Settlement Highlights Ongoing Interest in Kickbacks Affecting Non-Federal Healthcare Programs

Earlier this week, two laboratory testing companies paid $42.25 million to resolve allegations that they violated the California and federal FCAs, as well as the California Insurance Frauds Prevention Act (“CIFPA”), by paying kickbacks to induce physicians to order a specialized lab test for auto-immune and inflammatory diseases. The kickbacks allegedly took the form of inflated processing fees and caps on patient cost-sharing obligations.  See United States ex rel. STF, LLC v. Crescendo Bioscience, Inc., No. 16-cv-2043 (N.D. Cal.). DOJ and the State of California declined to intervene, and the laboratory testing companies entered into this settlement with the relator to resolve ongoing litigation. The settlement highlights increasing enforcement risk arising from kickback allegations affecting non-federal healthcare programs, which are not directly subject to the Anti-Kickback Statute or the FCA.

The complaint (available here) outlines two forms of remuneration allegedly offered to physicians to encourage the ordering of the defendants’ lab tests. First, the defendants gave physicians a processing fee of $15 for drawing blood samples and shipping those samples to the defendants’ lab, which allegedly was in excess of fair market value. Second, the defendants promoted to physicians that their patients’ cost-sharing obligations would not exceed $25, and that even if patients failed to pay, the defendants would not pursue collection efforts. The complaint alleges that these caps not only benefit patients but also physicians, because “they can reassure their patients that they will not be responsible for more than $25,” and thus may be induced to send more patients to the lab (particularly when those physicians also receive allegedly above fair market value processing fees when doing so). The complaint survived defendants’ motion to dismiss (opinion available here).

The CIFPA prohibits many arrangements also prohibited by the state’s FCA and the federal FCA, but the law’s reach is much broader, because it covers claims submitted to commercial insurance plans.  In light of the relatively generous cost-sharing protections available to Medicaid and Medicare beneficiaries, the bulk of the damages in this case with respect to the cost-sharing caps likely flowed from claims submitted for commercial beneficiaries.

Relators and the government are increasingly turning to the CIFPA and other tools to address supposed kickback arrangements affecting non-government healthcare programs, which historically have not been the subject of rigorous enforcement scrutiny.  We recently authored an article in Law360 addressing the government’s use of two other tools—the Travel Act and the Eliminating Kickbacks in Recovery Act (“EKRA”)—to pursue kickbacks outside the federal healthcare program context.  The article provides practical tips for how healthcare providers and life sciences companies can mitigate risk in this space.  A copy of that article is available here.

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