D.Mass. dismisses qui tam, disagreeing with whistleblowers' Antikickback Statute theory; denies transfer and public disclosure motions

by Ben Vernia | March 23rd, 2010

In a March 12 decision, District Judge William Young in Massachusetts ruled in favor of Blackstone Medical, Inc., dismissing a qui tam suit in which the government had to declined to intervene. The relators had alleged that the company, which produced devices used in spinal surgery, had used bogus consulting arrangements to pay kickbacks to physicians to use its products. The relators claimed that both hospitals’ claims and surgeons’ claims were tainted by the fraud. The Court found both types of claims to be inadequately pleaded, for different reasons.

As for the hospitals’ claims, Judge Young acknowledged that other courts had held that Medicare reimbursement requires compliance with the Antikickback Statute, and agreed with them “to the extent that they hold that the Provider Agreement creates an express certification of compliance with the Anti-Kickback Statute,” but he further held that the certification “is specific to the party seeking reimbursement.” Accordingly, the statement in the Agreement did not constitute a certification that the “entire transaction” complied with the law, or obligate the signer to determine if the “entire transaction” met the Act’s requirements. Under this analysis, the Court found that the hospital’s claims for reimbursement were not false.

Judge Young likewise found the whistleblowers’ allegations regarding claims submitted by surgeons who allegedly received kickbacks failed as a matter of law, because they failed to plead sufficient materiality. His opinion drew a distinction between the hospitals’ claims – which included reimbursement for the defendant’s devices – and those of the surgeons, which were solely for the surgical services they provided:

The Court assumes that had the hospital received a kick-back or known of the kick-back, such that its certification was false, the false certification by the hospital would have been material, despite the use of DRG pricing. Although the government did not lose any excess money by the use of Blackstone products, it likely would not have paid for the cost associated with the surgery, including the use of the Blackstone product, had it known of the kickback for such use. The request for reimbursement from the doctor is a little different. The doctor is not seeking reimbursement for the use of the Blackstone device at all, the doctor is purely seeking reimbursement for his services. The purchase of Blackstone devices are thus not an underlying transaction to the reimbursement request for the doctor.

Judge Young dismissed the case.

Addressing the defendant’s other challenges to the relators’ case, the Court denied the company’s motion to transfer venue, after reviewing judicial caseload statistics which indicated that the courts in the Eastern District of Arkansas – where the defendant is based – were more burdened than those in Massachusetts. He also denied the company’s motion to dismiss on first-to-file grounds, reasoning that although a prior qui tam had made similar allegations, it had done so only in passing, on an “information and belief” basis. Finally, the Court denied the company’s public disclosure-based motion as to one relator, but granting it as to the other, on the grounds that one relator was an original source of the allegations, but the other was not.

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