The Sixth Circuit Narrows the Scope of AKS and FCA Liability

On March 28, 2023, the U.S. Court of Appeals for the Sixth Circuit issued a decision in U.S. ex rel. Martin v. Hathaway limiting the scope of liability under the Anti-Kickback Statute (AKS) and the False Claims Act (FCA) in two ways. First, the Sixth Circuit narrowly interpreted “remuneration” under the AKS to mean “payments or other transfers of value,” as opposed to “any act that may be valuable” to another. Second, the Sixth Circuit adopted a “but-for” causation standard for FCA suits premised on alleged violations of the AKS, thereby requiring that a plaintiff show that a claim for government reimbursement “would not have occurred” absent the alleged kickback.

Takeaways

• Martin is the first federal appellate decision to hold that “remuneration” in the AKS means “just payments and other transfers of value”—and not “any act that may be valuable to another.”
• The Sixth Circuit invoked the rule of lenity in interpreting “remuneration,” reasoning that because the AKS imposes both civil and criminal liability, the rule of lenity applies and “favors the narrower definition” when ambiguity exists. This signals an opportunity to further narrow the scope of the AKS where there are other ambiguities.
• The Sixth Circuit joins the Eighth Circuit in adopting a but-for causation standard for establishing violations of the AKS under the FCA and deepens a circuit split with the Third Circuit, which recently adopted a more lenient standard requiring “some connection” between a kickback and a subsequent reimbursement claim.
• The Sixth Circuit in Martin took a significant step towards protecting healthcare providers engaged in ordinary and legitimate practices of medicine from liability under the AKS or FCA. Nevertheless, Martin “still leaves plenty of room to target genuine corruption” as the opinion lists a range of payments that could potentially be considered “renumeration.” Healthcare providers must remain vigilant to ensure that their practices are in compliance with the AKS and FCA.

Background

The FCA imposes civil liability for “knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim [to the government] for payment or approval.” A claim can be factually false (for example, billing for service that was never performed), or legally false (for example, billing for a service that was provided due to kickback). The AKS prohibits the payment or receipt of “remuneration” (including kickbacks, bribes, or rebates) in exchange for referrals of services paid for by federal programs—and specifies that any claims “resulting from” AKS violations are false claims for purposes of the FCA. 42 U.S.C. § 1320a-7b(g). The AKS defines neither “remuneration” nor “resulting from,” leaving it to the courts to interpret the meaning of these terms.

In the Martin case, relator-plaintiff Dr. Shannon Martin alleged that defendants Dr. Darren Hathaway and Oaklawn Hospital (“Oaklawn”) violated the FCA and the AKS when Oaklawn refused to hire Dr. Martin in order to maintain its mutual flow of patient referrals from Dr. Hathaway. Martin was an ophthalmologist in a practice owned by Dr. Hathaway (“the Practice”), and Oaklawn was the most convenient local option for ophthalmic surgery. For many years, the Practice and Oaklawn referred local patients to each other.

In 2018, Dr. Martin began employment discussion with Oaklawn and received a tentative offer to join Oaklawn as the hospital’s internal ophthalmologist.  During these discussions, however, Dr. Hathaway contacted Oaklawn and told the hospital two things: on the one hand, if Oaklawn hired Dr. Martin, it would be the “death knell” of his practice (and, presumably, reduce or eliminate referrals to Oaklawn); on the other hand, Dr. Hathaway expected an increase in surgeries and referrals to Oaklawn if it did not hire Dr. Martin.  Ultimately, Oaklawn withdrew its offer to Dr. Martin, and the Practice and Oaklawn continued referring patients to one another as they did before.

Subsequently, Dr. Martin brought a qui tam action against Dr. Hathaway and Oaklawn under the FCA, alleging that Oaklawn’s decision not to hire her was improper remuneration, because it was “something of value” given to Dr. Hathaway to ensure that he would continue to refer patients to the hospital.  Dr. Martin also alleged that Defendants’ claims for Medicare and Medicaid reimbursement “resulting from” the purported “kickbacks” violated the FCA. The district court dismissed the case, see Martin, et al. v. Hathaway, et al., 1:19-cv-00915-JMB-SJB (W.D. Mich. May 11, 2022) (dismissing plaintiff’s complaint for failure to allege a plausible kickback scheme and the necessary causal connection for a plausible FCA claim), and the Sixth Circuit affirmed the dismissal, rejecting Dr. Martin’s claims on the same grounds as the district court.

The Issues in Martin

In Martin, the Sixth Circuit was presented with two issues: (1) whether “remuneration” covers “just payments and other transfers of value” or “any act that may be valuable to another”; and (2) whether the complaint sufficiently alleged that Oaklawn or Dr. Hathaway submitted claims for reimbursement for “items and services resulting from [the] violation of [the AKS].”

Remuneration

The Sixth Circuit first addressed the question whether Oaklawn’s refusal to hire Dr. Martin in return for Dr. Hathaway’s general commitment to continue sending surgery referrals to Oaklawn if it did not hire Dr. Martin qualified as “remuneration” under the AKS.

The Court held that “remuneration” means “just payments and other transfers of value” and not “any act that may be valuable to another,” as the relator and the federal government had argued. The Court arrived at this conclusion after reviewing dictionary definitions, statutory context, analogous statutes, advisory opinions from the U.S. Department of Health and Human Services, and appellate decisions interpreting “remuneration” in similar contexts. The Sixth Circuit also reasoned that, because the AKS creates both civil and criminal liability, “the rule of lenity favors the narrower definition” in resolving ambiguity over the meaning of a statutory provision.

Accordingly, the Court found that “Oaklawn’s decision not to hire someone does not entail a payment or transfer of value to Dr. Hathaway. While Oaklawn’s decision may have benefitted Dr. Hathaway . . . Oaklawn never offered Dr. Hathaway anything at all.” Thus, the Sixth Circuit held that “the complaint fail[ed] to allege a cognizable kickback scheme” because there was “no evidence that anyone paid anyone anything or changed the value or cost of any services that otherwise would have been received.”

Causation

The Sixth Circuit then considered the causation standard a plaintiff must satisfy to allege a violation of the FCA predicated on an AKS violation. The Court found that the “ordinary meaning of ‘resulting from’ is but-for causation” as explained by the Supreme Court’s 2014 decision in Burrage v. United States, interpreting comparable language in the Controlled Substances Act provision penalizing drug distribution resulting in death or serious bodily injury.  The Court concluded that to satisfy the but-for causation standard under the FCA, a plaintiff must prove that a claim for reimbursement “would not have been submitted to the government without” the alleged kickbacks. Applying this rule, the Court found that Dr. Martin had not adequately alleged causation because “the alleged scheme did not change anything” in the patient-referral relationship between Oaklawn and the Practice, which continued just as it had before Oaklawn decided not to hire Dr. Martin. Therefore, even if a kickback had been sufficiently alleged, Dr. Martin could not have established causation because Oaklawn would have submitted claims from referrals even if the business dispute (and Dr. Hathaway’s communications about its impact) had not occurred.

The Court also noted that a physician’s “independent choices doom the chain of causation” as some of the reimbursement claims came from referrals made by Oaklawn’s individual physicians, who independently decide to whom they would refer patients. Lastly, the Court stated that “temporal proximity” between [the] alleged kickback plot and a claim for reimbursement “by itself does not show causation.”

A Circuit Split on the Causation Standard

By adopting the “but-for causation standard, the Sixth Circuit aligned with the Eighth Circuit’s recent decision in U.S. ex rel. Cairns v. D.S. Medical LLC and reinforced an existing circuit split with the Third Circuit.

In 2018, the Third Circuit held in U.S. ex rel. Greenfield v. Medco Health Sols., Inc. that while “there must be some connection between a kickback and a subsequent reimbursement claim” to prove a false claim resulted from a kickback, the government and relators did not need to prove that the claim would not have occurred absent the kickback. The Third Circuit emphasized that a plaintiff, must show, “at a minimum, that at least one” patient was “exposed to a referral” in violation of the AKS and that defendant submitted a claim for reimbursement. The basis for the decision was the legislative history behind the 2010 amendment to the AKS, which sought to clarify that claims for government reimbursement made pursuant to kickbacks are illegal under the FCA and, thereby, expand the reach of the statute. The court warned that healthcare fraud is relatively difficult to prove, and that a different conclusion would hamper FCA enforcement cases based on the AKS.

The Sixth Circuit rejected the Third Circuit’s reliance on legislative history and its more lenient requirement of only a “connection” between a kickback and a claim. The Court explained that courts generally “do not consider legislative history in construing a statute with criminal applications,” because “no one should be imprisoned based on a document or statement that never received the full support of Congress and was presented to the President for signature.”

It remains to be seen if or when the Supreme Court will weigh in this notable circuit split.

Conclusion

The Sixth Circuit emphasized that the problem with “reading causation too loosely or remuneration too broadly” is that “[m]uch of the workaday practice of medicine might fall within an expansive interpretation of the AKS.” The Court’s holdings on remuneration and causation set important limitations on the scope of potential liability in under the AKS and FCA and show that these constraints can effectively defeat some FCA claims at the pleading stage.