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District court finds that AKS violations are per se material
2022 PRINDBRF 0204
• Practitioner Insights Commentaries
• May 9, 2022
(May 9, 2022) - McGuireWoods attorneys Brett Barnett, Timothy Fry and Garrison B. Ambrose highlight a recent Los Angeles federal court ruling that violations of the Anti-Kickback Statute are per se material under the False Claims Act, agreeing with most other courts.
The U.S. District Court for the Central District of California recently granted the government's affirmative motion for partial summary judgment in U.S. v. Reliance Medical Sys.1 The Reliance Medical case involved an FCA action based on a theory that certain physician-owned distributorships (PODs) violated the Anti-Kickback Statute (AKS). As detailed below, the Central District found — in accordance with the substantial majority of other courts — that violations of the AKS are material under the FCA.
The DOJ contended that several physician-investors in various spinal implant distribution companies (collectively, Reliance Medical Systems) recommended spinal fusion surgeries — even when not medically necessary — which compelled the need for Reliance Medical Systems' spinal implant devices.
Specifically, the government avers that between 2007 and 2013, four physician-investors in Reliance Medical Systems performed 268 surgeries resulting in 838 claims for payment to the United States, of which Medicare paid $9,250,611. The government sought partial summary judgment on the grounds that, as a matter of law, the physician-investors' alleged AKS violations were material for purposes of the FCA.
It is well-established that compliance with the AKS is a precondition of Medicare payment, and the Affordable Care Act (ACA) explicitly provides that "a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for the purposes of [the FCA]."
While the Reliance Medical court noted that the falsity and materiality elements are distinct, it also agreed with the majority of courts in holding that compliance with the AKS is per se material to the payment of Medicare claims. Citing various cases and quoting language articulated by the First Circuit, the court reasoned that the ACA "obviate[ed] the need for a plaintiff to plead materiality... . This construction inescapably follows from the statute's plain language stating that a claim resulting from a violation of the AKS 'constitutes a false or fraudulent claim.'"
As such, the district court held that compliance with the AKS was per se material to the payment of Medicare claims following the enactment of the ACA. Nonetheless, the issue remained as to whether compliance with the AKS was per se material for claims predating the enactment of the ACA in 2010.
Again, collecting cases and quoting the First Circuit, the district court held that "[t]he legislative history suggests that the 2010 amendment was intended to codify the link between AKS violations and false claims within the meaning of the FCA ...." As such, the California court agreed with the majority of courts in holding that compliance with the AKS was per se material for claims predating the enactment of the ACA.
In sum, the court found that compliance with the AKS was per se material to the payment of Medicare claims as regards claims that pre and postdate the ACA's 2010 enactment. Therefore, the court granted the government's motion for partial summary judgment in substantial part.
Of note, although the court found that the government was entitled to summary judgment on (1) the issue of materiality; and (2) the number of surgeries performed, number of Medicare claims made, and amount paid by Medicare from the resulting claims between 2007 and 2013, the court denied the government's motion in part as it found a triable issue of fact as to the alleged status of the four physicians as physician-investors during that period.
Nonetheless, as it stands, courts are trending toward agreeing with the California district court and finding that compliance with the AKS is per se material for the payment of Medicare claims regardless of the date of the claim.
Notes
1 See (C.D. Cal. Feb. 2, 2022).
Brett Barnett, a partner at McGuireWoods LLP, is a commercial litigator who focuses on health care litigation. He represents clients in matters involving the False Claims Act, payer-provider disputes, restrictive covenants, shareholder and partnership disputes, and contract disputes. His clients include health systems, hospitals, private equity firms, physician practices, management services organizations and ambulatory surgery centers. He can be reached [email protected]. Timothy Fry is a partner who advises health care providers, private equity sponsors and other investors on health care transactional and regulatory matters, including the federal Anti-Kickback Statute and Stark Law, Medicare policy, state fraud and abuse laws, and state licensure and certificate-of-need rules. He can be reached at [email protected]. Garrison B. Ambrose is an associate who focuses on corporate health care transactional matters and regulatory compliance. He can be reached at [email protected]. All three authors are based in the firm's Chicago office. This article was originally published March 31, 2022, on the firm's FCA Insider blog. Republished with permission.
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