Health Law Daily Sufficient factual details provided for FCA and state law claims against diagnostic laboratory
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Friday, February 7, 2020

Sufficient factual details provided for FCA and state law claims against diagnostic laboratory

By Elena Eyber, J.D.

Diagnostic laboratory’s motion to dismiss was denied when the government adequately pleaded its FCA and state law claims for payment by mistake of fact and unjust enrichment.

The federal district court in North Carolina denied a diagnostic laboratory’s motion to dismiss, holding that the government adequately pleaded its False Claims Act (FCA) and state law claims. The court found that the complaint pleaded the schemes in which the laboratory’s owner was allegedly involved that violated the Anti-Kickback Statute (AKS) with sufficient detail to satisfy the applicable pleading rules. The government pleaded facts that explained the "who, what, when, where and how" related to the schemes and plainly provided the owner with enough detailed information on the alleged wrongful conduct to allow him to defend against the allegations. Additionally, the court found that the government sufficiently pleaded its state law claims for payment by mistake of fact and unjust enrichment when it was reasonable to infer that the laboratory’s owner directly benefited and was thus unjustly enriched by the illegal schemes that resulted in millions of dollars of improper Medicare payments to the laboratory (U.S. ex rel. Hartnett v. Physicians Choice Laboratory Services, LLC, February 5, 2020, Bell, K.).

Procedural history. The government alleged that a diagnostic laboratory specializing in urine drug testing (UDT) and its owners have grown its business by convincing physicians to order UDTs for their patient populations regardless of whether the tests were medically necessary for each patient. Further, the government contended that in addition to aggressive marketing practices, the laboratory and its owners engaged in several illegal schemes to provide remuneration to doctors to induce them to refer tests to the laboratory in violation of the AKS.

The government alleged three specific schemes that the owner of the laboratory planned and implemented that allegedly violated the AKS and caused fraudulent claims to be submitted to Medicare. First, the owner allegedly induced physicians to refer tests to the laboratory by providing office equipment and associated services to physicians in exchange for sending their referrals to the laboratory. Second, the owner allegedly entered an illegal contract to pay a manager of two physician practices to send referrals to the laboratory from the physician practices. Finally, the owner allegedly made large loans to two physicians in exchange for their referrals to the laboratory. The laboratory then allegedly submitted claims to Medicare for the testing services provided to the patients referred to the laboratory as a result of the alleged kickback schemes.

The government filed a complaint against the laboratory, asserting FCA claims and state law claims for payment by mistake and unjust enrichment. The laboratory sought to dismiss the complaint, contending that the government failed to provide sufficient factual details to adequately plead its FCA claims.

FCA claims. The court agreed with the government that the complaint pleaded the schemes in which the owner was allegedly involved with sufficient detail to satisfy the applicable pleading rules. Specifically, the government alleged the owner violated two provisions of the FCA. First, the government alleged that the owner violated 31 U.S.C. §3729(a)(1)(A) because he knowingly caused the submission of false or fraudulent Medicare claims for payment or approval to the government. Second, the government alleged the laboratory’s owner violated Section 3729(a)(1)(B) by causing the laboratory to make false records material to false or fraudulent claims.

The government alleged that the owner violated the Anti-Kickback Statute in three ways, by: (1) inducing referrals through providing medical diagnostic equipment (analyzers) to physicians; (2) paying the manager of two physician practices to send referrals to the laboratory from the practices; and (3) inducing referrals through loans to two physicians. The court found that these allegations were sufficient to meet the government’s pleading burdens on a motion to dismiss. The complaint pleaded facts that explained the "who, what, when, where and how" related to the schemes and plainly provided the owner enough detailed information on the alleged wrongful conduct to allow him to defend against the allegations. Further, it appeared readily apparent that this case was neither frivolous nor an improper fishing expedition in search of facts to support a speculative claim. Therefore, the court denied the motion to dismiss the government’s FCA claims against the owner.

State law claims. The court found that the government sufficiently pleaded its state law claims for payment by mistake of fact and unjust enrichment. The government alleged that it was reasonable to infer for the purposes of this motion that the owner of the laboratory, which was a closely held company, directly benefited and was thus unjustly enriched by the alleged illegal schemes that resulted in millions of dollars of improper Medicare payments to the laboratory. Accordingly, the court allowed the government’s claims of unjust enrichment and payment by mistake of fact to proceed, without prejudice to the owner’s right to raise his arguments against these claims again in a summary judgment motion if discovery fails to establish that he was personally unjustly enriched by any unlawful scheme.

The case is No. 3:17-CV-00037-KDB-DCK.

Attorneys: Kirk J. Angel (The Angel Law Firm, PLLC) for United States ex rel. Taryn Hartnett and Dana Shoched. Fred M. Wood, Jr. (Nelson Mullins Riley & Scarborough LLP) for Physicians Choice Laboratory Services, LLC.

Companies: Physicians Choice Laboratory Services, LLC

MainStory: TopStory CaseDecisions CMSNews AntikickbackNews EnforcementNews FCANews LaboratoryNews ProgramIntegrityNews ProviderNews NorthCarolinaNews

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