Sixth Circuit Affirms Dismissal of Anti-Kickback Statute-Based False Claims Act Complaint
The United States Court of Appeals for the Sixth Circuit recently affirmed an order dismissing a qui tam False Claims Act (“FCA”) suit based on alleged violations of the Anti-Kickback Statute (“AKS”). The appeals court agreed with the district court’s conclusion that the complaint did not adequately allege “remuneration” or that claims “result[ed] from” AKS violations. The case is United States ex rel. Martin v. Hathaway, 22-1463 (6th Cir. Mar. 28, 2023).
The AKS criminalizes, among other things, knowingly and willfully soliciting or receiving (or offering or paying) remuneration in exchange for referrals of items or services reimbursed through federal healthcare programs. 42 U.S.C. § 1320a-7b(b)(1)(A), (2)(A). The FCA imposes civil damages and penalties for, among other things, “present[ing], or caus[ing] to be presented, a false or fraudulent claim [to the government] for payment or approval.” 31 U.S.C. § 3729(a)(1)(A). “[A] claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim [under the FCA].” 42 U.S.C. § 1320a-7b(g).
The FCA has a bounty system that allows private parties to pursue alleged violations of the FCA in exchange for a share of any recovery. 31 U.S.C. § 3730. The lure of these bounties has led relators (and sometimes the government) to push the boundaries of what constitutes “remuneration” and what it means for a claim to “result from” an AKS violation.
Martin presents a recent example. There, the purported “remuneration” was “a hospital’s decision not to hire an ophthalmologist in return for a general commitment of continued surgery referrals from another ophthalmologist for patients from the local community.” And it was alleged that all such referrals necessarily “result[ed] from” violations of the AKS. The United States District Court for the Western District of Michigan dismissed the case, finding “that this kind of claim does not establish a cognizable kickback scheme.”
The Sixth Circuit affirmed the lower court’s dismissal, finding that the relator’s theory did not allege a “remuneration” actionable under the AKS or claims “resulting from” an AKS violation.
Martin involves a hospital in rural Marshall, Michigan (Oaklawn), a local ophthalmology practice (South Michigan), and the two physicians in that practice (Dr. Hathaway and Dr. Martin). For years, Oaklawn and South Michigan referred patients to one another as a matter of convenience due to proximity.
In 2018, Dr. Hathaway sought to negotiate a merger of South Michigan with a larger ophthalmology group, and Dr. Martin sought employment with Oaklawn. Concerned that Oaklawn’s employment of an ophthalmologist would be bad for South Michigan, Dr. Hathaway pleaded with Oaklawn not to hire Dr. Martin. In connection with those discussions, Dr. Hathaway told Oaklawn that his intention was to continue referring his patients to Oaklawn but that if Oaklawn hired Dr. Martin, he would have to refer his patients elsewhere. Oaklawn withdrew its offer to Dr. Martin, Dr. Hathaway continued as the sole proprietor of South Michigan, and Dr. Martin set up her own practice in Marshall.
Dr. Martin sued Dr. Hathaway, South Michigan, and Oaklawn on behalf of the government under the FCA, alleging “that Oaklawn Hospital’s rejection of Dr. Martin’s employment in return for Dr. Hathaway’s commitment to continue sending local surgery referrals violated the [AKS].” The Sixth Circuit found Dr. Martin’s complaint wanting because “[i]t does not turn on a cognizable theory of remuneration, and it fails to establish causation.”
Addressing “remuneration,” the court noted that the AKS does not define remuneration. Therefore, it analyzed whether this term “covers just payments and other transfers of value or any act that may be valuable to another.” Relying on legislative history, the interpretation of “remuneration” by courts and agencies, and canons of construction, the Sixth Circuit concluded that “remuneration” entails only payments and transfers and cannot be interpreted so broadly as to cover any act that may be valuable to another. Following this definition of “remuneration,” the court noted that “Oaklawn’s decision may have benefited Dr. Hathaway,” but it was not “remuneration by any standard definition of the term” because it did “not entail a payment or transfer of value.”
Addressing causation, the court held that “[t]he ordinary meaning of ‘resulting from’ is but-for causation” and that the necessary textual or contextual indications to avoid this meaning did not exist. The court adopted the approach taken by the United States Court of Appeals for the Eighth Circuit in United States ex rel. Cairns v. D.S. Medical L.L.C., 42 4th 828 (8th Cir. 2022). The court further found that Dr. Martin had not met this standard because “[t]here’s not one claim for reimbursement identified with particularity in this case that would not have occurred anyway, no matter whether the underlying business dispute occurred or not.”
Summing up the decision, the Martin court recognized that remuneration and causation are “opposite sides of the same problem” and that too expansive an approach to either would lead to the criminalization “of the workaday practice of medicine”:
All in all, reading causation too loosely or remuneration too broadly appear as opposite sides of the same problem. Much of the workaday practice of medicine might fall within an expansive interpretation of the Anti-Kickback Statute. Worse still, the statute does little to protect doctors of good intent, sweeping in the vice-ridden and virtuous alike. . . . Examples clarify the point. Take the doctor concerned with outdated surgical equipment who tells a hospital that she will send referrals only if the hospital upgrades its facilities. That’s a promised referral on one side. And if the other side is remuneration just because it’s valuable, that’s an Anti-Kickback Statute violation at the outset and a False Claims Act violation down the road for any claims resulting from those referrals. That’s so even if the doctor’s only motivation is ensuring the highest quality equipment for her patients. Or take the rural county that uses incentives to bring a hospital or a physician to its isolated community. Or take the hospital board that believes hiring one internal ophthalmologist would be worse for patient care than referring the work to several outside doctors.
Martin, of course, does not immunize providers who actually violate the AKS, and the Sixth Circuit made that clear. It noted that “[a] faithful interpretation of the ‘remuneration’ and ‘resulting from’ requirements still leaves plenty of room to target genuine corruption.” It cited numerous examples of transfers of value that might constitute remuneration, including consulting contracts, inflated rent payments, bogus salaries, bonuses, speaking fees, referral fees, commission payments, and the opportunity to purchase stock. It further noted that, “[s]o long as proof exists that the referrals would not have been made without the remuneration, and that claims would not have been submitted to the government without those referrals, causation for False Claims lawsuits would be satisfied too.”
The Sixth Circuit’s decision is a recent illustration that courts will not allow relators or the government to use conceptions of “remuneration” that are so broad as to render them meaningless or to criminalize common and legitimate practices or the “the workaday practice of medicine.” The Sixth Circuit joins the Eighth Circuit in finding that the “resulting from” language of the AKS requires a showing of “but-for” causation. However, other circuits, including the United States Court of Appeals for the Third Circuit, have employed a broader causation standard. It remains to be seen whether the U.S. Supreme Court will step in to resolve that discrepancy.
For more information, please contact AGG Healthcare partner Jerad Rissler or AGG Government Investigations co-chair Aaron Danzig.
- Aaron M. Danzig
- W. Jerad Rissler