United States v. Lab. Corp. of Am. Holdings

United States of America, et al., ex rel.Scarlett Lutz and Kayla Webster, Plaintiffs/Relators, v. Laboratory Corporation of America Holdings, Defendant.

C/A No. 9:14-3699-RMG

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH CAROLINA BEAUFORT DIVISION

June 15, 2021

ORDER AND OPINION

Before the Court is Defendant Laboratory Corporation of America Holdings' ("LabCorp") motion for summary judgment. (Dkt. No. 326.) For the reasons set forth below, the motion is denied.

I. Background

This is a qui tam action in which the United States of America declined to intervene. Relators allege that, from approximately early 2010 to mid-2014, LabCorp's in-office phlebotomists ("IOPs"), who are blood draw and processing technicians employed by LabCorp and stationed by LabCorp inside doctors' offices, drew blood from patients at the doctors' request and with knowledge that the doctors were receiving illegal kickbacks (referred to as processing and handling fees, or "P&H fees") from third-parties Health Diagnostic Laboratory and Singulex, Inc. (collectively, "HDL/S") in exchange for the doctors referring the blood that the IOP had drawn to be tested by HDL/S. Relators claim that LabCorp's was aware that the doctors were receiving kickbacks from HDL/S, as evidenced by, among other things, LabCorp' s 2013 and 2014 anonymous requests for Special Fraud Alerts from the Office of Inspector General ("OIG") on HDL's P&H payments. HDL/S billed the federal government for those lab tests under the patients' Medicare Part B coverage, which Relators allege were tainted by the kickback and therefore in violation of the Anti-Kickback Statute ("AKS"). Relators further allege that LabCorp drew blood to be tested by HDL/S if the doctors also referred blood to be tested by LabCorp. LabCorp then itself billed the federal government for that test, even though it had induced the referral and provided the blood test at no charge to the doctor. Although, in at least one region of LabCorp's business, LabCorp requested the doctors pay a $5 blood draw fee. A blood draw for testing at two labs was done via a single venipuncture to the patient, referred to by LabCorp as a "courtesy draw" because the patient was spared from two venipunctures for two tests. (Dkt. No. 50.)

LabCorp previously moved to dismiss the portions of every claim predicated on allegedly medically unnecessary tests, as well as Count II for reverse false claims, Count III for violation of California law, and Count IV for violation of Illinois law. LabCorp did not move to dismiss the portions of claims predicated on violation of the AKS. The Court granted in part and denied in part LabCorp's motion, dismissing the portions of each claim predicated on medically unnecessary tests, as well as dismissing Count II, Count III and Count IV. (Dkt. No. 72.) The remaining claim is Count I, under which Relators allege that LabCorp violated the FCA in three ways: (1) knowingly causing HDL/S's false claims to be presented, § 3729(a)(1)(A); (2) knowingly presenting its own false claims, § 3729(a)(1)(A); and (3) conspiring with HDL/S to knowingly cause HDL/S to present false claims or to present its own false claims, § 3729(a)(1)(C). (Dkt. No. 50 ¶¶ 582-588.)¹

II. Legal Standard

Summary judgment is appropriate if a party "shows that there is no genuine dispute as to any material fact" and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A dispute is "genuine" if the evidence offered is such that a reasonable jury might return a verdict for the non-movant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if proof of its existence or non-existence would affect disposition of the case under applicable law. See id. Therefore, summary judgment should be granted "only when it is clear that there is no dispute concerning either the facts of the controversy or the inferences to be drawn from those facts." Pulliam Inv. Co. v. Cameo Props., 810 F.2d 1282, 1286 (4th Cir. 1987).

"In determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities in favor of the nonmoving party." HealthSouth Rehab. Hosp. v. Am. Nat'l Red Cross, 101 F.3d 1005, 1008 (4th Cir. 1996). The movant bears the initial burden of demonstrating that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party must demonstrate specific, material facts that give rise to a genuine issue. See id. at 324. "Conclusory or speculative allegations do not suffice, nor does a 'mere scintilla of evidence'" in support of the non-moving party's case. Thompson v. Potomac Elec. Power Co., 312 F.3d 645, 649 (4th Cir. 2002) (quoting Phillips v. CSX Transp., Inc., 190 F.3d 285, 287 (4th Cir. 1999)).

III. Discussion

A. Violation of § 3729(a)(1)(A) by Knowingly Causing False Claims to be Presented by HDL/S

The FCA imposes liability on "any person who knowingly . . . causes to be presented, a false or fraudulent claim for payment or approval." § 3729(a)(1)(A). In other words, the "FCA also reaches claims that are rendered false by one party, but submitted to the Government by another." United States ex rel. Rector v. Bon Secours Richmond Health Grp., No. 3:11-cv-0038, 2014 WL 1493568, at *9 (E.D. Va. Apr. 14, 2014). A corporation is a "person" under the statute. Cook Cnty. v. United States ex rel. Chandler, 538 U.S. 119, 126-27 (2003).

1. "Knowingly"

The FCA defines "knowingly" to "mean that a person, with respect to information, has actual knowledge of the information; or acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information; and require[s] no proof of specific intent to defraud." § 3729(b)(1). The purpose of this scienter requirement is to avoid punishing "honest mistakes or incorrect claims submitted through mere negligence." United States ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir. 2010). "FCA claims require a relator to show only that the defendant had knowledge of the illegality of its actions, rather than specific intent to defraud." United States ex rel. Oberg v. Penn. Higher Ed. Assistance Agency, 912 F.3d 731, 735 (4th Cir. 2019) (emphasis in original). "Summary judgment is seldom appropriate in cases in which particular states of mind are decisive elements of [the] claim or defense, because state of mind is so often proved by inferences from circumstantial evidence and by self-serving direct evidence" and "knowledge is such a state of mind." Magill v. Gulf & W. Indus., 736 F.2d 976, 979 (4th Cir. 1984). Moreover, "the issue of fraudulent intention is generally not amenable to resolution on summary judgment[because] when evidence of intention is ambiguous, summary judgment simply cannot be awarded." United States ex rel. Bunk v. Gov't Logistics N.V., 842 F.3d 261, 276-77 (4th Cir. 2016) (internal citations omitted). But this does not mean that summary judgment is never appropriate on the element of knowledge. See, e.g., Dalton v. Cap. Assoc. Indus., 257 F.3d 409, 418 (4th Cir. 2001) (upholding summary judgment where, "[e]ven though summary judgment is seldom appropriate on whether a party possessed a particular state of mind, evidence that [defendant] acted willfully [was] wholly lacking"). "Therefore, in order for summary judgment to be appropriate, it must be clear that there is no issue of material fact as to whether [defendant] acted with the requisite mental state—here, scienter." Skibo on behalf of United States v. Greer Labs., Inc., 841 Fed. App'x 527, 532 (4th Cir. 2021).

Reviewing this record in a light most favorable to Relators, there are disputes of material fact as to whether LabCorp acted in reckless disregard to the falsity of the information. First, the record reflects that at least some doctors were paid P&H fees, such as where one doctor testified that she was paid before and while she referred tests to HDL/S. (Dkt. No. 362-23 at 8.) But LabCorp states that it "did not learn that possibility [of HDL/S paying doctors P&H fees] until mid-2012, when complaints increased." (Dkt. No. 327 at 15.) The record does reflect that by August 2012, LabCorp was aware that its IOPs had been drawing blood for doctors who were "getting paid by HDL" and "that HDL calls the fee a 'process and handling fee.'" (Dkt. No. 373-12 at 5.) But the record also reflects that, prior to mid-2012, LabCorp was aware that certain doctors who used LabCorp IOPs had increased their billing while referring tests to HDL/S. For instance, in January 2011 a LabCorp employee "discovered" that a doctor, whose billing had increased from $7,000 in November to $15,000 in December, had "also recently started doing HDL labs toward the end of December. [The doctor] told Mike and I that he is going to doHDLs on his pts to get a base-line Cardiac Status. Then he will do NMRs and Lipid Cascades on all follow-ups thereafter. We have a LCA IOP at this account." The internal response to this message was, "If we are drawing the lab, we are fine with drawing the lab," and that "[t]he account is getting $20-$30 per patient for the draw-process." (Dkt. No. 366-29 at 3.) However, the record also reflects that a different doctor testified that in her office, the IOP would only draw blood for LabCorp's own testing, after which a different phlebotomist would physically takeover the venipuncture to draw additional blood for other labs to test. (Dkt. No. 362-23 at 8.) Even if some doctors had a non-LabCorp phlebotomist takeover the venipuncture for non-LabCorp testing, the record reflects that LabCorp considered this practice inappropriate when it, for instance, noted that "because we believe that [a doctor's practice] is being reimbursed by HDL for the draws, we cannot be providing that service for them whether the needle is in the arm already or not."...