EXECUTIVE SUMMARY
A federal district court has overturned a defendant’s conviction for violating the Anti-Kickback Statute. The case establishes new boundaries for prosecution.
- The ruling will discourage prosecutorial overreach.
- This is the court’s first ruling on how the statute applies to advertising and marketing.
- The court’s decision involves medical device manufacturers but will apply broadly to healthcare organizations.
By Greg Freeman
In a rare win for a defendant convicted of violating the Anti-Kickback Statute (AKS), the U.S. Court of Appeals for the Seventh Circuit took the rare step of overturning the defendant’s conviction in United States v. Sorensen.
The ruling establishes important new boundaries for the statute’s application to healthcare advertising and marketing, says Annie Kastanek, JD, partner with the Jenner & Block law firm in Chicago. She represented the defendant, along with Stephen Chahn Lee, JD, of the Law Office of Stephen Chahn in Chicago, in his appeal. They persuaded the court to adopt a narrower and more precise interpretation of the law that prevents prosecutorial overreach while still preserving the statute’s core purpose, Kastanek says.
Mark Sorensen was the owner of SyMed, a durable medical equipment distributor in Chicago. He had been convicted of conspiracy and multiple counts of paying kickbacks to Medicare beneficiaries based on how SyMed marketed orthopedic braces. A court sentenced him to 42 months in prison along with a forfeiture judgment of almost $2 million.
Prosecutors contended that payments to two marketing firms, based on the number of leads generated, constituted illegal kickbacks. They also alleged the company made illegal payments to a durable medical equipment manufacturer that were calculated on a percentage of funds SyMed collected from Medicare — and also to a billing company.
Interested patients responded to marketing efforts, and their information was used to fax a prefilled but unsigned prescription form to the patient’s physician. If the doctor signed the prescription, SyMed directed the brace manufacturer to ship the product.
In unanimously reversing Sorensen’s criminal AKS conviction, the Seventh Circuit said the payments did not violate the AKS because there was insufficient evidence that any of the payees had influence over healthcare decisions or authorized any medical care. Noting that only 20% of the pre-filled forms were signed by the physicians, the court concluded that “physicians and non-physicians alike may exert formal or informal influence on patients’ choice of health care providers” but that that was not the case in this scenario.
The physicians had independent decision-making authority over patient care, even though the company used “aggressive advertising efforts,” the court said. (The court’s ruling is available online at https://caselaw.findlaw.com/court/us-7th-circuit/117164946.html.) This case is the Seventh Circuit’s first comprehensive examination of how the statute applies to advertising and marketing arrangements in the healthcare sector, she explains. “The Seventh Circuit reversed Mr. Sorensen’s conviction under the federal Anti-Kickback Statute, ruling that payments for advertising and marketing services for medical equipment do not violate the law when physicians maintain independent decision-making authority over patient care and when patients maintain choice over their care,” Kastanek says.
The court found that percentage-based compensation structures for marketing services are not inherently unlawful under the statute, she says. “This is significant, as it’s the Seventh Circuit’s first comprehensive examination of how the Anti-Kickback Statute applies to advertising and marketing arrangements in the healthcare sector,” Kastanek says.
The court established a crucial distinction between two types of payments: illegal kickbacks to those who can make and influence healthcare decisions vs. legitimate compensation for advertising services, she explains. The court noted that, while the statute can apply to non-physicians, it requires evidence that the payee “leverages fluid, informal power and influence over healthcare decisions.”
“This creates a clearer boundary between legitimate marketing arrangements and illegal kickback schemes, with physician and patient choice being a key factor,” Kastanek says. This ruling provides much-needed clarity on permissible marketing and advertising relationships in healthcare, she says. Organizations can engage in certain percentage-based compensation arrangements for marketing services without automatically running afoul of the AKS, provided these arrangements do not interfere with independent medical decision-making, she says.
“The decision establishes crucial guardrails around prosecutorial discretion that protect legitimate business practices while still allowing prosecution of truly problematic arrangements that could compromise patient care,” Kastanek says.
The ruling directly affects medical equipment companies and marketing firms that promote healthcare products, since these were central to the case, she says. However, Kastanek says that the principles established likely will influence enforcement across various healthcare segments that rely on marketing partnerships, including pharmaceuticals, specialty practices, and healthcare technology companies.
“Any healthcare entity using commission-based marketing arrangements should take note of this precedent,” she says. “There will be an immediate effect in that certain marketing arrangements previously considered risky may now have stronger legal footing, particularly within the Seventh Circuit’s jurisdiction. However, the full impact will continue to develop as prosecutors adjust their enforcement priorities, other circuits potentially address similar cases, and healthcare organizations revise their compliance programs in response.”
Healthcare organizations should review their existing marketing and advertising arrangements in light of this decision, particularly focusing on whether these arrangements preserve physician independence in decision-making, Kastanek advises. “While this ruling provides some breathing room for certain marketing relationships, organizations should still ensure their compensation structures can be justified by legitimate business purposes,” she says. “Organizations should consult with legal counsel to determine if their specific arrangements align with the boundaries established by this ruling and update compliance policies accordingly.”
Source
- Annie Kastanek, JD, Partner, Jenner & Block, Chicago. Telephone: (312) 840-7285. Email: [email protected].
Greg Freeman has worked with Relias Media and its predecessor companies since 1989, moving from assistant staff writer to executive editor before becoming a freelance writer. He has been the editor of Healthcare Risk Management since 1992 and provides research and content for other Relias Media products. In addition to his work with Relias Media, Greg provides other freelance writing services and is the author of seven narrative nonfiction books on wartime experiences and other historical events.
In a rare win for a defendant convicted of violating the Anti-Kickback Statute, the U.S. Court of Appeals for the Seventh Circuit took the rare step of overturning the defendant’s conviction in United States v. Sorensen.
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