Commercial Litigation Update

On April 14, 2025, the United States Court of Appeals for the Seventh Circuit issued a decision in a case involving the federal Anti-Kickback Statute (“AKS”) and marketing services that the court framed as an appeal “test[ing] some of the outer boundaries of the [AKS]….” In United States vs. Mark Sorensen, the Court of Appeals overturned the judgment of conviction against Mark Sorensen from the United States District Court for the Northern District of Illinois. In the district court case, Sorensen, the owner of SyMed Inc., a durable medical equipment (“DME”) distributor, was found guilty of one count of conspiracy and three counts of offering and paying kickbacks in return for the referral of Medicare beneficiaries to his DME company, which the United States claimed resulted in SyMed’s fraudulently billing $87 million and receiving $23.6 million in payments from Medicare. The district court judge denied Sorensen’s post-trial motions for acquittal and for a new trial, finding that the evidence regarding willfulness allowed the jury to find beyond a reasonable doubt that Sorensen “knew from the beginning of the agreement in 2015 that the percentage fee structure and purchase of the [doctors’] orders violated the law.” He was sentenced to 42 months in prison and ordered to forfeit $1.8 million.

It has been four years since Congress enacted the Eliminating Kickbacks in Recovery Act (“EKRA”), codified at 18 U.S.C. § 220. EKRA initially targeted patient brokering and kickback schemes within the addiction treatment and recovery spaces. However, since EKRA was expansively drafted to also apply to clinical laboratories (it applies to improper referrals for any “service”, regardless of the payor), public as well as private insurance plans and even self-pay patients fall within the reach of the statute.

On April 20, 2022, the U.S. Department of Justice (“DOJ”) announced a nationwide coordinated law enforcement action to combat health care-related COVID-19 fraud. In line with the announcement, the federal government has continued throughout this year to focus its enforcement on fraud in the COVID-19 space, particularly on misuse of Provider Relief funds and COVID-19 testing fraud.

In many cases, the payment of restitution by a party in a lawsuit involving the government or a governmental entity creates a tax-deductible business expense under Title 26, United States Code, Section 162(f) (hereinafter, “Section 162”). When it comes to violations of the False Claims Act, the Anti-Kickback Statute, Stark Law, or even common law fraud claims and contract disputes, understanding how this statute operates can offer substantial short- and long-term tax-benefits to entities facing stiff financial recoupments.  While it is unlikely that the costs of an investigation or restitution order will ever generate a financial net-gain for the entity footing the bill, it is important to appreciate that restitution and proactive remediation costs are viewed differently by both government enforcers (i.e. prosecutors) and tax-collectors, compared with other types of remuneration. Recognizing that there is a difference can, in some cases, help mitigate significant financial burdens.