United States ex rel. Riedel v. Bos. Heart Diagnostics Corp.

• Decision Date: 12 September 2018
• Docket Number: Civil Action No. 12-1423 (RBW)
• Citation: 332 F.Supp.3d 48
• Parties: UNITED STATES of America EX REL. Chris RIEDEL, Plaintiff, v. BOSTON HEART DIAGNOSTICS CORPORATION, Defendant.
• Court: U.S. District Court — District of Columbia

332 F.Supp.3d 48

UNITED STATES of America EX REL. Chris RIEDEL, Plaintiff,

v.BOSTON HEART DIAGNOSTICS CORPORATION, Defendant.

Civil Action No. 12-1423 (RBW)

United States District Court, District of Columbia.

Signed September 12, 2018

Eric J. Buescher, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, for Plaintiff.

Brian P. Dunphy, Pro Hac Vice, Michael S. Gardener, Pro Hac Vice, Mintz Levin, PC, Christopher H. Lindstrom, Pro Hac Vice, Jonathan L. Kotlier, Pro Hac Vice, Nutter McClennen & Fish LLP, Boston, MA, Hope Schwarz Foster, Karen S. Lovitch, Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., Washington, DC, for Defendant.

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge

The plaintiff/relator, Chris Riedel, brings this qui tam action on behalf of the United States against the defendant, Boston Heart Diagnostics Corporation ("Boston Heart"), under the False Claims Act, 31 U.S.C. § 3729 (2012). See Relator's Second Amended Complaint for Money Damages and Civil Penalties for Violations of the False Claims Act ("2d Am. Compl.") ¶¶ 1, 108–21. Currently before the Court is Boston Heart Diagnostics Corporation's Motion to Dismiss Relator's Second Amended Complaint ("Def.'s Mot."), which seeks dismissal of the relator's claims pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). See Def.'s Mot. at 1. Upon careful consideration of the parties' submissions,¹ the Court concludes that it must grant in part and deny in part Boston Heart's motion to dismiss.

I. BACKGROUND

A. Applicable Statutes

A brief overview of the Medicare program and the statutes at issue in this case will help elucidate the relator's allegations in his Second Amended Complaint.

1. The Medicare Program

Medicare is a federal health insurance program for the elderly and people with disabilities. See 42 U.S.C. § 1395c (2012). Medicare Part B, which provides outpatient coverage for, among other things, diagnostic laboratory tests, see 42 C.F.R. § 410.32 (2017), only covers medical services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," 42 U.S.C. § 1395y(a)(1)(A). "[Laboratory t]ests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described." Medicare Claims Processing Manual: Chapter 16—Laboratory Services ("Processing Manual") § 120.1 (2018).² "[E]ven though the Medicare statute requires the laboratory to certify the medical necessity of any test for which it makes a claim for payment, the laboratory is not required to make an independent determination of medical necessity, but rather may rely on the ordering physician's determination." United States ex rel. Groat v. Boston Heart Diagnostics Corp., 296 F.Supp.3d 155, 163 (D.D.C. 2017) (Walton, J.) ( Groat II ).

"The Secretary of the Department of Health and Human Services administers the Medicare program through the Centers for Medicare and Medicaid Services, which contracts with Medicare Administrative Contractors [ (‘MACs’) ] to manage enrollment of health care providers and to process payments." Popkin v. Burwell, 172 F.Supp.3d 161, 164 (D.D.C. 2016). This includes ensuring that claims for payment are "clean claims," meaning "claim[s] that ha[ve] no defect or impropriety." 42 U.S.C. § 1395h(c)(2)(A)–(B).

"When submitting claims for payment ..., healthcare service providers ... use standard billing forms[,] ... [which] use numeric codes to describe the medical services for which the provider seeks payment." Ass'n of N.J. Chiropractors v. Aetna, Inc., No. 09-3761 (JAP), 2012 WL 1638166, at *1 (D.N.J. May 8, 2012). "Federal regulations, specifically 45 C.F.R. § 162.1002(a)(5), (b)(1), designate the American Medical Association's Current Procedural Terminology (‘CPT’) and the Centers for Medicare & Medicaid Services Common Procedure Coding System (‘HCPCS’) as the standard codes to be used for physician services and other health care services." Id."HCPCS codes can define a single test or a panel (a group of tests that are commonly performed together)." Dep't of Health & Human Servs. Office of Inspector Gen., Questionable Billing for Medicare Part B Clinical Laboratory Services at 2 (2014). One "common Medicare fraud scheme[ ] involving clinical lab services ... [is] unbundling tab tests." Id."Unbundling is the practice of inappropriately reporting each component of a service or procedure instead of reporting the single comprehensive code." Id. at 2 n.12.

An entity seeking reimbursement for services provided to Medicare patients must submit a CMS-1500 form to the MAC. See United States ex rel. Hobbs v. MedQuest Assocs., Inc., 711 F.3d 707, 711 (6th Cir. 2013) ("The[CMS-1500] form[ ] reflect[s] the treatment or services provided and identif[ies] the [entity that] provided them."). The CMS-1500 form requires the entity to certify that, among other things, "the services on this form were medically necessary." Health Insurance Claim Form ("CMS-1500") at 2, available at https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/CMS1500.pdf (last visited Sept. 12, 2018).

2. The Anti-Kickback Statute

The Anti-Kickback Statute prohibits payments in exchange for referrals to federal healthcare programs, specifically prohibiting:

knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person ... to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.

42 U.S.C. § 1320a-7b(b)(2)(A).

Unfortunately, the occurrence of kickbacks is reportedly common in the context of laboratory tests billed to Medicare. In 1994, the U.S. Department of Health and Human Services, Office of Inspector General ("OIG"), issued a Special Fraud Alert that addressed laboratory practices that violated the Anti-Kickback Statute, including, but not limited to, "routine waiver of Medicare Part B co-payments and deductibles." Publication of OIG Special Fraud Alerts, 59 Fed. Reg. 65,372, 65,373 (Dec. 19, 1994) ("1994 OIG Special Fraud Alert"). And the OIG has made clear that "disguising remuneration for Federal referrals through offers or payments of inflated amounts for non-Federal business or simply by offering or paying remuneration for non-Federal referrals to ‘pull through’ the Federal business" "may violate the [A]nti-[K]ickback [S]tatute." Dep't of Health & Human Servs. Office of Inspector Gen., Advisory Opinion No. 00-8: Spectrum Housing, d/b/a Housing Referrals of Maine at 5 (2000).

Consequently, in 2005, the OIG issued an Advisory Opinion stating:

Where a laboratory pays a referring physician to perform blood draws, particularly where the amount paid is more than the laboratory receives in Medicare reimbursement, an inference arises that the compensation is paid as an inducement to the physician to refer patients to the laboratory ....

Dep't of Health & Human Servs. Office of Inspector Gen., Advisory Opinion No. 05-08 at 4 (2005) ("2005 OIG Advisory Opinion"). Thereafter, in 2014, the OIG issued a Special Fraud Alert regarding other laboratory payments to referring physicians, stating that it "ha[d] become aware of arrangements under which clinical laboratories are providing remuneration to physicians to collect, process, and package patients' specimens." Dep't of Health & Human Servs. Office of Inspector Gen., Special Fraud Alert: Laboratory Payments to Referring Physicians at 3 (2014) ("2014 OIG Special Fraud Alert"). The OIG noted that some of these arrangements may implicate the Anti-Kickback Statute, particularly if, inter alia, "[p]ayment exceeds fair market value for services actually rendered by the party receiving the payment,"id. at 4, or the "[p]ayment is for services for which payment is also made by a third party, such as Medicare," id. at 5.

3. The Stark Law

The Stark Law prohibits physicians from referring patients to anyone with whom he or she has a financial relationship. Specifically, "if a physician (or an immediate family member of such physician) has a financial relationship with an entity ... [,] the physician may not make a referral to the entity for the furnishing of designated health services." 42 U.S.C. § 1395nn(a)(1)(A). A financial relationship is defined as "an ownership or investment interest in the entity, or ...a compensation arrangement ... between the physician (or an immediate family member of such physician) and the entity." Id. § 1395nn(a)(2)(A)–(B).

4. The False Claims Act

"The False Claims Act imposes civil liability on any person who knowingly submits false claims to the government." United States ex rel. Dig. Healthcare, Inc. v. Affiliated Comput. Servs., Inc., 778 F.Supp.2d 37, 44–45 (D.D.C. 2011) (Walton, J.) (citing 31 U.S.C. §§ 3729 – 3733 ). Its purpose is "to reach all types of fraud, without qualification, that might result in financial loss to the Government," and "reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money." United States v. Neifert-White Co., 390 U.S. 228, 232–33, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) (noting that "the Court has consistently refused to accept a rigid, restrictive reading [of the Act]").

"[V]iolations of [the Anti-Kickback] and Stark [statutes] can be pursued under the False Claims Act, since they would influence the government's decision of whether to reimburse Medicare Claims." United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 565 F.Supp.2d 153, 159 (D.D.C. 2008) ( Pogue II ).

Three provisions of the False Claims Act are at issue in this case. Section 3729(a)(1)(A) creates liability for "any person who ... knowingly presents,...