District Court Briefing Request Highlights Loper Bright’s Potential Impact on FCA Litigation
A judge in the Southern District of West Virginia sua sponte requested briefing from the parties to address the impact of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo on an FCA case to “ensure that the Stark regulatory scheme is consistent with the power given by Congress and the statute as it was signed into law.” See United States ex rel. Liesa Kyer v. Thomas Health Sys., Inc., No. 2:20-cv-00732 (S.D. W. Va.). The order highlights the new opportunities Loper Bright has created for defendants in FCA cases, although the court ultimately dismissed the case on more straightforward 9(b) grounds.
In U.S. ex rel. Kyer, the Relator alleged that the defendant hospital systems employed physicians pursuant to arrangements that violated the Stark Law because they included compensation that took referrals into account, exceeded fair market value, and were commercially unreasonable. The complaint further alleged that these physicians referred patients to the health system’s hospitals in violation of the Stark Law.
In response to the court’s order, the Defendants submitted a brief and response brief (available here and here) arguing that Loper Bright mandates dismissal of the Relator’s First Amended Complaint because the service-based compensation arrangements are permitted by the plain text of the Stark Law. Specifically, statutory exceptions, including the bona fide employment exception, the physician services exception, and the in-office ancillary services exceptions, protect the compensation arrangements that Relator alleges violate the Stark Law. According to Defendants, the Relator’s allegations to the contrary relied on an “obfuscated interpretation” of the statute’s “regulatory offspring” in an attempt to allege a violation of law. Def. Brief at 7. Defendants cautioned Relator’s interpretation would generate absurd results: “[p]hysicians would thus be required to send patients hours away to other systems or require patients to see less qualified providers simply because a physician entered into a bona fide employment relationship (or some other permissive relationship) with the area’s top-tier providers.” Def. Brief at 8.
The Relator argued in its brief and response brief (available here and here) that the “Stark regulatory scheme is consistent both with the power given the agency by Congress and the Stark Law itself.” Rel. Brief at 18. Relator further argued that the court could deny the Defendants’ motion to dismiss without applying Loper Bright, noting that whether the healthcare system’s compensation arrangements meet an applicable exception is a fact-intensive question that is premature to resolve at the motion to dismiss stage. To the extent the court chose to apply Loper Bright, which Relator argued it should not because the Stark Law’s prohibition on certain compensation arrangements was unambiguous, Relator argued that the regulations at issue are within the agency’s authority to promulgate and that its interpretations of the Stark Law are reasonable and entitled to due respect.
Ultimately, the court did not address the merits of Loper Bright, and instead dismissed the case for Relator’s failure to plead fraud with particularity under Rule 9(b). The court explained that “[e]ven under the most generous reading, Relator alleges two separate and unconnected things: (1) a compensation plan existing between Defendants and physicians in some arrangement and (2) claims submitted to the Government. Nothing in the complaint leads me to believe, or even helps me guess, that these claims are necessarily false. When a complaint like this fails to ‘connect the dots’ between ‘the alleged false claims and government payment,’ Relator fails to meet Rule 9(b)’s heightened pleading standard.” Thus, the court explained “I cannot, and I will not, drag a defendant into discovery when a complaint fails to allege the details of fraud—causally linked together—to form a plausible and particular claim.”
While we expect Loper Bright will be leveraged to dismiss other FCA cases, this decision highlights that courts may continue to rely on other avenues to dispose of FCA cases where available.
A copy of the court’s decision can be found here.
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