One of the most fundamental elements of managing risk under the federal Anti-Kickback Statute (AKS) is ensuring remuneration is consistent with fair market value. A recent Eleventh Circuit case highlights the centrality of fair market value to AKS analyses. See Bingham v. HCA, Inc., Case No. 1:13-cv-23671 (11th Cir. 2019). In Bingham, the court held that proving fair market value is an essential element for a relator to survive summary judgment and that relators must plead a lack of fair market value consistent with the Rule 9(b) particularity requirement to allege improper remuneration exists in the first place. The court’s holding is significant for two reasons: (1) it underscores that the plaintiff bears a burden in pleading and proving lack of fair market value, and (2) it suggests that fair market value compensation may be an absolute defense to an AKS allegation. We expect to see Bingham cited by many defendants in future False Claims Act cases, and we will be watching to see how the Eleventh Circuit and other courts continue to evaluate these concepts.
Case Background and Procedural History
We note that it took five years of costly litigation for HCA to reach this decision. Relator, who has filed a number of cases against hospital systems over the years concerning real estate deals, filed his first amended complaint on August 15, 2014. Relator alleged that HCA, through its Centerpoint Medical Center and Aventura Hospital facilities, violated the FCA due to improper space rental arrangements with physicians. Relator alleged that HCA allegedly paid a medical office building developer improper subsidies and that the developer passed the value of these subsidies onto physician tenants who signed 10-year leases through low initial lease rates, restricted use waivers, operating cash-flow shares and free office improvements. Relator also alleged HCA provided direct remuneration to physician tenants at the Aventura facility, including free parking, subsidized common area maintenance, free use permissions and below market rent.
The United States declined to intervene on February 23, 2015. The district court then denied the parties’ joint motion to stay discovery while considering HCA’s motion to dismiss. Discovery commenced and the allegations against Centerpoint and Aventura took different paths. The district court dismissed relator’s compliant regarding Aventura on January 28, 2016. On March 8, 2016, relator filed a second amended complaint for Aventura. But discovery proceeded on the Centerpoint claims, leading to HCA’s summary judgment motion, which the district court granted on April 6, 2016. The district court then granted HCA’s motion to strike impermissible facts from the second amended complaint that the relator learned during discovery and dismissed the repleaded Aventura claims, issuing a final judgment on November 4, 2016. The appeal to the Eleventh Circuit ensued, and almost three years later, we have this decision.
Centerpoint’s Summary Judgment Ruling
On the Centerpoint arrangement, the Court affirmed the district court’s summary judgment decision in favor of HCA, finding that the “critical question we must ask” when examining relator’s allegations that HCA passed remuneration to physician tenants is “whether physician tenants received anything of value from [the developer] under or in connection with their leases in excess of the fair market value of their lease payments.” The Court stated that “the issue of fair market value is not limited to HCA’s safe harbor defense . . . but is rather something Relator must address in order to show that HCA offered or paid remuneration to physician tenants.”
The reasoning was based squarely on the definition of “remuneration.” The court consulted Black’s Law Dictionary to find remuneration defined as “payment; compensation” and that “compensation” required “some sort of benefit conferred.” In business transactions, the court said that “the value of a benefit can only be quantified by reference to its fair market value.” The court also borrowed from the civil monetary penalties statute, 42 U.S.C. § 1320a-7a(i)(6), which defines remuneration to include the “transfer of items or services for free or for other than fair market value.” Relator conceded that the proposed rents for the Centerpoint lease were within the range of “market rates” for new construction. The court thus found the relator failed to raise any problematic “benefits conferred in excess of fair market value” for the rental rates, space improvements, profit sharing or any other facet of the arrangement.
The court also examined the Centerpoint Stark Law allegation. Whereas the AKS analysis turns on the question of whether there was any remuneration to induce referrals, the Stark Law analysis is more technical: is there a “financial relationship” between the physician and the entity furnishing designated health services (DHS) and, if so, does it satisfy an applicable exception.
In this case, the question for Stark Law purposes was whether the lease arrangement created a financial relationship that met the definition of “indirect compensation arrangement.” In order to establish an indirect compensation arrangement, a relator (or the government) needs to show, among other things, that the physician receives aggregate compensation from the entity with which they have a direct financial relationship that varies with or takes into account the volume or value of referrals or other business generated by the physician for the DHS entity at the other end of the chain of financial relationships. The court held that there was no genuine factual dispute over whether an indirect compensation arrangement existed “because it plainly does not.” Specifically, the court found no evidence that “the rental rates or other benefits allegedly given by HCA to any specific physician tenant are at all correlated with the volume or value of referrals from that physician tenant.”
Aventura Motion to Dismiss Ruling
The Eleventh Circuit affirmed the district court’s dismissal of relator’s second amended complaint based on relator’s impermissible use information from discovery in the complaint, and that the second amended complaint did not otherwise satisfy Rule 9(b). In addition, and more importantly, the court also affirmed dismissing relator’s first and second amended complaints consistent with the court’s summary judgment ruling on the Centerpoint claims—namely, that the relator failed to state with any particularity how HCA conveyed remuneration directly or indirectly to specific tenants. Relator simply alleged that the leases did not reflect fair market value based on his “information and belief” and his own calculations regarding the value of the land, concluding “relator does not provide specific details or evidence to support his claims that long-term ground leases were grossly undervalued or included overly generous terms.”
Analysis and Lessons
The Bingham decision is significant for several reasons.
First, it recognizes the obligation of relators (and the government) asserting an AKS claim to allege with particularity in their complaint that payments were not consistent with fair market value and, ultimately, to prove that payments were not fair market value.
Second, the court’s reasoning on the AKS claim was that compensation that is consistent with fair market value does not create remuneration, and that without remuneration there can be no AKS claim. The Bingham decision will thus likely be cited for the proposition that fair market value compensation is an absolute defense to an AKS allegation.
Third, in evaluating whether the compensation arrangement “took into account the volume or value of referrals or other business generated” for purposes of the Stark Law, the court focused on whether there was any correlation between the lease terms and physician referrals. The court did not incorporate the question of fair market value into the volume/value analysis. Thus, the court appears to have construed the volume or value standard to be a question of variability and correlation—focusing on the nature of the compensation, rather than the absolute amount.
Finally, this case is a reminder that the current regulatory and enforcement environment can result in providers becoming stuck in a multi-year expensive litigation battle over arrangements with fair market value payments that involve little, or no, compliance concerns. Hopefully, the Department of Health and Human Services efforts to reform the AKS and Stark Law in the “regulatory sprint to coordinated care” will help dislodge providers from this ditch.