Narrowing the definition of a kickback

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In the Spring of 2023, the 6th Circuit, which is the federal appellate court with jurisdiction for Kentucky, Michigan, Ohio and Tennessee, issued an unprecedented opinion in Martin v. Hathaway, holding for the first time by a federal appellate court that “remuneration” in the federal Anti-Kickback Statute (AKS) means “just payments and other transfers of value” and not “any act that may be valuable to another.”

Additionally, the 6th Circuit joined the 8th Circuit, the federal appellate court with jurisdiction for Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota, in determining that reliance on a violation of the AKS to find a violation of the False Claims Act requires a showing of “but-for” causation, deepening a split with the 3rd Circuit, the federal appellate court with jurisdiction for Pennsylvania, New Jersey, Delaware and the U.S. Virgin Islands,  on what connection is required between a kickback and a subsequent reimbursement claim.

In Martin v. Hathaway, Dr. Shannon Martin, an ophthalmologist sued her former employer, Dr. Darren Hathaway, the owner of an ophthalmology practice, and Oaklawn, the local hospital, under the federal and state False Claims Acts.  Martin alleged that Hathaway and Oaklawn engaged in an illegal fraudulent scheme under the AKS.

The alleged scheme involved Hathaway interfering with Oaklawn hiring Martin by informing Oaklawn that the hiring would force Hathaway to refer his patients to a different hospital where he could perform surgical procedures instead of referring to Oaklawn where Martin would be on staff to perform the procedures for the hospital, cutting into Hathaway’s revenue stream.

Remuneration

The AKS prohibits payment or receipt of “remuneration” in exchange for referrals of patients to receive services paid for by federal or state health care programs. The 6th Circuit determined that Oaklawn’s refusal to hire Martin in return for Hathaway’s continued surgical referrals was not “remuneration” under the AKS.

The term “remuneration” is not defined in the AKS. Instead, the 6 Circuit looked to the dictionary definitions of “remuneration,” other federal law definitions of remuneration, the U.S. Health and Human Services’ Office of the Inspector General opinions and the general theme of the AKS safe harbors to determine that “remuneration” requires a transfer of payment or value.

The court determined that Oaklawn’s decision not to hire Martin was too attenuated from the referrals made by Hathaway to Oaklawn to find that the decision could be “remuneration.”  The court pointed to the fact that there wasn’t any agreement in place between Oaklawn and Hathaway, no requirement for a specific volume of referrals, and no time frame for the agreement to take place.

Additionally, the court argued that because the AKS creates both civil and criminal liability, a narrower definition of “remuneration” is appropriate where the statutory language is ambiguous.

Causation

The False Claims Act imposes civil liability for knowingly submitting a false or fraudulent claim to the government for payment. The AKS prohibits payment or receipt of “remuneration” in exchange for referrals of patients to receive services paid for by federal or state health care programs. Any claims “resulting from” an AKS violation, which is a criminal statute, are considered false claims for purposes of the False Claims Act.

To find a violation of the act in reliance on a violation of the AKS, a court must determine that the claims at issue “resulted from” the illegal “remuneration” under the AKS. Relying on the 2014 Supreme Court decision in Burrage v. United States, the 6th Circuit in Martin v. Hathaway determined that the ordinary meaning of “resulting from” is but-for causation, meaning that the referral would not have occurred “but-for” Oaklawn’s refusal to hire Martin.

The 6th Circuit determined that Martin had not alleged the required causation because the decision by Oaklawn not to hire Martin, allegedly to maintain a referral source in Hathaway, did not change anything in the referral relationship between Oaklawn and Hathaway. Therefore, the decision did not cause the referrals.

The 6th Circuit joins the 8th Circuit in determining that “but-for” causation is the appropriate standard in these cases. In opposition, the 3rd Circuit in 2018, held that some connection is required between the illegal kickback and the submission of a claim, but it is not necessary to prove that the claim would not have occurred without the kickback.

The 3rd Circuit reasoned that health care fraud is often difficult to prove and a more lenient interpretation would increase the challenges in False Claims Act enforcement cases based on the AKS.

Recognizing that the 4th Circuit, which is the federal appellate court with jurisdiction for Maryland, North Carolina, Virginia and West Virginia, has not yet opined on the appropriate causation standard for an AKS-based False Claims Act claim, Judge Stephanie A. Gallagher, in U.S. v Allergan, a case in the federal District Court of Maryland, as recently as June 3, 2024, sided with the 3rd Circuit, rejecting the strict “but-for” standard.

Barry F. Rosen is the chairman & CEO of the law firm of Gordon Feinblatt LLC, heads the firm’s health care practice group, and can be reached at 410-576-4224 or [email protected].  Darci M. Smith is counsel in Gordon Feinblatt’s health care practice group, and can be reached at 410-576-4153 or [email protected].