Four-Year-Old-Laboratory Kickback Case Forces Government’s Hand

The Department of Justice (DOJ) took the unusual step of filing an amicus curiae or “friend of the court” brief in a private lawsuit between two laboratories concerning alleged violations of the physician self-referral (Stark) law and the Anti-Kickback Statute (AKS). According to the Feb. 2 corrected brief, the United States has a substantial interest in the circuit court’s proper interpretation of these two statutes because they are “critical tools in the government’s ongoing efforts to contain health care costs, reduce conflicts of interests in the provision of health care services, and prevent billing for unnecessary services.” Violations of these laws also give rise to False Claims Act liability.
Background According to the DOJ brief, in Ameritox Ltd. v. Millennium Laboratories, Inc., Ameritox alleged violations of the Lanham Act and various state tort laws, claiming that Millenium engaged in unfair competition and tortiously interfered with Ameritox’s business relationships when it provided point-of-care testing cups (POCT cups) at no charge to physicians who referred urine samples to it for testing. Ameritox asserted these specimen collection cups had immunoassay testing strips embedded in the cup and were provided to physicians for free under certain conditions, outlined in “cup agreements.”
Ameritox prevailed in the jury trial and was awarded damages of almost $10 million. Millennium appealed, claiming, among other things that the court misinterpreted Stark and the AKS. According to the corrected brief, the United States is taking “no position” against Millenium’s evidentiary or the state law arguments, instead focusing only on the Stark and AKS issues: “[T]he United States submits this amicus brief to correct several erroneous arguments Millennium has made with respect to the Stark Law and the AKS, which rest to a large degree on a flawed understanding of the views held by the principal government entities charged with implementing and enforcing those statutes, the Centers for Medicare & Medicaid Services (“CMS”) and the Office of Inspector General for the U.S. Department of Health and Human Services (“OIG”).”
The brief addresses three important issues:

1. Did the provision of the POCT cups to some physicians constitute unlawful remuneration under the Stark law?
2. Did the provision of the POCT cups to some physicians constitute unlawful remuneration under the AKS?
3. Do civil claims alleging violations of the AKS require proof by a “preponderance of the evidence,” or the “beyond a reasonable doubt” standard applicable in criminal cases?

The DOJ said in the brief it felt compelled to address Millenium’s incorrect interpretation of these laws expressed in its appeal and “set the record straight.”
Clarification of the AKS and Stark Millenium asserts that the simple provision of the free POCT cups with the imbedded testing strips does not violate Stark because it falls under the broad category of devices and supplies used solely to collect, transport, process and store specimens, which can be provided under Stark. According to the DOJ, the flaw in this argument is that Millenium does not use the imbedded test strips for any of its own testing purposes. Instead, the physicians use these test strips in the treatment of their patients. Therefore, the DOJ asserts Millenium is providing a value to the physicians beyond simply cups used “solely” for collection, storing, processing and transporting specimens. The issue is the meaning of the term “solely” in the statute. Millenium contends that CMS has construed this carve-out for laboratory supplies to mean “primarily.” Of particular concern for laboratory compliance officers, the DOJ says that CMS and the OIG have consistently “reiterated that ‘solely’ means ‘solely’ and emphasized in regulations and advisory opinions that items, devices or supplies providing tangible benefits to physicians that are unrelated to permissible purposes (i.e., collection, transportation, and storage for the entity providing the items, devices or supplies) do not fall within the laboratory supplies carve-out, even if the benefits conferred are very small.” The brief then cites a variety of statutes and advisory opinions contradicting Millenium’s argument that the provision of the POCT cups falls within the supplies carve-out of the statute and supporting CMS’s consistent and long held views regarding this carve-out.
The DOJ’s brief also argues Millenium’s assertion that its conduct does not violate the AKS fails for the same reason that its Stark interpretation fails—the embedded test strips are not provided for collection, transport or storage but are instead used by the physicians. The government entity that enforces the AKS, the OIG, has consistently interpreted the statute to apply when an entity provides items for free or below fair market value if the item has any benefit for the physician or other referral source receiving it. Even though the AKS has no specific carve-out for free supplies, both the CMS and the OIG have construed the carve-out in Stark to apply similarly in the AKS.
Standard of Proof Finally, regarding the standard of proof required to find a violation, Millenium asserts that the district court improperly instructed the jury using the preponderance of the evidence standard instead of the higher reasonable doubt standard. The DOJ urged the court to reject the higher standard in the context of this case.   The Cup Agreements The cup agreements allegedly prohibited the physicians receiving the free POCT cups from billing anyone for the cups, including government agencies like Medicare and Medicaid. Further, the physicians had to return the cups to Millenium for testing, and if they did not, Millenium would bill them for the cups. The DOJ contends this arrangement is an inducement and creates a financial relationship between the parties—precisely what Stark and the AKS are designed to prevent.   Analysis and Comment The amicus brief should be required reading for all laboratory compliance officers. The DOJ asserts that the plain meaning of remuneration within both Stark and the AKS and the carve-out for collection supplies are clear and unequivocal.
According to the DOJ, if the court accepts Millenium’s arguments it would create a huge loophole in the Stark law. Using Millenium’s logic, the DOJ asserts a laboratory potentially could funnel valuable items to its referral sources by simply attaching them to or putting them inside of a permissible item like a urine cup. For example, the DOJ argues that Millenium’s theory would allow a laboratory to place a five dollar bill in such a cup and it would be included in the carve-out for supplies.
The fact that the government felt that the amicus curiae brief was necessary to instruct the court on the interpretation of these laws is also informative. It signals the potential that the DOJ will intervene in cases to which it is not a party, if it is concerned that a court might not interpret these laws consistent with how the government has historically applied them or if the parties assert what the government considers incorrect interpretations of these laws. Takeaway: Laboratory compliance officers can use the information provided in the DOJ’s brief to help make better decisions when auditing and reviewing contracts and agreements for potential Stark and AKS violations.