Right-Sizing Inflaction in Anti-Kickback Law Rhetoric: Avoiding Unnecessary Market Distortion in Commissions on Medical Device Sales

Abstract

For three decades, the federal agency charged with administrative oversight
of the Federal Health Care Programs Anti-kickback statute, the Office of the
Inspector General of the Department of Health and Human Services, has advised
that paying for marketing and advertising of covered health care items and
services should be treated as “at most a technical violation” of the law. OIG has
noted that enforcement should be limited to cases where certain “suspect
characteristics” are present and has issued several advisory opinions declining
enforcement in the case of commission-type payments to independent sales
agents. In contrast, in the last twenty years, obiter dicta in a number of judicial
decisions upholding criminal convictions have described such commissions as
a per se violation of the law. Left unchallenged, this rhetorical inflation presents
unjustified risks of enforcement to medical device makers for nothing more
nefarious than selling their products in accordance with widespread industry
norms that do not implicate any of the purposes underlying the Anti-kickback
statute. More important, these decisions have the potential to distort the health
care economy through economically disadvantageous allocations of resources:
the wastefulness of unwarranted enforcement on the one hand, and on the other,
discouraging innovation by imposing additional costs on medical product
makers, especially the often small, entrepreneurial, one-product companies that
dominate the medical device industry, and do not have the resources to use a
fully-employed sales force. This article attempts to remedy these risks by
showing that, dicta in the opinions notwithstanding, the facts in those cases track
the agency’s guidance, upholding convictions only when suspect
characteristics—chiefly that the sales personnel are not truly independent sales
representatives but are in a position to exercise undue influence over referral
decisions—have been present. Presenting an independent but parallel argument,
the article also examines a recent Supreme Court case narrowing the meaning
of the term “induce” in an analogous criminal statute, and shows how this new
authority also (perhaps even more strongly) supports the conclusion that the
Anti-kickback law may not be used to prosecute ordinary commissions. In the
hope that it also will influence courts and lead to a more fair, accurate and
pragmatic Anti-kickback law jurisprudence, the article concludes with an
Appendix containing recommendations for joint OIG/Department of Justice
guidance that aligns the rules for enforcement discretion with this reality,
instructing the bringing, or joining, of enforcement cases only when the
presence of suspect characteristics creates a genuine risk of the fraud and abuse evils that the statute was designed to prohibit.