United States ex rel. Nicholson v. MedCom Carolinas, Inc.

Decision Date16 March 2020
Docket Number1:17CV34
PartiesUNITED STATES OF AMERICA, ex rel. HAILE KIROS NICHOLSON, Plaintiff, v. MEDCOM CAROLINAS, INC., JEFF TURPIN, and JOHN DOES (1-50) INCLUSIVE, Defendants.
CourtU.S. District Court — Middle District of North Carolina

UNITED STATES OF AMERICA, ex rel. HAILE KIROS NICHOLSON, Plaintiff,
v.
MEDCOM CAROLINAS, INC., JEFF TURPIN, and JOHN DOES (1-50) INCLUSIVE, Defendants.

1:17CV34

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

March 16, 2020


MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

Before the court is the Motion to Dismiss, (Doc. 15), for failure to state a claim filed by Defendants MedCom Carolinas, Inc., and Jeff Turpin. Plaintiff Haile Kiros Nicholson ("Relator") is a qui tam relator proceeding, pursuant to 31 U.S.C. § 3730(b), against Defendants for violations of the False Claims Act ("FCA"), Anti-Kickback Statute ("AKS"), and North Carolina's False Claims Act ("North Carolina FCA"). The United States declined to intervene. Relator alleges that Defendants paid commissions to nonemployee contractors to induce referrals of medical services, an act that allegedly violated the AKS. Since Defendants were required to certify their

Page 2

compliance before submitting reimbursement claims to the government, this AKS violation is the predicate for the alleged FCA violations. Defendants argue that Relator has not alleged any FCA or AKS violations with the particularity required by Fed. R. Civ. P. 9(b). For the reasons stated herein, the court agrees with Defendants and will therefore dismiss Relator's Complaint.

I. FACTUAL AND PROCEDURAL BACKGROUND

On a motion to dismiss, a court must "accept as true all of the factual allegations contained in the complaint . . . ." Ray v. Roane, 948 F.3d 222, 226 (4th Cir. 2020) (citing King v. Rubenstein, 825 F.3d 206, 212 (4th Cir. 2016)). The following facts are taken from the Complaint as true.

A. Factual Background

Relator is a sales employee with Integra, a nonparty company that manufactures skin graft devices. (Complaint ("Compl.") (Doc. 1) ¶¶ 5, 14.) Defendants include MedCom Carolinas, Inc., Jeff Turpin, and John Does (1-50) Inclusive.

Page 3

(Id. ¶¶ 6-8.)1 MedCom Carolinas, Inc. ("MedCom") is a corporation formed under the laws of North Carolina with its principal place of business there are well. (Id. ¶ 6.) The Complaint does not allege what kind of business MedCom is, but it is somehow connected to the medical field. (See id. ¶¶ 5, 16.) Defendant Jeff Turpin is a resident of Durham, North Carolina; he owns MedCom "in whole or in part.". (Id. ¶¶ 7, 16.) The Complaint does not allege what specific position Turpin has with MedCom. Defendants John Does (1-50) Inclusive are "unknown to Plaintiffs, but include those co-conspirators who engaged in prohibited conduct described" in the Complaint. (Id. ¶ 8.) John Does may be individuals, corporations, associates, or otherwise. (Id.)

Page 4

Relator's allegations center on the use of contract employees and are limited to four instances in the Complaint.2 First, Relator alleges that "MedCom LLC utilized 1099 reps to generate referrals" for federal healthcare programs, and that "these representatives were paid in whole or in part for furnishing items covered by federal healthcare programs and received commissions based on the same including PriMatrix and Integra Dermal Replacement Therapy." (Id. ¶ 5.) Second, Relator later alleges that "Integra utilized 1099 nonemployee reps to generate referrals for Medicare/Medicaid and other federal healthcare program patients . . . . [T]hese representatives were paid by Jeff Turpin who owns MedCom LLC . . . ." (Id. ¶ 16.) Third, Relator further alleges that "Defendant companies' payments to nonemployee reps caused violations of the state and federal anti-kickback statues [sic] . . . ." (Id. ¶ 18.) Fourth, Relator alleges that "MedCom LLC has routinely violated the

Page 5

Anti-Kickback Law . . . through the use of the 1099 nonemployee representatives." (Id. ¶ 19.)

Relator alleges he was made aware of the scheme because, in his role as a sales employee for Integra, he was familiar with the healthcare facilities where the products in question were used and even "in the O.R. or clinic during a time patients were treated." (Id. ¶ 5.) Relator also engaged in some kind of "national competition[]" with the Integra 1099 nonemployees. (Id. ¶ 16.)

The products involved in these sales included one manufactured by Integra, Integra Dermal Replacement Therapy grafts, and "Primatrix,"3 another skin-substitute used for grafts. (Id. ¶¶ 14-15.) The Complaint does not allege who manufactures Primatrix. (See id. ¶ 15.)

With respect to the alleged fraudulent scheme, it is helpful to quote, verbatim, from the Complaint the paragraphs that lay out the scheme:

16. Relator's employer Integra utilized 1099 nonemployee reps to generate referrals for Medicare/Medicaid and other federal healthcare program patients in violation of the anti-kickback statute. Specifically, these representatives were paid by Jeff Turpin who owns MedCom LLC in whole or in part for

Page 6

furnishing items covered by federal healthcare programs and received commissions based on the same including PriMatrix and Integra Dermal Replacement Therapy. Relator learned of this scheme based upon his employment with Integra whereby these representatives engaged in national competitions with the full-time employees. Relator spoke with treating physicians, reimbursement personnel, and also received compensation for these 1099 nonemployee's role in generating these sales. For example, on or about Nov 2016, Patient T.W. received an Integra Dermal Replacement Therapy graft furnished by Relator's 1099 counterpart/sales representative Holloway whereby VA care benefits paid for this graft utilized by Dr. Phillips in excess of $3,000.00.

17. As a result of the conduct of all Defendants alleged herein, Defendants submitted or caused to be submitted thousands of false claims to the United States. Consequently, Defendants received or caused losses of millions of dollars from the United States to which they were not lawfully entitled.

18. Defendant companies' payments to nonemployee reps caused violations of the state and federal anti-kickback statues [sic], and all claims submitted to the Medicaid programs in those States as a sequel to [] those payments were false claims.

19. Medcom LLC has routinely violated the Anti-Kickback Law, 42 U.S.C. § [1320a-7b], which prohibits a person or firm from providing or soliciting remuneration as an inducement for referrals of Medicare, Medicaid, or other healthcare program patients through the use of the 1099 nonemployee representatives.

(Id. ¶¶ 16-19 (emphasis added).)

B. Procedural History

Relator brought this qui tam action on behalf of the United States, alleging four violations of federal law and one

Page 7

violation of North Carolina law. Relator alleges that Defendants were required to certify their compliance with federal laws before submitting reimbursement claims to government healthcare programs. (Id. ¶¶ 11, 12, 13.) Since Defendants allegedly violated the AKS, this certification was false, and each claim submitted was also false. Therefore, according to Relator, each claim presented to the government for repayment for those products was an FCA violation in addition to an AKS violation. (See id. ¶¶ 24, 30, 34.)

Relator's first count alleges Defendants violated the FCA when they presented false claims for repayment of the medical products provided, a violation of 31 U.S.C. § 3729(a)(1)(A). (Id. ¶¶ 20-26.) Count Two alleges that Defendants violated the FCA, 31 U.S.C. § 3729(a)(1)(B), by maintaining and presenting false records and statements. (Id. ¶¶ 27-31.) Count Three alleges that Defendants conspired to submit these false claims in violation of 31 U.S.C. § 3729(a)(1)(C). (Id. ¶¶ 32-35.) Count Four alleges a standalone AKS violation by Defendants in the form of illegal commission schemes, a violation of 42 U.S.C. § 1320a-7b. (Id. ¶¶ 36-39.) Count Five alleges violations of North Carolina's FCA. (Id. ¶¶ 40-47.)

The United States elected to decline intervention. (Doc. 7.) After the government declined to intervene, the Complaint

Page 8

was unsealed to allow Relator to serve all Defendants if he chose to proceed. (Doc. 8.) Relator elected to proceed, and Defendants subsequently filed the present Motion to Dismiss. (Doc. 15.) Defendants moved to dismiss Count Four pursuant to Fed. R. Civ. P. 12(b)(1), since no private right of action exists for an AKS violation. (Id.) Defendants moved to dismiss Counts One through Three under Rules 12(b)(6) and 9(b). (Id.) Finally, Defendants moved to dismiss Count Five for lack of subject matter jurisdiction. (Id.)

Defendants filed a brief in support of their motion to dismiss, (Doc. 16), Relator responded, (Doc. 20), and Defendants replied, (Doc. 22). The motion is ripe for ruling. For the reasons stated herein, the court will grant Defendants' motion to dismiss as to Counts One through Four and decline to exercise its supplemental jurisdiction over Count Five.

II. ANALYSIS

Defendants move for dismissal under different rules. The court will briefly begin with Count Four, the standalone AKS violation, which Defendants move to dismiss under Rule 12(b)(1). The court will then turn to Counts One through Three and the appropriate 9(b) analysis. Finally, the court will briefly explain its rationale for not exercising its supplemental jurisdiction over Count Five.

Page 9

A. Count Four: Standalone AKS Violation

Count Four alleges a standalone violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. (Compl. (Doc. 1) ¶¶ 36-39.) Defendants argue that the AKS does not provide for "a private qui tam right of action." (Defs.' Br. (Doc. 16) at 8.) Relator concedes that there is no private right of action under the AKS. (Rel.'s Resp. (Doc. 20) at 1 n.1.)

Courts "should dismiss a complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) if the complaint fails to allege facts upon which subject matter jurisdiction can be based . . . ." McLaughlin v. Safway Servs., LLC, 429 F. App'x 347, 348 (4th Cir. 2011) (per curiam) (citation omitted); see also Adams v. Bain, 697...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT