A recent decision by the US Court of Appeals for the Fifth Circuit interprets the AKS’s “recommendation” prong as essentially requiring the government and whistleblowers to prove an intent to exercise “undue influence” over the purchaser of a healthcare item or service. While this analysis is buried in a footnote in the court’s decision, it could serve as a boon for defendants, as this interpretation of the AKS’s “recommendation” prong appears to significantly curtail its reach.

Background

The AKS has both a “referral” prong and a “recommendation” prong.

  • Pursuant to the “referral” prong, it is illegal “knowingly and willfully” to “pay . . . remuneration . . . to any person to induce such person . . . to refer an individual . . . for the furnishing . . . of any item or service for which payment may be made . . . under a Federal health care program [FHCP].”1

  • Pursuant to the “recommendation” prong, it is illegal “knowingly and willfully” to “pay . . . remuneration . . . to any person to induce such person . . . to . . . recommend purchasing . . . or ordering any . . . service . . . or item for which payment may be made . . . under a [FHCP].”2

Where a hospital, laboratory, or other health care provider pays remuneration to a physician, determining whether their arrangement implicates the AKS usually is straightforward. For example, if a laboratory pays a physician $25 each time the physician sends a Medicare beneficiary to the laboratory for a blood test, the arrangement pretty clearly violates the AKS’s “referral” and/or “recommendation” prongs.

Where a provider pays an individual or entity that does not have patients, however, the AKS analysis is trickier. Assume, for example, the following:

  • Laboratories A, B, and C each furnish Test X. The test is reimbursed by most insurers (including Medicare and Medicaid), provided it’s ordered by a physician.

  • Consultant, who works in the health care industry, approaches Laboratory A and states that he has relationships with many physicians who have occasion to order Test X, including Dr. Jones.

  • Thereafter, Laboratory A and Consultant enter into an agreement, pursuant to which Laboratory A agrees to pay Consultant $25 each time (i) Dr. Jones orders Test X for a patient and (ii) that test is performed by Laboratory A.

  • After the agreement is executed, Dr. Jones orders Text X for Medicare Beneficiary, the test is performed by Laboratory A, and Laboratory A pays Consultant $25.

Under this hypothetical, Laboratory A clearly paid “remuneration” (the $25) to Consultant, but was that payment intended to “induce” Consultant to engage in conduct that implicates the AKS? Specifically, was the payment intended either:

  • to induce Consultant to “refer” Medicare Beneficiary to Laboratory A for Test X, thereby implicating the AKS’s “referral” prong, or

  • to induce Consultant to “recommend” to Dr. Jones that she “order” Text X for Medicare Beneficiary, thereby implicating the AKS’s “recommendation” prong?

The Fifth Circuit—which has wrestled with these issues many times over the years3—addressed both of these questions in a March 20, 2024 decision.  

US v. Marchetti

In United States v. Marchetti,4 Vantari Genetics LLC (Vantari), a genetic testing laboratory, contracted with individuals and entities who had “established relationships with physicians.” In 2014, Vantari entered into an agreement with one of these entities, Advanced Life Sciences LLC (ALS), which was operated by Vincent Marchetti. Pursuant to their agreement, Vantari paid ALS a fee each time a physician with whom Marchetti had a relationship ordered a test for a patient from Vantari (ALS Fee Arrangement). When the ALS Fee Arrangement came to the attention of the government, Marchetti was charged with conspiring to violate the AKS. He was tried and convicted in the US District Court for the Eastern District of Texas, and appealed.

“Referral” Prong

In its decision, the Fifth Circuit began by analyzing the ALS Fee Arrangement under the AKS’s “referral prong,” noting that the court historically has drawn a distinction between “advertising” (which does not violate the “referral” prong) and “referrals” (which do).

According to the court, where advertising “facilitates an independent decision” by the advertising target “to purchase a healthcare good or service,” and “where there is no evidence that the advertiser unduly influence[s] or act[s] on behalf of the purchaser,” the fact that the good or service provider compensates the advertiser following each purchase is not, in itself, sufficient to violate the AKS’s “referral” prong.

Applying that reasoning, the Fifth Circuit concluded that the government did not produce sufficient evidence regarding the ALS Fee Arrangement to sustain Marchetti’s conviction under the AKS’s “referral” prong because, at trial, the government had “almost exclusively lean[ed] on the fact that Marchetti was compensated based on the value of each referral” but “failed to connect Marchetti to any referrer . . . [or explain] how Marchetti interacted with relevant decisionmakers.” Due to this “missing link,” the government had failed to  “prove that Vantari and Marchetti intended improperly [to] influence[ ] . . . those who make healthcare decisions on behalf of patients.”

Notably, the government did assert that Marchetti had (i) “relationships with,” (ii) “access to,” and (iii) “influence over” doctors, but the Fifth Circuit found these allegations were not enough to establish that the ALS Fee Arrangement violated the “referral” prong. According to the court, if “relationships with” or “access to” physicians was sufficient, that would mean that payments to an advertising agency would be permissible as long as the agency did not “hire[] marketers with experience in the industry.” Surely, that would be a “counterintuitive outcome.”

With respect to the government’s final assertion of “influence over” doctors, the Fifth Circuit stated that this was indeed the “the relevant inquiry.” If Marchetti “improperly influenced” doctors, then the case would be “open and shut.”  But according to court, “not every sort of influence is improper.” Indeed, “[w]hat are advertisers hired to do anyway,” if not influence?

In sum, the Fifth Circuit concluded that the government failed to demonstrate that Marchetti had “improperly” influenced doctors because the government did not provide “any detail on the key relationship: the relationship between Marchetti and relevant decisionmakers.”

“Recommendation” Prong

In a footnote, the court then turned to what it referred to as the “elephant in the room”: even if Marchetti was not being paid to “refer” patients to Vantari under the ALS Fee Arrangement, “[m]aybe [the] payments from Vantari to [Marchetti] could be payments to recommend purchasing Vantari’s services,” thereby violating the AKS’s “recommendation” prong.

In analyzing this possibility, the court began by confirming what it seemed to regard as unassailable:  paying for “permissible advertising” can never violate the AKS, period. If this is true, then it necessarily is the case that paying for “permissible advertising” cannot be equated with paying for a “recommendation” for AKS purposes.

This is an interesting position, of course, since the dictionary definitions of “advertise” and “recommend” are, respectively:

  • “[t]o make public announcement of, especially to proclaim the qualities or advantages of (a product or business) so as to increase sales,”5 and

  • “[t]o praise or commend to another as being worthy or desirable” or to “endorse” or “make attractive or acceptable.”6

Although there may be some daylight between these two definitions, there’s not much.

Presumably recognizing this, the court was forced to fall back on the same principle it adopted in discussing the “referral” prong—i.e., the concept of “undue influence.” Thus, the court ultimately took the position that even to prevail under the “recommendation” prong, “the government still need[ed] to prove something about Marchetti’s exercising undue influence on patients’ selection of services.”

In other words, in order to establish that X paid Y to “recommend” X’s services to Z—thereby implicating the AKS’s “recommendation” prong—it is not enough to establish that Y praised, commended, or endorsed X’s services; the government also must prove that Y attempted to exercise “undue influence” over Z.

This is important. Without this element, many perfectly benign, plain vanilla sales, marketing, advertising, and other promotional arrangements risk violating the AKS. With this element, the government and whistleblowers must prove that the parties intended the payee not merely to promote the provider’s services to a prospective customer but to exercise “undue influence” over that customer.

Ultimately, the court concluded that the government had not met its burden in this respect. Consistent with its conclusion regarding the “referral” prong, the court reasoned that, in and of itself, the fact that Vantari paid ALS a fee each time a physician with whom Marchetti had a relationship ordered a test from Vantari did not establish that Marchetti made any effort to exercise “undue influence” over such physicians.7

  1. 42 U.S.C. § 1320a-7b(b)(2)(A) (emphasis added). It also is illegal to “solicit” or “receive” remuneration for this purpose. Id. § 1320a-7b(b)(1)(A). ↩︎
  2. Id. §1320a-7b(b)(2)(B) (emphasis added). It also is illegal to “solicit” or “receive” remuneration for this purpose. Id. § 1320a-7b(b)(1)(B). ↩︎
  3. See e.g., United States v. Shoemaker, 746 F.3d 614, 628 (5th Cir. 2014); United States v. Miles, 360 F.3d 472 (5th Cir. 2004); and United States v. Polin, 194 F.3d 863, 864–65 (7th Cir. 1999). ↩︎
  4. 96 F.4th 818 (5th Cir. 2024). For ensuing quotations from this case, internal citations and internal quotation marks have been omitted. ↩︎
  5. The American Heritage Dictionary of the English Language, https://www.ahdictionary.com/word/search.html?q=advertise (accessed May 9, 2024). ↩︎
  6. The American Heritage Dictionary of the English Language, https://www.ahdictionary.com/word/search.html?q=recommend (accessed May 9, 2024). ↩︎
  7. It should be noted that the court did uphold Marchetti’s conviction, but on grounds tied to other conduct. ↩︎
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Christopher Janney

About Christopher Janney

Chris has 30+ years of experience in the health care industry, is the author of several Stark Law treatises, and writes and speaks extensively on AKS, FCA, overpayment, and other fraud and abuse, compliance, and regulatory topics.

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