The Difference between Expecting Referrals & Inducing Them

A new Fifth Circuit opinion explains the difference between offering a benefit in order to induce a Medicare referral and offering it in the expectation of a referral.  The difference is important because the former is a serious federal crime, while the latter is perfectly legal.

Whistleblower Susan Ruscher filed a qui tam case against pharmacy giant Omnicare.  Omnicare sells drugs to nursing homes, which provide the drugs to their residents and bill Medicare or Medicaid for the cost.  Susan’s case is based on the fact that in some cases Omnicare wrote off unpaid debts or gave “prompt payment discounts” or both.  Susan argues that the homes committed fraud by not reflecting these cost adjustments on their cost reports.

Omnicare, she argues, encouraged the fraud and provided the benefits in order to “induce” the homes to buy its drugs.  Therefore, she concludes, Omnicare has violated the False Claims Act and owes the government millions of dollars—of which she’s entitled to as much as 30%.

The district court granted Omnicare’s motion for summary judgment.  On appeal, the Fifth Circuit affirmed, ruling that Omnicare had not acted to induce the homes to purchase its drugs, as forbidden by the Anti-Kickback Statute.  Instead, Omnicare wrote off unpaid debts as a method of resolving billing disputes without unnecessarily aggravating clients.  A company doesn’t violate the AKS when it “merely hopes or expects referrals from benefits that were designed wholly for other purposes.”

As for the prompt payment discounts, there is no evidence that “they were offered for the illegitimate purpose of inducing referrals rather than the legitimate purpose of inducing payments.”

On top of all that, the court noted, Susan had no evidence showing that the nursing homes failed to reflect the cost adjustments on their cost reports.

The case is U.S. v. Omnicare, No. 15-20629 (5th Cir., Oct. 28, 2016).

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