Federal Anti-Kickback Statute Applied to Pharmacy Activities

A chief financial officer of a pharmacy made payments to secure referrals for prescriptions to be dispensed and knew that commission-based arrangements between health care professionals and third parties are illegal. Was it reasonable for a jury to convict him based on a conclusion that his issuance of the checks was a willful act?

ISSUE OF THE CASE

When the chief financial officer of a pharmacy made payments to an individual who was referring patients with prescriptions to be dispensed, knowing that the purpose of the payments was to secure referrals and that such commission- based arrangements between health care professionals and third parties are illegal, was it reasonable for a jury to have convicted him based on a conclusion that his issuance of the checks was a willful act?

FACTS OF THE CASE

Federal prosecutors in a southern state filed criminal actions against a number of people affiliated with a pharmacy that specialized in preparing and dispensing an expensive medication to treat hemophilia. The pharmacy made payments of up to 50% of their profits from a transaction to the individual or business that would refer the patient. Another companion case was filed against an individual who worked for a business making referrals and receiving those payments. An additional claim in this latter suit was that records had been falsified to justify ordering more medication than was necessary. These legal entanglements arose from the fact that the claims for these medications were paid by the state Medicaid agency. Medicaid is a jointly funded program, involving state and federal funds, which led to the federal health care fraud claims against the individual. In all, there were 8 defendants, 2 of whom pled guilty and gave testimony at trial.

The intertwined lawsuits involved counts of conspiracy to falsify medication records, which is a violation of the federal health care fraud statute. Additional charges addressed substantive counts of violating the health care fraud statute, and a final charge alleged aiding and abetting of health care fraud. The payment of inducements for referrals was addressed with claims arising under the federal anti-kickback statute.

There was a joint jury trial that included all the defendants. Once the attorneys for the government had finished presenting their case, the defendants made a motion for acquittal. The relevant federal rule of criminal procedure states, “…the court on the defendant’s motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction.”

The trial court judge ruled on the motion, announcing acquittal on some of the claims made by the prosecutors and allowing other claims to go to the jury. He deferred ruling on a few of the motions until later in the proceedings. Of the claims that went to the jury for a decision, some resulted in guilty verdicts, whereas others resulted in additional acquittals. Once the jury had issued its ruling, the judge denied all remaining motions for acquittal. A number of other procedural twists and turns occurred.

The trial court judge sentenced 1 of the defendants to 15 months in federal prison to be followed by 3 years of supervised release, but no fine was imposed. Another defendant was sentenced to 3 years’ probation and a fine, payable immediately, of $1,750,000. Both defendants appealed their convictions but did not challenge the sentences they had received. The government’s attorneys appealed the decision of the trial court judge to overturn the conviction of the third defendant who issued the checks.

THE COURT’S RULING

The appellate court upheld the convictions of the first 2 defendants mentioned above. However, it overturned the trial court’s judgment of acquittal of the third defendant, sending the matter back to the trial court for entry of a judgment of guilty and announcement of the sentencing decision.

THE COURT’S REASONING

The appellate court concluded that the evidence produced at trial showed that the third defendant, the chief financial officer of the pharmacy business entity, signed the checks payable to those making referrals, knew that the individual was not an employee of the pharmacy but rather was employed by someone else, and knew that the payments were for referring patients to the pharmacy for goods and services. He knew the payments were commission based and that the federal anti-kickback statute criminalized such arrangements. Based on all that, the appellate court concluded that a reasonable jury could have easily found that he acted willfully when he signed the checks to pay for the referrals.

Dr. Fink is professor of pharmacy law and policy and Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy, Lexington.