Labor & Employment Law Daily Wrap Up, PROCEDURE—1st Cir.: Failure to allege but-for causation dooms FCA/AKS complaint, (Jul 8, 2025)

By Sherri M. Schroeder, J.D.

The court also found the district court did not abuse its discretion in denying a motion to amend when the former employee knew of the potential need for amendment two years before filing for leave.

In a case appealed from the district court in Massachusetts, the First Circuit Court of Appeals has affirmed the dismissal of allegations made under the False Claims Act (FCA) and its Anti-Kickback Statute (AKS) against Fresenius Medical Care Holdings, Inc. by a former employee. The employee alleged in a qui tam action that the dialysis services provider created a fraudulent kickback scheme related to referrals to Fresenius-operated dialysis clinics. The district court had dismissed the amended complaint for failing to meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b) and denied another motion to amend. When the employee appealed these decisions, the appeals court found that the complaint failed to adequately plead that the alleged AKS violations were the but-for cause of the submitted claims or that Fresenius falsely certified that it complied with the AKS. As to the motion to amend, the appeals court found that the employee had been aware of Fresenius’s arguments and the potential need for an amendment for two years, but had waited until after the district court granted the motion to dismiss to seek claims information he allegedly needed to amend his complaint. Because two years was “significantly longer” than periods of time previously relied upon in upholding denials of leave to amend on undue delay grounds, the appeals court affirmed the denial (U.S. v. Fresenius Medical Care Holdings, No. 23-1305 (1st Cir. June 27, 2025)).

Alleged scheme. A former employee alleged the Fresenius, the largest dialysis services provider in the U.S., had created a kickback scheme to wrongfully induce referrals to its dialysis centers. To entice hospital contracts, Fresenius allegedly severely limited the costs and fees that would be contractually passed on to the hospitals, did not enforce certain provisions that would have increased costs, and offered other benefits, all with an underlying goal to secure more referrals for its outpatient services. Separately, the employee alleged that Fresenius contracted with hospital nephrologists to serve as medical directors at Fresenius outpatient facilities, often paying them more than double what was paid by Fresenius’s primary competitor in the same localities. Recruitment was allegedly targeted at those nephrologists in a position to refer high numbers of patients. The employee also alleged that these recruits spent little to no time at Fresenius outpatient facilities, despite Medicare regulations requiring they devote one quarter of a typical 40-hour work week.

Appeal. On appeal, the employee asserted the district court made two errors: it should not have dismissed claims for failing to satisfy Rule 9(b), and it abused its discretion in denying his motion to amend.

“Resulting from” claims. The employee argued that his amended complaint adequately pleaded but-for causation by articulating “specific compensation relationships with specific physicians which were intended to and did result in referrals.” Focusing on one doctor, he alleged that the doctor held two medical director positions with Fresenius, his compensation in those roles was meant to induce referrals, and that his practice referred 60 patients to Fresenius clinics in 2012. He further alleged that a Fresenius report stated the doctor’s contract renewal was critical, and that Fresenius tracked the number of patients he referred to them. The court, however, found that the employee did not allege whether the doctor’s referrals resulted from the alleged kickback scheme. There were no allegations that the doctor would not have made the referrals had he not been given the medical director positions. According to the court, the amended complaint, therefore, lacked the detail needed to plausibly allege but-for causation, meaning that the employees claims arising under the theory that the reimbursement claims resulted from AKS violations were properly dismissed by the district court.

False representation claims. The employee next argued that the district court had not addressed separate false representation claims made under 31 U.S.C. § 3729(a)(1)(B) that Fresenius made false records by falsely certifying its compliance with the AKS annually and by falsely certifying cost reports that listed the number of hours its medical directors worked. According to the court, unlike “resulting from” claims, these types of claims do not require proof of causation. However, the court noted that the employee had not addressed what Fresenius actually submitted in the reports as to either certifications or hours worked. Because he did not plead with particularity the connection between false records or statements and the intent to have a false claim paid for by the government programs, he failed to satisfy the heightened pleading standard under Rule 9(b).

Motion to amend. Here, the employee argued the district court failed to identify any actual prejudice to Fresenius or explain why his motion constituted an undue delay when it denied his motion to amend. He asserted, among other things, that he did not have the necessary claims data needed to amend his complaint until after the motion to dismiss was decided. However, the court noted that the employee did not provide any information as to when he sought this claims information or why such information was needed to plead causation. “Without more from [the employee], the district court could reasonably conclude that – although [the employee] was aware of Fresenius’s arguments and the potential need for an amendment for two years – he waited until after the district court granted the motion to dismiss to seek the claims information he allegedly needed to amend his complaint,” stated the court. “This two-year period is significantly longer than periods of time we have previously relied upon in holding denials of leave to amend on undue delay grounds.” Therefore, the appeals court found the district court had not abused its discretion in denying the employee’s motion for leave to amend.

The case is No. 23-1305.

Judge: Montecalvo, L.

Attorneys: Jamie Michele Bennett (Bennett Law) for Martin Flanagan. Abraham R. George, U.S. Attorneys Ofiice, for the U.S. James F. Bennett (Dowd Bennett LLP) for Fresenius Medical Care Holdings, Inc. d/b/a Fresenius Medical Care North America.

Companies: Fresenius Medical Care Holdings, Inc.; Fresenius Medical Care North America

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