On the heels of the Sixth Circuit’s recent decision in Martin v. Hathaway, previously discussed on Health Law Observer, a critical issue in that case, i.e., the meaning of the term “remuneration” for purposes of the federal Anti-Kickback Statute (“AKS”), is again being litigated. Though, this time the case involves Methodist Le Bonheur Healthcare and Methodist Healthcare-Memphis Hospitals (“Methodist”), a nonprofit health care system in Memphis, TN.
Methodist has been sued by a whistleblower, with the government intervening, alleging that Methodist, in entering into certain contractual arrangements with private oncology practice The West Clinic (“West”), violated the False Claims Act by submitting claims to Federal health care programs resulting from violation of the AKS, with the AKS violation on account of Methodist allegedly paying illegal remuneration to West in exchange for referrals with the requisite scienter.
At this juncture, the case, which is being litigated in the U.S. District Court for the Middle District of Tennessee (i.e., in the Sixth Circuit, the same circuit as in Hathaway), centers on a motion for summary judgment filed by Methodist and the government’s opposition to that motion. The question principally presented (as discussed below) is a burden of proof question because it involves the definition of the term “remuneration,” without which there can be no AKS violation. Resolution of this question is of substantive significance beyond its importance in the litigation.
Remuneration Notwithstanding Fair Market Value and the Question of Burden of Proof
The AKS prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by a federal health care program. While both parties in the Methodist case acknowledge that the term is not defined in the statute, they disagree as to its meaning.
In its brief in support of its motion, Methodist asserts that summary judgment should be granted because, among other things, (i) it has presented evidence that all payments to West have been at fair market value and thus cannot constitute remuneration as is required for an AKS violation, and (ii) the government offered no evidence of its own regarding the fair market value of the physicians’ services; this notwithstanding that, according to Methodist, the government (or if applicable a qui tam plaintiff) carries the burden to offer evidence that there have been non-fair market value payments.
In opposition to the grant of the motion, the government asserts that it does not carry the burden with respect to the question of fair market value. To the extent fair market value is relevant in deciding whether there has been a violation of the AKS, it is Methodist who carries the burden of establishing fair market value as an affirmative defense.
The government’s position fundamentally flows from its interpretation of the term “remuneration” as being sufficiently broad in scope as to cover a payment for items or services even if there is a fair market value exchange. In other words, under the AKS, neither a legitimate business purpose for an arrangement, nor a fair market value payment, will legitimize a payment if there is also an illegal purpose (i.e., inducing federal health care program business).
In support of its view as to the meaning of “remuneration,” Methodist relies heavily on the Eleventh Circuit’s decision in Bingham v. HCA, Inc., 783 F. App’x 868 (11th Cir. 2019). As described by Methodist, in that case the court of appeals, looking in part to the dictionary definition of remuneration (per Black’s Law Dictionary) and to its definition in the Medicare Act (transfers of items or services for free or for other than fair market value), affirmed the district court’s grant of summary judgment to HCA because the qui tam plaintiff did not show that any of the leasing arrangements between physicians and HCA conferred any benefit in excess of fair market value.
Applying that fair market value standard, Methodist states that the undisputed evidence is that the payments under the parties’ agreements were at fair market value. Stated differently, the government, bearing the burden of proof, developed no proof that any payments from Methodist to West were not fair market value. Consequently, there was no remuneration and no violation of the AKS.
In response, the government cites various cases that it asserts support its position that neither a legitimate business purpose for an arrangement nor fair market value will legitimize a payment if there is also an illegal purpose. In other words, to establish that remuneration was paid for AKS purposes, it need not affirmatively show that the payment involved in a “kickback scheme” deviated from fair market value.
In its in brief in opposition, it states:
“The purported requirements of [fair market value] and commercial reasonableness are absent from the plain language of the statute. That is, in describing the conduct it proscribes, nowhere does the AKS expressly or implicitly reference such additional elements of the offense.”
The government does acknowledge that certain of the AKS “safe harbors” (e.g., the personal services, space rental and equipment rental safe harbors) do include requirements that remuneration be consistent with fair market value, but asserts that Methodist did not invoke a safe harbor in defending against the AKS claim. Additionally, it points out that those safe harbors that include a fair market value requirement also have additional requirements, thereby causing only a “small subset” of such fair market transactions to be exempt from the AKS.
The government concludes by stating that:
“Once the United States has shown proof of each element of an AKS violation, the burden shifts to defendants to show that their conduct is protected by a safe harbor .… Here, Methodist has never asserted that its conduct was protected by a safe harbor, so that is not an issue.”
Beyond the question of who bears the burden of proof in AKS litigation, the outcome of the case likely has implications at the transaction planning stage and again when the government is considering bringing a case in its own name or intervening in a case filed by a qui tam relator.
If the court denies Methodist’s request for summary judgement and thereby adopts the government’s position that, under the AKS, neither a legitimate business purpose for an arrangement nor a fair market value payment will legitimize a payment if there is also an illegal purpose (i.e., inducing federal health care program business), then it presumably follows that the parties to an arrangement involving a payment by a person in a position to obtain referrals to a person in a position to make referrals need to be prepared not just to demonstrate fair market value (e.g., through expert analyses/conclusions using well-established valuation methodologies), but also to appropriately demonstrate that no one purpose of the payment is to induce or reward referrals. In addition, given the government’s statements regarding the safe harbors, the parties may also want to be prepared to demonstrate that critical elements of an applicable safe harbor have been satisfied.
If, on the other hand, summary judgment is granted because the court adopts Methodist’s position that there can be no remuneration for AKS purposes if the payment between a party in a position to refer and a party in a position to receive referrals is at fair market value, then there can be no AKS violation once fair market value is established and the matter is thus concluded.
Moreover, if Methodist’s position is adopted, the burden will be on the qui tam plaintiff or, if applicable, the government to present evidence of non-fair market value payments. (Even so, it will of course always be in the parties’ best interest to take steps to demonstrate fair market value and to satisfy critical components of an applicable safe harbor.)
All that said, the district court’s decision will almost certainly be appealed to the Sixth Circuit no matter what the outcome, and we will likely be left with a split in the circuits given the Bingham case cited by Methodist and the opposing cases cited by the government.
 In Hathaway, the question was whether a hospital’s refusal to hire a physician in return for another physician’s general commitment to continue referring his surgery patients to the hospital entailed a payment or transfer of value constituting remuneration.
 Among others it cites: United States v. Marlin Med. Sols. LLC, 579 F. Supp. 3d 876, 892-93 (W.D. Tex. 2022) (“[t]he presence of a legitimate business purpose for the arrangement or a fair market value payment will not legitimize a payment if there is also an illegal purpose.”; United States v. Sutter Health, 2021 WL 9182522, at *10 (N.D. Cal. Mar. 17, 2021) (“The AKS does not have a fair market value requirement”); and United States ex rel. Perri v. Novartis Pharms. Corp., 2019 WL 6880006, *13 n.14 (D.N.J. Feb. 21, 2019) (“there may be situations where an exchange is an illegal ‘remuneration’ within the meaning of the AKS, even though the exchange itself is for ‘fair market value.’”)
 In its brief supporting its motion, Methodist vigorously states: “The government takes the remarkable position … that whether payments Methodist made to West were ‘fair market value’ is irrelevant because Methodist has not raised any ‘safe harbor’ defense.”
 An illegitimate purpose may be evidenced via emails, correspondence, notes, statements, minutes of meetings, etc. showing that the parties were focusing on referrals.