United States District Court for the Western District of North Carolina No. 3:17-CV-00037-KDB-DCK, United States ex rel. Taryyn Hartnett and Dana Shoched v. Physicians Choice Laboratory, Philip McHugh, et al.

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The district court denied one defendant’s motion to dismiss claims alleging he participated in a scheme to defraud Medicare. The court found the government adequately pled the who, what, when, where, and how of the alleged scheme. Because the defendant was a co-owner of a closely held concern, the court found it reasonable to infer that he benefited personally from the scheme, which netted millions of dollars in improper payments from Medicare.

Defendant Philip McHugh moved to dismiss claims alleging his role in a scheme to defraud government healthcare programs.

The relators filed their first qui tam complaint against multiple defendants, including McHugh, in the Eastern District of Tennessee. They later filed a similar complaint in the Middle District of Florida, which did not name McHugh. These cases were later consolidated and transferred to the Western District of North Carolina. The United States later opted to intervene in multiple counts and the relators dropped the claims the government did not pursue. McHugh now sought to have the claims against him dismissed.

The relators alleged that Physicians Choice Laboratory Services LLC and its founders and owners—including McHugh—convinced physicians to order drug tests for their patients that were not medically necessary, in exchange for kickbacks.

Specifically, the government alleged that McHugh induced physicians to refer tests to PCLS by providing office equipment and associated services to physicians in exchange for sending their referrals to PCLS. Second, McHugh allegedly entered an illegal contract to pay co-defendant Manoj Kumar to send referrals to PCLS from two physician practices that Kumar managed. Finally, McHugh allegedly made large loans to two physicians in exchange for their referrals to PCLS. PLCS then allegedly submitted claims to Medicare for the testing services provided to the patients referred to PCLS as a result of the alleged kickback schemes.

McHugh argued the government failed to provide sufficient factual details to adequately plead its case with the required particularity. In response, the government argued that it described McHugh’s actions in detail, including the who, what, when, where, and how of the scheme.

The court sided with the government, finding the United States described in sufficient detail that McHugh induced referrals through providing medical diagnostic equipment (analyzers) to physicians; paid co-defendant Kumar to send referrals to PCLS from two physician practices that he managed; and induced referrals through loans to two physicians. The court noted the government identified the participants by name, as well as the remuneration provided; showed when the violations occurred; and described which physician practices participated and how the scheme was planned. The government also identified the number of claims submitted and the amounts. The court found this evidence sufficient to survive a motion to dismiss.

Similarly, the court found the government had sufficiently pled its state law claims for payment by mistake of fact and unjust enrichment. Because the government alleged McHugh was an owner of the closely-held PCLS, the court found it reasonable to infer that McHugh directly benefited and was thus unjustly enriched by the scheme, which netted millions of dollars in improper payments from Medicare.