Intersection of AKS and FCA: But-For Causation
The False Claims Act (FCA) provides a statutory path for private parties to file a federal lawsuit claiming various violations of healthcare regulations. More pointedly, the FCA allows private parties to sue healthcare practitioners for improperly billing federally funded healthcare programs. These improper billings are the false claims targeted by the FCA.
In normal lawsuits, a petitioner must show personal damages as the grounds for relief. Under the FCA, the petitioner is claiming a practitioner or other medical professional submitted fraudulent claims to Medicare or other federally funded programs. The loss directly impacts the government’s bottom line, not the petitioner.
This unique twist makes FCA (or Qui Tam) lawsuits unique. The purpose of the statute is to incentivize private parties to bring forward waste in federal programs. The incentive to bring the suit comes from the awards provisions of the FCA which allow the government to allot a percentage of recovered funds to the petitioner.
An example will assist in understanding the procedure. Let’s assume a patient visits their general practitioner for a routine checkup. The doctor reviews the patient’s history and runs standard blood work. The patient’s visit and tests are billed to Medicare under applicable guidelines. This process is legitimate and mimics the standard operating procedure for most healthcare providers.
However, let us add another wrinkle. In addition to the medically appropriate tasks, the doctor bills Medicare for procedures that are never performed. These procedures produce nothing of value for the patient and are not used in the treatment or diagnosis of any condition. If the patient learns of this discrepancy, the FCA would give the patient a path to file a federal suit.
Once the suit is filed, a healthcare fraud attorney can reach out to the federal government to gauge their interest in taking over the suit. If the government believes the false claims warrant their resources, the government can take over the civil suit. The petitioner/petitioner’s lawyer could step to the side and let the federal government run with the action.
This general framework is how the majority of FCA suits are filed and litigated. To provide incentives for the petitioner to bring the false claims to light, the FCA allows for a portion of the recovered funds to be awarded to the petitioner for bringing the suit. If it is uncovered that this doctor billed Medicare for millions of dollars in services that were not performed, this award can be large for both the petitioner and their attorney.
False Claims Act and the Anti-Kickback Statute
The facts above clearly support the finding of a false claim. When a provider systematically bills for services that are not rendered, the false claim standard has been met in all cases. If a pattern of similar false billings can be established, the practitioner will have a tough time battling the federal government under the FCA.
However, there are other healthcare regulatory violations that can support suits under the FCA. These include billing for medically unnecessary services, using improper codes to inflate claims, and violations of the anti-kickback statute (AKS) (a more thorough run down of the Anti-Kickback statute can be found in a prior post here).
This post will focus on the intersection of the FCA and the Anti-Kickback Statute. Notably, we will review the current case law that analyzes when a service involved in a kickback scheme is “false” under the FCA. The analysis of these claims is far more nuanced than the example highlighted above as the presence of a kickback does not necessarily speak to the legitimacy of the service itself. If a doctor orders an MRI for a patient, does that service automatically become a “false claim” because the chosen MRI facility pays the doctor for the referral? Do these types of referral fees, though technically violations of the Stark Act, transform legitimate services into false claims under the FCA?
Below, we will try to answer this question by highlighting standards promulgated by the Federal Courts of Appeals. Currently, there is a split in the circuits on what is required for the government to prove falsity when an illegal kickback is the foundation for the FCA suit.
False Claims – Causation under the Anti-Kickback Statute
Under 42 U.S.C. § 1320a(g) (Anti-Kickback Statute), a claim that includes services resulting from a violation of the AKS constitutes a false or fraudulent claim under the FCA. The statute clearly delineates AKS violations as being subject to the FCA provisions. However, Congress decided to use the term “resulting from” when defining which claims involved in an AKS scheme meet the false claims definition.
Under the AKS, a billing is only false for FCA purposes if the claim “resulted from” the kickback. This language implies that not all AKS violations produce false claims under the FCA. It is only those claims with a sufficient nexus to the illegal kickback scheme that provide a foundation for FCA liability. This reality has required the Courts of Appeals to define this requisite nexus and set the standards of proof under the FCA.
Unsurprisingly, the Circuits have set two conflicting standards when analyzing the resulting from language under § 1320a(g). Some courts have concluded that “resulting from” requires “but-for” causation. Put differently, in these Circuits the government must show that the service would not have been billed but for the illegal kickback. Other circuits have given no teeth to this language; arguing that all claims where a kickback was involved meet the definition of falsity under the AKS.
The Eighth Circuit and the But-For Standard
The Eighth Circuit has delivered recent opinions (2022) outlining their belief that § 1320a(g) requires “but-for” causation. United States ex. Rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022).
In D.S. Med, LLC, Dr. Fronn, a neurosurgeon, used spinal implants to treat patients with degenerative-disc disease. The spinal implants were sold by multiple companies within the United States. Dr. Fronn used his fiancé’s distribution company, DS Medical, for all the implants he purchased for his patients. Dr. Fronn’s fiancé made millions in commissions from the implant manufacturers through DS Medical.
Other physicians became suspicious of Dr. Fronn’s implant usage rates and filed a civil suit under the FCA. The government intervened in the lawsuit. The lawsuit alleged that Dr. Fronn submitted false claims because the implant billings were connected to an illegal kickback scheme involving his fiancé.
At trial the district court advised the jury that “the claims were false if the jury found that the claims failed to disclose the anti-kickback statute violation.” Under the district court’s recitation of the law, every single claim tied to an illegal kickback was false under the FCA. The jury returned a verdict for the government on these claims and awarded significant damages.
Dr. Fronn appealed the judgment alleging the district court erred in failing to instruct the jury on the “but-for” causation standard necessary to prove falsity under § 1320a(g). Dr. Fronn argued that the “resulting from” language of 1320a(g) required proof beyond merely noting the claims were part of an illegal kickback scheme.
The government argued for a lower standard on appeal, stating that the mere presence of an illegal kickback taints the healthcare billing. The government believed they would not have paid for the service had they known it was tied to the scheme.
The Eighth Circuit leaned heavily on the Supreme Court interpretation of similar language under the Controlled Substances Act (Title 21) and the plain meaning of “resulting from” in the dictionary. Based on this review, the Eighth Circuit determined that “resulting from” requires the government to prove “but-for” causation. Under this clarified definition, the government had to prove Dr. Fronn would not have billed for services or products absent the illegal kickbacks.
The Sixth Circuit Follows Suit
The Sixth Circuit reviewed the “resulting from” language in 2023. United States ex rel. Martin v. Hathaway, 63 F.4th 1043 (6th Cir. 2023). The Sixth Circuit reviewed prior Supreme Court decisions analyzing similar language, and the plain meaning of the terms, before concluding that § 1320a(g) required “but-for” causation.
The Circuits Split on the “Resulting From” Language
The “but-for” standard adopted by the Sixth and Eighth Circuits provides a unique defense to healthcare practitioners. Under that standard, the government must show the medical care was submitted because of the kickback. If the defendants can convince a jury that the service would have been delivered, and billed, regardless of the remuneration, the government cannot show the nexus required for FCA relief.
Other circuits have not taken such a strong stance on the requirements of § 1320a(g). The following will review the location of the circuit split and the logic used to arrive at the alternative standard.
The Third Circuit analyzed the “resulting from” language in 2018. United States ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89 (3rd Cir. 2018). In Medco, the Third Circuit focused on Congressional intent. This switch away from the plain meaning of the words, and prior Supreme Court decisions, allowed the Third Circuit to arrive at a different conclusion.
The Third Circuit analyzed Congress’ intent behind the addition of the “resulting from” language in an amendment to the AKS in 2010. The Third Circuit noted that prior to the amendment it was well understood that a claim was false under the FCA if the underlying facts violated healthcare regulations. Under that standard, if a practitioner hides the fact that a claim was procured by violating the AKS, then the claim is false for purposes of the FCA. In that vein, all claims involved in an illegal kickback scheme were/are false as they were submitted in violation of a medical professional’s commitment to follow the rules and regulations.
In 2010, the Third Circuit noted that Congress added the “resulting from” language to expand the FCA’s ability to bootstrap AKS violations under the false claims framework. The amendment was designed explicitly to “”strengthen[] whistleblower actions based on medical care kickbacks” and “to ensure that all claims resulting from illegal kickbacks are considered false claims for the purpose of civil action[s] under the False Claims Act.” Medco, at 96.
The Third Circuit found that “but-for” causation cut against Congressional intent in passing the amendment. That standard would work to limit the AKS claims that would fall under the FCA; demolishing Congress’ goal of ensuring AKS violations lead to both criminal and civil penalties.
Based on their analysis, the Third Circuit ruled that the government may show falsity under the FCA by showing a particular claim was the result of a kickback. This standard will include nearly all claims in an illegal kickback scheme.
The First Circuit has not directly confronted the causation issue; however, they hinted that they will reject the “but-for” causation standard in Guilfoile v. Shields, 913 F.3d 178 (1st Cir. 2019).
The Implications of the Circuit Split
The Courts that have failed to address the “resulting from” language continue to rely on the pre-2010 amendment standards; simply requiring some nexus between the AKS violation and the claim submitted. The original standard more closely aligns with the Third Circuit above and the effect is most claims submitted during an illegal kickback scheme provide grounds for FCA relief.
Litigants will continue to raise causation on appeal when the AKS underlies an FCA award. As they do, the remaining Courts will be forced to pick their side in the split. The other eight circuits will have to decide if the plain language, and the Supreme Court’s decision in Burrage v. United States, 571 U.S. 204 (2014), mandates but-for causation. Or whether Congress’ intent to expand FCA relief under the AKS will preside.
Either way, the circuit split exists and the Circuits that have answered this issue are unlikely to change course. At some point, Congress will have to clarify the wording in the statute, or the Supreme Court will have to resolve the matter on their own.
The current split has large implications for FCA defendants. Let’s take Dr. Fronn’s case as an example. Under the “but-for” standard, Dr. Fronn can argue that every implant performed was medically appropriate and helpful to his patients. He can argue that his choice to order from his fiancé’s company did not have any effect on his medical decisions or the properness of the procedures. He can disconnect the AKS scheme from the clinical decisions in his defense.
If Dr. Fronn found himself in a district court within the Third Circuit, he would lose those arguments. Under their version of causation, every implant that was ordered via his fiancé’s company would fall under the AKS scheme. That nexus would be sufficient to prove the falsity of every one of those claims.
This disparate treatment across jurisdictions will exist until Congress or the Supreme Court clarifies the requirements under the AKS. My guess is that Congress will pass an amendment to the statute to clarify the law. If their goal was to expand the number of claims for FCA relief, that amendment will likely side with the looser standard outlined in this post. For now, FCA defendants will be subject to an uneven playing field.