U.S. v. Mckesson Corp..

• Decision Date: 28 March 2011
• Docket Number: Cause No. 2:08CV214–SA–DAS.
• Citation: 784 F.Supp.2d 664
• Court: U.S. District Court — Northern District of Mississippi
• Parties: UNITED STATES of America, ex rel., Thomas F. JAMISON, Plaintiffsv.McKESSON CORPORATION, et al., Defendants.

784 F.Supp.2d 664

UNITED STATES of America, ex rel., Thomas F. JAMISON, Plaintiffs

v.McKESSON CORPORATION, et al., Defendants.

Cause No. 2:08CV214–SA–DAS.

United States District Court, N.D. Mississippi, Delta Division.

March 28, 2011.

Albert Thomas Morris, Charles John Biro, U.S. Department of Justice, Washington, DC, Feleica L. Wilson, U.S. Attorney's Office, Oxford, MS, James C. Johnson, II, J. Brad Pigott, Pigott Reeves Johnson & Minor, PA, Jackson, MS, David J. Silbert, Keker & Van Nest, San Francisco, CA, for Plaintiffs.Benjamin W. Berkowitz, Caitlin E. Bales, David J. Silbert, Jeffrey R. Chanin, John W. Keker, Keker & Van Nest, San Fransicso, CA, Patric Hooper, Hooper Lunday & Bookman, Inc., Los Angeles, CA, Charles John Biro, U.S. Department of Justice, Kelly M. Cleary, Robert S. Salcido, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, James B. Tucker, Robert G. Anderson, Butler, Snow, O'Mara, Stevens & Cannada, Ridgeland, MS, Merrill King Nordstrom, Stuart Sheffield Davis, Rayburn Coghlan Law Firm, PLLC, Oxford, MS, for Defendants.

MEMORANDUM OPINION

SHARION AYCOCK, District Judge.

The parties ¹ have filed the following motions: ²

(1) The Beverly Defendant's Motion for Summary Judgment [111] on the basis of res judicata and collateral estoppel; (2) The United States' Motion for Partial Summary Judgment [113] as to Counts III, IV, V, and VI;

(3) The Beverly Defendant's Cross–Motion for Partial Summary Judgment [132] on Counts III, IV, V, and VI; ³ and

(4) The McKesson Defendant's Motion for Partial Summary Judgment [141] as to Counts I and III, including portions of IV, V, and VI.

The Court finds as follows:

Factual and Procedural Background

In 1998, Beverly Enterprises formed Ceres Strategies, Inc., to serve as the procurement arm for the company's nationwide conglomeration of more than three hundred skilled nursing facilities. When Beverly's contract with its enteral nutrition supplier was set to expire, Ceres set up Ceres Strategies Medical Services, LLC, (CSMS) to supply enteral nutrition, urological, and ostomy products to Beverly's nursing facilities. Ceres intended for CSMS to apply for and receive its own Medicare Part B durable medical equipment, prosthetics, orthotics and supplies (DMEPOS or DME) supplier number. CSMS solicited requests for proposals to engage a billing agent and received four bids. McKesson Medical–Surgical MediNet, Inc., (MediNet) was one of the bidders. MediNet is a Medicare Part B supplier itself and also specializes in billing and collection services.

CSMS submitted its application for enrollment as a DME supplier in February 2003 to the Centers for Medicare and Medicaid Services (CMS). CMS is the federal agency within the United States Department of Health and Human Services charged with administration of the Medicare program. As part of the application, CSMS certified that it “read, underst[ood], m[et] and w[ould] continue to meet all supplier standards as outlined in 42 C.F.R. § 424.57.” The regulation section cited in that certification concerned what was known at the time as the “21 Supplier Standards” that a DMEPOS supplier must meet “in order to be eligible to receive payment for a Medicare-covered item.” ⁴

CMS contracted out its DME supplier enrollment and verification responsibilities to the Palmetto GBA National Supplier Clearinghouse (NSC). That entity was charged with ensuring only companies compliant with the Supplier Standards were certified to participate in the Medicare program and revoking enrolled suppliers who no longer satisfied those Supplier Standards.

At the time of enrollment, an NSC representative inspected CSMS's premises, reviewed documents, and declared it eligible to receive a DMEPOS supplier number. Claims for payment to Medicare were submitted under CSMS' supplier number in June of 2003.

In October of 2006, CSMS was again inspected by NSC for compliance upon re-enrollment of its supplier number. The inspector took pictures, viewed documents, and attached exhibits to his report. CSMS was again found in compliance with Medicare standards, and its supplier number was re-activated. ⁵

A. First Administrative Proceeding

Following a March 6, 2007 on-site visit, NSC notified CSMS by letter dated March 23, 2007, that it was in violation of one or more of the 21 DMEPOS Supplier Standards.⁶ In particular, NSC determined that CSMS violated the following standards for these reasons:

Standard One: A supplier “[o]perates its business and furnishes Medicare-covered items in compliance with all applicable Federal and State licensure and regulatory requirements.”

A recent site visit and review of your Medicare file reveals that your company is dispensing enteral nutrition supplies to beneficiaries, in states other than Arkansas, which may require you to obtain Sales Tax Permits and DME licenses from the corresponding state licensing agencies permitting you to do so. Please provide copies of these licenses for the states that you are providing these services to or documentation from the licensing agencies stating that no Sales Tax Permit or DME license is required.

Standard Two: A supplier “[h]as not made, or caused to be made, any false statement or misrepresentation of a material fact on its application for billing privileges. (The supplier must provide complete and accurate information in response to questions on its application for billing privileges. The supplier must report to CMS any changes in information supplied on the application within 30 days of the change.)”

It was revealed during the site visit that Salvatore Salamone is a Vice President of your company; however, this information has not been reported to the NSC. All officers, directors, and managing employees who directly or indirectly conduct the day-to-day operations of the DMEPOS supplier for this facility must be reported.

Standard Four: A supplier “[f]ills orders, fabricates, or fits items from its own inventory or by contracting with other companies for the purchase of items necessary to fill the order. If it does, it must provide, upon request, copies of contracts or other documentation showing compliance with this standard....”

There was no inventory stored on your premises and the contract agreements provided indicate that all equipment is shipped to the long term care facilities by your distributor for use and storage and is maintained by the facility.

The Social Security Act, Section 1128B(b) ... prohibits anyone from knowingly and willfully receiving or paying anything of value to influence the referral of federal health care program business, including Medicare and Medicaid. If a supplier has entered into a rental arrangement with a physician-landlord, or other healthcare provider, whereby payments are made by the supplier to the lessor for the storage of DMEPOS items in a “consignment closet,” it shall be the supplier's responsibility to ensure that such arrangement is lawful and in compliance with all the Medicare supplier standards.

A Medicare DMEPOS supplier that sets up such a “consignment closet” for their supplies in another healthcare provider's facility must possess a written lease agreement that conforms to the Federal regulatory provisions that set fourth [sic] safe harbor criteria for space rental arrangements (see 42 C.F.R. 1001.952), in order to establish immunity from prosecution. To confirm your compliance with the regulation and statute cited above, we ask that you fax us a copy of the rental agreement(s) between your business and the physician-landlord, or other healthcare provider(s).

Standard Ten: A supplier “[h]as a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier's place of business and all customers and employees of the supplier....”

The certificate of insurance that was provided by your company expired on March 14, 2007. Please provide us with a current copy of your certificate proving compliance with this standard.

Standard Twelve: A supplier “[m]ust be responsible for the delivery of Medicare covered items to beneficiaries and maintain proof of delivery. (The supplier must document that it or another qualified party has at an appropriate time, provided beneficiaries with necessary information and instructions on how to use Medicare-covered items safely and effectively).”

There were no delivery or instruction documents provided to support your compliance with this standard. Please provide us with documentation showing where you or another qualified party provides the beneficiaries with the necessary information and instructions on how to use the equipment safely and effectively.

Standard Twenty: A supplier “[m]ust maintain [certain] information on all written and oral beneficiary complaints, including telephone complaints, it receives....”

The complaint log provided by your company does not contain all of the required fields.... Please provide us with a valid complaint log proving compliance with this standard.

The Notice Letter gave CSMS twenty-one days to demonstrate full compliance with the DMEPOS Supplier Standards. However, if CSMS did not comply with the deadline, “the [Supplier Audit and Compliance Unit of the National Supplier Clearinghouse or SACU] may initiate actions to revoke” CSMS's Medicare DMEPOS supplier number.

CSMS responded on April 13, 2007. As to Standard One, CSMS noted that it provides enteral nutrition products to Golden Horizons and Beverly facilities in the following states: Alabama, Arkansas, California, the District of Columbia, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Pennsylvania, South Dakota, Tennessee, Virginia, West Virginia, and Wisconsin. CSMS contends that it attached business permits or registrations from each of the states in which it supplied enteral nutrition products.⁷ CSMS also included sales and/or use tax permits and...