United States of America et al v. Bluewave Healthcare Consultants Inc et al
ORDER AND OPINION granting 441 the Government's Motion to Exclude the expert testimony of Jessica Schmor. AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 6/29/2017.(sshe, )
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
United States of America, et al.,
ex rel. Scarlett Lutz, et al.,
Berkeley Heartlab, Inc., et al.,
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 the United States' motion to exclude the opinions in
Sections II and VI of Jessica Schmor's expert report proffered by BlueWave Healthcare
Consultants, Inc., Floyd Calhoun Dent, III, and Robert Bradford Johnson (collectively, "the
BlueWave Defendants"). (Dkt. Nos. 441, 441-1.) For the reasons set forth below, the motion to
exclude is granted.
The Government has filed a complaint in intervention against the BlueWave Defendants
and Latonya Mallory alleging violations of the Anti-Kickback Statute ("AKS"), 42 U.S.C. §
1320a-7b(b), and the False Claims Act ("FCA"), 42 U.S.C. § 3729(a). (Dkt. No. 75.) The alleged
FCA violations arise from BlueWave's marketing of laboratory tests for two laboratory
companies, Health Diagnostic Laboratory, Inc. ("HDL") and Singulex, Inc. ("Singulex"),
between 2010 and 2014. The Government has alleged that Defendants violated the FCA when
they engaged in multiple kickback schemes to induce physicians to refer blood samples to HDL
and Singulex for large panels of blood tests, many of which were medically unnecessary. For
example, the Government alleges that Defendants offered and facilitated the payment of
processing and handling ("P&H") fees to physicians to induce referrals, in violation of the AKS
Legal Standard - Daubert
Under Rules 104(a) and 702, "the trial judge must ensure that any and all scientific
testimony or evidence admitted is not only relevant, but reliable." Daubert v. Merrell Dow
Pharm., Inc., 509 U.S. 579, 589 (1993). The trial court must ensure that (1) "the testimony is the
product of reliable principles and methods," (2) "the expert has reliably applied the principles
and methods to the facts of the case," and (3) the "testimony is based on sufficient facts or data."
Fed. R. Evid. 702(b), (c), (d). "This entails a preliminary assessment of whether the reasoning or
methodology underlying the testimony is scientifically valid," Daubert, 509 U.S . at 592-93, and
whether the expert has "faithfully appl[ied] the methodology to facts. " Roche v. Lincoln Prop.
Co., 175 F. App 'x 597, 602 (4th Cir. 2006). To make this determination, Courts consider several
factors, including "whether a theory or technique ... can be (and has been) tested," "whether the
theory or technique has been subjected to peer review and publication," the "known or potential
rate of error," the "existence and maintenance of standards controlling the technique' s
operation," and whether the theory or technique has garnered "general acceptance." Daubert,
509 U.S. at 593-94; accord United States v. Hassan , 742 F.3d 104, 130 (4th Cir. 2014).
However, these factors are neither definitive nor exhaustive, United States v. Fultz, 591 F. App' x
226, 227 (4th Cir. 2015), and "merely illustrate the types of factors that will bear on the
inquiry." Hassan, 742 F.3d at 130.
Courts have also considered whether the "expert developed his opinions expressly for the
purposes of testifying," Wehling v. Sandoz Pharms. Corp., 162 F.3d 1158 (4th Cir. 1998), or
through "research they have conducted independent of the litigation," Daubert v. Merrell Dow
Pharms., Inc., 43 F.3d 1311, 1317 (9th Cir. 1995) (on remand), and whether experts have "failed
to meaningfully account for ... literature at odds with their testimony." McEwen v. Bait. Wash.
Med. Ctr. Inc., 404 F. App'x 789, 791 (4th Cir. 2010).
Rule 702 also requires courts "to verify that expert testimony is ' based on sufficient facts
or data."' EEOC v. Freeman, 778 F.3d 463, 472 (4th Cir. 2015) (quoting Fed. R. Evid. 702(b)).
Thus, "trial judges may evaluate the data offered to support an expert's bottom-line opinions to
determine if that data provides adequate support to mark the expert's testimony as reliable." Id.
The court may exclude an opinion if "there is simply too great an analytical gap between the data
and the opinion offered." Id. (internal citations and quotations omitted). "The proponent of the
[expert] testimony must establish its admissibility by a preponderance of proof." Cooper v. Smith
& Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001).
The Court is mindful that the Daubert inquiry involves "two guiding, and sometimes
competing, principles." Westberry v. Gislaved Gummi AB, 178 F.3d 257, 261 (4th Cir. 1999).
"On the one hand, .. . Rule 702 was intended to liberalize the introduction of relevant expert
evidence," id., and "the trial court's role as a gatekeeper is not intended to serve as a replacement
for the adversary system." United States v. Stanley, 533 F. App'x 325, 327 (4th Cir. 2013) cert.
denied, 134 S. Ct. 1002 (2014). On the other hand, "[b]ecause expert witnesses have the potential
to be both powerful and quite misleading,' it is crucial that the district court conduct a careful
analysis into the reliability of the expert's proposed opinion." United States v. Fultz, 591 F.
App'x 226, 227 (4th Cir. 2015).
The United States has disclosed expert reports from Kathy McNamara, opining on the
commercial reasonableness of Defendants' offering P&H fees to physicians and the fair market
value of P&H fees, and Eric Hines, calculating the damages to the United States resulting from
the alleged false claims. The BlueWave Defendants have proffered Jessica Schmor, a nurse and
professional coder, to "examine [Hines's and McNamara's] implicit and explicit coding
opinions." (Dkt. No. 473 at 1.) Schmor states that her expert opinion is limited to "coding, billing
and reimbursement of the [Current Procedural Terminology] Code 99000 - handling and/or
conveyance of specimen for transfer from the office to a laboratory." (Dkt. No. 441 at 3.)
Specifically, she intends to testify as to the following four opinions:
(1) The non-payment of Code 99000 is a payment policy, and the costs are not included
in the evaluation and management fee setting.
(2) Physicians are ultimately responsible for their claims submitted.
(3) Code 99000 billed by physicians should not have resulted in financial damages.
(4) The plaintiff may have inflated damages due to improper inclusion of claims.
(Dkt. No. 441-1 at 3.) Before the Court is the Government's motion to exclude Schmor's
testimony. (Dkt. No. 441.) The Blue Wave Defendants have filed a motion in opposition, and the
Government has filed a reply. (Dkt. Nos. 473 , 485 .)
a. CPT Code 99000
Medicare applies the Medicare Physician Fee Schedule ("MPFS") to determine
reimbursement for physicians ' services. The MPFS uses a standardized coding system called the
Current Procedural Terminology ("CPT") that identifies each service and the appropriate
reimbursement for that service. The CPT codes are published annually by the American Medical
CPT Code 99000 is the code used by physicians to capture the processing and handling
serv ices completed by the physician' s office to prepare a specimen for transport to a laboratory
(i.e., centrifuging, separating serum, labeling specimens, packing specimens, or filling out
forms) . Code 99000 is an adjunct code, meaning that it cannot be reported independently but
must be reported in conjunction with a code for one of the basic services rendered to the patient.
During the relevant period, 2009 through 2014, Code 99000 was "bundled" with the code for
physician reimbursement for Evaluation and Management ("E&M") services. The E&M code
covers the costs associated with a patient's visit to an office and evaluation by a physician.
For example, during an office visit with a patient, a physician may identify the need for a
blood panel, collect a blood sample from the patient, and prepare that sample for transport to a
laboratory. That physician would bill Medicare for reimbursement using the E&M code for an
office visit. Although the physician would also record Code 99000 to account for the preparation
of the blood sample, Medicare would not separately reimburse him for those P&H services
because it considers the P&H costs to be "subsumed by the payment for the services to which
they are incident," 1 in this case, the office visit during which the need for the blood panel was
b. Schmor's Challenge to Kathy McNamara's Expert Opinion
According to McNamara, the bundling of Code 99000 with the code for E&M services
means that the "expenses (including practice overhead expenses) needed to provide P&H
services are included within the MPFS calculation to determine payment for E/M services."
(Dkt. No. 441-3 at 18.) In other words, because reimbursement for E&M services includes
reimbursement for P&H services, it was not commercially reasonable for physicians involved
with the defendants to get paid twice for the same P&H services: once as a bundled payment
from Medicare or TRICARE under the E&M code and a second time as a P&H fee from HDL or
CMS Fee Schedule Administration and Coding Requirements available at
https ://www.ems.gov/Regulations-and-Guidance/Guidance/Manuals/ downloads/elm 104c23. pdf.
In contrast2, the BlueWave Defendants seek to offer Schmor's opinion that "The nonpayment of 99000 is a payment policy and the costs are not included in the evaluation and
management fee setting." (Dkt. No. 441-1 at 3.) Schmor's point is simple: although Medicare has
decided to bundle P&H services with E&M services, it is not necessarily true that a physician is
"reimbursed" for the costs of P&H services under the E&M code because the E&M code does
not necessarily cover the costs a physician incurs to provide P&H services. She explains:
The [Medicare] fee schedule is arrived at by using all physicians' charges and
costs .. . . [T]o the extent that some physicians' offices are performing blood
drawing and processing services, it would be included in their data to Medicare
and used for evaluation of the calculation of the Medicare physician fee
schedules. Given that not all physician practices perform these services, it is not
reasonable to assume that the average costs of an evaluation and management
code will cover additional incidental services performed by some practices.
(Dkt. No. 441-1 at 8-9.) The BlueWave Defendants therefore proffer Schmor' s opinion that "a
medical provider is not reimbursed twice for the same services when the provider accepts a
process and handling fee from a third-party laboratory and a reimbursement from Medicare for
E/M services." (Dkt. No. 473 at 3.)
The Government argues that Schmor' s op1mon about CPT Code 99000 should be
excluded because it is not based on sufficient facts or data, is not based on a reliable
methodology, and it would mislead a jury. (Dkt. No . 473 at 5.) The Government takes issue in
particular with Schmor' s description of how the MPFS is formulated. While Schmor represents
the MPFS as the product of a simple calculus using physicians' charges and costs, McNamara
McNamara and Schmor do not dispute that Medicare has made the decision not to separately
reimburse P&H services covered by Code 99000 because, at least in part, the costs of performing
these services is not significant when compared to the overall cost of the services covered by the
E&M office visit code. They also do not dispute that Medicare considers "multiple" factors to
determine what constitutes fair and equitable reimbursement for each service defined by a CPT
code. (Dkt. No. 441-2 at 33 .)
explains in her rebuttal that the MPFS is actually determined using many pieces of information
from a variety of sources, including surveys and expert panels. (Dkt. No. 448-5 at 2-3.) Schmor
conceded in her deposition that she had oversimplified the process for developing the MPFS and
acknowledged that many factors are considered. (Dkt. No. 441-2 at 33 .)
confirmed her belief that "Medicare has developed what it believes to be a fair and equitable
reimbursement for the bundled service of E&M visit and processing and handling blood
specimens" and stated that she had "no reason to doubt" that the reimbursements were indeed
fair and equitable. (Dkt. No. 441-2 at 33-34.)
Schmor' s opinion that "a medical provider is not reimbursed twice for the same services
when the provider accepts a process and handling fee from a third-party laboratory and a
reimbursement from Medicare for E/M services" is inadmissible because it is not based on
sufficient facts or data, and because her own expert report directly contradicts this point. (Dkt.
No. 473 at 3.) Schmor stated in her expert report that the MPFS "represents a packaged rate
which should cover the cost of that particular service" and that although "some care provided
will cost more and some will cost less . .. on average, the total cost of care to patients should
be covered by the reimbursement received." (Dkt. No. 444-1 at 8.) In short, the MPFS does not
correlate directly to a physician' s costs. To the extent a physician's P&H costs may not
adequately reimbursed under the MPFS, this is true for the cost of any physician service. This is
the nature of a standardized reimbursement schedule.
Schmor has admitted that she is "not particularly clear" on how the responsible
committee determines the fair and equitable reimbursement amount attached to each CPT code
(e.g. , what the committee might do to control for outliers). (Dkt. No. 441-2 at 33 .) She does not
know what steps that committee may or may not take to ensure that the reimbursement schedule
is fair and equitable. She could not analyze whether reimbursement under the E&M code in this
case may have covered physicians ' actual P&H costs because she did not analyze the physicians '
actual P&H costs. Finally, in her deposition, she stated that she had no reason to doubt that the
MPFS reimbursements are actually fair and equitable. For these reasons, Schmor's opinion that
medical providers are not paid twice for the same services when they receive a fee from a thirdparty laboratory and Medicare reimbursement for E&M services is not based on sufficient facts
c. Schmor's Challenge to Eric Hines's Expert Opinion
The BlueWave defendants also seek to offer Schmor' s expert opinion on Eric Hines'
damages calculation, specifically that, if his calculations included double counting of
reimbursement for P&H fees then
( 1) CPT Code 99000 billed by physicians should not have resulted in financial damages
(2) The plaintiff may have inflated damages due to improper inclusion of claims
(Dkt. No. 441-1 at 3.) These opinions are based on Schmor' s determination, discussed above,
that physicians are not reimbursed for P&H costs when they are reimbursed under the MPFS
code for E&M services. The Government seeks to exclude Schmor's testimony based on Federal
Rules of Evidence 104(a), 401 , 402, 403 , 702, and 703 , arguing that she is not qualified to opine
on damages resulting from false claims or kickbacks (Dkt. No. 441 at 2-6) and that her opinion is
speculative because she failed to review the hundreds of documents the Government's forensic
accounting expert considered as basic evidence of damages (e.g., claims data, spreadsheets of fee
payments, financial statements, and bank records . (Dkt. No . 44 at 6-7).
In her deposition, Schmor stated that if Mr. Hines' damages calculations did not include
CPT Code 99000, then she would not have an opinion on the accuracy of his damages
calculation. (Dkt. No 441-2 at 27.) In his rebuttal report, Hines explained that CPT Code 99000
was not present in any of HDL or Singulex' s Medicare or Tricare claims so did not feature in his
damages calculations. (Dkt. No. 445-4 at 12.) Schmor's opinion about the impact of Code 99000
on Hines's damages calculations is therefore irrelevant and would not be helpful to the jury. For
these reasons, this testimony is not admissible.
Physician Responsibility for Claims Submitted
The BlueWave Defendants also seek to present Schmor's opinion that "Physicians are
ultimately responsible for their claims" submitted to Medicare. (Dkt. No. 441-1 at 3.) In her
export report, Schmor explains that on the standard form physicians use to submit claims to
Medicare and Tricare, they must certify that they are not submitting any false claims. She
As of the drafting of this report, I have not been provided with any of the
claims data which was available to Eric Hines. I cannot validate if the
physicians were billing Medicare for the process and handling fees in addition
to being reimbursed by HDL and Singulex. However even if the physicians
did bill Medicare and Tricare for the process and handling fee (99000), the
physician, not BlueWave, is responsible for the provider's improper actions
resulting in damages to the government.
(Dkt. No. 441-1 at 10.) Schmor's opinion appears to target the Government's damages
calculations to the extent CPT Code 99000 was included in those calculations. Eric Hines has
explained that his damages calculations did not include reimbursements under CPT Code 99000.
For this reason, Schmor' s opinion about physician responsibility for claims is irrelevant.
For the reasons set forth above, the Government's motion to exclude the expert testimony
of Jessica Schmor (Dkt. No. 441) is GRANTED.
AND IT IS SO ORDERED.
Richard Mark Gergel
United States District Court Judge
June 1.. ~ , 2017
Charleston, South Carolina
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