What are Kickbacks?

The False Claims Act (FCA), originally enacted during the Civil War to combat government procurement fraud, has since evolved into one of the most powerful tools for uncovering healthcare fraud, particularly through its whistleblower provisions. A critical area of healthcare fraud addressed by the FCA involves kickbacks—improper financial incentives that undermine the integrity of federal healthcare programs such as Medicare and Medicaid. This article provides an overview of what kickbacks are, their role in healthcare fraud, and how they relate to FCA litigation.

Defining Kickbacks in Healthcare

In the healthcare context, kickbacks are illegal payments or other forms of remuneration that influence the decision-making of healthcare providers or others involved in patient care. These inducements are provided with the intent to encourage the referral of patients, the purchasing of goods or services, or the ordering of tests, drugs, or treatments, typically reimbursed by federal healthcare programs.

Kickbacks can take many forms, including:

• Cash payments for patient referrals.
  
  
• In-kind gifts such as expensive meals, vacations, or luxury items.
  
  
• Free or discounted services provided in exchange for patient referrals.
  
  
• Phony consulting agreements where the “consultant” is paid for little or no actual work.

The exchange of these benefits in healthcare settings can distort medical decision-making, leading to unnecessary treatments, inflated costs, and, in extreme cases, harm to patients. Federal laws, particularly the Anti-Kickback Statute (AKS) and the FCA, aim to prevent these practices from undermining the healthcare system.

The Anti-Kickback Statute (AKS) and its Relationship to the FCA

The Anti-Kickback Statute (42 U.S.C. § 1320a-7b) is a criminal law that prohibits knowingly and willfully offering, paying, soliciting, or receiving any form of remuneration to induce referrals or the generation of business reimbursable by federal healthcare programs. Violations of the AKS carry severe penalties, including fines, imprisonment, and exclusion from federal healthcare programs.

The relationship between the AKS and the FCA arises when a healthcare provider submits a claim to a federal healthcare program that results from a kickback. Under the False Claims Act, any claim submitted to the government that is tainted by illegal conduct, such as kickbacks, can be deemed a false or fraudulent claim. This opens the door for whistleblower (or qui tam) lawsuits, where individuals with insider knowledge of the fraud can file actions on behalf of the government.

This connection was solidified by the Affordable Care Act in 2010, which clarified that any claim submitted in violation of the Anti-Kickback Statute automatically constitutes a false claim under the FCA. This amendment made it easier for whistleblowers and the government to pursue kickback-related fraud in healthcare through civil litigation.

How Kickbacks Drive False Claims

Kickbacks create a direct incentive for healthcare providers to prioritize profit over patient care. When providers accept financial incentives to refer patients, prescribe drugs, or order unnecessary tests, they are more likely to submit false claims for reimbursement to Medicare, Medicaid, and other government programs. These false claims lead to excessive spending in federal healthcare programs, costing taxpayers billions of dollars annually.

Some common kickback schemes that lead to FCA violations include:

1. Pharmaceutical and Medical Device Kickbacks: Drug manufacturers and device companies may offer financial incentives to physicians in exchange for prescribing certain medications or using specific devices. In exchange, the physicians may prescribe these drugs or recommend these devices regardless of the patient’s actual needs.
   
   
2. Hospital-Physician Relationships: Hospitals may offer physicians financial incentives, such as medical directorships, free office space, or below-market rent, to encourage referrals. These improper payments encourage physicians to admit patients to hospitals or to order unnecessary tests or procedures, leading to inflated claims submitted to federal healthcare programs.
   
   
3. Clinical Laboratory Kickbacks: Clinical labs may offer kickbacks to physicians for ordering tests that are not medically necessary or for sending lab work exclusively to their facilities. This practice increases the volume of unnecessary testing, inflating costs and driving fraudulent claims.

Whistleblowers and FCA Actions Against Kickback Schemes

Whistleblowers, often insiders with knowledge of kickback arrangements, play a critical role in identifying and reporting these fraudulent practices. Through qui tam lawsuits, whistleblowers can bring FCA cases against healthcare providers, pharmaceutical companies, hospitals, and other entities engaged in illegal kickback schemes.

The FCA incentivizes whistleblowers by allowing them to receive a percentage of the recovered funds—typically between 15% and 30% of the amount recovered by the government. Whistleblower lawsuits have led to significant recoveries in kickback-related healthcare fraud cases. For example, in recent years, the U.S. Department of Justice (DOJ) has recovered billions of dollars in healthcare fraud settlements, with many cases involving kickback violations under the FCA.

High-Profile Kickback Cases

Several high-profile kickback cases illustrate the magnitude of the issue and the role of the FCA in addressing healthcare fraud:

• Pfizer agreed to pay $2.3 billion to resolve allegations that it had paid kickbacks to healthcare providers to prescribe its drugs, including Bextra, an anti-inflammatory medication that was later pulled from the market for safety reasons. This case, brought by whistleblowers under the FCA, remains one of the largest healthcare fraud settlements in U.S. history.
• Novartis agreed to pay $678 million to settle allegations that it violated the AKS by providing kickbacks in the form of lavish speaker fees and other incentives to doctors in exchange for prescribing its cardiovascular and diabetes medications.
• resolve allegations that it submitted false claims to Medicare and TRICARE by providing rehabilitation therapy services that were not medically necessary. The case also involved kickback allegations.

Conclusion

Kickbacks in healthcare represent a serious threat to the integrity of federal healthcare programs and the quality of patient care. By inducing healthcare providers to make decisions based on financial gain rather than medical necessity, kickbacks inflate costs, lead to unnecessary treatments, and defraud government programs. The False Claims Act, in conjunction with the Anti-Kickback Statute, provides powerful tools for addressing this fraud. Whistleblowers, by exposing kickback schemes through qui tam lawsuits, have helped the government recover billions of dollars lost to healthcare fraud. For whistleblower lawyers, understanding the nuances of kickback schemes and their relationship to the FCA is essential to pursuing justice and ensuring that the healthcare system remains fair and transparent.