By Leah S. Poniatowski, J.D.
A False Claims Act (FCA) lawsuit filed by the federal government alleged sufficient facts to overcome a summary judgment motion filed by the CEO of a laboratory testing company central to the government’s suit, the federal district court in South Carolina ruled (U.S. ex rel. Lutz v. Berkeley HeartLab, Inc., October 31, 2017, Gergel, R.).
Background. A lab operations manager at Berkeley HeartLab, Inc. (BHI), left in 2008 and formed a new testing company, Health Diagnostics Laboratory, Inc. (HDL). She became HDL’s president and CEO. About a year later, the CEO and two BHI sales representatives arranged for HDL to retain the sales representatives in order to market HDL lab tests. In 2010, the sales representatives jointly formed BlueWave Healthcare Consultants, Inc., whose only clients were HDL and another laboratory, and whose only earnings came from the sales agreements with these two clients. The U.S. filed a complaint in intervention against BlueWave, the sales representatives individually, and HDL’s CEO alleging violations of the FCA (42 U.S.C. § 3729, et seq.), payment by mistake of fact, and unjust enrichment. The FCA allegation was based in part on the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). The CEO filed the present motion for summary judgment on the government’s complaint.
FCA claim. The government alleged sufficient facts for each prong of its FCA claim, the court found. First, the government proffered evidence that the CEO had the requisite scienter to violate the Anti-Kickback statute, which was demonstrated by the CEO’s failure to heed the warnings from her own lawyers and third-party attorneys that the company’s processing and handling (P&H) fees associated with blood tests processed by the labs would be considered illegal kickbacks. Additionally, there was evidence in the record that the CEO had notice that another billing practice and the BlueWave business relationship also were questionable with respect to the Anti-Kickback Statute. Further, in an FCA claim not based on the Anti-Kickback Statute, the government asserted that the CEO and BlueWave caused medically unnecessary tests to be presented for reimbursement when falsely representing that the tests satisfied reimbursement standards. The court held that these allegations also supported the government’s position that the CEO acted with reckless disregard under the FCA. The court relied on its prior rulings on the materiality and causation elements of the FCA claim, which favored the government.
FCA Conspiracy. The court determined that the government also met its burden to establish a claim of conspiracy to violate the FCA. Specifically, the record showed that a factfinder could conclude the CEO willfully entered into the fee and billing agreements, the CEO and the sales representatives contributed to violating the Anti-Kickback Statute and the FCA through their actions under those agreements, and that the government suffered damages by reimbursing those false claims.
Equitable claims. The court held that the government’s claims in equity for payment by mistake of fact were sufficient because the allegedly improper contracts were integral to HDL’s business structure. The government also established that the CEO personally benefitted from the government’s mistaken payments through her receipt of salary, bonuses, and discretionary distributions, which were derived from Medicare payments to HDL. Accordingly, the CEO’s motion for summary judgment was denied.
The case is No. 9:14-cv-00230-RMG.
Attorneys: Christopher Terranova, US Department of Justice, for the United States. Brian P. Dunphy (Mintz Levin Cohn Ferris Glovsky and Popeo PC) for Berkeley Heartlab, Inc.
Companies: Berkeley Heartlab, Inc.
MainStory: TopStory CaseDecisions CMSNews AntikickbackNews BillingNews FCANews LaboratoryNews PaymentNews ProgramIntegrityNews SouthCarolinaNews
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