The Court’s decision in U.S. v. Holland highlighted the apparent contradiction between the 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” creates the basis for a violation of the Anti-Kickback Statute if any purpose of a payment for services induced or was an 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 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 addressed a long-standing disconnect between the law and its elaborate 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 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.

The following additional points were highlighted in the Court’s decision;

• The Court confirmed that the government articulated 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 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 the defendants had a reasonable “good faith” basis to believe that the arrangements were compliant and reasonable because counsel for both parties to the arrangement (hospital and clinic counsel) reviewed and approved the contractual arrangements.

A few other points of importance in the decision were as follows;

• The Court found that the mere existence of 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 pretextual basis for payment of kickbacks where valuable services are provided and “mere encouragement” of referrals does not violate the Anti-Kickback Statute.

It remains to be seen whether the Department of Justice will appeal this district court decision. The decision does, however, compromise the application of the “one purpose test” in criminal and civil enforcement actions.