Federal Anti-kickback Statutes

There are at least three federal anti-kickback statutes the anti-fraud community should be familiar with. A fourth is the Stark Law (anti-physician self-referral).

Federal Anti-kickback Statutes

The earliest of the three is the Copeland “Anti-kickback” Act (Pub.L. 73–324, 48 Stat. 948, enacted June 13, 1934, codified at 18 U.S.C. § 874) which supplements the Davis–Bacon Act of 1931. Congress discovered that employers during the Depression were scheming to get around the prevailing wage provisions on federal contracts by requiring wage “kickbacks” from employees. The Copeland Act prohibits a federal building contractor or subcontractor from inducing an employee into giving up any part of the compensation that he or she is entitled to under the terms of his or her employment contract.

The second anti-kickback statute was enacted as part of the Social Security Amendments of 1972 to make efforts to prosecute Medicare and Medicaid fraud easier. The statute was broadly construed in United States v. Greber (3rd cir., 1985).  Dr. Greber was convicted by a jury on 20 of 23 counts in an indictment charging violations of the mail fraud, Medicare fraud, and false statement statutes. His defense was that the payments were for professional services. The court held a jury could find him guilty if part of the reason for using the service was the payment. “If the payments were intended to induce the physician to use [the] services, the statute was violated, even if the payments were also intended to compensate for professional services”. The ruling prohibited business transactions that were once fairly innocuous, leading to the creation of safe harbors. (See e.g. 42 CFR 411.355). The safe harbors are now complex and detailed.

The third federal statute is known as “The Anti-Kickback Act of 1986” (41 U.S.C. § 51 et seq.). It modernized and closed the loopholes of previous statutes applying to government contractors. The 1986 law attempted to make the anti-kickback statute a more useful prosecutorial tool by expanding the definition of prohibited conduct and by making the statute applicable to a broader range of persons involved in government subcontracting. Prosecutions under this statute are not limited to medical billing and must establish the following:

  1. Prohibited conduct–the Act prohibits attempted as well as completed “kickbacks,” which include any money, fees, commission, credit, gift, gratuity, thing of value, or compensation of any kind. The act also provides that the inclusion of kickback amounts in contract prices is prohibited conduct in itself.
  2. Purpose of kickback–The Act requires that the purpose of the kickback was for improperly obtaining or rewarding favorable treatment. It is intended to embrace the full range of government contracting. Prior to 1986, the “kickback” was required to be for the inducement or acknowledgement of a subcontract.
  3. Covered class of “kickback” recipients–The Act prohibits “kickbacks” to prime contractors, prime contractor employees, subcontractors, and subcontractor employees. These terms are defined in the Act.
  4. Type of contract–The Act defines kickbacks to include payments under any government contract. Prior to this legislation, the statutes’ applicability was limited to negotiated contracts.
  5. Knowledge and willfulness–The Act requires one to knowingly and willfully engage in the prohibited conduct for the imposition of criminal sanctions.

The Federal Procurement Fraud Unit in the Fraud Section, Criminal Division, has sample indictments and will handle inquiries or questions about this statute and will provide guidance on a variety of procurement fraud issues.

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