Recent Developments On The Fair Market Value Front – Part 1

Author:Mr David Quinn Gacioch
Profession:McDermott Will & Emery

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...

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