On March 12, 2024, the U.S. Court of Appeals for the Second Circuit issued an important decision interpreting the “willfulness” standard necessary to find a violation of the federal Anti-Kickback Statute (AKS). The decision provides important guidance for health care and pharmaceutical organizations on what constitutes a knowing violation of the AKS and for counsel to such organizations on defending clients in AKS and False Claims Act (FCA) cases.

Overview of AKS Allegations and FCA Claims

In U.S. ex rel Hart v. McKesson, a former employee of the defendant (a pharmaceutical distributor) filed a qui tam lawsuit under the federal FCA – and certain state FCA analogues – premised on alleged violations of the AKS by the defendant. According to the Second Circuit’s opinion, the relator alleged that the defendant:

1. Offered business management tools to providers that allowed the providers to select certain specialty drugs based on maximizing the potential revenue to the provider (which in turn increased costs for insurers, including the Medicare and Medicaid programs); and
2. Offered free access to these valuable business management tools to customers who selected the defendant as “their primary wholesale supplier of branded and generic drugs,” but refused to provide free access to providers who only purchased individual drugs without such a commitment.

The relator accordingly alleged that (i) the provision of free access contingent upon the commitment constituted an illegal inducement under the AKS, and therefore, (ii) claims submitted by providers who received free access to the tools were tainted by the alleged kickback and constituted false claims under the FCA.

District Court Dismissal

A district court granted a motion to dismiss on the basis that the relator failed to plausibly show that the defendant acted willfully, and therefore failed to show that the defendant acted with the requisite scienter for an FCA violation. That court dismissed the federal FCA claim, as well as the state law analogues.

Second Circuit Analysis of Willfulness under AKS

On appeal, the Second Circuit assessed the “primary issue” of what constitutes acting “willfully” under the AKS. The court first noted that it had addressed a similar question in its 2022 Pfizer decision (which we previously analyzed here), where the court observed that a defendant can “willfully” violate the AKS if the defendant “knows that his conduct is illegal” even if unaware of the “exact statutory provision that his conduct violates.”

The court analyzed the history of the AKS legislation and nationwide jurisprudence interpreting the willfulness – or mens rea – standard and determined that the term should be interpreted as consistent with federal criminal law. The court, therefore, held that in order to be subject to criminal prosecution under the AKS for acting willfully, a defendant “must act with knowledge that his conduct was unlawful” under the AKS or another law. However, the court also cautioned that this does not require that a defendant “know of the AKS specifically or intended to violate that statute” in order to be subject to liability thereunder. Instead, a person may have criminal liability under the AKS without being aware of that statute if there is evidence that the person “acts with knowledge that [their] conduct is, in some way, unlawful.” In reaching this conclusion, the court indicates that it intends to protect “those (and only those) who innocently and inadvertently engage in prohibited conduct.”

In a footnote, the court also explained that its holding was, in its view, “consistent with the scienter requirement for health care fraud” under federal criminal law at 18 U.S.C. § 1347.

In response to the specific FCA case in front of the court, the court determined that neither of the relator’s two proposed willfulness interpretations were consistent with the court’s conclusion, described above. The court then analyzed the relator’s claims and determined that “none” of the allegations “alone or together gives rise to a plausible inference” that the defendant acted willfully. It accordingly upheld the district court’s dismissal of the relator’s federal FCA claim, although it reversed the district court’s dismissal of the relator’s remaining claims brought under state (and the District of Columbia) FCAs.

Takeaways

Health care organizations and defense counsel will want to study this opinion closely when considering exposure to potential FCA and AKS claims. Notably, the court’s analysis of alternative potential interpretations and recent decisions in other circuits may provide additional guidance for distinguishing claims and/or defenses.