The United States Court of Appeals for the Seventh Circuit recently affirmed liability in an Anti-Kickback Statute (AKS) False Claims Act (FCA) suit, but vacated the damages. In Stop Illinois Health Care Fraud LLC v. Sayeed, the Seventh Circuit found sufficient evidence to support the district court’s finding that the defendants “knowingly and willfully” purchased referrals and that the arrangement was not protected by a safe harbor. Additionally, the almost $6 million judgment was not a violation of the Excessive Fines Clause of the Eighth Amendment. Despite those findings, however, the Court vacated the judgment and remanded for the district court to determine whether the calculation of damages impermissibly included claims that did not stem from an AKS violation.
The defendants in the case – Management Principles, Inc., Vital Home, Healthcare and Physician Care Services, and Asif Sayeed (the owner of the companies) entered into an agreement with the Healthcare Consortium of Illinois. The Healthcare Consortium of Illinois is an entity that evaluated the needs of senior citizens for in-home healthcare, following up with referrals to local providers.
Vital Home and Healthcare and Physician Care Services are two companies that provide home-based medical services to Medicare recipients and they were included on a list of approved providers by the Consortium. The Consortium made referrals from the list on a rotation, to ensure that no provider would receive more referrals than another.
Sayeed attempted to circumvent the rotation policy, however, to obtain more referrals for the companies he owned. In December 2010, Management Principles, Inc. agreed to pay $5,000 per month to the Consortium for access to its client’s healthcare data. The data would then be used by Management Principles, Inc., to solicit healthcare business for Vital Home and Healthcare and Physician Care Services, which would then bill Medicare for the business and split the fee with Management Principles, Inc.
Under the agreement, Management Principles paid the Consortium $90,000 for the first 18 months, with payments stopping around May 2012. After Management Principles stopped paying, the company continued to mine the data of the Consortium and between December 2010 and June 2015, Vital Home and Healthcare and Physician Care Services billed more than $700,000 to the federal government for services provided to the Consortium’s clients. Because the defendants paid to access medical records that it then used to solicit new clients, the Court upheld that it was an indirect referral and an unlawful kickback scheme.
Sayeed argued that the district court improperly evaluated his state of mind in violation of the “longstanding principle that FCA liability turns on a defendant’s subjective intent.” In this case, the Seventh Circuit referenced Sayeed’s testimony that he had been in the health care industry for more than three decades, “know[ing] full well that it was ‘illegal to buy protected health information.’”
Where the Seventh Circuit split from the district court, however, was on whether all claims submitted by Vital Home and Healthcare and Physician Care Services during the data mining period (December 2010 to June 2015) were tainted by the AKS violations and FCA liability. The district court found that the AKS violations by the defendants were sufficient to taint all Medicare claims. The Seventh Circuit noted, however, that the suggestion that “every claim for payment following an anti-kickback violation is automatically false regardless of its origin—is inconsistent with § 1320a-7b(g)’s directive that a false claim must ‘result[] from’ an unlawful kickback.” Therefore, the Seventh Circuit remanded the case to the district court with instructions to exclude claims that “were for services provided to patients that the Consortium officially referred to either Vital or Physician Care through its standard rotational-referral system” from the calculation of damages due to the government.