United States v. Medoc Health Servs. LLC

• Decision Date: 02 July 2020
• Docket Number: Civil Action No. 3:17-cv-02977-M
• Parties: UNITED STATES of America et al., Plaintiffs, v. MEDOC HEALTH SERVICES LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

470 F.Supp.3d 638

UNITED STATES of America et al., Plaintiffs,

v.MEDOC HEALTH SERVICES LLC, et al., Defendants.

Civil Action No. 3:17-cv-02977-M

United States District Court, N.D. Texas, Dallas Division.

Signed July 2, 2020

Richard J. Guiltinan, Clayton Ray Mahaffey, Kenneth G. Coffin, United States Attorney's Office, Dallas, TX, for Plaintiff United States of America.

Susan Jean Miller, Robert Simon Savage, Office of the Texas Attorney General, Austin, TX, for Plaintiff The State of Texas.

Steve Sumner, Justin Victor Sumner, Sumner Schick & Pace LLP, Dallas, TX, for Plaintiff Mark Adams.

Richard B. Roper, III, William L. Banowsky, Thompson & Knight LLP, Dallas, TX, for Defendant Medoc Health Services LLC.

John Anthony Scully, Cooper & Scully PC, Dallas, TX, for Defendant Kevin Kuykendall.

Stacy L. Brainin, Haynes & Boone LLP, Dallas, TX, for Defendant Sabrina Kuykendall.

Joe Kendall, Kendall Law Group PLLC, Dallas, TX, for Defendant Trenton Moody.

Mazin A. Sbaiti, Kevin N. Colquitt, Sbaiti & Company PLLC, Bradford John Robinson, Hartline Dacus Barger Dreyer LLP, Dallas, TX, for Defendants Mark Schneider, Michael Schneider.

Richard B. Roper, III, Thompson & Knight LLP, Dallas, TX, for Defendant Total RX Care LLC.

Robert M. Castle, III, Barnes & Thornburg LLP, Dallas, TX, for Defendant Cuong Nguyen.

ORDER

BARBARA M. G. LYNN, CHIEF JUDGE

Before the Court are five Motions to Dismiss: the Omnibus Motion to Dismiss (ECF No. 59), filed by Defendants Medoc Health Services, LLC, and Total RX Care, LLC, and joined in by the other Defendants; the Motion to Dismiss (ECF No. 62), filed by Sabrina Kuykendall; the Motion to Dismiss (ECF No. 68), filed by Kevin Kuykendall; the Motion to Dismiss (ECF No. 75), filed by Mark Schneider; and the Motion to Dismiss (ECF No. 77), filed by Michael Schneider. For the reasons explained below, all the Motions are DENIED.

I. Background

This is a qui tam suit, alleging that the Defendants aided in the submission of false claims to the Government by referring prescriptions paid for by federal government healthcare programs—such as Medicare, Tricare, and Department of Labor programs—to pharmacies that paid kickbacks. The alleged facts that follow are those described in the Complaint, which this Court takes as true for the purposes of these Motions.

According to the Complaint, "Medoc purports to provide management, administrative, and marketing services to compounding pharmacies and other types of ancillary service providers, such as clinical laboratories." Compl. ¶ 80. Kevin Kuykendall, Sabrina Kuykendall, Mark Schneider, and Michael Schneider (with Medoc, the "Medoc Defendants") allegedly were owners or officers of Medoc during the times relevant to this lawsuit.¹ See id. ¶¶ 23–24, 26–27. Medoc allegedly created subsidiaries, called Management Services Organizations ("MSOs"), to provide services to pharmacies in return for service fees. Id. ¶ 81. The Government claims that Medoc co-owned the MSOs "with physicians willing and able to refer their patient prescriptions to Medoc for routing and fulfillment by Medoc-associated pharmacies." Id. ¶ 83. Through their ownership in the MSOs, the physicians then allegedly received a percentage of the profits earned from the private-pay prescriptions written by the physicians in the MSO.² Id. ¶ 84. The Complaint alleges that Medoc encouraged physicians to increase the number of prescriptions they sent to Medoc by placing physicians with a high number of prescriptions in the more lucrative MSOs, while eliminating or transferring to lower volume MSOs physicians who wrote fewer prescriptions. Id. ¶ 95.

The Government alleges that this structure gave the Medoc Defendants power over which pharmacy would fill prescriptions, and that they used this power to elicit kickbacks from pharmacies. This conduct gave rise to the Government's claims under the False Claims Act due to violations of the Anti-Kickback Statute. The Government also alleges several related common law causes of action. According to the Complaint, there were three phases of the scheme, beginning in 2015.

First, the Government claims that the Medoc Defendants illegally collected kickbacks from Total RX Care, LLC. The Complaint alleges that in early 2015, Total RX signed a "sales representation" agreement with Medoc, entitling Medoc to 50% of the profits from Total RX's prescriptions paid for by third-party private insurance, specifically excluding federal healthcare programs. Id. ¶¶ 134–35. The Government alleges that soon after, however, Kevin suggested that Total RX add Michael to its payroll, with Michael receiving a percentage of the profits from federal prescriptions referred to Total RX. Id. ¶¶ 138–43. The Government claims that, after some negotiation, Total RX agreed and signed an "Employee at Will" agreement with Michael. Id. According to the Complaint, Total RX immediately began paying Michael hundreds of thousands of dollars (including for federal prescriptions predating the Employee at Will agreement), even though Michael "did not perform services for Total RX." Id. ¶¶ 153, 155, 161. The Medoc Defendants allegedly maintained a spreadsheet tracking the payments owed to Michael, based on the federal referrals. See id. ¶¶ 156–58. The Government claims that Michael deposited his payments into a bank account for Barolo Partners, LLC, where Sabrina divided the money between entities owned by the other Medoc Defendants. Id. ¶¶ 162–68. The Government claims that this was a kickback.

The Government alleges that during this arrangement, the number of federal prescriptions that Total RX filled skyrocketed. See id. ¶ 256. It also identifies several representative claims that Total RX submitted to the Government for payment during this time that it says were tainted by the alleged kickbacks. See, e.g., id. ¶¶ 171, 191, 203, 214, 225. The alleged scheme with Total RX continued for several months, until a Medoc contractor expressed concerns about the arrangement. See id. ¶ 260.

The Government claims that the concerns caused the Medoc Defendants "to move over $500,000 worth of [their] Federal business" to another pharmacy, which they did by reaching an agreement with Doctors Specialty Pharmacy ("DSP"). Id. ¶ 266 (quoting email from Kevin). In August 2015, the Complaint alleges that DSP signed an "MSO Services Agreement" with Vintage Grow Investment Partners I, LLC, whose partners included Kevin, Mark, Michael, Trenton Moody, and Steve Solomon. Id. ¶ 272. The agreement entitled Vintage Grow to 89% of DSP's gross operating income. Id. ¶ 276. However, the Government claims that Vintage Grow had not been incorporated as of the date of the agreement, had no employees, could not provide services to DSP, and that "Vintage Grow was a mere stand-in" for the Medoc Defendants. Id. ¶ 275. In short, the Government alleges that the service fee exceeded fair market value, and instead was a kickback for federal prescription referrals. Id. ¶ 277.

The Complaint alleges that after the agreement was signed, the Medoc Defendants shifted federal prescriptions to DSP. For example, Kevin instructed that "all government pay prescriptions will be filled at" DSP going forward. Id. ¶ 280. As with Total RX, the Complaint claims that the Medoc Defendants closely tracked the number of federal prescriptions referred to DSP, lists specific examples of federal claims submitted by DSP during the alleged kickback scheme, and includes a chart indicating that DSP's federal claims increased significantly while the agreement with Vintage Grow was in effect. See, e.g., id. ¶¶ 289, 312, 326. The Government claims that the Medoc Defendants discontinued the scheme with DSP only after physicians "raised concerns." Id. ¶ 323.

Shortly thereafter, the Complaint alleges that the Medoc Defendants reached an agreement to fill federal prescriptions at yet another pharmacy, MidCities Pharmacy. Id. ¶¶ 330, 337–41. The Government claims that the Medoc Defendants' agreement with MidCities was similar to the agreement with Total RX, by which the Medoc Defendants directed federal prescriptions to MidCities, in exchange for MidCities "hiring" Michael as an employee who was paid a percentage of MidCities' profits. See id. ¶ 341. Again, the Government alleges that Michael "did not perform any of the tasks in the agreement or provide services to" MidCities, and that he "did not actually go to the pharmacy." Id. ¶ 356. Nevertheless, the Complaint claims that MidCities paid Michael over $50,000 in wages that the Government characterizes as kickbacks. Id. ¶ 358. The Complaint alleges that, as with Total RX and DSP, the Medoc Defendants carefully tracked the number of federal prescriptions referred to MidCities, lists examples of federal prescription claims MidCities submitted while the agreement was in place, and claims that MidCities' federal claims increased significantly during that same time. See id. ¶¶ 368, 387, 391.

In October 2017, Relator Mark Adams filed a Complaint alleging several violations of the False Claims Act. See ECF No. 1. After an investigation, the United States filed a Notice of Partial Intervention (ECF No. 23), and an Intervenor Complaint in Partial Intervention (ECF No. 26), alleging violations of the False Claims Act, conspiracy to violate the False Claims Act, fraud, unjust enrichment, and payment by mistake. Relator Adams then filed a Notice of Partial Voluntary Dismissal (ECF No. 28), dismissing all claims outside of the Government's Intervenor Complaint. Thus, the only live claims are those asserted in the Government's Complaint in Partial Intervention.³

II. Legal Background

Rule 12(b)(6) authorizes dismissal for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). For a Rule 12(b)(6) motion, the Court may generally consider "the complaint, its proper attachments, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Wolcott v. Sebelius , 635 F.3d 757, 763 (...