Lowering the Bar: Second Circuit Finds “At-Least-One-Purpose” Sufficient for Proving Anti-Kickback Statute Violation

On December 27, 2024, the United States Court of Appeals for the Second Circuit joined other federal circuit courts in adopting the “at-least-one-purpose” rule (generally shortened to the “one purpose rule”).¹ Under this rule, defendants violate the Anti-Kickback Statute (“AKS”)² when at least one purpose (as opposed to the “sole” or “primary purpose”) of the alleged arrangement was to induce patient referrals, even if there were other, legitimate reasons for offering remuneration.³ This rule lowers the bar for proving AKS violations considerably, which in turn impacts routine business practices, and ultimately patient care.

Introduction and Overview

The Anti-Kickback Statute is a federal criminal statute that prohibits knowingly and willfully offering or providing remuneration for the purpose of inducing the recipient to purchase a good or service for which payment may be made under a federal program.⁴ Remunerations can be anything of value, including cash, gifts, meals, discounted medical supplies, excessive compensation for medical directorships or consultancies, referral fees, and insurance reimbursement.⁵ Any remuneration or offer of remuneration may form the basis of an AKS violation, and both the payor and recipient of the remuneration could face liability.⁶ Criminal penalties for violating the AKS include fines, jail terms, and exclusion from participating in federal healthcare programs.⁷ Additionally, under the Civil Monetary Penalties Law (“CMP”), anyone who pays or accepts kickbacks could face penalties of up to $50,000 per claim plus treble damages.⁸ And, a violation of the AKS can support a violation of the False Claims Act (“FCA”).⁹

The AKS itself does not define what constitutes an “inducement” of referrals. Instead, courts have adopted various standards of interpretation, including the “primary purpose” rule and the “one purpose” rule. Under the “primary purpose” rule, a person would only be in violation of the AKS if his or her motivation to induce referrals was the primary or sole purpose of payment of remuneration. The “one purpose” rule, however, broadens the scope of potential AKS violations by treating remuneration as an illegal inducement when “one purpose” of the remuneration is to gain referrals, even where other legitimate reasons existed for the payment of the remuneration.

The Second Circuit Opinion

In United States ex rel. Camburn v. Novartis Pharmaceuticals Corporation, relator-appellant Steven M. Camburn filed a qui tam action against Novartis Pharmaceuticals Corporation (“Novartis”) under the FCA alleging that Novartis engaged in an illegal kickback scheme to induce physicians to prescribe Gilenya, a drug used to treat multiple sclerosis.¹⁰ Specifically, Camburn alleged that Novartis’ speaker programs, marketing materials, office outfittings, and one-on-one physician dinners were “shams,” “lavish,” and “extravagant” and provided little educational value.¹¹ According to Camburn’s allegations, these Novartis-funded events functioned as a pretext for inducing physicians to prescribe Gilenya in violation of the AKS.¹²

The district court dismissed Camburn’s complaint with prejudice, holding that Camburn did not plead the existence of a kickback scheme with adequate particularity.¹³ The United States Court of Appeals for the Second Circuit upheld the dismissal of the majority of Camburn’s claims, but vacated and remanded the case regarding three categories of allegations related to Novartis’s speaker programs: “(1) speaker programs with no legitimate attendees; (2) excessive compensation of speakers for canceled events; and (3) the selection and retention of certain speakers deliberately to induce a high volume of prescriptions of Gilenya.”¹⁴ Importantly, in its remand order, the Second Circuit adopted and applied the “one purpose” rule as the pleading standard for the first time.¹⁵ This means that relators need only allege that at least one purpose of the remuneration from Novartis was to induce prescriptions, without alleging a cause-and-effect relationship between the payments and the physicians’ prescribing habits.¹⁶ Notably, though, the Second Circuit’s opinion did not provide a detailed explanation as to why it was applying the “one purpose” rule, other than noting that this rule “aligns with that of our sister circuits.”¹⁷

Implications

The Second Circuit joins other federal circuit courts in applying this less stringent requirement in pleading AKS violations.¹⁸ The “one purpose” rule lowers the bar by finding it sufficient for a relator to show that any purpose of the remuneration was to induce referrals — even if the remuneration was also intended to compensate for professional services or any another legitimate purpose. Importantly, the “one purpose” rule does not diminish the requirement that plaintiffs satisfy the heightened pleadings requirement under Federal Rule of Civil Procedure 9(b).¹⁹ The Second Circuit made clear that whether a complaint survives a motion for summary judgment depends heavily on the strength and particularity of the allegations, and the court’s “context-specific” analysis of the specific facts alleged in each case.²⁰

In the day and age of “big data” where the poor word choice of any one salesperson could potentially be imputed to malintent for the entire organization, the adoption of the “one purpose” rule could result in virtually all beneficial healthcare arrangements as suspicious pay-for-patient schemes. Additionally, broadly criminalizing the ability of medical providers to refer patients to another medical professional, medical device, or drug could jeopardize routine business practices followed by the healthcare industry across the country, to the detriment of patients benefiting from these innocuous practices.

[1] United States ex rel. Camburn v. Novartis Pharms. Corp., 2024 U.S. App. LEXIS 32722, at *4 (2d Cir. Dec. 27, 2024).

[2] 42 U.S.C. § 1320a-7b(b).

[3] Camburn, 2024 U.S. App. LEXIS 32722, at *11.

[4] 42 U.S.C. § 1320a-7b(b); United States ex rel. Osheroff v. Humana, Inc., 776 F.3d 805, 808 (11th Cir. 2015).

[5] See e.g., United States v. Goldman, 607 Fed. Appx. 171, 2015 U.S. App. LEXIS 5631 (3d Cir. 2015); United States v. Mallory, 988 F.3d 730 (4th Cir. 2021).

[6] 42 U.S.C. § 1320a-7b(b).

[7] 42 U.S.C. § 1320a-7b(b).

[8] 42 U.S.C. § 1320a-7a.

[9] 42 U.S.C. § 1320a-7b(g).

[10] Camburn, 2024 U.S. App. LEXIS 32722, at *7-9.

[11] Id. at *13-14.

[12] Id. at *6.

[13] Id. at *4-5.

[14] Id. at *5.

[15] Id. at *11.

[16] Id.

[17] Id.

[18] See Guilfoile v. Shields, 913 F.3d 178, 189 (1st Cir. 2019); United States v. Greber, 760 F.2d 68, 69, 72 (3d Cir. 1985); United States v. Mallory, 988 F.3d 730, 741 (4th Cir. 2021); United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998); United States v. Borrasi, 639 F.3d 774, 781-82 (7th Cir. 2011); United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989); United States v. McClatchey, 217 F.3d 823, 834-35 (10th Cir. 2000).

[19] “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).

[20] Camburn, 2024 U.S. App. LEXIS 32722, at *3-5, 9, 18-19.