First Circuit upholds Antikickback violation as predicate for False Claims Act charge

by admin | June 6th, 2011

On June 1, the First Circuit Court of Appeals, in U.S. ex rel. Hutcheson v. Blackstone Medical, Inc., reversed a district court’s decision to dismiss a whistleblower’s case. In the case, the relator alleged that the defendant medical device company induced physicians to use its devices in spinal surgeries by a nationwide kickback scheme.
The court rejected two of the defendant’s arguments:

  • “First, we reject the argument that, in the absence of an express legal representation or factual misstatement,a claim can only be false or fraudulent if it fails to comply with a precondition of payment expressly stated in a statute or regulation.”

    The court rejected the lower court’s categorical rule that only statutes or regulations could create the basis for a false implied certification. This approach, the First Circuit reasoned, lacked a basis in the False Claims Act

  • Second, we reject the argument that a submitting entity’s representations about its own legal compliance cannot incorporate an implied representation concerning the behavior of non-submitting entities. These purported limitations do not appear in the text of the FCA and are inconsistent with our case law.

    The company had argued that because hospitals (which certified compliance in cost reports) were uninvolved in the alleged kickback scheme, that alleged conduct could not render the hospitals’ certifications false. The First Circuit disagreed, noting that the Supreme Court, in U.S. ex rel. Marcus v. Hess, had recognized that a non-submitting party could be held liable for causing another to submit a false claim.

The court, applying the standards it described on these issues, held that the provider agreement and the hospital cost report on which the relator relied were sufficient to support her complaint, and that she adequately alleged falsity because those documents certified compliance with the Antikickback Statute, which she alleged the defendants had violated. The court was also unable to say, as a matter of law (at the motion to dismiss stage) that the alleged misrepresentations were immaterial to Medicare’s decision to pay the claims.

In a footnote, the court rejected the company’s argument that the district court’s decision in its favor could be affirmed on first-to-file and public disclosure grounds.

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