United States of America et al v. Bluewave Healthcare Consultants Inc et al

Filing 795

ORDER AND OPINION The Court ACCEPTS the Government's proposed jury instruction 2.9 (Dkt. No. 755 at 12) and DECLINES Defendant's proposed jury instruction number 19 (Dkt. No. 703 at 19). AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 12/4/2017. (sshe, )

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
BEAUFORT DIVISION
United States of America, et al.,
Plaintiffs,

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Civil Action No. 9:14-230-RMG

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ex rel. Scarlett Lutz, et al.,

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ORDER AND OPINION

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Plaintiffs-Relators,
V.

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Berkeley Heartlab, Inc., et al.,
Defendants.

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This matter is before the Court on the Government's requested jury instruction number 2.9
and Defendants' requested jury instruction number 19, which relate to the requirement that a claim
violative of the False Claims Act ("FCA") must be false in a way that is material to the
Government's payment decision. For the reasons set forth below, the Court will substantially
charge the Government's requested instruction and will decline to charge Defendants' requested
instruction.
I.

Discussion
Under the FCA, a misrepresentation must be material to the Government's decision to pay

the claim. See Universal Health Servs. , Inc. v. United States ex. rel. Escobar, 136 S. Ct. 1989,
2001 (2016) ("Escobar"). The Supreme Court reserved whether the materiality requirement is
governed by § 3729(b )(4) or by the common law, id. at 2002, but in this case, the parties agree that
materiality should be defined by§ 3729(b)(4) (see Dkt. Nos. 631at19, 644 at 19). The standards
are essentially equivalent.

Escobar, 136 S. Ct. at 2002.

A misrepresentation is material if

knowledge of the truth would have caused the Government not to pay the claim. See id. at 2002-

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03 . It is insufficient that knowledge of the truth merely would have given the Government
discretion not to pay the claim. Id at 2003 .
The allegedly false .claims in this case involve allegations of violations of the AntiKickback Statute ("AKS") and allegations that ordered tests were medically unnecessary. The
Government requests the jury be charged that whether a laboratory service resulted from an AKS
violation, or whether a laboratory service was medically unnecessary, is material, as a matter of
law, to the Government's decision to pay claims for such services.

(Dkt. No. 631 at 19.)

Defendants request the jury be charged that if the Government pays a claim for laboratory services
with actual knowledge that the services resulted from an AKS violation or were medically
unnecessary, that is "strong evidence" the FCA ' s materiality requirement has not been met.
Defendants further want the Court to charge the jury, "If you find that the Government knew about
the underlying facts about the Defendants' alleged fraudulent conduct, but continued to pay claims
submitted, you must find for the Defendants." (Dkt. No. 644.)
For the reasons set forth below, the Court rules that the Government's proposed jury
instruction correctly states the law, and that Defendants' proposed jury instruction misstates the
law.
A.

Anti-Kickback Statute Compliance
In the Patient Protection and Affordable Care Act ("PP ACA"), Congress provided that "a

claim that includes items or services resulting from a violation of [the Anti-Kickback Statute
("AKS"), 42 U.S.C. § 132a-7b] constitutes a false or fraudulent claim." 42 U.S.C. § 1320a- 7b(g),

as amended by PPACA, Pub. L. No. 111 - 148, 124 Stat. 119 (2010). That language became
effective on March 23, 2010. The purpose of the change was to clarify that a claim resulting from
a kickback does not become eligible for payment when an innocent third party submits the claim.

See United States ex rel. Kester v. Novartis Pharm. Corp., 41 F. Supp. 3d 323 , 334 (S.D.N.Y.
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2014) (quoting 155 Cong. Rec. S10852-01, 2009 WL 3460582 (statement of Senator Kaufman)).
Further, "the 2010 amendment made clear that compliance with the AKS is a precondition to the
payment of claims submitted to these programs, and not merely a condition of participation in the
programs." Id. at 331.
Although the provision that a claim is false and fraudulent if it results from an AKS
violation does not explicitly state that the AKS violation is material to the Government's payment
decision, the only reasonable inference is that AKS violations are per se material. Providing that
AKS compliance is a condition of payment and that a tainted claim is ineligible for reimbursement
even when submitted by an innocent party clearly demonstrates Congress's intent that AKS
compliance is material to payment decisions in all cases. Cf United States ex rel. Wood v.

Allergan, Inc., 246 F. Supp. 3d 772, 812 (S.D.N.Y. 2017), appeal docketed, No. 17-2191 (2d Cir.
July 17, 2017) (the district court's ruling on materiality of AKS violations is not an issue on
appeal). The Court therefore holds that for claims after March 23, 2010, AKS compliance is per

se material to payment decisions.
Further, the Court holds that AKS compliance was per se material even before the PPACA.

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This Court, like the Wood court, "has no trouble concluding that compliance with the AKS is a
'material' condition of payment" before March 23, 2010. Id.; see also United States ex rel.

Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 394-95 (1st Cir. 2011); United States ex rel.
Wilkins v. United Health Grp., Inc., 659 F.3d 295, 314 (3d Cir. 2011 ); McNutt ex rel. United States
v. Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259-60 (11th Cir. 2005). Compliance is
"material" if it has "a natural tendency to influence, or be capable of influencing, the payment or
receipt of money or property." 31 U.S.C. § 3729(b)(4). In other words, the "matter is material"

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when "a reasonable man would attach importance to [it] in determining his choice of action in the
transaction" (internal quotations omitted)). Escobar, 136 S. Ct. at 2002-03.
No reasonable person could believe that AKS compliance is unimportant to the
Government's reimbursement decisions for laboratory services.

The "holistic" materiality

analysis the Supreme Court set forth in Escobar demonstrates that AKS compliance is per se
material. In Escobar, the Supreme Court held that several factors are considered in determining
materiality: (1) whether compliance with a statute is a condition of payment, (2) whether the
violation goes to "the essence of the bargain" or is "minor or insubstantial," (3) whether the
Government consistently pays or refuses to pay claims when it has knowledge of similar violations,
and (4) whether the Government would likely refuse payment had it known of the violation. 135
S. Ct. at 2003-04.
Each factor demonstrates the per se materiality of AKS compliance. Courts have long held
that AKS compliance is a condition of payment. See Kester, 41 F. Supp. 3d at 330 (collecting
cases). Violation of the AKS is not a de minimis regulatory violation, nor is it a mere technical
violation of adhesive fine print in Government contracts. It is a felony punishable by five years in
prison, and it requires the violator to act "knowingly and willfully." 42 U.S.C. § 1320a-7b. The
Government routinely punishes AKS violations through criminal proceedings and civil
proceedings to recoup funds. See, e.g., United States v. McClatchey, 217 F .3d 823 (10th Cir.
2000); Wood, 246 F. Supp. 3d 772; United States ex rel. Williams v. Health Mgmt. Assocs. Inc. ,
No. 3:09-CV-130 (M.D. Ga. Nov. 3, 2016); United States ex rel. McGuire v. Millennium

Laboratories, Inc., No. 12-cv-10132 (D. Mass. Aug. 19, 2016) (and related cases); United States
ex rel. Doe v. Institute of Cardiovasular Excellence, PLLC, Case No. 5:11-CV-406-0C-KRS
(M.D. Fla. May 17, 2016) (and related cases); United States ex rel. Bilotta v. Novartis Pharm.

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Corp., 50 F. Supp. 3d 497 (S .D.N.Y. 2014). The U.S . Department of Health and Human Services
has issued "special fraud alerts" specifically warning about AKS violations in reimbursement
requests for laboratory services for over twenty years. See Special Fraud Alert: Laboratory
Payments to Referring Physicians (June 25, 2014), reprinted at 79 Fed. Reg. 40,115 (July 11 ,
2014 ); Special Fraud Alert: Arrangements for the Provision of Clinical Laboratory Services (Oct.
1994), reprinted at 59 Fed. Reg. 65,372 (Dec. 19, 1994). There can be no question that the
Government would likely refuse to pay a claim that it actually knows is the result of an AKS
violation.

B.

Medical Necessity
The parties do not appear to dispute that the representation that a laboratory service is

medically necessary is material to the Government's decision to pay a claim for the service.
Indeed, the relevant Government agencies lack discretion to reimburse laboratory tests they know
to be medically unnecessary. E.g. , 42 U.S.C. § 1395y (providing that "no payment may be made
under [Medicare] part A or part B for any expenses incurred for items or services ... (1 )(A) which
. . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve
the functioning of a malformed body member").

II.

Conclusion
For the foregoing reasons, the Court ACCEPTS the Government's proposed jury

instruction 2.9 (Dkt. No. 755 at 12) and DECLINES Defendant's proposed jury instruction
number 19 (Dkt. No. 703 at 19).

~kGse

AND IT IS SO ORDERED.

United States District Court Judge
December L/ , 2017
Charleston, South Carolina

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