made to doctors-either by a hospital seeking referrals, or by a pharmaceutical company seeking prescriptions-would violated the AKA. HHS OIG, in a formal publication known as a Fraud Alert, made clear that the AKS was not limited to cash payments. Rather, gift that are “more than nominal in value” violate the AKS if they are tied in some way to referrals or prescriptions. See OIG Special Fraud Alerts, Dec. 19, 1994.
What was left unaddressed at that time was whether the claims made on federal health care programs as a result of such gifts were “false claims” subject to the False Claims Act (“FCA”). The intersection of the AKS and the FCA has now been clarified by the courts, in part through two appellate decisions issued this year.
U.S. ex rel. Hutcheson
On June 1, 2011, the United States Court of Appeals for the First Circuit handed down its decision in U.S. ex rel. Hutcheson v. Blackstone Medical, Inc., No. 10-1505. The Relator, Susan Hutcheson, worked as a Regional Manager of Blackstone for approximately two years. In her Complaint, Hutcheson alleged that “Blackstone paid kickbacks to doctors across the country so they would use its products in certain spinal surgeries.” The alleged “kickbacks,” according to Hutcheson’s complaint, including payments under “sham” consulting agreement, research grants, entertainment expenses, and “high-end” travel and accommodations. The surgeries conducted with Balckstone’s products included, surgeries on Medicare and Medicaid beneficiaries. Hutcheson alleged that these gifts and payment violated the AKS and, because compliance with the AKS is condition of receiving payment from Medicare, Blackstone knowingly caused healthcare providers to present false or fraudulent claims to the government when they submitted kickback-tainted claims.
The district court dismissed Hutcheson’s case under Fed. R. Civ. P. 12(b)(6), holding that Hutcheson failed to identify a materially false or fraudulent claim for purposes of the FCA. In doing so, the lower court employed a rigid interpretation of the express vs. implied certification framework laid out in some FCA jurisprudence and held that, because the relevant statutes and regulations did not expressly condition payment on AKS compliance, Hutcheson failed to state a claim under the “implied certification” theory. The district court also held that the claims submitted by the doctors were not materially false or fraudulent because, even though the doctors had submitted express false certifications, Hutcheson failed to allege that the kickbacks at issue induced doctors to submit claims for surgeries that were otherwise medically unnecessary.
On appeal, the First Circuit categorically rejected both the framework and substance of the lower court’s opinion. In doing so, the Court made clear that it would not “adopt any categorical rules as to what counts as a materially false or fraudulent claim under the FCA.” The Court further explained, “Courts have created these categories in an effort to clarify how different behaviors can give rise to a false or fraudulent claim. Judicially-created categories sometimes can help carry out a statute’s requirements, but they can also create artificial barriers that obscure and distort those requirements. The text of the FCA does not refer to ‘factually false’ or ‘legally false’ claims, nor does it refer to ‘express certification’ or ‘implied certification.’ Indeed it does not refer to ‘certification’ at all. … In light of this, and our view that these categories may do more to obscure than clarify the issues before us, we do not employ them here.”
The Court then went on to address the two primary issues in the case: (1) whether a claim can be false or fraudulent for impliedly misrepresenting compliance with a condition of payment if that condition is not expressly stated in the relevant statute or regulations; and (2) whether a certification of compliance made by the party actually submitting the claims to the government may incorporate an implied representation about the conduct of third parties.
In addressing the first question, the First Circuit rejected Blackstone’s reliance on non-binding case law-including the Second Circuit’s decision in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001)-for the proposition that FCA liability under the “implied certification” theory is limited to certifications of compliance with expressly stated preconditions of payment found in statutes or regulations. The Court noted that nothing in the FCA itself supported such a narrow reading and it rejected Blackstone’s protestations that failure to follow such an approach would lead to unchecked expansion of the FCA. To the contrary, the First Circuit explained that other checks-both in the plain language of the FCA and the relevant jurisprudence-exist to “cabin the breadth of the phrase ‘false or fraudulent’ as used in the FCA” including the knowledge and materiality requirements.
As to the second question related to “non-submitting party conduct[,]” the First Circuit again refused to impose limitations on FCA claims under the guise of “certification” theories. Specifically, the Court rejected Blackstone’s argument that a submitting entity’s truthful certification cannot be rendered false due to the unlawful acts of a non-submitting third party. Citing the provisions of the FCA that provide for liability against a person that “causes to be presented” a false claim or “causes to be made or used” a false record or statement, the First Circuit made it clear that FCA liability extends to non-submitting entities that knowingly cause a submitting entity to make false claims and that such liability is not conditioned “on whether the submitting entity knew or should have known about the non-submitting entity’s unlawful conduct.” And, again, the Court rejected Blackstone’s claims that such a holding would stretch the FCA beyond the intent of its drafters, noting, for example, that the term “causes”-and the case law concerning the meaning of that term-provides a necessary constraint.
U.S. ex rel. Wilkins
On June 30, 2011, the United States Court of Appeals for the Third Circuit issued its decision in United States ex rel. Wilkins v. United Health Group, Inc., No. 10-2747, which similarly concluded that violations of the AKS can give rise to liability under the FCA. Defendant United Health, through certain subsidiaries, offered Medicare Advantage plans (“MA plans”). Among the claims made by the Relator was the United Health made kickbacks to physicians for referring patients to the United Health MA plan. Relator alleged that these kickbacks violated the AKS, and thus that monies received by United Health from the government for the MA plans were obtained in violation of the FCA. The district court dismissed all of Relators claims, including the claims based upon the alleged AKS violations.
The Third Circuit reversed as the AKS violations. The Court adopted an “implied false certification” theory of liability under the FCA. The Court reasoned that not violating the AKS was a “condition of payment” for the MA plans. In other words, that had the government known of the alleged AKS violations, it would not have made payment to United Health. Adopting language from the government’s own amicus brief in the case, the Court noted that “[t]he Government does not get what it bargained for when a defendant is paid by [the Medicare system] for services tainted by a kickback.
In sum, both U.S. ex rel. Hutcheson and U.S. ex rel. Wilkins make clear that when a provider violates the AKS by making gifts or payments to physicians to induce the use of a particular product, or to induce a referral, that any subsequent claims to the Medicare or Medicaid systems may be considered “tainted,” and thus “false” within the meaning of the False Claims Act. We would note, finally, that this issue relates primarily to claims submitted prior to 2010, because a statutory amendment made as part of the 2010 healthcare overhaul legislation explicitly ties the AKS and the FCA. Congress amended the AKS to confirm that a “claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the False Claims Act]. Patient Protection and Affordable Care Act of 2010 (“PPACA”), Pub. L. No. 111-148, §6402(f), 124 Stat. 119 (codified at 42 U.S.C. 1320a-7b(g)). Accordingly, on a going-forward basis there is no question that gifts to doctors in violation of the AKS can give rise to FCA liability.