The United States Court of Appeals for the Second Circuit recently held that to act “willfully” under the federal Anti-Kickback Statute (AKS), a defendant must “act knowing that its conduct is in some way unlawful.” The decision stems from a qui tam case that sets forth claims under the federal False Claims Act and the false claims acts in 27 states and the District of Columbia, United States ex rel. Hart v. McKesson Corp.
The relator that filed the claim alleged that McKesson allowed free access to two valuable business management tools to oncology practices that agreed to use McKesson as their primary wholesale drug supplier. The United States District Court for the Southern District of New York granted a Motion to Dismiss by McKesson, which argued that the relator did not plead facts that showed the defendant believed its conduct was unlawful. The district court also dismissed the state claims on the grounds that those claims were premised on a violation of the federal AKS.
In the case, the Second Circuit upheld the district court’s holding that in order to be found acting “willfully” under the AKS, a defendant must know that its conduct “is in some way unlawful.” This means that a defendant must act with ill intent, though the intent may not specifically be to violate the AKS. The Second Circuit notes that under this definition those who “innocently and inadvertently engage in prohibited conduct” are protected.
The Second Circuit found in the McKesson case that the relator did not properly allege that McKesson’s actions did not rise to the level of “willful.” Specifically, the Court cited three categories of allegations that did not rise to a plausible level of willfulness: (1) allegations that the company destroyed documents after receiving a Civil Investigative Demand from the Department of Justice (DOJ), seeking documents related to the qui tam action; (2) allegations that the relator “suggested to certain McKesson employees that McKesson’s use of the business management tools violated the company’s compliance policies or was otherwise inappropriate”; and (3) references to an email between McKesson executives that referred to the free business management tools and said “You didn’t get this from me…ok?”.
The allegations that McKesson destroyed documents were insufficient because the Court found that concealing documents generally shows wrongful intent when the concealment is concurrent with the violations. The allegations regarding a discussion of possible violation of the company’s compliance policies was insufficient as it did not suggest that others at the company shared the concerns, and the email allegation was insufficient because 170 pages of documents were attached to the email, all covering a wide variety of topics and mentioned the business management tools only five times in other contexts.
What Does This Mean?
The Second Circuit’s scienter test under the AKS helps to protect those who inadvertently engage in prohibited conduct. However, the Second Circuit did not affirm the entire district court decision and remanded the case for review and decision on the state law claims. This means that while McKesson may not be in violation of the federal AKS based on a lack of alleged willful intent, state anti-kickback laws may be less stringent and the company may be liable under certain state anti-kickback laws.