The Court’s decision in U.S. v. Holland highlights the apparent contradiction between the judicially created and often relied upon “one purpose test” involving criminal and civil enforcement actions under the Federal Anti-Kickback Statute by government and relators’ counsel and compliance with criteria under the “Safe Harbor” regulations for protection from violations of the statute. The “one purpose test” has created the basis for a violation of the Anti-Kickback Statute if any purpose of a payment for services induced or was in exchange for, patient referrals, even if legitimate services were rendered and/or the arrangement fit into a regulatory “Safe Harbor.” 

The Court’s decision was made within the context of determining whether or not to admit unindicted co-conspirator statements into evidence, which necessitated deciding whether or not there was a conspiracy in the first place to violate the Anti-Kickback Statute. The Court’s discussion was extensive in analyzing the “one purpose test," (which the Court found was not settled law) and considered whether there was a knowing and willful violation of the Anti-Kickback Statute where the arrangement arguably met the Safe Harbor regulation for personnel and management services.The Court concluded that the mere existence of an arrangement for services where referrals and payments were involved did not establish knowing and willful conduct, which violated the Anti-Kickback Statute.

The Court’s discussion directly addressed, for the first time, a long-standing disconnect between the law and its statutory exceptions and Safe Harbor regulations and the position often taken by the government and relators’ counsel that if “one purpose” of an arrangement was to induce referrals then this was all that was necessary to support a violation of the Anti-Kickback Statute, regardless of compliance with a Safe Harbor regulation. The Court extensively discussed the “one purpose test” and concluded that no court had squarely addressed the fact that the one purpose rule seems at odds with the express purpose and language of the safe harbor regulations. The Court notably decided it could not automatically impute “willfulness” simply based on the appearance that one purpose of an arrangement was to induce referrals. There must be a showing that the parties knew they were breaking the law, according to the Court.

The following additional points were highlighted in the decision:

• The Court confirmed that the government did, in fact, articulate the position that the “one purpose rule” meant that any payment which increased referrals violated the Anti-Kickback Statute regardless of whether the payments were legitimate, consistent with fair market value, or even if the arrangement met “Safe Harbor” criteria.

• The Court clearly rejected this position and ruled that the one purpose test and its application was not settled law and even if one purpose of the payment induced a referral it did not violate the statute unless it involved knowing and willful conduct.

• The Court further stated that “willfully” under the Anti-Kickback Statute means the act was committed voluntarily and purposely with the specific intent to do something the law forbids, that is with bad purpose to either disobey or disregard the law. The Court further stated that “willfulness” requires proof of an intentional wrongful act and a defendant who believes in “good faith” that he has not committed a wrongful act, no matter how unreasonable that belief is, is not guilty.1

• The Court also found that there must be a showing that there was a knowing violation of the law beyond knowing that a purpose of the arrangement was to induce referrals.

• The Court also decided that, under the circumstances of the case, the defendants had a reasonable “good faith” basis to believe that the arrangements were compliant because counsel for both parties to the arrangement (hospital and clinic counsel) reviewed and approved the contractual arrangements.

It remains to be seen whether the Department of Justice will appeal this district court decision. Nevertheless, the decision does compromise the application of the “one purpose test” in criminal and civil enforcement actions and takes issue with a number of the government’s and relator’s favorite litigation positions taken in numerous enforcement actions under the Anti-Kickback Statute. The implications of this decision are important when defending a criminal enforcement action or during investigation and/or litigation under the False Claims Act involving application of the Anti-Kickback Statute. However, it does not necessarily have a significant direct impact on reducing the risk of noncompliance with the Anti-Kickback Statute for healthcare organizations and their compliance programs. 

This is an important decision, but it is only one decision by United States District Court in the Northern District of Georgia, which has limited precedential value and may not even be followed by other courts in the future. The holding in the case and a number of the decision points articulated by the Court, however, will be relied upon in defensive litigation in the application of the Anti-Kickback Statute either in a criminal enforcement matter or in civil litigation. It still remains to be seen if the implications of the decision will be reflected in future criminal enforcement policy and/or in False Claims Act cases and whether it will be adopted by other courts.

Consequently, healthcare organizations and their compliance professionals must nevertheless continue to be vigilant and to respond accordingly to reports of potential noncompliance with the Anti-Kickback Statute in arrangements involving their organizations. It is probably safe to say that this decision does not materially change the arc of the compliance risk for healthcare organizations in dealing with the Anti-Kickback Statute, although, it may make it easier for counsel to defend against criminal or civil Anti-Kickback enforcement actions initiated either directly by the federal government or by a whistleblower under False Claims Act. It may also make it easier for counsel to advise client health care organizations on the application of the Anti-Kickback Statute in a way that they may rely on “good faith” and presumably assist with managing the compliance risk.

The main significance of the case is the Court's departure from accepted orthodoxy in applying the “one purpose test” in Anti-Kickback cases. It exposes the limits of the concept and its implications for being used to establish liability for what otherwise could be innocent and compliant activities which do not necessarily rise to the level of a violation of the law.

A few other points of importance in the decision are as follows:

• The Court found that the mere existence of a Power-Point slide deck on compliance training on the Anti-Kickback Statute does not, by itself, translate to knowing and willful conduct or evidence of intent and knowingly and willfully understanding the “one purpose test” in the application of the Anti-Kickback Statute.

• The Court also found that discussions by administrators of the hospital about potential and hoped for referrals did not amount to evidence of intent to violate the law. The Court noted that it was only common sense that hospital administrators would attempt to anticipate the volume of referrals that they might receive at the hospital under any arrangement.

• The Court also found that a contract is not necessarily a pretext for payment of kickbacks where valuable services are provided and “mere encouragement” of referrals and the creation of an attractive place to refer patients does not violate the Anti-Kickback Statute.2

• The Court also determined that if “a hospital may need a service ... it is not prohibited from choosing to enter into a contract for that service with an entity that also has the capacity (such as in this case) to refer patients over a contractor” who does not refer patients.

The Court’s findings with respect to the defendant hospital’s “good faith” basis for believing the arrangements were compliant is perhaps the most important part of the decision. It provides healthcare organizations and its management and compliance professionals an opportunity to manage compliance risk, once it is discovered, in a sensible way. A “good faith” and reasonable belief of the compliant nature of an arrangement can be protective where there is no clear authority, but where “good faith” reliance on counsel’s reasonable advice can protect the organization and/or involved individuals from being found to willfully violate the law. The opportunity to respond to reports of non-compliant activity and to consider and rely on, in good faith, reasonable advice for addressing compliance risk is an important best practice for managing compliance risk.

Key Takeaways

• The decision in U.S. v. Holland addresses, and highlights for the first time, that the “one purpose test” is at odds with the express purpose and language of the safe harbor regulations.

• The Court concluded that the “one purpose test” must give way to the requirement that one must engage in “knowing and willful” conduct in order to violate the Anti-Kickback Statute.

• The Court advises that willfulness requires someone to do what the law forbids, with bad purpose, and if one believes in “good faith” that they have not committed a wrongful act then there is no violation of the law.

• The Court essentially exposed the legal shortcomings of the “one purpose test” and pointed out how it can lead to liability for activities which do not violate the Anti-Kickback Statute.

FOOTNOTES

1 The Court cites to long standing case law in the 11th Circuit; i.e. United States v. Vernon 723 F.3d 1234 (11th Cir. 2013); United States v. Starks 157 F.3d 833 (11th Cir. 1998); United States v. Nerey 877 F.3d 956, 969 (11th Cir. 2017) and Cheek v. United States, 498 U.S. 192, 203-04 (S. Ct. 1991)

2 The Court cites U.S. v. McClatchey 217 F.3d. 823,834 (10th Circuit 2000); U.S. V. Lahue 261 F.3d 993, 1003 (10th Cir. 2001).