District Court Held that Government Must Produce Factual Basis For Allegations of Below-Fair-Market-Value Transfers

Earlier this month, in a FCA case in which the Government intervened, the United States District Court for the District of Minnesota held that the Government was obligated to produce evidence that supported its allegation that amounts that physicians paid for social trips and other benefits provided by Defendants were below fair market value.  In United States v. Cameron-Ehlen Grp., Inc., No. 13-CV-3003 (WMW/DTS), 2019 WL 1453063, at *1 (D. Minn. Apr. 2, 2019), the Government’s Complaint-In-Intervention alleged that Defendants, Precision Lens and Paul Ehlen, schemed to pay kickbacks—in the form of “lavish hunting, fishing and golf trips, private plane flights, frequent-flyer miles and other items of value”—to physicians to induce them to use products supplied by Defendants. The Complaint-In-Intervention includes several specific examples where physicians “were remunerated by not paying the full fair market value for trips and other benefits provided by Defendants.”

Defendants sought the basis for “the Government’s estimation of the fair market value regarding these specific allegations, and the basis of such estimations.” The Government objected “because it places the burden on the United States when this is in fact Defendants’ burden, and Defendants are in a position at this point in discovery to know more about various details than the United States.” Defendants moved to compel, arguing that “[a]n essential element of the Government’s claims under the Anti-Kickback Statute (“AKS”) is proof that remuneration was paid to a provider,” which includes evidence that “Defendants did not seek repayment of fair market value for social activities” from the physicians. The Government did not object to providing “documents identifying trips and other remuneration, and the costs of the same, . . . [and] what is known about any reimbursements provided by physicians for any trips or other remuneration.” But it did object to providing information about its estimates of the fair market value of the social trips—at least prior to expert disclosures.

The District Court held that “[b]ecause the Government made specific allegations in the Complaint regarding fair market value, the factual basis for those allegations is presumptively discoverable.” (emphasis added).  “[T]he Government mentioned specific instances of below fair market value payments in its Complaint for which it must have had some basis.” As such, the court reasoned, “Defendants may discover the basis for these initial allegations at this stage of the litigation, even if it is not the full universe of facts that ultimately are offered in support of the allegation at trial.” Notably, the court took its holding one step further for those allegations without an estimation of fair market value: “If it does not have an estimation, the Government must still state the basis for its allegations.”

The court also rejected the Government’s argument that it was not required, at an earlier stage of discovery, to identify each allegedly false claim. The court noted that early identification of “the specific claims allegedly tainted by kickbacks is relevant to damages calculations at trial” and “to Defendants’ valuation of the case, a fact that favors providing such information sooner rather than later.” The court also reasoned that early identification of specific claims is efficient because it “allows Defendants to conduct third-party discovery on only those claims actually at issue without wasting resources on potentially hundreds or thousands of irrelevant claims that were made by a physician years after an alleged kickback.” The Government was thus ordered to disclose its “current knowledge” about “specific claims,” including “any specific physicians and alleged remunerations it currently knows about, as well as the duration of any taint to claims it alleges stems from said remuneration.” It would have an opportunity to “further supplementation as discovery progresses.”

A copy of the court’s opinion can be found here.