Ohio-based pharmaceutical distributor, Cardinal Health, Inc., has entered into a settlement agreement to pay $13,125,000 to resolve allegations that it violated the False Claims Act by paying “upfront discounts” to its physician practice customers, in violation of the federal Anti-Kickback Statute.

Cardinal Health, Inc. is an American multinational health care services company, and the 14th highest revenue generating company in the United States. The company specializes in the distribution of pharmaceuticals and medical products, serving more than 100,000 locations. The company also manufactures medical and surgical products, including gloves, surgical apparel, and fluid management products. It provides medical products to over 75 percent of hospitals in the United States.

The Anti-Kickback Statute prohibits pharmaceutical distributors from offering or paying any compensation to induce physicians to purchase drugs for use on Medicare patients. When a pharmaceutical distributor sells drugs to a physician practice for administration in an outpatient setting, the distributor may legally offer commercially available discounts to its customers under certain circumstances permitted by the Office of Inspector General for the Department of Health and Human Services (HHS-OIG).

HHS-OIG has advised that upfront discount arrangements present significant kickback concerns unless they are tied to specific purchases and that distributors maintain appropriate controls to ensure that discounts are clawed back if the purchaser ultimately does not purchase enough product to earn the discount. According to facts that the company has acknowledged in the settlement agreement,

Cardinal Health, Inc. failed to meet these requirements because the upfront discounts it provided to its customers were not attributable to identifiable sales or were purported rebates which Cardinal Health’s customers had not actually earned.

The United States contends that it has certain civil claims against Cardinal Health arising from Cardinal Health’s upfront payments, often characterized as upfront discounts, upfront rebates, or transition rebates, including payments to various Physician Practices.between 2013 through January 15, 2022.

Specifically, the United States contends that Cardinal Health paid the Physician Practices in advance of the Physician Practices’ purchase of pharmaceuticals from Cardinal Health, and that these payments either were not attributable to identifiable sales of pharmaceutical products or were purported rebates that the customers had not actually earned.

The United States contends that the purpose of these upfront payments was to induce the Physician Practices to purchase pharmaceuticals paid for by federal health care programs from Cardinal Health, instead of from Cardinal Health’s competitors, in violation of the AKS.

Cardinal Health has entered into separate settlement agreements with the “Medicaid Participating States” in settlement of the conduct released in those separate Medicaid State Settlement Agreements.

“Cardinal Health recruited new customers by offering and paying cash bonuses in violation of the Anti-Kickback Statute and False Claims Act. Kickback schemes, such as this one, have the potential to pervert clinical decision-making and are detrimental to our federal health care system and taxpayers,” said United States Attorney Rachael S. Rollins. “We commend Cardinal Health for resolving this matter cooperatively.”

“Cardinal Health thought it hit upon a surefire moneymaker by paying kickbacks to doctors, which cost health benefit programs millions of dollars in potentially fraudulent claims,” said Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division.

The False Claims Act settlements resolve allegations originally brought in lawsuits filed by whistleblowers under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery. In connection with today’s announced settlement, the whistleblowers will receive approximately $2.6 million of the recovery.