Understanding the first Circuit’s Decision in Regeneron
In the case of Regeneron Pharmaceuticals, Inc., the government accused the company of violating the AKS by covering patient copayments through a charitable foundation, which allegedly incentivized physicians to prescribe Eylea. The government contended that any Medicare claims for Eylea that followed these payments were false under the FCA, irrespective of whether the alleged kickback influenced a physician’s prescribing behavior.
Regeneron argued that a claim is only considered “false” under the FCA if the AKS violation directly caused the claim’s submission—meaning the claim would not have been submitted without the kickback. The First Circuit sided with Regeneron, interpreting the phrase “resulting from” in the FCA’s 2010 amendment to the AKS as necessitating a but-for causation standard.
The court referenced the Supreme Court’s ruling in Burrage v. United States, which emphasized the need for actual causality rather than mere correlation. Consequently, the First Circuit dismissed the government’s assertion that a claim could be deemed false simply as it followed an AKS violation, mandating proof that the kickback was a decisive factor in the claim’s submission.
Comparative Analysis: Circuit Standards on FCA and AKS Violations
The First Circuit’s ruling in Regeneron contributes to a growing consensus among appellate courts advocating for a but-for causation requirement in FCA cases linked to AKS violations. The Sixth Circuit, in United States ex rel. Martin v. Hathaway,and the Eighth Circuit,in United states ex rel. Cairns v. D.S. Medical LLC,have similarly concluded that an FCA claim is only false if an AKS violation directly caused the claim’s submission.
This contrasts sharply with the Third circuit’s ruling in United States ex rel. Greenfield v. Medco Health Solutions, Inc. (2018), which maintained that an AKS violation tainted all subsequent claims, nonetheless of its actual impact on provider decision-making. The Greenfield standard allowed the government to establish FCA liability without demonstrating that the alleged unlawful payment influenced the claims process.
By aligning with the sixth and Eighth Circuits, the First Circuit has reinforced a stricter standard that necessitates a direct connection between an AKS violation and a claim submission, thereby narrowing the scope of FCA liability and complicating speculative causation theories.
Impact on Health Care and Life Sciences Sectors
The First Circuit’s ruling significantly elevates the burden of proof for the government and whistleblowers in FCA cases related to AKS violations, which will have far-reaching implications for health care and life sciences companies.
1. Challenges for FCA Enforcement and Whistleblower Actions
With the First Circuit mandating but-for causation, establishing FCA liability based on financial arrangements that do not clearly lead to improper claims will become increasingly challenging. This is notably relevant for pharmaceutical manufacturers, medical device firms, and health care providers that offer financial incentives or discounts in line with industry standards. The government can no longer rely on broad “tainted claim” theories; it must now demonstrate that a kickback directly influenced a provider’s claim submission. Whistleblowers will also face heightened challenges in proving that a defendant knowingly engaged in unlawful conduct rather than merely structuring business arrangements that could be perceived as beneficial to providers.
2. Circuit Split and Potential Supreme Court Review
The First Circuit’s decision aligns with the stricter interpretations of the Sixth and Eighth Circuits, while the Third Circuit continues to apply a more lenient standard. this divergence among circuits increases the likelihood of Supreme Court intervention to resolve the issue. A ruling from the Court could either reinforce the trend toward a higher burden of proof or restore a more flexible standard favoring government enforcement.Until such a decision is made,companies operating across jurisdictions must navigate varying standards and adapt their compliance strategies accordingly.
3.Emphasis on Compliance Programs and Safe Harbor Protections
In light of the heightened standard for FCA liability, robust compliance programs are essential for mitigating risk.Companies should ensure that their financial arrangements with providers and third parties comply with AKS safe harbors, and that all incentives offered are justifiable by legitimate business purposes. the Department of Health and Human Services (HHS) has established over 35 safe harbors that exempt certain financial relationships from AKS liability, and organizations should regularly review these protections. Advisory opinions from HHS can also provide critical guidance in navigating complex compliance issues. By aligning practices with regulatory guidance, companies can reduce FCA liability risks and strengthen their defenses against potential enforcement actions.
4. Proactive Risk Management Strategies
The First Circuit’s ruling underscores the necessity for health care and life sciences companies to adopt proactive regulatory risk management strategies. Organizations should meticulously evaluate their financial relationships with providers, vendors, and third parties to avoid any appearance of improper inducements. This includes conducting internal audits, reviewing contracts, and ensuring compliance with AKS requirements for discounts, rebates, or financial incentives.Training programs for sales and marketing teams should stress the importance of structuring business transactions to avoid any implication of improper intent.Additionally, maintaining clear internal documentation that justifies financial arrangements can serve as a vital defense in the event of an FCA inquiry.
Final Thoughts
The First Circuit’s ruling in Regeneron signifies a pivotal shift toward a more stringent standard in FCA cases related to AKS violations. By enforcing a but-for causation requirement, the ruling constrains the government’s ability to impose liability based on broad “tainted claim” theories.
as the circuit split widens, a Supreme Court review appears imminent. In the interim, health care and life sciences companies must prioritize AKS compliance and proactively manage regulatory risks to safeguard against potential FCA liability.
For further insights on how this decision may affect your institution, please reach out to our Government Enforcement and Investigations team and our Health Care and Life Sciences Litigation team.
False Claims Act (FCA) Enforcement Tightens: Expert Insights on the First Circuit’s ruling and the Anti-Kickback Statute (AKS)
Time.news: Welcome, Dr. Anya Sharma,a leading expert in healthcare law and compliance. Thanks for joining us to discuss the recent First Circuit ruling regarding the False Claims Act (FCA) and the Anti-Kickback Statute (AKS). This appears to be a important growth for the healthcare and life sciences sectors.
Dr. Sharma: Thank you for having me. It’s definitely a ruling that warrants attention.
Time.news: For our readers who might not be familiar, could you briefly explain the connection between the FCA and the AKS? Why are these two regulations so intertwined?
Dr. sharma: Certainly. The Anti-Kickback Statute (AKS) prohibits offering or paying anything of value to induce or reward referrals of federal healthcare programme business. The False claims Act (FCA) then comes into play when these AKS violations lead to the submission of false or fraudulent claims to those federal programs, like Medicare. Essentially, if a claim results from a kickback arrangement, the government can pursue action under the FCA.
Time.news: The article highlights the First Circuit’s decision in Regeneron Pharmaceuticals, Inc. What’s the key takeaway from that ruling, specifically concerning causation?
Dr. Sharma: The crucial point is the first Circuit established a “but-for causation” standard.They ruled that the government must prove the alleged Anti-Kickback Statute (AKS) violation directly caused the submission of the false claim. They essentially sided with Regeneron’s argument that a claim is only false under the FCA if it would not have been submitted but for the alleged kickback. it’s not enough for the government to simply show a kickback existed and then Medicare claims were submitted; they need to demonstrate a causal link.
Time.news: So, the government seemingly has a higher hurdle to clear now in the First Circuit. How does this compare to other circuits? The article mentions a circuit split.
Dr. Sharma: Exactly. The First Circuit’s ruling aligns with the Sixth and Eighth Circuits, both of which also require this “but-for causation.” However, this contrasts with the Third Circuit, which follows a more lenient approach from the Greenfield v. Medco Health Solutions, Inc. case. The Third Circuit basically asserted that any claim tainted by an AKS violation could be found in violation of the FCA, nonetheless of weather the kickback actually influenced decision-making. This creates a significant circuit split.
Time.news: What are the potential implications of this circuit split for healthcare companies and life sciences companies operating in different regions of the country?
Dr.Sharma: It introduces a layer of complexity. Companies operating nationally must now be aware of these varying standards. What might be deemed acceptable in the Third circuit could expose them to False Claims act (FCA) liability in the First, Sixth, or eighth Circuits. Robust compliance programs become even more essential, and a very careful evaluation of the compliance risks is paramount.
Time.news: Do you think this circuit split increases the likelihood of Supreme Court intervention to resolve the conflict regarding False Claims Act (FCA) enforcement?
Dr. Sharma: Absolutely. This circuit split is significant enough that it raises the probability of the Supreme Court stepping in to provide clarity and uniformity across the nation, when it comes to enforcement of the False Claims Act based on violations of the Anti-kickback Statute.
Time.news: Assuming the First Circuit’s “but-for causation” standard gains more traction, or is ultimately upheld by the Supreme Court, what proactive steps should healthcare and life sciences companies take to mitigate their False Claims Act (FCA) risk?
Dr. Sharma: Several key actions are crucial. Firstly, robust compliance programs are essential. Companies must rigorously ensure that their financial arrangements with providers and third parties comply with AKS safe harbors.This includes clear documentation justifying all discounts, rebates, or financial incentives and ensuring alignment with legitimate business purposes. They should regularly review these existing protections. Secondly, conduct internal audits of contracts and financial relationships. Thirdly,provide training for sales and marketing teams emphasizing compliant business transaction structuring. seek advisory opinions from the HHS is advisable when navigating especially complex compliance issues.
Time.news: The article also mentions the importance of adhering to AKS safe harbor protections. Can you elaborate on what these are and why they are essential for compliance?
Dr. Sharma: The Department of Health and Human Services (HHS) has established over 35 safe harbors that exempt certain financial relationships from AKS liability. They essentially outline specific arrangements that are considered low-risk and do not violate the AKS. Examples include properly structured investment interests, space rentals, and employee compensation. By structuring arrangements to fall squarely within these safe harbors, companies gain significant protection against potential AKS and subsequent False Claims Act (FCA) liability. Regular reviews and updates to these protections are crucial, given their evolving nature.
Time.news: What is your final takeaway from this news for our readers in the healthcare and life sciences industries?
Dr. Sharma: The First Circuit ruling underscores the increasing scrutiny of financial relationships within the industry. Healthcare and life sciences companies need to view AKS compliance as not just a legal obligation, but a business imperative. Proactive regulatory risk management, robust compliance programs, and a deep understanding of the shifting legal landscape are critical to safeguarding against potential False claims Act (FCA) liability.