Sixth Circuit Adopts Limited Definition of AKS “Remuneration,” Robust Standard for Causation in AKS Qui Tams

On March 28, 2023, the Sixth Circuit issued a notable decision rejecting broad theories from DOJ and relators about (1) the definition of remuneration under the Anti-Kickback Statute (AKS) and (2) the causation requirement for AKS violations that trigger FCA liability.  See United States ex rel. Martin v. Hathaway, No. 22-1463 (6th Cir. 2023).  On the first, the court held that “remuneration” under the AKS “covers just payments and other transfers of value,” not “any act that may be valuable to another.”  On the second, the court held that FCA liability attaches only if the claim would not have been submitted but for the AKS violation.

The case concerned potential eye doctor referrals in a small town in Michigan.  For ophthalmology patients, service options were limited to just one hospital and a local eye practice.  For years, they referred patients to one another.  At some point, one of the relators (an ophthalmologist) was negotiating with the hospital to be hired as an on-site physician.  If hired, relators alleged, the hospital’s new ophthalmologist would have destroyed the local eye center’s business, because referrals that used to go to the eye center would have been handled on-site at the hospital.  The eye center’s owner spoke with the hospital and said that hiring relator would be a “lose-lose” proposition.  After that, employment negotiations fell through, and relators sued.  Their theory was that the hiring decision was really just a ruse to keep the referrals going:  the hospital’s refusal to hire an ophthalmologist constituted remuneration for continued referrals to the hospital.  The United States declined to intervene, and the district court granted defendants’ motion to dismiss.  The Sixth Circuit affirmed.

Remuneration.  The Sixth Circuit construed “remuneration” as limited to payments or other transfers of value.  Its analysis took a familiar text-based approach.  The panel consulted dictionary definitions and Congress’s analogous uses of “remuneration,” all of which described remuneration as something paid or transferred.  The AKS’s broader context, including statutory safe harbors, reinforced that interpretation.  So did the related civil monetary penalties section of the Social Security Act.  In fact, the U.S. Department of Health and Human Services, Office of Inspector General itself “seems to accept this approach.”  “Its advisory opinions,” the panel explained, “define ‘remuneration’ as ‘the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.’”  And the rule of lenity likewise supported a narrower definition.

Along the way, the court rejected an argument from DOJ as amicus curiae that “remuneration” should be construed expansively because the AKS prohibits “any” remuneration and thus “anything of value in any form.”  “[T]hat reality,” the panel countered, “proves only that the statute covers remuneration of any type (cash, services, goods),” not that Congress intended the term to encompass more than payments and transfers of value.

Applying that construction to relators’ allegations was dispositive.  Because the hospital’s decision not to hire relator entailed no payment or transfer of value, relators failed to allege “remuneration.”  Although the hospital’s decision “may have benefitted” the eye center—by preventing the hospital’s referrals from remaining inside the hospital—the hospital never “offered” the eye center “anything at all.”

Causation.  The court further found the complaint failed to allege causation.  FCA liability premised on AKS violations attaches only to claims “resulting from” those AKS violations.  Following the Eighth Circuit’s decision last year in United States ex rel. Cairns (on which we reported here), the Sixth Circuit held that “the ordinary meaning of ‘resulting from’ is but-for causation.”  The court rejected DOJ’s contention that whenever the “intended results of a kickback actually materialize . . . , it makes sense to conclude that they ‘result[ed] from’ the kickback.”  Instead, to establish causation, plaintiffs must show “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.”  Under that definition, relators had failed plausibly to allege causation because the alleged scheme “did not change anything”—“[t]here’s not one claim for reimbursement identified with particularity . . . that would not have occurred anyway.”

We note two takeaways from the opinion.  First, on the FCA causation question, the decision deepens and grows a circuit split.  The Sixth Circuit explicitly joined the Eighth Circuit and rejected the Third Circuit’s broader interpretation of causation.  That tees the case up for a likely cert petition to the Supreme Court and increases the odds that it will get a close look from the Justices.

Second, the opinion establishes important limitations on broad theories of liability but leaves open various follow-on questions.  For example, exactly what counts as a transfer of value?  In dicta, the panel suggested that an “opportunity to purchase company stock” qualifies, but what if the purchase was at fair market value?  Further, the opinion suggests that temporal restraints are part of a but-for causal standard.  Pointing to a surgery performed by the eye center physician seven months after the hospital’s hiring decision, the panel dismissed the notion that such a claim was close enough to the alleged misconduct to be “caused” by it.  After all, “[t]emporal proximity by itself does not show causation, and seven months would create few inferences of cause and effect anyway.”  This is particularly interesting because, in enforcement actions, DOJ often takes the position that a kickback can reverberate for years, “tainting” all claims in the full statute of limitations time period.  The panel’s discussion implies that, as part of a but-for causation standard, courts should also consider how long an alleged act of misconduct can linger as a but-for “cause” of a claim’s submission.

The Sixth Circuit’s opinion can be found here, and DOJ’s amicus brief can be found here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.