Refusal to Engage in Fraudulent Activity Also a Protected Activity; United States District Court for the Central District of California No. CV 17-8446 PSG (JPRx), U.S. ex rel. Charles Puhl v. Terumo BCT, et al.


The district court denied the defendants’ motion to dismiss a qui tam case alleging they violated the False Claims Act by misleading healthcare providers into using incorrect billing codes to induce Medicare to pay claims that were otherwise not reimbursable. The defendants argued the relator had not shown they had overrode physicians’ judgment about their billing practices, but the court found the complaint plausibly alleged the defendants’ sales representatives directly instructed healthcare providers to use billing codes for reimbursable procedures, rather than the correct codes, and concocted explanations for why the incorrect codes could be use. The court explained that “trickery” was not the standard for causation; rather, the relator only had to show the alleged scheme contributed to the submission of false claims. The court also denied the motion to dismiss two claims of employment retaliation, explaining that the relator’s refusal to engage in the scheme or involve his employee team was sufficient to put the defendants on notice that he engaged in protected activity. While the defendants argued the relator did not “investigate” fraud, the court explained that an investigation was not the only avenue to protected status.

Defendants Terumo BCT Inc., Terumo Corporation, Terumo Americas Holding Inc., Harvest Technologies Corporation, and Health Benefit Advocates Inc. moved to dismiss a qui tam complaint alleging healthcare fraud.

Relator Charles Puhl, a former employee of Harvest and Terumo, alleged that the defendants concocted an upcoding scheme to convince healthcare providers to use their platelet-rich plasma and bone marrow aspirate concentrate products in medical procedures. According to the relator, the defendants engaged in the scheme because Medicare and many private insurers will not reimburse for these treatments.

Puhl alleged that defendant Health Benefit Associates, a third-party contractor, would direct providers to use a billing code indicating they performed a skin graft procedure, when in reality they used PRP or BMAC products. The defendants instructed their salespeople to tell providers to use this alternate code because PRP is a type of tissue graft, when in reality it is not, because they knew Medicare and private insurers would reimburse for tissue grafts. For BMAC procedures, providers were instructed to use a billing code indicating a bone graft procedure had been performed, for the same reason.

The relator alleged that Blue Cross/Blue Shield requested $80,000 in reimbursements from a Terumo healthcare provider client after it incorrectly billed PRP as a tissue graft procedure. He also alleged that Medicare told another Terumo customer that no CPT code covered PRP therapy because it was deemed experimental.

After HBA’s owner pleaded guilty to Medicare fraud, Terumo severed ties with the company, but looked for a replacement service to continue the billing scheme. According to the relator, his employer asked him to involve his sister, an administrator for a healthcare provider, in the scheme, by having her call HBA pretending to be a BMAC customer, and ask for fraudulent billing codes. The relator declined to make this request and informed his superiors that he would not put his sales team at risk of perpetrating fraud by engaging in the scheme. According to the relator, he was terminated soon after.

In their motion to dismiss, the defendants argued the relator had not pleaded they caused the submission of false claims; had not plausibly pleaded a scheme to defraud; and failed to allege knowledge.

Specifically, the defendants argued the relator had not shown how they induced healthcare providers to use incorrect billing codes to induce Medicare reimbursements. They argued the relator had not shown that they undermined providers’ independent medical judgment and caused them to submit false claims. However, the court found the pleadings adequate to show causation. The relator alleged the defendants’ sales representatives lied to providers to convince them that PRP and BMAC procedures were akin to Medicare-reimbursable procedures, and provided them with the billing codes. According to the relator, the providers could not have induced these reimbursements without detailed billing instructions from the defendants. The court held that the false billings were not only foreseeable based on the defendants’ conduct, but an actual intended consequence of the scheme.

The court also clarified that “trickery” is not the standard to show causation. Instead, a relator must describe how the scheme was a substantial factor in bringing about the false claims. Because the relator specifically alleged the defendants manipulated physicians’ judgment, the court found the complaint adequately alleged causation.

Next, the defendants argued the scheme was implausible, first maintaining that the causal chain of tricking providers into providing false claims to Medicare was implausible. They also argued that Medicare’s continuous reimbursement for BMAC and PRP over twelve years makes it implausible that the claims were false; instead, Medicare knowingly paid reimbursable claims for these therapies.

In response, the relator noted that the first argument was merely a rehash of the defendants’ causation argument. Second, the relator maintained that the latter argument asks the court to improperly draw inferences in the defendants’ favor, namely that BMAC and PRP were reimbursable. The court agreed, finding the complaint plausible. The court found the relator adequately alleged the defendants misled healthcare providers, as noted above. Further, the fact that the defendants offered an alternative explanation for Medicare reimbursements was not enough to render the relator’s allegations implausible. The fact that Medicare accepted claims for reimbursement did not render the allegations void.

Finally, the defendants argued that the relator alleged no facts showing that they knew that providers would misuse the codes provided. However, the court disagreed, finding the relator alleged the defendants knew that their practices would lead to false claims. The court found this sufficient to satisfy the pleading requirements. Further, the relator alleged the defendants concocted the scheme for the express purpose of submitting false claims.

The court also denied the defendants’ motion to dismiss the state claims, for the same reasons stated above.

Finally, the defendants sought to dismiss the relator’s claim of employment retaliation, arguing that Puhl did not engage in any protected activity, because he did not investigate anything. They also argued that Puhl did not allege the defendants knew he engaged in protected activity, making it impossible for them to retaliate against him. In response, the relator argued that he engaged in protected activity because he repeatedly refused to engage in the scheme. According to the relator, the defendants should have known that he was engaged in protected activity based on those refusals.

The court sided with the relator. The court noted that he refused to engage his sister in the scheme and that he directly confronted two of defendants’ corporate officers about the scheme, telling them that he was not willing to place his sales team at risk by directly involving them in handing out fraudulent billing advice. While the defendants argued this did not amount to an “investigation” into fraud, the court explained that investigation is not needed to plead protected activity. Further, the court reasonably inferred knowledge based on these repeated refusals of corporate directors, combined with the relator confronting them.