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The defendants’ motions to dismiss the government’s complaint in intervention in a qui tam action alleging violations of the False Claims Act, Stark Law, and Anti-Kickback Statute are denied. The court found the government alleged multiple specific instances of claims tainted by the misconduct and demonstrated the defendants had ample knowledge of the laws’ requirements. The court soundly rejected the defendants’ argument that the government’s continued Medicare payments undermined the materiality of the claims, explaining that the filing of a qui tam action did not equate to the government’s knowledge. Rather, the date of the intervention would be considered actual notice to the government. The court also reasoned that the hospital industry would be hard-pressed to accept a rule that required the government to choose between cutting off funding whenever a qui tam action is filed or forfeiting its right to seek reimbursement.

Wheeling Hospital Inc., R&V Associates LTD., and Ronald L. Violi each filed motion to dismiss the government’s complaint in intervention in a qui tam action alleging violations of the False Claims Act, Stark Law, and Anti-Kickback Statute.

The government alleged that while R&V managed Wheeling Hospital and while Violi served as its CEO, they hired dozens of physicians at inflated salaries to capture revenues from those doctors’ patient referrals. To that end, the physician contracts entered into by Wheeling Hospital violated the Stark Law and AKS, and led to the repeated filing of false claims for payment to Medicare.

In their motions to dismiss, the defendants argued the complaint failed to meet the heightened standards of pleading required by Rule 9(b) and does not and cannot satisfy the materiality requirement of the FCA. R&V and Violi also claim that the government has engaged in impermissible “shotgun” pleading and that the government has failed to sufficiently plead scienter. Finally, R&V argued the government failed to allege with sufficient particularity that R&V submitted or caused to be submitted false claims.

First, the court held the complaint did meet the heightened standard of pleading. The government alleged the defendants entered into compensation arrangements with physicians to induce them to refer patients to the hospital and described with specificity a spreadsheet created by the hospital in 2012 that detailed the compensation terms for all of the hospital’s employed physicians at that time. Of the 59 physicians listed, 36 were described as receiving compensation that allegedly took into account those physicians’ referrals. The complaint also alleged that the hospital entered into similarly problematic arrangements with other physicians who would not have appeared on the 2012 spreadsheet, as they left the hospital earlier or joined later, and offers a basis for that allegation.

The complaint also provided the details of fifteen specific Medicare claims that were allegedly tainted by this conduct. The government also asserted the defendants were aware of the laws the allegedly violated, based on their previous experience in the healthcare industry and the fact that they required all employees of the hospital to complete training on AKS and Stark Law compliance. The government also pointed to internal communications demonstrating the defendants’ awareness of the laws. The court found this sufficiently alleged scienter.

Next, the defendants argued that the government’s continued payments after the suit was filed demonstrated that the allegations were not material to its decisions to pay. The court rejected that argument out of hand, explaining that the filing of a qui tam action does not equate to actual knowledge on the part of the government. Rather, the government must be given time to investigate and determine whether the accusations have merit and whether to intervene. The date of the intervention could be considered actual notice to the government, the court said.

The court reasoned that the hospital industry would be unlikely to welcome a rule that required the government to choose between cutting off funding whenever a qui tam action is filed or forfeiting its right to seek reimbursement. The court also noted that the evidence the defendants relied upon to demonstrate they lacked the requisite scienter undercut their argument that the government was aware of the violations as early as 2011, but continued to pay claims.

The court noted that CMS has classified compliance with the Stark Law and AKS as conditions of payment, including on the enrollment forms that defendants signed. In fact, the Stark Law prohibits CMS from paying Medicare claims submitted in violation of the statute. Thus, Congress did not merely label the Stark Law a condition of payment, but imposed it as a mandatory condition, which the court found the strongest possible indication of materiality. Finally, the government’s intervention itself supported the conclusion that compliance was material.

Finally, the defendants criticized the government for a “shotgun” pleading approach, arguing that the complaint makes allegations against the defendants as a group without specifically identifying which defendant did what. The court found such differentiation unnecessary in this case. Wheeling Hospital hired R&V to manage the Hospital. R&V then became the agent for Wheeling Hospital and then provided Violi to act as the CEO. All of the actions described in the complaint were committed in the course and scope of the defendants’ employment, and therefore any misdeeds committed by Wheeling Hospital under the guidance of Violi are imputed to Violi and to R&V. R&V could only act through its two principals, including Violi, and therefore any misdeeds by them are imputed to Violi and to the hospital. Finally, any misdeeds committed by or at the direction of Violi are imputed to both R&V and Wheeling Hospital.