Seventh Circuit Rejects Constitutional Challenge to FCA Judgment, Recognizes Circuit Split on Causation Requirement for AKS-Based Claims

In a recent decision, the Seventh Circuit acknowledged—but declined to pick sides in—a circuit split regarding the degree of causation required to establish FCA claims premised on AKS violations.  In the same opinion, the Seventh Circuit rejected an Eighth Amendment challenge to the amount of an FCA judgment.

According to the opinion, the Healthcare Consortium of Illinois, a non-governmental organization, collected patient data to identify seniors in need of in-home care.  Having collected the data, the Consortium referred patients to providers, including Vital and Physician Care, both managed by a defendant’s company, MPI.  MPI paid Consortium for access to its collected data.  MPI used the data to identify and to solicit Medicare-eligible seniors.  If the seniors agreed to the care, MPI forwarded their cases to Vital and Physician Care.

The relator alleged that the defendants violated the FCA by submitting Medicare claims for services stemming from the supposed referrals induced by the payments to the Consortium, in violation of the Anti-Kickback Statute.  After a trial, an appeal to the Seventh Circuit, and a retrial following remand, the district court entered judgment of over $5.9 million against the defendants.  To arrive at that figure, the district court took the value of the claims that it deemed false (approximately $746,000), trebled it, and added a per-false claim penalty of $5,500.

On appeal again to the Seventh Circuit, the defendants argued that the judgment was unconstitutionally excessive under the Eighth Amendment.  The Seventh Circuit declined to determine whether the Eighth Amendment applies to civil penalties under the FCA.  Yet the court held that even if the Eighth Amendment does apply, the judgment was proportional to the gravity of the offense—and therefore not unconstitutionally excessive.  In so holding, the court stated that the defendants “defrauded the federal government for years, seizing a disproportionate share of Medicare funds by concealing unlawful kickbacks.”  Further, the defendants’ actions affected more than just the government.  The defendants “accessed the private health information of hundreds of vulnerable seniors in Illinois without their permission and exploited their records for profit.”  And, the court noted, the penalties fell squarely within the boundaries set by the statute.  Indeed, the court observed, the defendants could have fared much worse, as the district court imposed the lowest per-claim penalty available under the statute.

The defendants also argued that the district court erred in calculating the amount of damages by including claims that did not actually “result from” the kickback scheme.  Addressing this argument, the court examined the intersection of AKS violations and FCA liability.  Under the AKS, a claim must “result[] from” an AKS violation to constitute a false claim.  42 U.S.C. § 1320a-7b(g).  The court explained that that language requires a

causal nexus between the allegedly false claims and the underlying kickback violation.  It is not enough to show that a defendant both engaged in unlawful kickbacks and submitted false claims.  The latter must “result[] from” the former.  This means that, at a minimum, every claim that forms the basis of FCA liability must be false by virtue of the fact that the claims are for services that were referred in violation of the Anti-Kickback Statute.

The court noted that some of its sister circuits have articulated the causal requirement in different ways.  The Sixth Circuit has required but-for causation—a showing that a defendant would not have submitted a claim had it not engaged in an unlawful kickback scheme.  The Third Circuit, however, has required merely that the defendant have sought reimbursement for medical care that was provided in violation of the AKS.  And as we reported previously here, the First Circuit will soon address the issue.

The Seventh Circuit declined to choose a side in the circuit split, noting that if some of Vital’s and Physician Care’s services would not have been provided but for access to the Consortium’s data, even the Sixth Circuit’s strict causal standard was satisfied, such that those services “would necessarily result from the kickback scheme.”  Accordingly, the Seventh Circuit remanded solely as to the question of which claims, if any, were for services provided to patients who were lawfully referred by the Consortium—i.e., patients not solicited through the defendants’ access to the Consortium’s data.

The court’s opinion in available here.

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