AMARILLO, TX – The federal anti-kickback statute (federal AKS) prohibits a provider/supplier from directly/indirectly compensating a referral source for (i) referring federal health care program (“FHCP”) patients, (ii) arranging for the referral of FHCP patients, or (iii) or recommending the purchase of a product/service payable by an FHCP. All states have a kickback statute (state AKS) that is similar to the federal AKS.

Some state AKSs apply only when the payor is the state Medicaid program. Other state AKSs apply when the payor is the state Medicaid program or a commercial insurer. And some state AKSs are “all payor” statutes, meaning that they apply regardless of the source of compensation to the referral source (e.g., the statutes apply to cash-pay patients).

When a DME supplier is contemplating entering into an arrangement with a referral source, it must look at the federal AKS…and look at the applicable state AKS.

Anybody…and anything…can be a referral source. In other words, a referral source is not limited to a physician. A kickback can take many forms. Essentially, “anything of value” to a referral source can constitute a kickback unless the arrangement complies with, or substantially complies with, a “safe harbor” to the federal AKS. Many state AKSs incorporate the federal safe harbors. Even if a state AKS does not expressly incorporate a federal safe harbor, if an arrangement does comply with (or substantially complies with) a safe harbor, the risk is low of enforcement under the state AKS.

An example of “anything of value” resulting in a kickback is when a provider/supplier provides services to a referral source that save money for the referral source. Said another way, if a provider/supplier performs acts that essentially subsidize the referral source’s expenses, such subsidization constitutes “something of value” to the referral source. If a DME supplier provides services to a referral source, the referral source needs to pay fair market value (“FMV”) compensation to the DME supplier for the services.

An example is a recent lawsuit filed by the State of Texas and Health Choice Alliance (collectively referred to as “Alliance”) against Eli Lilly & Co. (“Lilly”) under the Texas Health Care Program Fraud Prevention Act (“THFPA”). The Petition states, in part:

[Lilly] is one of the largest pharmaceutical companies in the world. It manufactures and markets medicines that have been approved by the [FDA] to treat numerous chronic diseases, including …products (collectively, the “Covered Drugs”) that treat diabetes, osteoporosis, migraines, obesity, auto-immune disorders, and multiple types of cancer.

Because many of the Covered Drugs compete in a marketplace saturated with medications that deliver – or claim to deliver – similar therapeutic results, Lilly needed a compelling promotional strategy to support them. Lilly thus devised two programs aimed at incentivizing Providers to prescribe and continue to prescribe the Covered Drugs over alternatives.

In the first scheme (the “Free Nurse Program”), Lilly provided (and/or had assistance from third parties providing) in-kind remuneration to Providers in the form of free patient-care services to induce Providers to recommend or prescribe the Covered Drugs to their patients.

In the second scheme (the “Support Services Program”), Lilly provided (and/or had assistance from third parties providing) in-kind remuneration to Providers in the form of reimbursement support services.

By inducing Providers to prescribe and/or continue to prescribe the Covered Drugs in violation of Texas law, Lilly committed, and continues to commit, a number of unlawful acts in violation of the THFPA.

This case is not about whether the Covered Drugs are effective – it is about whether Lilly violated Texas law by providing remuneration or items of value to induce Providers to prescribe the Covered Drugs over other drugs on the market.

The principles in this lawsuit are similar to the principles pertaining to an arrangement, a number of years ago, in which a manufacturer of CPAPs/disposables provided free call center services to DME suppliers that purchased products from the manufacturer. The manufacturer-owned call center would call suppliers’ CPAP patients to see if they needed a new shipment of disposables. The free call center services saved money for the DME suppliers because the suppliers did not have to pay their own employees to make the phone calls. The manufacturer ended up reaching a settlement with the government.

The lesson for DME suppliers is that if they are going to provide services to a referral source, the referral source needs to pay FMV compensation to the suppliers.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm based in Texas with a national health care practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].