By Jeffrey H. Brochin, J.D.
An earlier state court action against a hospital for various torts which did not asset a claim under the False Claims Act (FCA) (31 U.S.C. §§ 3729–3733), nor facts from which such a violation could be inferred, did not rise to the level of a public disclosure so as to bar a federal FCA claim alleging an unlawful kickback scheme, a federal district court in Montana has ruled. Therefore, the public disclosure bar neither precluded nor interfered with the federal court’s exercise of jurisdiction to proceed with prosecution of a federal FCA action by former employees. (U.S. ex rel. Rembert v. Bozeman Health Deaconess Hospital, February 7, 2017, Haddon, S.).
Background: The relators brought a qui tam action pursuant to the FCA in which they asserted that the hospital and a group of radiologists, acting through a related investment entity, formed an outpatient medical imaging center located on the campus of the hospital as a joint venture in which the hospital owned a 77.5 percent share of the center and the investment group owned the remaining 22.5 percent. The relators’ complaint alleged that the hospital violated the FCA by unlawfully trading patient referrals for remuneration through the formation and operation of the imaging center. The hospital and imaging center moved to dismiss for (1) lack of subject matter jurisdiction, (2) failure to state a claim, and (3) failure to plead fraud with particularity. For the reasons stated below, the court denied the motions.
Relationship between the FCA and the AKS. The FCA prohibits the knowing submission of false or fraudulent claims to the federal government, and it authorizes, under appropriate circumstances, private qui tam relators to bring a claim on behalf of the United States. The FCA by its terms imposes liability on any person who:(1) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; or, (2) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.
The operative interrelationship between the FCA and the separate Anti-Kickback Statute (AKS) (42 U.S.C. § 1320a-7b) has been summarized as follows: "The AKS makes it a crime to knowingly and willfully offer, pay, solicit or receive any remuneration to induce a person: (1) to refer an individual to a person for the furnishing of any item or service covered under a federal health care program; or (2) to purchase, lease, order, arrange for or recommend any good, facility, service, or item covered under a federal health care program."
Remuneration in exchange for referrals. The AKS does not criminalize referrals for services paid for by Medicare, rather, it criminalizes the knowing and willful acceptance of remuneration in return for such referrals. The AKS has been broadly interpreted to cover any arrangement where one purpose of the remuneration is to obtain money for the referral of services or to induce future referrals. Liability under the FCA can be predicated on a violation of the AKS because compliance with the AKS is a precondition of Medicare reimbursement.
The public disclosure bar. One of the jurisdictional defenses which can be asserted against an FCA claim is the public disclosure bar, which serves to deprive a district court of jurisdiction over any qui tam action that is based upon allegations or transactions already disclosed in certain public fora, unless the relator is the original source of the information underlying the action. Materials and matters which the court may consider in addressing a public disclosure bar challenge to jurisdiction are not confined to the face of the pleadings, but rather, the court may consider other evidence related to the question presented in deciding whether jurisdiction exists.
Elements necessary to trigger the public disclosure bar. The public disclosure bar is triggered if: (1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was 'public'; and (3) the relator's action was based upon the allegations or transactions publicly disclosed. The phrase "based upon" as used in the statute requires substantial similarity between the relator's allegations and the prior public disclosure. The existence of a public disclosure is a threshold condition for application of the bar. All three components of the bar must be present for the bar to apply.
Prior state claims not a public disclosure. The complaint in the relators’ earlier state action against the hospital asserted claims for (1) intentional interference with contract/business relations; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) unfair trade practices; and (5) punitive damages, all arising from the relators' termination from employment. It asserted no claim of an FCA violation or facts from which such a violation could be inferred, and the court found that there was missing from the state complaint any allegation or suggestion of fraud or of a fraudulent scheme. The claim of a monopoly referenced in the state court complaint could not be equated with a claim of fraud or with an asserted violation of the AKS arising from the allegation of totally different facts pleaded in the federal FCA complaint. Furthermore, the facts underlying the state court complaint were not "substantially similar" to the unlawful kickback scheme claimed in the federal complaint nor to an unlawful exchange of referrals for remuneration. The gravamen of the federal complaint before the court was that, by forming the imaging center, the hospital engaged in an unlawful kickback scheme through which patient referrals were exchanged for various forms of remuneration. Accordingly, the court held that the public disclosure bar neither precluded nor interfered with the court's exercise of jurisdiction to proceed with prosecution of the FCA action. Because no public disclosure component was established, the court did not need to delve into the question of whether the relators qualified as the "original source" of a public disclosure.
Sufficiently stating a claim. The relators’ complaint asserted that the group of radiologists were required, under ongoing exclusive service contracts, to refer patients to either the hospital or the imaging center for radiology services. The hospital, it was alleged, decided and controlled which patients were to be referred to the hospital for radiology services and which were to be referred to the imaging center. Payments for significant portions of the services referred to the imaging center were made by federal health care programs, including Medicare, TRICARE, and Montana Medicaid. The complaint further alleged that the hospital received remuneration by way of majority ownership and control in the imaging center, large cash distributions from the imaging center pursuant to its ownership interest, and free services from the radiologists’ group in the hospital’s radiology department. In addition, there were non-compete agreements from the radiologists who provided professional services at the imaging center. The relators claimed that all of these practices were contrary to the AKS and plausibly demonstrated that at least one purpose of the joint venture was to knowingly and willfully exchange patient referrals paid for by federal health care programs for remuneration. Based on the foregoing, the court was satisfied that the relators’ pleadings met the standard of pleading for sufficiently stating a claim.
Pleading fraud with particularity. The Hospital and imaging center likewise objected that the relators had failed to allege fraud with particularity. The court found that the complaint adequately described the market for radiology services prior to and after formation of the imaging center, that it highlighted the structure of the joint venture agreement, detailed the valuation process, and identified specific components of the imaging center’s continued operation central to the claims. It also provided a list of the types of radiology services alleged to be falsely submitted by both the imaging center and the hospital beginning in July, 2005 and ‘continuing to the present.’ Therefore, the court found that the claim of a fraudulent scheme was pleaded with sufficient particularity.
For the above reasons, all motions to dismiss were denied.
The case is No. CV 15-80-BU-SEH.
Attorneys: Megan L. Dishong, U.S. Attorney's Office, for the United States of America. Benjamin Joseph Alke (Goetz, Baldwin & Geddes P.C.) for Frank M. Rembert. William M. Morris (Crowley Fleck PLLP) and Jeffrey D. Perconte (Drinker Biddle & Reath LLP) for Bozeman Health Deaconess Hospital d/b/a Bozeman Health and Deaconess-Intercity Imaging d/b/a Advanced Medical Imaging.
Companies: Bozeman Health Deaconess Hospital d/b/a Bozeman Health; Deaconess-Intercity Imaging d/b/a Advanced Medical Imaging; United States of America
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