United States: Illegal Commission Arrangements: Appeals Court Reinstates Jury's Verdict Against Pharmacy Executive

In United States v. Vernon, the Eleventh Circuit Court of Appeals reversed an Alabama district court's judgment of acquittal following a jury's guilty verdict against a pharmacy executive charged with anti-kickback statute violations. In rendering the opinion, the Eleventh Circuit affirmed a number of important principles concerning the application of the anti-kickback statute.

Anti-kickback Statute Charges

Vernon was indicted by a federal grand jury in Alabama on several counts of paying illegal remuneration under the anti-kickback statute. The indictment alleged that Vernon violated the statute by knowingly and willfully paying money to Hemophilia Management Specialists (HMS) to induce HMS to refer individuals to Medfusion for the furnishing of "factor" medication paid for by Medicaid. The indictment identified three checks paid by Vernon to HMS, which were paid under a commission agreement between Medfusion and HMS. Per the agreement, Medfusion paid HMS 45 to 50 percent of its profits resulting from the above-described referrals by HMS. In addition to Vernon, the grand jury returned an indictment against Lori Brill, the owner of HMS, alleging multiple counts of anti-kickback statute violations for receiving the illegal commissions in exchange for referring patients to Medfusion. A federal jury subsequently returned guilty verdicts against Vernon, Brill and others charged in the case.

Posttrial Acquittal of Vernon

Following the guilty verdict, Vernon moved for a judgment of acquittal under Federal Rule of Criminal Procedure 29. The district court granted Vernon's motion, finding that the government had presented insufficient evidence to show that Vernon knowingly and willfully made payments to HMS for the referral of individuals to Medfusion for the furnishing of factor medication paid for by Medicaid. The government appealed.

Eleventh Circuit Appeal

At issue on appeal was whether the government presented sufficient evidence that (1) Vernon paid HMS, (2) the payments were made to induce HMS to "refer" patients to Medfusion and (3) Vernon acted "willfully" within the meaning of the anti-kickback statute.

After finding that Vernon made the payments, the court next addressed Vernon's contention that the government presented insufficient evidence showing the payments were made to induce referrals by HMS to Medfusion. As an initial matter, Vernon argued that Brill was not a physician and, therefore, could not "refer" patients to have their prescriptions filled by Medfusion. However, the court commented that the plain language of the anti-kickback statute is not limited to payments to physicians. Instead, per the court, the statute applies to "whoever knowingly and willfully . . . pays any remuneration" to "any person to induce such person . . . to refer an individual" for an item or service paid by Medicaid.

In addition, Vernon contended that a patient could only be "referred" to Medfusion if he was not already a Medfusion customer and that, at the times in 2008 and 2009 that the three checks alleged in the indictment were issued, the patients already had been Medfusion customers for a period of time. The court stated that whether the patients already were existing customers was irrelevant. The court pointed to evidence in the record that, at any time, HMS could have moved its business to other specialty pharmacies. The court noted that payments made for the continuing referral of patients violate the statute just as would a payment for an initial referral.

Finally, as to whether Vernon acted "willfully" within the meaning of the statute, Vernon contended that the anti-kickback statute is a "specific intent" crime, requiring proof that he knew the actual law he was violating. The court disagreed, holding that the anti-kickback statute is a "general intent" crime, which only required the government to show that Vernon knew that the commission arrangement was generally unlawful. As with the precedent in most other circuits, the Eleventh Circuit held here that the anti-kickback statute is not the highly technical tax or financial law that warrants "specific intent" crime status. The court further pointed to numerous parts of the trial record -- including the government's introduction of Medfusion's own compliance program containing a section on improper payments for referrals -- that provided sufficient evidence Vernon knew that the payments violated the law.

Lessons Learned

There are many takeaways from United States v. Vernon. As previously reported in the Health Law Update, commission arrangements related to the referral of federal healthcare program recipients should be viewed with substantial scrutiny. In the last two years, there have been opinions in the Fifth, Tenth and now Eleventh Circuit affirming anti-kickback statute convictions involving commission arrangements. While there is a safe harbor under the statute for payments to a bona fide employee, the burden to establish the safe harbor is on the defendant. Furthermore, Vernon demonstrates yet another reason to maintain an "active," not "paper," compliance program. Here, the government used the compliance program against the provider by introducing it as evidence of the provider's knowledge about improper referrals.

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