Government Fails to Prove Alleged Kickback Scheme Violates False Claims Act

by Baker Donelson
Contact

[author: James P. Holloway]

When the U.S Justice Department alleges a violation of the False Claims Act (FCA), some health care providers conclude that they must reach a settlement with the government because they cannot win — or cannot afford to win — in court. In some cases, a settlement is indeed the prudent course to control liability, minimize adverse publicity, and/or reduce litigation costs. However, the Justice Department’s recent loss at the trial of an FCA case demonstrates that when the government is forced to back up its allegations with proof, providers may be successful in defending against FCA allegations.

In U.S. ex rel. Jamison v. McKesson Corp., __ F. Supp. 2d ___, 2012 WL 4499136 (N.D. Miss. Sept. 28, 2012), the government alleged that nursing homes and DMEPOS entities violated the FCA in connection with claims for Medicare payment that violated the Anti-kickback Statute (AKS). More specifically, the government alleged that in 2002, a lucrative contract to provide general medical supplies to the Beverly Enterprises nursing home chain was expiring. According to the government, a Beverly subsidiary “dangled” the prospect of awarding the expiring medical supply contract to another entity — a McKesson subsidiary — in order to induce McKesson to offer contract billing services for enteral products to Beverly at below-fair-market value. Similarly, the government alleged that McKesson offered the billing services at a discount in an attempt to win the Beverly medical supply contract. Furthermore, the government alleged that Beverly later “carved out” enteral supply distribution from its general medical supply contract in order to induce McKesson to provide Beverly with billing services at below-fair-market value, and the McKesson subsidiary offered the billing services at a discount in an attempt to obtain Beverly’s business.

Following a bench trial, the court awarded judgment in favor of the defendants. The court concluded that the government failed to establish a violation of the AKS. Because the government’s FCA allegations were based on alleged violations of the AKS, the government’s inability to establish a kickback violation doomed its FCA case.

First, the court concluded that the “Government failed to prove that Defendants violated the AKS by offering or paying any remuneration to induce referrals.” The evidence at trial demonstrated that Beverly renewed the expiring medical supply contract with the same vendor, rather than awarding it to McKesson. Moreover, the evidence demonstrated that McKesson knew that Beverly’s medical supply contract already was “off the table” at the time it submitted its final bid to provide contract billing services. Thus, the general medical supply contract could not have been used as an inducement for any kickback. Furthermore, the evidence demonstrated that the later “carving out” of enteral supplies from the general medical supply contract did not result in a discounted price for contract billing services. McKesson’s bid to provide contract billing services was comparable to, or higher than, bids from other vendors. Thus, the government did not establish that McKesson was offering billing services below fair market value. While the government contended that McKesson’s objective was to obtain Beverly’s medical supply business, the court noted that “in order to violate the AKS, it is not enough to covet the business of another, there must actually be some bad intent to violate the law.”

In addition to the lack of any remuneration to induce referrals, the court concluded that “the Government has failed to show Defendants had knowledge or acted willfully such that liability under the AKS would attach.” The government presented evidence that McKesson’s financial analysis of its proposed transaction with Beverly was, in some respects, incorrect or inconsistent, but the government failed to demonstrate that McKesson deliberately manipulated its financial analysis or offered pricing below fair market value. Likewise, the government failed to prove that Beverly was aware of McKesson’s profitability analysis for providing contract billing services and, therefore, Beverly could not know whether McKesson was offering billing services below fair market value.

The outcome of the trial reveals that the government cannot always back up its false claim allegations when forced to prove its case at trial. While the prospect of defending against false claim or kickback allegations at trial may be unappealing for many providers, in some cases it is a viable option. At a minimum, when providers negotiate with the government to settle false claim allegations, it is useful to remember that the government faces the risk of loss at trial and this reality may be used by providers to negotiate for a more advantageous settlement.

Written by:

Baker Donelson
Contact
more
less

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!