United States v. Berkeley Heartlab, Inc.

United States of America, et al., Plaintiffs,ex rel. Scarlett Lutz, et al., Plaintiffs-Relators, v. Berkeley Heartlab, Inc., et al., Defendants.

Civil Action No. 9:14-cv-00230-RMG

C/w 9:11-cv-1593-RMG

C/w 9:15-cv-2458-RMG

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH CAROLINA CHARLESTON DIVISION

RECEIVED: July 12, 2017

July 11, 2017

ORDER and OPINION

This matter is before the Court on the United States' motion to exclude Curtis Udell's expert testimony proffered by BlueWave Healthcare Consultants, Inc., Floyd Calhoun Dent, III, and Robert Bradford Johnson (collectively, "the BlueWave Defendants"). (Dkt. No. 443.) For the reasons set forth below, the motion to exclude is granted.

I. Background

The Government has filed a complaint in intervention against the BlueWave Defendants and Latonya Mallory alleging violations of the Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), and the False Claims Act ("FCA"), 42 U.S.C. § 3729(a). (Dkt. No. 75.) The alleged FCA violations arise from BlueWave's marketing of laboratory tests for two laboratory companies, Health Diagnostic Laboratory, Inc. ("HDL") and Singulex, Inc. ("Singulex"), between 2010 and 2014. The Government has alleged that Defendants violated the FCA when they engaged in multiple kickback schemes to induce physicians to refer blood samples to HDL and Singulex for large panels of blood tests, many of which were medically unnecessary. For example, the Government alleges that Defendants offered and facilitated the payment of processing and handling ("P&H") fees to physicians to induce referrals in violation of the AKS and FCA.

II. Legal Standard

a. Daubert

Under Rules 104(a) and 702, "the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). The trial court must ensure that: (1) "the testimony is the product of reliable principles and methods"; (2) "the expert has reliably applied the principles and methods to the facts of the case"; and (3) the "testimony is based on sufficient facts or data." Fed. R. Evid. 702(b) - (d). "This entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid," Daubert, 509 U.S. at 592-93, and whether the expert has "faithfully appl[ied] the methodology to facts," Roche v. Lincoln Prop. Co., 175 F. App'x 597, 602 (4th Cir. 2006). To make this determination, courts consider several factors including: (1) "whether a theory or technique . . . can be (and has been) tested"; (2) "whether the theory or technique has been subjected to peer review and publication"; (3) the "known or potential rate of error"; (4) the "existence and maintenance of standards controlling the technique's operation"; and (5) whether the theory or technique has garnered "general acceptance." Daubert, 509 U.S. at 593-94; accord United States v. Hassan, 742 F.3d 104, 130 (4th Cir. 2014). However, these factors are neither definitive nor exhaustive, United States v. Fultz, 591 F. App'x 226, 227 (4th Cir. 2015) (quoting United States v. Crisp, 324 F.3d 261, 266 (4th Cir. 2003)), and "merely illustrate[] the types of factors that will bear on the inquiry," Hassan, 742 F.3d at 130 (quoting Crisp, 324 F.3d at 266).

Courts have also considered whether the "expert developed his opinions expressly for the purposes of testifying," Wehling v. Sandoz Pharms. Corp., 162 F.3d 1158 (4th Cir. 1998), orthrough "research they have conducted independent of the litigation," Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1317 (9th Cir. 1995) (on remand), and whether experts have "failed to meaningfully account for . . . literature at odds with their testimony." McEwen v. Balt. Wash. Med. Ctr. Inc., 404 F. App'x 789, 791 (4th Cir. 2010).

Rule 702 also requires courts "to verify that expert testimony is 'based on sufficient facts or data.'" EEOC v. Freeman, 778 F.3d 463, 472 (4th Cir. 2015) (quoting Fed. R. Evid. 702(b)). Thus, "trial judges may evaluate the data offered to support an expert's bottom-line opinions to determine if that data provides adequate support to mark the expert's testimony as reliable." Id. The court may exclude an opinion if "there is simply too great an analytical gap between the data and the opinion offered." Id. "The proponent of the [expert] testimony must establish its admissibility by a preponderance of proof." Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001).

The Court is mindful that the Daubert inquiry involves "two guiding, and sometimes competing, principles." Westberry v. Gislaved Gummi AB, 178 F.3d 257, 261 (4th Cir. 1999). "On the one hand, . . . Rule 702 was intended to liberalize the introduction of relevant expert evidence," id., and "the trial court's role as a gatekeeper is not intended to serve as a replacement for the adversary system." United States v. Stanley, 533 F. App'x 325, 327 (4th Cir. 2013), (citing Fed. R. Evid. 702 advisory committee's note), cert. denied, 134 S. Ct. 1002 (2014). On the other hand, "[b]ecause expert witnesses have the potential to be both powerful and quite misleading,' it is crucial that the district court conduct a careful analysis into the reliability of the expert's proposed opinion." Fultz, 591 F. App'x at 227 (quoting Cooper, 259 F.3d at 199).

b. Fair Market Value

Both parties have relied on the definition for fair market value included in the Stark Regulations. Fair market value is defined therein as

[V]alue in arm's-length transactions, consistent with the general market value. "General market value" means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.

42 C.F.R. § 411.351; see also U.S. ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675 F.3d 394, 398 n.7 (4th Cir. 2012). While there is "no rule of thumb that will suffice for all situations," The Centers for Medicare & Medicaid Services ("CMS") has indicated that it "intend[s] to accept any method [to determine FMV] that is commercially reasonable and provides [the agency] with evidence that the compensation is comparable to what is ordinarily paid . . . by parties in arm's length transactions who are not in a position to refer to one another." Medicare and Medicaid Programs; Physicians' Referrals to Health Care Entities With Which They Have Financial Relationships, 66 F. R. 856-01, 944, 2001 WL 7418 (Jan. 4, 2001); Renal Physicians Ass'n v. Dep't of Health & Human Servs., 422 F. Supp. 2d 75, 77-78, 84 (D.D.C. 2006), aff'd sub nom. Renal Physicians Ass'n v. U.S. Dep't of Health & Human Servs., 489 F.3d 1267 (D.C. Cir. 2007); U.S. ex rel. Singh v. Bradford Reg'l Med. Ctr., 752 F. Supp. 2d 602, 629-30 (W.D. Pa. 2010).

III. Relevant Facts

a. CPT Code 99000

Medicare applies the Medicare Physician Fee Schedule ("MPFS") to determine reimbursement for physicians' services. The MPFS uses a standardized coding system called theCurrent Procedural Terminology ("CPT") that identifies each service and the appropriate reimbursement for that service. The CPT codes are published annually by the American Medical Association.

CPT Code 99000 is the code used by physicians to capture the processing and handling services completed by the physician's office to prepare a specimen for transport to a laboratory (i.e., centrifuging, separating serum, labeling specimens, packing specimens, or filling out forms). Code 99000 is an adjunct code, meaning that it cannot be reported independently but must be reported in conjunction with a code for one of the basic services rendered to the patient. During the relevant period, 2009 through 2014, Code 99000 was "bundled" with the physician reimbursement code for Evaluation and Management ("E&M") services. The E&M code covers the costs associated with a patient's visit to an office and evaluation by a physician.

For example, during an office visit with a patient, a physician may identify the need for a blood panel, collect a blood sample from the patient, and prepare that sample for transport to a laboratory. That physician would bill Medicare for reimbursement using the E&M code for an office visit. Although the physician would also record Code 99000 to account for the preparation of the blood sample, Medicare would not separately reimburse him or her for those P&H services because it considers the P&H costs to be "subsumed by the payment for the services to which they are incident."¹

b. Curtis Udell's Fair Market Value Opinion

The Government alleges that Defendants offered and facilitated the payment of P&H fees to physicians to induce referrals in violation of the AKS and FCA. The P&H fees - which purportedly covered physicians' processing, handling and shipping of blood specimens forlaboratory diagnostic testing - were paid pursuant to written P&H fee agreements between HDL and Singulex (hereinafter "the laboratories") and the physicians or their practices. Pursuant to written sales agreements with the two labs, BlueWave marketed the laboratories' testing services to physicians.

The United States has proffered Kathy...