Health care attorneys have long questioned whether there are significant Anti-Kickback Statute (AKS) risks associated with financial transactions between Medicare Advantage plans and their participating providers. An ongoing case in the Northern District of Illinois could provide Medicare Advantage organizations with a clear answer regarding the nature of such risks.
United States ex rel. Derrick v. Roche Diagnostics Corp., brought by a qui tam relator under the False Claims Act, involves Roche Diagnostics Corp. (“Roche”), a manufacturer of glucose monitoring products, and Humana, Inc. (“Humana”), an issuer of Medicare Advantage plans (collectively the “Defendants”). United States ex rel. Derrick v. Roche Diagnostics Corp., 318 F. Supp. 3d 1106 (N.D. Ill. 2018). The relator alleges that the Defendants violated the AKS when Roche agreed to settle an overpayment owed by Humana for pennies on the dollar in exchange for the exclusive placement of Roche products on Humana’s formularies. This litigation has been ongoing since 2014 and the trial is set for early 2020.
Prior to the events giving rise to this action, Roche sold glucose monitoring products via Humana’s Medicare Advantage formularies. The relator alleges the following sequence of events. First, in March 2013 Humana notified Roche that it would be terminating its supplier contract with Roche and removed Roche’s products from its formularies. After protracted settlement negotiations, Roche agreed to accept only $11 million of the $45 million overpayment. That same week, Humana placed Roche products back on the Humana formularies and, crucially, also agreed to remove from its formularies all products that competed with Roche. Additionally, Roche “reserved the right to recover the full amount owed if Humana did not satisfactorily perform its obligations” under the debt forgiveness agreement. The relator claims that this exchange of debt forgiveness (remuneration) for formulary placement (recommendation/referral) amounted to an AKS violation.
While the Department of Justice (“DOJ”) declined to intervene in this case, it urged the court to permit the relator-plaintiff’s suit to continue. Pursuant to the DOJ’s recent Granston memo a “decision not to intervene in a particular case may be based on factors other than merit, particularly in light of the government’s limited resources.” See Memorandum from Michael D. Granston, Dir., Dept. of Justice, on Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A), 1-3 (Jan. 10, 2018). On June 8, 2019, the court denied the Defendants’ motion to dismiss, holding that the relator had alleged fraudulent conduct under the False Claims Act with the particularity and plausibility standards of Rule 9(b) and Rule (8). In allowing the litigation to proceed, the court held that debt forgiveness has long been held to constitute prohibited remuneration and that discovery could reveal that the Defendants knew such an arrangement was unlawful, thus satisfying the intent element of the AKS.
If this case proceeds through a final judgment on the merits, it will likely clarify the extent of AKS compliance risk for Medicare Advantage plans, and the particular harms that the AKS seeks to remedy in the context of Medicare Advantage plans. To date, both the courts and the DOJ have advised that the primary goal of the AKS is to protect the federal treasury from overutilization and patients from receiving unnecessary care. The Office of Inspector General (“OIG”) has acknowledged that capitated managed care arrangements, such as Medicare Advantage, insulate the federal government from the risk of overutilization. As it noted in 1999 guidance:
The OIG recognizes that when managed care organizations are paid a capitated amount for all of the services they provide regardless of the dates, frequency or type of services, there is no incentive for them to overutilize. In any event, even if overutilization occurs, the Federal health care programs are not at risk for these increased costs.
64 Fed. Reg. 61893-01, 61901 (Nov. 15, 1999). At least one federal court has held that a lack of financial injury to the federal government in the managed care context militates against a finding that the arrangement violated the AKS. See United States v. UnitedHealthcare Ins. Co., No. 15-cv-7137, 2018 U.S. Dist. LEXIS 98195, 2018 WL 2933674, at *30 (N.D. Ill. June 12, 2018).
However, Congress, Centers for Medicare & Medicaid Services, and appellate courts have acknowledged several ancillary purposes of the AKS, including retaining patient freedom of choice for services, fostering competition among providers, and removing financial motives from referral decisions. See, e.g., United States v. Ruttenberg, 625 F.2d 173, 177 n.9 (7th Cir. 1980). Here, Humana and Roche allegedly worked out a deal whereby they exchanged debt forgiveness for exclusive placement of certain Roche products on Humana’s formularies. This arrangement has the potential to directly implicate these ancillary purposes of the AKS, and therefore is a compelling test case for the scope of the AKS in the Medicare Advantage context.
