By David Yucht, J.D.
A federal district court found that a former board member of Boston Heart Diagnostics Corporation (Boston Heart), a laboratory company, insufficiently pleaded causes of action against the lab for violating the anti-kickback statute (AKS) (42 U.S.C. § 1320a-7b) by paying speaking fees, for violating the Stark Law (42 U.S.C. § 1395nn(a)(1)(A)) for physician self-referrals, and under the False Claims Act (31 U.S.C. § 3729 et seq.) for billing the government for medically unnecessary testing. Although the court found that the relator sufficiently alleged AKS liability regarding waiving patient fees and the payment of inflated packaging fees, it determined that the complaint failed to offer support for calling a speaking fee "outrageous" and a kickback, and did not specifically allege that inflated packaging fees were actually promoted during speaking engagements. Other pleading deficiencies included failure to show that the company was aware of receiving referrals from physician shareholders or that tests it was promoting were not medically necessary (U.S. ex rel. Riedel v. Boston Heart Diagnostics Corporation, September 12, 2018, Walton, R.).
Kickbacks upheld. The court determined that the relator plausibly alleged that Boston Heart paid kickbacks by waiving co-payments and deductibles. Doctors benefitted from this scheme by saving time not spent on explaining fees to patients and providing the doctors an opportunity to market free laboratory testing. The court agreed that waiving co-payments and deductibles to private patients constituted a kickback scheme because providing free services to patients that results in a benefit to a medical provider constituted a kickback under the law. Knowledge was properly alleged, as the relator asserted that once Boston Heart realized that the Justice Department might discover its waiver scheme, it adopted a "Know It Now Fee" which was so low that it was effectively a fee waiver and accordingly, Boston Heart continued to offer inducements to physicians despite knowing they were illegal. In addition, the court determined that inflated packaging fees could plausibly be considered kickbacks. Packaging fees are the costs of processing and packaging specimens for transport to a clinical laboratory through a bundled payment. The alleged inflated packaging fee in this case provided an obvious financial benefit to the referring physician, and it may be inferred that this benefit would be in exchange for lab referrals.
Speaking fee kickback dismissed. However, the court was not satisfied that the director plausibly alleged that a $200,000 payment to a physician and nurse practitioner for their consultation and speaking services was a kickback. He alleged that the fees were paid primarily for the physician and nurse practitioner to solicit physician clients for Boston Heart by speaking at seminars where they explained to physicians how much money they could make by receiving packaging fees. Because the director did not provide any detail regarding why payment of the $200,000 was "outrageous," the court could not find that the director alleged a fraud with sufficient particularity. Also, the director never specifically alleged that inflated packaging fees were promoted.
Other claims dismissed. The court found that the director did not sufficiently plead a violation of the Stark Law which prohibits physicians from referring patients to anyone with whom they have a financial relationship. Boston Heart allegedly received referrals from physicians who were Boston Heart shareholders. The director provided the names of two specific physicians. If true, this practice violated the Stark Law. However, the director did not show Boston Heart’s knowledge regarding self-referrals by physicians who were Boston Heart shareholders, and he never specifically alleged that Boston Heart knew that it received referrals from such physicians.
Likewise, the court determined that the director did not make a sufficient showing of medically unnecessary testing. He alleged that Boston Heart encouraged doctors to order pre-selected panel tests which purportedly contained four additional tests that were medically unnecessary. By billing for each test on its panel separately, Boston Heart charged Medicare over $100 per lipid panel, rather than the $18.97 allowed by Medicare. The basis of this claim was not unbundling, which was legal, but billing Medicare for medically unnecessary additional tests. However, the director never specifically alleged and the court could not infer that Boston Heart knew that these additional tests were medically unnecessary. Lastly, the court dismissed the reverse false claims cause of action. A typical reverse false claim action involves a defendant knowingly making a false statement in order to avoid having to pay the government when payment is otherwise due. The director did not plead any monetary obligation owed by Boston Heart to the government, independent of its concealing of its allegedly fraudulent activity.
The case is No. 1:12-cv-01423-RBW.
Attorneys: Eric J. Buescher (Cotchett, Pitre & McCarthy, LLP) for Chris Riedel. Brian P. Dunphy (Mintz Levin, PC) and Christopher H. Lindstrom (Nutter McClennen & Fish LLP) for Boston Heart Diagnostics Corp.
Companies: Boston Heart Diagnostics Corp.
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