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). (more…)
District of Massachusetts Adopts But-For Causation Test for FCA Claims Premised on AKS Violations
As reported last week here, the Chief Judge of the District of Massachusetts held that a claim “result[s] from” a kickback only if the defendant would not have included particular items or services in the claim but for the kickback. United States v. Regeneron Pharma., Inc., No. 20-11217-FDS (D. Mass. Sept. 27, 2023). In so holding, the court aligned itself with decisions in the Sixth and Eighth Circuits, and rejected the Third Circuit’s looser standard that a false claim “result[s] from” a kickback where a patient was merely “exposed to an illegal recommendation or referral” and a physician submitted a claim “pertaining to that patient.” We have previously reported on this circuit split here and here.
District of Massachusetts Adopts But-For Causation Test for FCA Claims Premised on AKS Violations
On September 27, 2023, the District of Massachusetts, assessing the causation standard linking Anti-Kickback Statute violations to FCA liability, determined that a claim “result[s] from” a kickback only if the defendant would not have included particular items or services in the claim but for the kickback. We have previously written about the circuit split on this issue here and here. We will follow up with an additional post describing the court’s opinion, available here, in greater detail.
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.
Eighth Circuit Holds that AKS Violations Do Not “Taint” All Claims
The Eighth Circuit Court of Appeals recently issued a notable decision that offers defendants in FCA cases premised on violations of the Anti-Kickback Statute (“AKS”) significant new defenses relating to causation. The panel soundly rejected the government’s position that as a result of the 2010 amendments to the AKS, any claim provided in violation of the AKS is tainted, and therefore “false,” under the FCA. Instead, the Eighth Circuit held that for an AKS violation to render a claim false, the kickback must have been the but-for cause of the submission of the claim. United States ex rel. Cairns v. D.S. Medical LLC, No. 20-3010, 2022 WL 2930946 (8th Cir. July 26, 2022). The decision creates a circuit split with the Third Circuit and given the many courts of appeal that have not weighed in on this question, promises to generate renewed debate in district courts across the country as to the appropriate causation standard in FCA cases involving alleged violations of the AKS.
District Court Again Dismisses Anti-Kickback Statute Claim Related to Medical Devices Used in Bariatric Surgeries
A court in the District of Maryland again dismissed a declined qui tam action in which the relator, a bariatric surgeon, alleged that two medical device companies violated the AKS by providing surgeons with free advertising in exchange for physicians using the companies’ LAP-BAND medical devices in bariatric surgeries. See United States ex rel. Fitzer v. Allergan, Inc., 17-cv-00668 (D. Md. Mar. 22, 2022). We reported on the court’s prior dismissal of the relator’s second amended complaint for failure adequately to plead a knowing and willful violation of the AKS here. Relator fared no better on his third attempt; as the court found, he failed to adequately plead presentment and causation. (more…)
D.C. Circuit Applies But-For Causation Standard, Weak Materiality Test to FCA Claims, While Concurrence Questions Viability of Fraudulent Inducement Theory
On July 6, 2021, the D.C. Circuit Court of Appeals affirmed in part and reversed in part a district court’s dismissal of the qui tam suit against IBM in United States ex rel. Cimino v. Int’l Bus. Machines Corp., No. 19-7139. The relator alleged that IBM and the Internal Revenue Service (“IRS”) had entered into a software license agreement, but that upon learning that the IRS was uninterested in renewing the agreement, IBM fraudulently induced the IRS to extend the contract. In particular, IBM allegedly collaborated with the auditor of the agreement, resulting in an audit finding that the IRS owed IBM $292 million for noncompliance with the contract’s terms. IBM then offered allegedly to waive that fee in exchange for the IRS renewing the agreement. The relator further alleged that once the new agreement was in place, IBM nonetheless collected $87 million of the noncompliance penalty by disguising that amount as fees for products and services that were never provided. According to the relator, this scheme yielded FCA liability in two ways: first, IBM fraudulently induced the IRS to renew the agreement; second, IBM submitted false claims by billing $87 million for unprovided products and services.
Judge Saris Green Lights FCA Claims Against PE Fund Based on Regulatory Non-Compliance of its Portfolio Company Healthcare Provider for Trial
Late last week, Judge Patti Saris (D. Mass.) issued an opinion on cross-motions for summary judgment filed by a qui tam relator and Massachusetts and a group of defendants that includes South Bay Mental Health Center (“South Bay”) and its private equity fund owner, permitting the vast majority of plaintiffs’ claims to proceed to the jury. The opinion addresses important questions of law as to each of the elements of the FCA related to claims to Medicaid for services allegedly provided in violation of various state regulatory requirements. However, the opinion is most notable for being the first to hold at the dispositive motion stage that a private equity fund and its principals can act with the requisite scienter and cause the submission of false claims, and thus be exposed directly to the treble damages and statutory penalties of the FCA as a result of conduct by a healthcare provider portfolio company. As such, we may expect it to add momentum to DOJ’s stated intent to pursue FCA claims against PE investors in the industry.
