Relator Calls on Supreme Court to Define Standard for a ‘Willful’ Kickback under Federal Anti-Kickback Statute

Specifically, the petition asks the Court to decide whether a “willful” act under the federal AKS requires a defendant to know that the conduct violates the law, as the Second Circuit found, or merely that the defendant was on notice that the conduct was improper.

The petition follows a Second Circuit Court of Appeals decision, covered on our Investigation Blog here, affirming the dismissal of Hart’s False Claims Act (FCA) claim alleging violations of the AKS.

The whistleblower lawsuit originated from a compliance training that Hart took while working at McKesson. According to Hart’s claim, McKesson’s sales practices violated the same policies provided in the compliance training. The complaint alleged that McKesson engaged in a kickback scheme that encouraged medical practices “to purchase the highest-margin drugs,” which led cancer patients to make far higher copayments and the government and private insurers to pay far higher reimbursement rates. Hart later amended his complaint to add that, during US Department of Justice’s (DOJ) investigation, McKesson improperly destroyed documents, including from Hart’s laptop. The DOJ ultimately declined to intervene in the lawsuit.

The AKS makes it a felony to “knowingly and willfully” offer or pay remuneration to induce a referral for reimbursable services under a federal healthcare program, subject to certain safe harbor exceptions. In March 2023, the federal district court dismissed Hart’s complaint because, though he “plausibly identifie[d] conduct” that could violate the law, he had not sufficiently alleged that McKesson “willfully” violated any law. A panel of the Second Circuit largely affirmed this a year later, agreeing that Hart had not sufficiently alleged that McKesson knew it was engaging in unlawful conduct. The Second Circuit did permit Hart to proceed with state anti-kickback claims for jurisdictions whose laws had either no scienter requirement or a lesser requirement than willfulness.

Hart’s petition argues that the Second Circuit improperly elevated the intent standard when it held that a violation of the AKS requires a defendant to act with a “bad purpose” or with intent to violate a known legal duty. According to the petition, McKesson’s conduct would violate the AKS in the Fifth and Eighth Circuits, but not in the Second Circuit and Eleventh Circuit, which has similarly held that “willfulness” under the AKS requires a defendant to have acted with knowledge that its conduct was unlawful. Hart alleges that the “rule adopted by the Second and Eleventh Circuits contravenes the text of the statute, departs from Congress’s goals of preventing waste, fraud, and abuse, and shows too much solicitude for a company that deliberately profiteered off cancer patients but (erroneously) contended that it had followed the letter of the statute.” His petition urges the Supreme Court to grant review to resolve the circuit courts’ “disagreement about the mental state needed to violate the Anti-Kickback Statute” and “hold that knowledge of illegality is not required.”

McKesson on July 2 indicated it would not file a response to Hart’s petition for writ of certiorari. However, just yesterday, the Supreme Court requested a written response to Hart’s petition, suggesting that the Court could be interested in taking up the issue. McKesson’s response is due August 16.

Just last year, the Supreme Court held in United States ex rel. Schutte v. SuperValu Inc., 598 US __ (2023) that determining whether a claim was “knowingly” false under the FCA turned on a defendant’s subjective belief that the submission of a claim was false at the time it was submitted. Although this involved a different statute, the Supreme Court could similarly conclude that establishing scienter under the AKS likewise turns on a defendant’s subjective state of mind. The Supreme Court could also choose not to grant certiorari now and wait until a greater circuit split emerges on the “willfulness” element of the AKS.

ArentFox Schiff’s Investigations practice is closely monitoring this issue and other issues of importance to the industry. If you have further questions, please reach out to Jacques Smith, Nadia Patel, Rebecca Foreman, Roberto Martinez, or the ArentFox Schiff attorney who handles your matters.