SIMPSON v. BAYER PHARMACEUTICAL CORP. et al
Filing
351
OPINION. Signed by Chief Judge Jose L. Linares on 4/22/2019. (dam, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA ex rd.
LAURIE SIMPSON,
Plaintiff—Relator,
Civil Action No.: 05-3895 (JLL) (JAD)
OPINION
V.
BAYER CORP.. et at..
Defendants.
LENARES, Chief District Judge.
This matter comes before the Court by way of cross-motions for partial summary judgment
by Plaintiff—Relator Laurie Simpson. (ECF No. 324). and Defendants Bayer Corporation, Bayer
Healthcare Pharmaceuticals, Inc., and Bayer Healthcare, LLC (collectively, “Bayer”), (ECF No.
323). Bayer has opposed Relator’s motion, (ECF No. 329), and Relator has opposed Bayer’s
motion, (ECF No. 330). The United States (the “Government”), though declining to intervene in
this matter, (ECF No. 16), has filed a statement of interest. (ECF No. 338). The Court held oral
argument on the cross-motions on March Il, 2019. (ECF No. 344). for the following reasons,
the Court denies both motions.
I.
BACKGROUND’
Relator, a former Bayer employee, filed this qtti tarn action under the whistleblower
provisions of the False Claims Act (“FCA”), 31 U.S.C.
§
3729 et seq.. on August 5, 2005. (ECF
No. I). The Government declined to intervene. (ECF No. 16). As relevant to the present motions,
Relator alleges that Bayer caused the submission of false claims to federal health programs related
to a Bayer pharmaceutical. Trasylol, (1) by marketing Trasylol for off-label uses that were not
reasonable and necessary, and (2) by paying kickbacks to physicians and other healthcare
professionals to induce increased use of Trasylol. (See ECF No. 324-1 (“Rel. Br.”) at 19—20;
IOAC
¶
187—214).
The allegations underlying this dispute have been described on several
occasions, most recently in the Court’s March 16, 2015 Opinion granting in part and denying in
part Bayer’s motion to dismiss the Ninth Amended Complaint. (ECF No. 20$). Accordingly, and
in the interest ofjudicial economy, the Court includes an abbreviated statement of the factual and
procedural history to the extent such background is relevant to the instant motions.
A. Medicare Payment System
The present dispute arises in the context of the reimbursement system used by Medicare.
Medicare is a federal health insurance program for individuals with disabilities and the elderly. 42
This background draws from the parties’ statements of material facts pursuant to Local Civil Rule 56.1,
(ECF No. 324-2 (“Rd. 56.1”), ECF No. 323-2 (“Bayer 56.1”), ECF No. 330-1 (“Rel. Reply 56.1”), and
ECF No. 329-1 (“Bayer Reply 56.1”)), as well as from Relator’s Tenth Amended Complaint, (ECF No.
213 (“IOAC”)), and the broader legal landscape in which this dispute arises. To the extent that Relator
admits to any material facts as stated by Bayer, the Court will cite only to “Bayer 56.1” and the relevant
paragraph numbers. Likewise, to the extent Bayer admits to any material facts as stated by Relator, the
Court will cite only to “Rd. 56.1” and the relevant paragraph numbers. The Court will “disregard all
factual and legal arguments, opinions and any other portions of the 56.1 Statement[s] which extend
beyond statements of fact.” Globespanvirata, Inc. V. Tex. Instrument, Inc., No. 03-2854, 2005 WL
3077915, at *2 (D.N.J. Nov. 15, 2005); see also L. Civ. R. 56.1 (“Each statement of material facts...
shall not contain legal argument or conclusions of law.”).
2
U.S.C.
§ 1395 et seq. Medicare Part A covers inpatient hospital services and items used during
inpatient stays. See 42 U.S.C.
§ 1395c; 42 C.F.R. § 409.l0(a)(5). With
certain exceptions not
applicable here, Medicare reimburses hospitals for items and services provided to beneficiaries
during inpatient stays “through fixed, bundled payments on a per discharge basis under the
Inpatient Prospective Payment System
42 C.F.R.
( IPPS’).” (Re!. 56.1 ¶ 5); see also 42 U.S.C. § I 395ww(d);
§ 412.!, 412.60. Uider the IPPS. “inpatient services are reimbursed a fixed amount
based upon the Diagnosis Related Group (‘DRG’) classification of the inpatient stay.” (Re!. 56.!
¶ 6); see also 42 C.F.R. § 412.1,412.2,412.60. DRG classifications and payment rates are created
by the Centers for Medicare and Medicaid Services (“CM S”) based on the aggregation of weighted
factors and average costs over time. See 42 C.F.R.
§ 412.60. Congress adopted the IPPS in order
to incentivize hospitals to manage operating costs efficiently, as costs above the fixed payment are
borne by the hospital. Dist. Hosp. Partners, L.P. v. Bttniell, 786 F.3d 46, 49 (D.C. Cir. 2015).
Hospitals submit requests for reimbursement to the Government using a KCFA/CMS- 1450
form, also called a UB-92/UB-04 (“LB form”). (Rel. 56.1
¶ 10). During the Relevant Time
Period,2 hospital providers submitted claims for reimbursement for inpatient stays using the UB
fonn or its electronic equivalent. (Rel. 56.1
¶ 10). Such claims were based on the assigned DRG
classification for the Medicare beneficiary during a given inpatient stay, and reimbursements in
turn depended on the DRG classification, “rather than on the costs of the specific items and
services provided to the particular patient.”
(Rel. 56.1
¶ 6); see also 42 C.F.R. § 412.60.
Nevertheless, the parties agree that DRG payments constitute “payment in full for all inpatient
items and services provided” to patients. (Re!. 56.1
¶ 8); see also 42 C.F.R. § 4 12.2(b), 412.50(a).
Certain items and services are not reimbursable by Medicare.
2
The Medicare statute
The Relevant Time Period refers to the period on or after August 5. 1999. (See ECF No. 147 at 23).
3
provides that “no payment may be made.
.
.
for any expenses incurred for items or services” which
“are not reasonable and necessary for the diagnosis and treatment of illness or injury or to improve
the functioning of a malformed body member.”
42 U.S.C.
§ l395y(a)(l)(A). In order to
participate in Medicare. hospital providers submit an enrollment application to CMS called a form
CMS-855A. (Rd. 56.1
¶ 4; Bayer Reply 56.1 ¶ 4). The forni CMS-855A includes the following
certification:
I agree to abide by the Medicare laws, regulations and program
instructions that apply to this provider. The Medicare laws,
regulations, and program instructions are available through the
Medicare contractor. I understand that payment of a claim by
Medicare is conditioned upon the claim and the underlying
transaction complying with such laws, regulations, and program
instructions (including, but not limited to, the Federal anti-kickback
statute and the Stark law), and on the provider’s compliance with a!!
applicable conditions of participation in Medicare.
(Re!. 56.1
¶ 4); see also CMS-855A § 15 ¶ 3, https://www.crns.gov/Medicare/CMS-Fonns/CMS
Forrns/downloads/cms855a.pdf.
C1S-2552, see 42 C.F.R.
Hospitals also submit annual reports to CMS called forms
§ 4 13.20(b), which require a mandatory certificate of compliance, which
includes the following certification:
MISREPRESENTATION OR FALSIFICATION OF ANY
INFORMATION CONTAINED IN THIS COST REPORT MAY
BE PUNISHABLE BY CRIMINAL, CIVIL AND ADMINIS
TRATIVE ACTION, FINE AND/OR IMPRISONMENT UNDER
FEDERAL LAW. FURTHERMORE, IF SERVICES IDENTI
FIED IN THIS REPORT WERE PROVIDED OR PROCURED
THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF
A KICKBACK OR WERE OTHERWISE ILLEGAL, CRIMINAL,
CIVIL AND ADMINISTRATIVE ACTION, FINES AND/OR
IMPRISONMENT MAY RESULT.
CMS-2 552-10,
The CMS-2552 also requires certification from an officer or administrator of the provider: “I
further certify that I am familiar with the laws and regulations regarding the provision of health
4
care services, and that the services identified in this cost report were provided in compliance with
such laws and regulations.” Id.
B. Trasylol
Trasylol is Bayer’s trade name for aprotinin, a drug that was approved by the Food and
Drug Administration (“FDA”) for intravenous administration to reduce blood loss in patients
undergoing cardiopulmonary bypass during the course of coronary artery bypass graft (“CABG”)
surgery. (Rel. 56. 1
¶
I). Trasylol was among the items and services administered during inpatient
stays that were reimbursed through bundled ORG payments. (Bayer Reply 56.1
¶ 9).
Beyond this
basic background, many facts concerning Trasylol remain disputed by the parties and subject to
ongoing discovery.
Relator alleges that “Bayer engaged in unlawful marketing, including off-label marketing
and payment of kickbacks, in order to increase the market share” of Trasylol, and “engaged in a
campaign of concealment and disinformation concerning Trasylot’s safety and efficacy that
continued at least until May 200$, when Bayer recalled Trasylol from the market.” (IOAC
¶ 9).
Specifically, Relator alleges that Bayer knowingly promoted Trasylol to physicians and hospitals
for potentially harmful off-label uses that lacked sufficient medical support and were not
reasonable and necessary. (IOAC
¶
394).
furthermore, Relator raises detailed allegations of a
far-reaching kickback scheme through which Bayer invited physicians and other healthcare
professionals to attend all-expenses-paid “consulting” trips throughout the United States, paid
them “consulting” fees, and lavished them with grants and other gifts in exchange for increased
promotion and use of Trasylol. (YOAC
¶
15, l$7—214). As a consequence of Bayer’s alleged
conduct, Trasylol’s market share grew, resulting in considerable profit to Bayer. (1OAC
5
¶
13,
118—19). Bayer denies many of Relator’s factual allegations concerning the kickback scheme and
the promotion of Trasytol for off-label uses, (see general/v ECF No. 222), but the parties do not
raise those underlying factual disputes for purposes of the instant motions, which focus instead on
the DRG reimbursement mechanism, (see generally Rel. 56.1; Bayer 56.1).
C. The False Claims Act and the Anti-Kickback Statute
“The false Claims Act is meant ‘to reach all types of fraud
...
that might result in financial
loss to the Government.” U.S. cx rd. Petratos v. Genentech Inc., 855 F.3d 481, 486 (3d Cir.
2017) (quoting cook Cty. v. US. exrel. chandler, 538 U.S. 119, 129 (2003)). The F CA imposes
liability on any person who: “(A) knowingly presents, or causes to be presented [to the United
States Government], a false or fraudulent claim for payment or approval; [or] (B) knowingly
makes, uses, or causes to be made or used, a false record or statement material to a false or
fraudulent claim.”3 31 U.S.C.
§ 3729(a)(l)(A)—(B). “A [FCA] violation includes four elements:
falsity. causation, knowledge, and materiality.” Petratos, $55 f.3d at 487.
With respect to the falsity element, “[a] false or fraudulent claim may be either factually
false or legally false.” Greenfleld, 880 F.3d at 94. “A claim is factually false when the claimant
misrepresents what goods or services.
.
.
it provided to the Government.” Id. (quoting U.S.
cx
rd.
Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011)). A claim is legally false
when the claimant misrepresents “its compliance with a statutory, regulatory, or contractual
requirement.” Id. Relator argues here that Bayer caused the submission of claims that were legally
false. (Rel. Br. at 28 n.28).
“Althouah Congress amended the False Claims Act in 21)09 by enacting the fraud Enforcement and
Recovery Act (FERK). it did not substantially alter the provisions of the pre-FERA version of the False
Claims Act.” US. cx ruT Green/ic/U V. ML’d() Health Sohtfloiis, Inc.. 88t) F.3d 89. 94 ii.5 (3d Cit. 201 8).
6
of legal falsity. First, if a claim
Two statutory requirements are relevant to Relator’s claims
including that the items and services
“does not comply with statutory conditions for payment,”
treatment of illness or
claimed are “‘reasonable and necessary for the diagnosis and
injury,” as
855 F.3d at 487 (quoting 42 U.S.C.
required by the Medicare statute, it is a false claim. Petratos,
false where there is an underlying violation of
§ 1395y(a)(I)(A)). Second, a claim may be legally
95. The AKS prohibits “knowingly
the Anti-Kickback Statute (“AKS”). Green/Ield, 880 F.3d at
ing any kickback, bribe, or rebate)
and willfully offer[ing] or pay[ing] any remuneration (includ
•
.
.
to any person to induce such person.
.
.
to refer an individual to a person for the furnishing.
whole or in part under a Federal health
of any item or service for which payment may be made in
care program.” 42 U.S.C.
for payment made
§ 1320a-7b(b)(2)(A). It is well-settled that “claims
Ic/U, 880 F.3d at 95 (quoting U.S.
pursuant to illegal kickbacks are false under the [FCA],” Green/
(D. Mass. 2011)). In 2010, Congress
exrel. Westrnorelandv. Amgen, inc., 812 F. Supp. 2d 39,52
that “a claim that includes items or
amended the AKS to clarify existing law, expressly providing
false or fraudulent claim for purposes
services resulting from a violation of [the AKS] constitutes a
of[theFCA].” 42 U.S.C.
§ 1320a-7b(g).
D. Relevant Procedural History
d three motions to dismiss.
Since the initiation of this lawsuit, the Court has decide
s. (See ECF Nos. 130, 147, 208). In
narrowing Relator’s claims and legal theories in the proces
the causes of action that remain in the
now-operative
Tenth Amended Complaint and that are
caused the submission of false claims
relevant to the present motions, Relator alleges that Bayer
el uses that were not “reasonable and
in two ways: (1) by unlawfully promoting Trasylol for off-lab
kickbacks to physicians and other
necessary” under the Medicare statute, and (2) by paying
7
healthcare professionals to induce increased use of Trasylol, in violation of the AKS. (1OAC
¶J
1—2, 9—21). Discovery has been and remains ongoing as of2016. (See ECF No. 320).
At a settlement conference held on September 5, 2018, (ECF No. 3 19), the parties agreed
that one of Bayer’s defenses—that surgeries in which Trasylol was administered were reimbursed
through the bundled DRG payment system. thereby preventing FCA liability—presented a narrow
legal issue that was ripe for the Court’s decision on summary judgment. (See Rel. Reply 56.1
19 (“[Relator] agrees that Bayer’s DRG defense presents a narrow legal issue
can and should decide
.
.
.
...
¶
that the Court
without considering” factual arguments about the record.); ECF No.
323-I (“Bayer Br.”) at 6 (“With respect to [the issue before the Court], no material facts are in
dispute, and the parties have agreed that the Government’s fixed-fee system presents a pure legal
issue that is ripe for this Court’s resolution.”)). Thereafler, the Court directed the parties to submit
cross-motions for partial summary judgment on “the narrow issue of whether [Bayer] may be liable
under the False Claims Act
.
.
.
for claims for Medicare and Medicaid reimbursement for surgical
procedures in which Trasylol was administered, regardless of whether the relevant requests for
reimbursement were bundled’ rather than itemized, and regardless of whether the administration
of Trasylol in said procedures affected the total amounts of the corresponding reimbursements.”
(ECF No. 321 )4 The instant motions followed.
II.
LEGAL STANDARD
Summary judgment is appropriate when, drawing all reasonable inferences in the
Because the parties jointly represent that this issue is ripe for summary judgment based upon currently
undisputed facts, and pursuant to the Court’s Order, (ECF No. 321), the Court limits its consideration to
this “narrow issue” only, and disregards at this stage arguments made on either side that raise disputes
concerning facts outside the parties’ Rule 56.1 Statements, including Relator’s alternative theories based
on exceptions to the DRG system, as well as Bayer’s defenses to those theories. (See ECF No. 330 at
3 1—35; ECF No. 329 at 22--26).
8
non-movant’s favor, there exists no “genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “[T]he moving party must show
that the non-moving party has failed to establish one or more essential elements of its case on
which the non-moving party has the burden of proof at trial.” Mccabe
i’.
E,-izst & Young, LLP.
494 F.3d 418, 424 (3d Cir. 2007) (citing Celotex Corp. v. catrett, 477 U.S. 317, 322—23 (1986)).
The Court must consider all facts and their reasonable inferences in the light most favorable
to the non-moving party. See Pa. Coat Ass ‘a v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995). If a
reasonable juror could return a verdict for the non-moving party regarding disputed issues of
material fact, summary judgment is not appropriate. SeeAnderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). “[A]t the summary judgment stage the judge’s function is not himself to weigh
the evidence and deten-nine the truth of the matter but to determine whether there is a genuine issue
for trial.” Id. at 249.
III.
ANALYSIS
Bayer presently raises a threefold defense to liability under the FCA for claims for surgeries
during which Trasylol was administered. First, Bayer argues that Relator fails to identify any
claim for payment for Trasylol because Trasylol is not identified on any claim fonm (Bayer Br.
at 7, 20—21). Second, Bayer argues that, even assuming Relator could identify claims for Trasylol,
those claims are not false claims under either an express or implied false certification theory.
(Bayer Br. at 2 1—22). Third, Bayer argues that Relator cannot show that any alleged fraud related
to Trasylol was material to the Government’s decision to pay claims for those surgeries—a
requirement for FCA claims of legal falsity—because DRG payment amounts do not change based
on whether Trasylol was or was not administered. (Bayer Br. at 23—30). Relator responds that
9
FCA liability may still attach under these circumstances, notwithstanding the absence of a Trasylol
line item on the claim forms or the absence of a financial impact of the use or non-use of Trasylol
on reimbursement amounts. (ECF No. 330 at 8—9). Indeed, Relator argues that the FCA may
impose liability in such circumstances as a matter of law, and therefore that she is entitled to
summary judgment on this narrow issue. (Rel. Br. at 9—10).
A. Bayer’s Motion
1. Claims for Trasylol
Bayer first argues that it is entitled to judgment as a matter of law because “Relator has not
identified any claims for Trasylol.”
Bayer acknowledges that UB fomis
(Bayer Br. at 8).
submitted to Medicare constitute claims for payment under the FCA,5 (ECF No. 329 at 10), but in
Bayer’s view, claims for surgeries in which Trasylol was used are not claims/br Trctsvlol because
Trasylol is not identified on the claim forms. (Bayer Br. at 20—21). Bayer maintains instead that
UBs represent only “claims for surgeries.” (ECF No. 329 at 10). However, Bayer does not dispute
that a “DRG payment constitutes payment in full/br all
the patient.” (Bayer Reply 56. 1
¶
§
and services provided to
8 (emphasis added)). The governing reg.tlation states that
“payments made under the prospective payment systems
hospital services, as defined in
il?patient items
.
.
.
are payment in full for all inpatient
409.10 of this chapter,” 42 C.F.R.
§
412.50(a), a definition that
includes “[d]rugs, biologicals, supplies, and equipment” furnished to an inpatient, Id.
§
409.10.
Logically, then, a request for DRG payment for a surgery in which Trasylol was used “constitutes
a claim for the bundle of items and services provided” during the inpatient stay, including Trasylol.
See U.S. v. Rogan, No. 02-33 10, 2006 WL 8427270, at *19 (N.D. IH. Oct. 2, 2006) (“False claims to
are actionable under the civil FCA.’), a/f’cl,
Medicare, including Medicare cost reports and UB-92s
517 F.3d 449 (7th Cir. 2008).
.
10
.
.
(ECF No. 330 at 11). Surely Bayer is not suggesting that Medicare pays for “surgeries” in the
abstract. Therefore, Bayer’s insistence that UB forms “are not claims for Trasylol; they are claims
for surgeries,” (ECF No. 329 at 10), while rhetorically cunning, is unpersuasive.
Courts have found claims for fixed payments and related cost reports to constitute claims
under the FCA for medical care provided in connection with the procedures for which
reimbursement is sought. See, e.g., In re Cardiac Devices Qui Tarn Litig., 221 F.R.D. 318, 343—
44 (D. Conn. 2004) (holding that “defendants’ submission of Forni HCFA-1450 (UB-$2 and UB
92)” for procedures in which non-reimbursable cardiac devices were administered “clearly
constituted the submission of a ‘claim’ to the United States government,” since the forms
represented “the hospitals’ requests for payments for the services provided to the Medicare
beneficiary”); U.S. cx rd. Morris v. Crist, No. 97-1395, 2000 WL 432781, at *5 (S.D. Ohio Mar.
29, 2000) (rejecting a hospital’s DRG defense to an FCA claim arising from non-allowable
for-profit research costs, finding the argument “fail[ed] to take into account the contents of the
entire bill sent to Medicare,” and concluding that “the entire bill represents a claim against the
United States to be paid or approved”); see also U.S. cx ret. Drakeford v. Tteo,ner, 792 F.3d 364.
386 (4th Cir. 2015) (finding that, for purposes of calculating damages, each UB “can constitute a
discrete fraudulent claim under the FCA,” because “each time [defendant] submitted to Medicare
a UB-92/04 form asking for reimbursement for a prohibited referral, it was knowingly asking the
government to pay an amount that, by law, it could not pay”); US. cx ret. Bahnsen v. Boston Sci.
Neurornothdation Corp., No. 11-1210, 2018 WL 4604307, at *5 (D.N.J. Sept. 24, 2018) (holding
that the “claim” for purposes of FCA liability was the form submitted for payment, noting that, “in
determining whether a submission constitutes a claim, the Court reviews the issue based on the
action of a [claimant] and does not consider how the government processed the information”).
11
Bayer’s reliance on US. cx ret. Portitta v. Riverview Post Acttte Care Ctr., No. 12-1842,
2014 WL 1293882 (D.N.J. Mar. 31, 2014) to argue otherwise is unavailing.6 Bayer correctly notes
that the Court in Portitta dismissed an FCA claim that arose in the context of a prospective
payment system arguably analogous to the DRG system. 2014 WL 1293882, at *15_16. However,
that court relied on the bundled reimbursement mechanism to reject a claim of flictual falsity, Id.,
whereas here, the FCA claim at issue is one of legal falsity.7 The bundled payment defense makes
more sense in the factual falsity context: where a claim does not list individual items provided to
a patient, the claim does not make a factual misrepresentation about those items that could impact
the corresponding reimbursement.
By contrast, Relator’s FCA claim depends not on factual
representations made about Trasvtot (of which, for purposes of these motions, there are none), but
rather on hospitals’ allegedly false certifications of compliance (or failures to disclose non
compliance) with applicable statutory requirements in connection with surgeries using Trasylol.
Portitla’s reasoning therefore provides little support for rejecting Relator’s legal falsity claim here.
Similarly, the decision in US. cx ret. Magid v. Wilderman, No. 96-4346, 2004 WL 945153
(E.D. Pa. Apr. 29, 2004) does not convince this Court that summary judgment is warranted under
these circumstances. There, the relator alleged that the defendant hospital billed Medicare for lab
tests that were not medically necessary. 2004 WL 945153, at *$ The hospital argued that, by
virtue of the DRG payment system, “Medicare did not specifically reimburse [the hospital] for
those tests.” Id. The Court granted summary judgment for the hospital, noting that the relator
failed to explain how the hospital “could have overcharged Medicare for [the lab] tests given the
[DRG] payment schedule.” Id. at *9 However, discovery in Magid had closed, id. at *3, and the
6
Bayer cites to Ford/la in support of its argument that the materiality element is not met, see in fra Part
1II.A.3. However, the Court in Portilla dismissed the relator’s claims without reaching materiality, so
discussion of that case is more appropriate here.
The Ford/la Court also rejected a claim of legal falsity on other grounds not relevant here. Id. at *16_17.
12
might have shown that
relator had failed to introduce any UB form “or any other evidence that
*9• The court therefore concluded
Medicare reimbursed” the hospital for the lab tests at issue, id. at
of fact. Id. Here, by
that the relator had not met her burden of demonstrating a material issue
nation of UB forms
contrast, discovery remains ongoing, and Relator has indicated that a combi
to hospitals covering
and hospital records will show that Medicare paid reimbursements
procedures involving Trasylol. (ECF No. 346 (“Hearing Tr.”) 16:24—18:5).
and services
Bayer protests that acknowledgement of UB forms as “claims” for items
results” in which even
provided during the claimed procedures would lead to “extreme and absurd
kickbacks “could trigger
“surgical gloves or light bulbs in the operating room” that were tainted by
identified on the claim
billions in dollars of FCA liability—even though those products are not
the AKS, the Court
fonm” (Bayer Br. at 22). The Court disagrees. First, given the policy behind
absurd” to prohibit the
rejects the suggestion that the Government would find it “extreme and
Indeed, Relator cites to
knowing submission of claims involving unlisted kickback-tainted items.
ures including items
over ten FCA actions resulting in settlements that arose from claims for proced
like Trasylol, were not
like surgical supplies and medical devices tainted by kickbacks that,
0 & n.13).8 Second,
“specifically referenced on claims submissions.” (ECF No. 330 at 19—2
not only unpersuasive in the
Bayer’s equation of Trasylol with light bulbs and surgical gloves is
r’s allegations. Trasylol
context of other FCA actions, but it also underscores the gravity of Relato
at nearly $1,300 per
is far from an “inexpensive commodity product,” (ECF No. 330 at 21); rather,
8
argument that permitting
See also Wilkins, 659 f.3d at 314 (“consider[ing] but reject[ing]” a defendant’s
would transforrn the
FCA liability based on an implied false certification of compliance with the AKS
the Medicare program impliedly certifies
FCA into a strict liability statute in which ‘every participant in
not arise from some payment
each time it submits a claim for payment to the program that the claim does
could be characterized as a
arrangement that—however attenuated, immaterial, and unknowing—protections against such an outcome,
violation of the AKS,” noting that the AKS and the FCA contain
including the knowledge and materiality requirements).
13
dose, (see Bayer Br. at 31), Trasylol is a powerful intravenous drug that was ultimately withdrawn
from the U.S. market as a result of serious adverse side effects, which Relator alleges that Bayer
concealed and misrepresented to its own benefit. (ECF No. 330 at 21 & n.15).
finally, to the extent Bayer argues that summary judgment is appropriate because Relator
has not yet identified which UB forms represent claims for Trasylol, the Court notes that
“discovery remains substantially incomplete.” (ECF No. 330 at 9). Ongoing discovery may
uncover evidence showing which procedures involved use of Trasylol and, consequently, which
claims for reimbursement comprised claims for Trasylol. Trasylol’s express identification on the
claim form itself is not the only way of proving the existence of a claim for a surgery involving
Trasylol. Indeed, Relator indicated at a hearing on the instant cross-motions that she has produced
hospital records indicating that Trasylol was used in particular surgeries which were then billed to
Medicare, noting that participating hospitals maintain records of drug administration. (Hearing
Tr. 16:24—18:5). Relator’s failure to match those records to the relevant UB forms at this stage in
the litigation does not preclude the possibility of Relator’s success in the future.9
2. Falsity
Where a claim of legal falsity is based on a certification of compliance with a legal
provision, such certification may be express or implied. Wilkins, 659 F.3d at 306. “‘Under the
‘express false certification’ theory, [a claimant] is liable under the FCA for falsely certifying that
it is in compliance with’ a material statute, regulation, or contractual provision.” U.S. v. Eastnick
Co/i., 657 F. App’x $9, 94 (3d Cir. 2016) (quoting Wilkins, 659 F.3d at 305). In addition to express
misrepresentations, the FCA also “encompasses claims that make
.
.
.
certain misleading
however, the existence of this and other material factual disputes does preclude judgment as a matter of
law in favor Relator at this stage, see infra Part 111.3.
14
omissions.” Universal Health Servs., Inc. v. U.S. cx rd. Escobar, 136 S. Ct. 1989, 1999 (2016).
Under the implied false certification theory, a submitted claim “implied/v certifies compliance with
all conditions of payment[, b]ut if that claim fails to disclose the defendant’s violation of a material
statutory, regulatory, or contractual requirement, so the theory goes, the [claimant] has made a
misrepresentation that renders the claim ‘false or fraudulent’ under [the FCA].” Id. at 1995
(emphasis added).
a.
Express False Certification
Relator’s theory of liability relies on both express and implied certifications. (See Hearing
Tr. 7:1 0—24). First, Relator points to the express certifications that hospitals submit to Medicare
on forms CMS-855A and CMS-2552. (Rel. Br. at 12, 16). To restate, in relevant part: on form
CMS-855A, hospitals acknowledge that “Medicare is conditioned upon the claim and the
underlying transaction complying with [the Medicare] laws, regulations, and program instructions
(including, but not limited to, the Federal anti-kickback statute[)].” (Rel. Br. at 12), and on form
CMS-2552, hospitals acknowledge that, “if services identified in this report were provided or
procured through the payment directly or indirectly of a kickback
.
.
.
criminal, civil, and
administrative action, fines, and/or imprisonment may result,” and certify that “the services
identified in this cost report were provided in compliance with [the] laws and regulations”
regarding the provision of health care, (Rel. Br. at 16). Relator therefore argues that, “if the use
of Trasylol in an inpatient surgery was tainted by a kickback from Bayer (or was for a use that was
not reasonable and necessary), the transaction represented on the inpatient claim form violates this
certification, and constitutes a false claim.” (ECF No. 330 at 13—14).
Bayer urges the Court to reject Relator’s express false certification theory because hospitals
15
made no express certifications specifically about Trasylol. (Bayer Br. at 2 1). In other words,
because the Medicare fonris require hospitals to certify only that the “services identified” were
provided in compliance with legal requirements, those certifications do not apply to items, like
Trasylol, that are not “identified.” (Bayer Br. at 21). Relator responds, and the Court agrees, that
the plain language of the CMS-855A requires certification of hospitals’ understanding that
“payment of a claim by Medicare is conditioned on the claim and the itnderlving transciction
complying with” applicable laws and regulations, including the AKS. (ECF No. 330 at 13). That
“underlying transaction” includes the bundle of items and services provided to a Medicare
beneficiary during a claimed procedure.
The certification’s language is “more than specific
enough to make clear that the claims submitted by hospitals represented that any underlying
transactions had not involved third party kickbacks prohibited by the AKS.”
US. cx ref.
Htttcheson v. Blackstone Med., Inc., 647 f.3d 377, 393 (1st Cir. 2011) (holding that similar
language in a provider agreement was sufficient to state a claim that subsequently submitted
Medicare claims were false under the FCA).
Indeed, in reaffirming a prior holding that “a participant in a federal healthcare program
complies with the [FCA] by ‘refrain[ing] from offering or entering into payment arrangements
which violate the [AKS], while making claims for payment to the Government under that
program,” the Third Circuit emphasized that such a reading of the FCA is “consistent with the
language in CMS Form 855s, which requires providers to certify that the claim and the underlying
transaction’ (i.e., the medical care being reimbursed) comply with the [AKS].” Green/leld, $80
F.3d at 97 (first quoting Wilkins, 659 F.3d at 314, then quoting form CMS-$55); see also Wilkins,
659 F.3d at 3 12 (concluding in dicta that a complaint alleging a kickback scheme, coupled with
certifications of compliance with applicable Medicare regulations. “[a]rguably.
16
.
.
state[s] a claim
for relief under an express false certification theory inasmuch as [relators] allege that [defendants]
falsely certified compliance with the AKS in order to receive monthly payments from the
Government”); In re Cardiac Devices, 221 F.R.D. at 346—47 (“To the extent that defendants
included in their [Medicare Form HCFA-2552] Cost Reports payments for non-covered items, this
would render their certifications [that the Cost Reports were ‘true, correct, and complete’ and
‘prepared
.
.
.
in accoi-dance with applicable instructions, except as noted’] false, [and t]hus, as
pled, these claims would be legally false under an express certification theory.”).
Furthermore, the statutory text of the AKS makes clear that “a claim that includes items or
services resulting from a violation of this section constitutes a false or fraudulent claim for
purposes of [the FCA].” 42. U.S.C.
§ 1320a-7b(g). This language supports Relator’s view that
certifications of compliance with the AKS are expressly false where claims are submitted for
payment covering “items or services resulting from” a kickback, as Relator alleges Trasylol to be.
Accordingly, the Court is unable to hold, as a matter of law, that these express certifications reach
only items and services that are itemized on claim forms.
b. Implied False Certification
Even assuming, arguendo, that the express certifications on the CMS forms do not apply
to Trasylol, Relator’s claims may nevertheless succeed under an implied false certification theory.
(ECF No. 330 at 27). The logic of Relator’s implied false certification theory is this: Every time
a hospital submits a claim for a surgery, it implies that the claimed procedure is eligible for
reimbursement (i.e.. compliant with all material requirements for payment), even absent express
certifications of compliance. If a drug provided as part of that surgery violated a material condition
of payment, and such noncompliance was not disclosed, that would render the claim false. See
17
Escobar, 136 S. Ct. at 1995. Bayer argues, relying on the Supreme Court’s decision in Escobar,
that Relator’s theory fails because implied false certification liability attaches only where the
claims for payment also make “specific representations about the goods or services provided” that,
given the implication that those goods or services are eligible for reimbursement, rise to the level
of “misleading half-truths,” fri. at 2001, and the claims at issue here contain no specific
representations about Trasylol. (Bayer Br. at 22). Relator responds, and the Court agrees, that
Escobar held that such specific misrepresentations were sufficient to render a claim false under the
implied false certification theory—but declined to address whether they were necessan’. (ECF
No. 330 at 15—16).
The Escobar decision was the Supreme Court’s first endorsement of the implied false
certification theory under limited circumstances.
In that case, the defendant, a mental health
services provider, allegedly permitted the treatment of patients by staff who were “unqualified,
unlicensed, and unsupervised.” Escobar, 136 S. Ct. at 1998. The defendant then “submitted [to
Medicaid] reimbursement claims that made representations aboctt the specific services provided
by specific types of professionals, but that failed to disclose serious violations of [Massachusetts
Medicaid] regulations pertaining to staff qualifications and licensing requirements for these
services.” Id. at 1997—98. The relators alleged that those claims violated the FCA under the
implied false certification theory, arguing that “every submission of a claim for payment implicitly
represents that the claimant is legally entitled to payment, and that failing to disclose violations of
material legal requirements renders the claim misleading.” Id. at 1999—2000.
Neither embracing nor rejecting the relators’ broad implied false certification theory, the
Court held narrowly that, as pled, the defendant’s claims for payment rose to the level of
misrepresentations sufficient to trigger FCA liability. Id. at 2000. The Court reasoned that the
1$
claims at issue, which included “payment codes that corresponded to specific counseling services”
and staff “[i]dentification numbers corresponding to specific job titles,” would lead to the incorrect
conclusion “that the clinic had complied with core Massachttsetts Medicaid requirements”
regarding staff training and qualifications. Id. “By using payment and other codes that conveyed
this infon-nation without disclosing [the facility’s] many violations of basic staff and licensing
requirements for mental health facilities, [defendant’s] claims constituted misrepresentations.” Id.
at 2000—01. Accordingly, the Court held that “the implied false certification theory can be a basis
for liability, at least where two conditions are satisfied: first, the claim does not merely request
payment, but also makes specific representations about the goods or services provided; and second,
the defendant’s failure to disclose noncompliance with material statutory, regulatory, or
contractual requirements makes those representations misleading half-truths.”
Id. at 2001
(emphasis added).
Contrary to Bayer’s argument, then, the Supreme Court did not hold that the absence of
specific representations about the items and services provided is necessarily fatal to an implied
false certification claim. Indeed, the Court explicitly declined to reach the question of “whether
alt claims for payment implicitly represent that the billing party is legally entitled to payment,”
since the claims before the Court did “more than merely demand payment.” Id. at 2000 (emphasis
added). In other words, “[t]he Supreme Court left open the question of whether a claim that
mere1y demand[s] payment,’ as opposed to one that makes specific representations about the
goods or services provided, can count as the requisite misleading representation.” U.S. cx ret.
McBride v. Hallthurton Co.. 84$ F.3d 1027, 1031 n.4 (D.C. Cir. 2017) (quoting Escobar, 136 S.
Ct. at 2000). Therefore, to the extent Bayer argues that Relator’s implied false certification theory
fails as a matter of law under Escobar because the claims at issue make “no ‘specific
19
representation’ about Trasylol,” (Bayer Br. at 22), Bayer misreads Escobar.
The Third Circuit has, before Escobar, recognized the possibility of FCA liability under
the implied false certification theory arising from claims for payment that did not make the kinds
of specific representations about the noncompliant items or services that were present in Escobar.
See Wilkins, 659 f.3d at 3 13 (holding that relators “clearly state[d] a claim for relief under an
implied false certification theory of liability” where they alleged that defendants paid kickbacks to
physicians in exchange for names of potential new Medicare enrollees and then submitted claims
for payment to the Government at a time that they knowingly violated” the AKS, without requiring
allegations that the defendants made specific representations to the Government concerning the
refelTed patients or the items or services provided to them).’° Furthermore, in a post-Escobar case
involving allegations of both express and implied false certifications, the Third Circuit took an
especially expansive view of FCA liability in the context of noncompliance with the AKS.
Greenfield, $80 F.3d at 96—98 (affirming summary judgment for defendant on causation grounds).
The Circuit emphasized that that Congress expressly made AKS violations actionable under the
FCA in 2010 “as part of an overall effort to strengthen[] whistleblower actions based on medical
care kickbacks’ and ‘to ensure that all claims resulting from illegal kickbacks are considered false
‘°
Escohar abrogated Wilkins only insofar as the Supreme Court rejected Wilkins’s limitation of the implied
false certification theory to FCA claims arising from noncompliance with expressly designated conditions
of payment. Escohar, 136 S. Ct. at 1996 (Defendants can be liable for violating reqcmirements even if
they were not expressly designated as conditions of payment. Conversely, even when a requirement is
expressly designated a condition of payment, not every violation of such a requirement gives rise to
liability.”); see also U.S. cx rd. freedom Unlimited, Inc. v. City of Pittsburgh, Pa., 72$ F. App’x 101,
106 (3d Cir. 2018) (“[E]ven though Escobar reaffirmed Wilkins’s holding that a defendant’s failure to
comply with certain statutory. regulatory, or contractual requirements may violate the FCA, the Supreme
Court made clear that those requirements need not be express ‘conditions of payment’ to trigger FCA
liability.”). The Supreme Court eschewed Wilkins’s distinction between a condition of payment and a
condition of participation in favor of the multi-factor materiality standard, see infra Part llI.A.3.
Accordingly, after Escohar, Wilkins supports the application of the implied false certification theory
where “the defendant’s non-compliance, if discovered, would have been ‘material to the Government’s
payment decision,” &eedoni Unlinutecl, 728 F. App’x at 106 (quoting Eseohar, 136 S. Ct. at 2002).
20
claims for the purpose of civil action[s] under the [FCA].” Id. at 96 (quoting 155 Cong. Rec.
S 10852, S 10853—54 (daily ed. Oct. 28, 2009) (Sen. Kaufman)). “The [AKS] and [FCA] were not
drafted to cabin healthcare providers’ liability for certain types of false claims or for certain types
of illegal kickbacks. Instead, Congress intended both statutes to reach a broad swath of ‘fraud and
abuse’ in the federal healthcare system.” Id. (quoting H.R. Rep. No. 95-393, at 47 (1977)).
Therefore, at least in a case involving alleged AKS violations, this Court cannot conclude that
implied false certification liability in the Third Circuit is limited to claims involving the kind of
suggestive and misleading representations that were before the Supreme Court in Escobar.’
Other courts in this District have permitted implied false certification claims to proceed
without requiring specific representations that rose to the level of those in Escobar. See, e.g., US.
cx ret. Jersey Strong Pediatrics, LLC
i.
Wanaqite Convalescent Ctr., No. 14-6651, 2017 WL
412259$, at *4 (D.N.J. Sept. 18, 2017) (allowing implied false certification claim to proceed where
relator alleged that defendants “fraudulently billed Medicare and Medicaid instead of patients’
private health insurance policies” in violation of the Medicare Secondary Payer Act, despite the
fact that the claims “[did] not contain patient names, dates of treatment, or primary insurance
policy numbers”); US. cx ret. Laporte v. Premiere Edttc. Gip., L.P., No. 11-3523, 2017 WL
3471163, at *3 (D.N.J. Aug. 11, 2017) (finding falsity met where defendants’ alleged
noncompliance with Higher Education Act regulations rendered them ineligible for Title IV
ftLnding, reasoning that the defendants’ mere representations of eligibility for payment were
The Third Circuit’s mere invocation in U.S. v. Eastnick Coil., 657 F. App’x 89 (3d Cir. 2016) of
Escohar’s language that “implied false certification liability attaches when a claimant ‘makes specific
representations about the goods or services provided’ and the claimant’s lailure to disclose
noncompliance with material statutory, regulatory, or contractual requirements makes those
representations misleading half-truths,” is insufficient for this Court to conclude that the Circuit
categorically prohibits FCA liability in the absence of such representations, as the Circuit in that case
affirmed dismissal of the complaint on other grounds, and because the panel’s disposition of the case was
non-precedential. 657 F. App’x at 94 (quoting Escohar, 136 S. Ct. at 2001).
21
sufficiently “specific” as to constitute “misleading half-truths”):
2
see also In re Cardiac Devices,
221 F.R.D. at 346—47 (endorsing implied false certification theory arising from Medicare claims
for procedures involving non-reimbursable cardiac devices, reasoning that, “in sctbrnitting their
claims, defendants were obligated to seek payment only for those services that were covered[, and
tb the extent that they sought payment for services that were not covered, the claims were legally
false”).
Bayer cites no authority to the contrary, other than Escobar itself, which Bayer
misconstrues. (See Bayer Br. at 22; ECF No. 329 at 14-15).
Relator’s ability to prove that Bayer caused the submission of false claims related to
Trasylol, premised on both express certifications of compliance with the AKS on mandatory CMS
forms, as well as on certifications that are implied in the submission of claims for reimbursement.
hinges on facts that remain in dispcLte. Because the case law does not foreclose Relator’s success
in proving the scibmission of false claims for Trasylol under either an express or implied false
certification theory, and because discovery remains open, Bayer is not entitled to summary
judgment on this issue.
3. Materiality
“A misrepresentation about compliance with a statutory, regulatory, or contractual
requirement must be material to the Government’s payment decision in order to be actionable
2
In Druding v. Care Alternatives, Inc., 346 F. Supp. 3d 669 (D.N.J. 2018), the court suggested, in setting
a plaintiff must
forth the FCA standard, that “[u]nder the so-called implied false certification theory.’
includes ‘specific representations about goods or
demonstrate that the defendant subrnit[ted] a claim that
services provided’ which are rendered misleading half-truths’ through ‘the defendant’s failure to disclose
noncompliance” with an applicable requirement. 346 F. Supp. 3d at 682--83 (quoting Escohar, 136 S.
Ct. at 2001). Because the court granted summary judgment for the defendant on grounds unrelated to the
presence or absence of specific representations, that language is dicta. To the extent the Druding court
relied on its reading of Escohar’ s “specific representations” language, this Court disagrees with that
reading. See McBride, 848 F.3d at 1031 n.4.
..
22
under the [FCA],” Escobar, 136 S. Ct. 1996. In other words, all FCA claims of legal falsity must
also meet the FCA’s materiality standard, “as falsity and materiality are distinct requirements.”
Greenfletd, 880 F.3d at 98 n.8.’3 The FCA “defines ‘material’ to mean ‘having a natural tendency
to influence, or be capable of influencing, the payment or receipt of money or property.” Escobar,
136 S. Ct. 1996 (quoting 31 U.S.C.
§ 3729(b)(4)). Accordingly, “materiality ‘look{s] to the effect
on the likely or actual behavior of the recipient of the alleged misrepresentation.” Id. at 2002
(citations omitted). The Supreme Court has clarified that the FCA’s “materiality standard is
demanding.” id. at 2003, and has set forth the following multi-factor test:
[W]hen evaluating materiality under the [FCA], the Government’s
decision to expressly identify a provision as a condition of payment
is relevant, but not automatically dispositive. Likewise, proof of
materiality can include, but is not necessarily limited to, evidence
that the defendant knows that the Government consistently refuses
to pay claims in the mine run of cases based on noncompliance with
the particular statutory, regulatory, or contractual requirement.
Conversely. if the Government pays a particular claim in full despite
its actual knowledge that certain requirements were violated, that is
very strong evidence that those requirements are not material. Or,
if the Government regularly pays a particular type of claim in frill
despite actual knowledge that certain requirements were violated.
and has signaled no change in position, that is strong evidence that
the requirements are not material.
Id. at 2003—04. In setting forth this approach, the Supreme Court rejected a materiality standard
that would rely exclusively on whether the fraud at issue disguised noncompliance with a provision
that the Government has expressly designated a condition of payment: “A misrepresentation
cannot be deemed material merely because the Government designates compliance with a
particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it
sufficient for a finding of materiality that the Government would have the option to decline to pay
The materiality requirement applies to conduct occurring both before and after the 2009 FCA amendment.
U.S. excel. Spay v. CVS Caremark Corp.. 875 F.3d 746, 763 (3d Cir. 2017).
23
if it knew of the defendant’s noncompliance.” Id. at 2003. Rather, courts
must
include in the
materiality analysis evidence of the Government’s “likely or actual” conduct with respect to the
payment of claims that were not compliant with the relevant provision. Id. at 2002.
Bayer argues that Relator has not shown—and cannot show as a matter of law—that the
alleged false certifications about Trasylol were material to the Government’s payment decision by
virtue of the operation of the DRG system. (Bayer Br. at 23—24). The crux of Bayer’s argument
is that “neither the use of Trasylol nor any associated misrepresentations affected the
Government’s decision to pay the DRG claims
.
.
.
because the Government paid a fixed fee and
Trasylol did not even appear on the claim form.” (ECF No. 329 at 15, 17). In Bayer’s view,
becaLise the cise or non-use of Trasylot did not change the reimbursement amount for a given
surgery, the alleged violations had “no effect on the Government fisc,” (ECF No. 329 at 17), and
as a result, the Government “would not care” whether a kickback-tainted item such as Trasylol
was used, (Bayer Br. at 24).
The Court rejects Bayer’s argument that the Government’s payment amount is dispositive
on the question of materiality. The clear focus of the materiality inquiry under Escobar is not the
amount of payment, but rather the “Government’s payment decision.”
(emphasis added).
136 S. Ct. at 2002
Put differently, the materiality inquiry does not ask whether the cost of a
noncompliant item would have affected the Government’s payment decision; it asks whether the
*8
noncompliance itself would have affected that decision. See Portitla, 2014 WL 1293882, at
(“The falsity or fraud.
.
.
must be material; that is, it must have the potential to affect the payment
decision-making process.”). The Government considers factors other than the bald dollar amount
of a reimbursement request when deciding whether to pay a claim, including the claimant’s
compliance with applicable statutory requirements. See Escobar, 136 S. Ct. at 2003: see also U.S.
24
734, 738 (D.N.J. 2003) (rejecting defendant’s
cx rd. Haves v. CMC Elecs., Inc., 297 F. Supp. 2d
actual and quantifiable monetary loss” to
argument that an FCA claim requires a showing of”an
liant claim would not cost the Government
the Government). Therefore, just because a noncomp
Government is “indifferent” to underlying
more than a compliant claim does not mean the
compliance violations.14 (ECF No. 329 at 18).
ernment suffers a loss every time it pays
Indeed, the Court agrees with Relator that the Gov
330 at 14). The Court is guided by the Third
a noncompliant claim that it need not pay. (ECF No.
in the context of an underlying AKS violation,
Circuit’s recently reaffirmed principle that, at least
for services
for when a defendant is paid
“[t]he Government does not get what it bargained
...
(quoting Witkins, 659 F.3d at 314): see ct/so
tainted by a kickback.” Greenfleld, 880 F.3d at 97
n No. 98 v. Fairfield Co., No. 09-4230, 2013
U.S. cx rd. Int’l B/id. of Etec. Workers, Local Unio
ing falsity satisfied where, “even though the
WL 3327505, at *4 (E.D. Pa. July 2, 2013) (find
the fair market value, the Federal Treasury
government paid less than it would have had it paid
,” noting that “[a] party can be subject to
still paid the amount, which could be considered a ‘loss
iedco
no monetary injury”); US. v. Merck-ilv
FCA liability even where the government suffers
Managed Care, L.L.C., 336 F.
Supp.
not the
2d 430, 443 (E.D. Pa. 2004) (“Whether or
nd that already appropriated for [a claimant]. it
Government would be out additional money beyo
253 F.3d 176, 1 84 (3d Cir. 2001) for the principle
Bayer cites to Hutchins v. Wilent:, Goichnan & Spitzer,
government for approval which do not or would
that “the submission of false claims to the United States
the purview of the [FCA],” and that, “[u]nless
not cause financial loss to the Government are not within
ed States government, liability under the [fCA]
these claims would result in economic loss to the Unit
of Hutchins have no bearing on the present dispute,
does not attach.” (See Bayer Br. at 34). But the facts
the
context. In flute/tins, the Third Circuit held that
and Bayer relies on this language entirety out of
not constitute FCA
U.S. bankruptcy court did
submission of inflated legal bills for approval by a
of the bills would not cause financial loss to the
violations because the bankruptcy court’s approval
made sense in Hutchins: the Government (i.e., the
Government. 253 F.3d at 184. That reasoning
rast,
to be paid by a bankruptcy estate. Here, by cont
bankruptcy court) was only approving bills that were
claims, thereby “result[ing] in
) was paving the
Bayer does not dispute that the Government (i.e., CMS
grounds).
2d at 738—39 (distinguishing Hutchins on same
economic loss,” in’. See Haves, 297 F. Supp.
25
would suffer a loss if the money appropriated for legitimate pctrposes were instead wasted on a
false claim.”) (quoting US. cx tel. Yesttdian v. howard Univ., 153 F.3d 731, 739 (D.C. Cir. 199$)).
And. although the Government’s entitlement to refuse payment in the event of noncompliance with
a particular statutory requirement is not dispositive on the question of materiality as a whole, see
Escobar, 136 S. Ct. at 2004, the Court notes, for the purposes of rejecting Bayer’s argument that
noncompliance in this case would be effectively valueless to the Government, that CMS can deny
(and therefore incur no loss for) claims that are tainted by kickbacks. See Green/Ic/U, $80 F.3d at
98 (“[A] kickback renders a subsequent claim ineligible for payment.”).
The Court acknowledges that there is a split among district courts on this issue.
In
declining to hold as a matter of law that materiality cannot be established where the Government
reimburses claims on a fixed basis, the Court follows several other districts that have considered
and rejected similar arguments, as the Court finds the reasoning of those decisions persuasive for
the reasons explained in this section. See, e.g., Commonwealth cx tel. Mctrtino-Fteming v. S. Bay
Mental Health Ctr., 334 F. Supp. 3d 394. 408—09 (D. Mass. 201$) (holding that Massachusetts
sufficiently alleged a state law FCA claim against health care provider, despite the fact that false
claims did not increase the reimbursement amount, noting that, “[a]lthough the contractors are paid
a fixed rate.
.
.
,the claims.
.
.
are paid with government rnoney”) US. v. Visiting Nurse Sen. of
N.Y., No. 14-5739, 2017 WL 5515860, at *12 (S.D.N.Y. Sept. 26, 2017) (rejecting argument that
fixed reimbursement amounts defeated materiality under Escobar, noting that “the question is not
whether the false nursing visits caused CMS to pay extra but whether, had CMS known that
[defendant] was not making the number of visits it reported
.
.
.
,
it would have naturally tended to
not pay those claims”) US. cx tel. Dan Abtams Co. v. Medtronic, Inc., No. 15-1212, 2017 WL
4023092, at *90 (C.D. Cal. Sept. 11, 2017) (the fact that “the amount paid by the government
26
for a spinal surgery is not affected by whether one or more of the [noncompliant devices]
.
.
.
are
used” does not defeat FCA liability, reasoning that the DRG system “does not mean that the
government
.
.
.
,
in establishing general payment policies, has assigned no value to” those
devices); Merck-A”fedco, 336 F. Supp. 2d at 442 (concluding that the Government stated an FCA
claim despite the fact that the false claim did not increase the payment amount, reasoning that
“[defendant’s] argument woctid mean that any government program that involved a fixed
contribution
.
.
.
‘would be completely immune from claims of abuse: that Congress would have
the FCA turn a blind eye to such behavior is simply inconceivable to this Court”); see also
Htttcheson, 647 F.3d at 394—95 (rejecting DRG defense pre-Escobar but applying similar
materiality standard, concluding that “[t]he intricacies of the DRG system do not alter the clear
language” of providers’ certifications of compliance with the AKS, and reasoning that the
defendant’s “argument that Medicare would excuse these violations because of a bureaucratic
mechanism
.
.
.
impenTlissibly cabins what the government may consider material”); U.S. cx ret.
Dttffi’ v. Lawrence Mciii. Hosp., No. 14-2256, 2018 WL 4748345, at *8 n.$ (D. Kan. Oct. 2, 2018)
(rejecting defendant’s materiality argument based on lack of impact on the Treasury, noting that
“whether the U.S. Treasury is ultimately impacted is not relevant to the question of whether an
alleged misrepresentation affected or would likely affect a reimbursement decision”); Morris,
2000 WL 432781, at *4_5 (rejecting defendant’s argument that, “because it was reimbursed at a
flat fee based upon each patient’s DRG, the specific services provided to individual patients are
irrelevant to Medicare’s payment,” lest a defendant have the ability to “pick and choose what can
be false on a bill submitted to Medicare so long as the DRG code is correct”).b
‘
The Court disagrees with several pre-Escobar district court decisions finding that FCA liability did not
attach in the context of fixed reimbursements. See, e.g., U.S. v. Grp. Health Co-op., No. 09-603, 2011
WL $14261, at *2 (W.D. Wash. Mar. 3, 2011); Wagemann v. Doctors Hosp. of Slide/I, LLC, No.
09-3506, 2010 WL 3168087, at *7 (ED. La. Aug. 6, 2010): US. er ret. Stephens v. Tissue Sci. Labs.,
27
Bayer’s reliance on In re Ptavix Mktg., Sales Practice & Prods. Licth. Litig. (No. II), 332
F. Supp. 3d 927 (D.N.J. 2017) as this District’s endorsement of Bayer’s fixed-fee defense is
misplaced. In Plauix. the relator alleged that the defendants falsely marketed their blood thinner
as a superior drug to aspirin, when in fact the drug was no more effective than aspirin but cost one
hundred times as much. 332 F. Supp. 3d at 933. The relator claimed that subsequently submitted
claims violated a condition of payTnent under Medicaid that limits coverage to cost-effective
treatments. Id. However, because states included Plavix on their preferred drug lists, Plavix was
exempt from prior reimbursement authorization requirements that apply to other drugs, and state
Medicaid payors were “obligat[ed]
.
.
.
to reimburse claims for Plavix automatically.” Id. at 945.
The court held that, because claims for Plavix were automatically reimbursed without
consideration of physicians’ certifications, those certifications “could not have been material to
Medicaid’s decision to pay for Plavix” under Escobar. Id. In dismissing the complaint, the court
emphasized that the relator’s “automatic reirnbcirsement allegations essentially concede[d] that
government Medicaid payors would consistently reimburse claims for Plavix with full knowledge
of the purported /ilse certification of physicians that Plavix was cost-effective.” Id. at 949
(emphasis added). Here, by contrast, Relator argues that “the Government would not reimburse
claims involving Trasylol if it had actual knowledge that the claims were tainted by Bayer’s alleged
fraud and resulting false certifications.” (ECF No. 330 at 2$). And unlike claims for Plavix, claims
for Trasylol (or claims for surgeries using Trasylol) have not been deliberately identified or singled
out by the Government payor as automatically reimbursable.
Furthermore, Relator here alleges
violations of the AKS—a well-settled trigger of FCA liability—whereas the relator in Plauix relied
Inc., 664 F. Supp. 2d 1310, 1317—19 (N.D. Ga. 2009); U.S. cx tel. Kennedy u. Aventis Pharm., Inc., No.
03-2750, 200$ WL 5211021, at *3 (ND. Ill. Dec. 10, 2002); US. cx tel. Digiovanni u. St.
Joseph ‘s/Candler Health Svs., Inc., No. 04-190, 2002 WI. 395012. at *6 (S.D. Ga. Feb. 2,2008); Magicl,
2004 WL 945153, at * 9
2$
upon state cost-effectiveness requirements and “failed to cite to a single successful claim under
[those provisions],” as required by Escobctr. 332 F. Supp. 3d at 94$. The failure of Bayer’s DRG
defense under the present facts is therefore not inconsistent with the decision in Plavix.’6
Finally, the Court rejects Bayer’s argument that “it was impossible for Trasylol to influence
the Government’s payment decision because
.
.
.
Trasylol was ‘not identified on the inpatient
claim.” (ECF No. 329 at 15). Relator does not dispute that the Government paid claims for
surgeries involving Trasylol without knowing that an allegedly noncompliant item had been used.
(See, e.g.. 1OAC
¶
379 (“Unaware of Bayer’s misconduct, the United States made Medicare
reimbursements for inpatient treatments involving Trasylol.”)).
Rather, Relator’s logic is that
Bayer was able to perpetrate the alleged fraud precisely because the DRG system disguised the
use of kickback-tainted items from Government payors, who would not have otherwise paid those
claims. (1 OAC
¶ 379).
Therefore, that “the Government would not know the drug was used” in a
particular surgery by virtue of the DRG system’s non-itemized UB form, (Bayer Br. at 24), has no
bearing on the materiality inquiry. See, e.g., Medtronic, 2017 WL 4023092, at *9_b
(rejecting
defendant’s argument that materiality is defeated as a matter of law where “those responsible for
making reimbursement decisions as to Medicare and Medicaid coverage[] would not know
whether one or more of the [noncompliant devices] had been used in a particular surgical
6
The Third Circuit’s decision in US. cx rel. Petratos v. Genentech Inc., 855 F.3d 481 (3d Cir. 2017) is
similarly distinguishable. In Petratos, the Circuit considered an FCA claim alleging noncompliance with
Medicare’s “reasonable and necessary” requirement arising from the defendant’s failure to report data to
the FDA that showed safety risks from on-label uses of a drug. 855 F.3d at 485. But, like the relator in
Plavix, the relator in Pctrcttos conceded that the relevant Government actors “have deemed [the alleged]
violations insubstantial (or at least would do so if made aware),” and did “not dispute that CMS would
reimburse [the claims at issue] even with full knowledge of the alleged reporting deficiencies.” Id. at
490. Such concessions were clearly fatal to an FCA claim under the Escohar standard, which requires
plausible allegations that the Government “would not have paid [the] claims had it known of [the alleged]
violations.” Escohar, 136 S. Ct. at 2004. Relator here makes no such concessions, alleging instead the
opposite: “[i]f the United States had known that Trasylol was not reasonable or necessary for some uses,
it would not have made reimbursements for treatment involving those uses.” (IOAC ¶ 403).
29
procedure” as a result of the DRG system). Simply put, the goal of this Court’s materiality analysis
is to determine what the Government would have done had it known about the alleged
noncompliance involving Trasylol. See Escobar, 136 S. Ct. at 2004; Plavix, 332 F. Supp. 3d at
939 (“[A] plaintiff must show that if the Government had been aware of the defendant’s violations
of the Medicare
not
...
laws and regulations that are the bases of a plaintiffs FCA claims, it would
have paid the defendant’s claims.”) (quoting Wilkins, 659 F.3d at 307); U.S. cx ret. Greenfield
v. Medco Health Svs., Inc.. 223 F. Supp. 3d 222, 229 (D.N.J. 2016)
(a
plaintiff must show that
claims “would not have been paid by the government had it known about defendants’ false
representation that they complied with the AKS”), cz/f’d, $80 F.3d 89 (3d Cir. 2018).
Having rejected Bayer’s assertion of a bright-line rule immunizing claims made pursuant
to the DRG system from FCA liability, the Court examines the undisputed facts in light of what
the materiality standard does require in this case.
First, Bayer is correct that whether the
Government labels an underlying statutory requirement as “a condition of payment is relevant to
but not dispositive of the materiality inquiry.” Escobar, 136 S. Ct. 2001. Put differently, “[w]hile
[Escobar] admonishes that mere designation as a condition of payment is not necessarily sufficient
to prove materiality, it is nonetheless an important factor to consider in favor of materiality.”
*9 n.5. The Court notes at the outset, therefore,
J’isitmg Nurse Sen. ofN. Y., 201 7 WL 551 5860, at
that both the AKS and the “reasonable and necessary” requirement in 42 U.S.C.
§ 1395y(a)(1)(A)
are designated as conditions of payment under Medicare. See Wilkins, 659 F.3d at 313; Petratos,
$55 f.3d at 490. Such a designation weighs in favor of a finding of materiality.
Beyond this important factor, Relator must provide “evidence that [Bayer] knows that the
Government consistently refuses to pay claims in the mine rcin of cases based on noncompliance
with” the AKS or the reasonable and necessary requirement as it relates to off-label drug uses.
30
Escobar, 136 S. Ct. at 2003. The Court disagrees with Bayer’s suggestion that such evidence must
be limited to the Government’s refusal to pay noncompliant claims specifically in the DRG
context. (See ECF No. 329 at 18). Rather, Escobar instructs courts to examine the Government’s
practice of payment or nonpayment of claims based on the same underlying violation—claims that
are noncompliant “with the particular statutory, regulatory, or contractual requirement” at issue.
Escobar, 136 S. Ct. at 2004. Indeed, the Supreme Court’s finding that materiality was met in the
case before it focused on the alleged underlying violations, concluding that the licensing
requirements violated by the defendant were “so central to the provision of [health services] that
the Medicaid program would not have paid these claims had it known of these violations,” which
the Court distinguished from noncompliance with “insignificant regulatory or contractual”
provisions. Id. The focus of the inquiry is therefore not on the payment mechanism used in a
given context, but rather on “whether the defendant knowingly violated a requirement that the
defendant knows is material to the government’s decision to pay a claim.” Petratos, 855 F.3d at
492 (emphasis added) (quoting U.S. cx ret. Garione v. PAEGov’t Sen’s., Inc., 670 F. App’x 126,
127 (4th Cir. 2016)); see also U.S. cx rd. Doe v. Heart Sol., PC, 91$ F.3d 300, 310 (3d Cir. 2019)
(underlying reasonable and necessary violation was material to Government’s payment decision
where Government showed that Medicare would not pay claims in the absence of physician
certification that testing was supervised by licensed neurologist, as required by regulation);
Petratos, 855 F.3d at 490 (materiality not met for defendant’s failure to report data to FDA
concerning safety risks of on-label drug uses, as relator failed to cite “a single successful claim
under [the reasonable and necessary requirement] involving drugs prescribed for their on-label
uses,” and noting that the reporting failure did not “violate[] any statute or regulation”); Jersey
Strong, 2017 WL 4122598, at *4 (“[Relator] must also plead that the [Medicare Secondary Payer]
31
laws are material to the government’s decision to pay the submitted claims.”).
Here, therefore, the Court’s focus is on the Government’s actual or likely conduct with
respect to payment of claims that are noncompliant with the AKS or with Medicare’s reasonable
and necessary requirement as it relates to off-label drug uses—the two alleged underlying
violations in this case. Relator argues that materiality is met because these provisions “relate to
central requirements of the Medicare program, which a reasonable person would understand are
fundamentally important to the Government’s payment decision.” (Rel. Br. at 29). Relator also
intends to marshal evidence at trial that the Government routinely refuses to pay false claims based
on kickbacks (in violation of the AKS) and promotion of drugs for off-label uses (in violation of
the reasonable and necessary requirement). (See ECF No. 330 at 24—25 & n. 22). Bayer may try
to rebut Relator’s evidence with proof that “the Government pays a particular claim in full despite
its actual knowledge that certain requirements were violated,” or evidence that “the Government
regularly pays a particular type of claim in full despite actual knowledge that certain requirements
were violated, and has signaled no change in its position.” Escobar, 163 S. Ct. at 2003—04. Such
evidence would tend to show that such noncompliance was merely “minor or insubstantial.” Id.
at 2003. Ultimately, because evidence showing the effect of the alleged fraud on the Government’s
decision to pay claims for Trasylol is not before the Court and discovery is still ongoing, the Court
is unable to grant summary judgment in favor of Bayer on the question of materiality.
‘
The Court acknowledges receipt of a letter from Bayer dated April 3, 2019, (ECF No. 347), a response
from Relator dated April 16, 2019, (ECF No. 348), and a response from the Government dated April 17,
2019, (ECF No. 349)-- well after the briefing on these cross-motions had concluded, after oral argument
had been heard, and while this Opinion was nearing publication. Despite reiterating that “there is no
genuine factual dispute preclciding this Court’s decision,” Bayer requests an opportunity to obtain
additional discovery from the Government “before any decision is made that materiality is a factual
question for thejury.” (ECF No. 347 at 2). Bayer makes this request in light of objections to discovery
made by the Government that, in Bayer’s view, contradict the Government’s position at oral argument,
where the Government argued that material factual disputes precluded a decision as a matter of law on
Bayer’s motion. (ECF No. 347 at 1—2). The Government responds that “no discovery is needed for the
32
***
All fraud is disguised—until it is not. That the alleged fraud involving Tiasylol was hidden
from the Government by virtue of the DRG system does not insulate Bayer from liability for that
fraud as a matter of law.
Indeed, among “Congress’s primary goals” in enacting the qui tarn
provisions of the FCA were “encouraging disclosure and aiding prosecution of fraud” of which
the Government would otherwise remain unaware. US. cx rd. Mistick PBT v. Housing Auth. of
City of Pittsburgh, 186 F.3d 376, 391 (3d Cir. 1999). Whether the fracLd alleged by Relator was
material to the Government’s decision to pay claims for surgeries involving Trasylol is a question,
among others, that must be answered by a jury in this case.
B. Relator’s Motion
Relator’s motion seeks only a determination as a matter of law that the FCA does not
foreclose liability for claims paid pursuant to Medicare’s bundled, fixed-fee DRG payment system.
(Rel. Br. at 11). Relator asks the Court to enter an order stating the following:
Bayer may be held liable under the [FCA] for claims for Medicare
and Medicaid reimbursement for sui-gical procedures in which
Trasylol was administered, regardless of whether the relevant
requests for reimbursement were bundled rather than itemized[, and]
regardless of whether the administration of Trasylol in these
procedures affected the total amount of corresponding
reimbursement.
Court to reach and resolve the DRG issue.” (ECf No. 249 at 2). Relator responds that, in seeking
summary judgment, “Bayer has conceded the absence of any material facts for resolution of its own
motion.” and that Bayer’s letter represents a “request for conditional adjudication” of its motion. (ECF
No. 348 at 3). As an initial matter, the Court reminds the parties that a Special Master has been appointed
to facilitate the resolution of ongoing discovery disputes. (See ECF No. 328). Secondly, notwithstanding
the issues raised in Bayer’s letter, the Court finds (in concordance with the parties’ original joint
representation) that the “narrow issue” on which the Court ordered these motions, (see ECF No. 321), is
ripe for summary judgment, and the Court has rendered a decision accordingly. However, if, at a later
stage, good cause is shown for summary judgment motions to be renewed or other relief to be sought, an
appropriate request may be made to the Court at that time.
ii
(ECF No. 324-3 at 1—2). In denying Bayer’s motion for partial summary judgment on this issue,
the Court holds precisely that. Relator does not suggest that she has met her burden of proving
liability on any element of her FCA claim—falsity, causation. knowledge. and materiality, see
Petratos, 855 F.3d at 487—at this stage.
(See Hearing Tr. 6:19—7:6, 9:6—10).
Both parties
acknowledge ongoing disputes of fact that are material to a determination of liability on any
element. (See Hearing Tr. 8:9—9: 1, 40:3—t2). As a result, the Court cannot grant partial judgment
as a matter of law in favor of Relator. See Anderson. 477 U.S. at 247 (summary judgment requires
a showing “that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law”) (quoting Fed. R. Civ. P. 56(c)).
The Court need not grant Relator’s motion in order to endorse her view of the law on this
issue, which the Court necessarily does in denying Bayer’s motion. However, partial summary
judgment in Relator’s favor would be premature at this stage. In order to prevail at trial, Relator
must prove all focLr FCA elements—including materiality—according to the tests set forth in
Escobar and other applicable precedent as described above.
IV.
CONCLUSION
For these reasons, the parties’ cross-motions for partial summary judgment are denied. An
appropriate Order accompanies this Opinion.
DATED: April
2l9
J
34
L.L ARES
iief Judge, United States District Court
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?