The United States Court of Appeals for the Seventh Circuit recently reversed the conviction of Mark Sorensen, the owner of SyMed Inc., a Medicare-registered distributor of durable medical equipment (DME), for alleged violations of the federal Anti-Kickback Statute (“AKS”).  This case, described by the court as one that “tests some of the outer boundaries” of the AKS, highlights the distinction between illegal kickbacks and lawful advertising payments under the AKS.

USA v. Mark Sorensen involved a business arrangement between Sorensen; PakMed, a DME manufacturer; marketing agencies; and a billing agency.  Together, they agreed on a plan to advertise orthopedic braces to patients.  Specifically, the marketing agencies published advertisements for the braces, and interested patients responded with their doctors’ contact information.  After collecting additional information and with consent from patients, the marketing agencies would then fax a prefilled but unsigned prescription forms to patients’ physicians.  In what the court deemed “critical to [its] decision,” physicians retained discretion to approve or ignore these prescriptions, with nearly 80% being declined.  If a physician signed and approved a prescription, SyMed directed PakMed to ship the braces to patients. SyMed billed Medicare for the braces, and paid PakMed a percentage of the funds collected.  PakMed then paid the advertising firms based on the number of leads that each generated. The Seventh Circuit ultimately found insufficient evidence to convict Sorensen under the AKS, finding that Sorensen’s payments to the marketing agencies and manufacturer which promoted the orthopedic braces, did not constitute illegal referrals under the statute.  The Court explained that these businesses were “neither physicians in a position to refer their patients nor other decisionmakers in positions to ‘leverage fluid, informal power and influence’ over healthcare decisions.” The Court also emphasized that the physicians retained independent judgment in prescribing care.  Thus, the Court concluded that Sorensen’s payments thus were not made for “referring” patients within the meaning of the statute.  By distinguishing between payments for advertising services and those that exert undue influence over healthcare decisions, the court has set a precedent that underscores the importance of intent in such cases.