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Causation Conundrums in Kickback-Focused FCA Cases

April 7, 2023

Recently, Whistleblower Law Collaborative member Erica Blachman Hitchings participated the Federal Bar Association’s virtual roundtable Causation Conundrums in Kickback-Focused FCA Cases.  Erica was joined in the panel discussion of causation in AKS cases by:

  • John D. W. Partridge, Gibson Dunn & Crutcher (Moderator)
  • Kathleen Chandler, Bates White
  • Johnathan M. Phillips, Gibson Dunn & Crutcher
  • David Wiseman, Civil Fraud Section, Department of Justice

Here are some takeaways from the discussion:

AKS Cases and the False Claims Act

The federal False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq., is the U.S. Government’s primary weapon for combatting fraud.  It allows whistleblowers to sue persons or entities that are defrauding the government and recover damages and penalties on the government’s behalf. The statute provides whistleblowers financial rewards as well as job protection against retaliation.

The Anti-Kickback Statute (AKS) is the popular name for The Medicare and Medicaid Fraud and Abuse Statute, 42 U.S.C. § 1320a-7b(b). The AKS is a federal criminal law.  It prohibits offering or accepting kickbacks to generate health care business.  As a result, violation of the AKS is a felony, punishable by ten years in jail and fines of $100,000 per violation.

In 2010, the AKS was amended to provide that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim.” This language codified the notion that violating the AKS can lead to liability under the False Claims Act.

Tainted Claim Concept Emerged From Policy Concern

Congress’s intent in amending the AKS was for practitioners to provide conflict free medical care. If a claim is tainted by a kickback, damages in FCA cases are the full amount of the claim. Congress intended this extreme consequence to dissuade doctors from doing what is in their financial best interest rather than what is in the patient’s best interest.

Anti Kickback Statute Safe Harbors

The AKS is not a precise tool.  It is a broadly written prohibition.  Occasionally, the broad AKS prohibitions sweep in beneficial conduct that doesn’t implicate kickbacks. For example, it includes drug manufacturers offering discounts or rebates.  It also prohibits hospitals from waiving co-pays for indigent patients. Likewise, it prohibits any health care provider from hiring marketing or advertising employees.

To counter the potential misbranding of legitimate business arrangements as kickbacks, the statute includes eleven safe harbors.  The safe harbors are very detailed and thoughtful. In addition, they are often updated with the input of the medical industry.  These safe harbors are constantly evolving because the way people do business is evolving.

To date, OIG has created 34 regulatory safe harbors.  However, several of these merely expand upon statutory safe-harbors.  The regulatory safe harbors are listed at 42 C.F.R. §§ 1001.952(a)-(kk).

Third Circuit Rejects But-For Causation in AKS Case

Since the 2010 amendments, courts have struggled with application of the “resulting from” language.  What is the proper standard for causation in AKS cases?

The Third Circuit in U.S. ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89 (3d Cir. 2018)  considered the issue. In Greenfield, the Third Circuit rejected the assertion that mere temporal proximity between the alleged kickback and submission of claims was enough to show causation. It did, however, accept the government’s argument that but-for causation could lead to a contradictory result whereby “a defendant could be convicted of criminal conduct under the [Anti–Kickback Statute] for paying kickbacks to induce medical referrals, but would be insulated from civil [False Claims Act] liability for the exact same conduct, absent additional proof that each medical decision was in fact corrupted by the kickbacks.”

Ultimately, the Third Circuit concluded the standard was somewhere in between. The Third Circuit determined causation required the showing that at least one of the submitted claims was exposed to a referral or recommendation in violation of the AKS.

Cairns Court Relied on Plain Language to Arrive at But-For Standard

In contrast to Greenfield, the Eighth Circuit recently decided that FCA liability premised on violations of the AKS require but-for causation.

In United States ex rel. Cairns v. D.S. Medical LLC, 42 F.4th 828 (8th Cir. 2022), a nuerosurgeon, Sonjay Fonn, and his fiancée’s company D. S. Medical, were named in an FCA suit alleging AKS violations relating to the purchase of spinal implants.  It was alleged that Fonn ordered a high volume of spinal implants from a company wholly owned by his financée. The arrangement geneterated commissions for the fiancée and earned stock options in the compnay for the nuerosurgeon.

The government interevened in an qui tam case brought by other physicians alleging that the nuerosurgeron’s high implant use was the result of kickbacks.  At trial, the court instructed the jury that it was enough for the U.S. to show the defendant failed to disclose the AKS violation. The jury then returned a verdict in the government’s favor.

On appeal, the Eighth Circuit reversed. The Court stated the statute doesn’t define “resulting from” so it used the plain meaning at the time of 2010 amendment.  It determined “resulting from” requires but-for causation.  In the decision, the Court relayed it was using the dictionary definition.  In addition, they cited to the Supreme Court’s previous conclusion in Burrage v. United States, 134 S.Ct. 881 (2014), a controlled substances act case that but-for was the appropriate causation standard.

Whistleblowers Should Not be Deterred by Cairns

Courts have traditionally looked at the context in determining the causation standard. The Cairns court, however, took a very narrow view and did not examine context, including legislative history that contradicted its conclusion.

Nevertheless, whistleblowers should not be deterred from bringing FCA cases based on AKS violations. The Cairns decision indicates that causation in AKS cases may be harder to prove in the Eighth Circuit.  But even with Cairns as the law, the government and whistleblower recently prevailed in a hard-fought AKS case that went to the jury.

Moreover, the biggest factor in AKS cases has and will always be intent.  Was the remuneration intended to be a kickback?  If there is evidence establishing intent and the whistleblower or government can show at least some connection to the kickback, they will likely continue to prevail.

Client's False Claims Act case settles for $12.9 Million
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