TULLIO EMANUELE v. MEDICOR ASSOCIATES, INC. et al

Filing 379

MEMORANDUM OPINION re 357 Motion for Reconsideration filed by defendants The Hamot Medical Center of the City of Erie and Medicor Associates, Inc. As set forth in the accompanying memorandum opinion, defendants' motion for reconsideration is denied. An appropriate order follows. Signed by Chief Judge Joy Flowers Conti on 8/25/17. (jdg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
U.S. ex rel. Tullio Emanuele,

v.

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)
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)
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Plaintiff/Relator,

Medicor Associates, et al,
Defendants.

C.A. No. 10-245 Erie

MEMORANDUM OPINION
Conti, Chief District Judge
I.

Introduction
Pending before the court is a motion for reconsideration filed by defendants The Hamot

Medical Center of the City of Erie (“Hamot”) and Medicor Associates, Inc. (“Medicor”, and
together with Hamot, “defendants”) (ECF No. 357). Defendants’ motion challenges rulings
made by this court in a memorandum opinion issued on March 15, 2017 (“Memorandum
Opinion”) (ECF No. 345) in which the court denied defendants’ motions for summary judgment
(ECF Nos. 280, 286).
The underlying action seeks damages pursuant to the False Claims Act, 31 U.S.C. §
3729(a)(1)(A)-(C) (the “FCA”), based upon the allegations by U.S. ex rel. Tullio Emanuele
(“plaintiff”) that defendants submitted false claims for payment to the United States. The alleged
false claims were for referrals that violated the Stark Act, 42 U.S.C. § 1395nn, and the AntiKickback Act, 42 U.S.C. § 1320a-7b. To prevail on his FCA claim, plaintiff must ultimately

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demonstrate that the alleged misrepresentations to the government were “material to the
Government’s payment decision.” Universal Health Servs. v. United States ex rel. Escobar, 136
S.Ct. 1989, 2002 (2016). In their summary judgment motions, defendants argued, inter alia, that
plaintiff had failed to adduce sufficient proof of materiality. The court disagreed.
(Memorandum Opinion (ECF No. 345) at 32-35.) Defendants seek reconsideration of this
determination in light of the Third Circuit Court of Appeals’ recent decision in United States ex
rel. Petratos v. Genentech, Inc., 855 F.3d 481 (3d Cir. 2017).
Because defendants did not adduce a proper ground for reconsideration, defendants’
motion will be denied.
II.

Standard of Review
The purpose of a motion for reconsideration is “to correct manifest errors of law or fact

or to present newly discovered evidence.” Max’s Seafood Café v. Quinteros, 176 F.3d 669, 677
(3d Cir.1999). A motion for reconsideration under Federal Rule of Civil Procedure 59(e) must
therefore rely on one of three grounds: (1) an intervening change in the law; (2) the availability
of new evidence; or (3) the need to correct clear error of law or prevent manifest injustice. N.
River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995). A motion for
reconsideration is not properly grounded in a request for a district court to rethink a decision it
has already rightly or wrongly made. Williams v. Pittsburgh, 32 F.Supp.2d 236, 238 (W.D.Pa.
1998). Litigants are cautioned to “ʻevaluate whether what may seem to be a clear error of law is
in fact simply a point of disagreement between the Court and the litigant.’” Waye v. First
Citizen’s Nat’l Bank, 846 F.Supp. 310, 314 n.3 (M.D.Pa. 1994) (quoting Atkins v. Marathon
LeTourneau Co., 130 F.R.D. 625, 626 (S.D. Miss. 1990). Motions for reconsideration should not
relitigate issues already resolved by the court and should not be used to advance additional

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arguments which could have been made by the movant before judgment. Reich v. Compton, 834
F.Supp. 753, 755 (E.D.Pa. 1993), aff’d in part, rev’d in part, 57 F.3d 270 (3d Cir. 1995).
III.

Discussion
Defendants seek reconsideration of this court’s summary judgment decision with respect

to the FCA’s requirement that a misrepresentation must be “material to the Government’s
payment decision” in order to be actionable. Escobar, 136 S.Ct. at 2002. As more fully
discussed in the Memorandum Opinion, the statutes giving rise to the FCA claims in this case,
the Stark Act and the Anti-Kickback Statute, each generally prohibit a health care entity from
submitting payments to Medicare based upon referrals from physicians who have a “financial
relationship” with the health care entity. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b). Each statute
also contains a number of statutory exceptions (or safe harbors) that permit those referrals if
certain statutory requirements are satisfied. 42 U.S.C. § 1395nn(b)-(e); 42 C.F.R. § 1001.952(d).
Several of the statutory exceptions invoked in the instant case require that the pertinent financial
arrangements be “in writing” and “signed by the parties.” 42 C.F.R. §§ 411.357(l)(1); 42 C.F.R.
§ 411.357(d)(1); 42 C.F.R. § 1001.952(d)(1).
Plaintiff’s claims in this action focus, in part, on the written documents governing the
financial arrangement between Hamot and Medicor physicians, which were occasionally allowed
to lapse or terminate before being renewed. (Memorandum Opinion (ECF No. 345) at 13.)
Plaintiff contends that any submissions to Medicare for payments based on referrals that
occurred while those contracts had lapsed do not satisfy the writing requirements of the pertinent
statutory exceptions and safe harbors. (Id.) Defendants counter that these “technical” violations
of the statutory writing requirement are not “material” within the meaning of the FCA. (Id. at
32.)

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At summary judgment, the parties (and the court) agreed that the United States Supreme
Court’s decision in Escobar supplied the standard for evaluating the materiality requirement in
an FCA case. Escobar, 136 S.Ct. at 2002. The Supreme Court described the materiality standard
as follows:
The materiality standard is demanding. The False Claims Act is not “an
all-purpose antifraud statute,” Allison Engine, 553 U.S., at 672, 128
S.Ct. 2123 or a vehicle for punishing garden-variety breaches of contract
or regulatory violations. 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 if it knew of the
defendant’s noncompliance. Materiality, in addition, cannot be found
where noncompliance is minor or insubstantial. See United States ex rel.
Marcus v. Hess, 317 U.S. 537, 543, 63 S.Ct. 379, 87 L.Ed. 443 (1943)
(contractors’ misrepresentation that they satisfied a non-collusive
bidding requirement for federal program contracts violated the False
Claims Act because “[t]he government’s money would never have been
placed in the joint fund for payment to respondents had its agents known
the bids were collusive”); see also Junius Constr., 257 N.Y., at 400, 178
N.E., at 674 (an undisclosed fact was material because “[n]o one can say
with reason that the plaintiff would have signed this contract if informed
of the likelihood” of the undisclosed fact).
In sum, when evaluating materiality under the False Claims Act, 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 full 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.
Escobar, 136 S.Ct. at 2003-04. Based upon a careful reading of Escobar, this court deduced that
the following factors warranted consideration in evaluating materiality: whether compliance with

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a statute is a condition of payment; whether the violation goes to “the essence of the bargain” or
is “minor or insubstantial”; and whether the government consistently pays or refuses to pay
claims when it has knowledge of similar violations. (Memorandum Opinion (ECF No. 345) at
33 (citing Escobar, 136 S.Ct. at 2003-04.) The court concluded that each of these factors favored
a finding of materiality:
As an initial matter, the Stark Act expressly prohibits Medicare from
paying claims that do not satisfy each of its requirements, including
every element of any applicable exception. 42 U.S.C. §§1395nn(a)(1),
(g)(1). The relevant exceptions expressly require that any financial
arrangements that would otherwise violate the Stark Act must be set
forth in writing. 42 C.F.R. § 411.357(d), (l). Although “statutory,
regulatory, and contractual requirements are not automatically material,
even if they are labeled conditions of payment,” they nevertheless
represent “relevant” evidence in favor of materiality. Id. at 2002-03.
The writing requirement is not “minor or insubstantial.” Id. at 2003.
The Stark Act “insist[s] on the transparency and verifiability that comes
from an express agreement reduced to writing and signed by the parties
which specifies all of the services to be provided by the physician and all
of the remuneration to be received for those services.” Kosenske, 554
F.3d at 96. Compliance with the writing requirement permits a reviewer
to analyze the timeframe, rate of compensation, and the identifiable
services contemplated in the arrangement to determine whether any
portion is based on the volume or value of physician referrals. See 42
C.F.R. § 411.357(l). CMS guidance also requires a signature as a
manifestation of the parties’ assent to the arrangement, a requirement
that “plays a role in preventing fraud and abuse.” 80 Fed. Reg. 70886,
71333-71334. These requirements go to the very “essence of the
bargain” between the government and health care providers with respect
to Stark Act compliance. Escobar, 136 S.Ct. at 2003 n. 5 (quoting Junius
Contr. Co. v. Cohen, 178 N.E. 672, 674 (N.Y. 1931)).
There is no evidence in the record to suggest that “the Government
consistently refuses to pay claims” based on Stark Act non-compliance
(or, conversely, that “the Government pays [those claims] in full despite
its actual knowledge that certain requirements were violated”). Id. at
2003-04. Plaintiff, however, has pointed to public records suggesting
that health care providers have paid penalties after self-reporting similar
violations on at least nine occasions since 2009. (ECF No. 310-12.) In
the absence of any evidence to the contrary, this factor weighs slightly in
favor of materiality.
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(Memorandum Opinion (ECF No. 345) at 33-34.)
Defendants seek reconsideration of this conclusion in light of the Third Circuit Court of
Appeal’s recent decision in Petratos. In Petratos, the relator alleged that the defendant, a drug
manufacturer, had concealed data showing that the side effects of a cancer drug were more
severe than reported. Petratos, 855 F.3d at 485. The relator alleged that physicians would not
have prescribed the drug had they known about the concealed data. Id. According to the relator,
the concealment of that data caused those physicians to submit claims to Medicare for the drug
that were not reasonable and necessary. Id. at 485-86. Critically, the relator conceded that
“CMS would consistently reimburse these claims with full knowledge of the purported
noncompliance.” Id. at 490 (emphasis in original).
The Third Circuit Court of Appeals began its analysis by reviewing the guidance
provided by the United States Supreme Court’s decision in Escobar:
Just last year in Universal Health Services v. United States ex rel.
Escobar, the Supreme Court confirmed that “[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 under the False Claims Act.” ––– U.S. ––––, 136 S.Ct. 1989,
1996, 195 L.Ed.2d 348 (2016). The Court described this standard as
“demanding” and “rigorous,” id. at 2002–03, and explained that a
material misrepresentation is one that goes “to the very essence of the
bargain,” id at 2003 n.5 (citations omitted). This requirement helps
ensure that the False Claims Act does not become “an all-purpose
antifraud statute or a vehicle for punishing garden-variety breaches of
contract.” Id. at 2003 (citation and internal quotation marks omitted).
The Supreme Court also provided guidance as to how the materiality
requirement should be enforced. It explained that a misrepresentation is
not material “merely because the Government designates compliance
with a particular statutory, regulatory, or contractual requirement as a
condition of payment ... [or because] the Government would have the
option to decline to pay if it knew of the defendant’s noncompliance.” Id.
Materiality may be found where “the Government consistently refuses to
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pay claims in the mine run of cases based on noncompliance with the
particular statutory, regulatory, or contractual requirement.” Id. On the
other hand, it is “very strong evidence” that a requirement is not material
“if the Government pays a particular claim in full despite its actual
knowledge that certain requirements were violated.” Id. Finally,
materiality “cannot be found where noncompliance is minor or
insubstantial.” Id.
Id. at 489.
Appling these principles, and relying heavily on the relator’s concession that
the government routinely paid the claims at issue despite full knowledge of the
defendant’s misrepresentations, the Third Circuit Court of Appeals held that the
relator’s allegations did not meet the “high standard” of materiality outlined by the
Supreme Court:
Petratos’s allegations do not meet this high standard. As the District
Court noted: “there are no factual allegations showing that CMS would
not have reimbursed these claims had these [alleged reporting]
deficiencies been cured.” App. 18. Petratos does not dispute this finding,
which dooms his case. Simply put, a misrepresentation is not “material
to the Government’s payment decision,” when the relator concedes that
the Government would have paid the claims with full knowledge of the
alleged noncompliance. See Universal Health Servs., 136 S.Ct. at 1996
(emphasis added). Similarly, we think that where a relator does not plead
that knowledge of the violation could influence the Government's
decision to pay, the misrepresentation likely does not “have[ ] a natural
tendency to influence ... payment,” as required by the statute. See 31
U.S.C. § 3729(b)(4). At a minimum, this would be “very strong
evidence” that the misrepresentation was not material. Universal Health
Servs., 136 S.Ct. at 2003.
The Supreme Court's guidance in Universal Health Services also
militates against a finding of materiality. The mere fact that § 1395y is a
condition of payment, without more, does not establish materiality. See
id. In addition, Petratos not only fails to plead that CMS “consistently
refuses to pay” claims like those alleged, see id., but essentially concedes
that CMS would consistently reimburse these claims with full knowledge
of the purported noncompliance. Nor has he cited to a single successful
claim under § 1395y involving drugs prescribed for their on-label uses or
a court decision upholding such a theory.

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Petratos’s allegations are much like the sort of “minor or insubstantial”
noncompliance that the Supreme Court explained should not be litigated
under the False Claims Act. See id. Petratos does not claim that
Genentech’s safety-related reporting violated any statute or regulation.
He acknowledges that the FDA would not “have acted differently had
Genentech told the truth.” App. 64. And as we have explained, he does
not dispute that CMS would reimburse these claims even with full
knowledge of the alleged reporting deficiencies.
Id. at 490.
Defendants assert that Petratos warrants reconsideration for two reasons. First, they
contend that Petratos represents “an intervening change in the law.” See CIGNA Reinsurance
Co., 52 F.3d at 1218. This argument, however, is contradicted by defendants’ own repeated
characterization of Petratos as a “reinforcement” or “clarification” of the standards derived from
Escobar, rather than an alteration to the state of the law that existed at the time that this court
issued the Memorandum Opinion. (Brief in Support of Motion for Reconsideration (“Brief in
Support”) (ECF No. 358) at 10-11.) A review of the Court of Appeals for the Third Circuit’s
decision confirms that Petratos utilized the same “demanding” and “rigorous” standard for
materiality that this court emphasized in the Memorandum Opinion. Petratos, 855 F.3d at 489.
For example, the court of appeals noted that Escobar contemplates a “‘demanding’ and
‘rigorous’ standard for materiality”; a material misrepresentation is one that goes “to the very
essence of the bargain”; a misrepresentation is not material “merely because the Government
designates compliance with a particular statutory, regulatory, or contractual requirement as a
condition of payment”; and materiality may be found where “the Government consistently
refuses to pay claims in the mine run of cases based on noncompliance with the particular
statutory, regulatory, or contractual requirement.” Id. (quoting Escobar, 136 S.Ct. at 2002-03).
These are the precise same factors that this court analyzed in reaching its summary judgment

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decision. See Memorandum Opinion (ECF No. 345) at 33 (describing the relevant Escobar
factors as whether compliance with a statute is a condition of payment; whether the violation
goes to “the essence of the bargain” or is “minor or insubstantial”; and whether the government
consistently pays or refuses to pay claims when it has knowledge of similar violations). As such,
defendants’ attempt to characterize Petratos as an intervening change of existing law misses the
mark.
Defendants next argue that, even if Petratos does not represent a change in the law, it
clarifies existing law in a manner which renders the court’s Memorandum Opinion clearly
erroneous. Aside from the Court of Appeals for the Third Circuit’s affirmation of the materiality
standard set forth in Escobar, the decision in Petratos is largely inapposite. In Petratos, the court
of appeals repeatedly emphasized the relator’s concession that “the Government would have paid
the claims with full knowledge of the alleged noncompliance” and did, in fact, “consistently
reimburse those claims” despite that knowledge. Petratos, 855 F.3d at 490. In Petratos, the
plaintiff also failed to allege that the defendants’ misrepresentations “violated any statute or
regulation.” Id. Plaintiff did not make any such concessions in the instant case; to the contrary,
he explicitly maintains that defendants’ conduct violated the Stark Act and the Anti-Kickback
Statute and the government routinely refuses to pay claims that fail to meet the statutory
standards of those statutes. (Memorandum Opinion (ECF No. 345) at 33-35.) Each of the
decisions cited by defendants in their motion is distinguishable on this basis. See, e.g, United
States ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017) (holding that there was no
evidence to support materiality because the government was fully aware of the allegedly
violative conduct); Abbott v. BP Exploration & Prod., 851 F.3d 384, 387-88 (5th Cir. 2017)
(affirming grant of summary judgment for lack of materiality where the government permitted

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the defendant to continue with drilling activities despite knowledge of alleged regulatory
violations); United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1033-34 (D.C. Cir.
2017) (government did not disallow costs despite learning of and investigating alleged
violations).
Defendants’ remaining arguments represent a clear attempt to invite the court to “rethink
a decision it has already rightly or wrongly made.” Ins. Co. of Greater N.Y. v. Fire Fighter Sales
& Service Co., No. 11-1078, 2015 WL 4531220, at * 1 (W.D. Pa. July 27, 2015) (citing
Williams v. Pittsburgh, 32 F.Supp.2d 236, 238 (W.D. Pa. 1998)). For example, at summary
judgment, defendants vigorously argued that the demanding standard for materiality could not be
met in this case because “hyper-technical or minor non-compliance with a regulatory
requirement (as the Relator has recently contended in this case) is not sufficient to establish the
element of materiality.” (Hamot Brief in Support of Motion for Summary Judgment (ECF No.
287) at 8.) The court rejected this position, holding that the writing requirement contained in the
relevant statutory exceptions is not “minor or insubstantial” but goes to the “very ‘essence of the
bargain’ between the government and health care providers with respect to Stark Act
compliance.” (Memorandum Opinion (ECF No. 345) at 34) (quoting Escobar, 136 S.Ct. at 2003
n. 5). Defendants are not entitled to seek a “second bite of the apple” by way of a motion for
reconsideration. See, e.g., Boone v. Daughtery, No. 12-1333, 2013 WL 5836329, at *1 (W.D.
Pa. Oct. 30, 2013) (“Motions for reconsideration are not designed to provide litigants with a
second bite at the apple.”) (citing Bhatnagar v. Surrendra Overseas Ltd., 52 F.3d 1220, 1231 (3d
Cir. 1995)).
Defendants, again citing Petratos, argue that plaintiff did not adduce any evidence that
the government consistently refuses to pay claims in situations where the requirements of the

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Stark Act and Anti-Kickback statute exceptions are not met. As with defendants’ previous
assertion, the court addressed this precise issue in the course of reaching its summary judgment
decision:
There is no evidence in the record to suggest that “the Government
consistently refuses to pay claims” based on Stark Act non-compliance
(or, conversely, that “the Government pays [those claims] in full despite
its actual knowledge that certain requirements were violated”). Id. at
2003-04. Plaintiff, however, has pointed to public records suggesting
that health care providers have paid penalties after self-reporting similar
violations on at least nine occasions since 2009. (ECF No. 310-12.) In
the absence of any evidence to the contrary, this factor weighs slightly in
favor of materiality.
(Memorandum Opinion (ECF No. 345) at 35.)

Although defendants disagree with this

conclusion, a motion for reconsideration is not a vehicle for a party to reargue points of
disagreement with the court. Waye v. First Citizen’s Nat’l Bank, 846 F. Supp. 310, 314 n.3
(M.D.Pa. 1994); Ogden v. Keystone Residence, 226 F.Supp.2d 588, 606 (M.D. Pa. 2002)
(explaining that a motion for reconsideration may not be used to reargue issues already argued or
relitigate points of disagreement between the litigant and the court).
Finally, defendants attack the court’s reliance on the aforementioned public records to
refute the suggestion that the government pays claims even when it is aware of Stark Act noncompliance. Defendants contend that these records were not properly referenced in plaintiff’s
Concise Statement of Material Facts and that the court erred in the weight that it ascribed to this
evidence. The former contention is simply incorrect; plaintiff explicitly cited those records in his
counter-statement of material facts and attached them as an exhibit to his opposition to the
defendants’ summary judgment motion. (Response to Joint Concise Statement of Material Facts
(ECF No. 307) ¶ 39; Appendix to Concise Statement of Material Facts (ECF No. 310) Ex. 12.)
With respect to the latter contention, defendants’ objection to the court’s evaluation of the

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summary judgment record is precisely the type of “disagreement between the Court and the
litigant” that will not support a request for reconsideration. Waye, 846 F.Supp at 314 n. 3;
Williams, 32 F.Supp.2d at 238.

IV.

Conclusion
For all the foregoing reasons, defendants’ motion for reconsideration (ECF No. 357) will

be DENIED. An appropriate order will be entered.

By the court:
/s/ Joy Flowers Conti
Joy Flowers Conti
Chief United States District Judge
Dated: August 25, 2017

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