Seventh Circuit Affirms Liability in AKS-Based FCA Suit But Vacates Award of Damages

The United States Court of Appeals for the Seventh Circuit recently considered a district court’s nearly $6 million judgment in a qui tam False Claims Act (“FCA”) suit based on Anti-Kickback Statute (“AKS”) violations. The Seventh Circuit affirmed the judgment of liability, finding sufficient evidence to support the district court’s finding that the defendants “knowingly and willfully” purchased referrals and that the arrangement was not protected by a safe harbor. The court also determined that the nearly $6 million judgment did not violate the Excessive Fines Clause of the Eighth Amendment to the United States Constitution. However, it vacated the judgment and remanded for the district court to determine whether its calculation of damages impermissibly included claims that did not result from an AKS violation. The case is Stop Illinois Health Care Fraud, LLC v. Sayeed, Nos. 22-3295 and 23-19423 (7^th Cir. May 2, 2024).

Background Facts

The defendants — a healthcare management company (Management Principles, Inc., or MPI), two companies that provide home-based medical services to Medicare recipients (Vital Home & Healthcare and Physician Care Services), and the owner of those companies, Asif Sayeed — entered into an arrangement with the Healthcare Consortium of Illinois, an entity that evaluated seniors’ needs for in-home healthcare and then referred them to local providers.

Vital and Physician Care were included on a list of approved providers maintained by the Consortium from which the Consortium made referrals on a rotational basis. The rotational basis of the referrals ensured that no approved provider received more referrals than others. The referrals made to Vital and Physician Care as a result of this rotational referral practice were not challenged.

However, Sayeed sought to bypass the rotational referral system to obtain more referrals for his companies. In December 2010, MPI agreed to pay the Consortium $5,000 per month for access to the Consortium’s clients’ healthcare data, which MPI used to directly solicit healthcare business for Vital and Physician Care, which in turn, billed Medicare for that business and then split the fee with MPI.

Pursuant to the arrangement, in the first 18 months, MPI paid the Consortium $90,000. The monthly payments from MPI stopped around May 2012, but MPI continued data mining the Consortium’s records, and between December 2010 and June 2015, Vital and Physician Care billed the federal government over $700,000 for services provided to the Consortium’s clients. The extent to which those payments related to services that resulted from the Consortium’s rotational referral system (which was not challenged), rather than from MPI’s data mining of the records it purchased from the Consortium, is unclear.

Records That Can Be Data-Mined to Find Medicare Patients May Constitute “Referrals”

The Anti-Kickback Statute prohibits “knowingly and willfully offer[ing] or pay[ing] any remuneration . . .  to any person to induce such person [] to refer an individual” for a federally reimbursable healthcare service. 42 U.S.C. § 1320a-7b(b)(2). In the district court’s first bench trial, in July 2019, the court found for the defendants on the grounds that the patient records that MPI purchased were not “referrals.” Recounting its prior opinion reversing that determination, the Seventh Circuit noted:

The plaintiff appealed, challenging the district court’s interpretation of a “referral” as unduly narrow. We agreed, concluding that Congress’s “definition of a referral under the Anti-Kickback Statute is broad, encapsulating both direct and indirect means of connecting a patient with a provider.” [Stop Illinois Health Care Fraud, LLC v. Sayeed, 957 F.3d 743, 750 (7^th Cir. 2020).] We also observed that the defendants’ conduct— paying to access medical records that it used to solicit new clients—qualified as a form of indirect referral giving rise to an unlawful kickback scheme.

Whether Defendants “Knowingly and Willfully” Violate the AKS Depends on Their Subjective Intent

Sayeed and his companies complained that the “district court improperly evaluated Sayeed’s state of mind based on what he objectively must have believed rather than what he actually thought” in violation of “the longstanding principle that FCA liability turns on a defendant’s subjective intent.” The Seventh Circuit did not reject the defendants’ premise. It agreed that the Supreme Court’s recent decision in United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023), affirmed that liability turns on a defendant’s subjective intent. Yet, it found that “the district court took care to ground its analysis in Sayeed’s subjective mental state, pointing to portions of his trial testimony where he explained his intent to mine the Consortium’s client healthcare data for solicitation opportunities.” Reinforcing this conclusion that the evidence supported the district court’s analysis, the Seventh Circuit noted that “Sayeed testified at trial that he had spent over three decades in the healthcare industry and knew full well that it was ‘illegal to buy protected health information.’”

Claims That Did Not “Result From” an AKS Violation Are Not Properly Included in FCA Damages

The Anti-Kickback Statute provides that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim” for purposes of the False Claims Act. 42 U.S.C. § 1320a-7b(g) (emphasis added).

The district court counted as a government loss the full amount (over $700,000) for the claims that Vital and Physician Care submitted to Medicare during the period that it was data mining Healthcare Consortium’s records (December 2010 to June 2015). Yet, the defendants argued “that the Consortium continued to lawfully refer patients to MPI while the company mined its data” and that some (perhaps all) of the claims that were used to calculate damages were the result of the Consortium’s standard rotational referral system (which was not challenged) rather than the illegal data mining. This discrepancy, the Seventh Circuit concluded, was determinative of whether the claims were properly included in the district court’s calculation of damages:

The phrase “resulting from” requires that there be some causal nexus between the allegedly false claims and the underlying kickback violation. It is not enough to show that a defendant both engaged in unlawful kickbacks and submitted false claims. The latter must “result[] from” the former. This means that, at a minimum, every claim that forms the basis of FCA liability must be false by virtue of the fact that the claims are for services that were referred in violation of the Anti-Kickback Statute.

While there is a split between the circuits as to whether the “resulting from” language requires “but-for” causation or something less—see, e.g., United States ex rel. Martin v. Hathaway, 63 F.4th 1043, 1054–55 (6th Cir. 2023); United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 98 (3d Cir. 2018); United States ex rel. Kester v. Novartis Pharmas. Corp., 41 F. Supp. 3d 323, 332– 35 (S.D.N.Y. 2014)—the Seventh Circuit concluded that it need not resolve that question:

If Sayeed and his companies provided services to clients of the Consortium after MPI signed the data-mining agreement—and if the Consortium never referred those clients to the defendants through its standard rotational system—then even the strictest causal test would be satisfied. Any such services would necessarily result from the kickback scheme because, without mining the Consortium’s data, the defendants would not have provided services to those patients. If, on the other hand, the defendants provided services to patients that the Consortium assigned to the defendants through its ordinary-course referral process, then Medicare claims for those services would bear no causal connection to the data-mining scheme.

All that remains, then, is whether the Consortium officially assigned any of the patients who appear on the loss spreadsheet to Vital or Physician Care through its standard rotational-referral process.

The Seventh Circuit rejected the district court’s adoption of the theory that the defendants’ AKS violations tainted every Medicare claim that came thereafter. It noted that the district court’s “broad suggestion—that every claim for payment following an anti-kickback violation is automatically false regardless of its origin—is inconsistent with § 1320a-7b(g)’s directive that a false claim must ‘result[] from’ an unlawful kickback.” Thus, the Seventh Circuit returned the case to the district court with instructions to exclude from its calculation of damages to the government all claims that “were for services provided to patients that the Consortium officially referred to either Vital or Physician Care through its standard rotational-referral system.”

AGG’s Observations

• It is unclear whether other circuits will adopt the Seventh Circuit’s broad understanding of what constitutes a “referral.” But providers should take note that some courts, including the Seventh Circuit, have interpreted that term broadly to include any “direct and indirect means of connecting a patient with a provider.”
• Some observers may sense a disconnect between, on the one hand, the district court’s determination in 2019 — after full briefing and due consideration — that the defendants could not have violated the AKS because the receipt of the Consortium’s records was not a “referral” — and its later determination that the defendants (between 2010 and 2015) “knowingly and willfully” offered and paid remuneration in return for referrals when they paid the Consortium money for records that they would data mine. After all, how could the defendants have “knowingly and willfully” purchased referrals between 2010 and 2015 when, in 2019 and until the Seventh Circuit’s reversal in 2020, the district court was convinced that the records the defendants purchased could not constitute “referrals”? The Seventh Circuit’s most recent decision does not directly answer that question. But perhaps the answer lies in the determination that, while Sayeed and his companies may not (and perhaps could not) have known that they were violating the AKS, Sayeed did know it was illegal to purchase protected health information. And his intent to do something that the law forbids may have been enough to satisfy the “willfully” standard of the AKS. See, e.g., Klaczak v. Consol. Med. Transp., 458 F. Supp. 2d 622, 675 (N.D. Ill. 2006).
• The nexus required between a violation of the AKS and claims submitted to the federal government has been the subject of considerable disagreement between relators/government and defendants — and within the courts. The Seventh Circuit’s interpretation excluding claims for services referred through standard processes so that FCA liability attaches only to claims connected to the AKS scheme gives meaning to the AKS’ “resulting from” language.

For more information, please contact AGG Healthcare and Government Investigations partner Jerad Rissler.

AGG’s Government Investigations attorneys have successfully represented companies and individuals, including public company executives, in civil and criminal investigations before the U.S. Department of Justice and U.S. Attorney’s Offices nationwide, the Securities and Exchange Commission (“SEC”), the Food and Drug Administration (“FDA”), the Environmental Protection Agency (“EPA”), the U.S. Department of Agriculture (“USDA”), and many other federal and state regulatory and enforcement agencies. We frequently represent clients in parallel civil and criminal investigations and in regulatory proceedings. We also assist our clients in developing and providing a coordinated response to the internal and public concerns that accompany these matters, including helping them respond to media interests and address reputational concerns.