Introduction
Consider the following hypothetical involving two fictional pharmaceutical companies: LifeSaving Devices Inc. and FormulaOne Services, Inc.1 LifeSaving Devices specializes in medical devices that treat a rare spinal disorder. Physicians have been reluctant to recommend these devices due to the availability of more effective alternatives on the market. In addition, physicians have expressed concerns about the safety of these devices in treating patients. In hopes of increasing its profits, LifeSaving Devices decides to reach out directly to certain physicians and present them with a lucrative offer. The company will offer these physicians consideration, such as paid travel expenses, fees, and other items of value, under the condition that the physicians purchase and recommend the devices to their patients. Several physicians who have previously declined to recommend the devices to patients are now inclined to accept the offer. These physicians recommend the devices to their patients despite the potential risks and the physicians’ beliefs that there are safer treatment options available.
FormulaOne Services, Inc., on the other hand, has recently developed a prescription medication that treats rare cardiac conditions that often result in heart disease and death.2 However, due to the nature of the healthcare market and its impact on price, the medication is prohibitively expensive.3 The company has recently learned that many patients covered by Medicare Part D are underinsured and unable to afford this potentially vital treatment.4 The company designs a subsidy program to assist Medicare Part D patients with their out-of-pocket costs, removing this barrier to accessing the medication. The patients would be required to get a prescription from a physician and qualify for the program.
Obviously, LifeSaving Devices’ arrangement is culpable and is a clear example of physicians being bribed to the point of corrupted decision-making. On the other hand, FormulaOne Services’ conduct could prove to be quite useful in ensuring that underinsured patients are able to access life-saving treatment. Despite this distinction, under current federal law, both companies would be subject to penalties under the Federal Anti-Kickback Statute (AKS).5 FormulaOne’s program would not only likely be enjoined, but the company could potentially face severe treble damages.6 The prosecution of FormulaOne would be due to the financial benefit FormulaOne stands to gain by providing subsidies that are reimbursable by the federal government.7 Despite assisting underinsured patients with access to life-saving prescription medication, FormulaOne’s program would almost certainly fall under the AKS.8
Retail prescription drug costs for the average American senior citizen taking four to five prescription drugs monthly is $31,000 per year, while the average annual income for Medicare beneficiaries is $29,650.9 American spending on prescription drugs has increased by 76% between 2000 and 2017.10 Despite initiatives taken to provide federal aid in the healthcare market,11 millions of Americans remain underinsured by their government-sponsored healthcare program due to the high costs of prescription drugs.12 Absent comprehensive legislative solutions to address the prescription medication market, major U.S. pharmaceutical manufacturers operate Patient Assistance Programs (PAPs) to assist uninsured and underinsured individuals with high drug costs.13 This assistance often comes in the form of direct-drug–discount coupons or cost-sharing payments.14 These PAPs have proven to be quite impactful, and there is evidence that they mitigate the burden of healthcare costs on individuals.15
Since the implementation of Medicare Part D, PAPs have come under increased scrutiny by the federal government due to the potential for fraud and abuse.16 The Medicare Part D program provides coverage for certain outpatient prescription drugs.17 However, there is a question as to whether pharmacies and drug manufacturers can assist Part D beneficiaries with their cost-sharing obligations.18 The federal government has stated that any pharmaceutical manufacturer sponsoring a PAP that subsidizes the cost of its products for Medicare Part D recipients is likely receiving kickbacks and is criminally liable under the AKS.19 Because of the broad reach of the AKS, many PAPs that may be helpful in reducing healthcare costs are now subject to criminal penalties.20
This Note will argue that PAPs demonstrate the problems involved with the AKS’s emphasis on inducement.21 Any subsidy, even if intended to help a patient with cost-sharing obligations, could be seen as an illegal inducement if it removes financial barriers that would otherwise prevent the patient from receiving the medication.22 Because of this, courts should interpret the AKS in the spirit of its original purpose: to prohibit remuneration to an individual with the corrupt intention of improperly influencing a physician’s decision-making.23 Thus, PAPs should not be prosecuted pursuant to the AKS unless there is a clear indication that remuneration was offered in exchange for something of value. In other words, there should be clear proof that a physician was improperly induced to prescribe the medication due to the presence of remuneration. Under this scheme, PAPs would not be unfairly characterized simply because they remove a financial impediment to patients accessing drugs prescribed to them by a qualified physician.
Part I of this Note gives background on the prescription drug price crisis, along with an account of the various structures of PAPs and relevant background on Medicare Part D.24 Part I then provides the legislative history of the AKS and its traditional enforcement mechanisms.25 Finally, Part I looks at how PAPs implicate kickback concerns when operating within the Medicare Part D program.26 Part II analyzes the problems federal courts have in determining the breadth of the AKS and how the court-adopted one-purpose test unfairly prohibits many harmless PAP arrangements.27 Part III proposes a safe harbor solution that narrows the one-purpose test, making it more akin to the gratuity test articulated in United States v. Sun-Diamond Growers of California.28 Part III also demonstrates how the test for gratuity, despite certain complications in its application, will taper the AKS so that it applies to conduct that inherently corrupts medical decision-making.29
I. Background
A. State of Prescription Drug Prices in the United States
It is no secret that prescription drug prices can be prohibitively expensive in the United States.30 Americans spend more on prescription drug costs than residents of any other country.31 While Medicare and Medicaid have helped Americans decrease out-of-pocket costs for prescription medication, these programs have not guaranteed affordable costs for prescription drugs.32 In fact, a recent RAND study found that American spending on prescription drugs has increased by 76% between 2000 and 2017.33 In addition, unlike private health insurers, Medicaid and Medicare administrators are prohibited from negotiating prescription drug prices.34 As a result, millions of Americans who are covered by insurance are “functionally uninsured” and cannot afford their prescription medication despite being covered by Medicare or Medicaid.35
This is partly attributable to the cost-sharing nature of health insurance in the United States.36 An individual’s coverage for a prescription drug treatment does not guarantee full coverage of the cost, and cost-sharing requirements often mean the individual is required to pay for a portion as an out-of-pocket cost.37 More importantly, patients who are covered by Medicare Part D are also responsible for the full out-of-pocket costs during a coverage gap known as the “doughnut hole.”38
While there is a national debate over whether pharmaceutical manufacturers are to blame for the recent rise in drug costs,39 the inherent structure of the healthcare market makes it difficult to conclude that a single entity is to blame.40 The market for pharmaceutical drugs is “inelastic” in that there will always be high demand for prescription medication as long as people are afflicted with illness.41 Thus, the high price of prescription drugs will usually not deter healthcare consumers, but rather will lead to many consumers suffering economic harm due to their participation in the market.42 Congress has debated and proposed a multitude of legislative solutions for this problem to no avail.43 As long as pharmaceutical companies remain for-profit industries, the economic complexities will remain a barrier to efficient solutions to prescription drug pricing.44 In the meantime, U.S. drug manufacturers have developed programs designed to help insured patients gain access to drugs they need but cannot afford.45
B. Structure and Impact of Patient Assistance Programs
The origin of PAPs can be traced to 1987 when Congress earmarked funding for certain charitable programs that provided prescription medication to low-income people with HIV/AIDS.46 Since then, pharmaceutical manufacturers have created their own PAPs by creating nonprofit private foundations, which distribute the manufacturer’s products to low-income patients.47 The benefits received, along with the structure of the program, often vary depending on the program and the sponsoring manufacturer.48 Often, the manufacturer sets up a nonprofit private foundation that is managed in-house to distribute the products.49 Other proposed arrangements involve a third-party vendor that would administer the cost-sharing program.50 These programs are normally limited to providing free drugs to Medicare patients outside of the Part D program.51
Another distinct type of PAP involves the set-up of an independent foundation to receive donations from a pharmaceutical manufacturer on the express condition that the donations are used to subsidize prescription drug costs.52 Commonly referred to as independent charity PAPs,53 these programs are run independently by the foundation, which has full discretion as to patient eligibility and the amount of cost-sharing assistance provided.54 Pharmaceutical manufacturers are permitted to make donations to these PAPs, but these donations must not be intended to exert any influence over the charity or subsidy program.55
While the enrollment process of any type of PAP will vary depending on the program,56 a typical application would require a documented medical diagnosis showing a need for the drug.57 The prescribing physician would have to certify that the medication is necessary, and the patient would have to certify their financial status.58 After this, depending on the type of PAP involved, either the charity running the PAP or the third-party foundation working with the manufacturer would investigate the patient’s insurance coverage to determine the amount it will pay in subsidies.59
Overall, PAPs have had a positive impact on healthcare in the United States, and there is demonstrated evidence that these programs have provided relief to underinsured patients.60 In general, PAPs have helped patients access high-cost medications, and healthcare providers are not impacted by unpaid bills.61 In fact, there is evidence that PAPs have encouraged patients to consistently stick to their treatment regimens. In 2019, a study undertaken by the Pan Foundation found that after receiving financial assistance from a PAP, patients were much more likely to finish their course of treatment.62 A 2016 study revealed that a pharmacy-based PAP for cancer patients not only helped with the expenses of chemotherapy, but resulted in an increase in compliance with chemotherapy protocols.63 Thus, from a purely public health perspective, the benefits of PAPs in providing assistance to underinsured patients are clear.64 However, from a legal perspective, the form of these arrangements takes priority over their function. Because the arrangements involve subsidizing patients who are enrolled in a federal healthcare program, the AKS presents an obstacle to their existence.
C. Anti-Kickback Statute
The AKS imposes criminal and civil liability65 on anyone who willfully solicits or receives remuneration in return for a service or item that is reimbursable by a federal healthcare program.66 The AKS was originally implemented in an amendment to the Social Security Act of 1965.67 Initially, the purpose of the statute was to provide an enforcement mechanism to prevent practices that were regarded as unethical, including the acceptance of bribes.68 Congress had two primary concerns when passing this statute, and both are tied to the threat of overutilization of healthcare services. The first was that these corrupt practices would dramatically increase the cost of Medicare to consumers and the government.69 Because healthcare is a commercial enterprise in the United States, there is a financial incentive to induce referrals if it results in an increase in the flow of business.70 Thus, with arrangements geared towards inducing referrals, physicians may be prescribing or providing services that are not medically necessary, leading to an unnecessary increase in the cost of those services.71 The second primary concern is related to the first in that Congress wanted to prevent this financial inducement from corrupting a physician’s decision-making.72
In 1977, Congress amended the statute to include “any remuneration”73 to address healthcare fraud and activities such as “steering” patients to a particular pharmacy or “ping-ponging” patients from one practitioner to another for no medical reason.74 The elements of a violation of the AKS remain unchanged since this amendment, but Congress has consistently revised the statute to address its breadth by authorizing the issuance of advisory opinions and providing for “safe harbor” provisions by the Secretary of Health and Human Services (HHS).75
2. Enforcement Apparatus of the Anti-Kickback Statute
With increased federal funding for healthcare fraud enforcement and steep statutory penalties associated with the AKS, the Act on its own poses a dramatic threat to conduct that may defraud the healthcare system.76 In order to assess the full weight of penalties associated with the AKS, one must explore how the statute works in tandem with enforcement of the False Claims Act (FCA).77 The FCA imposes civil liability on those who submit false or fraudulent claims to the United States.78 Naturally, the FCA authorizes the United States to bring a civil cause of action against those found in violation.79 However, it also allows private citizens to bring qui tam actions against those alleged to be in violation.80 In this scenario, a private party will bring a complaint setting forth the claims, and the DOJ will intervene and fully prosecute the claim.81
The penalties for violations of the FCA are often severe. If the government successfully prosecutes an FCA action, it is awarded a penalty of $5,000 to $10,000 for each false claim submitted, in addition to treble damages and attorneys’ fees and costs.82 Often, the government brings actions under both the AKS and FCA on the theory that a claim for payment made as a result of an unlawful kickback also constitutes a false claim.83 The argument is that submission of a Medicare claim requires express certification that the requestor has complied with the AKS.84 Thus, many AKS charges are the result of a private party bringing a qui tam action against a defendant.85 So long as the government can continue to rely on qui tam actions that bring FCA claims based on violations of the AKS, it can broadly enforce the AKS and recover substantial treble damages. The government can also exclude healthcare providers who violate the AKS from federal healthcare programs, which risks putting the healthcare provider in financial ruin.86 Thus, there is a lot at stake for healthcare providers, which makes careful navigation of the healthcare market and federal healthcare programs more important than ever.87
3. Common Arrangements Prosecuted Under the AKS
While the key analysis of whether conduct violates the AKS hinges on whether something of value was offered to induce healthcare referrals, the most sinister arrangements prosecuted under the AKS typically involve either the bribery of physicians and hospitals or laboratory fraud.88
The prosecution of physicians and medical service companies under the AKS typically involves a physician entering an agreement with a manufacturer in which the manufacturer will pay the physician a fee every time she prescribes the manufacturer’s product to a patient.89 The most recent notable case involved the prosecution of thirty telemedicine executives who conspired to pay doctors and nurses to order their medical equipment and testing kits when it was often unnecessary.90 In 1989, the First Circuit sustained the convictions of several hospital executives for accepting payments from an ambulance company in return for use of its ambulance service.91 In 2013, eleven individuals, including five physicians, were prosecuted under the statute.92 In that case, the government alleged that the CEO of Sacred Heart Hospital paid physicians to refer their patients for hospital services that would be reimbursed by Medicare and Medicaid.93
In a similar vein, laboratory fraud cases often involve labs providing something of value to physicians who refer patients to their often medically unnecessary testing services.94 Hanlester Network v. Shalala is a notable example of this type of conduct.95 In 2013, the United States indicted several individuals and lab entities for paying physicians certain “processing and handling” fees in exchange for referrals for blood testing.96 Defendants submitted claims for kickbacks and unnecessary medical services and collected millions from Medicare reimbursement.97
Both types of conduct share a common theme: healthcare providers being financially induced to prescribe potentially unnecessary services and subsequently reimbursed by the federal government for those services. In these examples, there is heightened concern of how these payments could potentially influence and corrupt how a practitioner decides to treat a patient’s medical condition. In the context of PAPs, these concerns are certainly still present, but the federal government’s scrutiny of PAPs only increased with the advent of Medicare Part D.98
D. Medicare Part D’s Coverage Gap
Before discussing the legal ramifications of PAPs and their interaction with the AKS, a brief explanation of the structure of Medicare Part D is necessary. The Medicare Part D Program provides coverage to certain individuals for outpatient prescription drugs.99 When Medicare was first implemented in 1965, there were few concerns over the cost of prescription drugs compared to the cost of hospital services.100 Soon after, lawmakers became concerned about the rise in costs of prescription drugs and it became evident that, under its current structure, Medicare was not designed to address the issue of costly outpatient prescription drugs.101 Congress began to report findings that few Medicare beneficiaries had coverage for their prescription drugs outside of the hospital.102 In 2003, after decades of congressional gridlock, President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act, which established the new Medicare Part D Program.103
Under Part D, any individual eligible for Medicare can obtain Part D coverage for outpatient prescription drugs.104 Most Medicare Part D plans have a coverage gap, commonly referred to as the “donut hole.”105 A patient must pay 100% of the cost of covered prescription drugs until a certain amount is spent, after which the patient will enter the donut hole.106 Once a patient enters the donut hole, they will pay no more than 25% of the cost for their plan’s covered prescription drugs.107 More importantly, while in the donut hole, the full price of the drug and what the patient and manufacturer pay will count toward True Out of Pocket Costs (TrOOP).108 A patient must then incur a certain amount of TrOOP before activating catastrophic coverage.109 Once catastrophic coverage is triggered, Medicare will cover a majority of additional costs of covered prescription drug costs.110
While Medicare Part D has helped uninsured and underinsured patients gain access to prescription drug medications, the coverage gap has proven to be an obstacle in obtaining truly affordable costs by those covered by Medicare Part D.111 In addition, because Medicare Part D necessarily involves federal funds, any attempt by a pharmaceutical manufacturer or healthcare provider to assist Medicare Part D recipients could be prosecuted under the AKS.112
E. The Legal Ramifications of PAPs and Medicare Part D
In a special bulletin published after the implementation of Medicare Part D, the Office of the Inspector General for HHS (OIG) articulated its view that manufacturer-sponsored subsidies to Medicare Part D beneficiaries would be prohibited by the AKS.113 Particularly, Medicare Part D poses potential for abuse and fraud because pharmaceutical manufacturers have an incentive to assist Part D beneficiaries with their TrOOP.114 Once the beneficiaries enter their catastrophic coverage, manufacturers can seek reimbursement for medications directly from the insurance plans.115 As a result, there are questions as to whether direct PAPs, in which a manufacturer directly assists beneficiaries with the costs of the manufacturer’s own product, constitute unlawful kickbacks, in which the manufacturer would be giving something of value to beneficiaries in exchange for their use of its product.116
OIG made several clarifications in its bulletin in order to address manufacturers’ interests in continuing to help Medicare Part D enrollees with their prescription drug costs.117 While acknowledging that PAPs have provided an “important safety net” for underinsured or uninsured patients, OIG’s bulletin explains that PAP subsidies tied to a pharmaceutical manufacturer’s products would likely be prohibited by the statute because the manufacturer would be giving something of value to beneficiaries to induce them to use its product.118 OIG’s primary policy concerns with manufacturer-sponsored PAPs include (1) the potential to steer beneficiaries to the manufacturer’s drugs when there are cheaper alternatives available; (2) insulating beneficiaries from the economic effects of drug pricing, thus leading to price inflation, which could increase Medicare costs; and (3) reducing incentives for beneficiaries to find alternative prescription drugs that are less expensive.119 The publication does concede the benefits that PAPs can provide to those who are underinsured.120 Acknowledging this, the bulletin provides certain guidelines companies must follow to avoid federal scrutiny into their arrangements.121
Since the publication of OIG’s special bulletin, the DOJ began to increase its enforcement actions against PAP arrangements.122 In most of these cases, depending on the structure of the program, the primary target for prosecution is the pharmaceutical company that sponsors the program.123 Under this theory, the manufacturer is offering remuneration to induce or refer a person to use its product.124 PAP foundations can also be found in violation of the statute if the foundations colluded with a manufacturer to promote its product.125 In order to critique the government’s application of the law to PAPs, a discussion is needed on how the judicially created one-purpose test has broadened the AKS dramatically since its passage.
II. Analysis
A. Anti-Kickback Statute in the Courts and the One-Purpose Test
Overall, federal courts have interpreted the AKS broadly.126 Notwithstanding this trend, there are several instances of courts attempting to limit the breadth of the statute.127 In doing so, courts have clearly demonstrated an understanding that the statute may be overinclusive, potentially criminalizing conduct that is desirable.128 Before Congress amended the statute to include “any remuneration,” the most common difficulty courts faced was determining what type of conduct constituted a kickback.129 Courts were split on how to distinguish conduct that constituted a kickback and conduct that simply constituted a payment for services rendered.130
While this split was eventually resolved by Congress, it serves as an early illustration of federal courts’ hesitancy to apply the AKS to conduct that may not be highly culpable. For example, in United States v. Porter, the Fifth Circuit analogized kickbacks to bribes and held that absent factors that make a payment illegitimate and corrupt, a payment for services rendered that otherwise meets statutory requirements is lawful under the AKS.131 Clearly, the Fifth Circuit was hesitant to read the statute so as to criminalize arrangements that were not necessarily sinister or otherwise plainly problematic.132 Absent further guidance from Congress, most courts preferred to uphold prosecutions under the AKS only when inherently corrupt payments were made.133 This particular construction was foreclosed when Congress amended the statute to include “any remuneration” to induce referrals.134
1.United States v. Greber
Despite Congress’s best efforts, the federal judiciary’s woes in determining the breadth of the AKS continued. When Congress amended the statute in 1980, it inserted a provision requiring that the criminal defendant “knowingly and willfully” violated the statute.135 Federal courts proceeded to struggle to define this level of mens rea.136 The challenge mainly focused on judicial construction of the term “knowingly and willfully” in the statute, and whether Congress intended to narrow the mens rea to include only specific intent to violate the statute.137
One of the first cases that dealt with this issue was United States v. Greber.138 In this case, Dr. Greber was convicted of violating the AKS when he billed Medicare for his diagnostic services and sent a portion of the reimbursement to the physician that referred the patient to his services.139 Dr. Greber argued that the government had to prove that the only purpose behind the fees paid to the prescribing physician was to induce future referrals.140 In his view, he was not only paying the physicians for referrals but also for legitimate services rendered.141
The Third Circuit rejected this argument and held that even if the physician had performed a service for which he was compensated, the inducement factor was still met.142 The court further held that the government need only prove that “one purpose of the payment” was to induce the individual to use a service for which payment is made under a federal healthcare program.143 In other words, if inducement is one of several purposes in making a payment, that is sufficient to find liability under the AKS.144 This is now known as the “one-purpose test.” The test is effectively the current law today regarding the burden of proof in an AKS violation, and the majority of circuit courts have adopted a version of this test.145 The one-purpose test, in combination with the broad sweep of the text of the statute, implies that the AKS could apply to many kinds of conduct, unbeknownst to the actors involved, in an increasingly complex healthcare marketplace. However, in adopting the one-purpose test, several courts have attempted to limit the AKS to address the breadth of the holding in Greber.146 While the holdings still retain some version of the one-purpose test, courts are sensitive to the problems posed by its wide reach.147
2. Hanlester Network v. Shalala
While the central holding of Hanlester Network v. Shalala largely implicates the level of intent associated with the AKS,148 the Ninth Circuit’s seemingly contradictory holding reveals a larger issue with the one-purpose test. The case involved several arrangements structured by Hanlester Network, a general partnership.149 Hanlester offered limited partnership interests to physicians who were willing to refer patients to Hanlester’s lab tests.150 In addition, Hanlester Network entered into an agreement with Smithkline BioScience Laboratories (SKBL).151 Under this agreement, SKBL would manage and operate Hanlester’s labs and Hanlester would send lab tests that physicians had ordered to SKBL labs.152 After OIG alleged that this conduct violated the AKS, the Ninth Circuit found that the majority of defendants lacked the requisite intent to prove a violation.153 The court construed “knowingly and willfully” as requiring a showing that (1) defendants knew that the statute prohibited offering something of value to induce referrals, and (2) defendants specifically intended to violate the statute.154 The court further held that proof of quid pro quo is not required to find a violation of the AKS.155
Thus, the court’s construction of the statute is both broad and narrow. On one hand, the court held that proof of quid pro quo is not required and implicitly applied Greber’s one-purpose test.156 On the other hand, the court heightened the mens rea required by the statute to criminalize conduct that was done in knowing violation of the statute.157 The contradictory nature of this two-fold holding illustrates the problem posed by the AKS. The statute criminalizes any intent to induce a referral, which, as defined by the Hanlester court, means to “bring on or about, to affect, cause, to influence to an act or course of conduct, [or] lead by persuasion or reasoning.”158 Under the one-purpose test, any good-faith attempt to remove an economic barrier that would otherwise prevent someone from purchasing a prescription drug could be seen as influencing someone to engage in a certain course of conduct. With the prohibitively high costs of prescription medication, this test is unworkable absent a legislative solution.159 While Hanlester’s holding on specific intent has not been adopted by other circuits, the one-purpose test is still the prevailing law.160 Nonetheless, other circuits have recognized limiting principles to the one-purpose test, which is useful in viewing the legality of PAPs.161
3. United States ex rel. Ruscher v. Omnicare
The Fifth Circuit has recently recognized an inherent difficulty in applying the one-purpose test to certain conduct.162 In 2016, in an unpublished opinion, the court granted summary judgment in favor of Omnicare after a qui tam suit was brought alleging violations of the False Claims Act and the AKS.163 The realtor-plaintiff alleged that Omnicare had offered benefits to nursing home facilities in exchange for referrals to Medicare and Medicaid by essentially offering favorable payment options to several of its nursing home clients whose debts were past due.164
The Fifth Circuit held that the plaintiff failed to establish evidence that these billing practices were designed for the purpose of inducing the facilities to make Medicare and Medicaid referrals to Omnicare.165 The court further reasoned that Omnicare may have hoped for Medicare referrals, but without evidence showing that the practice’s purpose was to induce these referrals, there was no AKS violation.166 The Fifth Circuit’s holding is a more practical reading of the AKS. Particularly, it shows that the court recognizes the breadth of the one-purpose test and attempts to limit it by heightening the purpose element of the statute, making it more akin to corrupt intent.167 By distinguishing purpose from hope for results, the court implicitly acknowledged that application of the AKS should be limited to inherently corrupt conduct that necessarily has a negative impact on the functionality of the healthcare system.
The court’s holding illustrates the importance of inquiring into the state of mind of all parties involved in these arrangements. As the court acknowledged, an entity may knowingly benefit from an arrangement that involves referrals to Medicare and Medicaid, but that knowledge should not immediately convert into corrupt intent.168 Rather, the proper inquiry should focus on the primary purpose of such an arrangement.169 Adopting this framework could potentially help to better identify inherently corrupt arrangements with the proper mens rea. However, while illustrating the practical difficulties in applying the one-purpose test, the Fifth Circuit’s distinction between hope for referrals and purpose to induce referrals170 may be difficult to determine in many instances. The court in Omnicare did not provide any guidelines in helping to distinguish a hope for a referral from a purpose to induce a referral. Nevertheless, it is a reassuring signal that there ought to be limiting principles to the one-purpose test.171
B. How the One-Purpose Test Unfairly Impacts PAPs
Despite the signaling of certain limiting principles of the one-purpose test, the federal government has maintained that it will apply the test broadly to pharmaceutical-company–sponsored PAPs.172 In addition, while the case law is limited, federal courts have not yet indicated any willingness to limit the one-purpose test as applied to PAPs.173 To be clear, the AKS is essential when scrutinizing many kinds of kickback schemes that clearly pose a threat to efficient healthcare, and it is important to be vigilant in prosecuting conduct that is meant to induce a referral. Notwithstanding this consideration, as applied to PAPs, the one-purpose test’s use of inducement is simply too sweeping. As a result, programs that are designed to help patients with chronic illnesses are not being implemented because of the broad definition of inducement as applied to the AKS.
1. OIG’s Application of the One-Purpose Test to PAPs
Recognizing the far reach of the AKS, Congress authorized the issuance of advisory opinions on whether certain arrangements would violate the statute.174 These advisory opinions provide helpful insight into how the one-purpose test is applied to PAPs and how the results are often arbitrary at best. As these opinions show, the potential government scrutiny into these arrangements can come at a direct cost to Medicare patients with rare, chronic diseases.175
On September 23, 2020, OIG published an advisory opinion finding that a proposed subsidy program sponsored by a pharmaceutical manufacturer likely violated the AKS.176 Under the program, a Medicare beneficiary would be eligible for a subsidy card that could be used to subsidize the costs of a prescription drug designed to treat a progressive, rare disease that could lead to heart failure.177 The government found that under this arrangement, the subsidy program would operate as a quid pro quo in which the beneficiary received something of value in return for purchasing the medication.178 OIG reasoned that by removing an economic barrier to purchasing the medication, the pharmaceutical company had induced the beneficiary to purchase their product, thus violating the statute.179 Notably, OIG found it irrelevant that the medication covered by the program was the only approved treatment for the disease.180
Due to the broad reach of the one-purpose test, the opinion is likely consistent with current interpretations of what kind of conduct qualifies under the statute. The key intervening fact is that the patient in this context is still required to obtain a prescription from a physician before purchasing this medication.181 This fact is especially vexing because the crux of the advisory opinion is based on the beneficiary being induced by the manufacturer.182 Thus, the conduct in this instance lacks the more serious concerns that could arise from physician bribery or laboratory fraud.183 OIG acknowledged this argument but still reasoned that because the physician must work with the beneficiary to enroll them in the subsidy program, the physician’s awareness of the program would influence their decision in prescribing the medication since it may impact their income.184 In other words, because the physician would want to help reduce the substantial costs of prescription medication, the physician’s clinical decision-making would be impacted.185 Unlike physicians who are unduly influenced by corrupt payments or gratuities, physicians who make the neutral clinical decision to prescribe a medication that a patient would be able to afford should not, as a matter of law, meet the requisite standard of being corruptly induced to prescribe such medication. The conduct simply lacks the corrupt element that the AKS was intended to prevent.186 While this advisory opinion is not binding, OIG makes it clear that good faith efforts to assist Medicare Part D patients with out-of-pocket costs will be scrutinized and likely prosecuted despite the conduct not being nearly as culpable as the examples provided.187
2. Recent Federal Court Decisions Regarding PAPs
While there is not yet a substantial body of appellate case law applying the AKS to PAPs, federal courts appear ready to adopt OIG’s reasoning and will likely continue applying the one-purpose test to PAPs.188 Two recent district court decisions illustrate the futility of these programs’ ability to assist Medicare recipients as demonstrated by their holdings that the programs are unlawful under the AKS. In United States v. Teva Pharmaceuticals and Pfizer v. United States, both courts found that proposed arrangements violated the AKS, and both courts rejected arguments that the conduct alleged was not sufficiently corrupt to constitute a violation of the AKS.189
The District Court of Massachusetts denied Teva’s motion to dismiss with respect to the government’s claim that Teva’s PAP violated the AKS.190 The government’s complaint alleged that Teva had collaborated with two charity funds to ensure that its donations to the charities were used for copay assistance of Teva’s product, Copaxone, a prescription drug used to treat multiple sclerosis.191 Teva argued that the government failed to allege any agreement between the parties that made any donations by Teva contingent on the charity funds promoting Copaxone.192 In addition, Teva argued that the government had only alleged that Teva had hoped or expected its donations be used for Copaxone.193 Relying on the holding in Omnicare, Teva argued that while they had hoped their donations would be used for patients using Copaxone, the donations were not contingent on any agreement to purchase their products.194 The court found that because the complaint alleged that Teva had tailored its donations to ensure that it was the exact amount necessary to cover the copays of certain Copaxone patients, it showed a purpose of inducement.195 Notably, the court referenced the Omnicare argument and acknowledged that hope for referrals may be expected in certain arrangements,196 but that here the government adequately alleged that Teva’s conduct was specifically intended to induce purchases of its product.197 Therefore, no such contingent agreement was necessary to state a claim in the criminal complaint.
Pfizer advanced a similar argument in defense of its program. In 2020, Pfizer filed suit seeking a declaratory judgment that its proposed PAP was lawful after OIG issued an advisory opinion to the contrary.198 In Pfizer’s defense, the company attempted to insert an element of corrupt intent into the statute and argued that proof of quid pro quo is required under the AKS.199 The Southern District of New York rejected this argument.200 The court found that corruption is irrelevant and that the AKS only requires an intent to influence a decision about medical care to find a violation.201 The court acknowledged that the prescription drug price crisis likely requires a legislative or policy solution, but that the court’s hands are tied by the statute.202 The decision’s application of the one-purpose test is broad and is consistent with OIG’s position that intent to remove an economic barrier to receiving prescription medication may violate the AKS, regardless of the actual impact on the decision-making of the prescribing physician.203 Thus, corrupt inducement is not relevant in the court’s analysis.
Both decisions show the threat that the one-purpose test poses to PAPs. As long as the government and courts continue to apply the test to these programs, arrangements that may genuinely help Part D patients afford life-saving medications will be undermined. Thus, OIG should issue a safe harbor to help narrow the breadth of the statute to this conduct.
III. Proposal
As discussed, Congress had two primary concerns when passing the AKS: halting practices that would dramatically increase the costs of Medicare and preventing financial inducement from corrupting a physician’s decision-making.204 In its initial bulletin, OIG’s reasoning for subjecting PAPs to scrutiny is certainly consistent with the former concern.205 There is a valid argument that cost subsidies could lead to an increase in demand, which could be used to increase profits to pharmaceutical companies.206 That being said, it is questionable whether this is a fair criticism. While the pharmaceutical companies making profit in a for-profit healthcare market may not be the best policy outcome, low-income patients are able to access prescription medications that are necessary for survival.207 In addition, several solutions have been proposed for this that would alleviate this concern.208
As to the concern of corrupt medical decision-making, OIG’s Special Bulletin, its advisory opinions, and its application of the one-purpose test fail to fully address how PAPs implicate this primary concern. While the Special Bulletin and subsequent court decisions do express concern that patients’ decision-making would be influenced by the subsidy,209 they fail to explain how this copay assistance would lead to an overutilization of healthcare services. Instead, the Special Bulletin is more concerned that patients would use one medication over cheaper alternatives.210 Since one only needs to show any intent to influence under the AKS, the statute is being weaponized to address conduct that does not respond to the primary concerns Congress had when passing the statute.211
A. Safe Harbor Regulation Akin to Sun-Diamond
A legislative solution to the impact of the AKS is likely not realistic. However, OIG could issue a safe harbor that modifies the “one-purpose” inducement test as originally articulated in Greber.212 In addition to proving the elements of knowingly and willfully giving, receiving, or soliciting a remuneration in return for patient referrals in connection with a federal healthcare program, the government, in the context of PAPs, should only focus on how the subsidy program impacts the physician’s decision-making. In other words, whether the subsidy induces the beneficiary should not be analyzed under the context of the AKS. Instead, when evaluating PAPs, the safe harbor should require corrupt inducement of a decisionmaker. Of course, this begs the question of what this approach would look like.
1. How Sun-Diamond Can Redefine Corrupt Inducement
A helpful tool in defining the parameters of this safe harbor is a Supreme Court case that defined the level of intent required to be convicted of bribery and gratuity.213 In United States v. Sun-Diamond Growers of California, the Supreme Court grappled with the question of what counts as a gratuity and a bribery under the Federal Bribery Statute.214 The Court clarified that a gratuity requires a showing that value was given to a public official because of an act performed or to be performed by the official.215 A bribery, according to the Court, constitutes giving something of value to a public official to influence an official act.216 A bribery would require an intent to give something of value in exchange for an act in the form of an explicit quid pro quo,217 while a gratuity is giving a reward to a public official for a future or past act.218 The Court concluded that in order to prove an illegal gratuity, the government must prove a connection between the gratuity and a specific official act.219 Otherwise, the statute could criminalize a high school principal’s giving of a baseball cap to the Secretary of Education upon visiting the school.220 Under the Supreme Court’s holding, the value given must be intended to influence official conduct.221
The Sun-Diamond holding was well received by lobbyists who advocated for narrowing the breadth of a statute that could subject innocuous conduct to severe criminal sanctions.222 The Supreme Court’s hesitancy to apply criminal sanctions to conduct that may be harmless is applicable in the AKS context.223 HHS could implement a safe harbor that is similar to the gratuity test defined in Sun-Diamond.224 OIG has expressed concern that a manufacturer’s subsidy program could improperly influence patient and physician decision-making.225 The former is easily dispensed with because a patient requires a prescription before purchasing medication covered by Medicare Part D and does not necessarily have wide discretion in choosing prescription medication.226 The latter, while largely speculative, is a valid concern, and the Sun-Diamond test can apply here.
A safe harbor requiring a but-for causal connection between the removal of an economic benefit and the physician’s official act would help resolve this possibility and would effectively focus government scrutiny on corrupt conduct that the AKS was designed to prevent. The Court in Sun-Diamond explained that “[a]n illegal gratuity . . . may constitute merely a reward for some future act that the public official will take (and may already have determined to take).”227 Thus, consistent with Sun-Diamond, the common test for gratuity is assessing whether, when a gift or remuneration was made, the giver or donor expected that a public official would perform or had performed a specific act.228 When applying the AKS to PAPs, HHS should consider adopting this gratuity test and only find an unlawful kickback when the donor-manufacturer intended to influence a specific physician to prescribe specific drugs because of the subsidy. However, physicians ought to be allowed to reasonably consider the patient’s insurance coverage and the economic burden that a prescription may pose. If a physician considers these burdens, an argument could be made that the physician made a decision based on the subsidy, bringing us back to the overbreadth issue. Therefore, there must be a framework to define when influencing a physician’s decision-making goes from reasonable to improper.
This framework can be difficult to establish. Even in Sun-Diamond’s aftermath, scholars have pointed out the difficulty of showing just when conduct crosses from ethical to unethical.229 Some have pointed out that this very ambiguity may protect instances of innocent conduct, but only at the expense of preventing effective prosecution of bribery.230 Complicating matters further, there is a circuit split regarding the meaningful distinction between bribery and gratuity as articulated in Sun-Diamond.231 Nevertheless, this ambiguity does not outweigh the public policy advantage of shifting the focus from mere inducement to a more narrow inquiry of corrupt intent to influence physician conduct in the context of PAPs. While the one-purpose test makes the inquiry a much simpler matter for the government to make its case, it does so at the cost of subjecting manufacturers to criminal and civil sanctions for actions that help patients afford potentially life-saving treatment.232 In addition, like in prosecutions for bribery, circumstantial evidence could be key to showing when inducement becomes improper.233 This could include a showing of evidence that alternative, more efficient medication is available or expert testimony regarding the wisdom of a doctor’s particular course of action. Either way, this circumstantial evidence can serve to help build a better picture of whether an improper healthcare decision has been made. That way, the act of making prescription medication more affordable will not be immediately presumed suspect under the AKS.
Conclusion
Under the current standard, any attempt by a manufacturer to make its product affordable will trigger punitive fines and potential prison time that ought to be associated with highly culpable and corrupt activity.234 With the current state of the healthcare market, its economic complexities, and its competitive nature, the far-reach of the AKS creates an unworkable legal landscape.235 Innovative market solutions are often a cornerstone of industries that operate on a for-profit basis. When those solutions also serve the public by lowering the burden in accessing prescription drugs, it ought to be encouraged by our legal institutions.
Absent any dramatic overhaul of the healthcare market, U.S. healthcare spending will continue to increase.236 So far, federal courts are reluctant to assess these policy considerations when applying the AKS to these arrangements.237 This is understandable considering the strong hold that the one-purpose test has on judicial construction of the AKS.238 However, the impact this standard has on the functioning of certain subsidy programs should raise fundamental questions regarding the breadth of the AKS and how it could be impacting conduct that may have a positive impact on people’s lives.