Client Alert: The Sixth Circuit Deepens the Split on False Claims Act Actions Based on the Anti-Kickback Statute
Date: April 11, 2023
By:
Eric H. Feiler
The Court addressed two key points. First, it held that a violation of the AKS must be based on the payment of money or actual transfer of something of value. Second, it held that to prove a violation of the FCA, a relator must demonstrate but-for causation. In doing so, the Sixth Circuit has added another defendant-friendly ruling to the existing, and perhaps growing, circuit split.
U.S. v. Hathaway
The Hathaway case involved two ophthalmologists: Dr. Hathaway, who owned a small practice and his employee, Dr. Martin. Hathaway and Martin referred patients to Oaklawn Hospital for surgery, and Oaklawn referred patients to Hathaway and Martin for more routine services. Hathaway began exploring a merger with a larger ophthalmological practice. Around that same time, Martin received a tentative job offer from Oaklawn.
Hathaway told Oaklawn that hiring Martin would kill his practice as he would lose referrals from the hospital. On the other hand, if he were able to maintain the referral relationship, he could complete his merger. That, Hathaway told Oaklawn, would allow him to increase business for Oaklawn. But had Oaklawn hired Martin, Hathaway told the hospital that would be forced to send his referrals elsewhere. Oaklawn decided not to hire Martin. Members of the hospital board informed Hathaway of their decision, with one noting that she was “[l]ooking forward to increased surgical volume.”
Martin then sued Hathaway, his practice, and Oaklawn. She claimed they engaged in a fraudulent scheme under the AKS. They further alleged that claims for Medicare and Medicaid resulting form the kickbacks violated the FCA.
The Promise of Referrals was not Remuneration under the AKS
Payment of a “remuneration” is a necessary element for finding a kickback under the AKS. The statute, however, does not define that term. The Court found that the term “covers just payments and other transfers of value.” In reaching this conclusion, the Sixth Circuit adopted the definition applied by the Eighth Circuit and rejected that applied in the Third Circuit and elsewhere defining “remuneration” to include arrangements including “anything of value.”
The Court supported its holding through a detailed examination of dictionary definitions and uses of the term in other statutes. The Court also found that the broader definition lacked a “coherent end point.” It noted that a hospital that purchases top of the line surgery equipment in the hopes of attracting new doctors would also be swept up in the broader definition. In the end, “Oaklawn’s decision not to hire someone does not entail a payment or transfer of value to Dr. Hathaway.” While the decision may have benefitted Hathaway, “Oaklawn never offered [him] anything at all.” Accordingly, the Court found no violation of the AKS.
The Failure to Hire Martin was not the “But-For” Cause of Referrals
Next, the Court held that a FCA relator must demonstrate that the government would not have paid a claim “but-for” the fraud committed by the payee. Martin failed to identify “with particularity” a single claim that would not have occurred anyway, regardless of the business dispute. Rather, it is “simply not the law” that “anything a doctor accepts counts as a quid and anything a doctor refers counts as a quo.” Moreover, Oaklawn’s individual physicians made their own choices on referrals, thereby “doom[ing] the chain of causation.” The Sixth Circuit affirmed the district court’s dismissal of Martin’s complaint.
Takeaways
First, in requiring a showing of but-for causation, the Sixth Circuit has sided with the Eighth Circuit, and has added another case to the circuit split in favor of the defendant-friendly standard.
Second, the Court noted several times that the alleged scheme “did not change anything” with respect to the relationship between the parties. That is, at the end of the day, Dr. Hathaway still owned his practice, and he and Oakwood still referred patients to each other. It is not clear whether the Court’s rulings would have been different if the discussions had, in fact, led to a change in circumstances with respect to the doctors or the hospital.
The Court declined to impose severe liability on the defendants without a showing of a clear transfer of value and a direct link between such transfer and payments by the government. The Court found that the relator’s favored definitions would encompass “[m]uch of the workaday practice of medicine,” with no protection for “doctors of good intent, sweeping in the vice-ridden and virtuous alike.”
This opinion is an encouraging development for health care providers. While there remains a circuit split as to these standards and definitions, the Sixth Circuit has provided a thorough, well-reasoned opinion that provides another arrow in the quiver for defendants faced with potential liability under the AKS and the FCA.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.