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Publications | February 20, 2023
4 minute read

Second Circuit Rules Anti-Kickback Statute Means No “Corrupt Intent” Required for Liability

On January 9, 2023, the U.S. Supreme Court denied Pfizer Inc.’s petition for a writ of certiorari. The denial brought the pharmaceutical company’s lawsuit challenging the breadth of the federal Anti-Kickback Statute (AKS) to an end. Although the outcome of the case has precedential value only in courts located in the Second Circuit, the disposition of the case provides crucial insight to businesses and nonprofit organizations operating in the health care sector throughout the country.

Pfizer’s lawsuit, originally filed in the U.S. District Court for the Southern District of New York, sought a declaration that its “Direct Copay Assistance Program,” if implemented, would not violate the AKS. Pfizer’s proposed program sought to help Medicare patients with a rare heart condition pay for Pfizer’s drug tafamidis — the only FDA-approved drug that mitigates the effects of the heart disease. Tafamidis is considered a breakthrough drug, but it costs $225,000. Through Pfizer’s program, tafamidis would be available to certain qualifying Medicare beneficiaries for only $35 per month, as opposed to the $13,000 per year that it normally costs Medicare patients. Pfizer requested an advisory opinion from the Office of the Inspector General of the Department of Health and Human Services that the program did not violate the AKS; however, the government ultimately issued an unfavorable opinion indicating that the Direct Copay Assistance Program would be illegal if implemented with the intent specified by the AKS. Pfizer’s lawsuit ensued shortly thereafter. The crux of Pfizer’s argument was that it could be liable under the AKS only if the Direct Copay Assistance Program is administered with a “corrupt” intent or otherwise constitutes an “improper” influence on physician or patient decision-making.

Despite the seemingly charitable purpose of Pfizer’s assistance program, the Southern District of New York agreed with the government that the Direct Copay Assistance Program runs afoul of the AKS. Upon appeal, the Second Circuit Court of Appeals affirmed. The courts agreed that the matter was as simple as reading the unambiguous language of the AKS, which prohibits “knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) ... to any person to induce [a] person ... to purchase ... or arrange for or recommend purchasing ... any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.” In other words, whether an actor has a corrupt intent or attempts to exert improper influence is irrelevant, according to the appeals court. Under the statute’s plain meaning, the court explained, the only issue is whether the actor willfully offered any remuneration intended to induce a purchase under a federal health care program. The court held that Pfizer’s program would fall squarely within these parameters: Pfizer planned to offer a significant discount on tafamidis to induce Medicare beneficiaries to purchase its drug. 

The Second Circuit is not the first federal appellate court to come to this conclusion, and it may not be the last. The Seventh Circuit in 2011, for example, rejected a defendant’s contention that AKS liability attaches only to corrupt, unlawful or immoral aims. And now, a case is pending in the Eastern District of Virginia in which a charitable organization is seeking a declaration that its financial assistance program designed to assist Medicare patients does not violate the AKS. Like Pfizer, the plaintiff alleges that its program “does not result in prohibited remuneration because it does not involve any element of corruption, which is an element of an illegal kickback as reflected in the language, structure, and history of the AKS.” If the district court and the Fourth Circuit each agree, a circuit split could emerge. 

Entities within the health care industry are reminded that, under the current legal landscape, courts do not consider self-proclaimed charitable or philanthropic programs alone to be an exception to the scope of the AKS, even if that program leads to more affordable health care for those who need it. In the absence of any applicable safe harbor or exception, such programs may run afoul of the AKS. 

Accordingly, to avoid imposition of serious civil and criminal penalties, those in the health care sector should take time to ensure that their programs comply with the AKS and other fraud and abuse statutes like the False Claims Act and Stark Law. Doing so at the earliest possible point can avoid panic or confusion when subjected to an investigation. The federal government has made enforcement of statutes such as these a top priority in recent years, but Warner’s White Collar Criminal Defense and Health Care Practice Groups can help you feel secure that your organization is in compliance with all relevant statutes and regulations. And, fortunately, Warner recently unveiled a variety of products and services that can help you navigate responding to a civil investigative demand, subpoena or search warrant and ensure your company is ready and protected at a moment’s notice.

For questions or legal assistance with this or other health care-related litigation issues, please contact Madelaine Lane, Katie Pullen, Mark Zuccaro or your Warner attorney.