On June 27, 2025, the United States Court of Appeals for the First Circuit affirmed a district court’s dismissal of a qui tam complaint alleging violations of the Anti-Kickback Statute (AKS) and the federal False Claims Act (FCA) based on allegedly improper financial incentives a dialysis provider gave hospitals and physicians to induce referrals to its clinics. In affirming the dismissal, the First Circuit applied the defense-friendly “but-for” standard of causation it recently adopted in United States v. Regeneron Pharmaceuticals. The First Circuit held that the relator in the case failed to adequately plead that the claims submitted to the government would not have occurred “but-for” the allegedly unlawful kickbacks. The case is further evidence of a trend of courts requiring whistleblowers to meet demanding pleading requirements under the AKS and the FCA.
Background
Relator Martin Flanagan worked for Fresenius, a major dialysis provider, for 29 years. In March 2014, Flanagan filed a qui tam complaint in the District of Maryland, alleging that Fresenius engaged in a kickback scheme to induce hospitals with which it contracted to refer patients to Fresenius’s outpatient clinics. To induce those referrals, Flanagan alleged that Fresenius (1) limited and did not pass on costs and fees to hospitals under its contracts with them; (2) hired hospital nephrologists to serve as medical directors at Fresenius outpatient facilities; (3) provided free educational and administrative services to hospitals; (4) entered lease agreements with physicians whereby Fresenius either paid above-fair market rents or charged below-fair market lease rates to physicians; and (5) entered into joint venture agreements with physicians that allowed physicians to share in the profits and losses of outpatient dialysis facilities. Flanagan alleged that Fresenius received patient referrals resulting from these actions, and that those kickbacks violated both the federal Anti-Kickback Statute and served as a predicate act for violations under the False Claims Act.
The case underwent several procedural developments over the next eight years, including a transfer to the District of Massachusetts, three motions to dismiss, and Flanagan’s filing an amended complaint. Ultimately, the Massachusetts District Court granted Fresenius’ motion to dismiss Flanagan’s amended complaint on multiple independent grounds. The district court determined that Flanagan failed to describe false claims resulting from the alleged kickback scheme with the requisite level of specificity under Rule 9(b) and that Flanagan failed to state a claim because his amended complaint did not contain “particularized allegations of claims for payment arising from that scheme.”
First Circuit’s Analysis
On appeal to the First Circuit, Flanagan attempted to surmount the Rule 9(b) hurdle by arguing he adequately pled but-for causation by alleging “specific compensation relationships with specific physicians which were intended to and did result in referrals.” Flanagan pointed to a specific physician to whom Fresenius allegedly provided medical director positions and argued that the physician’s compensation for those roles was meant to induce referrals to Fresenius clinics. Flanagan also argued that his amended complaint provided detail about how renewing the physician’s contract was critical to Fresenius.
The First Circuit rejected these arguments. The court noted that under the First Circuit’s recent decision in United States v. Regeneron Pharmaceuticals, the proper standard to determine whether a false claim “resulted from” an illegal kickback is the but-for causation standard. King & Spalding previously reported on the Regeneron opinion here. Applying Regeneron, the First Circuit concluded that Flanagan’s allegations failed to meet the but-for standard of causation. It reasoned that under the but-for standard, Flanagan’s allegations about Fresenius providing medical directorships to a particular physician were not sufficient to conclude that the physician would have made referrals to Fresenius even if he had not been given those medical director positions.
Takeaways
The First Circuit’s affirmance in this case reflects a continued trend of courts requiring relators to meet demanding pleading requirements when bringing FCA cases based on alleged AKS violations. The First Circuit is joined by the Sixth and Eighth circuits in requiring “but for” causation to support an allegation that a kickback caused a false claim. As the First Circuit noted, “further details” are often necessary to survive court scrutiny on a motion to dismiss.
The case is United States ex rel. Flanagan v. Fresenius Medical Care Holdings, Inc. No. 23-1305 (1st Cir. June 27, 2025). A copy of the court’s opinion is available here.
