OIG Successfully Limits Employee Exception to Federal Anti-Kickback Statute in U.S. v. Borrasi

The United States Court of Appeals for the Seventh Circuit recently affirmed the criminal conviction of Roland Borrasi, M.D. for conspiring to defraud the United States and for violating the Federal Anti-Kickback Statute by accepting payments in exchange for patient referrals. Dr. Borassi was sentenced to seventy-two months in prison, two years supervised release and fined $497,204. While the news frequently contains new reports of healthcare criminal convictions and civil fines, this case is significant since the Office of Inspector General (OIG) successfully prosecuted Dr. Borassi for payments he received as an employee of a hospital.

The Federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) makes it a criminal offense to knowingly and willingly offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program. Remuneration includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been broadly interpreted to cover any arrangement where even one purpose of the remuneration was to induce or reward a party for federal healthcare referrals.

This “One Purpose Test” was first articulated by the OIG and adopted by a federal court in United States v. Greber, 760 F.2d 68 (3rd Cir. 1985) and has been universally accepted by most courts. In other words, the Anti-Kickback Statute’s prohibition is violated in almost any context where one party offers, pays, solicits or accepts anything of value from another party as an inducement or reward for federal healthcare program business. Because the statute’s reach is so broad, Congress created a handful of statutory exceptions and directed the OIG to develop certain “safe harbors” to define practices that are not subject to the statute because such practices would be unlikely to result in any program fraud and abuse.

Arguably the most significant statutory exception to the Anti-Kickback Statute is the employee exception, which specifically states that the statute will not apply to “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.” This exception formed the basis of Dr. Borrasi’s defense. Dr. Borrasi contended that the hospital hired him and other physicians in his group practice as hospital employees to perform administrative services at the hospital and to be “on-call” at all times. In truth, the employment agreements appeared to be shams as Dr. Borrasi and the other physicians rarely provided the required administrative services and were asked to submit false time sheets to support their payments.

There has long been a debate regarding whether the employee statutory exception covered any payment from an employer to a bona fide employee or only payments for the employee’s provision of “covered services” and, if so, what “covered services” included. The Borrasi decision is interesting because the government did not appear to attack the payments for having been made pursuant to a sham or non-bona fide employment arrangement or for services that were not “covered services.” Rather the government argued at closing that it did not matter if any portion of the payments made by the hospital were pursuant to a legitimate employment arrangement because “the statute was violated if any portion of the payments was for patient referrals.” The lower court denied Borrasi’s argument that this reading of the statute nullified the employee statutory exception. The 7th Circuit affirmed the lower court’s decision.

At the very least, the Borrasi decision demonstrates that the employee statutory exception to the Anti-Kickback Statute does not provide blanket protection for any remuneration from an employer to an employee. More significantly, however, because the OIG did not attack the sham nature of the employment arrangement and instead prosecuted the parties for the portion of the physician’s salaries the government attributed to services not performed, it appears the government may have successfully limited the employee statutory exception to cover only those payments from an employer to an employee for “bona fide” services.

It remains to be seen if the Borrasi decision is an example of a one-off decision by a court due to particularly bad facts or if the case signals a shift in the OIG’s interpretation and enforcement of the Anti-Kickback Statute. In any case, hospitals need to ensure that any payments made to employed physicians or other employees who could possibly influence referrals are for services legitimately provided and that any such compensation reflects the value of the services.