In Stop Illinois Health Care Fraud, LLC v. Sayeed, No. 12-CV-09306, 2021 WL 2331338 (N.D. Ill. June 8, 2021), an Illinois district court issued an order after a recent bench trial finding that the defendants violated the False Claims Act (FCA), Illinois False Claims Act (IFCA), and the Anti-Kickback Statute (AKS) when they paid a community care organization for access to the organization’s raw client data, and then used that data to solicit clients for Medicare reimbursed healthcare services. Although this arrangement consisted of no direct referrals, the district court – following the 7th Circuit’s instructions on remand – held that such arrangements constitute prohibited, indirect referrals under what the court called a “file access theory.” Under this theory, the district court found that AKS liability attached because the payments were intended as remuneration for access to records that leads to the solicitation of additional healthcare services. This case is important as it illustrates once again how broadly the government and courts define “referral” in the AKS context.

In December 2010, Management Principles Inc., which manages various healthcare companies and is wholly owned by named defendant Asif Sayeed, entered into a management services agreement with Healthcare Consortium of Illinois, a community care organization that coordinated services for low-income seniors. Under the agreement, MPI paid HCI $5,000 per month in exchange for HCI’s administrative advice and counsel. Although the agreement never mentioned MPI’s ability to access HCI’s client records and then use the data to solicit clients, this is exactly what occurred. HCI gave MPI access to its raw client data, MPI performed its own data mining, and then MPI used that information to solicit HCI clients. The court found that the monthly payments were at least partially intended to provide MPI with access to HCI’s raw client data to find patients for its other managed entities.

The district court granted defendants’ motion for directed verdict during a July 2019 trial, but the Seventh Circuit reversed and remanded in April 2020, instructing the district court to determine whether the file access theory constituted a referral. Specifically, the Seventh Circuit reiterated a broad reading of “referrals” under the AKS, stating that courts should look to the practical effects of an arrangement rather than their form. The 7th Circuit opined that this expansive view is “consistent with Congress’s broad objectives” and with precedent.  957 F.3d 743, 749.  Thus, an arrangement connecting patients with providers may be deemed a prohibited referral under the AKS whether it is direct or indirect; explicit or subtle.

Upon remand, defendants filed a renewed motion for a directed verdict at the conclusion of relator’s case in chief. This time, the court denied the motion, finding that relator’s file access theory was legitimate. Following the instructions handed down by the 7th Circuit, the district court found that providing access to private client data that is then used to solicit those clients does constitute a referral under the AKS. Even though HCI was not directly contacting clients and referring them to MPI, the effect of the arrangement was the same.

The district court found that the monthly payments were intended as remuneration for this file access referral, since Sayeed admitted that the payments were at least partially meant to induce HCI to provide access to their data. Further, no safe harbor defense applied, at least in part because the client record access was not a service included in the agreement as required under the personal services and management safe harbor (the court did not address what it would have held under the safe harbor had this file access been detailed, but other court holdings would question protecting referrals under such a defense). Thus, defendants were liable under the AKS, FCA and IFCA because “the file access constitutes a referral, the fees were intended as remuneration for the referrals, the services provided were funded by Medicare, and defendant’s inducement was knowing and willful.”

This case demonstrates that even subtle, indirect arrangements may be deemed “referrals” under the AKS giving rise to FCA cases if they have the same practical effect of more obvious, direct arrangements. More specifically, arrangements that merely grant healthcare providers access to raw patient data may still be deemed referrals under the “file access theory” if such data is used to solicit clients. If a provider still intends to pursue such an arrangement, it must be diligent in ensuring that all seven of the safe harbor elements are met to avoid liability under the AKS and FCA, although that arrangement still may carry risk depending on the exact proposed parameters.

The authors thank McGuireWoods summer associate Nathan Young for assistance preparing this article. He is not licensed to practice law.