Just how, one may ask, does an implied certification FCA case relate to the Anti-Kickback Statute? Aren’t claims “tainted” by kickbacks automatically false claims, dispensing with any “implied” liability theories? Contrary to first impressions, however, Escobar does affect the Anti-Kickback Statute.
Escobar not only analyzed the implied certification theory specifically, but also addressed the general FCA threshold requirement of materiality.3 Materiality affects Anti-Kickback Statute FCA cases just as it affects implied certification FCA cases.4 The Escobar court emphasized that materiality was a “demanding”5 standard, and that whether or not the government would pay a particular type of claim is a key part of the materiality inquiry.6 Specifically, factors to be examined can include, for example, government practices of paying a noncompliant claim in full despite knowledge of the noncompliance, or evidence that the defendant knows the government consistently refuses to pay certain claims based on noncompliance.7 The court also clarified that a requirement’s designation as a “condition of payment” by the government is “not automatically dispositive” of materiality.8 As a result, “condition of payment” status is no longer required to show materiality, as some circuits previously held.9
Why should this have any effect on Anti-Kickback Statute cases, though? After all, the Patient Protection and Affordable Care Act of 2010 (PPACA) revised the Anti-Kickback Statute so that kickback-tainted claims automatically become false claims — dispensing with any materiality requirement.10 However, PPACA’s amendment of the Anti-Kickback-Statute is not retroactive; instead, it only applies to conduct occurring on or after March 23, 2010.11 It is for these pre-PPACA claims that Escobar is key. For conduct occurring on or before March 23, 2010, a relator12 will have to rely on an express or implied certification theory of FCA liability.13 And, in such cases, a relator will have to show that the non-compliance was “material.”14
United States ex rel. Wood v. Allergan, Inc.: Applying Escobar materiality to the Anti-Kickback Statute
This very situation was recently explored for the first time by the Southern District of New York in United States ex rel. Wood v. Allergan, Inc.15 In that case, defendant Allergan allegedly provided free “custom care kits” to physicians, both to induce new prescriptions of Allergan drugs and to reward high prescribers.16 Allergan also allegedly provided over $100 million in free drug samples, and tracked the ratio of Allergan drugs prescribed to free samples provided.17 Furthermore, although Allergan stopped these practices in 2010, it allegedly continued to provide free office supplies and prescription pads to high prescribers.18 The relator, Wood, a former employee of Allergan, alleged kickback-tainted claims occurring both prior to and subsequent to PPACA’s amendment of the Anti-Kickback Statute.19
Based on the PPACA-amended Anti-Kickback Statute’s transformation of kickback-tainted claims into false claims, the court found that Wood clearly alleged “a plausible FCA claim with respect to conduct on or after March 23, 2010.”20 However, conduct that predated PPACA was analyzed under express and implied certification theories of liability.21 The pre-PPACA Medicare Part D claims fell under the express certification theory, the court reasoned, because participation in Medicare Part D required physicians to sign the CMS Provider Agreement, which specifically certifies compliance with the Anti-Kickback Statute.22 All other claims were categorized as implied false certification claims by the court, as Wood’s complaint did not identify any express certifications for them.23
Turning to these implied false certification claims, the court asked the key question: “whether compliance with the [Anti-Kickback Statute] is ‘material’ to a payment decision by the government.”24 Applying the “holistic” approach mandated by Escobar, the court concluded that Anti-Kickback Statute compliance was indeed “material,” because: (1) Congress made Anti-Kickback Statute non-compliance a felony offense; (2) Medicare Part D and other Provider Agreements all expressly require Anti-Kickback Statute compliance; and (3) there was no evidence suggesting that the government paid noncompliant claims in full despite knowledge of the noncompliance.25 The court went on to find that Wood’s claims met the Rule 9(b) pleading standards, and denied Allergan’s motion to dismiss in part.26
Implications of Wood
Wood’s confirmation that Anti-Kickback Statute compliance is “material” under Escobar may seem trivial, because it only bears on conduct occurring prior to March 23, 2010.27 However, qui tam litigation can go on for years, if not decades — Wood, for example, dealt with conduct going back as far as 2003, but was not litigated until this year.28 The FCA’s statute of limitations is 10 years at the very longest.29 Thus, the holding in Wood will continue to be useful for cases involving pre-PPACA conduct.
Also, while it is true that many other courts previously found Anti-Kickback Statute compliance “material,” most of them analyzed this materiality under the “condition of payment” theory.30 Now, after Escobar, “condition of payment” status is no longer dispositive of materiality.31 Thus, Wood plays a crucial role in ensuring the materiality of the Anti-Kickback Statute for pre-PPACA conduct under Escobar. Relators no longer need to show that Anti-Kickback Statute compliance was a condition of payment, and can rest assured that Anti-Kickback Statute compliance is material under the FCA.
Additionally, PPACA is currently under attack, with revisions pending in Congress.32 Case law confirming that the Anti-Kickback Statute is material will ensure that PPACA’s protection of the Anti-Kickback Statute’s materiality will continue, even if PPACA were to be repealed in its entirety.33 This is why Wood and Escobar are critical in ensuring the continued strength of the Anti-Kickback Statute.