United States ex rel. CKD Project, LLC v. Fresenius Med. Care Holdings, Inc.
| Decision Date | 27 January 2021 |
| Docket Number | 14-CV-6646-RRM-SJB |
| Parties | UNITED STATES OF AMERICA ex rel. CKD PROJECT, LLC, Plaintiff, v. FRESENIUS MEDICAL CARE HOLDINGS, INC., NEW YORK DIALYSIS SERVICES, INC., FMS NEW YORK SERVICES LLC, and BIO-MEDICAL APPLICATIONS MANAGEMENT COMPANY, INC., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
REPORT & RECOMMENDATION
Relator CKD Project, LLC (“Relator”) filed this action against Defendants Fresenius Medical Care Holdings, Inc., New York Dialysis Services, Inc., FMS New York Services LLC, and Bio-Medical Applications Management Company, Inc. (collectively, “Fresenius” or “Defendants”), asserting four causes of action under the False Claims Act (“FCA”), 31 U.S.C §§ 3729, et seq. . On March 6, 2020, Fresenius filed a motion to dismiss. (Defs.' Notice of Mot. to Dismiss Am. Compl dated Jan. 3, 2020 (“Mot.”), Dkt. No. 69). For the reasons stated below, the Court respectfully recommends that the motion be granted.
Defendants' motion is brought pursuant to Rules 12(b)(1) and 12(b)(6) because the alleged conduct took place before and after 2010 when the FCA was amended. The amendment had the effect of changing whether the public disclosure bar-the subject of Defendants' motion-is a matter of subject matter jurisdiction. Thus, the facts, which the Court accepts as true for the purposes of Defendants' motion, are set forth in the Amended Complaint as follows. See Tandon v. Captain's Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014) (); Laurant v. City of New York, No. 17-CV-5740, 2019 WL 1364230, at *1 & n.1 (E.D.N.Y. Mar. 26, 2019) (regarding 12(b)(6)).[1]
Relator is a New York limited liability company that was formed for the sole purpose of bringing this action. (Am. Compl. ¶ 6). Fresenius provides outpatient dialysis services to patients, including those with end-stage renal disease (“ESRD”), through more than 2, 000 centers it operates in North America. . ESRD is a chronic disease “characterized by permanent kidney failure that can be treated either through a kidney transplant or dialysis, a medical filtering process that replaces kidney function by removing fluids and waste from the body.” (Id. ¶ 41). ESRD patients may undergo dialysis as frequently as three times per week. (Id.). A majority of dialysis patients receive some form of Medicare coverage. (Id. ¶ 42).
Relator alleges that Fresenius employed schemes in violation of the AntiKickback Statute, 42 U.S.C. § 1320a-7b(b), whereby doctors were paid to refer their dialysis patients to Fresenius facilities. (Id. ¶¶ 2-5, 44). This scheme was effectuated through Fresenius's expansion: Fresenius acquired controlling interests in dialysis clinics throughout the country, and while original physician-owners held a minority interest in their respective clinics, Fresenius “pa[id] them remuneration which far exceeded the value of any tangible assets” of the clinics. (Id.). Relator alleges that Fresenius paid the physicians above-market value for their clinics, and that this excess constituted payment to induce the doctors to refer patients back to these clinics. (Id. ¶¶ 3, 44-46). The Anti-Kickback Statute prohibits such payments in connection with Medicare and Medicaid reimbursement. (Id. ¶¶ 5, 23); 42 U.S.C. § 1320a-7b(b).
As one example, Relator cites the “Hauppauge Transaction.” (Am. Compl. ¶ 47). In December 2010, Fresenius acquired Apollo-Hauppauge-known as the Suffolk Kidney Center-a Long Island, New York dialysis center. (Id. ¶ 48). Apollo-Hauppauge itself was a joint venture of two entities: Suffolk Nephrology PLLC and 30 Central LLC. (Id. ¶ 50; see also id. at 29-30). The Hauppauge Transaction required the creation of a new Fresenius entity, FMS Hauppauge LLC (“FMS Hauppauge”), whose sole member was New York Dialysis Services, Inc. (Id. ¶ 51). New York Dialysis Services, Inc. assigned its ownership in FMS Hauppauge to Apollo-Hauppauge (and therefore, to Suffolk Nephrology PLLC and 30 Central LLC), in exchange for certain “contributed” assets. (Id. ¶¶ 51-52). These assets included certain fixed assets, proprietary rights, assumed contracts, and claims and rights to the contributed assets, among others. (Id. ¶ 54; Contribution and Redemption Agreement dated Dec. 1, 2010 (“C&R Agreement”), attached as Ex. A. to Am. Compl., Dkt. No. 58-2 § 2.2). Among the assets not transferred by the C&R Agreement were Medicare and Medicaid claims from before December 1, 2010, “all patient lists, patient appointment books and other medical records used or generated in connection with the Business, ” and documents and data related to these excluded assets. (C&R Agreement § 2.3(g), (h), (q), see also id. § 1.1, at 4 (defining “Effective Time”)).[2]
Relator alleges that Fresenius's separate payment for the medical records, patient lists, and patient books; the agreement that Apollo-Hauppauge would strive to preserve its customer relationships and goodwill of the business; and Fresenius's above-market payment to Suffolk Nephrology PLLC and 30 Central LLC for their non-patient assets are all evidence of Fresenius's renumeration for ongoing and future patient referrals. (Am Compl. ¶¶ 52-73).
Fresenius used this same “business model” in various transactions, including the acquisition of dialysis centers in Watertown, New York and Niagara Falls, New York. (Id. ¶¶ 76-80). And Fresenius used the same strategy nationwide. (Id. ¶¶ 82-103). Relator claims that when Fresenius submitted Medicare and Medicaid claims that were for services provided through these illicitly induced referrals, it violated the AntiKickback Statute and the False Claims Act. (Id. ¶¶ 25-26, 74-75).
Relator commenced this action on November 12, 2014. (Compl. dated Nov. 12, 2014, Dkt. No. 1). Relator filed an Amended Complaint on November 8, 2019, asserting four causes of action: two claims for violations of the FCA, 31 U.S.C. §§ 3729(a)(1)(A) and 3729(a)(1)(B), respectively; a claim for conspiracy to violate the FCA under 31 U.S.C. § 3729(a)(1)(C); and a claim for a violation of 31 U.S.C. § 3729(a)(1)(G) (). (Am. Compl. ¶¶ 104-24).[3] Fresenius filed its fully briefed motion to dismiss the Amended Complaint on March 6, 2020. (Mot.).[4]
“A motion to dismiss an action under Federal Rule 12(b)(1) raises the fundamental question whether the federal district court has subject matter jurisdiction over the action before it.” 5B Charles Alan Wright & Arthur R. Miller et al., Federal Practice and Procedure § 1350 (3d ed. 2020). A motion under Rule 12(b)(1) is “analytically different” from a Rule 12(b)(6) motion; “the former determines whether the plaintiff has a right to be in the particular court and the latter is an adjudication as to whether a cognizable legal claim has been stated.” Id.
“In resolving a motion to dismiss under Rule 12(b)(1), the district court must take all uncontroverted facts in the complaint (or petition) as true, and draw all reasonable inferences in favor of the party asserting jurisdiction.” Tandon, 752 F.3d at 243.
“[W]here jurisdictional facts are placed in dispute, the court has the power and obligation to decide issues of fact by reference to evidence outside the pleadings, such as affidavits.” In that case, the party asserting subject matter jurisdiction “has the burden of proving by a preponderance of the evidence that it exists.”
Id. (). “A ” Nike, Inc. v. Already, LLC, 663 F.3d 89, 94 (2d Cir. 2011) (quoting Makarova, 201 F.3d at 113), aff'd, 568 U.S. 85 (2013).
For a 12(b)(6) motion, the Court must accept the factual allegations set forth in a complaint as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). Once the Court construes the facts in the light most favorable to the relator, to avoid dismissal, there must be sufficient facts that allege a plausible claim. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) . “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. A complaint must contain more than “‘naked assertion[s]' devoid of ‘further factual enhancement.'” Id. (alteration in original) (quoting Twombly, 550 U.S. at 557). In other words, a plausible claim contains “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.; accord Fed.R.Civ.P. 8(a)(2). “Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555 (footnote omitted) (citation omitted). The determination of whether a relator has alleged a plausible claim is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679.
When deciding a 12(b)(6) claim, a district court...
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