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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

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