether. Indeed, the safe-harbor plainly protects the inducement of referrals when there is a legitimate employee-employer relationship. Halifax, at *21; see also United States ex rel. Walll v. Vista Hospice Care, Inc., 2016 U.S. Dist. Lexis 80610 at *78 (N.D. Tex. 2016) (finding that relators interpretation of the bona fide employee safe harbor would read the exception out of the statute noting that a “contrary reading” which did not include sales representatives within the provision “would make all payments to hospice providers’ sales, marketing, and other staff for involvement in patients’ securing hospice services from their employer illegal for Medicare providers, leaving such providers unable to promote their businesses by rewarding employees based on success.”).

Beyond that, Office of Inspector General, Department of Health and Human Services (OIG-HHS), the agency tasked with defining the contours of the employee safe-harbor has repeatedly reinforced that the employer-employee safe harbor is a flexible safe-harbor that explicitly contemplated providing safe harbor protection to employed sales representatives. See also Medicare and State Health Care Programs: Fraud and Abuse; OIG Anti-Kickback Provisions, 56 Fed. Reg. 35,952, 35,953 (July 29, 1991) (the employee exception permits “an employer to pay an employee in whatever manner he or she chose for having that employee assist in the solicitation of program business and applied to bona fide employee-employer relationships.”); see also Medicare and Medicaid Programs; Fraud and Abuse OIG Anti-kickback Provisions, 54 Fed.Reg. 3088, 3093 (Jan. 23, 1989)(“We believe that if individuals and entities desire to pay a salesperson on the basis of the amount of business they generate, then to be exempt from civil or criminal prosecution, they should make these salespersons employees where they can and should exert appropriate supervision for the individual’s acts.”). (emphasis ours).

The exemption also includes a part-time employee who is paid on a commission-only basis. See 56 Fed Reg at 35981. The exemption applies provided that a bona fide employer-employee relationship exists. Id.

In addition, OIG’s comments illustrate that the amount of compensation earned by contractors, or how contractors were paid, were not their main concerns with independent sales representatives. Instead, OIG appeared most concerned with the “abusive sales practices by sales personnel who are paid as independent contractors and who are not under appropriate supervision.” See 56 Fed Reg. at 35953.

In response to comments requesting that the OIG protect marketing and advertising activities because such activities promote competition or do not violate the statute, the OIG noted that many marketing and advertising activities may involve at least technical violations of the anti-kickback statute. See 56 Fed. Reg. at 35974. However, the OIG has also stated that “many of these marketing and advertising activities should not be subject to prosecution because they are passive in nature and do not involve direct contact with program beneficiaries, or because the individual or entity involved in these promotions is not involved in the delivery of health care.” Id. (emphasis ours).

For all of these reasons, the employee safe-harbor must remain a valid and critical defense for sales and marketing professionals and others when such clients are the target, or worse yet, a defendant in a criminal AKS prosecution.

Trends for anti-kickback prosecutions in 2020.

In the past few years, the Government’s appetite for anti-kickback prosecutions has grown steadily. There are seemingly no cheat days and Gluten free and vegan options are not part of the menu. It is a pure unadulterated push to increase anti-kickback prosecutions and deter and punish as many bad actors that violate the anti-kickback statute as possible.

Many clients, whether they be doctors, pharmacists, pharmacy owners, marketers, nurses, or Joe Schmo who just transitioned from real estate to selling compounded cream are spared no mercy and are frequently subject to anti-kickback prosecutions.

Many of the ongoing or past Government anti-kickback prosecutions relate to compounding pharmacies, telemedicine arrangements, and what the Government continues to view as illegal marketing arrangements. In fact, it is not much of a stretch to say that the Government views pretty much all marketing as quasi-violative of the Anti-Kickback statute.

Here are some items to continue to look out for in 2020 in Anti-Kickback prosecutions

One. The compounding pharmacy cases and Tricare based cases will migrate more into private payer and other payer AKS cases. For example, the Government has now prosecuted numerous individuals for kickbacks in connection with the Office of Workers Compensation (OWCP) program which administers benefits under the Federal Employee Compensation Act (FECA) which is an Act from 1916. Many of those cases involve over the counter specialty creams and lotions which were unavailable at big box pharmacies. As the clients shift to other payers for products, the Government naturally shifts with them and has taken the position (and will continue to do so) that there is some statute, even if it is not the AKS, that they can use as a hammer to prosecute this conduct.

Two. Relatedly, you will see more Department of Labor and more Office of Personnel and Management (OPM) based investigations into kickback violations. We will also continue to see more telemedicine focused prosecutions. Anticipate seeing defenses such as advice of counsel in those cases (more about this below at 6).

Three. Hospital and laboratory schemes relating to rural hospitals and the use of “reference labs” to refer blood and urine specimens to rural hospitals for testing. It is already well publicized that certain hospitals were mismanaged, run into the ground, and that Blue Cross Blue Shield was left with an enormous tab to pay as a result of some of the lab billing.

Four. Probation officers and judges will continue to grapple with the interpretation of U.S.S.G. Section 2B4.1 and what the term “improper benefit conferred” means in the context of health care cases since that Guideline was promulgated to address commercial bribery schemes  (e.g. NCAA point shaving) which are distinct from health care AKS cases. Indeed, it is time for the Sentencing Commission to possibly reconsider and to promulgate a new Guideline to specifically address this complex, multi-faceted statute.

Five. Courts and the parties will continue to grapple with restitution in AKS cases. Restitution is not mandatory for substantive violations of the AKS. How should it function in 371 conspiracies? How should the court calculate restitution when there is an issue about the medical necessity of the services? Whose burden is it to put on evidence of medical necessity if the ultimate burden rests with the government to demonstrate that restitution is owed and that a victim suffered a loss?

Six. The Government in preparation at any trial will introduce program experts, and they will take especially aggressive measures to guard against the possibility of any advice of counsel defense. Indeed, the advice of counsel defense is a common defense in the AKS realm. The Government’s pre-trial litigation history on this issue also confirms that it is the Government’s Achilles heel. They cannot afford to have attorneys, or their clients, tell a jury that the attorney said this arrangement was OK. To them, that is an unacceptable proposition and a roadmap to a potential loss.  In their view, it is also intended to be a narrow defense. I agree.

Seven. Equally as disenchanting, the Government’s position on the employee safe-harbor to the Anti-Kickbacks statute is essentially no position at all (more about this later). This theme will run throughout AKS prosecutions. The Government’s position, in certain circumstances, is that the safe-harbor and the statutory exception to the AKS only protect employment relationships where the employment is for furnishing a covered service. Put differently, sales and marketing are never (and never have been) covered services. So, if you are an employee paid a commission or a per test or per click compensation, then the safe harbor isn’t so safe because although what you are marketing may be a covered service (DME, medications, lab tests, etc.), you are not personally furnishing that service. Scary but real.

Eight. Hopefully, more trials. Even though Eliminating Kickbacks in Recovery Act (EKRA) bumped up the penalty to 10 years for a substantive anti-kickback offense (paying or receiving kickbacks) for offenses occurring on or after November of 2018, any offense occurring before that and any conspiracy under 371 to commit a kickback offense is capped at 5 years meaning no court could ever punish that person, if convicted, with a sentence of more than 5 years. For this reason, when the amounts are high ($1.5 Million or more), it is likely we will see more trials.