Government Claims Based on AKS Violations False as a Matter of Law; United States District Court for the Middle District of Tennessee, Nashville Division No. 3:13-cv-0760, U.S. ex rel. Gregory M. Goodman v. Arriva Medical LLC, et al.


The district court significantly narrowed a magistrate judge’s order directing the government to engage in broad discovery related to the materiality of its FCA allegations against a healthcare provider. The defendants wanted to the government to examine billings across multiple healthcare providers to determine whether Medicare had paid claims similar to those in contention in this case; presumably, if Medicare had paid similar claims, the government could not show the alleged falsity was material. However, the court agreed with the government’s argument that the Patient Protection and Affordable Care Act rendered FCA claims based on violations of the AntiKickback Act false as a matter of law, and therefore the materiality of the government’s claims was not in dispute and discovery on that issue was not warranted. The court upheld the magistrate’s order on discovery for one remaining claim and directed the parties to work out a reasonable discovery burden for the government.

The United States filed a motion for review of the magistrate judge’s nondispositive order regarding discovery in a qui tam case alleging violations of the Antikickback Act and False Claims Act.

Relator Gregory Goodman alleged that his former employer, Arriva Medical LLC, and its co-defendants improperly waived or forgave Medicare Part B patients’ copayment and deductible obligations in violation of the AKS. Goodman also alleged the defendants routinely billed for glucose meters that it knew were likely to be disallowed under Medicare because the program had already paid for a glucose meter for that patient in the last five years, which, according to the so-called “five-year rule,” made the patient ineligible for a new meter. The government intervened.

The government alleged both that the defendants submitted false claims resulting from AKS violations and that they submitted claims that are actionable under the FCA for other reasons, namely because the relevant patients were dead on the alleged dates of service or because Arriva routinely violated the five-year rule.

On February 21, 2020, the parties filed a joint discovery dispute statement, setting forth three issues on which they had come to an impasse. Issue 3 involved interrogatories from the defendants to the government, asking the government to identify other suppliers that engaged in practices similar to those alleged in the complaint. The defendants also asked the government to admit it knew that other suppliers engaged in those practices and to provide various documents and communications to that effect.

The purpose of the requests was to determine whether Medicare denied claims on the basis of the behaviors alleged in this complaint. If the discovery revealed that Medicare did not treat the conduct as material, the defendants would use that fact to contest whether any fraud occurred.

The government opposed the request on the grounds that it would be expensive and onerous to grant. The government also argued the issue of materiality was not genuinely contestable in this case. According to the government, aspects of the request would effectively require it to investigate every other diabetes testing supplier. The court referred the dispute to the magistrate judge.

On May 8, 2020, the magistrate judge entered an order that acknowledged the government’s arguments that materiality had been established as a matter of law but cautioned that, whether information obtained in discovery can prove lack of materiality or whether materiality is proven as a matter of law are issues to be decided at an appropriate point in this litigation, not during a discovery dispute. Because the information sought therefore might be determinative of materiality, the magistrate judge concluded that it was relevant.

Regarding the burden of producing the information, the judge held that the burden did not justify rejecting the request outright, but did conclude that the request should be limited to 25 specific diabetes testing suppliers that had been identified as a potential compromise by the defendants. The government filed a motion to review the order. In support of its motion, the government submitted evidence suggesting it would take at least 6,100 to 8,200 hours of manual review and some $500,000 to conduct the review.

In response, the defendants argued that the information they requested bears on the question of whether the alleged AKS violations they committed were material to payment under the Medicare program. The government again responded that materiality is not reasonably in dispute in this case and that, therefore, the information sought is either wholly irrelevant or of such minimal relevance that the hardship of the discovery would outweigh its value.

The defendants relied on the Supreme Court’s decision in Escobar rendered relevant the government’s treatment of other similarly situated healthcare providers. Even if the court assumed that it is settled law that AKS violations can support FCA claims, it reasoned that holding would not, in and of itself, resolve the question of whether the particular practices at issue in this case would constitute violations substantial enough to be material.

The court concluded that the only legal obstacle standing between the defendants and challenging materiality pursuant to Escobar, was language in the Patient Protection and Affordable Care Act attaching FCA liability to violations of the law.

The defendants argued that this language had no bearing on the Escobar framework because it makes no mention of materiality, only falsity or fraudulence. Accordingly, while 42 U.S.C. § 1320a-7b(g) would make the issue of falsity beyond dispute in an AKS-based FCA case, the defendants argued the issue of materiality would remain open. However, the court noted that Section 1320a-7b(g) does not say that a claim caused by an AKS violation is false; it says that such a claim, as a matter of law, constitutes a false or fraudulent claim. As the Supreme Court explained in Escobar, the materiality requirement in that provision is read into the phrase false or fraudulent claim, because materiality is a requirement for fraud at common law and for falsity based on an omission.

Accordingly, because 42 U.S.C. § 1320a-7b(g) states that a claim caused by an AKS violation “constitutes a false or fraudulent claim” as a matter of law, the court held it requires the courts to treat the question of materiality—just one element of that term—as resolved.

The defendants urged the court to treat this PPACA language as relevant but not determinative of materiality. However, the court held the rule was not merely an assertion that AKS compliance is a condition of payment, but says instead that claims resulting from AKS violations categorically satisfy the “false or fraudulent claim” requirement of the FCA. The court found no room for a holistic inquiry when Congress has chosen instead to mandate a categorical rule.

The court noted that although the FCA’s statutory definition of “material” refers to the “tendency to influence, or be capable of influencing…payment or receipt,” that is simply not, as a purely grammatical matter, how the term is used in 31 U.S.C. § 3729(a)(1)(B) once one adds the PPACA’s amendment to the definition of “false or fraudulent claim.” That clause forbids knowingly making, using, or causing to be made or used a false record or statement material—not to payment—but to a false or fraudulent claim. The court held that “false or fraudulent claim” is a term of art that categorically includes claims resulting from an AKS violation, regardless of materiality to any payment decision.

The court held the government correctly argued that there was no contestable issue of materiality with regard to the government’s AKS-based claims. Even if the defendants were permitted to engage in the discovery they have requested, and they uncovered the type of information that would support a finding of immateriality under Escobar, it would have no bearing on the government’s claims, because the PPACA has rendered all claims resulting from AKS violations “false or fraudulent claims” as a matter of law. To the extent the magistrate judge ordered the production of this material on the premise that material might be factually contestable, the court found this a clear error.

The defendants also argued that they should be permitted the discovery related to the Medicare program’s treatment of other providers, in light of the government’s stated intention to pursue two theories of liability that do not rely on the AKS and therefore do not implicate the PPACA. In response, the government argued that the materiality of the remaining allegation was not in dispute.

The court found the government made a persuasive argument about the allegation the defendants billed for materials for dead patients. The court found it arguable that, when a defendant bills for a product or service provided to a dead person, the biller is impliedly certifying that they are complying with the condition that the patient is alive. However, the court found a simpler reason such claims are false: the biller has claimed to have provided a service to a person to whom they did not, because the person was deceased. There is no implied certification required when a fact at the heart of a claim is false on its face. The court noted defendants had not identified any reason, factual or legal, for doubting that the Medicare program only covers claims for diabetes supplies provided to actual, living Medicare beneficiaries.

In contrast, the court held the five-year rule an open issue. None of the parties suggested that claims to Medicare for glucose meters include an express certification that the patient has not received a meter in the last five years or that the five-year rule inherently goes to the heart of a Medicare claim. Therefore, the court held that the alleged fraud was of the type that Escobar would consider a misleading omission regarding compliance. Further, the court found no statutory provision—like the PPACA AKS amendment—that would take the issue of materiality out of the fact-intensive Escobar framework. Therefore, the court held that discovery into the Medicare program’s actual enforcement of the five-year rule was supported by Escobar, as long as the factors other than relevance do not outweigh the established relevance of the information sought.

In opposition, the government argued that the materiality of the five-year rule is undisputed, because (1) three Arriva executives testified, during the government’s pre-intervention investigation, that their understanding was that Medicare does not pay claims filed in violation of the rule, and (2) Medicare claims data indicates that Arriva’s claims were, in fact, frequently denied on that basis. However, while those facts are relevant, the court held the government had not established any basis for concluding those facts rendered the issue undisputed. Even if the evidence suggested that Medicare treated the five-year rule as material to Arriva’s claims, that did not necessarily mean that Medicare did the same with regard to other billers. The court reasoned that Medicare might single out Arriva for enforcement, while other companies were not subject to the same scrutiny. While the government might consider that scenario unlikely, the court reasoned it was not wholly implausible.

Finally, the court considered the government’s argument about the hardship of the discovery request. As an initial matter, the defendants argued the government waived the hardship issue because it did not present the evidence of the required resources to the magistrate judge.  However, while the court was sympathetic, it disagreed, finding no basis to conclude it lacked the discretion to consider the evidence. The court found that the evidence offered by the government was relevant and persuasive. Further, the court found the government’s failure to introduce the evidence earlier at least somewhat excusable in light of the limited written briefing before the magistrate judge.

In addition, even without considering the new evidence, the court found reason to question the breadth of the defendants’ requests, which essentially call on the government to conduct an industry-wide audit of companies providing diabetes testing supplies to Medicare patients. Even the “reduced” request for the government to investigate 25 providers would be a great deal of discovery, the court concluded.

Further, the court’s narrowing of the finding of relevance raised new questions about whether so broad an inquiry is necessary. According to the briefing, the government was able to document much of Arriva’s history under the five-year rule through historical Medicare data, and the court reasoned it would be possible to do the same for other companies. The court ordered the parties to work out an agreement on discovery on the five-year rule under more narrow parameters. The court cautioned the defendants to remember that their requests should be tailored to the specific issues of materiality raised by this case and that, while Escobar addressed relevance, nothing in the case negated the importance of weighing relevance against hardship. The court encouraged the government to remember that, given that it chose to spend over five years’ worth of resources on its one-sided investigation, it bears a heavy burden in arguing that, now that the defendants have a turn, the government’s means are too scant to cooperate.

FCA - Goodman v. Arriva