United States of America ex rel. Liesa Kyer v. Thomas Health System, Inc. et al

Filing 63

ORDER re: 56 JOINT MOTION by Charleston Hospital, Inc., Herbert J. Thomas Memorial Hospital Association, THS Physicians Partners, Inc., Thomas Health System, Inc., Brian Ulery to Dismiss 52 First Amended Complaint; directing that both the Plai ntiff and Defendants to file simultaneous briefs on the Loper Bright's impact issue by 10/4/2024; both Plaintiff and Defendants shall file responses to the opposing party's brief by 10/18/2024; the court further DIRECTS the Clerk to post a copy of this published order on the court's website. Signed by Judge Joseph R. Goodwin on 9/12/2024. (cc: counsel of record; any unrepresented party) (lca) (Modified on 9/13/2024 to convert document type to opinion) (ts).

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
UNITED STATES OF AMERICA EX REL. LIESA KYER,
Plaintiff,
v.

CIVIL ACTION NO. 2:20-cv-00732

THOMAS HEALTH SYSTEM, INC., et al.,
Defendants.
ORDER
Pending before the court is Defendants’ Motion to Dismiss the Plaintiff’s First
Amended Complaint, filed by Defendants Charleston Hospital, Inc., Herbert J.
Thomas Memorial Hospital Association, THS Physicians Partners, Inc., Thomas
Health System, Inc., and Brian Ulery (“Defendants”). [ECF No. 56]. Plaintiff Relator
Liesa Kyer (“Relator”) responded, [ECF No. 60], and Defendants timely replied, [ECF
No. 61].
This qui tam action is brought by a private citizen—not the Government—to
enforce a law primarily defined and redesigned by an agency—not Congress. Relator’s
claim properly comes under the False Claims Act, and Relator alleges that the claims
submitted by Defendants were false under the Stark Law. Over the last 30 years, the
Stark Law has grown complex, nuanced, and reliant on agency regulation to define
key terms and safe harbors. Relator’s claims and Defendants’ arguments for
dismissal rely heavily on Stark Law regulations.

In the past, I could simply defer to an agency’s interpretation of a statute
without too much handwringing over the province of the court versus the expertise of
an agency. No longer. In June 2024, the Supreme Court decided Loper Bright

Enterprises v. Raimondo and reaffirmed that it is “emphatically” my duty to say what
the law is. 144 S. Ct. 2244 (2024).
Now, I do not know how Loper Bright will affect Relator’s Stark Law claim. I
do know, however, that my obligation under Loper Bright is different: I must ensure
that the Stark regulatory scheme is consistent with the power given by Congress and
the statute as it was signed into law. Such is Loper Bright’s instruction.
What concerns me is this: I cannot determine if Relator has stated a claim
without first determining the contours of the statute. Deeper still, the statute is
fleshed out in the regulations. Loper Bright mandates that I carefully consider the
regulations—without blindly deferring to any agency interpretation. Here, the Stark
Regulations build the foundation of Relator’s Stark-based claim. Therefore, for the
following reasons the parties are ORDERED to file supplemental briefing on the
effect, if any, of Loper Bright.
I.

Procedural Background
On November 9, 2020, Relator Liesa Kyer, who worked as a nurse at Thomas

Memorial Hospital for several years, initiated this lawsuit on behalf of the United
States of America against Defendants under the qui tam provisions of the False
Claims Act, 31 U.S.C. §§ 3729–33 (“FCA”), for alleged violations of the FCA, the Stark
Law, 42 U.S.C. § 1395nn, and the Anti-Kickback Statute, 42 U.S.C. §§ 1320a-7a(a)(7)
2

and 1320a-7b(b) (“AKS”). [ECF No. 2, ¶¶ 1, 5]. The United States received several
extensions of time to consider whether it would elect to intervene and take over
prosecution of this case. [ECF Nos. 7, 11, 14, 17, 21]. Ultimately, the United States
notified the court on July 3, 2023, that it would not be intervening at that time. [ECF
No. 22, at 2]. 1 Defendants filed a Motion to Dismiss the original Complaint on
January 5, 2024. [ECF No. 36]. That motion was denied as moot, [ECF No. 53], after
Relator filed the operative First Amended Complaint on March 1, 2024, [ECF No. 52],
within the amendment period allowed under the Scheduling Order, [ECF No. 50].
In her First Amended Complaint, Relator brings four causes of action under
the FCA: (1) presentment of false claims to the United States for payment or
approval, in violation of 31 U.S.C. § 3729(a)(1)(A); (2) using false statements material
to the payment of false of fraudulent claims, in violation of 31 U.S.C. § 3729(a)(1)(B);
(3) conspiracy between Defendants to commit a violation of the FCA, in violation of
31 U.S.C. § 3729(a)(1)(C); and (4) making, using, or causing to be made or used, a
false record or statement material to an obligation to pay or transmit money or
property to the Government, or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay or transmit money or property to the
Government, in violation of 31 U.S.C. § 3729(a)(1)(G). [ECF No. 52, ¶¶ 276–302].
Defendants filed the Motion to Dismiss on April 16, 2024, arguing that the
Amended Complaint should be dismissed on two grounds. [ECF No. 56]. First, Relator

1 Once the Government gets involved in a qui tam action at any point, it “may move to dismiss an FCA
action.” United States, ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419, 438 (2023).

3

failed to file the amendment under seal pursuant to 31 U.S.C. § 3730(b)(2), thereby
mandating automatic dismissal. [ECF No. 57, at 2]. Second, Relator failed to state a
claim upon which relief may be granted under Rule 12(b)(6), in part because her FCA
allegations were not pleaded with the level of particularity required by Federal Rule
of Civil Procedure 9(b). [ECF No. 57, at 4]. Relator responded in opposition on May
21, 2024, [ECF No. 60], and Defendants replied on June 4, 2024. [ECF No. 61].
II.

Legal Standards
a. Stark Law and Regulations
Broadly, the Stark Law prohibits physicians and entities in financial

relationships from improperly benefiting from referrals (often termed “selfreferrals”). Looking only at the text, the Stark Law states that
if a physician (or an immediate family member of such physician) has a
financial relationship with an entity specified in paragraph (2), then-(A) the physician may not make a referral to the entity for the
furnishing of designated health services for which payment otherwise
may be made under this subchapter, and
(B) the entity may not present or cause to be presented a claim
under this subchapter or bill to any individual, third party payor, or
other entity for designated health services furnished pursuant to a
referral prohibited under subparagraph (A).
42 U.S.C. § 1395nn(a). The statute goes on to define “financial relationship” as “an
ownership or investment interest in the entity” or “a compensation arrangement”
between the physician and the entity. 42 U.S.C. §§ 1395nn(a)(2)(A)–(B). Section (h)
further defines “a compensation arrangement” as “any arrangement involving any
remuneration between a physician . . . and an entity other than an arrangement
involving only remuneration described in subparagraph (C).” 42 U.S.C. §
4

1395nn(h)(1)(A). Lastly, “remuneration” is defined in three different ways, one being
(iii) A payment made by an insurer or a self-insured plan to a physician
to satisfy a claim, submitted on a fee for service basis, for the furnishing
of health services by that physician to an individual who is covered by a
policy with the insurer or by the self-insured plan, if-(I) the health services are not furnished, and the payment is not
made, pursuant to a contract or other arrangement between the insurer
or the plan and the physician,
(II) the payment is made to the physician on behalf of the covered
individual and would otherwise be made directly to such individual,
(III) the amount of the payment is set in advance, does not exceed
fair market value, and is not determined in a manner that takes into
account directly or indirectly the volume or value of any referrals, and
(IV) the payment meets such other requirements as the Secretary
may impose by regulation as needed to protect against program or
patient abuse.
42 U.S.C. §§ 1395nn (h)(1)(C)(iii)(I)–(IV).
From there, the Stark Regulations take over. Rulemaking has reshaped the
Stark Law for the last thirty years. 2 Relative to the pending case, the Stark
Regulations find an “indirect compensation arrangement” when three conditions are
met. 42 C.F.R. §§ 411.354(c)(2)(i)–(iii). Generally, they are (1) an unbroken chain of
persons and/or entities with a financial relationship with each other, (2) a referring
physician receives “aggregate compensation” from a financially related entity that
“varies with the volume or value of referrals,” and (3) the entity furnishing designated
health services “has actual knowledge of, or acts in reckless disregard or deliberate

2 A non-exhaustive list of the “more significant” rulemakings is summarized by the Centers for
Medicare & Medicaid Services (CMS) in the latest final rule. Medicare Program; Modernizing and
Clarifying the Physician Self-Referral Regulations, 85 Fed. Reg. 77,492 (Dec. 2, 2020) (codified at 42
C.F.R. pt. 411) (chronologizing the first 1992 proposed rulemaking through the most recent final rules,
effective on January 1, 2022).

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ignorance of” the aggregate compensation scheme. Id. Complicated further, the Stark
Regulations provide special rules and exceptions to indirect compensation
agreements. Id. at 411.354(c)(4). Exceptions in § 411.355 and § 411.357(p) redefine
certain indirect compensation arrangements to take them outside the Stark Law.
In total, a Stark Law claim necessarily requires reliance on the regulations—
complex, nuanced, and potentially beyond Congress’s intent. My obligation under

Loper Bright compels me to carefully consider the statute-regulation relationship.
b. Loper Bright
For 40 years, federal courts were instructed to defer—in varying ways—to
agency interpretation of statutory language. Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright
Enterprises v. Raimondo, 144 S. Ct. 2244 (2024). On June 28, 2024, The Supreme
Court overruled Chevron and held Loper Bright in its place. The Court, abolishing
the two-step Chevron deference analysis, reaffirmed that “[i]t is emphatically the
province and duty of the judicial department to say what the law is.” Id. at 2257
(quoting Marbury v. Madison, 1 Cranch 137, 177, 2 L.Ed. 60 (1803)).
The Administrative Procedure Act, “a check upon administrators whose zeal
might otherwise have carried them to excesses not contemplated in legislation
creating their offices,” could not be reconciled with Chevron for multiple reasons. Id.
at 2261 (quoting U.S. v. Morton Salt Co., 338 U.S. 632, 644 (1950)). First, the “best”
reading of a statute is the one the court—not the agency—concludes is best “after
applying all relevant interpretive tools.” Id. at 2266. Second, courts have the expert
6

competence necessary to resolve statutory ambiguities. Id. Agencies do not. Id. Lastly,
courts are expected to handle technical statutory questions. Id. at 2267. In every case,
the parties are “steeped in the subject matter,” and the courts do not answer questions
blindly. Id.
Of course, the Executive Branch’s expertise and interpretation may be
informative, especially “to the extent it rests on factual premises within [the agency’s]
expertise.” Id. (quoting Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U.S.
89, 98, n.8 (1983) (emphasis added)). Nevertheless, courts may not abandon their
responsibility to interpret the law. Id. at 2273. “[C]ourts need not and under the APA
may not defer to an agency interpretation of the law simply because a statute is
ambiguous.” Id.
III.

Discussion

In the time since Defendants’ Motion became ripe, the United States Supreme
Court decided Loper Bright. No party supplemented its Motion to Dismiss argument
to discuss Loper Bright’s impact on Relator’s claim, however, I am concerned that I
must carefully consider this newest precedent.
Over time the Stark Law (and accompanying regulations) has evolved into a
labyrinth of multipart compliance requirements where the exception-to-theexception-to-the-exception is the norm. Steven D. Wales, The Stark Law: Boon or

Boondoggle? An Analysis of the Prohibition on Physician Self-Referrals, 27 Law &
Psychol. Rev. 1, 22–23 (2003) (collecting critical descriptions of the Stark Law, which
can just as easily be used to describe the Stark Regulations today). Perhaps, under
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Chevron, federal courts could wade through Stark Law claims by deferring and
defaulting to an agency’s interpretation. United States ex rel. Drakeford v. Tuomey

Healthcare System, Inc., 675 F.3d 394, 407 (4th Cir. 2012) (determining what
constitutes a “referral” under Stark Regulations); Council for Urological Interests v.

Burwell, 790 F.3d 212, 219–24 (D.C. Cir. 2015) (interpreting regulations of physicianentity equipment leases and the definition of “entit[ies] furnishing designated health
services”); United States v. Solinger, 457 F.Supp.2d 743, 756–57 (W.D. Ky. 2006)
(interpreting a regulation establishing a Stark exception).
That deference is no longer required; indeed, that deference is no longer
acceptable. Loper Bright Enterprises, 144 S. Ct. at 2273. Inevitably, Loper Bright will
begin to ripple through the Stark Regulations. The only question for courts is when
and how. Because I have seen very little research on this intersection of law, the
parties should welcome the opportunity to lay out Loper Bright versus Stark for the
first time.
As mentioned, commentary on Loper Bright’s impact is sparce: one federal
court and two speculative online blog posts. Scholarship and cases across the country
have only begun to address Loper Bright’s impact on federal healthcare regulation.

United States ex rel. Sheldon v. Forest Laboratories, LLC, No. ELH-14-2535, 2024
WL 3555116 at *33 (D. Md. July 23, 2024) (slip copy) (inviting the parties to submit
supplemental briefing on Loper Bright’s impact on the court’s interpretation of the
Medicaid Rebate Statute in a False Claims Act claim); Anna Akers Hornsby, et al.,

The Overturn of Chevron: A New Design for Healthcare Law, Eye on Enforcement
8

(Jul. 15, 2024), https://www.eyeonenforcement.com/2024/07/the-overturn-of-chevrona-new-design-for-healthcare-law (“. . . Loper may give a defendant that has not
complied with guidance the opportunity to argue to a court that the guidance is
inconsistent with a statute or otherwise outside of an agency’s statutory authority.”);
Pascal Naples, et al., Post-Chevron Health Care Regulations: What May Be in Store

for

Stark

Law

Litigation,

JD

Supra

(Jul.

24,

2024),

https://www.jdsupra.com/legalnews/post-chevron-health-care-regulations-1965853
(“the court could disagree with . . . any definition contained within a regulation
promulgated by CMS pursuant to the Stark Law.”).
The problem is that I cannot determine if Relator has stated a claim upon
which relief can be granted if I do not know what the Stark Law requires. Here, the
Stark Regulations provide the definitional foundation of Relator’s Stark Law claim.
42 C.F.R. § 411.354(a) (providing that financial relationships may be “direct or
indirect compensation arrangements”); 42 C.F.R. § 411.354(c)(1) (defining a “direct
compensation arrangement”); 42 C.F.R. § 411.354(c)(2) (defining an “indirect
compensation arrangement”); 42 C.F.R. § 411.354(c)(4) (exceptions to indirect
compensation arrangements). The question before the court is whether those
definitions are consistent with congressional authorization and the statute.
Without regulations, the Stark Law is certainly shorter: When a physician and
an entity have a “financial relationship,” (1) the physician may not make referrals to
the entity “for the furnishing of designated health services for which payment
otherwise may be made” and (2) an entity may not present a claim to a third-party
9

payor “furnished pursuant to” a prohibited referral. 42 U.S.C. § 1395nn(a). Loper

Bright mandates a careful, considerate examination.
Because the parties have not had an opportunity to address Loper Bright’s
impact on the pending claim, if any, I ORDER both the Plaintiff and Defendants to
file simultaneous briefs on the issue by October 4, 2024. Both Plaintiff and
Defendants shall file responses to the opposing party’s brief by October 18, 2024.
The court DIRECTS the Clerk to send a copy of this Order to counsel of record
and any unrepresented party.
The court further DIRECTS the Clerk to post a copy of this published order on
the court’s website, www.wvsd.uscourts.gov.
ENTER:

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September 12, 2024