First Circuit Holds ‘But For’ Causation Required to Demonstrate Falsity in Kickback-Based FCA Cases, Growing Circuit Split

In United States v. Regeneron Pharmaceuticals Inc., the US Court of Appeals for the First Circuit held that when the government seeks to establish False Claims Act liability under the 2010 amendment to the Anti-Kickback Statute, the government must show kickbacks were the “but-for” cause of claims submitted to federal healthcare programs.

The First Circuit joined the Eighth and Sixth Circuits, turning the circuit split into a 3-to-1 majority (with the Third Circuit in the minority) over the 2010 amendment’s causation standard in False Claims Act (FCA) cases. Although requiring proof of but-for causation in FCA cases premised on Anti-Kickback Statute (AKS) violations and the 2010 amendment is undoubtedly a high standard for the government or private relators to meet, the opinion made clear that the court’s interpretation did not foreclose other avenues of pursuing FCA liability for illicit kickbacks.[1]

FCA AND AKS BACKGROUND

The FCA and AKS are the two authorities often used by the US Department of Justice to combat fraud and abuse of federal healthcare programs like Medicare and Medicaid. The AKS is a criminal statute that prohibits the knowing and willful offer, payment, solicitation, or receipt of anything of value to induce or reward the referral, recommendation, or arrangement of federal healthcare program business.[2] The FCA prohibits the knowing submission, or causing the submission, of a false or fraudulent claim for payment to the government.[3]

While the FCA and AKS have separate and distinct penalties and statutory schemes, courts historically held that claims to federal healthcare programs tainted by kickbacks are legally “false” under the FCA.

However, this standard created difficulties where the party receiving the kickback was not the party submitting the claim. Some courts held that if an innocent third party—with no knowledge of the kickback—submitted the claim, then there was no knowing submission of a false claim and thus no liability under the FCA.[4] To address these circumstances, Congress amended the AKS in the Patient Protection and Affordable Care Act and created a separate route for proving a false claim under the FCA. The amendment provides that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].”[5]

The purpose of the amendment, as evidenced by its legislative history, was to ensure that “all claims resulting from illegal kickbacks are false or fraudulent even when the claims are not submitted directly by the wrongdoers themselves.”[6] The legislative history did not, however, address how courts should interpret the “resulting from” language in the amendment, and the causation standard has been hotly litigated since that time.

THE CIRCUIT SPLIT

In 2018, the Third Circuit, in United States ex rel. Greenfield v. Medco Health Solutions Inc., held that the government need only to prove “a link between the alleged kickbacks and the medical care received” to establish that the kickbacks caused claims to be submitted.[7] The Third Circuit rejected the defendant’s argument for but-for causation, concluding that the standard was not consistent with the purpose of the 2010 amendment. The Third Circuit’s interpretation of the 2010 amendment only required the government to demonstrate “some connection” between a kickback and a claim for reimbursement.

No other circuit courts adopted the Third Circuit’s approach. The Eighth and Sixth Circuits rejected the Greenfield decision and held that “resulting from” unambiguously requires a but-for causation standard.[8] Regeneron presented an opportunity for the First Circuit to interpret the 2010 amendment and resolve an inter-circuit split between two district courts on the causation standard.[9]

THE OPINION

The government sued Regeneron under the FCA and relied on the 2010 amendment to the Anti-Kickback Statute to prove that Regeneron submitted false claims. The question for the First Circuit was whether this theory of liability required the government to prove either (1) only “some connection” between the kickbacks and claims for the drug to federal healthcare programs; or (2) that the claims would not have occurred but-for the kickbacks.

Reviewing the question de novo, the First Circuit held that the government must prove but-for causation in FCA cases predicated on the 2010 amendment. The court’s opinion centered on the text and context of the 2010 amendment and held that there was no reason to require a different standard. The core of the analysis was straightforward: the phrase “resulting from” in the 2010 amendment means but-for causation, and nothing about the text or the context of the amendment required deviating from that default interpretation.[10]

Although the opinion adopts the majority view that proving liability under the 2010 amendment required but-for causation standard, the First Circuit made clear that the government and relators are not required to prove liability through the 2010 amendment. The government can continue to prove FCA liability under a false certification theory, which does not require but-for causation between kickbacks and claims.

KEY TAKEAWAYS

Stakeholders, especially in healthcare and the life sciences, should be aware that there is now a solid majority of circuits that have interpreted the 2010 amendment to the AKS to require but-for causation when the government relies on the 2010 amendment to prove a false claim under the FCA. This is a higher standard of proof required for the government and relators and is a valuable defense for companies accused of kickbacks.

However, the opinion and majority view is far from an end to kickback-based FCA cases. Government representatives from the Department of Justice at the Federal Bar Association’s Annual Qui Tam Conference remarked that Regeneron would not fundamentally alter their approach to pursuing or proving kickback-FCA cases.