Court Requires But-For Causation for AKS-FCA Violations But Highlights Potential Defense Challenges from the Supervalu Decision

A recent decision from the District of Minnesota applying the Eighth Circuit’s new but-for causation requirement for connecting violations of the Anti-Kickback Statute (AKS) to FCA violations emphasizes the importance of the circuit split over the correct causation standard, while also highlighting challenges defendants can face post-Supervalu, particularly at the motion to dismiss stage, when arguing that their intent was inconsistent with the FCA’s scienter element.  See United States ex rel. Louderback v. Sunovian Pharmaceuticals, Inc., No. 17-cv-1719 (D. Minn. Nov. 27, 2023).

The relator, a pharmacist, alleged that the defendant pharmaceutical company violated the AKS and thereby the FCA by offering rebates to pharmacies in exchange for the pharmacies encouraging Medicare patients to receive the defendant’s drug in place of competing drugs (including generic versions).  The district court denied the defendant’s motion to dismiss with respect to scienter but did side with the defendant with respect to the element of falsity.

The district court’s analysis of the defendant’s scienter arguments highlights potential challenges for defendants moving to dismiss based on scienter following the Supreme Court’s 2023 decision in United States ex rel.  Schutte v.  SuperValu Inc.  Under Supervalu, defendants must show both that (1) the defendant’s interpretation of the relevant regulation was objectively reasonable and (2) that the defendant subjectively believed that interpretation at the time.  The district court’s opinion emphasized the dual nature of this analysis.  Although the court did not seem to reject the defendant’s argument that its interpretation as to the legality of its arrangements was objectively reasonable, the court explained that post-Supervalu, “whether a hypothetical person might have reasonably concluded that the [arrangements] fell within a discount safe harbor is not dispositive of the scienter question.”  And while the defendant argued that there was no relevant guidance warning away from their interpretation, the court noted that DOJ’s Statement of Interest cited agency guidance contradicting the defendant’s position.  Accordingly, the court concluded that ruling for the defendant on scienter would impermissibly require “drawing a significant factual inference in” defendant’s favor at the motion to dismiss stage.

However, the court granted the defendant’s motion to dismiss with respect to falsity, applying the Eighth Circuit’s 2022 decision in Cairns (discussed here). Under that approach, which the Sixth Circuit has also adopted (as discussed here) and the Third Circuit has rejected, plaintiffs must establish a but-for causal connection between AKS violations and claims submitted to federal healthcare programs in order to identify a “false” claim. However, the court concluded that the relator’s amended complaint failed to meet this standard because its “explicit references to but-for causation are quite general, even conclusory.”  For example, the complaint did not identify any representative examples of Medicare claims that a pharmacy would not have submitted but for receiving the alleged remuneration from the defendant pharmaceutical company.

DOJ had filed a Statement of Interest encouraging the court to interpret Cairns narrowly, to mean that plaintiffs need not always establish but-for causation in AKS-FCA cases.  The relator joined in this argument.  However, the district court rejected this interpretation as an unpersuasive attempt to narrow the holding in Cairns.

A copy of DOJ’s Statement of Interest can be found here, and a copy of the court’s opinion can be found here.

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