We Really Mean But-For: District Court Dismisses FCA Case With Prejudice Where Plaintiff Could Not Allege Kickbacks Actually Caused Claims

For the past few years, we at Qui Notes have been keeping a close eye on decisions regarding the showing required for a claim to be false because it “resulted from” a violation of the Anti-Kickback Statute (AKS). Beginning with the Eighth Circuit’s decision in U.S. ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022), and continuing with the Sixth Circuit’s decision in U.S. ex rel. Martin v. Hathaway, 63 F.4th 1043 (6th Cir. 2023), some courts have put teeth in the statutory “resulting from” requirement by requiring “but-for” causation between an alleged kickback and a specific claim to establish liability. Recently, a district court in the Eighth Circuit showed just how consequential this standard is.

In U.S. ex rel. Louderback v. Sumitomo Pharma Am., Inc., 2024 WL 4151357 (D. Minn. Sept. 11, 2024), the Minnesota district court dismissed relator’s claim with prejudice for failure to plead causation with requisite particularity. Relator alleged that the defendant manufacturer and pharmacies entered into rebate agreements that included “dispense-as-written” and “no counterdetailing” provisions, which, in relator’s view, required pharmacies to dispense the manufacturer’s drug to Medicare patients in situations where patients could have received a different lower cost drug. Relator alleged that this purported rebates-for-prescriptions arrangement violated the AKS and the False Claims Act (FCA).

This recent decision is actually the second dismissal of relator’s claims in this case. In 2023, the court applied the Cairns but-for causation standard and found that relator had not plausibly pleaded causation with the specificity required by Rule 9(b). The court dismissed the case without prejudice, rejecting relator’s argument — which was supported by the Department of Justice in a statement of interest — that they could bypass the “resulting from” requirement on a theory that all claims from the pharmacies were false because violating the AKS was a material condition that made all claims non-payable. (Qui Notes previously covered the government’s statement of interest.)

Relator amended his complaint, but to no avail as the district court once again found that the amended complaint did not “take the necessary next step” of plausibly alleging that a pharmacy would not have submitted a claim for the manufacturer’s drug had it not been for the provisions in the agreement. In particular, the court found that relator failed to allege facts “plausibly tracing causation [of the claim] through the [rebate agreement’s] dispense-as-written and counterdetailing provisions.” In addition, the court rejected relator’s argument that the “obvious economic incentives” in the rebate agreement meant all claims were false, finding that this argument contradicted the theories in relator’s complaint that the rebates were “in consideration for the dispense-as-written and counterdetailing provisions.”

As an aside, the court noted ways in which the relator may have been able to allege plausible but-for causation. For example, the court suggested that the relator could have alleged “personal knowledge of specific situations in which a pharmacist would have dispensed” an alternative to the manufacturer’s drug. Or the relator could have provided data showing a “significant increase” in the number of prescriptions of the manufacturer’s drug along with a “corresponding reduction” in the number of prescriptions for alternatives to that drug. Lastly, the court suggested that the relator could have provided scientific studies that establish causation between similar rebate agreements and “pharmacists’ tendencies to adhere to dispense-as-written and counterdetailing provisions.”

Cairns and its progeny were expected to have a major impact on FCA cases based on AKS violations, regarding both liability and damage issues. In Louderback, we see how that standard can derail a case right at the pleading stage. We will continue to monitor the progression of the but-for causation standard in other circuits and courts. 

© Arnold & Porter Kaye Scholer LLP 2024 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.