U.S. Ex Rel. Jeffrey J. Bierman v. Orthofix Int'l

• Decision Date: 08 December 2010
• Docket Number: Civil Action Nos. 05–10557–EFH, 08–11336–JLT.
• Citation: 748 F.Supp.2d 123
• Parties: UNITED STATES of America ex rel. Jeffrey J. BIERMAN, Plaintiff,v.ORTHOFIX INTERNATIONAL, N.V., et al., Defendants.United States of America ex rel. Marcus Laughlin, Plaintiff,v.Orthofix International, N.V., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

748 F.Supp.2d 123

UNITED STATES of America ex rel. Jeffrey J. BIERMAN, Plaintiff,

v.ORTHOFIX INTERNATIONAL, N.

v., et al., Defendants.United States of America ex rel. Marcus Laughlin, Plaintiff,

v.Orthofix International, N.

v.

, et al., Defendants.

Civil Action Nos. 05–10557–EFH, 08–11336–JLT.

United States District Court, D. Massachusetts.

Dec. 8, 2010.As Amended Dec. 9, 2010.

Andrew C. Bernasconi, Kathleen H. McGuan, Reed Smith LLP, Mitchell J. Lazris, Michele W. Sartori, Hogan & Hartson LLP, Washington, DC, The Blackstone Group L.P., New York, NY, Christine Vargas Colmey, Fred A. Kelly, Jr., Joseph J. Leghorn, Nixon Peabody, LLP, Benjamin S. Halasz, Kirsten V. Mayer, Brien T. O'Connor, Ropes & Gray, Douglas A. Robertson, Martin, Magnuson, McCarthy and Kenney, Boston, MA, Nicole M. Goodwin, One Renaissance Square, Phoenix, AZ, Cristina D. Hernandez–Malaby, Quarles & Brady, Milwaukee, WI, Stephen J. Immelt, Andrea W. Trento, Hogan & Hartson LLP, Baltimore, MD, George M. Linge, Reed Smith LLP, Pittsburgh, PA, Thomas H. Suddath, Jr., Reed Smith LLP, Philadelphia, PA, for Defendants.G. Robert Blakey, Notre Dame Law School, Notre Dame, IN, Neil V. Getnick, Lesley A. Skillen, Getnick & Getnick, New York, NY, J. Stephen Hunnicutt, The Hunnicutt Law Firm, Dallas, TX, Shannon Kelley, United States Attorneys Office, Scott J. Tucker, Tucker, Heifetz & Saltzman, Boston, MA, Steven H. Schafer, Stephen H. Schafer and Associates, Needham, MA, for Plaintiffs.

MEMORANDUM AND ORDER

HARRINGTON, Senior District Judge.

Qui tam relator, Jeffrey J. Bierman, brings this suit on behalf of the United States of America and various state and local governments against defendants, medical device manufacturers, alleging violations of the federal False Claims Act, 31 U.S.C. § 3729–3733, (“FCA”) and analogous local and state statutes. Defendants move to dismiss Bierman's Second Amended Complaint contending that it fails to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6) and fails to plead allegations of fraud with the particularity required by Fed.R.Civ.P. 9(b). The Court denies the defendants' motions.

Background.

The plaintiff/relator, Jeffrey J. Bierman, (“the relator”) is the co-owner of a business that provides medical billing and related services to health care providers. The defendants are the sole manufacturers and suppliers in the United States of a medical device called a non-invasive bone growth stimulator.¹ Bone growth stimulators are light weight, battery operated devices which emit weak electrical currents or ultrasonic waves to facilitate healing in patients who have undergone spinal surgery or have non-healing fractures. Bone growth stimulators are covered by Medicare.

The stimulators are classified under Medicare regulations as “inexpensive or other routinely purchased” durable medical equipment. Medicare pays for medical equipment under such a classification on a monthly rental or purchase basis according to a fee schedule. While the fee schedule varies from state to state, the purchase price for the stimulators is approximately ten times more than their monthly rental price. Therefore, a device would have to be used for a period of ten months or more for the accrued rental payments to equal the purchase price. Beneficiaries are responsible for a twenty (20%) percent copayment for the device and Medicare pays the remaining balance.

In order to receive billing privileges from Medicare, a supplier of medical equipment must submit, and renew every three years, a Medicare Enrollment Application. The application requires the supplier to certify that it will abide by applicable Medicare laws, regulations and program instructions. ² One such regulation is the so-called Supplier Standard Regulation, 42 C.F.R. § 424.57(c). The Supplier Standard Regulation, among other things, requires a supplier to “advise beneficiaries that they may either rent or purchase inexpensive or routinely purchased durable medical equipment.”

After a supplier received billing privileges, it may submit claims for reimbursement to the Centers for Medicare and Medicaid Services. To be reimbursed for a claim, a supplier must submit a Health Insurance Claim Form, FORM CMS–1500 (“1500 Form”) and a Certificate of Medical Necessity (“CMN”). The 1500 Form requires the supplier to indicate whether the item is being billed as a rental item (signified by the modifier RR), a purchase of new equipment (signified by the modifier NU), or a purchase of used equipment (signified by the modifier UE). The supplier must also make an express written certification on the 1500 Form that “the services shown on the form were medically indicated and necessary to the health of the patient.”

The CMN, on the other hand, must be signed by the ordering physician, a physician employee, or a non-physician clinician (such as a home health nurse or physical therapist). The signature attests that the medical necessity information in the CMN is true, accurate and complete. The CMN also requires the physician, physician employee or clinician to indicate the length of time the physician expects the patient to require use of the ordered item by placing a number in the section marked: “est. length of need (# of months).” If the physician expects that the patient will require the item for the duration of his or her life, the physician must enter the code number “99.”

The relator alleges that, between 1993 and 2010, the defendants knowingly submitted or caused to be submitted false claims for Medicare reimbursement and made false statements in an effort to get false claims paid and approved by Medicare. The relator alleges that patients typically require the bone-growth stimulators for a period of between three and six months and that the bone-growth stimulators are programmed to automatically deactivate after nine months.³ The relator asserts that, therefore, no rational patient would ever choose the purchase option and that no claim for purchase could ever be supported by medical necessity. The relator alleges, however, that the defendants have routinely billed the devices to Medicare as purchase items. Attached to the complaint is a schedule of claims submitted to Medicare by the defendants for the period of 1993 through 2006. The schedule shows that every claim submitted contained the modifier “NU,” indicating a purchase of a new device.

The relator alleges that the “medical necessity” section of the CMN is often completed by a physician's clerical assistant and the CMN is signed off by the physician. These clerical assistants typically rely on the equipment suppliers' representatives for advice about how the CMN should be completed in order to ensure that claims will be processed and paid by Medicare.

Between March 2007 and December 2008, the relator, as a representative of a company purporting to supply medical devices and provide billing services to physicians, had numerous conversations with representatives of the defendants about purchasing the stimulators and other medical devices and supplies from them. The relator alleges that he was routinely told by those representatives that the stimulators were only available for purchase and could not be rented.

In or about January 2005, an equipment supplier client of the relator forwarded to the relator a completed prescription and a CMN for a stimulator for a Medicare patient. In the section marked “est. length of need (# of months),” the code “99” had been entered indicating that the patient would require the item for the duration of his or her life. The client indicated to the relator that doctors filled in code “99” despite the fact that the patient did not need the device for his or her lifetime because “in his (doctor's) mind he knows it's a purchase only item and it's not a rental item.” The client stated that, “this is just what the manufacturers are telling me ... they do these all the time ... they tell me that they don't rent them they purchase them ... one person gets them and that's it.” The relator alleges that the defendants routinely instruct doctors to include the code “99” on the CMN or otherwise specify a number of months that will support payment for the item as a purchase.

Suppliers must also certify in their Medicare Enrollment Applications that they have complied with the Federal Anti–Kickback Statute, 42 U.S.C. 1320a–7b(b). Relator alleges that certain defendants violated the Anti–Kickback Statute by (1) providing doctors with free stimulators in exchange for Medicare business; (2) routinely paying commissions to independent sales agents, including commissions based on a percentage of the Medicare billings that the agents generate; and (3) giving third party suppliers volume discounts on purchases of the stimulators, without including those discounts on invoices.

Discussion.

The FCA, 31 U.S.C. §§ 3729–3733, prohibits false or fraudulent claims for payment to the Federal government. Under the FCA, liability attaches to a “false or fraudulent claim for payment,” or a “false record or statement [made] to get a false or fraudulent claim paid,” 31 U.S.C. § 3729(a)(1)-(a)(2)(2008), amended by 31 U.S.C. § 3729(a)(2009). The qui tam provisions of the FCA allow a private citizen (called a relator) to bring a civil claim under the statute “for the person and for the United States Government ... in the name of the Government.” 31 U.S.C. § 3730(b)(1).

The relator sets forth four theories under which he claims the defendants violated § 3729(a)(1) and § 3729(a)(2) of the FCA and analogous state and local statutes. The relator alleges that the defendants (1) made false express certifications of compliance with the Supplier Standard Regulation; (2) made false implied certifications of compliance with the Supplier Standard Regulation; (3) submitted false Certificates of Medical Necessity with its claims for payment; and (4) made false express certifications of compliance with the...