Category: Anti-Kickback Statute

Seventh Circuit: “Information and Belief” Insufficient under 9(b)

In U.S. ex rel. Grenadyor v. Ukranian Village Pharmacy, Inc. et al., the Seventh Circuit affirmed a trial court’s dismissal  of a whistleblower’s complaint for its failure to provide sufficient specificity regarding the alleged fraud. In the opinion, Judge Posner drives a stake through the heart of a common boilerplate phrase  with clarity and precision that makes a refreshing read for legal and non-legal readers alike.

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DOJ Announces that 2014 Sees Record FCA Recoveries and Whistleblower Lawsuits

Yesterday, November 20, the Department of Justice (“DOJ”) announced that the United States had recovered almost $6 billion from False Claims Act (“FCA”) litigation in 2014 – marking the first time the DOJ has recovered more than $5 billion in a single year.

With these recoveries, the DOJ reached several milestones. Not only was this the largest recovery year for the DOJ, but it makes 2014 the third consecutive year that the DOJ has announced record recoveries. The record recoveries were bolstered by over 700 whistleblower lawsuits filed on the government’s behalf in 2014. Of the total $5.69 billion recovered, almost $3 billion was recovered in lawsuits filed by whistleblowers in qui tam actions under the FCA…. Continue Reading →

New 11th Circuit Case: Fraud with Particularity

Last week, the 11th Circuit Court of Appeals issued its unpublished ruling in US ex rel. Mastej v. Health Management Associates, Inc. At issue was whether the relator’s Third Amended Complaint adequately pled fraud with particularity, as required by Fed.R.Civ.Pro. 9(b).

Mastej was an Health Management Associate (“HMA”) executive from 2001 to February 2007. In that role, he attended monthly meetings and participated in discussions “in which Medicare and Medicaid patients and billing were discussed.” In February 2007, Mastej left HMA to work as CEO of a subsidiary facility.

Mastej alleged that the defendants violated the Stark Law and the Anti-Kickback Statute by giving free trips to golf outings on private jets and paying above-market rates for unnecessary call coverage to neurosurgeons all in exchange for Medicare and Medicaid referrals to the HMA facilities. Said violations, he alleged, made any payments, even for medically necessary services, non-payable. He alleged false claims were submitted in (a) the filing of interim claim forms for patients; (b) the filing of annual cost reports; and (c) a reverse false claim allegation based upon the submission of those forms and reports.

The defendants moved to dismiss based upon Fed.R.Civ.P. 9(b), which requires that claims of fraud be pled “with particularity.” Specifically, the defendants noted that Mastej did not identify a single specific claim for a patient or a specific date of a particular claim.

The court began its analysis by noting that an FCA relator may not merely describe a scheme to defraud but must also describe sufficient detail to show an actual false claim was submitted to the government. It then agreed with the defendants that the complaint did not show a specific false claim submitted to the government.

Having found that Mastej failed to plead fraud with particularity by identifying specific claims, the court then considered whether he otherwise offered sufficient indicia of reliability to survive the motion to dismiss. In the 11th Circuit, Rule 9(b) motions are considered “on a case-by-case basis,” and there are ways to demonstrate such reliability other than identifying specific claims.

The court found that Mastej, as a corporate insider who participated in discussions about claims to and payments by Medicare and Medicaid, pled fraud with sufficient particularity through 2007. However, the court refused to extend that knowledge beyond the time he left HMA and went to work for an HMA subsidiary. The court did not accept the assumption that HMA’s deeds were ongoing, but said he had “not provided the required indicia of reliability for his general allegation that the Defendants submitted false claims for referred patients to the government after Mastej stopped working for the Defendants.” (emphasis in original.)

The ruling is of interest for two reasons. First, it continues the 11th Circuit’s nuanced view of Rule 9(b), favoring identification of specific fraudulent claims, but allowing case-by-case analysis to demonstrate other indicia of reliability. Second, and perhaps more interesting, it did not allow a qui tam relator to claim knowledge during a specific time period then extrapolate that time beyond the actual knowledge. Given the specificity of the court’s ruling, it should be unlikely that discovery beyond the 2007 period would be permitted. This alone would place a significant limit on the ability of relators to turn a small amount of information into a large amount of recovery.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or or your regular Hall Render attorney.

Safe Harbors Less Safe in Ohio


In a new case from the Southern District of Ohio, US_v_MillenniumRadiology, the court denied a motion to dismiss a False Claims Act suit, finding that compliance with a safe harbor could only be raised on summary judgment. The court also found that uncompensated service as a medical director could form the basis for a False Claims Act suit based upon violation of the Anti-Kickback Statute.

Millennium Radiology and Mercy Health Partners entered into a series of agreements making Millennium Mercy’s exclusive radiology provider. Mercy provided the space and equipment needed to provide the services, Millennium billed professional components and Mercy billed technical components of radiology services. Mercy also paid Millennium a lump sum for start-up costs, a monthly advance for operating costs and, in the first agreement, a salary for medical director services. In a subsequent agreement, Mercy added a recruiting allowance of up to $25,000 per physician to recruit two physicians and dropped compensation for the medical directorship. Relator, a former Millennium employee, alleged Millennium marketed Mercy to other doctors in exchange for an illegal kickback, the agreement with Mercy. He also alleged that Mercy’s attorney advised that the agreement might be illegal.

The court agreed with defendants that relator was required to allege that Millennium received something, in this case marketing and medical director services, for less than fair market value. However, the court then concluded, “providing these services for free would necessarily be providing them at below market rates and below costs.”

In a footnote, the court refused to consider the defendants’ argument they met the “Personal Services Arrangement Safe Harbor” to the AKS, concluding safe harbors are affirmative defenses; therefore, the court reasoned, they were to be considered at the summary judgment rather than the motion to dismiss stage. While this makes sense from a purely procedural point of view, it is contrary to the prevailing law and the purpose of safe harbors.

Safe harbors are regulatory in nature. They assure providers that they can take actions that, while technically in violation of the FCA, are acceptable to the Medicare program. Compliance with a safe harbor, therefore, should be considered at the motion to dismiss stage to show lack of knowledge on the part of the defendant. False Claims Act law is rife with decisions that state reliance upon regulations or direction from the government shows a lack of knowledge sufficient to allege an FCA violation. In US ex rel. Lee v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011), the court stated the relator was required to plead, at the motion to dismiss stage, that the defendant “knew, or acted with reckless disregard of the fact that [its program] did not fall within the DOE Safe Harbor Provision;” or “even if it believed [it fell under the Safe Harbor Provision], it knew or acted with reckless disregard of the fact that, in reality, [individuals were acting outside that provision].” Id. at 997. This is consistent with a long body of case law that holds government contractors relying on good faith interpretations of regulations are not subject to FCA liability. See, e.g. US ex rel. Oliver v. Parsons Co., 195 F.3d 457, 464 (9th Cir. 1999). Other District Courts have required relators to allege noncompliance with a safe harbor provision at the motion to dismiss stage. See, e.g., US ex rel. Carpenter v. Abbott Laboratories, Inc., 723 F.Supp.2d 395 (D.Mass. 2010); US ex rel. Osheroff v. Humana, Inc., 2012 WL 3379072 (S.D.Fl. 2012); and Parikh v. Citizens Medical Center, 977 F.Supp.2d 654 (S.D.Tx. 2013).

False Claims Act cases are tremendously complex and expensive. The idea that a defendant could rely upon a regulatory safe harbor yet be forced to participate in discovery that can cost millions of dollars is shocking. From a purely procedural standpoint, it might make sense because the defendant would ultimately be given an opportunity to rely upon the safe harbor to defeat the prosecution. However, in reality, reliance upon the safe harbor in the face of FCA expense and potential liability, is so cheapened that it may well become useless. The decision, should it be followed in other courts, would defeat the purpose of the safe harbor.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or or your regular Hall Render attorney.