“Kicking Back” the FCA’s Scope: The Sixth Circuit Limits the Remuneration and Causation Requirements for AKS-Based FCA Claims

Last week, the Sixth Circuit issued an important decision on two key elements of False Claims Act (FCA) suits based on alleged violations of the Anti-Kickback Statute (AKS). In United States ex rel. Martin v. Hathaway, __ F. 4th ___, 2023 WL 2661358 (6th Cir. 2023), the Sixth Circuit narrowly construed the AKS term “remuneration” as including only improper payments or “transfers of value” in exchange for referrals and rejected the relator’s broader proposed definition of “remuneration” as “any act that may be valuable to another.” The Sixth Circuit also held that FCA liability for claims “resulting from” AKS violations requires showing that claims would not have occurred but-for the alleged kickback, endorsing the Eighth Circuit’s similar reading last year in United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022) (discussed in this post), and rejecting the Third Circuit’s more permissive reading in United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018). For healthcare providers and life sciences companies, Martin potentially clarifies the often-murky world of the AKS by contrasting the AKS with more broadly written bribery laws targeting non-healthcare transactions and raising the bar for would-be relators and aggressive prosecutors.

The underlying qui tam complaint was filed by relator Dr. Shannon Martin, a Michigan ophthalmologist who previously worked for one defendant, Dr. Darren Hathaway, in his private medical practice. When Hathaway decided to relocate his practice, Martin then unsuccessfully sought employment as a staff physician with nearby Oaklawn Hospital, another named defendant. Martin accused Oaklawn of declining to hire her as an in-house ophthalmologist because Hathaway supposedly threatened to stop referring his patients for surgery at Oaklawn if Dr. Martin joined the hospital. Martin further alleged that Oaklawn’s decision not to hire her was “illegal remuneration” to Hathaway, and that Oaklawn’s and Hathaway’s respective Medicare and Medicaid claims “resulting from” patients referred by the other therefore violated the FCA. The district court granted the defendants’ motion to dismiss for failure to state an actionable FCA claim, and Martin’s appeal soon followed, with DOJ supporting her through an amicus curiae brief.

The Sixth Circuit identified two core flaws in the complaint’s allegations that threatened to transform “[m]uch of the workaday practice of medicine” into a violation of the AKS. Martin, 2023 WL 2661358 at *8. Among other things, the AKS — a criminal statute — bars the receipt or payment of “remuneration … in case or in kind” in return for referring patients for treatments, prescriptions, or other services or items covered by federal healthcare programs. 42 U.S.C. § 1320a-7b(b)(1)(A). Moreover, most federal healthcare claims “resulting from” those unlawful referrals are automatically “false or fraudulent” under the civil FCA. See id. § 1320a-7b(g). Here, the Sixth Circuit held that the complaint failed to identify any “remuneration” and, even if it had, that it also failed to plead a causal link between the supposed remuneration and the actual submission of claims to Medicare and Medicaid.

First, the Sixth Circuit rejected the relator’s reading of the AKS’s prohibition on “remuneration” as overly expansive and unsupported by the AKS’s text or construction in light of other federal statutes. Although the AKS doesn’t precisely define what constitutes “remuneration,” the Sixth Circuit determined that it was logically limited to “payments and other transfers of value” and that it does not cover every arrangement where there is any exchange of anything that may be of value. Martin, 2023 WL 2661358 at *5-6. In support, the Sixth Circuit pointed to the fact that the “remuneration” examples highlighted by the AKS — kickbacks, bribes, and rebates — all require a specific payment or transfer (whether that payment be in cash or in kind), and that the Office of Inspector General’s own guidance appeared to echo that reading. Here, the Sixth Circuit emphasized, although the hospital’s decision not to hire Martin as a staff ophthalmologist may have “benefitted” Hathaway by guaranteeing that the hospital had to continue sending patients to Hathaway’s outside practice (rather than having them treated in-house by Martin), that was already the status quo rather than any new offer of value. Id. at *7. The Sixth Circuit’s emphasis on the status quo thus suggests that “remuneration” requires pleading the existence of an offer to create or supplement a mutually valuable relationship, rather than simply pleading the mere existence of a mutually valuable relationship. And because the AKS is a criminal statute (albeit also a predicate for civil FCA liability), the court invoked the rule of lenity to further support its narrow reading of “remuneration.” Id. at *5.

Turning to causation, the Sixth Circuit determined that even under the relator’s overbroad theory of “remuneration,” she failed to plead that the hospital or outside physician submitted any claims for reimbursement that they would not have billed but-for the allegedly improper “remuneration.” The Sixth Circuit interpreted the AKS’s “resulting from” phrase as requiring “but-for causation” in order to establish a false claim. Id. at *7. Therefore, it was not enough to show a temporal connection between the hospital’s decision not to hire the relator and the outside practice’s patient referrals to the hospital. Rather, following in the steps of the Eighth Circuit, the Sixth Circuit court held that there must be a “unambiguously causal” link between an allegedly tainted referral and a submitted claim. Id. Here, that causal chain was “doom[ed]” not only by the parties’ mere continuation of a pre-existing relationship, but also by the relator’s failure to allege that the hospital’s in-house physicians were not independently deciding whether they would refer their patients to Hathaway or another outside ophthalmologist. Id. at *7-8.

Throughout its discussion of both “remuneration” and the appropriate causation standard, the Sixth Circuit’s decision paralleled, and sometimes explicitly cited, other judicial interpretations of statutes designed to combat public corruption, including the Supreme Court’s decision in United States v. McDonnell, 579 U.S. 550, 574 (2016), which rejected a “boundless” interpretation of “bribery.” Martin, 2023 WL 2661358 at *8 (citing McDonnell, 579 U.S. at 581). In both the healthcare and political contexts, and as we have written elsewhere, courts have expressed concern that overly aggressive interpretations of relevant anticorruption laws can the unintended effect of criminalizing conduct that society wants to encourage — whether that be a politician meeting with their constituents or a hospital improving its facilities or equipment in order to attract more doctors and patient referrals. In the context of political bribery, McDonnell found that these goals were best achieved by strictly construing bribery’s quid pro quo intent as one where offers are made or solicited in exchange for specific official action on a focused and concrete issue — i.e., something more than setting up beneficial meetings, hosting an event, or contacting other government officials. Similarly, the Sixth Circuit determined in Martin that the AKS’s aims — promoting good behavior by healthcare providers and institutions while punishing decisions unrelated to patients’ best interests — were best achieved through a narrow reading of the prohibited conduct and strict enforcement of the causation requirement. And while not expressly cited by the Sixth Circuit, the federal bribery statute’s actual use of the broad term “anything of value,” 18 U.S.C. §§ 201(b) & (c), further highlights that Congress chose not to use similarly capacious language when writing the AKS.

The Sixth Circuit’s decision is perhaps even more significant for the healthcare industry than the Eighth Circuit’s decision in Cairns. While the Eighth Circuit was the first appellate court to apply “but-for” causation to the AKS, its analysis was limited to causation and also relied on a complete record at the summary judgment stage. Here, the Sixth Circuit offers defendants a roadmap for dismissal on the pleadings in FCA cases based on overbroad AKS theories of remuneration or causation. We’ll be closely tracking other courts around the country to see if they follow the Sixth Circuit’s example, both in the FCA context and in criminal AKS actions reliant on novel theories of “remuneration.”

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.