Circuit Split on FCA Causation Deepens with Upcoming First Circuit Ruling

Blogs, Eye on Enforcement

Author(s) , ,

Eye on Enforcement

The First Circuit will decide the causation standard required in False Claims Act (FCA) cases predicated on the Anti-Kickback Statute (AKS), deepening a circuit split on the issue and potentially teeing up Supreme Court intervention.

U.S. District Judge Nathaniel Gorton asked the First Circuit to review his recent ruling that the government need not prove a “but for” causal connection between an AKS violation and an allegedly false claim. In certifying this decision for interlocutory appeal, Judge Gorton acknowledged that there is “substantial ground for difference of opinion” on the standard, likely referencing the growing divide between circuit courts on this outcome-determinative issue.  

Judge Gorton’s ruling pauses United States v. Teva Pharmaceuticals USA Inc. — a sprawling FCA case wherein the government accuses Teva Pharmaceuticals of using illegal kickbacks to boost its drug sales, thereby causing Medicare to pay $1.49 billion in tainted claims. Specifically, the government alleges that Teva paid two charitable foundations illegal co-pay subsidies in connection with the sale of Copaxone, a multiple sclerosis drug. Teva estimates its potential exposure in this case may exceed $10 billion — “an enterprise-threatening amount.”

Judge Gorton denied Teva’s argument that the government must demonstrate “but for” causation, instead relying on ambiguous language from the First Circuit requiring only a “sufficient causal connection” between an AKS violation and an alleged false claim. Judge Gorton did not clarify what constitutes a “sufficient causal connection.”

At issue is language in the AKS added by the Affordable Care Act in 2010 that states “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. Both the Sixth and Eighth circuits interpreted the phrase “resulting from” as requiring “but for” causation — i.e., requiring the government to show that the defendant would not have submitted the alleged false claim but for the AKS violation. The Third Circuit, however, construed this language as allowing something less than “but for” causation — requiring only a “link” between the alleged kickback and the claim.

The causation standard provides a crucial check on the increasing use of alleged AKS violations as predicates for FCA liability. Both the government and relators’ counsel expansively interpret the causation requirement to drive enormous damages models in FCA cases based on tenuous connections between the alleged AKS violation and the actual submission of claims. The First Circuit could contain this overreach and set reasonable limitations on FCA liability by agreeing with the Sixth and Eighth circuits in requiring “but for” causation or otherwise delineate the rational nexus between the AKS violation and the submitted claims required in its upcoming review of the Teva case.