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Motion to dismiss a qui tam case alleging violations of the Stark Act, Anti-Kickback Statute, and False Claims Act is denied, where the government plausibly alleged the defendants paid improper payments to physicians in exchange for their referrals of patients to the defendants’ home health care services. The defendants argued the allegations were not specific, but the court found the government explained in detail how the defendants disguised improper kickback as employment salaries, paid physicians for work they did not do, and paid physicians’ spouses for the doctors’ referrals. The court rejected the defendants’ assertion that the government failed to show that safe harbors did not apply, as this is an affirmative defense the government was not required to disprove at this stage. The court also explained the government did not have to allege a specific agreement to submit false claims, as the allegations that physicians were paid to induce referrals was sufficient.

The court also declined to dismiss the motion to dismiss allegations of reverse false claims, as the government did not have to allege a false claim to assert that the defendants failed to repay an overpayment. The allegation that the defendants knowingly retained an overpayment was sufficient. Similarly, the court allowed claims of unjust enrichment and payment by mistake to proceed, as the government was entitled to recovery the money it erroneously paid to the defendants.

The case:

Doctor’s Choice Home Care Inc. and co-defendants Timothy Beach and Stuart Christensen moved to dismiss a qui tam complaint alleging they submitted false claims and false statements in relation to their home healthcare organization, and were responsible for reverse false claims.

Relator Corina Herbold initiated this qui tam False Claims Act case against the defendants in 2015, and the United States elected to intervene in 2019. Herbold alleged that Beach and Christensen, while employed by Doctor’s Choice as president and vice president/CEO respectively, also owned a home health care services company called Health at Home Homecare LLC. The complaint asserts that Doctor’s Choice jointly marketed their services with Health at Home and encouraged Doctor’s Choice account executives to generate referrals of patients to Health at Home. As a result of this activity, Doctor’s Choice submitted Medicare claims in which it attested to its compliance with various requirements, including the Stark Act and Anti-Kickback Statute.

The United States alleged that the defendants entered into sham agreements with three separate physicians to serve as Medical Directors for the purpose of inducing and rewarding referrals. Each of the three physicians was in a position to refer patients to Doctor’s Choice, and the arrangements provided for payments based on the volume and value of referrals. According to the government, none of the three implicated physicians performed the work they billed as DCHC Medical Directors, yet the defendants continued to make payments in exchange for the patient referrals. For example, one physician billed for one hour for reviewing a patient chart, when in reality, he spent a fraction of the time on this task and signed the chart without making any meaningful review. In one instance, the defendants fired an account executive who questioned the doctor’s invoices for these activities.

The government also alleged the defendants fired medical directors who did not refer as many patients as the defendants hoped, and replaced them with directors who made more referrals. Further, even after an allegedly underperforming director left Doctor’s Choice and accepted employment with a competitor, Beach informed the doctor that he “owed” half his referrals to Doctor’s Choice, and threatened to inform state and federal agencies of the improper invoice practices if he did not comply.

The government also alleged that the defendants made payments to the wives of physicians for referrals their doctor spouses made to Doctor’s Choice for home health services. The defendants disguised these payments as employee salaries and referral bonuses, even though the doctors’ spouses did not perform any meaningful work. When one spouse terminated her employment, the rate of referrals from her husband decreased dramatically.

The defendants moved to dismiss all five causes of action. First, they challenged the assertion that they had presented or caused to be presented any false claims. However, the court found the government plausibly alleged the defendants had knowingly violated various anti-kickback laws and yet certified their compliance when they submitted claims to Medicare.

The defendants argued the government had not sufficiently pled violations of the Anti-Kickback Statute and Stark Law, nor identified false claims tied to specific illegal referrals. The defendants asserted the government had failed to show that the payments to their physicians were prohibited, nor that the payments were intended to induce referrals. Finally, the defendants argued the government had not identified any actual false claims.

However, the court was unpersuaded, finding the allegations satisfied the requirement to identify the who, what, when, where, and how of the scheme. The court found it clear that prohibited remuneration includes the transfer of items or services for less than fair market value. In this case, the defendants paid physicians for work they did not do, or performed in far less than the time claimed, and the court found the government provided numerous specific examples.

While the defendants argued their Medical Director Agreements set rates for reimbursement, the government successfully argued the agreements were shams intended to disguise the improper payments for referrals. In fact, the evidence included internal emails between the defendants expressly stating their dissatisfaction with the rate of referrals of several physicians, who were terminated and replaced.

The defendants argued their actions fell under the safe harbors of the Anti-Kickback Statute or had other explanations, but the court was not persuaded. First, the court explained that the personal services and management contracts safe harbor is an affirmative defense under the Anti-Kickback Statute, and the United States is not required to prove such an affirmative defense is inapplicable at the motion to dismiss stage. Regardless, the court found the complaint contained allegations showing the safe harbors don’t apply. The court also was unconvinced by the alternative interpretations offered by the defendants. Even if Doctor’s Choice had legitimate reasons for hiring Medical Directors, that did not render the United States’ allegations implausible.

Further, the court noted that the complaint did not have to allege a specific agreement between the defendants and their medical directors to submit false claims, as this is not required by the Anti-Kickback Statute. The court found it sufficient that the government pled with particularity that Doctor’s Choice paid physicians to induce referrals.

The court also found the government provided detailed allegations about specific false claims. The complaint identified the relevant doctor’s pattern of referrals before, during, and/or after the improper remuneration was paid; identified how much remuneration was paid throughout the specified time period; and identified representative claims the doctor referred to Doctor’s Choice – that it in turn submitted to Medicare, and for which it was paid – during the period improper remuneration was paid.

Next, the defendants challenged the claims related to Stark Law violations. First, they argued the government had not sufficiently pled a financial relationship, nor referrals for designated health services. Finally, they argued the government failed to plausibly negate the bona fide employment exception.

Again, the court was unpersuaded. The court found the government had pled a financial relationship between the defendants and the relevant doctors. Specifically, the relator was one of the physician’s spouses who was hired by Doctor’s Choice and given compensation based on her husband’s patient referrals. The court found this satisfied the standard of demonstrating a financial arrangement with a physician or member of a physician’s immediate family. Though the complaint did not state the exact date or dollar amount of specific commissions, the allegations provided sufficient indicia to support that the prohibited commissions were paid.

Next, while the defendants argued the complaint merely alleged the referral of patients for unspecified “services,” the court explained the defendants misread the complaint, as it did note what services were involved.

Finally, the court noted the bone fide employment exception to the Anti-Kickback Statute is an affirmative defense and therefore it is the defendants’ burden to plead it.

For the same reasons, the court rejected the defendants’ assertion the government failed to show they had knowingly submitted or caused the submission of false claims.

Next, the defendants challenged the allegations of reverse false claims. The government alleged the defendants knowingly concealed or improperly avoided or decreased an obligation to repay payments to which they were not entitled from the Medicare Program because those claims were tainted by illegal kickbacks paid to the referring physicians and/or prohibited financial relationships with the referring physicians.

Doctor’s Choice argued the government failed to sufficiently allege a cause of action for reverse false claims because such allegations are entirely derivative of the alleged Anti-Kickback Statute and Stark Law violations. However, because the earlier challenges failed, the court reasoned that this challenge also failed. Alternatively, the defendants argued that, if the allegations in Count One were sufficient, these claims were redundant. The court disagreed, because the government alleged an independent obligation to repay the overpayments. Further, the government did not have to allege a false claim to assert that the defendants failed to repay an overpayment. The allegation that the defendants knowingly retained an overpayment was sufficient. The court noted the complaint plausibly alleged the defendants knew their claims were tainted by the payment of improper kickbacks and yet retained their payments anyway.

Next, the defendants challenged the claims of unjust enrichment and payment by mistake. The government argued it had conferred a benefit on the defendants by paying Doctor’s Choice for claims referred by their medical directors, which were tainted by illegal kickbacks to those physicians or tainted by prohibited financial relationships with those physicians. The court found this plausibly alleged and rejected the motion to dismiss, finding the government reasonably asserted it was entitled to recover the monies paid to the defendants. Again, the defendants argued the claims were wholly derivative of insufficiently pled FCA violations, and again the court disagreed, noting that these claims were pled in the alternative to the FCA claims and were independent of the FCA.

Finally, the defendants argued the case should be dismissed with prejudice, or alternatively, that the relator should be dismissed as a plaintiff, because the relator breached the court’s seal order by publicly disclosing the nature of the complaint. First, the defendants argued the relator discussed her action in her bankruptcy filing, and second, she discussed the case with a co-worker at a different home health care company.

However, the court declined to dismiss, first finding no evidence the government was harmed by the disclosure. While the relator’s second violation seemed willful, the court found that dismissing the case altogether was not an appropriate remedy. The court also was not convinced Harbold should be removed as a relator, as less drastic sanctions, such as reducing her share of the potential recovery, could suffice to discourage future violations.