United States ex rel. Goodman v. Arriva Med., LLC

471 F.Supp.3d 830

UNITED STATES of America EX REL. Gregory M. GOODMAN, Plaintiff,

v.ARRIVA MEDICAL, LLC, Alere, Inc., Ted Albin, and Grapevine Billing and Consulting Services, Inc., Defendants.

Case No. 3:13-cv-0760

United States District Court, M.D. Tennessee, Nashville Division.

Filed July 8, 2020

Ellen Bowden McIntyre, Office of the United States Attorney, Nashville, TN, Jake M. Shields, Department of Justice-Commercial Litigation Division, Washington, DC, for Plaintiff United States of America.

David W. Garrison, Jerry E. Martin, Scott P. Tift, Seth Marcus Hyatt, Barrett Johnston Martin & Garrison, LLC, Nashville, TN, James E. Barz, Robbins Geller Rudman & Dowd LLP, Chicago, IL, for Plaintiff Gregory M. Goodman.

Andrew A. Kassof, Diana M. Watral, Daniel I. Siegfried, Elizabeth S. Hess, Kirkland & Ellis, LLP, Chicago, IL, Matthew M. Curley, J. Taylor Chenery, Margaret V. Dodson, Bass, Berry & Sims, Nashville, TN, for Defendants Arriva Medical, LLC, Alere, Inc.

Charles Frederick Spainhour, Kristina A. Reliford, Ty E. Howard, Bradley Arant Boult Cummings LLP, Nashville, TN, for Defendants Ted Albin, Grapevine Professional Services, Inc.

MEMORANDUM & ORDER

ALETA A. TRAUGER, United States District Judge

The United States has filed a Motion for Review (Docket No. 158) of the magistrate judge's nondispositive Order of May 18, 2020 (Docket No. 154), to which Arriva Medical, LLC ("Arriva") and Alere, Inc. ("Alere") have filed a Response (Docket No. 170), and the government has filed a Reply (Docket No. 173). For the reasons set out herein, that motion will be granted in part and denied in part.

I. BACKGROUND

A. The False Claims Act and the Anti-Kickback Statute

"Since its enactment ..., the False Claims Act"—often referred to as the "FCA"—"has authorized both the Attorney General and private qui tam relators to recover from persons who make false or fraudulent claims for payment to the United States." Graham Cty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson , 559 U.S. 280, 283, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010). A "claim," as defined by the Act, is "any request or demand ... for money or property ... that ... (i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest," with the caveat that certain additional requirements must be met for this second type of claim, made to an intermediary. 31 U.S.C. § 3729(b)(2). Because systems of government payment are various and often complex, Congress has, over the years, set forth a number of different ways in which an individual or entity can incur liability under the FCA, some of which do not even expressly refer to a "false claim" at all, and others of which allow the underlying claim to be false or fraudulent. Specifically, a person or company violates the Act if he

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G); (D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property; (E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; (F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government ....

31 U.S.C. § 3729(a)(1).

As the court has previously observed in this case, one of the areas in which the FCA has grown to play a major role is in combating fraud within the federal healthcare programs that now account for a substantial portion of federal non-defense expenditures. The FCA, however, is not the only statute safeguarding those programs. Another such statute, the Anti-Kickback Statute, or "AKS," "prohibits ‘knowingly and willfully solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or kind, ... in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.’ " Jones-McNamara v. Holzer Health Sys. , 630 F. App'x 394, 400 (6th Cir. 2015) (quoting 42 U.S.C. § 1320a–7b(b)(1)(A) ).

Some AKS violations are obvious; for example, if a hospital CEO "paid kickbacks to physicians who referred Medicare and Medicaid patients to" his hospital, then he probably violated the AKS. United States v. Novak , No. 17 C 4887, 2018 WL 4205540, at *1 (N.D. Ill. Sept. 4, 2018). Other forms of AKS violation, however, involve types of remuneration that might not, at first blush, strike a layperson as problematic. One such type of violation is at issue in this case: waivers of Medicare copayments and deductibles. Medicare, like ordinary insurers, frequently requires patients to shoulder a portion of the costs of their treatment. Some healthcare providers, however, have concluded that it is better for business just to waive the patient's share, which is typically smaller and more difficult to collect, and rely solely on the Medicare portion of the payment. The waived balance then serves as an enticement for the patient to choose that healthcare provider, on the ground that the services are effectively free to him. Such enticements, however, have been held by courts to be violations of the AKS, because they amount to paying someone to choose one provider over another. See, e.g. , United States v. Crescendo Bioscience, Inc. , No. 16-CV-02043-TSH, 2020 WL 2614959, at *10 (N.D. Cal. May 23, 2020) ; United States ex rel. Lutz v. Berkeley HeartLab, Inc. , No. CV 9:14-230-RMG, 2017 WL 5033652, at *2 (D.S.C. Oct. 31, 2017). Federal regulations embrace this reading, setting forth limited exceptions for certain situations in which waivers of deductibles are permissible but otherwise treating the waivers as violations of the AKS. See 42 C.F.R. § 1001.952(k).

The AKS "is a criminal statute, and does not," by its own terms, "create a private right of action."

United States ex rel. Arnstein v. Teva Pharm. USA, Inc. , No. 13 CIV. 3702 (CM), 2019 WL 1245656, at *5 (S.D.N.Y. Feb. 27, 2019) (citing Donovan v. Rothman , 106 F. Supp. 2d 513, 516 (S.D.N.Y. 2000) ). Over the years, however, the United States and qui tam relators developed a practice of pursuing civil FCA claims in which an AKS violation was the "FCA predicate." U.S. ex rel. Wheeler v. Union Treatment Centers, LLC , No. CV SA-13-CA-4-XR, 2019 WL 571349, at *5 (W.D. Tex. Feb. 12, 2019). The logic of these cases, which many courts embraced, was that AKS compliance is a requirement for providing services under federal healthcare programs, and, therefore, submitting claims for payment when one was in knowing violation of the AKS amounted to fraudulently seeking a payment to which one was not entitled. See U.S. ex rel. Pogue v. Diabetes Treatment Centers of Am. , 565 F. Supp. 2d 153, 159 (D.D.C. 2008) ("Legion other cases have held violations of AKS ... can be pursued under the FCA, since they would influence the Government's decision of whether to reimburse Medicare claims.") (collecting cases).

Whether courts were correct in linking the FCA and AKS in early cases may have been debatable; at the very least, that linkage did not expressly appear in either statute. In 2010, however, Congress, "as part of the Patient Protection and Affordable Care Act (‘PPACA’), ... amended the AKS by adding the following language: ‘In addition to the penalties provided for in this section ..., a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of subchapter III of chapter 37 of Title 31,’ i.e., the FCA." Arnstein , 2019 WL 1245656, at *5 (quoting 42 U.S.C. § 1320a-7b(g) ). As a result, the term "false or fraudulent claim," under the FCA, is defined, as a matter of law, to encompass any "claim that includes items or services resulting from" an AKS violation. Since the AKS revision in the PPACA went into effect, therefore, the premise that one can support an FCA claim with an AKS violation has been a creature of statutory text, not merely judicial construction or administrative guidance.

B. This Litigation

Until it ceased operations in December 2017, Arriva sold diabetes supplies, such as glucose meters and test strips, to Medicare beneficiaries. From 2011 until late 2017, Arriva was owned by Alere, and now both entities are owned by Abbott Laboratories. (Docket No. 121 ¶ 1.) On August 1, 2013, an Arriva employee, Gregory M. Goodman, filed an FCA Complaint against Arriva and Alere. (Docket No. 1 ¶ 4.) He accused the companies of "six distinct but related schemes to defraud the federal government." (Id. ¶ 11.) Among Goodman's allegations was that the defendants improperly waived or forgave Medicare Part B patients’ copayment and deductible obligations in violation of the AKS. (Id. ¶¶ 7, 13, 41.) Goodman also alleged that Arriva/Alere routinely billed for glucose meters that it knew were likely to be disallowed under...