United States District Court, D. South Carolina, Beaufort Division
United States of America, et al., Plaintiffs, ex rel. Scarlett Lutz, Plaintiffs-Relators,
Berkeley Heartlab, Inc., Defendants.
ORDER AND OPINION
Richard Mark Gergel United States District Court Judge
matter is before the Court on the Government's requested
jury instruction number 2.9 and Defendants' requested
jury instruction number 19, which relate to the requirement
that a claim violative of the False Claims Act
("FCA") must be false in a way that is material to
the Government's payment decision. For the reasons set
forth below, the Court will substantially charge the
Government's requested instruction and will decline to
charge Defendants' requested instruction.
the FCA, a misrepresentation must be material to the
Government's decision to pay the claim. See Universal
Health Servs., Inc. v. United States ex. rel. Escobar,
136 S.Ct. 1989, 2001 (2016) ("Escobar").
The Supreme Court reserved whether the materiality
requirement is governed by § 3729(b)(4) or by the common
law, id. at 2002, but in this case, the parties
agree that materiality should be defined by § 3729(b)(4)
(see Dkt. Nos. 631 at 19, 644 at 19). The standards
are essentially equivalent. Escobar, 136 S.Ct. at
2002. A misrepresentation is material if knowledge of the
truth would have caused the Government not to pay the claim.
See Id. at 2002- 03. It is insufficient that
knowledge of the truth merely would have given the Government
discretion not to pay the claim. Id. at 2003.
allegedly false claims in this case involve allegations of
violations of the Anti-Kickback Statute ("AKS") and
allegations that ordered tests were medically unnecessary.
The Government requests the jury be charged that whether a
laboratory service resulted from an AKS violation, or whether
a laboratory service was medically unnecessary, is material,
as a matter of law, to the Government's decision to pay
claims for such services. (Dkt. No. 631 at 19.) Defendants
request the jury be charged that if the Government pays a
claim for laboratory services with actual knowledge that the
services resulted from an AKS violation or were medically
unnecessary, that is "strong evidence" the
FCA's materiality requirement has not been met.
Defendants further want the Court to charge the jury,
"If you find that the Government knew about the
underlying facts about the Defendants' alleged fraudulent
conduct, but continued to pay claims submitted, you must find
for the Defendants." (Dkt. No. 644.)
reasons set forth below, the Court rules that the
Government's proposed jury instruction correctly states
the law, and that Defendants' proposed jury instruction
misstates the law.
Anti-Kickback Statute Compliance
Patient Protection and Affordable Care Act
("PPACA"), Congress provided that "a claim
that includes items or services resulting from a violation of
[the Anti-Kickback Statute ("AKS"), 42 U.S.C.
§ 132a-7b] constitutes a false or fraudulent
claim." 42 U.S.C. § 1320a-7b(g), as amended
by PPACA, Pub. L. No. 111-148, 124 Stat. 119 (2010).
That language became effective on March 23, 2010. The purpose
of the change was to clarify that a claim resulting from a
kickback does not become eligible for payment when an
innocent third party submits the claim. See United States
ex rel. Kester v. Novartis Pharm. Corp., 41 F.Supp.3d
323, 334 (S.D.N.Y. 2014) (quoting 155 Cong. Rec. SI0852-01,
2009 WL 3460582 (statement of Senator Kaufman)). Further,
"the 2010 amendment made clear that compliance with the
AKS is a precondition to the payment of claims submitted to
these programs, and not merely a condition of participation
in the programs." Id. at 331.
the provision that a claim is false and fraudulent if it
results from an AKS violation does not explicitly state that
the AKS violation is material to the Government's payment
decision, the only reasonable inference is that AKS
violations are per se material. Providing that AKS
compliance is a condition of payment and that a tainted claim
is ineligible for reimbursement even when submitted by an
innocent party clearly demonstrates Congress's intent
that AKS compliance is material to payment decisions in all
cases. Cf. United States ex rel. Wood v. Allergan,
Inc., 246 F.Supp.3d 772, 812 (S.D.N.Y. 2017), appeal
docketed, No. 17-2191 (2d Cir. July 17, 2017) (the
district court's ruling on materiality of AKS violations
is not an issue on appeal). The Court therefore holds that
for claims after March 23, 2010, AKS compliance \sper
se material to payment decisions.
the Court holds that AKS compliance washer se
material even before the PPACA. This Court, like the
Wood court, "has no trouble concluding that
compliance with the AKS is a 'material' condition of
payment" before March 23, 2010. Id.; see also United
States ex rel. Hutcheson v. Blackstone Med., Inc., 647
F.3d 377, 394-95 (1st Cir. 2011); United States ex rel.
Wilkins v. United Health Grp., Inc., 659 F.3d 295, 314
(3d Cir. 2011); McNutt ex rel. United States v.
Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259-60
(11th Cir. 2005). Compliance is "material" if it
has "a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or
property." 31 U.S.C. § 3729(b)(4). In other words,
the "matter is material" when "a reasonable
man would attach importance to [it] in determining his choice
of action in the transaction" (internal quotations
omitted)). Escobar, 136 S.Ct. at 2002-03.
reasonable person could believe that AKS compliance is
unimportant to the Government's reimbursement decisions
for laboratory services. The "holistic" materiality
analysis the Supreme Court set forth in Escobar
demonstrates that AKS compliance is per se material.
In Escobar, the Supreme Court held that several
factors are considered in determining materiality: (1)
whether compliance with a statute is a condition of payment,
(2) whether the violation goes to "the essence of the
bargain" or is "minor or insubstantial, " (3)
whether the Government consistently pays or refuses to pay
claims when it has knowledge of similar violations, and (4)
whether the Government would likely refuse payment had it
known of the violation. 135 S.Ct. at 2003-04.
factor demonstrates the per se materiality of AKS
compliance. Courts have long held that AKS compliance is a
condition of payment. See Kester, 41 F.Supp.3d at
330 (collecting cases). Violation of the AKS is not a de
minimis regulatory violation, nor is it a mere technical
violation of adhesive fine print in Government contracts. It
is a felony punishable by five years in prison, and it
requires the violator to act "knowingly and
willfully." 42 U.S.C. § 1320a-7b. The Government
routinely punishes AKS violations through criminal
proceedings and civil proceedings to recoup funds. See,
e.g., United States v. McClatchey, 217 F.3d 823 (10th
Cir. 2000); Wood, 246 F.Supp.3d 772; United
States ex rel. Williams v. Health Mgmt. Assocs. Inc.,
No. 3:09-CV-130 (M.D. Ga. Nov. 3, 2016); United States ex
rel. McGuire v. Millennium Laboratories, Inc., No.
12-cv-10132 (D. Mass. Aug. 19, 2016) (and related cases);
United States ex rel. Doe v. Institute of Cardiovasular
Excellence, PLLC, Case No. 5:11-CV-406-OC-KRS (M.D. Fla.
May 17, 2016) (and related cases); United States ex rel.
Bilotta v. Novartis Pharm. Corp., 50 F.Supp.3d 497
(S.D.N.Y. 2014). The U.S. Department of Health and Human
Services has issued "special fraud alerts"
specifically warning about AKS violations in reimbursement
requests for laboratory services for over twenty years.
See Special Fraud Alert: Laboratory Payments to
Referring Physicians (June 25, 2014), reprinted at 79 Fed.
Reg. 40, 115 (July 11, 2014); Special Fraud Alert:
Arrangements for the Provision of Clinical Laboratory
Services (Oct. 1994), reprinted at 59 Fed. Reg. 65,
372 (Dec. 19, 1994). There can be no question that the
Government would likely refuse to pay a claim that it
actually knows is the result of an AKS violation.
parties do not appear to dispute that the representation that
a laboratory service is medically necessary is material to
the Government's decision to pay a claim for the service.
Indeed, the relevant Government agencies lack discretion to
reimburse laboratory tests they know to be medically
unnecessary. E.g., 42 U.S.C. § 1395y (providing
that "no payment may be made under [Medicare] part A or
part B for any expenses incurred for items or services ...
(1)(A) which ... are not ...