A recent Federal District Court decision in the case of U.S. v. Holland (CRM-1:17-CR-0234-AT) (N.D. Ga.) highlights and articulates the “willful” standard in the health care Anti-Corruption/Anti-Kickback Statute. The decision takes to task the government’s position that if any “one purpose” of a payment (even if it is not the primary purpose) is in return for referrals of business then the statute is violated. This so called “one purpose” test has been the basis for criminal and civil liability even where the arrangement has not been entered into with criminal or civil intent and where the payment was only incidental to the primary purpose of the arrangement.

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 healthcare Federal Anti-Kickback Statute by government and relators’ counsel and compliance with criteria under the “Safe Harbor” regulations designed for protection from scrutiny and liability under the Statute. The “one purpose test” has been applied as 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 protective 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. The Court noted the government’s position and decided it could not automatically impute “willfulness” simply based on the appearance that one purpose of an arrangement was to induce referrals. The Court consequently concluded that there was no basis to find the existence of a criminal conspiracy because there must be a showing that the parties knew they were breaking the law. The hospital organization involved in this case previously entered into a civil settlement for an amount in excess of one half billion dollars and several other individual defendants have already entered into criminal plea agreements.

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

• The Court confirmed that the government’s position was in fact that the “one purpose rule” meant that any payment which increased referrals violated the Anti-Kickback Statute regardless of whether the payments were legitimate for another purpose, consistent with fair market value or even if the arrangement met a regulatory “Safe Harbor” criteria.
• 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.
• 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 future criminal and civil enforcement actions.