United States of America et al v. Bluewave Healthcare Consultants Inc et al
ORDER AND OPINION granting in part and denying in part 293 BlueWave's Motion to Dismiss. The motion to dismiss is GRANTED with regard to (1) Riedel's claims in connection with the P&H fees and Unnecessary Tests an d (2) claims under 31 U.S.C. § 3729(a)(l)(G) (retention of proceeds to which not entitled, or reverse false claims). The motion to dismiss is DENIED with regard to (1) the Speakers Bureau kickback scheme; (2) the waiver of co-payments/deductible s kickback scheme; (3) claims under 31 U.S.C. § 3729(a)(1)(B) (making or using false records or statements material to payment or approval of false claims); and (4) claims under 31 U.S.C. § 3729(a)(1)(C) (conspiracy to commit FCA violations). AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 3/23/2017.(sshe, )
USOC CLERK. CHARLESTON,SC
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLn-UJ1HAR 23 PH I: 57
United States of America, et al.,
ex rei. Scarlett Lutz, et aI.,
Berkeley Heartlab, Inc., et at.,
Civil Action No. 9: 14-cv-00230-RMG
(Consolidated with 9:11-cv-1593-RMG and
ORDER and OPINION
This matter is before the Court on Defendant BlueWave Healthcare Consultants, Inc.'s
("Blue Wave") motion to dismiss l RelatorlPlaintiff Chris Riedel's first amended complaint
(HFAC") under Federal Rules of Civil Procedure 8, 9(b), 12(b)(1), and 12(b)(6). (Dkt. No. 293.)
For the reasons below, BlueWave's motion to dismiss is granted in part and denied in part.
Background and Procedural Posture
BlueWave marketed lab tests for two laboratory companies, Health Diagnostic Laboratory,
Inc. ("HDL") and Singulex, Inc. ("Singulex") from approximately 2010 through 2014. On
December 30, 2011, Riedel filed a qui tam complaint in the District of Columbia, alleging that
BlueWave, HDL, and Singulex violated the False Claims Act ("FCA") through several
fraudulent schemes (e.g., billing for medically unnecessary tests and paying kickbacks to
physicians facilitated by improper processing and handling fees, waivers of co-payments and
1 BlueWave has styled its motion as a motion to dismiss and/or to strike under Rule 12(f).
Defendant has not argued that any portions of Riedel's FAC should be struck because they are
"redundant, immaterial, impertinent, or scandalous." Fed. R. Civ. R. 12(f). Not finding any
grounds to strike, the Court has treated Defendant's motion as a motion to dismiss.
deductibles, and Speakers Bureau fees). (Dkt. No. 91-2.) On August 7, 2015, the Government
filed its Complaint In Intervention, alleging that BlueWave induced medically unnecessary
testing and paid, or caused the payment of, unlawful kickbacks in the form of processing and
handling fees to physicians. (Dkt. No. 75.) On December 21, 2015, BlueWave filed a motion to
dismiss Riedel's first complaint. (Dkt. No. 139.) On March 28,2016, this Court issued an Order
finding that Riedel's allegations against BlueWave related to processing and handling fee
kickbacks and medically unnecessary lab tests were barred by the first-to-file bar of the FCA.
(Dkt. No. 268.) The Court dismissed Riedel's Complaint without prejudice for failure to plead
fraud with particularity as required by Rule 9(b) of the Federal Rilles of Civil Procedure. Riedel
filed his FAC to cure those deficiencies. The FAC alleges that BlueWave violated various
provisions of the FCA, including
(1) Presenting false claims in violation of31 U.S.C. § 3729(a)(1)(A);
(2) Making or using false records or statements material to payment or approval of false
claims in violation of31 U.S.C. § 3729(a)(1)(B);
(3) Retention of proceeds to which not entitled in violation of 31 U.S.C. § 3729(a)(1)(G);
(4) Conspiracy to commit violations under 31 U.S.c. § 3729(a)(1)(C).
(Dkt. No. 286.) Riedel alleges that BlueWave committed these FCA violations through its
participation in five illegal schemes:
(1) Waiver of private insurance co-payments;
(2) Waiver of private insurance deductible payments;
(3) Payment of inflated packaging fees to physicians to induce referrals ("P&H fees");
(4) Payment of "Speaking Fees" to physicians who signed up to be in Defendants'
"Speakers Bureau"; and
(5) Systematic billing for medically unnecessary tests ("Unnecessary Tests").
BlueWave argues in its motion to dismiss that (1) Riedel's claims in connection with P&H
Fees and Unnecessary Tests are barred by 31 U.S.c. § 3730(b)(5) (the "first-to-file" bar) and the
law of the case; (2) Riedel does not have Article III standing to pursue any FCA claims against
BlueWave on which the Government has intervened; and (3) Riedel's FAC should be dismissed
for failure to meet the pleading requirements of Rules 8, 9(b), and l2(b)(6) of the Federal Rules
of Civil Procedure. (Dkt. No. 293.)
Motion to Dismiss for Failure to State a Claim - Rule 12(b)(6)
To survive a Rule l2(b)(6) motion to dismiss, "a complaint must contain sufficient factual
matter, accepted as true, to 'state a claim to relief that is plausible on its face. '" Ashcroft v. Iqbal,
556 U.S. 662, 678, (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 (2007)).
Complaints that merely offer "labels and conclusions" or "a formulaic recitation of the elements
of a cause of ac~ion" will not survive. Twombly, 550 U.S. at 555. A motion to dismiss under Rule
12(b)(6) "should not be granted unless it appears certain that the plaintiff can prove no set of
facts which would support its claim and would entitle it to relief." Mylan Labs., Inc. v. Matkari,
7 F.3d 1130, 1134 (4th Cir. 1993).
"Facts that are 'merely consistent with' liability do not establish a plausible claim to relief."
ex rei. Nathan v. Takeda Pharms. N Am., Inc., 707 F.3d 451,455 (4th Cir. 2013) (quoting
Iqbal, 556 U.S. at 678). "A claim has facial plausibility when the plaintiff plead~ factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged." Iqbal, 556 U.S. at 668. "In addition, although [the court] must view the
facts alleged in the light most favorable to the plaintiff, [the court] will not accept 'legal
conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or
arguments.'" Nathan, 707 F.3d at 455 (quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359,
365 (4th Cir. 2012)).
Pleading Fraud with Particularity - Rule 9(b)
A complaint alleging fraud "must state with particularity the circumstances constituting
fraud." Fed. R. Civ. P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a
person's mind may be alleged generally." Id. To meet this standard, the complaint must describe
"the time, place, and contents of the false representations, as well as the identity of the person
making the misrepresentation and what he obtained thereby."
ex reI. Wilson v. Kellogg
Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse
Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)). In other words, the complaint must
describe the "who, what, when, where, and how of the alleged fraud." Id. (quoting United States
ex reI. Willard v. Humana Health Plan o/Tex. Inc., 336 F.3d 375, 384 (5th Cir. 2003) (internal
quotation marks omitted)).
Finally, "[a] court should hesitate to dismiss a complaint under Rule 9(b) if the court is
satisfied (1) that the defendant has been made aware of the particular circumstances for which
she will have to prepare a defense at trial, and (2) that plaintiff has substantial pre-discovery
evidence of those facts." Harrison, 176 F.3d at 784. Rule 9(b) also requires a complaint to
include "some indicia of reliability" to "support the allegation that an actual false claim was
presented to the government." Nathan, 707 F.3d at 457 (internal citation omitted). A complaint
provides the requisite the indicia of reliability where "specific allegations of the defendant's
fraudulent conduct necessarily [lead] to the plausible inference that false claims were presented
to the government." Id.
First to File Bar
BlueWave argues in its motion to dismiss that Riedel's allegations related to P&H fees
and Unnecessary Tests are barred by 31 U.S.C. § 3730(b)(5) (the "first-to-file" bar) and the law
of the case. This Court's prior Order found that both schemes were barred by the first-to-file rule.
(Dkt. No. 268 at 35.) Riedel confirmed that he does not seek reconsideration ofthis Court's prior
Order and has only included these schemes in his FCA to preserve his rights on appeal. (Dkt. No.
312 at 6-7.) Riedel's claims in connection with the P&H fees and Unnecessary Tests are
Article III Standing for Government-Intervened Claims
The Government has intervened as to Riedel's claims related to P&H fees, Unnecessary
Tests, BlueWave's commission agreements with HDL and Singulex, and a conspiracy to violate
the FCA. BlueWave asserts that this Court has no jurisdiction over any of Riedel's claims on
which the Government has intervened because Riedel lacks Article III standing to pursue them.
(Dkt. No. 293 at 10.) When filed, the Government's Complaint In Intervention becomes the
operative complaint as to all intervened claims.
ex reI. Feldman v. City ofNew York, 808 F.
Supp. 2d 641, 648-49 (S.D.N.Y. 2011) ("by automatic operation of the statute, the
Government's complaint in intervention becomes the operative complaint as to all claims in
which the government has intervened"). If the Government intervenes, "it shall have the primary
responsibility for prosecuting the action, and shall not be bound by an act of the person bringing
the action," but the person bringing the action, in this case Riedel, "has the right to continue as a
party to the action,,2 31 U.S.c. 3730(c)(1); see United States v. Triple Canopy, Inc., 775 F.3d 628
(4th Cir. 2015),judgment vacated on other grounds sub nom. Triple Canopy, Inc. v. US. ex rei.
Badr, 136 S. Ct. 2504 (2016).
Pleading Fraud with Particularity - Rule 9(b) and Rule 12(b)(6)
This Court previously dismissed the non-intervened claims in Riedel's first complaint
because Riedel did not plead fraud with particularity as required under Rule 9(b). For example,
Riedel's first complaint did not specifY how Defendant BlueWave, as opposed to HDL or
Singulex, violated the FCA. Instead, Riedel's initial complaint often referred to the three
Defendants collectively. Because BlueWave is a marketing company, not a testing laboratory or
diagnostic company like HDL and Singulex, it was unclear which conduct Riedel's first
complaint attributed to BlueWave. This Court allowed Riedel to file a first amended complaint to
attempt to cure these deficiencies.
BlueWave has now moved to dismiss Riedel's FAC under Rules 8, 9(b), and 12(b)(6).
Specifically, BlueWave argues that Riedel's complaint fails to allege the following claims with
(1) The Speakers Bureau kickback scheme;
(2) The waiver of co-payments/deductibles kickback scheme;
(3) Making or using false records or statements material to payment or approval of false
claims under 31 U.S.c. § 3729(a)(I)(B);
2 This right is subject to some limitations, for example, "Upon a showing by the defendant that
unrestricted participation during the course of the litigation by the person initiating the action
would be for purposes of harassment or would cause the defendant undue burden or unnecessary
expense, the court may limit the participation by the person in the litigation." 31 U.S.C.
3730(c)(2)(D). BlueWave has not alleged and this Court does not find that any ofthe limitations
in 31 U.S.c. 3730(c)(2) apply.
(4) Retention of proceeds to which not entitled under 31 U.S.C. § 3729(a)(1)(G); and
(5) Conspiracy to commit violations under 31 U.S.C. § 3729(a)(l )(C).
(Dkt. No. 286.)
a. Violations of the Anti-Kickback Statute
Plaintiff has alleged that BlueWave violated the FCA through participation in two
kickback schemes that violated the Anti-Kickback Statute ("AKS"): the Speakers Bureau
kickback scheme and the waiver of co-payments/deductibles kickback scheme. This Court held
in its prior Order that a violation of the AKS constitutes a violation of the False Claims Act.
(Dkt. No. 268 at 8-10, n. 2-3.) Plaintiff must plead AKS violations with particularity under Rule
9(b). See United States ex rei. Nunnally v. West Calcasieu Cameron Hosp., 519 F. App'x 890,
894 (5th Cir. 20l3) ("elements of the AKS violation must also be pleaded with particularity
under Rule 9(b), because they are brought as a FCA claim") (citing United States ex reI. Bennett
v. Medtronic, 747 F. Supp. 2d 745, 760, 783-85 (S.D. Tex. 2013)).
This Court dismissed Riedel's initial complaint because it failed to plead fraud with
particularity as required by Rule 9(b) with regard to BlueWave's involvement in the two
kickback schemes - it did not describe the who, what, when, where, and how of the alleged fraud.
(Dkt. No. 268 at 21-23.) BlueWave argues now that although Riedel's FAC "identifies
physicians who purportedly received kickback payments from" both schemes, the FAC does not
list enough specific pieces of information about the schemes to satisfy Rule 9(b) (e.g., specific
false claims, specific patients, specific dates or amounts paid, the number and type of tests
ordered). BlueWave insists that although the FAC "contains details of how the scheme worked,
those details do not cohere into representative examples of fraud." (Dkt. No. 293 at 13-14);
United States ex rei. Kroening v. Forest Pharm., Inc., No. 12-366,2016 WL 75066, at *8 (E.D.
Wis. Jan. 6, 2016).
With regard to the co-payment and deductible waiver scheme, the FAC alleges that
BlueWave's agreements with HDL and Singulex required the laboratories to agree not to charge
patients for co-payments or deductibles. (Dkt. No. 286
19, 22, 23, 30, 31.) BlueWave then
leveraged the laboratories' no-balance billing practices to induce physician referrals by
highlighting the practice in written pamphlets it gave to physicians. (Dkt. No. 286 at 32.)
BlueWave quibbles that Riedel's FAC does not name specific claims and specific patient
referrals from physicians who received kickbacks. The FAC actually does more - it identifies
physicians and practices who were induced by BlueWave's promise of co-payment and
deductible waivers to refer all of their patients to BlueWave's laboratory clients. (Id.
The FAC indicates that BlueWave used co-payment and deductible waivers to induce physicians
to refer business in exchange for kickbacks, that HDL and Singulex billed Medicare for patients
so referred, and that HDL and Singulex paid BlueWave commissions in excess of $218 million
in connection with those referrals. The Riedel F AC has described the who, what, where, when,
and how of the fraudulent scheme in enough detail to give BlueWave adequate notice of
Plaintiffs allegations to prepare a defense at trial. There is no need for the Riedel FAC to
distinguish between legal and illegal referrals as he has alleged that all referrals from some
physicians and practices were tainted by the improper promise of co-payment and deductible
waivers. Determining whether some of the lab test referrals may have been legitimate is a task
Likewise, with regard to the Speakers Bureau kickback scheme, the F AC alleges that
BlueWave originated the idea for this scheme, that BlueWave sales representatives contacted
physicians to arrange their speaking engagements and payment, identifies the physicians
involved in the Speakers Bureau and the amounts they were paid, alleges that the payments were
made to induce additional referrals (and were not fair market value compensation for speaking),
and alleges that patients were actually referred to HDL and/or Singulex as a result. (Dkt. No. 286
20, 24, 42, 45, 46, 47.) These allegations are sufficient to survive a motion to dismiss under
Rule 9(b) and Rule 12(b)(6).
Finally, BlueWave argues that the Riedel FAC fails to allege the requisite scienter for the
AKSIFCA claims because it did not specifically allege "scienter of any BlueWave officer or
employee involved in the actual presentation of any false claim." (Dkt. No. 293 at 16.) The FAC
does allege that specific individuals at BlueWave, including Mr. Dent and Mr. Johnson (its
founders), understood that the conduct BlueWave was engaged in was illegaL (Dkt. No. 286
22, 23, 25, 72.) To prove a violation of the AKS at trial, Riedel will need to show that
Defendants acted with a purpose to commit a wrongful act, but it need only allege a purpose to
commit a wrongful act to survive a 12(b)(6) motion to dismiss. See, e.g., United States v.
McClatchey, 217 F.3d 823, 829 (10th Cir. 2000). Further, as this Court explained in its prior
Order (Dkt. No. 268 at 12), "[N]either the FCA nor Rule 9(b) require the identification of
individuals within a defendant corporation. The FCA imposes liability on "[a]ny person who"
commits certain violations, , and for the purposes of the FCA, person includes corporations. 31
U.S.C. § 3729; see Cook County, Ill. v. United States ex reI. Chandler, 538 U.S. 119, 125 (2003).
b. Making or using false records or statements material to payment or
approval of false claims under 31 U.S.C. § 3729(a)(I)(B)
To state a cause of action under 31 U.S.C. § 3729(a)(1)(B), Riedel must allege that
BlueWave "knowingly ma[de], use[d], or cause Ed] to be made or used, a false record or
statement material to a false or fraudulent claim." See Triple Canopy, 775 F.3d at 635 (citing
United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010)). Riedel's
FAC clearly alleges that BlueWave caused false records material to false claims to be made
andlor used. The creation of false records (e.g., false Medicare forms) is the necessary,
foreseeable, and obvious consequence of BlueWave's use of materials that highlighted the
laboratories' no-balance billing practices to induce referrals from physicians. See
DeCesare v. Americare In Home Nursing, 757 F. Supp. 2d 573, 589 (E.D. Va. 2010) (outlining
this traditional tort principle of proximate causation). Any record or statement that must be
submitted to Medicare for reimbursement is material because it has "a natural tendency to
influence, or be capable of influencing, the Government's decision to pay." See Triple Canopy,
775 F.3d at 634 (quoting 31 U.S.c. § 3729(b)(4)(internal quotation marks omitted)). The Riedel
FAC has therefore sufficiently alleged that BlueWave caused the creation of false records that
were material to false claims.
c. Retention of proceeds to which not entitled under 31 U.S.c. §
The retention of proceeds provision of the FCA (often referred to as the "reverse false
claims" provision) imposes liability on anyone who "knowingly makes, uses, or causes to be
made or used, a false record or statement material to an obligation to payor transmit money or
property to the Government, or knowingly conceals or knowingly and improperly avoids or
decreases an obligation to payor transmit money or property to the Government." 31 U.S.C. §
3729(a)(1)(G). In this context, an "obligation" is "an established duty, whether or not fixed,
arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship,
from a fee-based or similar relationship, from statute or regulation, or from the retention of any
overpayment." 31 U.S.C. § 3729(b)(3).
Riedel asserts that the following facts are sufficient to allege a violation of the reverse
false claims provision:
The Amended Complaint alleges BlueWave illegally obtained more than $218
million in payments from HDL and Singulex in exchange [for] arranging the
referral of business from physicians who received remuneration in the form of
copay and deductible waivers and speaker fees. ~~ 77, 79. BlueWave used false
statements and documents (see e.g. Exhibit I to Amended Complaint) to obtain
these referrals and these payments from HDL and Singulex. The original source
of those ill-gotten millions of dollars was largely the Medicare program.
BlueWave knew these arrangements were illegal, and therefore knew its conduct
had resulted in BlueWave obtaining money to which it was not entitled and which
it was obligated to return to the government. BlueWave failed to do so, despite
knowing of its obligation to do so.
(Dkt. No. 312 at 21.) Riedel has provided no legal support for the proposition that BlueWave
had an obligation under 31 U.S.C. § 3729(a)(l)(G) to return funds to the government simply
because it knew the funds were fraudulently obtained and that the government was the original
source of the funds. The type of obligation contemplated under 31 U.S.c. § 3729(a)(1)(G) is, for
example, the Medicaid program requirement that a provider return overpayments to the
government within 60 days of when the overpayment is identified. See 42 U.S.C. § l320a
7k(d)(2); United States v. Compassionate Home Care Servs., Inc., No.7: 14-CV-1l3-D, 2017
WL 1030706, at *2 (E.D.N.C. Mar. 15, 2017). Under Plaintiffs interpretation "just about any
traditional false statement or presentment action would give rise to a reverse false claim action;
after all, presumably any false statement actionable under sections 3729(a)(1)(A) or
3729(a)(l )(B) could theoretically trigger an obligation to repay the fraudulently obtained
money." Pencheng Sf v. Laogai Research Found, 71 F. Supp. 3d 73,97 (D.D.C. 2014); see also
United States ex rei. Taylor v. Gabelli, 345 F. Supp. 2d 3l3, 338 (S.D.N.Y. 2004) ("And of
course, if the conduct that gives rise to a traditional presentment or false statement action also
satisfies the demands of section 3729(a)(I)(G), then there would be nothing "reverse" about an
action brought under that latter section of the FCA.")
d. Conspiracy to commit an FCA violation under 31 U.S.c. §
To state a claim for conspiracy under 31 U.S.C. § 3729(a)(1 )(C), the Riedel FAC must
allege formation of an unlawful agreement between conspirators to get the Government to
reimburse a false or fraudulent claim; (2) specific intent to defraud the Government and use the
false record to achieve the conspiracy; and (3) at least one overt act in furtherance of the
conspiracy. DeCesare, 757 F. Supp. 2d at 582.
Riedel's FAC alleges that (1) BlueWave entered into agreements with both HDL and
Singulex to violate the FCA by paying kickbacks to physicians to induce referrals for
government-paid business (via co-payment and deductible waivers and speaker fees), and (2)
BlueWave used this agreed-upon kickback scheme to market HDL and Singulex tests to
physicians. (Dkt. No. 286 ~~ 42,43, 73-79, 98, 99.) Riedel has adequately alleged that BlueWave
entered an agreement with specific intent to defraud the government and completed an act
(specifically, marketing to physicians) in furtherance ofthat conspiracy.3
BlueWave argues that any "purported conspiracy between BlueWave and HDL or
between Singulex and BlueWave ... fails due to the intracorporate immunity doctrine." (Dkt.
No. 293 at 198.) A conspiracy requires an agreement two or more persons, so the intracorporate
conspiracy doctrine stands for the proposition that a corporation cannot conspire with its agents.
Buschi v. Kirven, 775 F.2d 1240, 1251 (4th Cir. 1985). This court has already found that HDL
Plaintiff's allegations are also sufficient to plead conspiracy as to conduct prior to May 20,
2009. For claims before May 20, 2009, Riedel must allege that BlueWave (1) "conspire[d] to
defraud the Government by getting a false or fraudulent claim paid," 31 U.S.C. § 3729(a)(3)
(2000), and (2) "agreed to make use ofthe false record or statement to achieve this end." Allison
Engine Co. v. United States ex reI. Sanders, 553 U.S. 662,665 (2008).
and BlueWave are separate entities. (Dkt. No. 268 at 15.) BlueWave has provided no support for
its assertion that the intracorporate immunity doctrine applies or that Blue Wave is part of the
same corporation as either HDL or Singulex. Provided with no evidence to the contrary, this
Court finds that the doctrine does not apply here.
For the foregoing reasons, BlueWave's motion to dismiss (Dkt. No. 293) is GRANTED
IN PART and DENIED IN PART.
The motion to dismiss is GRANTED with regard to (1) Riedel's claims in connection
with the P&H fees and Unnecessary Tests and (2) claims under 31 U.S.C. § 3729(a)(l)(G)
(retention of proceeds to which not entitled, or reverse false claims).
The motion to dismiss is DENIED with regard to (1) the Speakers Bureau kickback
scheme; (2) the waiver of co-payments/deductibles kickback scheme; (3) claims under 31 U.S.C.
§ 3729(a)(1)(B) (making or using false records or statements material to payment or approval of
false claims); and (4) claims under 31 U.S.C. § 3729(a)(1)(C) (conspiracy to commit FCA
Charleston, South Carolina
Richard M. Gerg
United States Dist iet Judge
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