District Court finds that AKS Violations are Per Se Material

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Last month, the Central District of California granted the government’s affirmative motion for partial summary judgment in U.S. v. Reliance Medical Sys., 2022 WL 524062 (C.D. Cal. Feb. 2, 2022).  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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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