United States of America et al v. Bostwick Laboratories
Filing
70
OPINION AND ORDER denying 39 Defendant Bostwick Laboratories' Motion to Dismiss; denying 56 Defendant David Bostwick's Motion to Dismiss. Signed by Judge S Arthur Spiegel on 12/14/2012. (km1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
UNITED STATES OF AMERICA,
ex rel. MICHAEL DAUGHERTY,
:
:
:
Plaintiff,
:
:
v.
:
:
BOSTWICK LABORATORIES, et al. :
:
Defendants.
:
NO. 1:08-CV-00354
OPINION AND ORDER
This matter is before the Court on Defendant Bostwick
Laboratories’
Bostwick’s
Motion
Motion
to
to
Dismiss
Dismiss
(doc.
(doc.
39),
56),
Defendant
and
responsive memoranda (docs. 44, 54, 59 & 61).
the
David
respective
For the following
reasons, the Court DENIES each Motion to Dismiss (docs. 39 &
56).
I.
Background
Relator filed his amended complaint in this qui tam
action on February 13, 2012, alleging that Defendant Bostwick
Laboratories (individually, the “Bostwick Lab”) and Defendant
David Bostwick (individually, “Mr. Bostwick” and, together with
Bostwick Lab either “Defendants” or “Bostwick”) (i) submitted
false claims to Medicare, Medicaid and other federally-funded
1
programs
for
non-allowable
lab
services
done
without
a
physician’s order and (ii) billed federally-funded healthcare
programs for lab services unlawfully referred to Defendants
in
violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)
(the “AKS”), the Stark Laws, 42 U.S.C. § 1395nn, and the False
Claims Act, 31 U.S.C. §§ 3729-3733 (doc. 34)(the “Act” or the
“FCA”).
The
Government,
as
well
as
the
states
of
Florida,
Georgia, Indiana, New York, Tennessee, Texas, Virginia and the
District of Columbia declined to intervene (doc. 18).
According to the allegations in the Amended Complaint,
Relator is the president of LabMD, which is an Atlanta-based
urology
and
uropathology
laboratory
and,
in
essence,
competitor of Defendant Bostwick Lab (doc. 34).
a
Bostwick Lab
provides laboratory and pathology services, including cytology
interpretation
sources
services,
throughout
the
and
accepts
United
States
specimens
(Id.).
from
referral
Nearly
87%
of
Bostwick Lab’s 2007 revenue was from its urology business, 42.2%
of its revenues were derived from Medicare and Medicaid, and
approximately 35% of its revenues were from the evaluation of
non-invasive
bladder
cancer
tests,
which
are
the
tests
implicated in this lawsuit.
Mr. Bostwick founded Bostwick Lab and is its Chief
Executive Officer.
shareholder,
Although Mr. Bostwick is no longer majority
Relator
alleges
that,
since
the
company’s
inception, Mr. Bostwick has controlled the actions of Bostwick
Lab, and the actions constituting the fraud alleged by Relator
were done at his direction and control.
Because Relator and Bostwick Lab provide some of the
same services, they also share some of the same customers, and
it is from some of these customers that Relator learned of some
of the practices alleged in the amended complaint.
In addition,
Relator has personal familiarity with Bostwick Lab’s procedures
and
personnel
because
for
two
years
Bostwick
Lab
provided
diagnostic testing on samples submitted to Relator’s company’s
predecessor
through
a
contract
relationship
between
the
two
companies (Id.).
At base, Relator alleges (i) that Bostwick submitted
claims for payment to the government for services that were not
ordered
by
a
physician
and
(ii)
that
Bostwick
improperly
incentivized physicians to provide Bostwick with business (Id.).
The specific service at issue is called the Fluorescence In Situ
Hybridization
test
bladder cancer.
(the
“FISH
test”),
which
is
a
test
for
Typically, when concerned about the possibility
of bladder cancer, urologists routinely order urine cytology,
where a urine sample is sent to a lab and examined under a
microscope to determine whether cancerous or precancerous cells
are
present
(Id.).
Should
the
3
urine
cytology
suggest
that
malignant or atypical/suspicious cells are present in the urine,
the
American
Urological
Association’s
position
is
that
cystoscopy is required, a procedure wherein the bladder and the
urethra are examined using a thin, lighted instrument called a
cytoscope (Id.).
There are some FDA-approved non-invasive tests
to assist in the diagnosis and surveillance of bladder cancers,
and the FISH test is one of them.
However, the FISH test is an
adjunctive test, meaning that it received FDA approval for use
“in
conjunction
with
and
not
in
lieu
of
current
standard
diagnostic procedures” to assist in the initial diagnosis of
bladder
cancer
diagnosing
in
patients
recurrences
bladder cancer (Id.).
in
with
those
blood
in
patients
the
with
urine
a
and
in
history
of
The American Urological Association does
not include the FISH test as part of its Best Practices Policy
Recommendations
for
the
diagnosis
of
bladder
cancer
because,
“insufficient data are available to recommend [its] use in the
evaluation of patients with microscopic [blood in the urine]”
(Id.).
The FISH test has two components to it: the technical
component
and
the
component
refers
professional
to
the
component.
preparation
of
the
The
sample
technical
and
the
addition of the fluorescent DNA probes to the specimen, which is
then
incubated.
The
professional
component
refers
to
the
analysis of the sample after incubation and the interpretation
of the analysis.
According to the FDA, this requires viewing
the probe signals through filters on a microscope and analysis
of specimen slides to determine whether abnormal or suspicious
cells are present (Id.).
Relator alleges that Bostwick engaged in a scheme to
defraud the government by reflexively conducting the FISH test
without
claim
the
to
programs
Medicare
(Id.).
requisition
ordering
ordering
form
physician’s
and
Medicaid
Specifically,
has
physician:
consent
and
other
Relator
a
pre-printed
(i)
cytology;
and
notes
list
(ii)
of
submitting
the
federally-funded
that
Bostwick’s
choices
for
cytology/FISH;
the
(iii)
cytology/reflex FISH, with a footnote that the lab will “reflex
when results are atypical” (Id.).
Relator alleges that Bostwick
reflexively
on
results,
performs
FISH
irrespective
of
tests
the
atypical
physician’s
urine
cytology
order
on
the
requisition form (Id.).
In
performs
necessary
addition,
additional
or
whether
Relator
tests
they
alleges
regardless
have
been
that
of
Bostwick
whether
also
they
requisitioned
by
are
the
ordering physician and bills those unnecessary tests to federal
healthcare programs (Id.).1
1
Further, Relator claims that Bostwick diluted the probes
used for the FISH testing in contravention of the FDA label,
which allowed Bostwick to bill federal healthcare programs for
5
With
referrals,
respect
Relator
to
his
alleges,
claim
in
regarding
essence,
that
impermissible
Bostwick
offers
urology practices incentives to refer testing to Bostwick, in
violation
of
the
Stark
Laws
and
the
Anti-kickback
Statute.
Specifically, Relator alleges that Bostwick developed a program
wherein
Bostwick
performs
both
the
technical
and
the
professional components of the FISH test but allows the urology
practice to bill for the professional component.
exchange
for
getting
all
of
certain
types
Allegedly, in
of
lab
work
from
urology practices, Bostwick performs the technical component of
the
FISH
test
and
then
drafts
a
report
constituting
the
professional component, which the urology practice’s pathologist
or physician then signs and bills as though they conducted the
professional component of the test.
As additional violations of the Stark Laws and the
Anti-kickback
referrals,
perform
the
physicians
Statute,
Bostwick
bill
that
Bostwick
that,
a
in
of
the
FISH
Medicare
for
a
higher
offers
exchange
lesser
component
profiting from the arrangement.
alia,
alleges
physicians
charges
technical
then
Relator
for
amount
test,
and
amount,
to
the
thus
Further, Relator alleges, inter
discounted
billing
for
privately
three additional FISH tests per probe at no additional cost
(Id.). However, in his response to Bostwick’s motion to
dismiss, Relator moved to strike this allegation, and the Court
will therefore not consider it.
insured patients in exchange for the practices referring federal
healthcare program business to Bostwick; routinely waives copays and deductibles for Medicare patients; encourages customers
to issue standing orders to reflex FISH and other tests that
have high reimbursement rates; offers financial assistance with
electronic
medical
records
in
exchange
for
referrals
of
business; offers to assist physician practices in establishing
in-house
laboratories
by
offering
below-market
services
in
exchange for referrals.
In
Count
I,
Relator
claims
that
Bostwick
knowingly
presented or caused to be presented to officers or employees of
the
United
States
false
claims
for
payment
or
approval
in
violation of the False Claims Act, 31 U.S.C. §§ 3729(a)(1)(A);
knowingly
made,
used,
or
caused
to
be
made
or
used,
false
records or statements material to claims paid or approved by the
Government,
in
violation
of
31
U.S.C.
§§
3729(a)(1)(B);
and
presented or caused to be presented false or fraudulent claims
for
payment
to
the
United
States
for
lab
services
provided
pursuant to illegal referral arrangements, in violation of 42
U.S.C. § 1395nn(a) and 42 U.S.C. § 1320a-7b(b).
As Relator
notes, these distill to allegations that “Bostwick performed and
billed for tests that were not ordered by the treating physician
and
so
are
not
covered
and
payable
7
by
federal
programs;
and…Bostwick offered and paid remuneration of various kinds to
induce
physicians
to
refer
federal
healthcare
business
in
violation of the [Anti-Kickback Statute] and Stark laws” (doc.
44). Counts II-IX are similar state-law claims, brought under
the laws of Texas, Georgia, Florida, Virginia, Tennessee, New
York, the District of Columbia, and Indiana.
Bostwick Lab moves to dismiss Relator’s complaint on
both jurisdictional and substantive bases (doc. 39).
As to the
jurisdictional argument, Bostwick Lab contends that Relator’s
allegations
regarding
Bostwick’s
markup
program
for
the
technical component of the FISH test are barred under the public
disclosure bar of the False Claims Act.
With respect to the
remainder of the complaint, Bostwick Lab argues that Relator has
failed to state a claim for relief because reimbursement for
FISH tests ordered by pathologists is not violative of the False
Claims Act and because the complaint does not set forth facts
that
would
remuneration
support
to
an
inference
physicians
in
that
exchange
Bostwick
for
provided
referrals.
In
addition, Bostwick Lab argues that the complaint fails to meet
the
heightened
pleading
requirements
of
Rule
9(b)
because
Relator has not identified any single allegedly false claim that
was submitted to the government, let alone several examples from
which a scheme could be inferred.
Pursuant to Federal Rule of Civil Procedure 12(b)(6),
Mr. Bostwick moves to dismiss Relator’s complaint as against him
on the basis that the complaint does not set forth facts from
which the Court could reasonably pierce the corporate veil and
hold him personally responsible for the acts of Bostwick Lab
(doc. 56).
Both
motions
to
dismiss
are
ripe
for
the
Court’s
consideration, and the Court takes each in turn.
II.
The Applicable Standards & the Statutory Framework
A.
Jurisdiction
Rule 12(b)(1) of the Federal Rules of Civil Procedure
provides that an action may be dismissed for “lack of subjectmatter jurisdiction.”
Fed.R.Civ.P. 12(b)(1). Plaintiffs bear
the burden of proving jurisdiction when challenged by a Rule
12(b)(1) motion.
Moir v. Greater Cleveland Reg’l Transit Auth.,
895 F.2d 266, 269 (6th Cir. 1990)(citing Rogers v. Stratton
Indus.,
Inc.,
798
F.2d
913,
915
(6th
Cir.
1986)).
“[T]he
plaintiff must show that the complaint alleges a claim under
federal law, and that the claim is substantial.”
Mich. S. R.R.
Co. v. Branch & St. Joseph Counties Rail Users Ass’n, Inc., 287
F.3d
568,
573
(6th
Cir.
2002)
(internal
quotations
omitted)
(quoting Musson Theatrical, Inc. v. Fed. Express Corp., 89 F.3d
1244, 1248 (6th Cir. 1996)).
“The plaintiff will survive the
motion to dismiss by showing ‘any arguable basis in law’ for the
9
claims
set
forth
in
the
complaint.”
Id.
(quoting
Musson
Theatrical, 89 F.3d at 1248).
B.
Federal Rule of Civil Procedure 12(b)(6)
Typically,
a
motion
to
dismiss
brought
pursuant
to
Federal Rule of Civil Procedure 12(b)(6) requires the Court to
determine
whether
complaint.
a
cognizable
claim
has
been
pled
in
the
The basic federal pleading requirement is contained
in Fed. R. Civ. P. 8(a), which requires that a pleading "contain
. . . a short and plain statement of the claim showing that the
pleader is entitled to relief."
857,
858
(2007).
(6th
In
Cir.
its
1976);
scrutiny
Westlake v. Lucas, 537 F.2d
Erickson
of
the
v.
Pardus,
complaint,
551
the
U.S.
Court
89
must
construe all well-pleaded facts liberally in favor of the party
opposing
the
(1974).
A
“contain[s]
motion.
Scheuer
complaint
survives
sufficient
factual
v.
Rhodes,
416
a
motion
to
matter,
U.S.
232,
dismiss
accepted
as
236
if
it
true,
to
state a claim to relief that is plausible on its face.”
Courie
v. Alcoa Wheel & Forged Products, 577 F.3d 625, 629-30 (6th Cir.
2009), quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009),
citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
However, because the False Claims Act is an anti-fraud
statute, complaints alleging violations of the Act must meet the
heightened pleading standard of Federal Rule of Civil Procedure
9(b).
U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d
493,
510
(6th
Cir.
2007).
Rule
9(b)
of
the
Federal
Rules
governs all averments of fraud or mistake and mandates that the
circumstances constituting the fraud or mistake be stated with
particularity.
Fed.
alleging
violations
include
“the
R.
of
time,
Civ.
the
P.
False
place,
and
9(b).
Thus,
Claims
content
Act
of
a
complaint
must
minimally
the
alleged
misrepresentation…; the fraudulent scheme; the fraudulent intent
of the defendants; and the injury resulting from the fraud.”
Bledsoe, at 504 (internal quotations and citations omitted).
In
the context of a False Claims Act case, “pleading an actual
false claim with particularity is an indispensable element of a
complaint….”
specific
Id.
instance
However, a relator need not plead “every
of
fraud
where
[his]
allegations
encompass
many allegedly false claims over a substantial period of time.”
Id. at 509.
reaching
Instead, “where a relator pleads a complex and far-
fraudulent
scheme
with
particularity,
and
provides
examples of specific false claims submitted to the government
pursuant to that scheme, a relator may proceed to discovery on
the entire fraudulent scheme.”
C.
Id. at 510.
The False Claims Act
Congress passed the original False Claims Act in 1863
“to combat rampant fraud in Civil War defense contracts.” S.
Rep. No. 99-345, at 8, reprinted in 1986 U.S.C.C.A.N. 5266, 5273
11
(1986).
In its current form, the FCA imposes liability on any
person who “knowingly presents, or causes to be presented, to an
officer or employee of the United States government…a false or
fraudulent
claim
3729(a)(1)(2008).
for
payment
or
approval.”
31
U.S.C.
§
The statute further imposes liability on a
person who “uses, or causes to be made or used a false record or
statement to get a false or fraudulent claim paid or approved by
the Government;” who “conspires to defraud the government by
getting a false or fraudulent claim paid or approved by the
government,”
or
who
uses
“a
false
record
or
statement
to
conceal, avoid, or decrease an obligation to pay or transmit
money or property to the government.”
Id. at (a)(2),(3),(7).
To satisfy the statute’s knowledge requirement, a person must
“(1) ha[ve] actual knowledge of the information; (2) act in
deliberate ignorance of the truth or falsity of the information;
(3) or act in reckless disregard of the truth or falsity of the
information,” but “no specific intent to defraud is required.”
Id. § 3729(b).
Relator must further demonstrate that the underlying
violation is material by proving that the government would not
have paid the claim for reimbursement had it known about the
underlying violation of the law.
United States ex rel. Luckey
v.
F.3d
Baxter
1999).
Healthcare
Corp.,
183
730,
732-33
(7th
Cir.
A false certification of compliance with the Anti-
Kickback Statute and Stark Statute in a Medicare cost report is
actionable under the FCA.
Columbia/HCA
1997).
reports
Healthcare
False
claims
(CMS-2552's)
United States ex rel. Thompson v.
Corp.,
to
and
125
F.3d
Medicare,
claims
for
899,
902
Cir.
Medicare
cost
including
(5th
payment,
(UB-92's)
(also
known as form HCFA-1450), are actionable under the FCA.
Id.
The submission of UB-92's in violation of the Stark Statute
constitutes a violation of the FCA, United States ex rel. Pogue
v. Diabetes Treatment Centers of America, 238 F. Supp.2d 258,
266 (D.D.C. 2002), and compliance with the Anti-Kickback Statute
is a condition of payment by the Medicaid program.
1320a-7b(b);
Healthcare
United
Corp.
States
251
F.
ex
rel.
Supp.2d
42 U.S.C. §
Barrett
v.
28,
(D.D.C.
32
Columbia/HCA
2003).
Similarly, when a physician submits claims for payments (CMS1500's), the physician impliedly certifies that the claim and
the
underlying
Statute.
transaction
comply
with
the
Anti-Kickback
United States of America ex rel. Thomas v. Bailey, No.
4:06-CV-00465,
2008
U.S.
Dist.
LEXIS
91221,
*39,
(E.D.
Ark.
November 6, 2008).
The FCA does not create a private cause of action, but
permits a person, designated a “Relator” to bring a civil action
“for the person and for the United States government…in the name
of the government.”
31 U.S.C. § 3730(b).
13
The Supreme Court has affirmed an aggressive reading
of the FCA, explaining that “Congress wrote expansively, meaning
to ‘reach all types of fraud, without qualification, that might
result in financial loss to the government.’”
V. United States ex rel. Chandler, 538
Cook County, Ill.
U.S. 119 (2003)(quoting
United States v. Neifert-White Co., 390 U.S. 228, 232 (1968)).
D.
The Anti-Kickback Statute
The
Anti-Kickback
Statute
prohibits
any
person
or
entity from offering, making or accepting payment to induce or
reward any person for referring, recommending or arranging for
federally funded medical services, including services provided
under the Medicare and Medicaid programs:
(b) Illegal remunerations.
(1) Whoever knowingly and willfully solicits or
receives any remuneration (including any kickback,
bribe, or rebate) directly or indirectly, overtly or
covertly, in cash or in kind -(A)
(B)
in return for referring an individual to a person
for
the
furnishing
or
arranging
for
the
furnishing of any item or service for which
payment may be made in whole or in part under a
Federal health care program, or
in return for purchasing, leasing, ordering, or
arranging
for
or
recommending
purchasing,
leasing, or ordering any good, facility, service,
or item for which payment may be made in whole or
in part under a Federal health care program,
shall be guilty of a felony and upon conviction
thereof, shall be fined not more than $25,000 or
imprisoned for not more than five years, or both.
(2) Whoever knowingly and willfully offers or pays any
remuneration
(including
any
kickback,
bribe,
or
rebate) directly or indirectly, overtly or covertly,
in cash or in kind to any person to induce such
person—
(A)
to refer an individual to a person for the
furnishing or arranging for the furnishing of any
item or service for which payment may be made in
whole or in part under a Federal health care
program, or
(B) to purchase, lease, order or arrange for or
recommend purchasing, leasing or ordering any
good, facility, service, or item for which
payment may be made in whole or in part under a
Federal health care program,
shall be guilty of a felony and upon conviction
thereof, shall be fined not more than $25,000 or
imprisoned for not more than five years, or both.
42 U.S.C. § 1320a-7b(b).
The statute includes no requirement of proof that a
kickback arrangement harmed patients or resulted in unnecessary
procedures and it imposes liability for payment practices that
do
not
fall
within
“Safe
Harbor”
regulations,
42
C.F.R.
§
1001.952, so as to remove financial incentives that can result
in unnecessary patient care.
E.
The Stark Laws
The
submitting
Stark
Medicare
Laws
prohibit
claims
for
healthcare
payment
entities
based
on
from
patient
referrals from physicians having a “financial relationship” with
the entity.
42 U.S.C. § 1395nn.
The provisions define a
financial relationship as one where the physician has a direct
15
or
indirect
U.S.C.
§
includes
direct
compensation
relationship
1395nn(a)(2)(A);
any
or
arrangement
indirect
42
C.F.R.
whereby
a
remuneration
with
the
entity.
§411.354(a)(1).
physician
from
the
This
receives
entity.
42
42
either
C.F.R.
§411.353(c).
III.
Bostwick Lab’s Motion to Dismiss
A. Relator’s
Markup
Program
jurisdictionally barred
Bostwick
Lab
argues
Allegations
that
Relator’s
are
not
allegations
regarding a markup program are jurisdictionally barred because
the question of whether physicians could permissibly mark up the
technical component of lab tests has been debated publicly for
years (doc. 39).
are
based
on
As Bostwick Lab notes, if a relator’s claims
allegations
or
transactions
that
were
publicly
disclosed in certain sources, the public-disclosure bar requires
dismissal of the suit (Id., citing 31 U.S.C. §3730(e)(4)(A)).
As
support
for
its
contention
that
the
markup
program
was
publicly disclosed before Relator filed his complaint, Bostwick
Lab points to the following.
First, as Relator set forth in his
complaint, Bostwick’s General Counsel sent a letter to urology
practices in April 2009 advising them of the markup program,
wherein
physicians
could
purchase
the
technical
component
of
certain tests at a below-rate charge and then bill Medicare for
16
the
full
amount
expressed
his
(Id.).
In
opinion
that
that
letter,
a
the
Counsel
loophole
regulatory
General
allowed
Bostwick to do this because, he believed, the anti-markup rule
was
inapplicable
to
lab
tests
that
don’t
require
physician
supervision (Id.). Second, Bostwick Lab notes that in June 2009
the
American
Clinical
Society
for
Laboratory
Clinical
Association,
Pathology,
the
the
American
of
American
College
Pathologists and some large independent labs met with officials
from the Centers for Medicare & Medicaid Services (“CMS”) to
discuss this loophole concept and the anti-markup rule (Id.).
Bostwick
Lab
argues
that
this
June
2009
meeting
constitutes
public disclosure under the applicable statute (Id., citing 31
U.S.C. §3730(e)(4)(A); U.S. ex rel. Ondis v. City of Woonsocket,
587 F.3d 49, 55 (1st Cir. 2009)).
In addition, Bostwick Lab
directs the Court to several articles discussing the loophole
and the anti-markup rule, which were published before Relator
filed
his
College
response
complaint.
Further,
Bostwick
American
Pathologists
wrote
of
to
an
opportunity
to
comment
Lab
a
on
notes
letter
a
to
that
the
CMS
proposed
in
rule.
Because the letter was published on the CMS website, Bostwick
Lab
argues
that
it
constitutes
a
public
contribution
to
a
federal proceeding and, therefore, a public disclosure under the
False Claims Act (Id.).
17
The jurisdictional bar of the FCA provides:
(4) (A) No court shall have jurisdiction over an
action under this section based upon the public
disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a
congressional,
administrative,
or
Government
Accounting
Office
report,
hearing,
audit,
or
investigation, or from the news media, unless the
action is brought by the Attorney General or the
person bringing the action is an original source of
the information.
(B) For purposes of this paragraph, “original source”
means an individual who has direct and independent
knowledge of the information on which the allegations
are based and has voluntarily provided the information
to the Government before filing the action under this
section which is based on the information. 31 U.S.C. §
3730(e)(4)(A) and (B).
To
ascertain
whether
the
application
of
the
jurisdictional bar is appropriate, the Court must assess: “(A)
whether there has been a public disclosure in a criminal, civil
or administrative hearing; or congressional, administrative, or
government report, hearing, audit, or investigation; or from the
news media; (B) of the allegations or transactions that form the
basis of the relator's complaint; and (C) whether the relator's
action is ‘based upon’ the publicly disclosed allegations or
transactions.” United States ex rel. Jones v. Horizon Healthcare
Corporation, 160 F.3d 326, 330 (6th Cir. 1998). Further, “[i]f
the answer is ‘no’ to any of these questions, the inquiry ends
and the qui tam action may proceed. If the answer to each of the
18
above questions is ‘yes,’ then the final inquiry is (D) whether
the
relator
qualifies
as
an
‘original
source’
under
3730(e)(4)(B), which also would allow the suit to proceed.”
§
Id.
Applying that analysis to this case, the Court finds
that the jurisdictional bar of the FCA does not apply to the
allegations of a markup program because “substantial identity”
between the disclosures and the complaint does not exist.
See
Horizon
the
Healthcare,
160
F.3d
at
332.
With
respect
to
question of whether there was a public disclosure, as Relator
notes, the letter sent by Bostwick’s general counsel to its
clients does not fall within the ambit of a public disclosure
because it cannot legitimately be seen to be a criminal, civil
or administrative hearing, a congressional, administrative or
GAO report, hearing, audit or investigation, or from the news
media.
However, the articles to which Bostwick Lab refers are
legitimate examples of “news media,” and the CMS meeting and the
letter
to
CMS
in
response
to
a
solicitation
for
comments
arguably are disclosures made in connection with administrative
hearings;
thus
these
disclosures
fall
forums enumerated in the statute.
within
those
certain
See, e.g., A-1 Ambulance
Serv., Inc. v. California, 202 F.3d 1238, 1243-44 (9th Cir.
2000)(county
hearings”
public
under
FCA);
agency
United
proceedings
States
19
ex
are
rel.
“administrative
Englund
v.
Los
Angeles
County,
2005
WL
2089216
(E.D.
Cal.
2005)(letters
generated in connection with public board meetings fall within
public disclosure definition).
The questions then become whether the disclosures made
in those fora included the allegations or transactions that form
the basis of the complaint and whether the complaint is “based
upon”
the
publicly
disclosed
allegations
or
transactions.
Simply put, they do not: as Relator notes, the disclosures did
not
contain
enough
information
to
expose
the
fraudulent
transactions in their entirety because they did not identify
Bostwick specifically, and they did not discuss the incentives
provided by Bostwick.
The Sixth Circuit has relied on an illustration set
forth
by
the
D.C.
Circuit
to
determine
whether
the
public
disclosure bar should apply:
I]f X + Y = Z, Z represents the allegation of fraud
and X and Y represent its essential elements. In order
to disclose the fraudulent transaction publicly, the
combination of X and Y must be revealed, from which
readers or listeners may infer Z, i.e., the conclusion
that fraud has been committed. [Q]ui tam actions are
barred only when enough information exists in the
public domain to expose the fraudulent transaction
(the combination of X and Y), or the allegation of
fraud (Z).
U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 513 n. 5
(6th
Cir.
2009),
quoting
United
20
States
ex
rel.
Springfield
Terminal Ry. v. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994).
as
Relator
notes,
the
allegations
set
forth
in
the
Here,
amended
complaint are that Bostwick employed a scheme whereby it would
markup
the
physician
technical
component
practices
transactions
include
to
of
tests
in
order
refer
business
its
Bostwick’s
offering
these
to
way,
induce
and
the
incentives
to
physician practices by way of its marketing and solicitations,
which allegedly resulted in claims paid in violation of the AKS
and
the
Stark
Laws.
The
public
disclosures
presented
by
Bostwick Lab do not marry these allegations and transactions
such that the government could readily ascertain that X+Y=Z.
Instead, the disclosures focus on the reach of the anti-markup
rule,
not
the
particulars
of
the
fraud
alleged
here
or,
importantly, the Defendants served here.
This
material
is
elements
not
merely
already
in
an
issue
the
of
public
claim,” as Bostwick Lab contends (doc. 54).
Lab
simply
has
not
provided
a
source
of
“re-characterizing
domain
as
a
false
Instead, Bostwick
publicly-disclosed
information that either details the elements of the allegedly
fraudulent transactions (the X+Y) or the fraud itself (the Z).
There is no “re-characterization” where the material elements
are not already in the public domain.
Finally,
if
the
Court
21
is
wrong
in
its
assessment
regarding the lack of a public disclosure, the Court finds that
Relator’s complaint is not “based upon” those disclosures.
In
this
on
Circuit,
public
to
determine
disclosures,
whether
a
complaint
look
to
whether
courts
is
based
“’substantial
identity’ exists between the publicly disclosed allegations or
transactions
and
the…complaint.”
U.S.
ex
rel.
McKenzie
v.
BellSouth Telecommunications, Inc., 123 F.3d 935, 940 (6th Cir.
1997)(internal quotations and citations omitted).
identity does not exist.
Here, such
On this issue, the Court appreciates
Relator’s analogy: “A handbook describing how to crack a safe
does not mean that the fact that a particular safecracker robs
banks is publicly disclosed” (doc. 44).
Relator’s
complaint
is
not
barred
by
the
public
disclosure bar.
B. Relator has Stated a Claim for Relief
1.
The Fraudulent Billing Scheme
In essence, Relator’s claim that Bostwick fraudulently
billed federal healthcare programs amounts to an allegation that
Bostwick performed and billed for and received payment for FISH
tests that were not ordered by the treating physician and so are
not covered and payable by federal programs.
Bostwick Lab argues that Relator fails to set forth a
claim for relief in his complaint because, it contends, Relator
22
does not present even a single case of a medically unnecessary
FISH test having been billed to federal healthcare programs by
Bostwick (doc. 39).
Specifically, Bostwick Lab contends that
any FISH test it ran without a treating-physician signature was
medically necessary in order to allow the pathologist to reach a
diagnosis, which is an exception to the rule that all tests paid
for
by
federal
healthcare
programs
must
be
ordered
by
the
treating physician (Id., citing Medicare Benefit Policy Manual,
Ch. 15, § 80.6.5).
laboratory’s
The exception provides that an independent
pathologist
may
order
additional
tests
in
the
absence of a treating-physician order if the test is needed to
allow
the
diagnosis”
pathologist
to
the
to
report
treating
a
“complete
physician
(Id.).
and
accurate
Bostwick
Lab
contends that Relator has failed to allege a single instance
where
it
exception
billed
and
for
a
therefore
test
that
urges
doesn’t
the
Court
fit
within
that
to
dismiss
the
complaint.
Relator argues that Bostwick Lab’s motion to dismiss
challenges Relator’s factual allegations and does not, as it
should, test Relator’s cause of action.
Relator is correct.
this
as
stage,
the
Court
must
accept
true
the
At
factual
allegations contained in the complaint and assess whether or not
those allegations state a plausible claim.
23
They do.
Relator
alleges that Bostwick performed FISH tests on specimens where
they were not ordered, despite the presence on the requisition
form for the treating physician to order the test or to allow
for testing only when the initial cytology was abnormal.
In
addition, Relator alleges that these non-physician-ordered FISH
tests
were
done
with
no
notice
to
the
physicians
and
automatically as a matter of course not on a patient-by-patient
basis.
Tests
billed
without
a
physician’s
order
under
the
circumstances alleged in the complaint could plausibly be found
to be medically unnecessary and thus fraudulent under the FCA,
and that is the only question before the Court at this stage.
Through the discovery process, it will become clearer whether
and to what extent the pathologist exception to the rule that
tests must be ordered by the treating physician might apply to
the any, all or none of the allegedly fraudulent claims.
To
illustrate, in order for the exception that allows pathologists
to
bill
factors
necessary
for
tests
absent
must
be
present:
so
that
a
a
physician
the
complete
order
services
and
to
must
accurate
apply,
be
three
medically
diagnosis
can
be
reported to the treating physician/practitioner; the results of
the tests must be communicated to and be used by the treating
physician/practitioner in the treatment of the beneficiary; and
24
the pathologist must document in his/her report why additional
testing was done.
80.6.5.
Medicare Benefit Policy Manual Chapter 15 §§
Relator
alleges
that
Bostwick
routinely
performed
unordered FISH tests as a matter of business policy without any
individual assessment as to the needs of the particular patient.
In its briefing, Bostwick Lab contends that it only ordered FISH
testing when the particular patient’s situation required it and
that
it
factual
gave
notice
dispute
not
to
the
suitable
treating
to
physician.
resolution
on
This
a
is
motion
a
to
dismiss.
For
the
foregoing
reasons,
the
Court
finds
that
Relator has set forth sufficient factual allegations from which
the
Court
may
plausibly
infer
a
fraudulent
billing
scheme
conducted by Bostwick.
2.
The Impermissible Kickbacks
In addition to his claim that Bostwick Lab engaged in
a fraudulent billing scheme, Relator alleges that Bostwick Lab
provided remuneration to physicians in order to induce them to
refer business its way in violation of the Anti-Kickback Statute
and the Stark Laws.
Bostwick Lab urges the Court to dismiss
this portion of Relator’s complaint, arguing that he has failed
to state a claim for relief because he did not provide facts
from
which
the
Court
could
infer
25
that
Bostwick
Lab
falsely
certified that it was in compliance with the AKS or Stark Laws
in connection with actual claims submitted to federal healthcare
programs
(doc.
39).
Bostwick
Lab
contends
that,
in
his
complaint, Relator merely describes some of Bostwick’s business
programs but he has not provided any facts to support his legal
conclusion
that
those
programs
are
illegal
or
improper.
Essentially, Bostwick Lab’s arguments distill to two.
First,
Relator’s allegation that Bostwick falsely impliedly certified
compliance with the AKS fails as a matter of law because, it
contends, an implied certification theory only applies where the
underlying
statute
or
regulation
specifically
states
that
compliance is a prerequisite to obtaining payment for a claim
submitted to the government.
Because there was no such statute
or regulation that conditioned payment on compliance with the
AKS,
Bostwick
Lab
certification.
contends,
Second,
Bostwick
there
Lab
can
be
argues
no
that
implied
Relator’s
complaint must be dismissed because it fails to allege that
Bostwick
offered
or
gave
remuneration
to
physicians
in
connection with referrals.
a.
Certification
The Court is unpersuaded by Bostwick Lab’s arguments
regarding
implied
certification.
First,
as
Relator
notes,
certification is not a separate element of an FCA claim.
26
The
question is, instead, whether Bostwick knowingly submitted false
claims in violation of a material condition of payment.
See,
e.g., U.S. ex rel. Hutcheson v. Blackstone Medical, Inc., 647
F.3d 377 (1st Cir. 2011).
Relator has alleged facts which,
accepted as true, plausibly allow an inference that it did.
As
federal
of
healthcare
agreement.
contains
part
its
application
programs,
to
Bostwick
participate
signed
a
in
the
supplier
As alleged in the amended complaint, that agreement
a
certification
that
reads
in
relevant
part,
“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)” (doc. 34).
As Bostwick Lab notes, the Sixth Circuit has
not decided whether an alleged violation of this certification
can serve as the basis for an FCA claim, and the Court need not
make that determination as a matter of law in order to reach its
decision.
to
This certification, while a part of the application
participate
in
the
federal
healthcare
programs,
speaks
directly and expressly to payment of claims and reinforces the
materiality of compliance with the AKS and the Stark Laws to the
government’s willingness to pay suppliers.
With its signature,
Bostwick certified to the government that the claims it would
27
submit would comport with, inter alia, the AKS and the Stark
Laws.
In addition, as this Court has previously determined,
violations of the AKS and Stark Laws are material as a matter of
law.
U.S.
ex
rel.
Fry
v.
The
Health
Alliance
of
Greater
Cincinnati, 2008 WL 5282139, *33 (S.D. Ohio, Dec. 18, 2008).
It
is not a large leap at all to conclude that compliance with the
AKS
and
the
influence
the
Stark
Laws
federal
would
have
government’s
a
natural
decision
to
tendency
pay
a
to
claim.
See, e.g., United States ex rel. A+ Homecare, Inc. v. Medshares
Mgmt. Group, Inc., 400 F.3d 428, 445 (6th Cir. 2005).
differently,
inducement
had
the
programs
government
alleged
in
known
the
about
amended
the
Stated
referral-
complaint,
the
government may very well have rejected payment of claims tainted
by those programs.
See, e.g., Ab-Tech Construction, Inc. v.
United States, 31 Fed. Cl. 429, 434 (1994)(where the government
pays
money
that
it
would
not
have
paid
had
it
known
of
a
violation of a law or regulation, the claim submitted for that
payment contains an implied certification of compliance with the
law or regulation and is fraudulent).
As in Fry, this case does
not present a question of “compliance with regulations setting
out conditions for participation in the Medicare program, but
involve[s] certification of compliance with the Anti-Kickback
28
Statute,
a
condition
of
government
payment.”
Fry,
2008
WL
5282139 at *12.
Relator
has
sufficiently
alleged
that
Bostwick
violated the AKS and the Stark Laws, and compliance with those
statutes is a condition of payment from the government, placing
Relator’s complaint within the ambit of the FCA.
b.
Remuneration
As the parties note, in order to state a claim based
on an Anti-Kickback Statute violation, Relator must allege facts
that
support
willfully
an
(ii)
inference
solicited
that
or
Bostwick
received,
or
(i)knowingly
offered
or
and
paid
remuneration (iii) in return for, or to induce, referral or
program-related business. See 42 U.S.C. § 1320a-7b.
Under the
Stark Laws, Relator must allege facts that support an inference
that a physician had a “compensation arrangement” with Bostwick,
where
the
physician
received
remuneration from Bostwick.
either
direct
or
indirect
See 42 U.S.C. § 1395nn(a)(2); 42
U.S.C. § 1395nn(h)(1)(A); 42 CFR § 411.354(c).
“Remuneration”
for these purposes is broadly defined as “anything of value.”
See, e.g., Fry, 2008 WL 5282139.
At base, then, the question
before the Court is whether Relator sufficiently alleged facts
from which the Court could plausibly infer that Bostwick offered
or
provided
something
of
value
29
to
physician
practices
in
exchange for referrals back from those practices.
Specifically,
physicians
the
Relator
opportunity
alleges
to
bill
that
for
He did.
Bostwick
the
offered
professional
component of tests that the physicians did not perform in order
to induce the physicians to refer testing to Bostwick (doc. 34).
For example, Relator alleges that Bostwick offered to provide
professional
interpretation,
with
a
complete
analysis
and
a
draft report with the physician practice’s logo and a place for
the physician signature.
This would enable the physician to
have
professional
component
of
the
test
having
actually
conduct
any
the
without
results
the
of
the
physician
to
professional analysis or incur any of the costs associated with
performing the professional component of the test.
To drive
this inducement home, Bostwick assured physicians that “[t]here
is no need to purchase a microscope, or anything else for that
matter” (Id.).
Such an arrangement, where Bostwick incurs all
costs associated with the tests but where the physician practice
gets to reap the payment from the federal healthcare program,
is, to this Court, clearly an arrangement whereby something of
value
was
given
in
order
to
induce
referrals,
exactly
scenarios contemplated by the AKS and the Stark Laws.
the
Simply
put, not having to do the work of the professional component of
the
test
and
not
having
to
30
set
up
and
maintain
the
infrastructure in order to do the test and, instead, merely
reviewing work that is already complete and signing one’s name
is certainly something of value.
it
is
merely
conclusion
a
with
“legitimate
which,
at
Bostwick Lab’s contention that
business
this
practice”
stage
in
the
is
a
legal
proceedings
at
least, this Court disagrees.
Similarly,
the
Court
finds
that
Relator’s
amended
complaint satisfies the 12(b)(6) standard with respect to (i)
the
allegations
offering
that
physicians
Bostwick
the
induced
opportunity
physician
to
bill
referrals
the
by
technical
components of certain tests at a marked-up price; and (ii) the
allegations that Bostwick offered discounts on private insurance
business
in
business.
exchange
for
referrals
of
federal
healthcare
The amended complaint contains allegations that, in
exchange for referrals to its lab, Bostwick offered physician
practices the opportunity to bill federal healthcare programs
for the technical components of, e.g., FISH tests, for which
Bostwick would charge the practices at a discounted rate.
the
amended
discounted
patients
in
insurance.
complaint
rates
on
exchange
further
services
for
alleges
that
provided
to
referrals
of
And
Bostwick
offered
privately
insured
patients
with
federal
These allegations suffice to state a claim and thus
allow the amended complaint to survive the motion to dismiss.
31
The
respect
to
Court
notes
Relator’s
that
Bostwick
allegations
Lab’s
regarding
discount programs gave the Court pause.
arguments
the
with
markup
and
However, many of the
cases to which Bostwick Lab cites for support were decided at
the
summary
judgment
on
a
stage.
full
It
record,
may
no
well
be
liability
that,
after
this
point
discovery
and
on
obtains.
But the only question before the Court right now is
whether Relator’s amended complaint adequately states a claim,
and it does.
C. Plaintiff’s
Complaint
Standards of Rule 9(b)
“[T]he
purpose
Meets
the
Heightened
undergirding
the
Pleading
particularity
requirement of Rule 9(b) is to provide a defendant fair notice
of
the
substance
of
a
plaintiff's
claim
in
defendant may prepare a responsive pleading.”
order
that
the
Michaels Building
Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988).
Relator must have alleged in his amended complaint the time,
place
and
content
of
the
misrepresentation;
the
fraudulent
scheme; Bostwick’s fraudulent intent; and the resultant injury.
See U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 518
(6th Cir. 2009).
Relator’s amended complaint adequately puts Bostwick
on
notices
of
the
substance
of
32
his
claim
and
sets
forth
allegations
fraudulent
contends
because
supporting
intent,
that
the
Relator
and
the
the
amended
has
not
submitted for payment.
fraudulent
resultant
complaint
provided
scheme,
injury.
is
Bostwick’s
Bostwick
nonetheless
fraudulent
Lab
deficient
claims
actually
Given Relator’s outsider status, the
full panoply of claims submitted to the government by Bostwick
for payment is only available through discovery.
However, he
did allege a representative example of what he claims is the
impermissible
reflex
FISH
testing:
he
identified
a
Florida
urology practice that had not ordered or consented to a FISH
test but for whom it was nonetheless done for a specific patient
on
a
specific
date.
He
further
alleged
that
a
Bostwick
representative admitted that it was company policy to conduct
reflex FISH testing without a physician’s order.
In addition,
Relator
practices
points
Georgia.
to
instances
involving
physician
in
As to the allegations of kickbacks, Relator not only
relies on Bostwick’s own marketing materials but also provides
specific examples of the inducements made to practices, which
are identified in the complaint by date and location.
The failure to attach actual fraudulent claims to the
complaint is not fatal to Relator’s case.
9(b)
are
forth.
amply
satisfied
with
the
The purposes of Rule
allegations
Relator
sets
Taking the allegations as a whole and accepting them as
33
true, the Court draws a strong inference that false claims were
submitted to the government as a result of the schemes described
in the complaint.
And having provided the requisite who, what,
where, when, and how, Relator has complied with the dictates of
Rule 9(b).
Guthrie
Accord Fry, 2008 WL 5282139; U.S. ex rel. Repko v.
Clinic,
557
F.
Supp.2d
522,
527
(M.D.
Pa.
2008)
(“attachment of some or all of the allegedly fraudulent claims
would serve no further purpose consistent with Rule 9(b) because
defendants are on notice that the basis of the alleged fraud in
each
claim
is
the
relationship
between
the
defendants,
not
anything unique to a particular claim, that has caused these
claims to be allegedly fraudulent”); U.S. ex rel. McDonough v.
Symphony Diagnostic Services, Inc., 2012 WL 628515 (S.D. Ohio,
Feb. 27, 2012).
D. Conclusion
For the foregoing reasons, the Court DENIES Bostwick
Lab’s motion to dismiss (doc. 39).
IV.
Mr. Bostwick’s Motion to Dismiss
As
incorporates
an
initial
Bostwick
matter,
Lab’s
Mr.
motion
to
Bostwick
dismiss
adopts
and
(doc.
56).
Consequently, the Court’s holdings with respect to that motion
apply with equal force to Mr. Bostwick’s motion.
Thus, the
Court will only address here those issues that are specific to
34
Mr. Bostwick as an individual defendant.
In essence, Mr. Bostwick argues that the Court should
dismiss the complaint as against him because he is shielded by
the corporate veil, and Relator has failed to show that the veil
should
be
pierced
(doc.
56).
Relator
contends
that
his
complaint alleges that Mr. Bostwick, as an individual, committed
fraud
on
liability
the
government,
should
attach
and
he
to
Mr.
argues
that,
Bostwick
in
addition,
because
of
his
“inseparable identity” from Bostwick Lab in the commission (doc.
59).
Relator has the better end of this argument.
He has
adequately pled facts from which the Court can reasonably draw a
plausible
inference
that
Mr.
Bostwick
both
personally
participated in the fraud alleged in the amended complaint and
that the fraudulent actions of Bostwick Lab can be imputed to
him
by
virtue
of
the
control
he
exerted
over
the
company.
Specifically, Relator has alleged that Mr. Bostwick controls the
actions of the corporation to such a degree that the company has
no separate mind from him and that Mr. Bostwick controlled and
directed the allegedly fraudulent schemes carried out by the
company (doc. 34).
In addition to the well-pled allegations
regarding the specifics schemes at issue here, these allegations
are enough to withstand a motion to dismiss and to, at this
35
stage
in
the
proceedings
for
the
disregard the corporate form.
Inc.,
121
Ohio
2009)(corporate
individual
and
St.3d
form
the
may
464,
purposes
of
this
See, e.g., Minno v. Pro-Fab,
905
N.E.
2d
disregarded
be
motion,
467,
when
the
corporation
have
no
613
(Ohio
controlling
separate
identity,
control over the corporation was exercised to commit fraud or
similarly unlawful act, and unjust loss resulted).
Accepted as
true, the allegations in the amended complaint create a scenario
whereby Mr. Bostwick personally directed and benefitted from the
alleged fraud, and he should not be permitted to hide behind a
corporate
form
in
order
to
perpetrate
fraud.
See,
e.g.,
Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506, 510, 895
N.E.2d 538 (Ohio 2008); Flynn v. Greg Anthony Construction Co.,
Inc., 95 Fed.Appx. 726, 733-4 (6th Cir. 2003)(noting that when
the corporation is merely an alter ego of its owners and has no
separate
identity,
courts
deal
with
the
substance
of
the
transaction as if the corporation did not exist, as justice may
require).
As noted repeatedly, this is before the Court on a
motion to dismiss.
However, the extent to which an owner or
director exercised control over a company is a fact question and
thus not well-suited to answering definitively at this stage.
It
may
be
that
through
discovery
36
it
becomes
clear
that
Mr.
Bostwick and Bostwick Lab did not have quite the merged identity
that Relator alleges, but that is a question for another day and
another motion.
Based on the record before the Court, the Court finds
that Relator has sufficiently met his pleading burden as against
Mr. Bostwick and thus DENIES the instant motion (doc. 56).
SO ORDERED.
Dated: December 14, 2012
s/S. Arthur Spiegel________________
S. Arthur Spiegel
United States Senior District Judge
37
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