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United States ex rel Pogue v. Diabetes Treatment Centers of America

July 21, 2008

UNITED STATES EX REL. A. SCOTT POGUE PLAINTIFF,
v.
DIABETES TREATMENT CENTERS OF AMERICA, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Chief Judge Royce C. Lamberth

MEMORANDUM OPINION

Now before the Court comes defendant Diabetes Treatment Centers of America's Motion for Summary Judgment [167] and Motion to Strike [189]. Upon consideration of the motions, the entire record herein, and the applicable law, the Court will GRANT defendant's Motion for Summary Judgment as to claims under the Stark Law and DENY defendant's Motion as to all other claims. The Court will further GRANT defendant's Motion to Strike.

I. BACKGROUND

Relator A. Scott Pogue filed this suit under the False Claims Act*fn1 against defendants Diabetes Treatment Centers of America, American Healthcorp, Inc., West Paces Medical Center, Dr. Paul C. Davidson, Dr. Bruce W. Bode, Dr. Judson G. Black, Dr. Robert Dennis Steed, and Dr. Anthony E. Karpas, alleging presentation of false Medicare and Medicaid claims to the United States Department of Health and Human Services. After almost fourteen years of litigation, Diabetes Treatment Centers of America remains as the lone defendant. Relator seeks redress in the form of damages, pursuant to the False Claims Act, stemming from defendant's alleged violation of the Anti-Kickback Statute*fn2 and Stark Law*fn3 . Defendant's Motion for Summary Judgment and Motion to Strike are currently before the Court.

A. Factual Background

Relator filed suit in 1994 in the United States District Court for the Middle District of Tennessee. In 1999, the Judicial Panel on Multidistrict Litigation transferred the action to this Court. Since first appearing before this Court, the parties have engaged in almost nine years of exhaustive discovery and have advanced substantially toward a final resolution of this protracted dispute.

Defendant Diabetes Treatment Centers of America ("DTCA") began in 1984 to establish treatment centers at various hospitals throughout the United States. (Opp. 80.) Through management of these centers, DTCA aimed to coordinate specialized care for diabetes patients. (Id.) Between 1984 and May 20, 1996, the time period germane to this action, DTCA contracted with about 120 hospitals, agreeing to establish treatment centers in the facilities in exchange for remuneration. (Opp. 81.) Only practicing physicians were able to admit patients to DTCA's treatment centers. (Williams Dep. 130:13-15.)

DTCA contracted with physicians to serve as medical directors at the various treatment centers.*fn4 (Mot. Summ. J. 5.) DTCA retained at least one medical director for each of its treatment facilities. (Id.) Between 1984 and 1996, 276 physicians served as medical directors. (See Reply Ex. 1.) DTCA also hired program managers to aid in coordinating efforts at its treatment centers. (Mot. Summ. J. 5.) Program managers enjoyed the primary day-to-day contact with DTCA's medical directors. (Cigarran Dep. Vol. 2, at 121:6-16.)

The relationship between DTCA and its medical directors constitutes the focal point of this dispute. Relator alleges that a purpose of DTCA's compensation of medical directors was to induce referrals to its treatment centers. (See Compl. ¶ ¶ 26-34.) Only by contracting with physicians to secure sufficient admissions to its treatment centers could DTCA guarantee hospitals that establishing a diabetes treatment center would be in their best financial interest. (See id.) In contracting with medical directors to induce referrals to treatment centers, relator alleges DTCA caused false Medicare and Medicaid (collectively "Medicare") claims to be submitted to the United States government, in violation of the False Claims Act ("FCA"), Anti-Kickback Statute ("AKS"), and Stark Law. (See Compl. ¶ ¶ 34, 45.) Relator further alleges that DTCA knowingly and willfully caused these false claims to be submitted to the Government. (See Compl. ¶ 34.) In redress for these harms, relator seeks an award of treble the amount of the United States' damages plus a civil penalty of $10,000 for each false claim submitted to the Government. (Compl. Prayer for Relief.)

B. Statutory Background

1. False Claims Act

The FCA imposes liability to the government on any person who "knowingly presents, or causes to be presented, to an officer or employee of the United States government . . . a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1) (2008). To satisfy the statute's knowledge requirement, a person must "ha[ve] actual knowledge of the information, act[] in deliberate ignorance of the truth or falsity of the information, or act[] in reckless disregard of the truth or falsity of the information," but "no proof of specific intent to defraud is required." Id. § 3729(b).

Though affording no wholly private right to bring suit under the statute, the FCA allows a person to "bring a civil action for a violation of Section 3729 for the person and for the United States government . . . . in the name of the Government." 31 U.S.C. § 3730(b)(1) (2008).

The Supreme Court has affirmed an aggressive reading of the FCA. See Cook County, Ill. v. United States ex rel. Chandler, 538 U.S. 119, 129 (2003). Indeed, the Court explained that "Congress wrote expansively, meaning to 'reach all types of fraud, without qualification, that might result in financial loss to the government.'" Id. (quoting United States v. Neifert-White Co., 390 U.S. 228, 232 (1968)).

2. Anti-Kickback Statute

The AKS imposes liability on anyone who knowingly and willfully offers or pays any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.

42 U.S.C. § 1320a-7b(b) (2008).

Congress amended the statute in 1977 in an effort to expand its reach and make enforcement more vigorous. See United States v. Greber, 760 F.2d 68, 70-71 (3d. Cir. 1985). Concern about fraud and abuse in the Medicare system served as the primary impetus behind these amendments. Id. Of moment to this litigation, Congress viewed elimination of kickbacks as central to any efforts to combat Medicare fraud and abuse. Id.

3. Stark Law

In its current iteration, effective since 1995, the Stark Law prohibits physicians having a "financial relationship" with an entity from mak[ing] a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under this subchapter, and the entity may not present or cause to be presented a claim under this subchapter or bill to any individual, third party payor, or other entity for designated health care services pursuant to a [prohibited] referral . . . .

42 U.S.C. § 1395nn(a) (2008). A "financial relationship" is defined as "a compensation arrangement [] between the physician [] and the entity." Id. "[A]ny arrangement involving any remuneration between a physician and an entity" constitutes a compensation arrangement. Id. § 1395nn(h).

An indirect compensation arrangement is most germane to this action. Such an arrangement embodies three key characteristics:

(i) between the referring physician [] and the entity furnishing [designated health services] there exists an unbroken chain of any number (but not fewer than one) of persons or entities that have financial relationships [] between them (that is, each link in the chain has . . . a compensation arrangement with the preceding chain;

(ii) the referring physician [] receives aggregate compensation from the person or entity in the chain with which the physician [] has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the [designated health services]; and

(iii) the entity furnishing [designated health services] has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician [] receives aggregate compensation that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the [designated health services].

Financial Relationship, Compensation, and Ownership or Investment Interest, 42 C.F.R. § 411.354(c)(2).

II. ANALYSIS

A. Standards for Summary Judgment

Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c).

Affording substantial deference to the nonmoving party, the summary judgment standard mandates that the court "draw all justifiable inferences in the nonmoving party's favor and accept the nonmoving party's evidence as true." Brown v. Paulson, 541 F. Supp. 2d 379, 383 (D.D.C. 2008).

Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "In such a situation, there can be no 'genuine issue as to any material fact,' since a complete failure of proof concerning an ...


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