The phone rang. The voice on the other end of the line said, “My name is Pat Hooper. I’m Reliance Medical’s lawyer.”
Reliance Medical Systems, LLC is the device manufacturer with physician owned distributor (POD) partners that was recently sued by the U.S. Department of Justice (DOJ) for allegedly engaging in illegal kickbacks.
When a writer gets a call from a lawyer, the news is usually not good.
This time, however, it was fascinating. After talking with Mr. Hooper, it is increasingly obvious to this writer that the government’s case against Reliance is standing on very shaky legs indeed. It is in no way a slam dunk for the DOJ. At the end of the call, we could only reflect on the old adage, “Where one stands depends upon where one sits.”
A Stand Off
Hooper, a former Deputy Attorney General in California and lead counsel in the seminal 1995 Hanlester case regarding physician ownership of labs, is taking the position that the Department of Justice’s Office of Inspector General (OIG) is a cop trying to improperly stitch together entirely new public policy out of mere legal scraps that the courts and elected officials have addressed over the years, found to be confusing, but legal.
The Accusation
Hooper’s clients, Adam Pike and Bret Barry are accused of violating the False Claims Act (FCA). The DOJ says they knowingly assisted hospitals and physicians to file false claims for Medicare reimbursement. It says claims filed by the hospitals and doctors were “tainted” by illegal kick-backs due to surgeon ownership in PODs set up by the defendants.
In response to the government’s September 8, 2014 complaint, Hooper filed a motion to dismiss the case on September 19, 2014, arguing that case law, precedent and some inconvenient truths are fatal to the government’s case.
The first inconvenient truth is that the DOJ, according to the motion, neglected to tell the court about the 1995 Hanlester case. Second, the government failed to inform the court of the 2006 California Attorney General’s opinion and other findings that PODs are legal. Third, the hospitals did not file any false claims because the surgeries actually took place and would have occurred regardless of which devices were used. Fourth, the defendants paid the physician investors in accordance to the law. Fifth, his clients have no input into whether or not surgeries are necessary because they are not physicians and finally, the government failed to cite even one specific instance of any false claim and relied on broad and inconsistent allegations that all claims were false.
Based on those issues, Hooper is asking the court to dismiss the government’s complaint
Hanlester Precedent
Hanlester Network v. Shalala was a test case of a 1989 OIG Fraud Alert regarding “suspect” joint ventures. Hanlester, says Hooper in Reliance’s filing, was the “first instance in which physicians self-referral joint ventures were challenged” under the Anti-Kickback Statute (AKS).
Doctors had invested in partnerships that operated clinical labs managed by SmithKline to which they referred patients. “As here, the general partners marketed the ownership interests in the laboratories to physicians who were most likely to use the laboratory services…and received distributions based on the percentage of their ownership in the partnership rather than on the number of tests referred.”
In 1989, the OIG announced it was excluding the labs and founders from the Medicare program (Medicare Death Penalty) because “the payments were really kickbacks for referrals which violated the AKS.” The OIG used their fraud alert as its “playbook” for litigating the case, says Hooper.
As in Reliance, the OIG alleged that encouraging physician owners to use the laboratories as much as possible, was unlawful.
Defining Unlawful Inducement
The Court of the Ninth Circuit saw it differently. According to Hooper, the court “concluded that encouraging limited partners to increase their use of the laboratories and the fact that the limited partners received ‘substantial’ distributions from the partnership laboratories, did not constitute unlawful inducement under the AKS.” Hooper was the lead lawyer for the labs.
Hanlester resulted in the government having to prove that a defendant knew that the AKS prohibited offering or paying remuneration to induce referrals and to prove further that the defendant engaged in the prohibited conduct with the specific intent to disobey the AKS.
According to Reliance’s motion, the “intent” issue was so “problematic” that DOJ obtained an amendment to the AKS in 2010 as part of the Affordable Care Act to eliminate the requirement imposed by Hanlester requiring proof of specific intent. Their motion notes that the DOJ has also omitted mention of Hanlester in any Advisory Opinions, Fraud Alerts and other guidances.
Relying on the California Attorney General
Also “conspicuously” absent from DOJ’s complaint is any mention of the February 27, 2006 Opinion of the California Attorney General which specifically addressed the legality of POD under California’s anti-kickback statutes. The opinion concluded that “a physician may prescribe for a patient a medical device that is distributed by a company in which the physician has an ownership interest, ” and “the company may solicit physician investors in the company.”
Reliance and their healthcare business attorney relied on this opinion in conducting their business in California.
The Confusion of “Hatch”
It’s not surprising, argues the Reliance motion, that due to the “stiff competition for the very large manufacturing companies, ” Congress was asked to look into PODs, producing the “Hatch Report” in 2011. The report noted that “two major national laws firms have come down squarely on opposite sides of the issue. It appears that hospitals and physicians, like medical device manufacturers, would benefit greatly from clear legal guidance regarding doing business with PODs, ” continued the report. Furthermore, the reports states that the “most consistent comment from individuals interviewed by the Committee was ‘it is unclear to them if PODs are legal or illegal.’”
A Second Bite of Hanlester
In response to the Hatch Report, the OIG issued their 2013 Special Fraud Alert. “The list bears a striking resemblance to the list of suspect criteria in the 1989 OIG Fraud Alert that culminated in the Hanlester proceeding…and to the allegations in the Complaint against Reliance, ” states Reliance’s motion. Furthermore, the 2013 Fraud Alert post-dates the alleged false claims submitted between 2007 and 2012.
Ownership Disclosure
Reliance points out that an October 2013 OIG report about device utilization rates when PODs are involved, states that, “Federal Law does not require physicians to disclose ownership in device companies to hospitals they practice in and does not require them even to disclose such ownership to their patients.”
Malpractice Dressed Up as False Claims
In Reliance’s motion addressing the issue of medical decisions made by surgeons, Hooper cites case law that says the FCA is not intended to “substitute as a federal remedy for medical practice actions.”
The suit against Reliance and the related whistleblower action against a Reliance POD surgeon investor named Aria Sabit, M.D., “appear to be malpractice actions dressed up as FCA claims.”
What Claim?
DOJ has the burden of each element of its FCA causes of action, says Hooper.
He says the government relies on “unreasonable presumptions” such as that PODs are “inherently suspect” to make their claim. The government “must state with particularity” false claims. Courts do not have to accept as “true” factual allegations that are, among other things, internally inconsistent to consider a motion to dismiss.
The government makes two contentions.
First, the Medicare claims submitted by the doctors and hospital were false because they were tainted by kickbacks and the defendants knowingly caused the presentation of claims even though certain surgeries were not medically necessary. The government only claims “certain” unidentified surgeries were not medically necessary.
Second, asks the Reliant motion, “How can it possibly be considered reasonable to assume defendants knew that certain surgeries performed by the four identified surgeons were unnecessary when the related whistleblower case only alleges that some claims for surgeries performed by Sabit were unnecessary?”
“Which is it?” asks the motion.
It’s ALL “Fee for Service”
The defendants should be able to reasonably assume that the hospital’s quality assessment committees, medical staffs, and utilization review committees would function as required under the controlling Medicare conditions of participation.
“Obviously, DOJ is asking the court to presume that doctors are motivated primarily by money and that their integrity may be purchased for the right price. Among the problems with this cynical and unsupported presumption, is that it could be applicable to any physician who is compensated for his services under a fee-for-service arrangement.”
Prosecution Through the Press
Finally, the Reliance motion accuses the government of attempting to prosecute this case in the press.
For example, the DOJ issued CIDs (Civil Investigative Demands) on Reliance in January 2013. Months later the whistleblower suit against Sabit was filed. Reliance claims the whistleblowers had been feeding info to the feds since 2010.
CIDs are supposed to be confidential to protect against “unflattering publicity.” Yet, states the Reliance motion, “highly inflammatory and disparaging (albeit) false allegations were leaked to the press in a Wall Street Journal article while the whistleblower lawsuit was still sealed.”
This “strategy of trying the case in the press” continued on the day the DOJ filed their complaint against Reliance by issuing a press release alleging that Reliance paid Sabit for unnecessary surgeries.
What’s on Trial? Fee for Service?
If Reliance and Hooper have their way and this case goes to trial, they’ll challenge the government on some facts such as how much money the defendants actually made or what percentage of Sabit’s surgeries used Reliance implants. But mostly this will be about this about the level of participation we will allow physicians in the business of healthcare. This is a policy question that must be answered by elected representatives, not as Hooper sees it, by the cop of healthcare.
In this case, the legal questions are simple. Did Reliance knowingly help hospitals and doctors file false claims for Medicare reimbursement? Do they share a legal responsibility for the medical decisions made by a physician?
Reliance argues the case should be dismissed because the allegations do not constitute a plausible claim for relief and not sufficiently specific or particular about the claims at issue.
Hooper and his clients say they can’t wait to let a jury decide.
