At the end of a meeting with a vendor or sales representative, you find yourself being offered a season ticket for the Mets, or the opportunity to become a paid speaker at an upcoming conference hosted by the vendor's company. These are just the perks of doing business, aren't they? Not necessarily. Understanding when you are being offered an illegal kickback can help you not only do the right thing but also avoid entangling yourself in a dangerous situation. Kickbacks can cost you your professional license, reputation, thousands or millions in fines, and even jail time.
What Is a Kickback?
Kickbacks in business are a form of bribery, and therefore, illegal. Kickbacks take place when someone in a position of power is offered something of value, which does not necessarily have to be a cash payment. A kickback can be a perk such as free housing or reduced rent, plane tickets or travel upgrades, gifts, or other kinds of preferential treatment. The individual accepts the kickback in exchange for some favor, whether immediate or upcoming, then uses their position to benefit the person or party that offered the bribe.
Types of Kickbacks
Kickbacks can take different forms depending on the kind of industry in which they are offered. For example, in the healthcare industry, one of the most common kinds of kickbacks is paid patient referrals. The Stark Law prohibits physicians from referring Medicare or Medicaid patients to designated health services in which they have a financial interest. The 'designated health services' include clinical lab services, physical therapy, imaging services, home health services, and more.
Kickbacks in healthcare can start with a simple doctor's visit. Imagine that a patient sees their physician for arm pain, and the physician decides to refer them to a radiography clinic to have an X-ray taken. What the physician fails to disclose is that they are a part owner of the imaging clinic and will profit from this additional business. This type of situation is an example of a kickback, where the physician is receiving a financial benefit for referring patients to a specific provider.
Examples of Kickbacks
Some kickbacks are more difficult to recognize than others. They may appear as hidden commissions, inflated invoices, or improper gifts. Common examples of kickbacks across various industries include:
- Monetary payments: Bribes, direct payments, and hidden commissions are all examples of monetary kickbacks.
- Non-monetary gifts: Offers of value such as travel upgrades, free dinners, event tickets, and a discount on office space rent are examples of non-monetary kickbacks.
- Overbilling: When a vendor or contractor submits inflated invoices with the promise of cutting another party in on the profits, this is an example of a kickback. The taxpayer bears the brunt of these excessive charges and sees no added value to the project.
- Preferential treatment: Red flags for preferential treatments include bids that are awarded too quickly or without consideration for other options, insider information that leads to more favorable bids or awards, as well as conflicts of interest between family members or cronyism.
- Referrals: Patient referrals are examples of kickbacks in healthcare. In some cases, as in substance abuse treatment programs, kickbacks can look like providing access to drugs and alcohol for receiving insurance payments for substandard care.
Are Kickbacks Illegal?
Kickbacks are considered bribery, and therefore, prohibited under the Anti-Kickback Statute (AKS) whenever government funds are involved. Unlike a situation when a vendor is rehired because they performed good work in the past or a contractor is chosen based on the favorable terms of their bid, kickbacks reward personal gain over merit. This leads to unfair competition, poor quality services and products, substandard infrastructure, and in the healthcare industry, putting patients at risk. In short, kickbacks encourage corruption within the economy and allow dishonest business operations to thrive.
What Is the Anti-Kickback Statute?
The AKS was passed in 1972 and has been amended several times since to further define and restrict healthcare fraud as well as the exchange of kickbacks among government contractors. Additional anti-kickback laws include the False Claims Act as well as the Foreign Corrupt Practices Act which prohibits payments made to foreign government officials in exchange for influence or preferential treatment.
The AKS imposes civil as well as criminal penalties. Violating this statute is a felony punishable by up to 10 years in jail as well as fines of $100,000 per violation. The Civil Monetary Penalties Law (CMPL) also carries penalties of up to $50,000 per kickback and connects the crime to liability under the FCA, which makes the violator responsible for treble damages per violation.
How to Prevent Kickbacks in Business
To prevent kickbacks, companies need strong policies that clearly outline expectations for employee conduct, identify prohibited actions, and detail the specific steps the organization will take to investigate and address such actions. Companies may also conduct internal training programs to help employees recognize kickbacks, their effects, and ways to report them. It can help to implement random audits to catch kickbacks and those who accept or offer them.
Should I Report Kickbacks In My Business?
Kickbacks are unethical practices that should be reported to the appropriate authorities. If you suspect that someone at your organization is benefiting from kickbacks, you may watch out for the following red flags:
- Overly friendly relationships with vendors
- Lack of book-keeping, or unrecorded cash payments
- Higher or lower than average prices for goods
- Lower bids or new bidders being ignored
- Management pressure or preferential treatment
- Missed delivery dates or shipments
Under the federal FCA, employers may not retaliate against whistleblowers. If they do, they can be held liable for damages, including up to double back pay, front pay, and reinstatement if they harass, abuse, demote, fire, or otherwise take adverse action against a protected whistleblower.
Are There Any Rewards For Reporting Kickbacks?
The federal FCA provides a structure for anonymous reporting through a qui tam law firm. You can file a claim with previously undisclosed information and be eligible to receive anywhere from 15% to 30% of the total settlement if your information leads to a successful recovery. Reporting kickbacks protects not only the taxpayer and the American economy but also your professional reputation and interests.