Mar 12022

Court Agrees With DOJ That FMV Payments Can Be Kickbacks

Jaime L.M. Jones, Brenna E. Jenny and Joseph R. LoCascio

On February 23, 2022, a district court in the Central District of California denied a defendant’s motion to dismiss a qui tam suit premised on alleged Anti-Kickback Statute (“AKS”) violations, holding that “even some fair-market-value payments will qualify as illegal kickbacks.” See United States ex rel. Chao v. Medtronic PLC, No. 17-cv-1903 (C.D. Cal.).

The relator’s operative complaint argued that the defendant, a manufacturer of medical devices, violated the FCA by offering kickbacks in various forms to reward physicians for using the defendant’s devices.  Among other arguments, the defendant urged the court to dismiss the complaint because the relator failed to allege that certain payments to physicians for proctoring other physicians on how to use the medical devices exceeded fair market value (“FMV”). As such, the defendant contended, the relator failed to address the potential applicability of the AKS’s personal services safe harbor.

The court concluded, however, that the relator need only “allege facts that make it plausible that the safe harbor will not defeat his claim,” which he had done. Therefore, the personal services safe harbor could not serve as a basis for dismissal on the pleadings. Furthermore, the court explained that even if the payments were consistent with FMV, this would not immunize the defendant from FCA liability. In the court’s view, FMV payments can qualify as illegal kickbacks when “the payor has considered the volume of reimbursable business between the parties in providing compensation and otherwise intends for the compensation to function as an inducement for more business.” Such conduct removes the payments from the safe harbor, the court explained, regardless of whether they were at FMV.

In so finding, the court aligned itself with DOJ, which asserted in a Statement of Interest that if payments were also intended to compensate for referrals, then they can violate the AKS, even if the payments were at FMV. As such, reiterating a position it has taken in other cases, DOJ argued that “FMV, standing alone, is not a defense to the AKS.” Even offering someone “an opportunity to earn money may well be an inducement to that person to channel potential Medicare payments towards a particular recipient” in violation of the AKS. This opinion serves as a reminder that FMV assessments can be a necessary but not sufficient means to address compliance risk.

The court’s order is available here, and a copy of DOJ’s Statement of Interest is available 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.

Jaime L.M. Jones

Chicago

jaimejones@sidley.com

Brenna E. Jenny

Washington, D.C.

bjenny@sidley.com

Joseph R. LoCascio

Chicago

joseph.locascio@sidley.com

You might also like
Court Cuts False Claims Act Jury Verdict in Half in Rare Constitutional Decision

On Thursday, a Minnesota district court judge more than halved a $490 million False Claims Act jury verdict against an ophthalmology distributor and its founder for Anti-Kickback Statute (“AKS”) violations, to $217 million, holding the damages were “notably severe” and “grossly disproportional” to the offense, and thus improper under the Excessive Fines Clause.

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).

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.