U.S. ex rel. Schmidt v. Zimmer, Inc., 03-3695.

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Writing for the Court: Stapleton
• Citation: 386 F.3d 235
• Parties: UNITED STATES of America ex rel. Richard G. Schmidt, M.D. v. ZIMMER, INC; Mercy Health System, d/b/a, t/a Mercy Fitzgerald Hospital; Mercy Hospital of Philadelphia, a/k/a/ Misericordia Hospital; Mercy Haverford Hospital; Mercy Community Hospital; Mercy Suburban Hospital; Mercy Catholic Medical Center Richard G. Schmidt, Appellant.
• Docket Number: No. 03-3695.,03-3695.
• Decision Date: 06 October 2004

386 F.3d 235 UNITED STATES of America ex rel. Richard G. Schmidt, M.D.
v.
ZIMMER, INC; Mercy Health System, d/b/a, t/a Mercy Fitzgerald Hospital; Mercy Hospital of Philadelphia, a/k/a/ Misericordia Hospital; Mercy Haverford Hospital; Mercy Community Hospital; Mercy Suburban Hospital; Mercy Catholic Medical Center Richard G. Schmidt, Appellant. No. 03-3695. United States Court of Appeals, Third Circuit. Argued April 15, 2004. Filed October 6, 2004.

Appeal from the United States District Court for the Eastern District of Pennsylvania, Eduardo C. Robreno, J.

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Richard A. Sprague, Joseph A. Podraza, Jr. (Argued), Sprague & Sprague, Philadelphia, PA, and Martin I. Twersky, H. Laddie Montague, Jr., Berger & Montague, Philadelphia, PA, for Appellant.

Steven L. Jackson (Argued), Baker & Daniels, Fort Wayne, IN, and Joan A. Yue, Reed Smith, Philadelphia, PA, for Appellee Zimmer, Inc.

Before RENDELL, STAPLETON, and LAY,^* Circuit Judges.

STAPLETON, Circuit Judge.

Richard G. Schmidt, M.D. ("Schmidt"), an orthopedic surgeon in Bala Cynwyd,

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Pennsylvania, brought this qui tam action pursuant to the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., against defendant Zimmer, Inc. ("Zimmer"), a manufacturer, seller, and distributor of orthopedic implants. The District Court dismissed Schmidt's complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. We will reverse the judgment of the District Court.

I.

In his first amended complaint, which is at issue in this appeal, Schmidt purported to allege FCA violations against both Zimmer and Mercy Health Systems ("Mercy").¹ In particular, Schmidt alleged that Zimmer entered into a contract with Premier Purchasing Partners ("Premier"), an organization which acts as a purchasing agent for a group of entities, including Mercy, that provide medical services for which reimbursement may be sought under the Medicare program ("Premier Participants"). The contract committed Zimmer to provide orthopedic implants to the Premier Participants for a period of five years.

Under this contract, the Premier Participants were rewarded if they purchased Zimmer's products in sufficient numbers to increase Zimmer's market share. Among these rewards was a "conversion incentive." This incentive was intended to compensate the Premier Participants for purchasing implants from Zimmer rather than its competitors. Under the "conversion incentive," when a Premier Participant purchased more than the total number of implants it had purchased the year before, each additional implant could be purchased for a reduced price of $200. In addition, the contract allegedly provided that each Premier Participant would receive a 2% bonus on implant purchases if the Premier Participant met the pre-set market share and volume purchase commitments. Finally, the contract allegedly provided for additional incentives "targeted to offset the costs associated with competitive conversion." Each Premier Participant would forfeit the foregoing rewards if they failed to meet the commitments pre-set by Zimmer.

Schmidt further alleged that the rewards provided under the contract were paid to Mercy and the other Premier Participants "in cash or cash equivalents," and that these payments are a classic example of "kickbacks." Moreover, it was alleged that Zimmer and Mercy induced certain of its physicians and orthopedic departments to assist in meeting Zimmer's prescribed volume and market share levels by sharing with them all or part of the rewards received from Zimmer under the contract.

According to Schmidt, each Premier Participant reported its costs associated with the purchase of orthopedic implants in annual cost reports that were submitted to the United States Government under the Medicare program. The reporting form, United States Department of Health and Human Services's Form HCFA-2552, required a health care provider to certify that the costs being submitted were true and correct, and that the provider had complied with all laws and regulations regarding the provision of health care services.² Such certification, Schmidt alleged, was a condition precedent for Premier

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Participants to obtain Medicare funds from the federal government and to retain Medicare funds advanced by the federal government. Schmidt alleged that, despite these requirements, the cost reports submitted by Mercy and the other Premier Participants did not disclose the rewards that they allegedly received from Zimmer under the contract.³ Schmidt further alleged that Mercy and the other Premier Participants also falsely certified on their cost reports that they were in compliance with all laws and regulations regarding the provision of health care services.

According to Schmidt, the remunerations paid by Zimmer to Mercy and the other Premier Participants under the contract were made in violation of the federal Anti-Kickback Act, 42 U.S.C. § 1320a-7b. In particular, Mercy was alleged to have violated § 1320a-7b(b)(1) by knowingly and wilfully soliciting or receiving such unlawful remunerations, and Zimmer was alleged to have violated § 1320a-7b(b)(2) by knowingly and wilfully paying or offering to pay such unlawful remunerations.⁴ Both Mercy and Zimmer were alleged to have violated § 1320a-7b(a)(3) by failing to

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disclose to the federal government the allegedly unlawful remunerations.⁵

Schmidt's first amended complaint also alleged that both Mercy and Zimmer violated the Anti-Self-Referral Act (also known as the "Stark Act"), 42 U.S.C. § 1395nn, by presenting, or causing to be presented, Medicare reimbursement claims for services furnished pursuant to prohibited referrals.⁶ Specifically, the complaint alleged that there was a "financial relationship" between Mercy and certain physicians that worked at Mercy's facilities, and that such a relationship also existed between Mercy and Zimmer. Despite these alleged financial relationships, according to the complaint, Mercy nonetheless unlawfully sought Medicare reimbursements for services furnished under prohibited referrals.

Finally, based on these alleged violations of the Anti-Kickback Act and the Stark Act, Schmidt alleged that Mercy's certifications of compliance with federal health care law, contained in its annual cost reports submitted to the federal government on Form HCFA-2552, were false. Mercy's false certifications, according to the complaint, constituted violations of three provisions of the FCA, rendering both Mercy and Zimmer liable: (1) 31 U.S.C. § 3729(a)(1), which prohibits knowingly presenting, or causing to be presented, to an officer or employee of the United States Government a false claim for payment or approval, (2) § 3729(a)(2), which prohibits knowingly making, using and/or causing to be made or used a false record, claim, or statement to get a false claim paid or approved by the federal government, and

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(3) § 3729(a)(7), barring false certifications intended to conceal, avoid, or decrease an obligation to refund Medicare payments made by the federal government.

Both Mercy and Zimmer responded to the complaint by filing a motion to dismiss. Zimmer's motion to dismiss was granted with prejudice; Mercy's motion was granted without prejudice and Schmidt was allowed to file a second amended complaint against it. Ultimately, Schmidt's claim against Mercy was settled, and he filed this appeal of the order granting Zimmer's motion to dismiss.

The District Court explained its decision to dismiss Schmidt's FCA claim against Zimmer in the following manner:

It is undisputed that Zimmer never submitted any cost reports: Zimmer could be liable under the FCA only if it caused Mercy to submit an allegedly false cost report. But the Amended Complaint does not allege Zimmer reviewed, approved, or received copies of Mercy's cost reports or participated in their preparation; nor does it allege Zimmer certified the truthfulness of Mercy's cost reports.

Courts have found a party caused the submission of a false claim by another party only where the non-submitting party purposely and intentionally duped the submitting party to submit the false claim.

J.A. at 6-7 (citing United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976)).

II.

We exercise plenary review over the District Court's dismissal of a claim for failure to state a cause of action under Fed.R.Civ.P. 12(b)(6). Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n. 7 (3d Cir.2002).⁷ "A court should not dismiss a complaint under Rule 12(b)(6) for failure to state a claim for relief `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief.'" Pryor v. National Collegiate Athletic Ass'n, 288 F.3d 548, 559 (3d Cir.2002) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). "In evaluating the propriety of the dismissal, we accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Pinker, 292 F.3d at 374 n. 7 (citing Colburn v. Upper Darby Township, 838 F.2d 663, 665-66 (3d Cir.1988)).

III.

According to Zimmer, it is apparent from the face of the first amended complaint that its marketing program did not violate the Anti-Kickback Act or the Stark Act. Because it concluded that Zimmer was not alleged to have caused the presentation of a claim, the District Court did not reach this issue, assuming without deciding that violations of those Acts had been alleged. Based on our reading of the first amended complaint, it is not clear that the alleged conduct of Zimmer passes muster under the Anti-Kickback and Stark Acts. We therefore conclude that these issues cannot be resolved in the context of a motion to dismiss. Accordingly, like the District Court, we assume...