Is Copayment Assistance a Kickback?
Regeneron Pharmaceuticals involved the practice of manufacturers and providers covering patients’ copays to increase access to their health-care products and services. Regeneron is a pharmaceutical company that manufactures Elyea, one of the few drugs approved to treat a particular type of macular degeneration. The drug is expensive. As delicately put by the First Circuit, the economics of the drug “create an incentive for Regeneron to price Eylea in a way that frees the patient from the co-pay.” Op. at 5. To offset the heavy cost for patients, Regeneron made donations to a charitable organization that provided “copayment assistance” to patients suffering from the condition Elyea is designed to treat; over the course of five years, Regeneron donated $60 million to the charity. Id. at 6.
A criminal statute, the AKS prohibits “kickbacks” (bribes) to induce a payment under a federal health-care program. The FCA imposes civil liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A), (a)(1)(B). One way to establish FCA liability is to prove that a false claim was the product of an AKS violation. Under the 2010 amendment to the Patient Protection and Affordable Care Act, “a claim [for payment by a federal health-care program] that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of” the FCA. Pub. L. No. 111-148, 124 Stat. 119, 759 (codified at 42 U.S.C. 1320a-7b(g)).
That begs the question: What does it mean for a false claim to “result from” a payment alleged to be a kickback?
In the government’s view, Regeneron’s charitable donations were the functional equivalent of manufacturer rebates. By providing copayment assistance to patients, the government contended, Regeneron provided AKS “remuneration” that knowingly induced prescriptions for its drugs, and that providers’ later claims for Medicare reimbursement “resulted in” the submission of “false claims” in violation of the FCA. The copayment assistance, the government argued, rendered the claim “false or fraudulent” even if the provider would have prescribed Eylea based its own medical judgment.
The First Circuit disagreed. Joining the Sixth and Eighth Circuits, it held that “to treat an AKS violation as a false or fraudulent claim under the FCA, the government must prove that the AKS violation was a but-for cause of the false claim.” Op. at 8.
Correlation Is Not Causation
A foundational principle in federal statutory interpretation is that a phrase like resulting from imposes a requirement of actual causality. But-for causation, however, is the “default assumption, not an immutable rule.” Id. at 11. Under Burrage v. United States and Paroline v. United States, an “alternative causation standard” may apply where there are “textual or contextual indication[s]” of a contrary congressional intent. Burrage, 571 U.S. 204 (2014); Paroline, 572 U.S. 434 (2014).
However, the First Circuit found no “textual or contextual indications” in the AKS or FCA to depart from the presumption of but-for causation. Op. at 28. The Regeneron court considered and rejected four arguments advanced by the government in favor of a lesser standard of causation:
The “animating principle” argument. The government’s primary argument against but-for causation turned not on the statutory text but on its supposed purpose. The “animating principle” of the AKS, the government argued, is “that financial conflicts in themselves corrupt medical decisionmaking.” Because the 2010 amendment was “built on” that statutory scheme, it asserted that the AKS should only be read to require a showing (a) that “payments are meant to induce the provision of items or services” and (b) that “those items or services are subsequently provided.” Id. at 14.
A showing of an AKS violation, the First Circuit held, was not on its own enough to establish FCA liability. Unlike the AKS, the FCA requires proof of a causal link between the inducement and ultimate payment, requiring “proof of added elements not required to prove the predicate [AKS] violation.” Id. at 15. “[I]f Congress wants to make a violation of one statute a per se violation of another,” the court opined, “it can easily say so.” Id. at 16.
The real question, the court opined, was what degree of “actual causality” was required. The court entertained that it is conceivable, at least, that the lack of causation required to establish a criminal violation of the AKS suggests that “not much” causation—something “short of but-for causation”—is needed to establish civil FCA liability. Id. at 17. But according to the First Circuit, even this more nuanced argument failed. “While Burrage and Paroline recognize that ‘resulting from’ may in some instances not require but-for causation, they provide no license to read ‘resulting from’ as requiring no actual causality whatsoever.” Id.
The statutory history argument. Next, the government asserted that the FCA’s statutory history—and its alternative “false certification” theory of liability—supports the conclusion that no actual causation is required to show an AKS-predicated FCA violation. Because AKS compliance was widely accepted to be a material precondition of Medicare reimbursement, courts have generally recognized that a knowingly false statement of compliance with the statute established an FCA violation. This “false certification” theory of FCA liability does not require proof of actual causation. See id. at 19–23. Because Congress passed the 2010 amendment “against a backdrop of false-certification cases,” the government argued, the statutory history shows that Congress did not intend to require proof of but-for causation to establish an AKS-predicated FCA claim. Id. at 21.
The trouble with this argument, the First Circuit held, was that “false certification” wasn’t what the government alleged. The theories differ in important ways. In “false certification” cases, “it is not the AKS violation itself that renders the claims false,” but “the false representation that there is no AKS violation.” Id. at 20. The court agreed with the Sixth and Eighth Circuits that the 2010 amendment “did not disturb [these] alternative theories of FCA liability” because they “run on a separate track.” Id. at 23.
The legislative history argument. The government also asserted that the legislative history of the 2010 amendment rebutted the presumption of but-for causation. It relied primarily on the floor statements of the bill’s sponsor indicating that the law would “ensure that all claims resulting from illegal kickbacks are false or fraudulent, even when the claims are not submitted directly by the wrongdoers themselves,” which was an “arguable weakness in the false-certification theory.” Id. at 24.
Assuming (skeptically) that legislative history was even relevant to analyzing the statutory regime under Burrage, the First Circuit observed that nothing in the floor statement was inconsistent with requiring but-for causation for AKS-predicated FCA claims under the 2010 amendment. “Rather, the floor statement simply reinforces the government’s view that the 2010 amendment creates a different ‘pathway to establish falsity in FCA actions based on AKS violations without reliance on [the false-certification] theory,’” and “a claim submitted on that provider’s behalf can still be ‘per se false’ under the 2010 amendment”—“[t]hat is, if the government can show that the illicit kickback was a but-for cause of the submitted claim.” Id. at 25–26.
The “it’s hard to prove” argument. In a last-ditch effort, the government complained that it can “sometimes be difficult” to prove why a particular drug was prescribed, and that requiring actual, but-for causation undermined its efforts to root out fraud in federal programs. Id. at 26. But scienter can also be difficult to prove, the First Circuit pointed out, and that isn’t a reason to dilute the causation requirement to establish the intentional submission of a false or fraudulent claim. Id. at 26–27. It is not “the case that giving ‘resulting from’ its ordinary meaning renders it so difficult to establish liability [under the FCA] that the 2010 amendment would have no practical effect,” the court opined. Id. at 27.
Deepening the Circuit Split
The First Circuit’s Regeneron decision is a definitive win for individuals and companies defending FCA lawsuits brought by the federal government and relators. Joining the Sixth and Eighth Circuits, Regeneron deepened the split of authority concerning the proper causation standard under the 2010 amendment, leaving the Third Circuit’s decision in United States ex rel. Greenfield v. Medco Health Solutions, Inc. the sole holdout on a lesser causation standard. 880 F.3d 89 (3d Cir. 2018).
The requirement of but-for causation is a powerful defense, particularly in the context of health care. Where there is evidence that a provider would have billed a federal payer for the procedure, prescribed pharmaceutical, or medical device regardless of the alleged kickback, defendants will have a strong defense that there was no false claim that “result[ed] from” an AKS violation. Defense practitioners should focus on showing the business or medical necessity of the services under scrutiny and prioritize strategies that will demonstrate how products or services would have been billed regardless of their financial structure.
But nothing in Regeneron calls into question the AKS and FCA as effective vehicles by which to combat fraud in federal government programs. Both statutes continue to be powerful enforcement tools. The First Circuit’s decision did not consider other theories of FCA liability, like the alternative pathway of “false certification” of compliance with the AKS.
The First Circuit’s Regeneron decision also seemed to leave room for another court to consider whether a less rigorous (“not much”) causation standard could apply to the AKS. It is certainly possible that another court, presented with the right facts and the right arguments, might find other contextual factors surrounding the FCA and 2010 AKS amendment persuasive in crafting a less demanding showing than that of strict, actual causation.
While Regeneron did not definitively settle the question of FCA-AKS causation, it did add a strong voice to a growing chorus of federal courts insisting that the government and relators present a strong showing of causation before imposing liability and awarding treble damages, penalties, and attorney fees and costs under the FCA. With the First, Sixth, and Eighth Circuits on one side and the Third Circuit on another, the issue is likely to receive growing attention in the coming years.
