On Tuesday, the Sixth Circuit released its opinion in U.S. ex rel. Shannon Martin, et al. v. Darren Hathaway, et al., a case involving alleged “remuneration” from a hospital to a local ophthalmologist. The Sixth Circuit adopted a “but-for” causation standard, joining the Eighth Circuit in a burgeoning circuit split on the applicable causation standard for FCA cases predicated on alleged violations of the AKS, which we previously discussed here. Additionally, the Sixth Circuit held that, under the AKS, unlawful remuneration must be money or some physical thing of value, and not simply “any act that may be valuable to another.”[1] Hogan Lovells submitted an amicus brief on behalf of the American Hospital Association and several state hospital associations advocating for the AKS causation and remuneration definitions adopted by the Court.

A. Background

Relators, ophthalmologist Dr. Shannon Martin and her husband Douglas Martin, an employee of Oaklawn Hospital, filed a qui tam action against ophthalmologist Dr. Darren Hathaway, South Michigan Ophthalmology, P.C. (Hathaway’s ophthalmology practice), and Oaklawn Hospital. The suit alleged that Oaklawn declined to hire Dr. Martin at the behest of Dr. Hathaway, thereby providing a benefit to him in order to induce continued referrals from Dr. Hathaway and South Michigan.[2]

At issue in Hathaway were two concepts: first, whether FCA liability for claims “resulting from” a violation of the AKS exists without a direct causal connection between the remuneration and the claim submitted for reimbursement and second, the question of what constitutes “remuneration” under the AKS. The AKS establishes criminal and, through the FCA, civil liability for offering or paying any renumeration in connection with a federally reimbursable item or service, but does not define “remuneration.”[3] Under the 2010 amendments to the AKS, if claims “resulting from” a kickback are submitted for federal payment, they are false claims,[4] but courts have divided on how to interpret “resulting from.”

B. The Sixth Circuit sides with the Eighth Circuit on the question of causation

Circuits are presently split on what it means for a claim to “result from” an alleged violation of the AKS for purposes of the FCA. In 2018, the Third Circuit held in Medco that an FCA plaintiff does not have to prove that “federal beneficiaries would not have used the relevant services absent the alleged kickback scheme,” but only that at least one item or service for which federal reimbursement was sought was provided in violation of the AKS.[5] Then, in 2022, the Eighth Circuit held in Cairns that the statute’s phrase “resulting from” required a “but-for” causal relationship between the AKS violation and the allegedly false claim—in other words, that a claim “would not have included particular ‘items or services’ but for the illegal kickbacks.”[6]

The Sixth Circuit aligned with the Eighth Circuit, and held that “[t]he ordinary meaning of resulting from is but-for causation.”[7] It declined to adopt the government’s legislative-history based argument or the Third Circuit’s conclusion, noting the unfairness of interpreting a criminal statute through language that was never passed by Congress or signed by the President. The Sixth Circuit relied on the Eighth Circuit’s reasoning that if Congress had wanted to use language such as “tainted by” or “provided in violation of,” it could have; but Congress instead chose to use “resulting from,” which, compelled by Supreme Court precedent, the Eighth Circuit considered to be “unambiguously causal.”[8]

As applied to the facts here, the Court determined that relators failed to allege but-for causation, as the alleged kickback did not result in a single claim for reimbursement that would not have occurred through the referral relationship that was already present between Oaklawn and Dr. Hathaway. The Court emphasized that the alleged scheme did not change any referral practices, and so none of the claims submitted for reimbursement after Oaklawn’s decision not to hire Dr. Martin could have been caused by such decision.

C. Remuneration requires a payment or transfer of value

In another potentially significant development, the Sixth Circuit held that “remuneration” means only payments and other transfers of value, and not simply any act that may be valuable to another person. This interpretation is a much narrower definition of “remuneration” than put forth by the Office of Inspector General (OIG) to the U.S. Department of Health and Human Services, which has long interpreted the statue’s language to mean “anything of value.” The Court began with a statutory analysis of the term “remuneration,” looking to its meaning throughout the Social Security Act since 1977, which all have pointed toward real payments and transfers of tangible value. Furthermore, the Court analyzed advisory opinions and other guidance authored by OIG, concluding that, notwithstanding OIG’s language that “remuneration” constitutes “anything of value,” in practice OIG appears to understand remuneration to be limited to a payment or transfer of value. The Court next applied the rule of lenity, relevant for statutory language that gives rise to both civil and criminal liability, and which requires the narrower interpretation of ambiguous language: here, compelling the Court to define remuneration as a payment or other transfer of value.

In applying this analysis to the alleged kickback scheme, the Court determined that no such remuneration occurred. Relators’ theory of remuneration was that the decision not to hire Dr. Martin conferred a value to Dr. Hathaway in return for his commitment to continue referring his patients to Oaklawn. But the Court notes that Oaklawn made no payment or transfer of value to Dr. Hathaway, and at best, permitted him to continue his ophthalmology and referral practices as he did before Dr. Martin sought employment. The Court rejected the idea that this could count as remuneration, holding that remuneration is limited to payment or transfers of value and not “any act that may be valuable to another.”

D. What this means going forward

The Sixth Circuit’s decision to join the Eighth Circuit in adopting a “but-for” causation standard in FCA cases predicated on alleged AKS violations leaves the Third Circuit standing alone in its broad reading of what it means for a false claim to “result from” an AKS violation. With the score 2-1 in favor of the “but-for” causation standard, we will continue to closely monitor this space and provide timely updates.

As for “remuneration,” the opinion establishes clear guardrails to protect providers from allegations that ethereal, theoretical or hypothetical value is enough to allege, let alone prove, a violation of the AKS. Here too, we will be watching carefully for what happens next.

If you have any questions about the Hathaway, Cairns, or Medco decisions, please consult one of the authors or the Hogan Lovells attorney with whom you most closely work.