Earlier this month, the federal District Court for the Northern District of Illinois, in U.S. ex rel. Derrick v. Roche Diagnostics Corp., sustained a whistleblower, or qui tam, complaint under the False Claims Act filed by a discharged employee of a manufacturer of glucose-testing products, and brought against the manufacturer and a Medicare Advantage (managed care) plan, asserting violations of the anti-kickback statute. The whistleblower alleged that the manufacturer (Roche Diagnostics) had compromised an earlier claimed debt owed to it by the Medicare Advantage plan (Humana)  – the so-called “remuneration” or kickback – in exchange for being restored to the plan’s formularies for glucose-testing products covered by Medicare.

Significantly, Medicare paid the managed care plan a fixed, or capitated, monthly amount for all covered health and medical services provided or arranged for each plan enrollee, and no allegation was made that the alleged kickback arrangement with the manufacturer had increased costs to the Medicare program or resulted in the over-utilization of the blood-testing products at the expense of the program.  Rather, the whistleblower, or “relator,” essentially alleged that the claims for monthly capitation payments submitted by the Medicare Advantage plan “were tainted by the alleged fraud” associated with the arrangement.

Key Takeaways

1. The court’s decision is a stark reminder that health care transactions in managed care programs under Medicare or Medicaid can present risks under the anti-kickback statute and False Claims Act, and the risks are not limited to alleged upcoding of risk-adjustment scores to secure higher capitation payments for the managed care plan.  Nor does an alleged kickback arrangement have to result in overutilization of services or increased costs to the Medicare or Medicaid programs – a scenario more typical in the traditional fee-for-service environment.  Rather, the alleged fraud can be premised on the allegation that the “kickback” unduly influenced or steered the managed care plan to select a particular manufacturer’s products or provider’s services covered by the plan’s capitation payments.  That same risk could arise in  the context of other “all-inclusive” pricing or bundled payment models, where the selection of a particular vendor or participating provider might be similarly tainted by an improper inducement.

2. The managed care “safe harbor” under the anti-kickback statute, the court held, did not immunize the alleged kickback arrangement to secure the manufacturer’s products on the plan’s formularies. Extending the logic of that holding, the managed care safe harbor would not protect any other improper remuneration or kickbacks offered by providers seeking to participate in a managed care plan’s network, or by suppliers wishing to secure contracts to sell their products, utilized by plan enrollees.

3. The forgiveness of debt from an earlier or unrelated transaction may be deemed a form of “remuneration”, as broadly defined under the anti-kickback statute to include anything of value. In this case, the managed care plan had actually disputed the manufacturer’s claim, and the manufacturer and the plan then engaged in negotiations to resolve the dispute – what the manufacturer characterized as “simply a routine, arms-length compromise involving a disputed  contractual obligation.”  Nevertheless, the court found the whistleblower’s allegation – that the manufacturer’s willingness to compromise the claimed debt was intended to induce the managed care plan to restore the manufacturer’s products on the plan’s formularies – was sufficient, as a matter of law, to allow the False Claims Act case to go forward into the discovery phase.

4. The former employee’s claim of retaliatory discharge  under the False Claims Act, asserted against the manufacturer employer, was also sustained based on the asserted nexus – in this case, the coincidence of timing – between the employee’s raising concerns to her supervisors about a potential anti-kickback violation and her termination shortly afterwards.