United States v. Reliance Medical Systems, LLC

• Court: District Court, C.D. California
• Decided: February 22, 2022
• Docket: 2:14-cv-06979
• Status: Unknown

Opinion

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1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, ) Case No. CV 14-06979 DDP (JCx) ) 12 Plaintiff, ) ) 13 v. ) ) ORDER RE: GOVERNMENT’S MOTION FOR 14 RELIANCE MEDICAL ) PARTIAL SUMMARY JUDGMENT SYSTEMS,LLC; APEX MEDICAL ) 15 TECHNOLOGIES, LLC; KRONOS ) SPINAL TECHNOLOGIES, LLC; ) 16 BRET BERRY; JOHN HOFFMAN; [Dkt. 283] ADAM PIKE, 17 Defendants. 18 19 Presently before the court is Plaintiff United States of 20 America (“the government”)’s Motion for Partial Summary Judgment. 21 Having considered the government’s submissions and those of all 22 Defendants, with the exception of Defendant John Hoffman 23 (collectively, the “Reliance Defendants” or “Defendants”), and 24 having heard oral argument, the court grants the motion in 25 substantial part and adopts the following Order. 26 I. Background 27 The government’s First Amended Complaint alleges that 28 beginning in 2007, Defendants used Physician-Owned Distributorships Case 2:14-cv-06979-DDP-JC Document 350 Filed 02/22/22 Page 2 of 10 Page ID #:8540

1 (“PODs”)to present false or fraudulent claims to Medicare. (First 2 Amended Complaint (“FAC”) ¶¶ 76, 310, 315.) As alleged in the FAC, 3 Defendants operated a scheme through which physician-investors in, 4 or employees of, spinal implant distribution companies, including 5 Defendants Apex Medical Technologies, LLC (“Apex”) and Kronos 6 Spinal Technologies, LLC (“Kronos”), were paid a portion of the 7 distribution companies’ profits from spinal implant device sales.1 8 (See, e.g., FAC ¶ 96.) In short, the government alleges that 9 spinal fusion surgeries related to this scheme were tainted by 10 kickbacks to the doctors choosing the spinal implant products, and 11 were, in some cases, not medically necessary. (FAC ¶¶ 3-4.) This 12 scheme, the government alleges, violated the Anti-Kickback Statute 13 (“AKS”), 42 U.S.C. § 1320a-7b(b), and, by extension, the False 14 Claims Act, 31 U.S.C. § 3729, insofar as the tainted surgeries led 15 to false or fraudulent claims to Medicare. Doctor-participants in 16 this scheme allegedly included Dr. Ali Mesiwala, Dr. Gowariharian 17 Thaiyananthan, Dr. Aria Sabit, and Dr. Sean Xie. (FAC ¶¶ 91n 118, 18 129). 19 The government now seeks partial summary judgment that Apex 20 and Kronos physician-investors performed 268 surgeries on Medicare 21 patients between August 1, 2007 and December 31, 2013, after 22 obtaining a financial interest in Apex or Kronos. The government 23 further seeks summary judgment establishing that these 268 24 surgeries resulted in 838 claims for payment to the Medicare 25 program, resulting in $9,250,611 in Medicare payments. The 26 27 1 The government alleges that Defendants Pike and Berry own 28 and operate Defendants Apex, Kronos, and Reliance Medical Systems. 2 Case 2:14-cv-06979-DDP-JC Document 350 Filed 02/22/22 Page 3 of 10 Page ID #:8541

1 government does not, however, seek a determination that any of 2 those payments were false or fraudulent. 3 “[T]he essential elements of False Claims Act liability are: 4 (1) a false statement or fraudulent course of conduct, (2) made 5 with scienter, (3) that was material, causing (4) the government to 6 pay out money or forfeit moneys due.” United States ex rel. Campie 7 v. Gilead Scis., Inc., 862 F.3d 890, 902 (9th Cir. 2017). “[A] 8 claim that includes items or services resulting from a violation of 9 [the Anti-Kickback Statute] constitutes a false or fraudulent claim 10 for purposes of [the False Claims Act].” 42 U.S.C.A. § 1320a-7b. 11 The government now also seeks partial summary judgment that, as a 12 matter of law, the alleged violations of the AKS are material for 13 purposes of the False Claims Act. 14 II. Legal Standard 15 Summary judgment is appropriate where the pleadings, 16 depositions, answers to interrogatories, and admissions on file, 17 together with the affidavits, if any, show “that there is no 18 genuine dispute as to any material fact and the movant is entitled 19 to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A party 20 seeking summary judgment bears the initial burden of informing the 21 court of the basis for its motion and of identifying those portions 22 of the pleadings and discovery responses that demonstrate the 23 absence of a genuine issue of material fact. See Celotex Corp. v. 24 Catrett, 477 U.S. 317, 323 (1986). All reasonable inferences from 25 the evidence must be drawn in favor of the nonmoving party. See 26 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 242 (1986). If the 27 moving party does not bear the burden of proof at trial, it is 28 entitled to summary judgment if it can demonstrate that “there is 3 Case j?2:14-cv-06979-DDP-JC Document 350 Filed 02/22/22 Page 4of10 Page ID #:8542

1]}an absence of evidence to support the nonmoving party's case.” 21 Celotex, 477 U.S. at 323. 3 Once the moving party meets its burden, the burden shifts to 4} the nonmoving party opposing the motion, who must “set forth 5} specific facts showing that there is a genuine issue for trial.” □□□ Anderson, 477 U.S. at 256. Summary judgment is warranted if a 7] party “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, 10] 477 U.S. at 322. A genuine issue exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving 12] party,” and material facts are those “that might affect the outcome 13]/ of the suit under the governing law.” Anderson, 477 U.S. at 248. 14] There is no genuine issue of fact “[w]here the record taken as a 15} whole could not lead a rational trier of fact to find for the nonmoving party.” Matsushita Elec. Indus. Co. v. Zenith Radio 17} Corp., 475 U.S. 574, 587 (1986). 18 It is not the court’s task “to scour the record in search of a 19]/ genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 201278 (9th Cir. 1996). Counsel have an obligation to lay out their support clearly. Carmen v. San Francisco Sch. Dist., 237 F.3d 22 1026, 1031 (9th Cir. 2001). The court “need not examine the entire 23|| file for evidence establishing a genuine issue of fact, where the 24]| evidence is not set forth in the opposition papers with adequate □□□ references so that it could conveniently be found.” Id. 26} IIIT. Discussion 27 A. Number of Medicare surgeries, claims, and payments 28

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1 The government asserts that there is no material dispute that 2 “between August 1, 2007, and December 31, 2013, the Apex and Kronos 3 physician-investors performed 268 surgeries resulting in 838 claims 4 for payment to the United States for which the Medicare program 5 paid a total of $9,250,611.” The government’s figures are 6 supported by the declaration of government expert Ian M. Dew, who 7 arrived at his conclusions after cross-referencing Medicare records 8 against hospital implant logs.2 (Declaration of Ian M. Dew. ¶¶ 8, 9 10.) Notably, Dew described his conclusions as pertaining to “the 10 four physicians that the United States alleges to have been 11 physician-investors” in Apex and Kronos. (Dew. Decl. ¶ 3 (emphasis 12 added).) 13 Although the Reliance Defendants challenge the accuracy of 14 Dew’s calculations, they present no specific criticism of his 15 methodology, nor any evidence contradicting or casting doubt upon 16 his conclusions. Rather, the Reliance Defendants contend that Dew 17 did not “accurately portray the number of claims pertaining to 18 surgeries performed by ‘physician-investors’ in Kronos” because Dew 19 included surgeries performed by Dr. Mesiwala during a time period 20 in 2013 when Dr. Mesiwala was, at least ostensibly, an employee of 21 Kronos, as well as surgeries performed during other time periods.3 22 (Opposition at 4:14-16.) As noted above, however, Dew took no 23 2 There is no dispute that the report upon which Dew’s 24 declaration is based, which the government refers to as a Supplemental Report, was timely produced prior to the close of 25 expert discovery. 26 3 Portions of the Reliance Defendants’ Opposition is devoted to disputing the government’s characterization of aspects of this 27 case that are not at issue in the present motion, such as the formation and existence of PODs and the ownership and compensations 28 structures of various business entities. 5 Case 2:14-cv-06979-DDP-JC Document 350 Filed 02/22/22 Page 6 of 10 Page ID #:8544

1 position on whether any doctor was a physician-investor. Rather, 2 he analyzed surgeries performed by doctors “that the United States 3 alleges to have been physician-investors.” Thus, to the extent the 4 government seeks to rely upon the Dew Declaration for the 5 contention that any surgeries were performed by any “physician- 6 investor,” summary judgment is not warranted. By the same token, 7 however, any dispute about Dr. Mesiwala’s status has no bearing on 8 Dew’s conclusions regarding the number of surgeries Dr. Mesiwala 9 performed or the number or amount of Medicare claims related 10 thereto. 11 There is no material dispute that between August 1, 2007, and 12 December 31, 2013, Drs. Mesiwala, Thaiyananthan, Sabit, and Xie 13 performed 268 surgeries resulting in 838 claims for payment to the 14 United States, for which the Medicare program paid a total of 15 $9,250,611. 16 B. Materiality 17 Courts construe the False Claims Act broadly, “as it is 18 intended to reach all types of fraud, without qualification, that 19 might result in financial loss to the Government.” Campie, 862 F.3d 20 at 899 (internal quotation marks and citation omitted). “[T]he 21 essential elements of False Claims Act liability are: (1) a false 22 statement or fraudulent course of conduct, (2) made with scienter, 23 (3) that was material, causing (4) the government to pay out money 24 or forfeit moneys due.” Id. at 902. Fraudulent claims may include 25 those that “falsely certif[y] compliance with a statute or 26 regulation as a condition to government payment.” U.S. ex rel. 27 Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1171 (9th Cir. 2006). 28 6 Case |?2:14-cv-06979-DDP-JC Document 350 Filed 02/22/22 Page 7of10 Page ID #:8545

1 The Anti-Kickback Statute, a criminal provision, “targets any 2 || remunerative scheme through which a person is paid ‘in return for’ 3} referrals to a program under which payments may be made from federal funds.” Guilfoile v. Shields, 913 F.3d 178, 189 (lst Cir. 5] 2019) (internal quotation marks and citation omitted). Courts have 6]} long held that compliance with the AKS is a precondition to the 7] payment of Medicare claims. See U.S. ex rel. Kester v. Novartis 8 || Pharms. Corp., 41 F. Supp. 3d 323, 330 (S.D.N.Y. 2014) (collecting 9 || cases). In 2010, however, the Patient Protection and Affordable 10}} Care Act (“PPACA”), Pub. L. No. 1110148, 124 Stat. 119 (2010), 11} explicitly linked the AKS to the FCA by providing that “a claim 12]/ that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the 14] FCA].” 42 U.S.C. § 1320a-7b(g). 15 Although false and fraudulent conduct and materiality are 16]| separate elements of a FCA violation, several courts have concluded 17] that compliance with the AKS is material to the government’s decision to pay Medicare claims. See, e.g., United States ex rel. Gohil v. Sanofi U.S. Servs. Inc., No. CV 02-2964, 2020 WL 4260797, 20H at *14 n.22 (E.D. Pa. July 24, 2020) (collecting cases); see also 21} United States ex rel. Wood v. Allergan, Inc., 246 F. Supp. 3d 772, 22 818 (S.D.N.Y. 2017) (reversed on other grounds, 899 F.3d 163 (2d 23] Cir. 2018)); United States v. Berkeley Heartlab, Inc., No. CV 24 || 9:14-230-RMG, 2017 WL 6015574, at *2 (D.S.C. Dec. 4, 2017) (“AKS compliance is per se material to payment decisions.”).* As the 2 ooo “ Contrary to the Reliance Defendants’ characterization, the 27 Ghofil court did not conclude that AKS violations are not per se 59 material. Ghofil, 2020 WL 4260797 at *14 (“Whether or not AKS (continued...)

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1] First Circuit explained, the 2010 PPACA amendment “obviat[ed] the 2\| need for a plaintiff to plead materiality ... . This 31} construction inescapably follows from the statute’s plain language 4} stating that a claim resulting from a violation of the AKS ‘constitutes a false or fraudulent claim.’ The statute’s use of 6] the term ‘constitutes’ would be meaningless if courts had to engage 7 in a materiality analysis . . . after establishing that a claim 8 || resulted from an AKS violation.”° Guilfoile v. Shields, 913 F.3d 9178, 190 (lst Cir. 2019) (internal citation omitted). 10 In the instant case, the government alleges fraudulent 11]}| Medicare claims both preceding and postdating the March 23, 2010 12]| effective date of the PPACA amendment linking the AKS to the False 13}/Claims Act. The Reliance Defendants argue that “an alleged violation of the AKS may only be presumed to be material on summary 15] judgment when post March 23, 2010 claims are at issue.” 16] (Opposition at 7:22-23.) At least one court has agreed with this 17 18 19 “(...continued) 20 violations are per se material, however, summary judgment would remain inappropriate.”). Indeed, the court recognized that “[t]he vast majority of courts to address this question after Escobar have agreed with Relator that AKS violations are per se material.” Id. 29 (discussing Universal Health Servs., Inc. v. United States ex rel. Escobar (“Escobar”), 579 U.S. 176 (2016). 23 DA ° At least one court has suggested that a materiality analysis is required, even in the context of an AKS violation. See United 25 States ex rel. Simpson v. Bayer Corp., 376 F. Supp. 3d 392, 415 (D.N.J. 2019). The Simpson court, however, denied a motion for o¢ || Summary judgment in part because discovery had not yet closed and, the court theorized, the defendant might be able to present 27 evidence that the government regularly paid fraudulent claims, notwithstanding actual knowledge that the claims were false. Id. 28 Here, discovery is closed, and the Reliance Defendants have not produced any such evidence or suggested that such evidence exists.

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lj] position. See United States v. Teva Pharms. USA, Inc., No. 13 CIV. 243702 (CM), 2019 WL 1245656, at *28 (S.D.N.Y. Feb. 27, 2019). 3 Other courts, however, have concluded that “AKS compliance was 4] per se material even before the PPACA.” Berkeley Heartlab, 2017 WL 5] 6015574 at *2; see also Wood, 246 F. Supp. 3d at 812, 818 (Having 6]} “no trouble concluding that compliance with the AKS is a ‘material’ 7! condition of payment,” even while “[p]utting aside the question of 8]} whether [PPACA] has a bearing on interpretation of the interplay □ □□ between the AKS and the FCA before March 23, 2010.”). As the 10] Berkeley Heartlab court observed, courts have long held, even prior 11}/ to PPACA, that compliance with the AKS is a condition of payment 12]) under Medicare. See, e.g., McNutt ex rel. U.S. v. Haleyville Med. 13}} Supplies, Inc., 423 F.3d 1256, 1260 (11th Cir. 2005); U.S. ex rel. Pogue v. Diabetes Treatment Centers of Am., 565 F. Supp. 2d 153, 15}/159 (D.D.C. 2008) (“Legion other cases have held violations of AKS 16]/. . . can be pursued under the FCA, since they would influence the 17] Government’s decision of whether to reimburse Medicare claims.”); 18] U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F. Supp. 19] 2d 1017, 1047 (S.D. Tex. 1998). In the First Circuit’s words, 20] “[t]he legislative history suggests that the 2010 amendment was intended to codify the link between AKS violations and false claims 22 |) within the meaning of the FCA as well as to correct one district 23 ||) court case holding that claims for payment resulting from AKS violations could be laundered if the claims were submitted to the government by a party who was unaware that a kickback had occurred.” Guilfoile, 913 F.3d at 191 n. 12 (citing 155 Cong. Rec. 27] S10852-01, S$10853-54 (daily ed. Oct. 28, 2009) (internal quotation 28

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1 marks omitted)). That is to say, PPACA clarified, but did not 2 change, existing law. Kester, 41 F. Supp. 3d at 332-335. 3 The court agrees with the majority view that compliance with 4 the Anti-Kickback Statute is necessarily material to the 5 government’s decision to pay Medicare claims, even prior to March 6 23, 2010. Accordingly, the government’s motion for partial summary 7 judgment is granted with respect to materiality. 8 IV. Conclusion 9 For the reasons stated above, the government’s Motion for 10 Partial Summary Judgment is GRANTED, in substantial part. The 11 motion is granted with respect to the number of surgeries performed 12 by Drs. Mesiwala, Thaiyananthan, Sabit, and Xie and the number and 13 dollar amount of Medicare claims related thereto. Whether any or 14 all of those doctors was a “physician-investor,” however, presents 15 a triable issue. The motion is also granted with respect to 16 materiality, as violations of the Anti-Kickback Statute are 17 material for purposes of the False Claims Act as a matter of law. 18 19 20 IT IS SO ORDERED. 21 22 Dated: February 22, 2022 DEAN D. PREGERSON 23 United States District Judge 24 25 26 27 28 10