United States: Recent Developments On The Fair Market Value Front – Part 1

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set. The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA. 42 U.S.C. § 1320a-7b(g). Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of "remuneration" in return for, or to induce, the referral of federal health care program-reimbursed business. Remuneration can be anything of value and can be direct or indirect. In interpreting the "in return for/to induce" element, a number of federal courts across the country have adopted the "One Purpose Test," in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration.

Where does FMV come into the picture? In several places. First it is a requirement of some of the optional AKS "safe harbors" that the US Department of Health and Human Services has promulgated over time at 42 C.F.R. § 1001.952. If a scrutinized transaction or arrangement meets all of the requirements of a safe harbor, it "shall not be treated as [an AKS violation]"—end of story. If it does not meet all such requirements, the transaction or arrangement may still be legal, but the government (or a qui tam relator) is free to challenge it as an AKS violation by proving all of the required AKS elements noted above.

The importance of FMV outside of the safe harbors has been reaffirmed by a handful of recent federal court decisions.

An increasing number of courts have (at least implicitly) recognized that a referral recipient's provision of legitimate assets or services to a referral source generally cannot constitute prohibited remuneration for AKS purposes when the referral source pays FMV in return for what it receives. And the same is true when the transaction is reversed—with the referral recipient paying the referral source an FMV price for legitimate assets or services provided by the referral source. The underlying logic is pretty simple: if A pays B $100 in exchange for receipt of legitimate (non-referral) services that truly are worth $100, the entire purpose of the $100 payment is legitimate and there is no portion of it (i.e., no remuneration) left over whose purpose could, in whole or part, be to induce/reward any patient referrals B might send A's way—no matter how much A's contemporaneous emails, notes, statements, etc. may indicate that A desperately wants, or even expects, B to refer federally insured patients to A.

Even applying the government-friendly "One Purpose Test," it is mathematically clear in such a case that no purpose of the remuneration was to induce or reward referrals; all $100 were to pay for something legitimate received in return. That is precisely how one can square the "One Purpose Test's" seemingly massive sweep with some of the very same courts' recognition that a defendant has not violated the AKS "merely because [it] hoped or expected or believed that referrals may ensue from remuneration that was designed wholly for other purposes." United States v. McClatchey, 217 F.3d 823, 834 (10th Cir. 2000); accord, e.g., United States v. Omnicare, Inc., 663 F. App'x 368, 374 (5th Cir. 2016). How could one ever possibly determine that remuneration was "designed wholly for other purposes" if one had evidence of a contemporaneous hope or expectation by the payer of that remuneration that referrals between the parties would ensue? The answer is that the remuneration was set at FMV for the legitimate goods or services transacted between the parties.

Under this rubric, it is only where the referral recipient pays the referral source more than FMV, or charges the referral source less than FMV, for the legitimate assets/services that there is some remuneration left over whose purpose might be illicit in whole or part and is left to be otherwise explained. (Some courts have gone so far as to allow a presumption that any such excess remuneration was at least in part designed to induce or reward referrals, leaving the burden on the defendant to prove otherwise.)

For example, in United States ex rel. Cairns v. D.S. Med., LLC, No. 1:12CV00004 AGF, 2017 U.S. Dist. LEXIS 140628, at *1 (E.D. Mo. Aug. 31, 2017), the court recently denied the defendants' joint motion for summary judgment on the government's and relator's claims that they had violated the FCA by submitting claims for reimbursement for spinal surgery services and the purchase of implant devices that had resulted from a prohibited kickback arrangement among them and others. Some of the remuneration alleged to be part of the purported scheme was the fact that one (referral recipient) defendant allowed a (referral source) co-defendant to live with her for two-plus years "in a home she purchased, renovated, and furnished with funds from her [co-defendant distribution company's] bank account, at a rent a jury could find was below fair market value." Id. at *4 (emphasis added). In denying the motion for summary judgment, the court ruled that the relator and government potentially could meet their burden of proof in part because "being allowed to live in a home at a below market value rent could constitute remuneration under the AKS." Id. at *11 (emphasis added). The court was not directly confronted with the question of whether, had the rent charged instead been consistent with FMV, an AKS violation still could have been proven. But the court's repeated mention of the below-market level of the rent in its opinion underscores the importance of FMV in the AKS calculus.

In the same vein, in applying the AKS, at least three other district courts and one court of appeals panel recently have cited a (non-exclusive) definition of "remuneration" that Congress set forth in a separate, but parallel, statutory provision (the Civil Monetary Penalties Law‒CMPL) to limit "remuneration" in referral source transaction contexts to "transfers of items or services for free or for other than fair market value." 42 U.S.C. § 1320a-7a(i)(6) (emphasis added); see Miller v. Abbott Labs., 648 Fed. Appx. 555, 561, 2016 U.S. App. LEXIS 8882, *16, 2016 FED App. 0263N (6th Cir. May 12, 2016); United States ex rel. Wood v. Allergan, Inc., No. 10-CV-5645 (JMF), 2017 U.S. Dist. LEXIS 50103, at *56 (S.D.N.Y. Mar. 31, 2017); Bingham v. Baycare Health Sys., 2016 U.S. Dist. LEXIS 186016, *18 (M.D. Fla. Dec. 16, 2016) (magistrate judge decision); United States ex rel. Arnstein v. Teva Pharm. USA, Inc., 2016 U.S. Dist. LEXIS 22554, at *47 (S.D.N.Y. Feb. 22, 2016). While the statutory element semantics differ slightly from the logic discussed above, the bottom line based on this definition of remuneration borrowed from the CMPL is the same: the exchange of legitimate goods or services at an FMV price does not leave any room for illegal remuneration that could constitute an AKS violation.

Consensus for this position appears to us to be building over time, but decisions on the subject unfortunately have not been entirely uniform. In MedPricer.com, Inc. v. Becton, Dixon & Co., No. 3:13-cv-1545 (MPS), 2017 U.S. Dist. LEXIS 50226 (D. Conn. Apr. 3, 2017)—a non-FCA case concerning contract enforceability—in denying a motion to reconsider a summary judgment ruling, the court rejected the moving party's new argument that the AKS element of remuneration could not be proven because there was "no evidence in the record of a [non-FMV] payment" for that party's services, pointing to the CMPL definition of remuneration we just discussed. Departing from the Miller, Wood, Bingham and Arnstein courts, the court in MedPricer deemed the CMPL definition inapplicable to the AKS and also irrelevant because it was phrased in non-exclusive terms. At least among recent decisions, MedPricer stands alone in taking this view—although one should expect relators and the government to keep espousing it until a clear appellate-level consensus emerges on the issue.

Bottom line: in a referral source service contract or asset transaction setting, solid proof of FMV pricing will significantly reduce the risk of that transaction or arrangement giving rise to AKS-based FCA liability later on—even if it falls outside of the AKS Safe Harbors. Check back soon for a companion post, in which we will examine recent decisions on the mechanics and admissibility of FMV evidence, and identify some best practices in that area.

Recent Developments On The Fair Market Value Front – Part 1

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions