United States ex rel. Phalp v. Lincare Holdings, Inc.

Decision Date10 July 2015
Docket NumberCASE NO. 10–cv–21094–KMW
Citation116 F.Supp.3d 1326
Parties United States of America ex rel. Gerry Phalp and Matt Peoples, Plaintiffs, v. Lincare Holdings, Inc. and Lincare, Inc. d/b/a Diabetic Experts of America, Defendants.
CourtU.S. District Court — Southern District of Florida

Susan Torres, U.S. Attorney's Office, Miami, FL, Daniel E. Gustafson, Gustafson Gluek PLLC, Minneapolis, MN, Charles J. Kocher, Patrick Howard, Simon Bahne Paris, Saltz Mongeluzzi Barrett & Bendesky, PC, Philadelphia, PA, Curtis Bradley Miner, Stephanie Anne Casey, Colson Hicks Eidson, Coral Gables, FL, Daniel Allen, Jose M. Bautista, Bautista & Allen, Kansas City, MO, for Plaintiff.

Lawrence Phillip Ingram, Andrew Brian Albritton, Jessica Kirkwood Alley, Michael S. Hooker, Phelps Dunbar, LLP, Tampa, FL, for Defendant.



THIS MATTER came before the Court on Defendants Lincare Holdings, Inc. and Lincare, Inc. d/b/a Diabetic Experts of America's motion for summary judgment (Lincare, Inc. is referred to as "Lincare;"1 Lincare Holdings, Inc. is referred to as "Holdings"), on Relators Matt Peoples and Gerry Phalp's six threshold exemplars. (DE 74). The Court granted Relators' Federal Rule of Civil Procedure 56(d) motion for additional discovery and allowed supplemental briefing.2 (DE 118). Accordingly, the motion is fully briefed. (DE 75, 100, 101, 105, 194, 195, 196, 199, 206, 207, 209).3 Defendants' motion to strike expert report from the Relators' summary judgment briefing on the exemplars is also before the Court and ripe for disposition. (DE 104, 117, 123).


The dispute in this case involves how Diabetic Experts marketed its diabetic testing supplies to six Medicare beneficiaries and then billed Medicare for the supplies that it provided. (Second Amended Complaint ("SAC") DE 43). Relators did not plead facts indicating that Diabetic Experts failed to send the billed-for items—blood-testing strips, lancets, disposable lancet devices, and testing solution—to the Medicare beneficiaries or that the items provided were of inferior quality or overpriced. Rather, in Count I, Relators argue that Diabetic Experts violated the False Claims Act, 31 U.S.C. § 3729(a)(1)(A), by presenting false claims to Medicare for sales that arose out of allegedly illegal and unsolicited telephone calls and that relied on purportedly false assignments of benefits ("AOBs") given to Lincare. In Count II, Relators argue that Holdings and Diabetic Experts violated 31 U.S.C. § 3729(a)(1)(B)4 by making or using improper sales leads generated from Holdings' database of patient information and by using the purportedly false AOBs given to Lincare.

For the reasons discussed below, the Court grants Defendants' motion for summary judgment on the six exemplars. The Court concludes that Lincare and Diabetic Experts are a single supplier for the purposes of the Medicare statutes, regulations, and supplier standards at issue and that their reliance on AOBs for provision of diabetic supplies was not inconsistent with the Center for Medicare and Medicaid Services' ("CMS")5 implementation of the Medicare statutes. Because Diabetic Experts is the same supplier as Lincare, Holdings did not violate the False Claims Act by sharing Lincare's patient information and documents with Diabetic Experts.

(I)(A) Pertinent Medicare Statutes And Regulations

"The Medicare Program is a system of health insurance administered by the United States Department of Health and Human Services, through the Center for Medicare and Medicaid Services." See United States ex rel. Walker v. R & F Props. of Lake Cnty., Inc., 433 F.3d 1349, 1351 (11th Cir.2005). It is a "vast and complicated" program. United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 310–11 (3d Cir.2011). Part B, the part of the Medicare program at issue here, is "voluntary supplemental medical insurance covering ... durable medical equipment." Int'l Rehabilitative Sciences Inc. v. Sebelius, 688 F.3d 994, 997 (9th Cir.2012). To provide context, the Court highlights a number of pertinent provisions from the complex regime found in the United States Code, the Code of Federal Regulations, and the Federal Register.

(l)(A)(1) Definition of DMEPOS: Supplies and Equipment

Medicare Part B pays for "covered items." 42 U.S.C. § 1395m(a)(13) ("[T]he term ‘covered item’ means durable medical equipment."). Title 42 U.S.C. § 1395x describes durable medical equipment ("DME"6 ), which includes "blood-testing strips and blood glucose monitors." The only durable medical equipment, prosthetics, orthotics, and supplies ("DMEPOS")7 at issue are: blood-testing strips, lancets, disposable lancet devices, and testing solution supplied to the exemplar beneficiaries. Diabetic Experts did not submit any claims to Medicare for blood glucose home testing monitors—they were provided free of charge. (See DE 75 ¶ 20; see also DE 101 ¶ 20 ("disput [ing] as written" Defendants' statement of facts, but not disputing the underlying facts)). The Parties cite to various statutes, regulations, and agency interpretations to support their respective theories of whether covered items such as testing strips or lancets are supplies or equipment. That classification—supplies vs. equipment—goes to the issue of whether the AOBs used by Diabetic Experts were consistent with regulations.

Under the subheading of "payment for durable medical equipment," 42 U.S.C. § 1395m provides that testing strips are included in diabetic supplies, which is a subset of durable medical equipment. 42 U.S.C. § 1395m(a)(1)(H)(i) ( "[T]he payment amount under this part for diabetic supplies, including testing strips, ... shall be equal to the single payment amounts established ... under section 1395w–3 of this title."). As referenced, 42 U.S.C. § 1395w–3(a)(2)(A) describes "durable medical equipment and medical supplies" as "covered items (as defined in section 1395m(a)(13) of this title)," including "supplies used in conjunction with durable medical equipment." Thus, the terms supplies and equipment are both used when referring to items like blood-testing strips. While the statutes describe general categories of covered items, including durable medical equipment, the applicable regulations provide a more precise definition that is informed by the expertise of CMS.

Supplies are those items necessary for the effective use of durable equipment. 42 C.F.R. § 414.402(2). The Medicare regulations define durable medical equipment as "equipment furnished by a supplier [that] can withstand repeated use." 42 C.F.R. § 414.202(1). Thus, the applicable regulations support a distinction between equipment as reusable implements and supplies as materials that may be used to replenish or augment the equipment. This represents a qualitative judgment by CMS that distinguishes equipment, which can withstand repeated usage, from more ephemeral supplies. As a result, "[s]upplies necessary for the effective use of DME" are listed separately from durable medical equipment in the regulations. 42 C.F.R. § 414.402 ; see also 42 C.F.R. § 400.202 (definitions specific to Medicare: "Services means medical care or services and items, such as ... supplies, appliances, and equipment.").

(I)(A)(2) DMEPOS Supplier Rules

Title 42 C.F.R. § 424.57 sets out the "special payment rules for items furnished by DMEPOS suppliers and issuance of DMEPOS supplier billing privileges." A DMEPOS supplier is "an entity or individual, which sells or rents Part B covered items to Medicare beneficiaries and which meets the standards in paragraphs (c) and (d) of this section." 42 C.F.R. § 424.57(a). In addition to meeting those standards, all DMEPOS suppliers must also comply with the general rules in paragraph (b) of the section in order to be eligible to participate in Medicare and receive payment for a covered item. See 42 C.F.R. § 424.57(b).

This is an ongoing obligation; at the time of its application, the supplier promises that it will continue to meet the standards set forth in section (c) of the special payment rules. See 42 C.F.R. § 424.57(c).

(l)(A)(2)(a) Supplier Identification

The general rules found in section (b) of the DMEPOS supplier special payment rules require that the supplier meet certain conditions to be "eligible to receive payment for a Medicare-covered item." 42 C.F.R. § 424.57(b). One such condition is that a supplier is not eligible to be paid unless it obtains a supplier number.See 42 U.S.C. § 1395m(j)(1)(A). Accordingly, before submitting claims to Medicare, each DMEPOS-selling business location that meets the eligibility requirements receives a supplier number from the National Supplier Clearinghouse ("NSC").8 CMS uses the term subpart to refer to the "separate physical locations" of health care providers. See HIPAA Administrative Simplification: Standard Unique Health Identifier for Health Care Providers, 69 Fed.Reg. 3434–01, 3438 (Jan. 23, 2004) (to be codified at 45 C.F.R. Part 162).

Furthermore, pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), suppliers are required to obtain National Provider Identifiers ("NPI")9 from the National Plan and Provider Enumeration System ("NPPES").10 See 45 C.F.R. § 162.408 ; 45 C.F.R. § 162.406 ; (DE 75 ¶ 13). DMEPOS suppliers like Lincare are known as organization health care providers, which may be eligible for multiple NPIs based on the number and nature of their subparts. (DE 75 ¶ 14; 75–3 at 83, 85, Centers for Medicare and Medicaid Services, Medicare Learning Network, The National Provider Identifier (NPI): What You Need to Know (2012); CMS Medicare Program Integrity Manual Ch. 15 § 15.3 DE 195–4). At the provider's request, the NPPES may assign an NPI, which is always an identifier specific to a location, "to a subpart of a health care provider ... if the identifying data for the subpart are unique." 45 C.F.R. § 162.408(a)(1) ; § 162.408(g). Moreover, if that subpart "would...

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