In a recent decision,1 the Seventh Circuit joined other circuits in confirming that FCA actions predicated on an AKS violation require evidence of a causal link between the AKS violation and the items and services included in an alleged false claim. While the Seventh Circuit refused to specify what degree of causation is required, the court’s decision does illustrate one fact pattern where causation was found to be lacking.
Background
The FCA makes it illegal to knowingly present, or cause to be presented, a “false or fraudulent claim” for payment or approval to the US government. Prior to 2010, many courts had concluded that an AKS violation could render a claim false for FCA purposes. Congress codified this proposition in the ACA, which amended the AKS to provide that a Medicare, Medicaid or other federal health care program (FHCP) claim for items or services “resulting from” a violation of the AKS constitutes a “false or fraudulent claim” for purposes of the FCA.2
While courts generally have interpreted the AKS’s “resulting from” provision as requiring some kind of causal link between the illegal remuneration and the items or services included in the alleged false claim, there has been a growing split among US appellate courts regarding what degree of causation is required.
- The Sixth and Eighth Circuits have held that “resulting from” means “but-for causation.” As such, the plaintiff must establish that, but for the illegal remuneration, the items and services that were the subject of the claim would not have been selected or ordered.3
- The Third Circuit, by contrast, has held that while there must be some “link” between the illegal remuneration and the items or services that are the subject of the claim, but-for causation is not required. Rather, the plaintiff must show (i) an FHCP beneficiary was “exposed” to “an illegal recommendation or referral” with respect to certain items or services and (ii) a claim was then submitted to an FHCP for those items or services.4
Stop Illinois Healthcare Fraud, LLC v. Sayeed
In Stop Illinois Healthcare Fraud, LLC v. Sayeed, the Seventh Circuit joined the fray with respect to interpreting the AKS’s “resulting from” provision.
Background
Sayeed was an AKS-predicated FCA action originally filed in the US District Court for the Northern District of Illinois by a watchdog organization, Stop Illinois Healthcare Fraud, LLC, against Management Principles, Inc. (MPI), its owner, and two of its home health care companies (collectively, the MPI Defendants).
Sayeed involved remuneration provided by MPI to the Healthcare Consortium of Illinois (Consortium), a non-profit organization that was contracted with the Illinois Department of Aging to coordinate services for low-income seniors. In the ordinary course, the Consortium would send caseworkers to seniors’ homes to assess whether they needed in-home health care services. When a senior was determined to need such care, the Consortium would make a referral from a prepared list of approved partner organizations, which list included MPI’s home health care companies. Notably, the Consortium made referrals from its provider list on a “rotational basis,” methodically going from one provider to the next to ensure that “no partner received more referrals than others.”
The plaintiff alleged that the MPI Defendants entered into a kickback scheme with the Consortium that was designed to bypass the Consortium’s rotational referral process. Specifically:
- The plaintiff alleged that in December 2010, MPI and the Consortium entered into a management services agreement, pursuant to which MPI paid the Consortium $90,000 over an 18-month period in exchange for the Consortium undertaking vaguely described administrative duties.
- At trial, MPI’s owner testified that the agreement was intended to cover “data mining,” pursuant to which MPI would be given access to the Consortium’s caseworker paperwork for all of the Consortium’s clients, not just those referred to an MPI home health care provider through the Consortium’s rotation system (Data-Mining Arrangement).
- MPI used the Consortium’s data to identify Medicare-eligible seniors who might want or need in-home care, and then contacted those seniors to offer the services of MPI’s home health care companies.
Procedural History
For the last several years, the Sayeed case has ping-ponged between the district court and the Seventh Circuit.
The district court originally held a bench trial in July 2019. Following the conclusion of the plaintiff’s case-in-chief, the court entered judgment in favor of the MPI Defendants. The district court concluded that the plaintiff had failed to prove an AKS violation, since, among other things, the plaintiff had failed to produce any evidence showing that MPI’s payments to the Consortium under the Data-Mining Arrangement were intended to induce “referrals.”
In April 2020, the Seventh Circuit vacated the district court’s judgment on the ground that the court may have applied an overly narrow definition of “referral.”5 The Seventh Circuit opined that by providing MPI with access to files that MPI then used to solicit patients, the Consortium may have indirectly “referred” patients to MPI. Because the Seventh Circuit could not determine whether the district court had (i) “applied the correct definition of ‘refer’ but found that the proof fell short of it” or (ii) instead “committed a legal error by adopting an unduly narrow understanding of the term,” the Seventh Circuit remanded the case for further proceedings.
On remand, the district court held a second bench trial. Applying the Seventh Circuit’s “file-access theory of referral,” the district court found the MPI Defendants liable under both the AKS and FCA and imposed nearly $6 million in damages. In calculating damages, the district court treated as false every claim that MPI’s home health care companies submitted to Medicare for services provided to Consortium clients since the effective date of the Data-Mining Arrangement.
The case was then once again appealed to the Seventh Circuit, this time by the MPI Defendants.
Sayeed II
In a May 2, 2024 decision, the Seventh Circuit affirmed the district court’s judgment of liability, but concluded that the district court had erred with respect to its calculation of damages.
On appeal, the MPI Defendants argued that the district court’s calculation of damages was overinclusive because (i) during the period of the Data-Mining Arrangement, the Consortium had continued to “lawfully refer” patients to MPI through its standard rotation process and (ii) at least some of the claims included in the district court’s calculations “derived from those lawful referrals.”
In considering the MPI Defendants’ argument, the Seventh Circuit joined other circuits in affirming that the AKS’s “resulting from” provision requires “some causal nexus” between the allegedly false claim and the underlying AKS violation in order for FCA liability to attach.
While the Seventh Circuit acknowledged the circuit split with respect to this requirement, the court declined to decide whether the AKS’s “resulting from” provision requires “a showing of but-for causality or something less.” In the Seventh Circuit’s view, such a decision was unnecessary, since, with respect to services provided by MPI’s home health care companies to patients who were referred by the Consortium through its standard rotation process, there was “no causal connection” between the claims for those services and the Data-Mining Arrangement.
Notably, the district court had taken the view that even if some referrals stemmed from the Consortium’s standard rotation process, all Medicare claims submitted by MPI’s home health care companies for services provided to Consortium clients since the commencement of the Data-Mining Arrangement were necessarily false because MPI had a “unique relationship” with the Consortium that “pervaded every referral sent.” The Seventh Circuit rejected this position, on the grounds that the “broad suggestion” “that every claim for payment following an anti-kickback violation is automatically false regardless of its origin” is inconsistent with the AKS’s “resulting from” requirement for FCA liability.
Because the Seventh Circuit could not tell whether any of the claims included in the district court’s damages calculations resulted from referrals made under the Consortium’s rotation system, the Seventh Circuit once again remanded the case back to the district court.
Implications
On the one hand, the Sayeed decision certainly is helpful for potential FCA defendants, since it represents yet another circuit confirming that plaintiffs must show one additional element—causation—before FCA liability will attach for an alleged AKS violation.
On the other hand, given the Seventh Circuit’s unwillingness to decide whether the AKS’s “resulting from” provision requires but-for causation or something less, considerable uncertainty remains with respect to how the AKS’s “resulting from” standard will be interpreted and applied in the Seventh Circuit. The facts in Sayeed were rather unique: due to the mechanical nature of the Consortium’s rotation system, the Seventh Circuit easily could conclude that the alleged kickbacks would not have any impact on a referral made through the rotation system, and the “lawful” referrals originating from the Consortium’s rotation system easily could be distinguished from the “unlawful” referrals originating from MPI’s access to the Consortium’s client records. For better or worse, most AKS-predicated FCA actions are unlikely to have such clear-cut facts.
- Stop Illinois Healthcare Fraud, LLC v. Sayeed, 2024 WL 1916749 (7th Cir. May 2, 2024). ↩︎
- 42 U.S.C. § 1320a-7b(g). ↩︎
- United States ex rel. Martin v. Hathaway, 63 F. 4th 1043, 1052-55 (6th Cir. 2023); United States ex rel. Cairns v. D.S. Med. LLC, 42 F. 4th 828, 834-37 (8th Cir. 2022). ↩︎
- United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 95-100 (3d Cir. 2018). ↩︎
- Stop Illinois Healthcare Fraud, LLC v. Sayeed, 957 F.3d 743 (7th Cir. 2020). ↩︎
