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The statute does not define the term “resulting from,” which has led to differing interpretations of the causation standard required for an AKS violation to be considered a false claim under the FCA. The divergence of views among the circuit courts has created challenges for relators in proving causation. This column is part two of our earlier column relating to AKS and the causation standard.
In the June 15, 2023 edition of The Legal Intelligencer, Edward T. Kang and Kandis L. Kovalsky wrote “Fighting Fraud in Health Care Through the False Claims Act in the Third Circuit, Part 2“
The federal health care system depends on the good faith and honesty of its providers. To maintain the system’s integrity, those who prioritize incentivized remunerations must be held accountable. Recognizing the need to eliminate the profit motive from decision-making, Congress enacted the Anti-Kickback Statute (AKS). The Anti-Kickback Statute makes it illegal for healthcare providers to offer or accept gifts, bribes, payments, or other financial incentives in exchange for referrals, prescriptions, or other medical services when those services will be paid for partly or wholly by Medicare, Medicaid, or other government-funded health programs.
Violations of the AKS can also be the basis for liability under the False Claims Act (FCA), which permits private parties (relators) to file lawsuits.
As part of the Affordable Care Act passed in 2010, Congress amended the AKS to codify the statute’s intersection with the FCA. The amendment provided that a claim submitted to the government for payment “resulting from” a violation of the AKS constitutes a fraudulent claim for purposes of the FCA. The statute does not define the term “resulting from,” which has led to differing interpretations of the causation standard required for an AKS violation to be considered a false claim under the FCA. The divergence of views among the circuit courts has created challenges for relators in proving causation. This column is part two of our earlier column relating to AKS and the causation standard.
The causation standard was first addressed by the U.S. Court of Appeals for the Third Circuit in Greenfield v. Medco Health Solutions, 880 F.3d 89 (3d Cir. 2018). The court held that a plaintiff in an FCA suit premised on violations of the Anti-Kickback Statute must demonstrate a “link” between the alleged kickbacks and the submission of at least one claim for reimbursement. The defendant in Greenfield, Accredo Health Group, a specialty pharmacy providing home care for hemophilia patients, made donations to two charities, which in turn recommended Accredo as an approved provider for such patients. The relator, a former Accredo vice president, alleged that Accredo made the charitable contributions to induce referrals or recommendations that were at least partly directed to Medicare beneficiaries in violation of the AKS and, in turn, the FCA.
The Third Circuit rejected the relator’s position that the alleged kickbacks tainted all claims as false by virtue of the kickback. Merely showing that federally funded care came after a kickback was insufficient to prove that care “resulted from” a violation of the AKS. In other words, Greenfield was required to show that at least one of the 24 federally insured patients from whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation by the charities in violation of the AKS. Under the Third Circuit’s framework, more than just “temporal proximity” is needed to show that there has been a violation of the AKS.
The Third Circuit also provided that a demanding “but-for” causation standard—a much stricter standard followed in some circuits—would contravene the legislative intentions of both the FCA and the AKS. It would be far too burdensome to require plaintiffs to prove that a kickback influenced a provider’s medical decision to the extent that it gives rise to FCA liability. It would be next to impossible for any plaintiff to offer evidence that a provider would not have referred a patient or provided medical equipment or services “but for” a kickback. The Third Circuit’s standard reflects the court’s hesitation to condone a stricter interpretation, fearing relators will be dissuaded from bringing claims and lead to an inadvertent increase in kickback activity.
The Eighth Circuit reached an opposite conclusion and outright rejected the Third Circuit’s interpretation, adopting a stricter “but-for” causation standard. In Cairns v. D.S. Medical, 42 F.4th 828 (8th Cir. 2022), Dr. Sonjay Fonn, a neurosurgeon, used spinal implants distributed by D.S. Medical, a company his fiancée owned and purchased stock from a manufacturer which supplied D.S. Medical. Upon completion of the stock purchase, Fonn ordered more implants. Physicians from other practices filed complaints under the FCA alleging AKS violations. In considering the appropriate interpretation of what it means for a claim to “result from” a kickback violation, the Eighth Circuit concluded that the phrase “resulting from” is unambiguous and requires a but-for casual relationship, relying on the Supreme Court’s decision in Burrage v. United States, 571 U.S. 204 (2014). The court found that the government failed to prove Fonn would not have included particular items or services but for the illegal kickbacks.
In issuing the Cairns decision, the Eighth Circuit allowed FCA defendants to assert that plaintiffs had not shown a plausible connection between alleged wrongful acts and the claims submitted as a sufficient defense. In other words, a mere showing of an association between a false claim and following medical care is insufficient. The plaintiff must prove that the kickback influenced the decision to provide medical care. This standard places a significant burden on a relator’s ability to bring successful claims without expending substantial resources in determining a provider’s motivation in recommending a specific level of care or a particular product. In turn, this standard does little to curb kickback activity because relators may be discouraged from pursuing claims they perceive as too difficult to prove, thereby allowing unscrupulous individuals to capitalize on such a heightened standard.
More recently, in Martin v. Hathaway, 63 F.4th 1043 (6th Cir. March 28, 2023), the Sixth Circuit echoed the Eighth Circuit’s standard and rejected the Third Circuit’s lenient causation standard in finding that the ordinary meaning of “resulting from” is “but-for” causation. This decision widens the circuit split and further burdens relators, as they will be required to directly connect kickbacks with health care billing to prove FCA liability. Hathaway arose from relator-plaintiff Dr. Shannon Martin’s allegations that defendants Dr. Darren Hathaway and Oaklawn Hospital violated the FCA and the AKS when Oaklawn refused to hire Martin to maintain its mutual flow of patient referrals from Hathaway. The court explained that because the medical practices at issue had a history of exchanging referrals with one another, the relators could not effectively prove causation. It further refused to view all potentially valuable actions as kickbacks. Because the alleged scheme did not alter anything (the hospital would have received the referral regardless of whether it hired the relator), the “but-for” causation could not be established. In its decision, the Sixth Circuit also rejected the broad concept of remuneration as “anything of value” and instead sought to provide its own definition. The court held that the term encompasses “payments and other transfers of value” rather than “any act that may be valuable to another.” The relator argued that Oaklawn’s decision not to hire her constituted improper remuneration because it was “something of value” given to Hathaway to ensure his continued referral of patients to the hospital. The court disagreed, however, holding that the decision was not a payment or transfer of value, but rather it was simply Oaklawn allowing Hathaway to maintain his referral practices as they were prior to Martin seeking employment. The clarification by the Hathaway court on remuneration is a significant distinction and may pose additional difficulty to relators in alleging a cognizable exchange of valuables.
The Hathaway decision is unique as it is one of the first cases attempting to define remuneration beyond mere quantifiable value. By narrowing the standard to one that relators will find challenging to meet, this decision could have significant consequences, further altering the FCA landscape. As a result, relators may hesitate to bring AKS-based FCA claims in circuits that require stringent “but-for” causation. In contrast, the defense bar will likely capitalize on the Sixth Circuit’s interpretation of “remunerations” to challenge vague theories of value exchanges.
Considering the existing split among circuits, it is likely that the Hathaway decision will be appealed to the U.S. Supreme Court. As stated above, the Eighth Circuit noted in the Cairns decision that the Supreme Court reached a similar outcome in Burrage v. United States when interpreting the term “results from.” It will be interesting to see whether the Supreme Court draws a distinction between its earlier decision in Burrage and establishes a different causation standard for FCA claims or if it supports the Eighth Circuit’s decision and provides a similar interpretation.
The implications for FCA and AKS enforcement are significant and could represent a setback to relators. With both the Cairns and Hathaway courts issuing decisions interpreting the 2010 AKS amendments to required “but-for” causation as the standard to prove false claims arising from an AKS violation, the Third Circuit stands alone in its lenient interpretation. Given that the Sixth Circuit has now joined the Eighth Circuit, the “but for” causation standard is likely to become persuasive to other courts. Under this framework, relators will have to unequivocally prove that the alleged false claim would not have been submitted but for the kickback. By imposing such a standard, relators will be discouraged from pursuing claims of fraudulent, quid pro quo conduct deserving of punishment. The Supreme Court remains the only avenue to resolve the current circuit split and establish a definitive standard. Until that time, relators for FCA and AKS cases would likely file lawsuits in a relator friendly jurisdiction like the Third Circuit using the FCA’s broad venue provision. The court recently (June 1, 2023) issued a landmark, unanimous ruling in favor of the relator bar in Schutte v. SuperValu, in which it held that the scienter requirement under the FCA is based on a defendant’s knowledge and subjective beliefs, not on what an objectively reasonable person may have known or believed. Maybe the court will continue the hot streak for the relator bar and reverse the Sixth Circuit’s Hathaway decision.
Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.
Kandis L. Kovalsky, a member at the firm, focuses her practice on representing both corporate and individual clients in a broad range of complex commercial litigation matters in Pennsylvania and New Jersey state, federal and bankruptcy courts. Contact her at kkovalsky@kanghaggerty.com.
Reprinted with permission from the June 15, 2023 edition of “The Legal Intelligencer” © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.