Medicare Part (B): Court Invalidates Kickback And Referral Scheme For Medical Equipment And Supplies For Nursing Home Patients
Legal Eagle Eye Newsletter for the Nursing Profession
September 1996
The Medicare statute makes it a crime to knowingly and willfully solicit any kickback, bribe or rebate directly or indirectly, overtly or covertly, in cash or in kind -
(A) In return for referring an individual to a person for the furnishing of any item or service for which payment may be made in whole or in part under Medicare, or
(B) In return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing or ordering any good, facility service or item for which payment may be made in whole or in part under Medicare.
No party has the right to sue any other party for compensation allegedly due and owing pursuant to an illegal contract.
The marketing agreement in this case between a consulting firm and vendors of medical equipment and supplies was an illegal contract under Medicare law, and was void and unenforceable in civil court. UNITED STATES DISTRICT COURT, ARKANSAS, 1996.
The U.S. District Court for the Eastern District of Arkansas had before it a complex piece of commercial civil litigation stemming from a failed business arrangement. A firm of nursing-home consultants claimed they were entitled to receive per-item commissions for steering Medicare Part (B)-eligible nursing home patients to particular vendors of medical equipment and supplies, to be supplied to the patients by the vendors and billed to Medicare.
The consultants filed a civil suit alleging numerous counts of breach of contract. One of the vendors sought dismissal of the suit on grounds that the contract, although freely entered into by the vendor, was an illegal contract under Medicare law, and thus void and unenforceable in civil court.
The court agreed. It ruled it had to look no further than the plain language of the Medicare statute (42 U.S.C. §1320a-7b(b)(1)) for legal authority that any sort of steering, referral or kickback scheme for supplies or equipment to be paid by Medicare is illegal.
Under general principles of civil contract law, a private contract with an illegal objective is void and not enforceable in court. Any party who simply chooses not to be bound by its ostensible obligations under an illegal contract may go to court to have the contract declared void.
The court noted there is one exception to the Medicare anti-kickback rule. A group of providers of healthcare services under Medicare, such as a group of skilled nursing facilities, can legally enter into a written contract to retain the services of a group purchasing agent to make purchases of Medicare-eligible equipment and supplies on behalf of a group of healthcare service providers. Nursing Home Consultants, Inc. vs. Health Services, 926 F. Supp. 835 (E.D. Ark., 1996).