16 July 2012

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.

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