The U.S. District Court for the District of Connecticut granted a motion for summary judgment in favor of Becton, Dickinson & Co. (BDC), a medical products provider, on the grounds that its contracts with MedPricer.com, Inc. (MedPricer), a company operating an online auction platform, violated the federal Anti-Kickback Statute (AKS), and were therefore unenforceable under Connecticut state law. MedPricer.com, Inc. v. Becton, Dickinson & Co., 2017 U.S. Dist. LEXIS 30854 (Memorandum opinion).
As described in the opinion, MedPricer enters into service agreements with hospitals and other health care providers to host online “auctions” for the sale of medical equipment. The health care provider determines which vendors to invite to the online auction and MedPricer sends invitations to the vendors. In order to participate in the MedPricer auction, a vendor must, among other things, accept the terms of a click-through user agreement. Vendors that accept the terms of the agreement may submit bids to the health care provider in response to requests for quotes. The agreements at issue before the Court required BDC to pay MedPricer a fee of 1.5% of the value of any purchase from the vendor, whether or not the sale occurs during the auction events or afterward.
MedPricer originally brought a lawsuit against BDC for nonpayment of fees related to online auction arrangements involving two hospitals. BDC responded by alleging that the agreements violated the AKS, thus rendering them unenforceable. BDC argued that MedPricer was paid remuneration for “arranging for” the sale of items that may be reimbursable by a federal health care program, actions that are prohibited by the AKS, and because Connecticut law prohibits enforcements of illegal contracts, the agreements were unenforceable. On BDC’s motion for summary judgment, the Court agreed, noting that the Health and Human Services Office of Inspector General (OIG) construed the AKS as “extremely broad.” The Court pointed to several OIG advisory opinions in which the OIG stated that percentage-based fee arrangements have an increased potential for federal health care program abuse.
The AKS applies to items for which “payment may be made” by a federal health care program. The Court reasoned that the “payment may be made” requirement calls for a minimal showing – only that the buyer of the goods (i.e., the health care provider) provides services to one or more beneficiaries of a federal health care program and the items could be used in providing those services. Here, BDC produced contracts it had entered into with one of the hospitals that specifically stated that the hospital provides services reimbursable under a federal health care program, and the items could be used in performing those services. Summary judgment was granted in part as to the auction agreement involving that hospital. BDC did not produce its contract with the second hospital, so the minimal showing was not met as to that hospital.
Although the type of goods involved (e.g., syringes) were not separately reimbursable under a Federal healthcare program, and despite the fact that the OIG has found that in such scenarios there is not a significant risk of abuse, the Court nevertheless concluded that the agreements violated the AKS. The Court took care to distinguish the OIG’s exercise of discretion in these scenarios from technical violations of the AKS. The Court found that the agreements were in violation of the plain language of the AKS, even if in such scenarios the OIG may be unlikely to take action against the parties.
Although liability under the AKS requires a showing of intent, the Court held that it was not necessary for BDC to establish the scienter element to be entitled to summary judgment. The Court explained that it was not holding anyone criminally liable, but rather, it was determining whether the contracts were contrary to public policy and unenforceable.
Lastly, MedPricer acknowledged that the agreements did not satisfy an AKS safe harbor, but it argued that the agreements were substantially similar to arrangements protected by several safe harbors. The Court stated that “substantial compliance” with a safe harbor did not save the agreements from being held illegal. Notably, the Court also mentioned that MedPricer had decided not to seek an advisory opinion from the OIG regarding its online action agreements.