United States ex rel. Shannon Martin, M.D. v. Darren HathawayUnited States ex rel. Shannon Martin, M.D. v. Darren Hathaway
COUNSEL
ARGUED: Julie A. Gafkay, GAFKAY LAW PLC, Saginaw, Michigan, for Appellants. Mary Massaron, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellees Darren Hathaway, M.D. and South Michigan Ophthalmology, P.C. Jonathan S. Feld, DYKEMA GOSSETT PLLC, Chicago, Illinois, for Appellee Ella E. M. Brown Charitable Circle. Daniel Winik, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for United States as Amicus Curiae. ON BRIEF: Julie A. Gafkay, GAFKAY LAW PLC, Saginaw, Michigan, Floyd E. Gates, Jr., Christopher J. Zdarsky, BODMAN PLC, Grand Rapids, Michigan, for Appellants. Mary Massaron, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellees Darren Hathaway, M.D. and South Michigan Ophthalmology, P.C. Jonathan S. Feld, Mark J. Magyar, Andrew T. VanEgmond, DYKEMA GOSSETT PLLC, Chicago, Illinois, Lisa A. McNiff, SCHROEDER DEGRAW PLLC, Marshall, Michigan, for Appellee Ella E. M. Brown Charitable Circle. Daniel Winik, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Jessica L. Ellsworth, HOGAN LOVELLS US LLP, Washington, D.C., for Amici Curiae.
SUTTON, C.J., delivered the opinion of the court in which SILER, J., joined in full, and MATHIS, J., joined in part and in the judgment. MATHIS, J. (pg. 17), delivered a separate opinion concurring in all but Section II.A. of the opinion.
SUTTON, Chief Judge. The False Claims Act imposes civil liability for “knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim [to the government] for payment or approval.”
I.
Oaklawn Hospital is located in Marshall, Michigan, a small city in the southern part of the State. When Oaklawn patients from Marshall need ophthalmology services, they have one locally based option, South Michigan Ophthalmology, P.C. This practice group had two private physicians, Dr. Darren Hathaway (the owner of the practice) and Dr. Shannon Martin (an employee of the practice). When these two ophthalmologists referred patients from Marshall for surgery, they tended to use the most convenient local option, Oaklawn. Oaklawn and South Michigan have referred Marshall-based patients to each other for many years.
Friction in these business relationships developed in 2018. Dr. Hathaway, the sole shareholder of South Michigan, began negotiating a merger with Lansing Ophthalmology, P.C. (LO Eye), a larger practice based in the State‘s Capitol. When Dr. Martin heard about the merger, she asked whether she would be able to work with LO Eye. When that fell through, she began negotiations with Oaklawn.
Dr. Martin‘s discussions with Oaklawn had a promising start, perhaps facilitated by her husband, Douglas Martin, who served as the Director of Finance for Oaklawn Hospital. On October 17, Oaklawn extended her a tentative offer to be a physician based at the hospital, subject to board approval. Consistent with the offer, the Board heard a rumor that Dr. Hathaway planned to move South Michigan‘s surgeries elsewhere—an Ambulatory Surgery Center located in Battle Creek, about a thirty-minute drive from Marshall—after his merger with LO Eye, making it sensible for South Michigan to hire an internal ophthalmologist.
An Oaklawn employee told Dr. Hathaway about the pending offer and conveyed Oaklawn‘s impression that Dr. Hathaway intended to move his surgeries to another hospital. Dr. Hathaway met with Oaklawn‘s interim CEO, Gregg Beeg, on October 22. Dr. Hathaway told Beeg that in fact he did not have any plans to pull his surgeries from Oaklawn, that he wanted to continue referring his Marshall patients who needed surgery to Oaklawn, and that he actually “expect[ed] business to increase” in the future. R.64-4 at 9. Dr. Hathaway told him that, if the Board approved the offer, it would be the “death knell” of his practice because Oaklawn‘s future patient referrals would go to Dr. Martin, the new, internal ophthalmologist. R.64 ¶ 23. Beeg encouraged Dr. Hathaway to speak to other board members.
In the coming days, Dr. Hathaway spoke with at least four board members. Dr. Hathaway also drafted a letter to the Board reiterating these points and explaining that his merger with LO Eye would allow LO Eye to take over his administrative
The Board met on October 26. Before the vote, several board members expressed concern about losing business if they hired Dr. Martin. The Board voted not to hire Dr. Martin. The Board Chairman called Dr. Hathaway to let him know about the decision. Another member texted Dr. Hathaway that Oaklawn “appreciate[d] all of [his] support,” wanted to “continue that partnership,” and that she was “[l]ooking forward to increased surgical volume.” R.64 ¶ 47. Dr. Hathaway responded, “[i]t‘s coming.” Id. As it turns out, the LO Eye merger with South Michigan fell through. And as things eventually played out, Dr. Hathaway continued as sole proprietor of South Michigan, and Dr. Martin set up her own practice in Marshall.
All of this did not sit well with Dr. Martin. She and her husband sued Dr. Hathaway, South Michigan, and Oaklawn Hospital in this qui tam action under the federal False Claims Act,
The Martins filed an amended complaint, adding 22 claims that Oaklawn and South Michigan submitted for reimbursement based on referrals. Oaklawn and Dr. Hathaway again moved to dismiss. The district court granted the motion, rejecting each of the federal claims as a matter of law and declining to exercise supplemental jurisdiction over the state law claims.
II.
Each of the allegations in the complaint turns on a variation on a theme—that Oaklawn Hospital‘s rejection of Dr. Martin‘s employment in return for Dr. Hathaway‘s commitment to continue sending local surgery referrals violated the Anti-Kickback Statute. At the motion to dismiss stage of a case, we must accept as true all plausible factual allegations in the complaint. In the context of allegations of “fraud,” Rule 9(b) of the Federal Rules of Civil Procedure requires the claimant to state with “particularity the circumstances constituting fraud.”
This complaint contains two legal flaws under the Anti-Kickback Statute and the False Claims Act. It does not turn on a cognizable theory of remuneration, and it fails to establish causation.
A.
Remuneration. The Anti-Kickback Statute establishes criminal and civil liability for “knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to refer an individual to a person for the furnishing . . . of any item or service” that is reimbursable under a federal health care program.
The statute does not define remuneration. At stake is whether it covers just payments and other transfers of value or any act that may be valuable to another. For the reasons that follow, it covers just payments and other transfers of value.
Congress first penalized the offer of “remuneration” in return for patient referrals in 1977 when it amended the Social Security Act. Medicare-Medicaid Anti-Fraud and Abuse Amendments, Pub. L. 95-142, § 4(a), (b), 91 Stat. 1179, 1181 (1977). Dictionaries around that time consistently described remuneration as a form of payment. See, e.g., Remuneration, Webster‘s Third New International Dictionary 1921 (1976) (“an act or fact of remunerating,” further defined as “to pay an equivalent for (as a service, loss, expense)“); Remuneration, Webster‘s New Twentieth Century Dictionary 1530 (2d ed. 1975) (similar); Remuneration, The American Heritage Dictionary of the English Language 1101 (1975) (similar); Remunerate, The Oxford Universal Dictionary Illustrated 1702 (3d ed. rev. 1970) (similar); see also Remuneration, Black‘s Law Dictionary 1165 (5th ed. 1979) (“Reward; recompense; salary; compensation.“).
Other uses of remuneration by Congress around the same time treated remuneration as something “paid” or transferred. See, e.g., Tax Treatment Extension Act of 1977, Pub. L. 95-615, § 209, 92 Stat. 3097, 3109 (1978) (applying a wage withholding amendment to “remuneration paid after the date of enactment“); Social Security Amendments of 1977, Pub. L. 95-216, § 103, 91 Stat. 1509, 1513 (1977) (determining contribution and benefit base “with respect to remuneration paid“); id., § 355, 91 Stat. at 1555 (allowing employers to take certain tax deductions if they “pa[id] to an employee cash remuneration“).
Context points in a similar direction. In the relevant sentence, the statute refers to remuneration in “cash” or in “kind,” two words that suggest payments or transfers of some sort. The statute also offers three non-exhaustive examples of remuneration: kickbacks, bribes, and rebates. Kickbacks and bribes usually involve payments of money or transfers of specific items of value, and rebates customarily involve amounts of money owed. As the Supreme Court recently confirmed, other federal laws that prohibit bribery require more than acts that may be of value to another. They bar “quid pro quo corruption—the exchange of a thing of value for an ‘official act.‘” McDonnell v. United States, 579 U.S. 550, 574 (2016).
In exempting some payments and transfers from remuneration, Congress conveyed
Notably, each exemption has a payment quality. The safe harbor exemptions range from certain discounts or reductions in price and vendor payments to provisions of “goods, items, services, donations, loans, or a combination thereof” to health center entities serving underserved populations.
A cousin of the Anti-Kickback Statute—the civil penalties section of the Social Security Act—also indicates that remuneration requires a payment or transfer of value to another. It imposes fines on any person who “offers [] or transfers remuneration to any individual eligible for benefits” to influence the individual‘s choice of medical providers. Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, § 231, 110 Stat. 1936, 2014 (1996); see
Other statutes across the legal landscape refer to different types of remuneration yet none of them changes the essence of remuneration as a payment or transfer. The Railroad Retirement Tax Act‘s reference to “money remuneration” excludes stock options because elsewhere in the U.S. Code Congress referred to “all remuneration.” Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2071–72 (2018). The Social Security Act offers a range of settings: “[W]ages” in one context is “remuneration paid,”
The Office of Inspector General seems to accept this approach. See
While other appellate courts have not faced this precise issue, they define remuneration in the same way, one that entails a payment or transfer. See Wis. Cent. Ltd., 138 S. Ct. at 2071 (A statute that taxed “‘any form of money remuneration,’ . . . indicate[d that] Congress wanted to tax monetary compensation.“); United States v. Greber, 760 F.2d 68, 71 (3d Cir. 1985) (“Remunerates” covers efforts “to pay an equivalent for service.” (quotation omitted)); Guilfoile v. Shields, 913 F.3d 178, 189 (1st Cir. 2019) (“Essentially, the [Anti-Kickback Statute] targets any remunerative scheme through which a person is paid in return for referrals to a program under which payments may be made from federal funds.” (quotation omitted)); Pfizer, Inc. v. HHS, 42 F.4th 67, 75 (2d Cir. 2022) (“‘Remuneration’ means [p]ayment; compensation, esp[ecially] for a service that someone has performed, and the modifier ‘any’ further broadens the scope of the phrase.” (alteration in original) (quotation omitted)).
The setting of this statute also supports this reading. Recall that the same language creates civil and criminal liability. In the context of dual-application statutes like this one, we give the same interpretation to the same words, whether applied in a civil or criminal setting. That means that, if ambiguity exists over the meaning of a provision, the rule of lenity favors the narrower definition. Barber v. Thomas, 560 U.S. 474, 488 (2010); Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004); United States v. Thompson/Ctr. Arms Co., 504 U.S. 505, 518 n.10 (1992) (plurality); id. at 519 (Scalia, J., concurring in judgment); Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 727 (6th Cir. 2013).
There is one other problem with the broader definition. It lacks a coherent end point. Consider the hospital that opens a new research center, purchases top of the line surgery equipment, or makes donations to charities in the hopes of attracting new doctors. Or consider the general practitioner who refuses to send patients for kidney dialysis treatment at a local health care facility until it obtains more state-of-the-art equipment. Are these all forms of remuneration? Unlikely at each turn.
The complaint‘s key theory of remuneration turns on the Oaklawn Board‘s refusal to hire Dr. Martin in return for Dr. Hathaway‘s general commitment to continue sending surgery referrals for his patients to Oaklawn. But Oaklawn‘s decision not to hire someone does not entail a payment or transfer of value to Dr. Hathaway. While Oaklawn‘s decision may have benefitted Dr. Hathaway—it prevented Oaklawn‘s patient referrals from being sent to an ophthalmologist who worked at the hospital—Oaklawn never offered Dr. Hathaway anything at all. Oaklawn‘s decision not to hire or support Dr. Martin, it is true, helped Dr. Hathaway continue his practice as before and perhaps helped him to further negotiations to merge with LO Eye. But that is not remuneration by any standard definition of the term. The long and the short of it is that this business dispute ended as it began: Dr. Hathaway continued to treat patients in Marshall and continued to refer them to Oaklawn for any needed surgeries.
Even under an anything-of-value definition of remuneration, moreover, it is doubtful that the Martins allege a cognizable referrals-for-referrals scheme. Consider how vague, how non-concrete, the alleged agreement was. It had no time frame. It had no specific volume requirement. It applied only to patients from the same town in which the hospital was located and only if the hospital offered the surgery service—thus applying only when it was most natural to refer patients in each direction. It had no condition on use of certain services at the hospital—say use of a certain type of medical equipment based on how many referrals a doctor made. And it did not come with any other guarantees. While it is difficult to imagine a statute with criminal application applying to something as vague as “anything of value,” we suspect that any such application would be ironed out with more specific requirements, conditions, and commitments. Any such refinements are not found in this complaint or the briefs of the parties. Nor for similar reasons, we suspect, have we found any cases treating a decision not to hire someone as remuneration covered by the Anti-Kickback Statute.
The Martins and the government, as amicus curiae, resist this conclusion. They note that the law prohibits “any” remuneration, a word of expansion, not confinement. United States v. Gonzales, 520 U.S. 1, 5 (1997). But that reality proves only that the statute covers remuneration of any type (cash, services, goods), not that Congress altered its customary meaning.
The Martins and the government point out that the 1972 precursor to the Anti-Kickback Statute made it a misdemeanor to solicit, offer, or receive kickbacks, bribes, and rebates, suggesting that the 1977 addition of remuneration to the statute expanded coverage of the law. Social Security Amendments of 1972, Pub. L. 92-603, §§ 242(c), 278(b)(9), 86 Stat. 1329, 1419, 1454 (1972). Maybe so. The new law, it is true, covered “any remuneration (including any kickback, bribe, or rebate)“—and made the improper transfer a felony to boot. But, again, this does not show that Congress rejected the traditional meaning of remuneration. It shows only that payments in any form in this context—“directly or indirectly, overtly or covertly, in cash or in kind“—would not escape criminal penalty. See Greber, 760 F.2d at 72 (“By adding ‘remuneration’ to the statute . . . Congress sought to make it clear that even if the transaction was not considered to be a ‘kickback’ for which no service had been rendered, payment nevertheless violated the Act.“).
The Martins and the government insist that Oaklawn Hospital‘s decision not to hire Dr. Martin amounted to an offer of referrals to Dr. Hathaway. But that‘s not what happened. In refusing to hire Dr. Martin, Oaklawn simply left things where they were. Taken to its no-stopping-point conclusion, Dr. Martin‘s theory of liability might make her liable for referrals from Oaklawn before these negotiations began in connection with her referral of surgery patients to Oaklawn. Nothing in the complaint, moreover, shows that physicians at Oaklawn lacked authority to refer their patients to whatever ophthalmologists they wished.
The reader may recall that the False Claims Act uses the word “payment” and the Anti-Kickback Statute uses the word “remuneration,” prompting the question whether remuneration means something broader. Compare
B.
Causation. The claimants face another problem: Neither Oaklawn nor Dr. Hathaway submitted claims for Medicare or Medicaid reimbursement for “items or services resulting from [the] violation” of the Anti-Kickback Statute.
The Eighth Circuit took this approach in this precise setting. United States ex rel. Cairns v. D.S. Medical L.L.C. reasoned that context could not overcome the ordinary meaning of the text—that “resulting from” means but-for causation. 42 F.4th 828, 834–36 (8th Cir. 2022). The government argued that several pre-2010 false certification cases did not require a causal link between the kickback scheme and the claim presented. As the government saw it, the 2010 statutory amendment had “simply codified” the holdings of those cases. Id. at 836 (quotation omitted). The Eighth Circuit responded that Congress could have codified those cases by using language that did so. Id. “[T]ainted by” or “provided in violation of,” for example, would have set out an alternative causation standard. Id. But Congress used “resulting from,” an “unambiguously causal” standard even in the face of these pre-amendment cases. Id. Where a statute “yields a clear answer, judges must stop.” Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356, 2364 (2019).
The Martins have not plausibly alleged but-for causation. The problem for the Martins is that the alleged scheme did not change anything. Before any of the alleged misconduct took place, Oaklawn was the only hospital in Marshall, and South Michigan was the only local ophthalmology group. The two entities naturally referred Marshall-based patients to each other—in one direction for eye check-ups and the like, in the other direction for surgeries. When Oaklawn decided not to establish an internal ophthalmology line at the hospital, the same relationship continued just as it always had. There‘s not one claim for reimbursement identified with particularity in this case that would not have occurred anyway, no matter whether the underlying business dispute occurred or not.
While the Martins identify 14 different surgeries for which Oaklawn submitted reimbursement claims to Medicare or Medicaid after the Board‘s decision, Dr. Martin notably performed 11 of those surgeries. Yet the Martins pleaded that Oaklawn‘s hiring decisions induced Dr. Hathaway to refer surgeries back to Oaklawn. They did not plead that Oaklawn‘s hiring decision induced Dr. Martin to make the same choice with her patients. Nor did the Martins plead that Dr. Hathaway ordered or required Dr. Martin to perform her surgeries at Oaklawn. And as for the three surgeries that Dr. Hathaway performed, two of those patients were first referred to Dr. Martin after the Board‘s decision, and only later went to Dr. Hathaway. Dr. Martin‘s independent decisions break any plausible chain of causation.
That leaves one surgery that Dr. Hathaway performed after the Board‘s decision for which Oaklawn sought reimbursement. But Dr. Hathaway performed that surgery in June 2019, over seven months after the Board‘s decision. Temporal proximity by itself does not show causation, and seven months would create few inferences of cause and effect anyway. See United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 100 (3d Cir. 2018) (“It is not enough . . . to show temporal proximity between [the] alleged kickback plot and the submission of claims for reimbursement.“); see also Boshaw v. Midland Brewing Co., 32 F.4th 598, 605 (6th Cir. 2022) (three-month time lapse between protected activity and an adverse employment action indicated lack of a causal link). Just how far into the future should the Board‘s alleged inducement extend? We can‘t say because the Martins don‘t tell us. The same problem that casts a pall over their remuneration theory exists here: No identifiable exchange of value occurred to anchor the scheme in time or place. In the Martins’ and “the [g]overnment‘s view, nearly anything a [doctor] accepts . . . counts as a quid; and nearly anything a [doctor refers] . . . counts as a quo.” McDonnell, 579 U.S. at 574–75. But that simply is not the law.
The Martins also identify eight claims that Dr. Hathaway‘s practice submitted for Medicare or Medicaid reimbursement after the Board‘s decision. According to the Martins, these claims resulted from Oaklawn‘s referrals. But the Oaklawn Board only decided not to hire an internal ophthalmologist. Oaklawn‘s individual physicians ultimately decided to whom they would refer patients. Because the Martins failed to allege that Oaklawn could control or direct the referral decisions of its physicians, their independent choices doom the chain of causation here, too.
The government, as amicus curiae, argues that, because Congress did not require but-for causation in the Anti-Kickback Statute, there‘s no reason why it would have done the same for a corresponding claim under the False Claims Act. But the “resulting from” language applies to all kinds of fraud claims without regard to whether the underlying claim has a causation component. The government also relies on legislative history that indicates the sponsors of the bill hoped to overrule a then-recent district court decision that had dismissed a False Claims action because the wrongdoer did not personally submit the resulting claim. 155 Cong. Rec. S10,853 (daily ed. Oct. 28, 2009) (Sen. Kaufman). But we generally do not consider legislative history in construing a statute with criminal applications, the idea being that no one should be imprisoned based on a document or statement that never received the full support of Congress and was presented to the President for signature. United States v. R.L.C., 503 U.S. 291, 307–10 (1992) (Scalia, J., concurring); United States v. Brock, 501 F.3d 762, 770–71 (6th Cir. 2007), abrogated on other grounds by Ocasio v. United States, 578 U.S. 282 (2016); Carter, 736 F.3d at 735 (Sutton, J., concurring). For that reason, the Third Circuit‘s contrary conclusion offers little assistance because it turns primarily on legislative history. See Greenfield, 880 F.3d at 96–97.
All in all, reading causation too loosely or remuneration too broadly appear as opposite sides of the same problem. Much of the workaday practice of medicine might fall within an expansive interpretation of the Anti-Kickback Statute. Worse still, the statute does little to protect doctors of good intent, sweeping in the vice-ridden and virtuous alike. Cf. McDonnell, 579 U.S. at 581 (rejecting “boundless” interpretation of bribery based on similar concerns in the political context). Examples clarify the point. Take the doctor concerned with outdated surgical equipment who tells a hospital that she will send referrals only if the hospital upgrades its facilities. That‘s a promised referral on one side. And if the other side is remuneration just because it‘s valuable, that‘s an Anti-Kickback Statute violation at the outset and a False Claims Act violation down the road for any claims resulting from those referrals. That‘s so even if the doctor‘s only motivation is ensuring the highest quality equipment for her patients. Or take the rural county that uses incentives to bring a hospital or a physician to
A faithful interpretation of the “remuneration” and “resulting from” requirements still leaves plenty of room to target genuine corruption. Interpreted as a transfer of value, remuneration potentially encompasses a range of payments: consulting contracts, United States v. McClatchey, 217 F.3d 823, 827 (10th Cir. 2000), inflated rent payments, McNutt ex rel. United States v. Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1258 (11th Cir. 2005), bogus salaries, United States v. Borrasi, 639 F.3d 774, 777 (7th Cir. 2011), “bonuses,” United States ex rel. Parikh v. Brown, 587 F. App‘x 123, 126 (5th Cir. 2014), speaking fees, Lawton ex rel. United States v. Takeda Pharm. Co., 842 F.3d 125, 129 (1st Cir. 2016), “referral fees,” Guilfoile, 913 F.3d at 184, commission payments to a romantic partner, Cairns, 42 F.4th at 831, and the opportunity to purchase company stock, id. So long as proof exists that the referrals would not have been made without the remuneration, and that claims would not have been submitted to the government without those referrals, causation for False Claims lawsuits would be satisfied too. Id. at 836–37.
III.
Two considerations remain. Because the Martins failed to allege a cognizable claim under the Anti-Kickback Statute, the district court did not abuse its discretion when it declined to exercise supplemental jurisdiction over the Martins’ remaining state law claim. See Robert N. Clemens Tr. v. Morgan Stanley DW, Inc., 485 F.3d 840, 853 (6th Cir. 2007). And because the Martins failed to allege a cognizable claim, we need not address whether the district court should have considered Oaklawn‘s and Dr. Hathaway‘s motions to strike material from the Martins’ complaint.
We affirm.
CONCURRENCE
MATHIS, Circuit Judge, concurring in part and concurring in the judgment. I concur in the majority opinion, except as to Section II.A. As the majority opinion thoroughly explains, Dr. Shannon Martin and Douglas Martin failed to plausibly allege that the claims identified in their qui tam complaint “result[ed] from” a violation of the Anti-Kickback Statute.