AKS Safe Harbor Defeats FCA Claim in Eleventh Circuit

In Carrel v. AIDS Healthcare Foundation, No. 17-13185 (August 7, 2018) the Eleventh Circuit affirmed summary judgment for the defendant on Anti-Kickback Statute-based FCA claims, holding that incentives to employees for referring patients for its services were covered by the employee safe harbor to the Anti-Kickback Statute, and that these payments in particular served the congressional intent of the Ryan White Act to provide AIDS patients with ease of access to services. The Court also upheld the prior dismissal of all other allegations for a lack of particularity, noting that the only instances that relators alleged with particularity were actually covered “services” under the Ryan White Act and that they would not “infer fraud from instances of lawful conduct.” (more…)

DOJ Pursues Private Equity Firm for Portfolio Company FCA Violations

On February 16, 2018, the U.S. Department of Justice (“DOJ”) filed a complaint in intervention against a compounding pharmacy, Patient Care America (“PCA”), alleging that the pharmacy violated the False Claims Act (“FCA”) by, among other things, paying illegal kickbacks to induce prescriptions for drugs reimbursed by TRICARE, the federal healthcare program for active duty military personnel, retirees, and their families.  What is notable about this particular case, however, is that DOJ is also pursuing claims against a private equity firm that had a substantial ownership stake in the pharmacy, based on allegations that principals in the fund were actively involved in the management of the pharmacy and helped implement the purportedly illegal strategy at issue in the complaint. (more…)

Court Holds That Relator’s Review of Disclosure Statement to Prepare for Deposition Results in Limited Waiver

A qui tam relator’s disclosure statement may be discoverable if it is used to refresh the relator’s recollection for a deposition or other testimony.  In United States ex rel. Bingham v. HCA, Inc., a False Claims Act case before the U.S. District Court for the Southern District of Florida, the defendant moved to compel production of the relator’s written disclosure statement to DOJ.  The parties disputed whether the relator’s statement constitutes work product and, if so, whether the work product protection was waived.  In an order issued earlier this week, the district court bypassed the first question and ruled that any work product protection was waived when the disclosure statement was used to refresh the relator’s recollection prior to his deposition.  The court relied on “long-established principles” that privilege in these circumstances must give way to Federal Rule of Evidence 612, which entitles an adverse party “to have the writing [used to refresh the witness’s recollection] produced at the hearing, to inspect it, to cross-examine the witness about it, and to introduce in evidence any portion that relates to the witness’s testimony.”  The court reasoned that fairness to the defendant requires that the disclosure statement be turned over for effective cross-examination.


District Court Allows Medicare Advantage Upcoding Case To Proceed

Posted by Scott Stein and Brenna Jenny

A district court in the Southern District of Florida recently denied motions to dismiss filed by a Medicare Advantage (“MA”) plan and MA providers in a case alleging upcoding through fraudulent diagnosing. See United States ex rel. Graves v. Plaza Med. Ctrs. Corp., No. 10-cv-23382 (S.D. Fla. July 6, 2015). The case is one of a growing number of qui tam cases in the Medicare Advantage sphere, mirroring heightened congressional pressure on CMS and DOJ to take steps to combat Medicare Advantage fraud (as previously reported here).


Federal Court Disqualifies Relators’ Counsel from Suit Against His Former Client

Posted by Nicole Ryan and Christopher Rendall-Jackson

On March 9, 2015, in United States ex rel. Bumbury v. Med-Care Diabetic & Medical Supplies, Inc., a court in the Southern District of Florida disqualified the relators’ counsel for having a conflict of interest in violation of the Florida Rules of Professional Conduct.

In 2009, one of the defendants, Med-Care Diabetic & Medical Supplies, Inc. (“Med-Care”), had engaged the law firm Broad and Cassel (“B&C”) to provide legal advice concerning compliance with Medicare regulations. At that time, Parker Eastin was an associate at B&C, and he was involved in at least two matters regarding B&C’s representation of Med-Care. On October 29, 2010, Mr. Eastin left B&C and formed Nicholson & Eastin, LLP (“N&E”), with another former B&C associate, Robert Nicholson. In December 2010, one of the relators decided to retain Mr. Nicholson to file the instant qui tam action. At some point before the initial complaint was filed, Mr. Eastin told Mr. Nicholson that he did not believe that he would have a conflict of interest in representing the relators in the qui tam action, and he remained fully and completely involved in all aspects of the matter.

On January 16, 2015, the defendants filed a motion to disqualify Mr. Eastin and N&E from representing the relators after Med-Care’s attorney recognized Mr. Eastin’s name on historical billing records. On March 9, 2015, after two evidentiary hearings and supplemental briefing by the parties, Magistrate Judge Hopkins granted the motion to disqualify Mr. Eastin and N&E, holding that they had a conflict of interest under federal common law and that this conflict of interest violated the standards of the Florida Rules of Professional Conduct. Regarding Mr. Eastin, the court held that Mr. Eastin’s former representation of Med-Care and his current representation of the relators are substantially related because Mr. Eastin could be required to attack the regulatory advice that he had admitted previously providing to Med-Care and because Mr. Eastin was at B&C when B&C had advised Med-Care on other matters that are relevant to the allegations of illegal conduct made against Med-Care in the qui tam action. As a result, the court held that Mr. Eastin had been pursuing the instant matter under an actual conflict of interest in violation of Florida Rule of Professional Conduct 4-1.9(a). Regarding N&E, the court held not only that there is an irrebuttable presumption that confidential information had been disclosed to Mr. Eastin because the matters are substantially related, but also that Mr. Eastin was actually privy to confidential information because he had access to Med-Care’s files and had participated in two conference calls with Med-Care while working at B&C. As a result, the court held that N&E had been representing the relators in violation of Florida Rule of Professional Conduct 4-1.10(b).

Magistrate Judge Hopkins further held that, although a conflict of interest does not necessarily require the “drastic remedy” of disqualification, Mr. Eastin and N&E must be disqualified in this case. Regarding Mr. Eastin, the court found that it was necessary to disqualify Mr. Eastin in light of the following factors: that, within two months of advising Med-Care on compliance with Medicare regulations, Mr. Eastin began representing the relators regarding claims to sue Med-Care for failing to comply with some of the same Medicare regulations; that Mr. Eastin began representing the relators without performing any meaningful conflicts analysis; that it is “no small factor” that Mr. Eastin’s “ethical violation only serves to perpetuate the perception that lawyers elevate their self-interests above those of their clients”; that prejudice to the defendants can be presumed because the matters are substantially related; and that any prejudice to the relators and any tactical advantage gained by the defendants will be temporary. Regarding N&E, the court held that it was necessary to disqualify N&E because the firm had represented Med-Care in spite of Mr. Eastin’s conflict of interest and without performing any meaningful conflicts check.

A copy of the opinion can be found here. The relators and the defendants have submitted objections to portions of the Magistrate Judge’s rulings, and we will continue to monitor the case for any significant developments.

Court Finds Amended AKS and Stark-Based FCA Complaint Pleads Unlawful Remuneration With Particularity

Posted by Scott Stein and Brad Robertson

A recent decision by a federal district court clarifies the Rule 9(b) standard for pleading violations of other laws that underlie false certification FCA claims. Readers of this blog may recall our previous post on an earlier decision in United States ex rel. Osheroff v. Tenet Healthcare Corporation, No. 09-cv-22253 (S.D. Fla.), in which the Court dismissed the Relator’s first amended complaint for failure to plead the alleged violations of the Anti-Kickback Statute and Stark law with particularity. The Court has now ruled on the motion to dismiss Relator’s second amended complaint and found that Relator’s newly pled facts pass muster.

In its previous decision, the Court provided specific guidance on what a Relator must allege for a claim of unlawful remuneration. Relator alleged that Tenet Healthcare Corporation and its affiliated companies leased office space to physicians at below-market rates in violation of AKS and Stark and had falsely certified compliance with those statutes in violation of FCA. The Court found Relator’s allegations too conclusory and held that an allegation of improper remuneration based on below-market-value pricing must also “allege a benchmark of fair market value” and “particular examples of rent being charged . . . in a comparable unit.”

With its second amended complaint, the Court found that Relator sufficiently pled the Stark and AKS violations to satisfy Rule 9(b), although Relator did not literally “allege a benchmark of fair market value” as the Court directed. Instead, Relator alleged details of Tenet “systematically misrepresent[ing] the square footage of the office space” so that referring physicians paid for less square footage than they actually received. In addition, Relator provided examples of “non-standard lease benefits” that Tenet allegedly provided to referring physicians, including excessive allowances for improving the rental space. The Court found that the additional factual allegations could enable someone to reasonably infer that Tenet used below-market-rate leases with referring physicians.

In its motion, Tenet attacked Relator’s assessment of the proper measure and valuation of square footage, which Relator had supported in part by its own empirical analysis of rental rates in various markets around the United States. But the Court made clear that it would not assess the methodology of Relator’s calculations at the motion to dismiss stage, stating “[T]he Court’s role is only to determine whether Relator plausibly alleges that Tenet was charging its physician-tenants rent that was inconsistent with fair market value—not to determine definitively whether the figure Relator advances, in fact, represents fair market value.”

The Court similarly found that Relator pled the Anti-Kickback Statute’s scienter requirement with the proper particularity. In its previous decision, the Court found Relator’s allegations deficient in part because there were “no allegations that any particular physicians were induced to alter their referral decisions on account of their financial relationship with the Defendants.” (emphasis added). However, in its latest opinion, the Court held that “Relator need not allege that Tenet’s physician-tenants referred Medicaid or Medicare patients to Tenet on account of Tenet’s offer or payment of remuneration.” Instead, the Court found scienter satisfied by the inference that Tenet knowingly sought to induce referrals, as it could “reasonably infer that a landlord would not enter into a lease agreement for a price that fell below the fair market rate if some other consideration [(here, patient referrals)] were not involved.”

This decision also joins the body of caselaw holding that representations made in hospital cost reports and Medicare provider applications may form the basis of false certification claim under the FCA. In deciding that the cost report certification of compliance “easily qualif[ies] as a misrepresentation of material fact,” the Court elected not to decide whether statements in Tenet’s Corporate Integrity Agreements could form the basis of a false certification FCA claim.

While the Court may have clarified aspects of the pleading standard it set in its first opinion, it continues to hold that violations of other laws underlying FCA claims must be pled with Rule 9(b) particularity. There may be no bright line rule for pleading the facts constituting fraud in a false certification FCA case, but Relators must nonetheless plead sufficient facts to demonstrate that inferences of violations of the underlying laws are warranted.

Court Rules That Defendant Precluded From Using Evidence to Support Advice of Counsel Defense in FCA Action By Waiting Until Close of Discovery To Produce Supporting Evidence

On March 14, 2013, U.S. Magistrate Judge Frank J. Lynch, Jr. issued a discovery order which may effectively foreclose defendants’ use of an advice of counsel defense in a FCA suit currently pending in the U.S. District Court for the Southern District of Florida. United States ex rel. Matheny v. Medco Health Solutions, Inc., 2:08-cv-14201-DLG, Dkt. # 258 (S.D. Fla. Mar. 14, 2013). The order prohibits defendants from using an email and meeting minutes supporting an advice of counsel defense because defendants’ production of these materials was untimely. Slip op. at 12-13. The court noted that it was “limit[ing] its ruling to the discovery context since that is the scope of its Order of Reference.” Id. at 13. However, the court went on to note that except for the email and the meeting minutes, “the Defendants produced no other documentary, testimonial, or other evidence of legal advice upon which they relied,” thereby indicating that the order likely will foreclose defendants’ use of an advice of counsel defense as a practical matter. Id.

The key document at issue in the opinion is a September 22, 2006 email from William Eck, former general counsel of Medco subsidiary PolyMedica, in which Mr. Eck opined that Medicare Part D overpayments, which the plaintiffs allege were fraudulently hidden to avoid paying government refunds, do not count as “overpayments” under the governing contracts. Id. at 4-5. The document was produced to the plaintiffs at the deposition of a corporate representative on February 6, 2013, three business days before the February 11 discovery deadline in the case. See id. at 7. At that deposition, defendants also produced a heavily redacted set of meeting minutes relevant to the advice of counsel defense. Id. at 7. Additionally, on February 8, defendants provided plaintiffs their Second Amended Initial Disclosures, in which defendants for the first time, listed Mr. Eck as an individual likely to have discoverable information, and an updated privilege log, which listed the Eck email. Id. at 8.

Defendants argued that their invocation of the attorney-client privilege at an October 2012 deposition put plaintiffs on notice that Mr. Eck had rendered legal advice and thus that defendants might raise an advice of counsel defense. See id. at 9. Judge Lynch disagreed, finding that defendants’ invocation of the privilege signaled that defendants intended to maintain the privilege, not to raise an advice of counsel defense. Id. at 9-10. Judge Lynch also found that defendants produced the email and minutes “too late to be of any use to the Plaintiffs, and the late production [of the email and minutes] fell short of the Defendants’ general obligation to produce relevant discovery in a timely fashion.” Id. at 10-11. As a result, the court granted plaintiffs relief under Rule 37(c) and ordered that defendants are foreclosed from using the email and minutes. Id. at 12-13.

Court Dismisses AKS and Stark-Based FCA Claims For Failure To Plead Unlawful Remuneration With Particularity

A recent decision by a federal district court confirms that in FCA cases premised on alleged false certification of compliance with other laws, the allegations that those other laws were violated must be pleaded with the particularity required by Rule 9(b). In United States ex rel. Osheroff v. Tenet Healthcare Corporation, No. 09-22253-CIV (S.D. Fla.), a relator alleged that Tenet Healthcare Corporation and affiliated companies leased offices to physicians at below-market rental rates and included other compensating perks that constituted an improper remuneration under the Stark law (42 U.S.C. sec. 1395nn, 1396b(s)) and the Anti-Kickback Statute (42 U.S.C. sec. 1320a-7b(b)). Relator alleged that these violations led Tenet to falsely certify compliance with those statutes, in violation of the FCA.

On July 12, the Court granted in part Tenet’s motion and dismissed the complaint with leave to re-plead, on the ground that the Relator’s allegations of unlawful remuneration were too conclusory. Specifically, the court held that allegations of unlawful remuneration based on the provision of something offered for below fair market value must be pled with particularity under Rule 9(b). The court offered specific guidance about what Rule 9(b) requires: the relator “must allege a benchmark of fair market value against which Defendants’ rents to physician-tenants can be tested. Without alleging a benchmark of fair market value,” the court concluded, “it is impossible for the Court to infer whether Defendants’ rents to physician-tenants fall sufficiently below the benchmark so as to constitute remuneration. Relator must then allege some particular examples of rent being charged to its physician-tenants in a comparable unit during the same market that can be contrasted against the alleged benchmark.” The court held that such benchmarks had to be provided not only for the allegations concerning below-market rent, but also for any “other allegedly compensating perks, such as tenant improvement allowances.”

The Court held that a similar level of particularity was required to plead with particularity the “inducement” element of an AKS violation. The court rejected as insufficient Relator’s conclusory allegations that the remuneration was “intended to induce or reward referrals.” “In the context of AKS, [the inducement element] functions as a nexus to ensure Relator includes allegations that the use of remuneration influences the direction of referrals.” Relator’s allegations were deficient because there were “no allegations that any particular physicians were induced to alter their referral decisions on account of their financial relationship with the Defendants.” Relator did not allege “factual allegations suggesting any quid pro quo of below-fair-market-values leases in exchange for referrals,” or “that any physician-tenants felt pressure to refer patients to Defendants instead of other medical entities on account of their favorable rent nor allegations that insufficient referral numbers to Defendants would cause or were feared to cause rental rate penalties in future lease renewals.” Because “no facts suggest that any physician-tenants were induced by their rent to make referrals based on continued remuneration rather than concern for the health and well-being of each physician’s patient, the Court has no basis upon which to reasonably infer that any alleged remuneration clouded the independent judgment of any physician-tenant.”

It will be interesting to see whether the Relator is able to submit a pleading that complies with the Court’s guidance. Too often, relators alleging FCA claims premised on Stark and AKS violations are permitted to glide past the pleading stage based on conclusory allegations that seek to characterize ordinary business relationships as unlawful “remuneration.” This opinion properly applies Rule 9(b)’s requirement that the circumstances constituting fraud be pleaded with particularity by requiring a plaintiff in a false certification based on Stark and AKS violations to plead facts demonstrating that inferences of unlawful remuneration are warranted.