U.S. Ex Rel. Susan Hutcheson v. Blackstone Med. Inc.

• Decision Date: 01 June 2011
• Docket Number: No. 10–1505.,10–1505.
• Parties: UNITED STATES of America ex rel. Susan HUTCHESON and Philip Brown, Plaintiffs, Appellants,v.BLACKSTONE MEDICAL, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

647 F.3d 377

UNITED STATES of America ex rel. Susan HUTCHESON and Philip Brown, Plaintiffs, Appellants,

v.BLACKSTONE MEDICAL, INC., Defendant, Appellee.

No. 10–1505.

United States Court of Appeals, First Circuit.

Heard April 6, 2011.Decided June 1, 2011.

Jennifer M. Verkamp, with whom Frederick M. Morgan, Jr. and Morgan Verkamp LLC, were on brief, for appellants.Charles W. Scarborough, Appellate Staff, Civil Division, Department of Justice, with whom Tony West, Assistant Attorney General, Carmen Ortiz, United States Attorney, and Douglas N. Letter, Appellate Staff, Civil Division, Department of Justice, were on brief, for the United States, amicus curiae.Catherine E. Stetson, with whom Peter S. Spivack, Jonathan L. Diesenhaus, Jessica L. Ellsworth, Lillian S. Hardy, Stephanie L. Carman, Hogan Lovells U.S. LLP, Douglas Hallward–Driemeier, Kirsten V. Mayer, and Ropes & Gray LLP, were on brief, for appellee.Before LYNCH, Chief Judge, LIPEZ and HOWARD, Circuit Judges.LYNCH, Chief Judge.

In this qui tam action brought under the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., relator Susan Hutcheson appeals from a Rule 12(b)(6) dismissal of her claims against Blackstone Medical, Inc. (Blackstone).

Hutcheson argues that Blackstone “knowingly” “cause[d]” hospitals and physicians to submit materially “false or fraudulent” claims to Medicare, Medicaid, and TRICARE in violation of 31 U.S.C. § 3729(a)(1) & (2). She alleges that Blackstone engaged in a nationwide kickback scheme to induce physicians to use its medical devices in spinal surgeries and that Blackstone knew this scheme would cause physicians and hospitals (unwittingly) to present federal healthcare programs with payment claims that contained material misrepresentations. We need only address Hutcheson's claims as they relate to the Medicare program. The United States has not intervened in this suit brought on its behalf, though it has supported Hutcheson as an amicus, both in the district court and on appeal.

Hutcheson and the United States argue that a claim is “false or fraudulent” under the FCA if it does not meet a material precondition of payment. They argue that compliance with the Anti–Kickback Statute (AKS), 42 U.S.C. § 1320a–7b, is a precondition for Medicare reimbursement and thus that Blackstone, in providing the alleged kickbacks, caused the hospitals and physicians at issue in this suit to submit false or fraudulent claims. In making this argument, Hutcheson and the United States invoke both the specific terms of provider agreements and hospital cost reports as well as elements of the broader statutory scheme. They argue, moreover, that the hospital and physician claims at issue in this suit were materially false or fraudulent because the alleged kickbacks would have been capable of influencing Medicare's decision whether to pay the claims had it been aware of them.¹

Blackstone argues that a claim can only be false or fraudulent under the FCA if it (1) misstates facts, (2) incorrectly certifies compliance with a statute or regulation, or (3) does not meet an express condition of payment stated in a statute or regulation. Blackstone argues that the claims at issue here do not meet any of these criteria. It argues that Hutcheson has neither alleged that the claims contain factual misstatements, nor identified an express certification or an express condition of payment from a statute or regulation that would disallow payment in light of the alleged kickbacks. Blackstone also argues that even if the claims were false or fraudulent, they were not materially false or fraudulent because the claims made by hospitals and the services provided by physicians were not influenced by kickbacks.

The district court held that Hutcheson's allegations did not state a claim under the FCA for purposes of Rule 12(b)(6). United States ex rel. Hutcheson v. Blackstone Med., Inc., 694 F.Supp.2d 48 (D.Mass.2010). It held that the hospital claims were not false or fraudulent, and that while the doctor claims were false or fraudulent, those claims were not materially false or fraudulent. We reverse.

After reviewing the facts and the district court's analysis, we reject two purported limitations on FCA liability Blackstone advances, one of which was adopted by the district court and the other of which appears to draw support from the district court's opinion. First, we reject the argument that, in the absence of an express legal representation or factual misstatement, a claim can only be false or fraudulent if it fails to comply with a precondition of payment expressly stated in a statute or regulation. Second, we reject the argument that a submitting entity's representations about its own legal compliance cannot incorporate an implied representation concerning the behavior of non-submitting entities. These purported limitations do not appear in the text of the FCA and are inconsistent with our case law.

Having rejected these two purported limitations, we hold that Hutcheson's complaint, in alleging that the hospital and physician claims represented compliance with a material condition of payment that was not in fact met, states a claim under the FCA that the hospital and physician claims for payment at issue in this case were materially false or fraudulent. It follows that Hutcheson has stated a claim that Blackstone knowingly caused the submission of materially false or fraudulent claims in violation of the FCA. In reaching this conclusion, we do not adopt the judicially created conceptual framework employed by the district court, nor do we adopt any categorical rules as to what counts as a materially false or fraudulent claim under the FCA.

I.

Hutcheson was employed by Blackstone as a Regional Manager from January 2004 until she was terminated in January 2006. She filed this qui tam action against Blackstone on September 29, 2006.² On November 21, 2008, more than two years later, the case was unsealed after the United States filed a notice stating that it would not intervene at that time because it was still investigating the claim.

At the time Hutcheson filed her complaint, the FCA imposed liability on any person who either “knowingly presents, or causes to be presented to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1), or “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government,” id. § 3729(a)(2). A person acts “knowingly” if he or she “(1) had actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information.” Id. § 3729(b). The FCA also stated that the term “knowingly” requires “no proof of specific intent to defraud.” Id. The statute has since been amended, but we refer to the provisions in force at the time of filing.³

Hutcheson's complaint alleges that Blackstone paid kickbacks to doctors across the country so they would use its products in certain spinal surgeries. These kickbacks, Hutcheson alleges, included “monthly payments under sham consulting agreements; paid development projects; research grants; royalties; exorbitant and sometimes illicit entertainment expenses; high-end travel and accommodations; speaking engagements and seminars[;] and other illegal incentives.” Hutcheson alleged that Blackstone's management supervised the kickback scheme and “knew that Medicare, Medicaid, and other federal program beneficiaries represent a significant percentage of spine-surgery patients,” and that as a result of the kickbacks, doctors across the country had performed spinal surgeries on Medicare and Medicaid patients using Blackstone's devices.

Hutcheson argues that compliance with the AKS is a condition of receiving payment from federally-funded healthcare programs, including Medicare, Medicaid, and TRICARE. The AKS prohibits the payment and receipt of kickbacks in return for either procuring or recommending the procurement of a good, facility, or item to be paid in whole or in part by a federal healthcare program. 42 U.S.C. § 1320a–7b(b). Hutcheson alleges that through its kickback scheme, Blackstone “knowingly cause[d]” healthcare providers to present “false or fraudulent” claims for payment to federal healthcare programs.⁴ The complaint focuses on the submission of claims to Medicare; it only summarily references the submission of claims to Medicaid and TRICARE, so we address these types of claims for payment no further. ⁵

The complaint detailed the contents of two types of documents pertinent to the claims for Medicare reimbursement. Both hospitals and physicians must sign a Provider Agreement in order to establish eligibility to receive reimbursement from Medicare. This states:

I agree to abide by the Medicare laws, regulations and program instructions that apply to [me].... I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal anti-kickback statute and the Stark law), and on the [provider's] compliance with all applicable conditions of participation in Medicare.

(Alterations in Complaint). Hospitals, but not doctors, must submit a Hospital Cost Report along with their claims for reimbursement. This states:

Misrepresentation or falsification of any information contained in this cost report may be punishable by criminal, civil and administrative action, fine and/or imprisonment under federal law. Furthermore, if services identified in this report [were] provided or procured through the payment directly or indirectly of a kickback or where otherwise illegal, criminal, civil and administrative action, fines and/or imprisonment may result.

The signatory of the Hospital Cost...