On January 6, 2025, the U.S. District Court for the District of Massachusetts granted a defendant laboratory’s motion for summary judgment in a False Claims Act (FCA)/Anti-Kickback Statute (AKS) case brought by a physician objecting to the lab’s testing practices and its use of independent contractors paid on commission.
Judge Patti B. Saris held that plaintiffs in FCA cases must establish that “but for” the payment of illegal remuneration in violation of the AKS, the claim would not have been submitted. Applying the “but-for” standard, Judge Saris dismissed OMNI Healthcare Inc. v. MD Spine Solutions LLC, et al. because the record did not support that the independent contractor status of some of the lab’s sales representatives or their conduct unduly influenced any provider’s decision to purchase the product.
Adoption of “But-For” Causation in FCA Cases
There is a circuit split regarding whether FCA plaintiffs must prove that “but for” the AKS violation, a claim would not have been submitted. Requiring “but-for” causation poses a significantly greater burden for plaintiffs seeking to advance FCA claims because they must show the kickback actually affected what good, item, or service was provided.
In the U.S. Courts of Appeals for the Sixth and Eighth Circuits, the heightened “but-for” causation must be established. The Third Circuit has adopted a less rigorous standard, requiring only a showing that at least one of the claims sought reimbursement for medical care that was provided in violation of the AKS. Plaintiffs in circuits with no clear precedent often argue for the application of the more plaintiff-friendly standards of the Third Circuit and use that ambiguity as leverage in negotiating settlement agreements.
The First Circuit, which includes Massachusetts—an epicenter of FCA lawsuits—has yet to clearly decide which standard should apply in FCA cases; however, Judge Saris made clear that she did not read the First Circuit’s decision in Guilfoile v. Shields[1] to have issued a binding holding adopting the Third Circuit’s standard. Clarity on what causation will apply in the First Circuit may come with the much-anticipated release of the court’s decision in a case argued last summer that teed up the causation issue. The importance of Judge Saris’s decision is underscored by the fact that just days after she issued her decision, litigants in the First Circuit matter filed a notice of supplemental authority citing to the decision as support for adopting “but-for” causation as the applicable standard in AKS-based FCA cases.
Judicial Review of Independent Contractor Arrangements Based on Facts and Circumstances
Plaintiffs in FCA cases frequently argue that commission-based payments to independent contractors run afoul of the AKS. That said, in OMNI Healthcare, the government acknowledged “that paying independent contractors commission-based fees is not per se unlawful.” While commission-based payments to independent contractors may raise the specter of an AKS violation, Judge Saris determined, on the facts of this case, that no reasonable jury could conclude that the submission of claims for the lab testing at issue resulted from the defendants’ commission-based payments to independent contractors. She noted that the purpose of engaging sales representatives, whether independent contractors or employees, is to influence referrals, and that alone does not violate the AKS.
Judge Saris found the determinative questions to be (1) whether the independent contractor status of sales representatives unduly or improperly influenced any provider’s decision to purchase the product, and (2) whether any independent contractor engaged in conduct that unduly or improperly influenced any provider’s decision to purchase the product. Because the record did not support a reasonable finding that the independent contractors’ status or conduct unduly or improperly influenced providers’ decisions to purchase the product, Judge Saris entered judgment for the defendants. This approach aligns with the Fifth Circuit’s approach in the 2024 case of United States v. Marchetti,[2] which directed the focus of AKS inquiries to whether there was undue or improper influence on a relevant decision maker.
Takeaways
As noted generally in compliance guidance issued by the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) and aimed at many segments of the health care industry, from drug manufacturers to new physicians, many common business activities, including sales and marketing, may implicate the federal AKS.[3] Businesses operating in this industry should carefully review their marketing practices and relationships with physicians and others in a position to influence referrals. OIG guidance suggests that “whenever possible, prudent manufacturers and their agents or representatives should structure relationships with physicians to fit in an available safe harbor, such as those for personal services, management contracts, and employees.” Those that do not fit squarely into such a safe harbor should be reviewed in the totality of the facts and circumstances, examining the nature of the relationship, the manner in which the remuneration is determined, the value of the remuneration, the potential impact on federal programs, and potential conflicts of interest.[4]
Although application of the “but-for” causation standard in AKS-based FCA cases is beneficial to health care institutions, it has not been universally adopted, and it does not eliminate the need for a “facts and circumstances” analysis. According to OIG guidance on the subject of how companies should engage with independent contractor sales reps, the analysis could include examining factors such as the amount of the compensation, the influence capabilities of the sales agent, the nature of the marketing or promotional activity, the item or service being promoted or marketed, and the target audience.[5]
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.
ENDNOTES
[1] 913 F.3d 178, 187 (1st Cir. 2019).
[2] 96 F.4th 818 (5th Cir. 2024).
[3] See, e.g., “Kickbacks and Other Illegal Remuneration,” at 68 Fed. Reg. 23731, 23734 (May 5, 2003).
[4] Id. at 23737.
[5] Id. at 23739.
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