The district court dismissed numerous federal and state FCA claims, finding that the relator failed to connect an alleged kickback scheme to the submission of false claims to government healthcare programs. While the relator asserted that a certain percentage of the defendant physicians’ patients were eligible for Medicare, the court found no reliable indicia that the doctors had performed procedures using devices allegedly tainted by kickbacks. The court also found no evidence that the physicians provided no value to the device manufacturer through their intellectual property contracts, other than the relators’ conclusory statements. The court allowed the relators leave to amend, finding that the allegations cleared the public disclosure and first-to-file bars. The court found that various news articles addressed a similar kickback and fraud scheme, but one that was distinct from the current allegations. The court also found that two prior lawsuits did not trigger the first-to-file bar because they were not filed under the FCA.
The defendants in a qui tam case alleging healthcare fraud filed multiple motions to dismiss, challenging the allegations under the public disclosure and first-to-file bars and arguing the claims were not alleged with the requisite particularity.
Relators Michael Stahl and William filed this action against Orthopedic Alliance, LLC; its owners and operators, Roger Williams and Mary Sisler Williams; nine doctors, including Thomas Ferro, Donn Fassero, Kourosh Shamlou, Kevin Park, Milind Panse, Uchenna Ralph Nwaremi, Russell Todd Nevins, Randy F. Davis, and Elliott Clemence; and five companies owned by the doctor defendants, including Thomas Ferro M.D.; Davinci Orthopedic Technologies LLC; Kourosh Shamlou M.D. Inc.; Kevin Park M.D. Inc.; and Masko Holdings LLC. The relators alleged the defendants defrauded federal and state health insurance programs through a massive kickback scheme involving Orthopedic Alliance hip and knee implants.
Specifically, the relators alleged that Orthopedic Alliance and its owner/operators Defendants Roger Williams and Mary Sisler Williams paid the other defendants illegal kickbacks for using their hip and knee replacement hardware under the guise of intellectual property contracts wherein the doctors allegedly provided no actual intellectual property. In addition to contract payments, the doctors allegedly received expensive dinners and free trips. The relators also alleged that Orthopedic Alliance fraudulently marked up prices on its hardware. Because the claims for the hip and knee replacement hardware were tainted by kickbacks, the relators alleged all related claims were false.
Defendant Elliot Clemence challenged the court’s jurisdiction, arguing he did not have the requisite contacts with California for a showing of general or specific personal jurisdiction. The relators argued the court has broad jurisdictional power, and that the court had specific personal jurisdiction based on Clemence’s transactions with residents of California, including Orthopedic Alliance and its owner/operators. The court sided with the relators, finding that the FCA’s nationwide service of process provision provided jurisdiction over Clemence as long as he had minimum contracts with the United States as a whole.
Next, the court considered a motion to dismiss under the public disclosure bar. Because the claims straddled the year 2010, the court considered both the pre- and post-2010 versions of the bar, noting that the 2010 amendments narrowed its scope. Before the amendments, “disclosures in federal and state trials and hearings” qualified as public disclosures, as did “disclosures in federal and state reports, audits, or investigations.” After the 2010 amendments, “only disclosures in federal trials and hearings and in federal reports and investigations qualify as public disclosures.”
The defendants cited to three news articles, two state court lawsuits, and a published FDA warning letter for the basis of the public disclosure argument. The court agreed to take judicial notice of the documents and concluded first that the news articles were a public disclosure under both versions of the bar. While the contents of the two state court lawsuits were discussed by the news articles and could be considered under both statutes, relying on the lawsuits themselves would only fall under the scope of the pre-2010 statute. Finally, the court held that the published FDA warning letter was both a “federal report, audit, or investigation” and a disclosure through the news media and therefore was a public disclosure under both versions of the statute.
Next, the court considered whether the allegations were based on these public disclosures, and concluded the alleged fraud could not be inferred from the publicly disclosed information. The court found the news articles permitted the court to infer that Orthopedic Alliance was misbranding hip and knee devices and that it had been accused of involvement in a kickback scheme over spinal implants that included, inter alia, the participation of doctors, payments through corrupt contracts, and trips on company jets for personal use.
While some facets of the alleged schemes were similar to the allegations in the current case, the court noted the news articles did not allege any fraudulent activity beyond misbranding to hip or knee implants. Further, the FDA’s warning letter about misbranding hip and knee devices, even in combination with alleged fraudulent behavior in the past over different implants, was not enough for a reasonable person to infer the fraud alleged in this complaint. While the schemes were similar in nature, the court held they were not substantially similar and found that the complaint was not barred.
Next, the defendants challenged the claims under the first-to-file bar, arguing that the lawsuits cited above concerned substantially the same allegations. However, the court noted those lawsuits were not brought under the FCA, so this action was not barred.
Next, the court turned to the merits of the allegations. The defendants argued the relators had not adequately pled that false claims were submitted to Medicare. The court agreed. While the complaint laid out the kickback scheme, the court found none of the alleged conduct was connected to the submission of a false claim to Medicare. The court found the relators’ allegations about the intellectual property contracts to be purely conclusory, as the relators provided no evidence the physicians provided no benefit to Orthopedic Alliance in exchange for the contract payments. Further, the court noted these allegations also did not allow for a strong inference that claims were submitted.
In their complaint, the relators alleged that 68 percent of patients receiving Orthopedic Alliance hip and knee replacement hardware were 65 and older, making them eligible for Medicare. However, the court found this allegation still did not constitute reliable indicia of the submission of false claims. Similarly, while the relators alleged the doctor defendants billed Medicare for hip and knee replacement services, the court found no evidence to support this assertion. The court noted the doctors could have performed any number of treatments other than replacement services. The fact that the doctors submitted claims to Medicare—without any evidence of what services were provided—failed to create a factual basis for the court to infer the submission of false claims.
The relators also brought claims under the California False Claims Act, on the same grounds, and the defendants moved to dismiss on the same basis. Because the state claims were based on the same alleged facts as the federal claims, the court found them similarly deficient.
Next, the defendants sought to dismiss claims brought under the California Insurance Frauds Prevention Act, and the court granted the motion, based on the relators’ failure to assert the submission of actual false claims connected to the alleged kickback scheme.
Finally, the defendants challenged all the claims under various statutes of limitations. The defendants argued that the FCA and CFCA claims based on conduct occurring before June 6, 2010, are time barred, that the CIFPA claims based on conduct occurring before June 6, 2008, are time barred, and that the claims against defendants Clemence, Shamlou, and Park are time barred.
First, the court held the claims were not time-barred under the FCA. While the parties disputed whether the government knew or should have known of the alleged scheme prior to the filing of the complaint, the court found the question could not be resolved at this juncture, based on the contents of the complaint.
Next, the relators agreed that the CIFPA claims based on conduct occurring before June 6, 2008, are time barred. Therefore, the court barred the relators from alleging conduct that occurred prior to that date as a basis for the CIFPA claims.
Finally, the court declined to dismiss the claims against the individually named defendants, as there remained a question of which limitations period applied.
