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Quiz: Is This Illegal Remuneration Under the AKS?

by | May 3, 2023 | Compliance Guidance-lca, Essential, Lab Compliance Advisor

A recent court case sheds some light on if denying employment can count as illegal remuneration under the Anti-Kickback Statute.

Under the federal Anti-Kickback Statute (AKS), it’s illegal to “knowingly and willfully offer or pay 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” reimbursable under a federal healthcare program (42 U.S.C. § 1320a-7b(b)(2)(A)) (emphasis added). Unfortunately, the statute doesn’t define “remuneration.” While the issue constantly arises in whistleblower lawsuits, litigation typically focuses on what is paid rather than how it’s paid. However, the way value is transferred between referral sources and labs may also impact whether it constitutes remuneration under the AKS. Consider the following scenario, which comes from the US Court of Appeals for the Sixth Circuit.


Oaklawn Hospital: A facility located in Marshall, Michigan, in an unpopulated part of the state

South Michigan Ophthalmology, P.C.: A two-physician practice group and the only ophthalmology practice in Marshall

Dr. Hathaway: The ophthalmologist who owns and is the sole shareholder of South Michigan

Dr. Martin: An ophthalmologist who works as an employee of South Michigan


Act 1: When its patients need surgery, South Michigan routinely refers them to the local option, Oaklawn. And when its patients need an ophthalmologist, Oaklawn customarily refers them to South Michigan.

Act 2: Dr. Hathaway enters merger negotiations with a large practice located in the state capital of Lansing, MI. Concerned for her future, Dr. Martin asks if she’ll still be able to work for the merged practice if the deal goes through. Dr. Hathaway can offer her no assurances.

Act 3: Dr. Martin puts out feelers to Oaklawn. Hospital board members have heard the rumors of South Michigan’s merger plans and that Dr. Hathaway will start referring his surgery patients to an Ambulatory Surgery Center about 30 minutes from Marshall. With South Michigan moving out of town, it would make sense for Oaklawn to hire an internal ophthalmologist. Negotiations between Oaklawn and Dr. Martin go well and the hospital offers her a job, subject to the approval of its board.

Act 4: Dr. Hathaway finds out about the hospital’s job offer to Dr. Martin. He meets with Oaklawn’s CEO and reassures him that he wants to continue referring surgical patients to Oaklawn, indicating that he’s expecting business and surgery referral volume to increase after joining the larger practice. But if the board approves the offer to Dr. Martin, it will be a lose-lose, he continues. The hospital will have to spend hundreds of thousands of dollars to set up an internal ophthalmology capacity; and the South Michigan practice will dry up because all Oaklawn’s future referrals will go to Dr. Martin, the internal ophthalmologist.

Act 5: The CEO relays these concerns to the board and Dr. Hathaway reaches out to four other board members. The board votes to reject the job offer to Dr. Martin. As it turns out, the merger falls through and Dr. Hathaway stays in Marshall. A furious Dr. Martin files a qui tam lawsuit, claiming that Oaklawn’s rejection of her employment in return for future referrals from Dr. Hathaway violates the AKS.


Does Dr. Martin have a valid AKS case against Oaklawn and Dr. Hathaway?

A. Yes, because each side provided and received value for referrals

B. No, because there was no actual payment made, offered, or received

C. Yes, because the arrangement didn’t meet any AKS safe harbors

D. No, because the AKS doesn’t cover non-cash remuneration


B. Dr. Martin doesn’t have a legally valid claim because there was no payment or transfer of remuneration for referrals.


How the Sixth Circuit ruled in a case involving this scenario sheds light on what “remuneration” under the AKS is and, just as importantly, what it’s not.

Bottom Line: Remuneration requires that there be an actual payment or transfer.

The hospital’s “decision not to hire someone does not entail a payment or transfer of value to Dr. Hathaway,” the court ruled. While the hospital’s decision may have benefited Dr. Hathaway by preventing referrals that would have otherwise been made to him from being sent to an ophthalmologist who worked at the hospital, “Oaklawn never offered Dr. Hathaway anything at all.” The benefit the defendant physician received “is not remuneration by any standard definition of the term,” the court concluded. So, B is the correct answer [United States ex rel. Martin v. Hathaway, 2023 U.S. App. LEXIS 7319, 2023 FED App. 0056P (6th Cir.), __ F.4th __ ].1

Why Wrong Answers Are Wrong

A is wrong because remuneration doesn’t include just anything of value, as the relator argued. Such a broad definition “lacks a coherent end point,” the court explained. “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.”

Dr. Martin’s case would likely be dubious even if the anything-of-value theory were correct, the court continued. The problem for Dr. Martin is that the alleged scheme between Oaklawn and Dr. Hathaway didn’t change anything. The Act 1 status quo remained in place after Act 5 ended. Oaklawn was still the only hospital and South Michigan the only ophthalmology practice in Marshall and the two principles continued to refer patients to each other out of convenience as they always had.

C is wrong because AKS safe harbors come into play only if an arrangement involves offering or payment of illegal remuneration. There was no such remuneration in this case. In fact, the court suggested that there wasn’t really even an arrangement. “Consider how vague, how nonconcrete, 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.”

D is wrong because remuneration isn’t limited to cash and in-kind payments. However, as the Martin case makes clear, it doesn’t go as far as including anything of value.


An open-ended definition of remuneration as constituting anything of value would play into the hands of whistleblowers and government enforcers and make it much harder for labs to ensure compliance with the AKS. The Martin case is thus a positive development. It suggests that illegal “remuneration” under the AKS is based not just on value but also on how an arrangement is structured. Specifically, there needs to be a distinct transfer of value between two parties.

Caveat: Martin seems to be the first case to specifically address the issue of whether there must be an actual payment or exchange to constitute remuneration. Although technically binding only in the Sixth Circuit, the ruling is rooted in what appears to be a sound analysis and interpretation of the language, intent, and legislative history of the AKS, as well as “cousin” statutes banning remuneration, including the civil penalties section of the Social Security Act and Railroad Retirement Tax Act.


  1. https://www.opn.ca6.uscourts.gov/opinions.pdf/23a0056p-06.pdf

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