AHA Amicus Brief
Case Nos: 99-3347, 99-3344, 99-3352
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
UNITED STATES OF AMERICA,
ROBERT C. LAHUE,
RONALD H. LAHUE,
ON APPEAL FROM THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF KANSAS
BRIEF OF AMICI CURIAE
THE AMERICAN HOSPITAL ASSOCIATION
FEDERATION OF AMERICAN HEALTH SYSTEMS
ASSOCIATION OF AMERICAN MEDICAL COLLEGES
AMERICAN OSTEOPATHIC ASSOCIATION
MISSOURI HOSPITAL ASSOCIATION
IN SUPPORT OF APPELLANTS AND IN SUPPORT OF REVERSAL
THE FEDERATION OF AMERICAN
Laura Steeves Gogal
801 Pennsylvania Avenue N.W.
Washington, DC 20004
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO, P.C.
Thomas S. Crane
(Counsel of Record)
Tracy A. Miner
Jeffrey D. Clements
Theresa M. Claffey
One Financial Center
Boston, MA 02111
701 Pennsylvania Avenue, N.W.
Washington, DC 20004-2608
Counsel for Amici Curiae
Dated: June 6, 2000
THE AMERICAN HOSPITAL ASSOCIATION
Maureen D. Mudron
325 Seventh Street, N.W., Suite 700
Washington, DC 20004
THE ASSOCIATION OF AMERICAN MEDICAL COLLEGES
2450 N. Street, N.W.
Washington, DC 20037-1126
THE MISSOURI HOSPITAL ASSOCIATION
Gerald M. Sill
Joanne E. Joiner
4712 Country Club Drive
Jefferson City, MO 65102
TABLE OF CONTENTS
II. INTEREST OF THE AMICI CURIAE.........................8*
A. The One Purpose Rule Leads To Absurd Results And Violates The Rule Of Lenity..........11*
B. The One Purpose Rule Prevents A Jury From Determining Criminal Intent And Considering Substantial Good-Faith Compliance With The Safe Harbor Rules..........14*
1. The Jury Instructions Vitiate The Requirement That The Government Prove That The Defendant Acted With Criminal Intent And Impermissibly Bar The Jury From Fully Considering Lawful Motives..........15*
2. The One Purpose Rule Impermissibly Bars The Jury From Considering Substantial, Good-Faith Compliance With The Safe Harbor Rules And Impedes Providers’ Efforts To Implement Effective Corporate Compliance Programs..........20*
C. The Statute Requires Two Guiding Standards: That Referrals Must Be The Primary Purpose Of The Remuneration To Be Unlawful And That Fair Market Value Payments For Legitimate Services Are Highly Probative Of Lawful Intent..........25*
CERTIFICATE OF SERVICE...............30*
CERTIFICATE OF COMPLIANCE..............31*
TABLE OF AUTHORITIES
The national and state health care organizations submitting this amicus brief ("Amici") represent hospitals, physicians, and academic medical centers who are committed to the delivery of quality medical care in a cost-effective manner in compliance with all applicable laws. Amici join together to share with the Court our concern over the important principle of law in this case that will significantly affect our members (approximately 5,000 hospitals, 125 U.S. medical schools, and 30,000 osteopathic physicians); the clinicians, faculty physicians, administrators and employees of our member institutions; and the patients they serve. The question before this Court that Amici address is whether the Medicare Anti-kickback Statute, 42 U.S.C. §1320a-7b(b) (the "Statute"), should be interpreted to make it a crime for providers to have any financial relationship where the parties implicitly anticipate referrals as part of such relationship. At the same time, Amici strongly support the vigorous and fair enforcement of the fraud and abuse laws. Legitimate providers are hurt by the few unscrupulous providers who would pay for referrals rather than compete for business. Moreover, illegal referral arrangements drain scarce health care resources and can harm patients. Therefore, Amici urge the Court to interpret the Statute as prohibiting only those financial arrangements that have the primary purpose of inducing referrals. Such an interpretation would allow vigorous enforcement against corrupt arrangements, yet not criminalize everyday beneficial practices that inherently involve referrals but which Congress never intended to prohibit.
At the trial below, the District Court instructed the jury that a finding of illegal intent to induce referrals "must, at least in part, have been the reason [for] the remuneration. . . ." Jury Instr. 32 (emphasis added) (Addendum at 3);/ see also Jury Instr. 33 (A at 4). The instructions also informed jurors that they could acquit only if they concluded that the payments in question were designed "wholly for other purposes." Id. (emphasis added). In other words, under the District Court’s jury instructions, as long as the jury finds there is, at least in part, one purpose to obtain referrals, however small, the jury must convict. Amici call this the one purpose rule.
The delivery of health care services is a complex undertaking that neither hospitals nor physicians can accomplish alone. Although hospitals can have the finest and most advanced facilities and technologies available to meet the health care needs of the communities they serve, they are unable to meet those needs without the assistance and coordination of physicians. Hospital care must be provided by and through arrangements with physicians, who usually are independent contractors. Hospitals must attract skilled physicians who admit patients and provide them with high quality care. Physicians do not act alone either, but interact with the assistance and support of the hospital’s clinical staff and facilities to diagnose and treat patients. When a physician utilizes a hospital for his or her patients, it is considered a "referral" under the Statute. Referrals consist of many common practices. For example, when a physician admits a patient with chest pain, this is a referral. When a physician uses a hospital surgical suite to perform surgery in conjunction with a team of hospital nurses, this is a referral. When a physician orders a blood test performed by the hospital’s laboratory, this is also a referral. And when a physician discharges a patient ordering post-hospital services in conjunction with hospital discharge planners, this too is a referral. Since physicians are licensed to make medical judgments and order services, a referral element exists in virtually every interaction between a hospital and a physician.
The fundamental flaw of the one purpose test is that it ignores the inherent existence of referrals as part of most hospital-physician interactions. Such a test treats in the same manner arrangements that, by definition, have a referral component as it does those arrangements where payments are deliberately and primarily intended to induce referrals. If a jury is stopped from considering the totality of the circumstances whenever both remuneration and referrals are present, it may impute an unlawful purpose to otherwise legitimate relationships, with criminal convictions resulting.
The following are examples of common, beneficial hospital-physician relationships that have two common, coexisting features: (1) an economic relationship is formed that is necessary for patient care; and (2) patients receive services from the parties that have formed the economic relationship; for example, physicians will likely admit their patients to, or order tests from, the hospital. These examples, therefore, all involve two elements of a violation of the Statute: "remuneration" and "referrals." These interactions are called into question by the one purpose rule because jurors are invited to convict even when they find an attenuated relationship between referrals and remuneration or conclude that the primary purpose is to provide a needed clinical service in a clinically appropriate setting with payment at fair market value.
Medical Staff Privileges. To practice at a hospital and admit patients, physicians must obtain medical staff privileges at one or more hospitals. Some hospitals take into consideration the number of procedures a physician performs at that hospital as a factor in determining whether the hospital has sufficient experience with that physician to reasonably evaluate the physician’s quality of care. Although this relationship involves no direct payment from the hospital, it still provides an economic benefit to physicians because the grant of staff privileges provides physicians the professional credential necessary for them to earn money by treating the patients that they have referred.
Physician Recruitment. Hospitals often consider ways to recruit physicians to locate to the hospital’s service area after that physician has completed residency training. This recruitment usually follows the completion of a "needs analysis" by which the hospital has identified its needs for various categories of physician-specialists in the service area. This analysis typically examines the needs of the community and might include anticipated referral rates. Once a hospital identifies a need and recruits a physician, the hospital typically provides the physician with a moving allowance and an income guarantee to ease the financial burden while the physician establishes a private practice. In addition, the physician is asked to obtain and maintain medical staff privileges at the supporting hospital. Since the physician will likely admit patients to the hospital and the hospital may have specific requirements for medical staff privileges, both elements of a potential violation are present./
Flight Programs. Hospitals in urban areas, as part of their community service, regularly sponsor flight programs to provide needed specialty care to surrounding rural areas. Physicians on the hospital’s medical staff are flown to rural areas to see patients at rural hospitals or clinics. An economic relationship is formed because, even though the physicians are not charged for the flights, they earn fees for the care they provide, but rarely in the amounts that would justify the flights if they paid the full cost themselves. Although the primary purpose of the flight programs is to provide needed treatment to patients in a setting close to their home, if more sophisticated services are needed, the physician will usually refer the patient to the sponsoring hospital.
Clinical Services. Hospitals have important medical reasons to contract with physicians to provide clinical services to patients, such as interpretations of cardiac tests. Either the physician bills Medicare or other payors directly or the hospital pays the physician for the services and then bills the payor "globally" for both the test and the professional interpretation. Given that the hospital is more likely to contract with physicians it knows and respects, it is inevitable that this opportunity will be given to physicians on the medical staff who are also likely to be referral sources.
Administrative Services. Hospitals often ask physicians to provide medical administrative services, such as serving as the medical director of a program or department, and the hospital frequently pays the physician a fee for these duties. For example, a hospital may have a choice of hiring either a Nobel Laureate or an accomplished, but lesser known, surgeon as a medical director. The Nobel Laureate will likely bring to the institution prestigious research grants and superior education and training. The Nobel Laureate also will likely attract more referrals because of his or her name recognition. The selection of the Nobel Laureate could be construed as a criminal offense under the one purpose rule if part of the reason for choosing that person is that the Nobel Laureate will make more referrals to the hospital.
Absent other facts, these arrangements and many other everyday practices of hospitals and physicians should not be considered criminal. Doctors and health care administrators should not be subject to investigation or imprisonment for engaging in routine practices that also involve referrals as an inherent part of the provision of needed services paid at fair market value. The principal intent of the Statute is to deter practices "which have long been regarded by professional organizations as unethical as well as unlawful in some jurisdictions, and which contribute appreciably to the cost of the Medicare and Medicaid programs." S. Rep. No. 92-1230, at 208 (1972) (legislation authorizing the original Anti-kickback Statute). None of the above practices has traditionally been viewed as unethical or as increasing the costs of medical programs or treatments. The District Court’s interpretation of the Statute, as seen in its one purpose jury instruction, fundamentally blurs the distinction between relationships that, by definition, involve referrals and those that are entered into unlawfully to induce referrals. As a result, it could criminalize situations described in these examples and many other common, beneficial provider practices. Amici therefore ask the Court to reject the one purpose rule as unnecessarily restrictive of legitimate practices of health care providers and contrary to the intent of Congress.
II. INTEREST OF THE AMICI CURIAE
The hospital and medical organizations that join together as Amici in this matter represent most of the nation’s hospitals, allopathic medical schools and their faculty physicians, and osteopathic physicians. They share the goal of promoting the provision of quality health care in an efficient, effective manner. They consistently work to improve our health care system. While they share the Government’s concern with fraud and abuse and support efforts directed at prevention and punishment, they are also concerned that the Government not go so far in its desire to eradicate fraud as to jeopardize standard health care practices that do not implicate the harms the fraud and abuse statutes were meant to prevent. They also believe that these Government efforts should not unduly jeopardize innovative programs that deliver quality, cost-effective care. Amici seek to address these important principles of law and the resulting effect on our health care system. Amici express no view as to the proper application of the law to the facts of this case.
The American Hospital Association ("AHA"), a nonprofit association founded in 1898, is the primary national membership organization for hospitals and health systems in the United States. Its membership includes nearly 5,000 hospitals, health systems, networks, and other health care providers. The AHA's mission is to advance the health of individuals and communities; the AHA leads, represents, and serves health care provider organizations that are accountable to the community and committed to health improvement.
The Association of American Medical Colleges ("AAMC") is a nonprofit association comprised of 125 accredited U.S. medical schools; 16 accredited Canadian medical schools; more than 400 major teaching hospitals and health systems, including 70 Department of Veterans Affairs medical centers; nearly 90 academic and professional societies representing 75,000 faculty members; and the nation's medical students and residents. The AAMC seeks to strengthen the quality of medical education and training, to enhance the search for biomedical knowledge, to advance research in health services, and to integrate education into the provision of effective health care.
The Federation of American Health Systems is the national representative of 1,700 privately owned or managed community hospitals and health systems throughout the United States. Its members range from small rural hospitals to large urban medical centers and offer a variety of services including acute hospital care, outpatient services, skilled nursing care, rehabilitation, and psychiatric care.
The American Osteopathic Association ("AOA"), a private, nonprofit organization with approximately 28,800 osteopathic physicians as members, is the national professional association for osteopathic physicians and osteopathic medicine. The AOA accredits osteopathic medical schools, inspects and accredits hospitals throughout the United States, approves osteopathic postdoctoral training programs (i.e., internships, residencies and fellowships), and offers a program of board certification for osteopathic physicians.
The Missouri Hospital Association ("MHA"), a nonprofit membership corporation, represents approximately 150 hospitals throughout Missouri. MHA members include most of the federal and state hospitals, nonprofit and for-profit hospitals, children’s hospitals, rehabilitation and psychiatric care facilities, and specialty hospitals in Missouri./
The Anti-kickback Statute provides:
Whoever knowingly and willfully offers or pays any remuneration . . . to any person . . . to induce such person
42 U.S.C. §1320a-7b(b)(2)./ The Statute’s purpose was not to alter basic health care practices, but was to deter and punish practices that "have long been regarded by professional organizations as unethical [or] unlawful. . . ." S. Rep. No. 92-1230, at 208.
The Statute does not explicitly prohibit all financial arrangements that could potentially lead to referrals for services. To infer such Congressional intent would lead to the absurd result of criminalizing many legitimate hospital-physician relationships. It is axiomatic that a statute must be construed to avoid absurd results. See United States v. Garcia, 182 F.3d 1165, 1172 (10th Cir. 1999); see also 2A Norman J. Singer, Sutherland Stat. Const. § 45:12 (6th ed. 2000). Similarly, the Supreme Court has consistently read criminal statutes so as to avoid an interpretation that would sweep within a statute’s ambit innocent conduct. See, e.g., United States v. X-Citement Video, Inc., 513 U.S. 64, 71-72 (1994) (interpreting 18 U.S.C. § 2252 to prevent criminalization of apparently innocuous behavior); Liparota v. United States, 471 U.S. 419, 426 (1985) (rejecting broad interpretation of the federal statute governing food stamp fraud); United States v. Sun-Diamond Growers, 526 U.S. 398, 406-08 (1999) (adopting narrow reading of the "illegal gratuity statute" to avoid criminalization of harmless gifts).
The one purpose rule leads to absurd results that Congress did not intend because once the jury finds that one purpose of an arrangement is to obtain referrals, it may not consider the over-arching legitimacy of that arrangement. The hallmark of legitimate hospital-physician relationships, such as those discussed above, is that a necessary service is provided in a clinically appropriate setting with payment at fair market value. In order to meet their community needs, hospitals must receive referrals from physicians, i.e., physicians admit patients and order services and tests from hospitals. Should it be wrong for the hospital administrator to promote physician and community confidence in the hospital if they know and intend this to have the implicit effect of encouraging hospital referrals? It makes no sense to interpret the Statute in a way that an administrator may have committed a felony by recruiting the physician with the best reputation or selecting that physician to serve as a departmental medical director merely because the administrator also understands that this physician will inevitably attract more patients to the hospital than would a less well-known physician. There is also nothing wrong with hospitals selecting their own medical staff physicians, whom the hospitals know and trust, to interpret diagnostic tests. Patient care is enhanced, not diminished, by these practices.
The one purpose test also violates the rule of lenity, which holds that courts should construe criminal statutes narrowly where more than one reasonable interpretation of a statute is possible. Last month the Supreme Court again applied this rule of lenity in rejecting the Government’s "expansive" interpretation of a federal criminal arson statute. Jones v. United States, No. 99-5739, 2000 WL 645885, at *6 (U.S. May 22, 2000); see also Rewis v. United States, 401 U.S. 808, 812 (1971); Bell v. United States, 349 U.S. 81, 83 (1955); United States v. Universal C.I.T. Credit Corp., 344 U.S. 218, 221-22 (1952).
While the District Court appeared to recognize that referrals can lawfully be an inherent part of financial relationships between providers, i.e., providers can hope for, expect or believe that referrals may ensue from such a relationship, it then went on to require for an acquittal that such remuneration must be "designed wholly for other purpose." Jury Instr. 32. (A at 3). It is hard to imagine a hospital-physician relationship that can survive this test. Hospitals that recruit physicians to fill medical staff shortages do so expecting that the physician will join the medical staff and may refer patients for admission who need hospital services. Importantly, the hospital does not play any role whatsoever in the physician’s decision to admit a particular patient, nor does it restrict the physician’s ability to join other hospital medical staffs. Yet, just as the sun rises in the east and sets in the west, so too do referrals of patients inevitably result from the recruitment of physicians. No reasonable interpretation of the Statute should find that this alone makes the administrator who recruited the physician, or the physician who accepted the position, guilty of a felony and subject to imprisonment.
B. The One Purpose Rule Prevents A Jury From Determining Criminal Intent And Considering Substantial Good-Faith Compliance With The Safe Harbor Rules.
In reviewing a jury instruction, the Court must make a de novo determination "whether the instructions state the governing law and whether the jury was provided with an intelligent, meaningful understanding of the applicable issues and standards." United States v. Laughlin, 26 F.3d 1523, 1527-29 (10th Cir. 1994) ("Laughlin"); see also United States v. Cecil , 96 F.3d 1344, 1347 (10th Cir. 1996). Amici submit that the District Court’s instructions on intent do not state the governing law accurately. The instructions fail to define the Statute’s scienter requirement in the context of the elements of remuneration to induce referrals. The restriction that non-referral motives may only be considered if such motives are the exclusive purpose of the payment prohibits a jury from conducting a full evaluation of all the reasons for the relationship. The jury instructions also bar a jury from crediting substantial good-faith compliance with the Statute and regulatory safe harbors. Thus, the jury instructions render the criminal intent requirement of the statute virtually meaningless.
1. The Jury Instructions Vitiate The Requirement That The Government Prove That The Defendant Acted With Criminal Intent And Impermissibly Bar The Jury From Fully Considering Lawful Motives.
In the context of a criminal statute, one acts willfully when one acts with a bad purpose, with the knowledge that his or her conduct is unlawful. Bryan v. United States, 524 U.S. 184, 193 (1998) ("Bryan"). Proof of criminal intent to violate the Statute requires the government to demonstrate beyond a reasonable doubt that defendants "(1) know the [the Statute] prohibits offering or paying to induce referrals, and (2) engage in prohibited conduct with the specific intent to disobey the law." Hanlester Network v. Shalala, 51 F.3d 1390, 1400 (9th Cir. 1995) ("Hanlester Network"); see also United States v. Starks, 157 F.3d 833, 838 (11th Cir. 1998); cf. United States v. Jain, 93 F.3d 436, 440 (8th Cir. 1996) (government must prove that defendants knew that their "conduct was wrongful").
Carefully instructing a jury that it must find criminal intent beyond a reasonable doubt – as opposed to ending the inquiry once it finds one referral purpose – is even more important because of the underlying vagueness of the Statute. In finding the Statute "passes constitutional muster" under a vagueness challenge, the Court of Appeals for the First Circuit has stated:
42 U.S.C. § 1395nn. The key to a Medicare Fraud case is the reason for the payment - was the purpose of the payments primarily for inducement. In addition to the knowing and willful requirement, this imposes a second and stronger scienter requirement. The unusually high scienter requirement mitigate[s] [any] vagueness, especially with respect to the adequacy of notice to the [defendant] that his conduct is proscribed. Hoffman Estates, 455 U.S. at 499, 102 S.Ct. at 1193.
United States v. Bay State Ambulance and Hosp. Rental Serv., Inc., 874 F.2d 20, 33 (1st Cir. 1989) (emphasis added, internal quotations and citations omitted) ("Bay State").
A fundamental error of the District Court was that it failed to properly instruct the jury as to what it means to knowingly and willfully induce referrals within the meaning of the Statute because the instructions failed to link the scienter and inducement elements in any meaningful way./ In Laughlin, this Court emphasized the importance of going beyond general instructions about "knowing and willful," and reversed a physician's Medicaid fraud conviction under 42 U.S.C. §1320a-7b(a). 26 F.3d at 1523. "The idea of replacing specific or general intent instructions with instructions properly tailored to the mens rea for the respective offense is consistent with the approach recommended by numerous circuits." Id. at 1527 n.8 (citations omitted). Out of concern that the jury could have misunderstood the terms "knowingly and willfully," the Court examined the instructions as a whole and concluded they were unclear regarding what these terms related to in the context of that statute. Id. at 1527-29.
The District Court in this case instructed the jury that in order to convict, the jury must find that the defendant "acted knowingly and willfully when he offered or paid that remuneration to induce such referrals, as the terms ‘knowingly and willfully’ are specifically defined elsewhere in these instructions." Jury Instr. 30. (A at 1). Nowhere, however, were the terms "knowingly and willfully" defined with specific reference to the Statute. Instead, instructions defined "knowingly and willfully" with reference to "an act," but did not differentiate between perfectly legitimate acts (such as the act of making a service contract) and criminal acts (such as the act of paying for referrals). Jury Instr. 36. (A at 5). The only instructions that sought to guide the jury on the specific intent required for the charged offenses were instructions 32 and 33, which adopted the one purpose rule. Jury Instr. 32 (A at 3); Jury Instr. 33 (A at 4).
The progression of sentences in these two instructions critically lead the jury astray from its required job of finding whether criminal intent to induce referrals existed. The instructions start by generally stating that the government must show that the defendants acted with the "specific criminal intent ‘to induce’ referrals," and then define what "to induce" means. Jury Instr. 32. (A at 3). The instructions then indicate that the necessary intent need only partially be present, i.e., the intent to induce referrals need only "at least in part" be the reason for the remuneration. Id. (A at 3). Next, the instructions further depart from a proper direction for jury deliberation on criminal intent by telling the jurors they can consider that referrals legitimately ensued from a relationship, but only if they find that such a relationship was "designed wholly for other purposes." Id. (A at 3). Consequently, these "jury instructions invited the jury to convict on materially less evidence than the statute demands." United States v. Sun-Diamond Growers, 138 F.3d 961, 968 (D.C.Cir. 1998), aff’d 526 U.S. 398 (1999) (interpreting federal gratuities statutory prohibition 18 U.S.C. § 201(c)).
A second fundamental error of the District Court was that the instructions do not permit the jury to weigh fully the multiple motives that are likely to exist because so many hospital-physician interactions appropriately involve referrals to some extent. Criminal intent means mens rea, i.e., the defendant acted with a bad purpose, knowing his or her conduct was unlawful. Bryan, 524 U.S. at 193; Hanlester Network, 51 F.3d at 1400. Any meaningful jury examination of whether a defendant acted with a bad purpose is indeed a complex task because it requires the separation of the many hospital-physician interactions that, by definition, involve referrals from payments that are deliberately and primarily intended to induce referrals. Although direct evidence of unlawful intent may be present in some cases, such smoking guns rarely exist. Instead, jurors more typically are asked to evaluate and weigh the mix of motives and behaviors. The jury instructions below provide an easy short-cut by not permiting an exploration of the full texture of human behavior where non-referral motives and referral motives co-exist side-by-side.
2. The One Purpose Rule Impermissibly Bars The Jury From Considering Substantial, Good-Faith Compliance With The Safe Harbor Rules And Impedes Providers’ Efforts To Implement Effective Corporate Compliance Programs.
The risk of a jury misapprehending that its task has ended once it finds the financial arrangement was not wholly for non-referral purposes is made more grave by the regulatory safe harbors that apply to many of these arrangements. Good-faith efforts to comply with these safe harbor rules are irrelevant if the jury is instructed that any remuneration must be wholly for other purposes. This cannot be the intent of Congress. Moreover, this is bad policy because it impedes providers’ efforts, strongly encouraged by the government, to implement effective compliance programs.
In 1987, Congress amended the Statute by creating a new statutory exception to provide additional exceptions made pursuant to a regulatory process known as the safe harbors. Medicare and Medicaid Patient and Program Protection Act of 1987 § 14, now codified at 42 U.S.C. § 1320a-7b(b)(3)(E) (1999). The OIG first promulgated final safe harbor regulations in 1991, 56 Fed. Reg. 35,952-987 (July 29, 1991), codified at 42 C.F.R. § 1001.952 (1999).
Any regulatory safe harbor promulgated as a final, binding rule has the same stature as the other exceptions contained in the Statute. Conduct falling squarely within a given safe harbor is lawful even though one, or even the primary, purpose of the conduct is to induce referrals. Thus, as a matter of law, any legitimacy a one purpose test may have had in the late 1980s was substantially narrowed in 1991 when the safe harbors were promulgated.
The direction Congress gave to the OIG to create safe harbors confirms that a one purpose test is not an appropriate determinant of a violation of the Statute because the safe harbors permit arrangements where one purpose may be to induce referrals. Although Safe harbors immunize certain arrangements, they do not define the full range of lawful conduct. The OIG has continually acknowledged that transactions not meeting the narrow elements of a safe harbor may still not violate the Statute if the arrangement was not intended to induce referral of business reimbursable under a Federal Health Care program. See, e.g., 56 Fed. Reg. at 35,954, 35,955.
The problem for providers is that the safe harbors are very narrow and protect only a small category of conduct. See Paul R. McGinn, Safe Harbor Guidelines Offer Little Help, Attorneys Say, American Medical News, Feb. 1989, at 6, (A at 13); Teresa Hudson, Narrow ‘Safe Harbors’ May Create Tough Choices for Hospitals, Hospitals, Oct. 1991, at 32. (A at 14). Providers constantly face the question of whether their financial arrangements are inside the haven of a safe harbor. If such arrangements fall outside a safe harbor, good-faith attempts to comply with the safe harbors should be evidence of lawful conduct and the absence of criminal intent./
To understand the dangers of the one purpose rule in case of substantial, but not full, compliance with the safe harbors, consider the personal services and management contracts safe harbor and the requirements for part-time agreements. To fall within this safe harbor, an agreement must satisfy all six standards, one of which requires, inter alia, that the agreement must specify "exactly the schedule" of services to be provided. 42 C.F.R. § 1001.952(d)(3) (1999) (emphasis added). If a hospital hires a physician to serve as a medical director, with a written agreement that otherwise complies with this safe harbor, but such agreement only provides that the physician is to work two hours per week, without greater specificity as to the schedule of services, then the arrangement presumably fails to qualify for safe harbor protection, notwithstanding the de minimis defect. In this example, under the one purpose rule, the provider could be convicted of a federal crime, notwithstanding the good-faith effort to meet the complex regulatory safe harbor and the absence of criminal intent that such an effort reflects.
A jury should be able to find a lack of criminal intent if it finds that the defendant tried in good faith to satisfy the requirements of a safe harbor. This is particularly true when an arrangement is to provide legitimate services paid at fair market value, without taking into account the volume or value of referrals. This is one of the other six standards of the personal services safe harbor discussed above. 42 C.F.R. § 1001.952(d)(5) (1999). In these circumstances, it is unlikely that payments would be found unlawfully intended to induce referrals where the value of the payments is exclusively based on necessary services rendered. Because the safe harbors permit some intent to induce referrals as long as certain protections are met, substantial, good-faith compliance with the safe harbors should be sufficient to defeat any allegation of criminal intent. Indeed, even the OIG in the preamble to the final safe harbor rules stated that "where the participants appear to have acted in a genuine good-faith attempt to comply with the terms of a safe harbor," prosecution in many cases would not be pursued. 56 Fed. Reg. at 35,954.
The one purpose rule also undermines providers’ compliance programs, and is therefore bad policy. Amici strongly support the vigorous and fair enforcement of the fraud and abuse laws. With the government’s encouragement, providers have created compliance programs designed to encourage compliance with laws in general, with a particular emphasis on billing and fraud and abuse rules. The one purpose rule, however, fosters cynicism for the law, and thereby undermines these efforts. Given the necessary interrelationships between hospitals and physicians, some level of referral purpose can properly co-exist with compliance. Under the one purpose rule, however, no meaningful line exists between legal and illegal activity. Thus, hospital executives and physicians have no clear idea what is expected of them. Restoring the Statute’s original intent to criminalize corrupt conduct will encourage compliance efforts as providers come to understand there are clear rules that can be explained in the context of their daily interactions in the health care system.
In addition, the one purpose rule fosters an overly conservative approach that chills development of important new, beneficial programs. In enacting explicit authority in 1996 for the OIG to issue advisory opinions under the Statute, Congress found: "Providers want to comply with the fraud and abuse statute, but many are unsure of how the statute affects them." H.R. Rep. No. 104-496, at 84 (1996)./ Consequently, there is "a chilling effect  placed on legitimate arrangements, particularly where providers are attempting to structure new and innovative health care delivery systems to contain health care cost[s]." Id. Because of providers’ natural caution, there is no shelter for innovation and the development of cost-effective programs if a jury could misunderstand that these activities may violate the Statute.
C. The Statute Requires Two Guiding Standards: That Referrals Must Be The Primary Purpose Of The Remuneration To Be Unlawful And That Fair Market Value Payments For Legitimate Services Are Highly Probative Of Lawful Intent.
At a minimum, the Court should reject the one purpose rule and require the District Court to instruct the jury as to each element of the offense without an additional interpretive gloss. Such a ruling would allow a jury to fully consider whether criminal intent exists without stopping its analysis once it finds a single purpose was to obtain referrals.
However, a better approach would be to give jurors proper guidance as to the meaning of the Statute, given the extent to which referrals are inherently part of virtually all economic relationships between hospitals and physicians. As the District Court aptly described the problem: "‘Remuneration to induce’ language invites judicial interpretation as to what these words mean. Indeed, the Government in this case adamantly maintains that the words require definition as part of the jury instructions." Tr. at 7344 (March 9, 1999). Although Amici agree that the Statute needs to be explained beyond its words, we disagree with the final approach adopted by the District Court because the instructions fail to link the scienter and inducement elements of the Statute. See Laughlin, 26 F.3d at 1527 n.8.
Two guiding principles should govern the Statute: (1) payments are unlawful if their primary purpose is to induce referrals, and (2) fair market value payments for legitimate services are highly probative of lawful intent. These guidelines will ensure that the Government will be able to continue to effectively prosecute corrupt practices the Statute was intended to prohibit, yet the Court will protect legitimate transactions that Congress never intended to sweep within the Statute’s ambit.
A primary purpose standard gives the fullest meaning to the Statute’s requirement to find criminal intent to induce referrals, meaning to act with a bad purpose and specific intent to violate the law. Only when providers act with a primary purpose to obtain referrals has their conduct risen to a level of unlawful inducement. And the rule of lenity demands as much because a test of any lesser intent could sweep within it conduct that is in a gray area that could reasonably be interpreted as lawful.
This primary purpose postulation especially applies to a statute that inherently involves dual or multiple intent situations where a jury is asked to balance what may be legitimate and illegitimate motives in determining lawful or unlawful intent. Where hospitals and physicians come together daily in financial relationships that involve referrals in some measure, the force of criminal sanctions is appropriate only where the conduct is driven, or primarily motivated, by referrals. This standard most naturally gives effect to the Statute’s original dictates and is fully consistent with government enforcement principles.
The Statute requires a court to find payments that meet a safe harbor to be lawful even if one purpose is to induce referrals. However, even where an arrangement falls outside the safe harbors, if payments are for legitimate services – needed services provided in clinically appropriate settings, not conditioned on a requirement to refer – and are at fair market value, such arrangements should be protected because the conduct is highly probative of lawful intent. Fair market value payments would be set at levels that would only compensate the recipient for services rendered. If the recipient is receiving no economic value associated with referrals, it is reasonable to conclude that in such instances the payments are not intended to induce referrals. It is this guideline that helps separate the commonplace, legitimate arrangements discussed in the Introduction from arrangements that are intended to induce referrals in violation of the Statute.
Given the safe harbors as promulgated, Congress could not have intended to criminalize whatever theoretical intent to obtain referrals might be present even when payments are at fair market value, yet full safe harbor compliance is otherwise not achieved. This suggested standard supports compliance efforts by requiring providers to be prudent buyers of services purchased from referral sources.
Our health care system must be free both from corrupt payment-for-referral scams and from the dangerous specter of criminal conviction for legitimate health care arrangements. Congress intended this in enacting the Statute, and this is what is threatened by adoption of a one purpose rule. Amici, therefore, respectfully request that the Court reject the one purpose rule. Instead, Amici urge the Court to adopt the "primary purpose" rule that would make it unlawful to engage in a transaction with the primary purpose of inducing a referral, yet maintain the
legality of traditional financial arrangements between hospitals and physicians that may have an inherent purpose of encouraging referrals.
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