Second Circuit Expands Anti-Kickback Statute Liability: “At Least One Purpose” is Enough

In a significant ruling, the Second Circuit Court of Appeals recently expanded the scope of the Anti-Kickback Statute (AKS).The Court joined other circuit courts across the country in adopting, for the first time, the “at-least-one-purpose rule,” whereby a defendant violates the AKS when at least one purpose, rather than the sole or primary purpose, of a payment (or “remuneration”) is to induce the purchase of federally reimbursable healthcare products or services.  This ruling significantly lowers the bar for proving AKS violations in the Second Circuit.

The Case: Novartis and “Sham” Speaker Programs

The decision stemmed from a non-intervened qui tam lawsuit against Novartis Pharmaceuticals. The relator alleged that Novartis used “sham” speaker programs to funnel illegal kickbacks to doctors, incentivizing them to prescribe the company’s multiple sclerosis drug, Gilenya. These alleged “sham” programs included: (1) lavish speaking events with no legitimate attendees and minimal educational content; (2) excessive payments for canceled speaking engagements; and (3) deliberately selecting high-prescribing physicians as speakers.

After relator’s Third Amended Complaint was dismissed with prejudice in 2022, by Judge Kimba Wood of the U.S. District Court for the Southern District of New York, relator appealed. On December 27, 2024, Judge Myrna Perez of the Second Circuit affirmed the dismissal as to several categories of allegations in relator’s complaint but revived the qui tam lawsuit by vacating the dismissal as to these three categories of allegations.                 

Accepting relator’s allegations as true for the purposes of a motion to dismiss, the Second Circuit ruled that all three categories of activities were pled with the requisite particularity and suggest that Novartis operated its speaker program at least in part to remunerate physicians to prescribe Gilenya, in violation of the AKS.

The Court thereby rejected Novartis’s argument that relator must prove that the only purpose of the speaker program was to induce prescriptions, and for the first time adopted the at-least-one-purpose rule. As the Court noted, the at-least-one-purpose rule was first adopted by the Third Circuit in 1985 (United States v. Greber, 760 F.2d 68, 69, 72 (3d Cir. 1985)), and has since been adopted by the First, Fourth, Fifth, Seventh, Ninth, and Tenth Circuits. Importantly, the Court also held that an allegation of an AKS violation does not require proof of any quid pro quo, or establishing a cause-and-effect relationship between payments and prescription volumes. Taken together, these two holdings provide a powerful tool for whistleblowers and government enforcement to prosecute all manner of payments to healthcare providers made by pharmaceutical companies, medical device companies, and other companies selling healthcare products and services.

Key Takeaways

The key takeaways from the opinion are:

• At Least One Purpose is Enough: The court rejected the argument that remuneration to physicians is unlawful under the AKS only if the “sole purpose” or “primary purpose” of the payment is to induce healthcare purchases. Rather, it is enough under the AKS to show that at least one purpose of the payment is to induce future purchases.
• No Quid Pro Quo Required: The court emphasized that proving a direct cause-and-effect relationship between payment and prescriptions is not necessary.
• Particularity is Paramount: While the “at least one purpose” standard broadens liability, courts will still scrutinize the level of detail in the allegations, in accordance with the heightened pleading requirements of Fed. R. Civ. P. 9(b).

Pleading with Particularity: Facts Matter

The Court’s analysis greatly turned on the degree of particularity with which relator pled the allegations. For the categories of allegations that the Second Circuit affirmed dismissal, the Court ruled that they were not pled with the “specific detail” necessary to satisfy the at-least-one-purpose rule. In contrast, for the three categories of allegations that the Court vacated dismissal, it cited to specific allegations that met the heightened pleading requirement of Fed. R. Civ. P. 9(b) and gave rise to a strong inference of fraudulent intent. With respect to relator’s allegations that (1) Novartis paid physicians via lavish speaking events with no legitimate attendees and minimal educational content, the Court cited particularly illustrative examples of these “sham” events, such as a $1,000 three-person steak dinner where all three attendees were Novartis-speaker physicians from the same practice.  Notably, the District Court looked at the same complaint and found that “relator still has not provided a basis on which to infer that these events were fraudulent,” and “without more detail as to the composition of the audience at these events, and the content covered, Relator’s claim that they are ‘shams’ is merely a ‘conclusory allegation.’”

Regarding relator’s allegations that (2) Novartis provided excessive payments for canceled speaking engagements, the Second Circuit cited to relator’s identification by name and location physicians whom Novartis paid, including for each the amount paid for canceled speaker events (approximately $20,000 per physician over a two-year period) and the volume and dollar value of Medicare claims for Gilenya prescriptions (from $1 to $1.7 million each over the same period).  Again, the District Court was unsatisfied by the same complaint, dismissing it because the Relator did not identify “the circumstances or timing of the cancellation for any of these events.” 

For relator’s allegations that (3) Novartis deliberately selected high-prescribing physicians as speakers, the Second Circuit cited to specific details showing that Novartis selected the physician speakers based on driving volume of Gilenya prescriptions, for example witness statements that Novartis representatives knew that a particular physician “would not prescribe Gilenya without speaking engagements.”  The District Court did not find this satisfactory, dismissing because “Relator’s allegations do not link” Novartis’s analysis to the actual prescribing habits.

So, what one Court sees as pleading with particularity, another may not.

Impact

This ruling has major implications for the healthcare industry:

• Increased Scrutiny of Marketing Practices: Pharmaceutical companies and other healthcare providers must carefully review their interactions with physicians to ensure compliance with the AKS.
• Heightened Risk of Enforcement: The broader scope of liability increases the risk of government investigations and whistleblower lawsuits based on AKS violations.

This decision sends a clear message: even if a payment has legitimate purposes, it can still violate the AKS if inducing prescriptions (or other healthcare purchases) is one of them.