Eleventh Circuit Holds That It Is Relator’s Burden To Prove Lack of Fair Market Value As An Essential Element of AKS-Based Claims

Last week, the Eleventh Circuit issued an opinion holding that a Relator bringing an FCA claim premised on an AKS violation – at least when relating to lease arrangements – must show that the financial arrangements were not at fair market value.  See Bingham v. HCA, Inc., Case No. 1:13-cv-23671 (11th Cir. 2019).  Significantly, this ruling provides that proving fair market value (or lack thereof) is not a burden imposed solely on defendants as part of a safe harbor defense, but is instead an essential element to establishing the existence of remuneration in the first instance.  In the same opinion, the court also held that a Relator cannot rely upon information gleaned in discovery to satisfy Rule 9(b)’s pleading requirements.

In the case, in which the United States declined intervention, Relator alleged that HCA, Inc. violated the FCA due to improper arrangements with physicians who rented space at HCA facilities Centerpoint Medical Center and Aventura Hospital.  Regarding Centerpoint, Relator alleged that HCA hired a third-party to develop a hospital and medical office building for Centerpoint Medical Center.  HCA allegedly paid the developer improper subsidies, which the developer passed on to physician tenants through Cash Flow Participation Agreements (which entitled the physician to a share of the property’s cash flow), low initial lease rates, restricted use waivers, and free office improvements.  Relator alleged a similar arrangement at Aventura Hospital, though Relator also alleged that HCA provided direct remuneration to physician tenants at the Aventura facility, including free parking and below market rent.

Relator argued that the Centerpoint arrangement violated the AKS and Stark Law, despite HCA having received fair market value assessments concluding that the rental rates offered – even including the cash flow agreements – were consistent with FMV.  The Eleventh Circuit disagreed and affirmed the district court’s granting of summary judgment because Relator had not established that the benefits to the physicians at Centerpoint were in excess of fair market value.  Significantly, the court stated that “the issue of fair market value is not limited to HCA’s safe harbor defense . . . but is rather something Relator must address in order to show that HCA offered or paid remuneration to physician tenants.”   The court reached this conclusion by analyzing the definition of “remuneration,” an essential element of an AKS violation.  Based on the dictionaries the court consulted, remuneration requires that a benefit be conferred; thus, “[i]n a business transaction like those at issue in this case, the value of a benefit can only be quantified by reference to its fair market value.”  The civil monetary penalties statute, 42 U.S.C. § 1320a-7a(i)(6), corroborated this conclusion, according to the court, because the statute defines remuneration to include the “transfer of items or services for free or for other than fair market value.”  Although the physicians did receive financial benefits as part of the least arrangements, Relator had not presented evidence that these benefits were outside of the range of fair market value benefits for physicians signing the type of long-term leases at issue in the case.  The court also held that there was no Stark violation because it was undisputed that the benefit to physicians did not vary with the volume or value of referrals.

The district court had dismissed the Aventura claims because Relator impermissibly used information from discovery to supplement the complaint, which otherwise could not satisfy Rule 9(b).  The Eleventh Circuit affirmed the district court’s decision to strike the new allegations because permitting them would allow Relator to circumvent the purpose of Rule 9(b), which is to ensure that the FCA’s “strong financial incentive . . .  does not precipitate the filing of frivolous suits.”  The court also affirmed the granting of the motion to dismiss for reasons similar to those upon which the court relied in rejecting the Centerpoint claims: “Relator does not provide specific details or evidence to support his claims that long-term ground leases were grossly undervalued or included overly generous terms.”

The Eleventh Circuit opinion can be found here.