Citations
- 332 F. Supp. 3d 48
Full opinion text
REGGIE B. WALTON, United States District Judge
The plaintiff/relator, Chris Riedel, brings this qui tam action on behalf of the United States against the defendant, Boston Heart Diagnostics Corporation ("Boston Heart"), under the False Claims Act, 31 U.S.C. § 3729 (2012). See Relator's Second Amended Complaint for Money Damages and Civil Penalties for Violations of the False Claims Act ("2d Am. Compl.") ¶¶ 1, 108-21. Currently before the Court is Boston Heart Diagnostics Corporation's Motion to Dismiss Relator's Second Amended Complaint ("Def.'s Mot."), which seeks dismissal of the relator's claims pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). See Def.'s Mot. at 1. Upon careful consideration of the parties' submissions, the Court concludes that it must grant in part and deny in part Boston Heart's motion to dismiss.
I. BACKGROUND
A. Applicable Statutes
A brief overview of the Medicare program and the statutes at issue in this case will help elucidate the relator's allegations in his Second Amended Complaint.
1. The Medicare Program
Medicare is a federal health insurance program for the elderly and people with disabilities. See 42 U.S.C. § 1395c (2012). Medicare Part B, which provides outpatient coverage for, among other things, diagnostic laboratory tests, see 42 C.F.R. § 410.32 (2017), only covers medical services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," 42 U.S.C. § 1395y(a)(1)(A). "[Laboratory t]ests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described." Medicare Claims Processing Manual: Chapter 16-Laboratory Services ("Processing Manual") § 120.1 (2018). "[E]ven though the Medicare statute requires the laboratory to certify the medical necessity of any test for which it makes a claim for payment, the laboratory is not required to make an independent determination of medical necessity, but rather may rely on the ordering physician's determination." United States ex rel. Groat v. Boston Heart Diagnostics Corp., 296 F.Supp.3d 155, 163 (D.D.C. 2017) (Walton, J.) ( Groat II ).
"The Secretary of the Department of Health and Human Services administers the Medicare program through the Centers for Medicare and Medicaid Services, which contracts with Medicare Administrative Contractors [ ('MACs') ] to manage enrollment of health care providers and to process payments." Popkin v. Burwell, 172 F.Supp.3d 161, 164 (D.D.C. 2016). This includes ensuring that claims for payment are "clean claims," meaning "claim[s] that ha[ve] no defect or impropriety." 42 U.S.C. § 1395h(c)(2)(A)-(B).
"When submitting claims for payment ..., healthcare service providers ... use standard billing forms[,] ... [which] use numeric codes to describe the medical services for which the provider seeks payment." Ass'n of N.J. Chiropractors v. Aetna, Inc., No. 09-3761 (JAP), 2012 WL 1638166, at *1 (D.N.J. May 8, 2012). "Federal regulations, specifically 45 C.F.R. § 162.1002(a)(5), (b)(1), designate the American Medical Association's Current Procedural Terminology ('CPT') and the Centers for Medicare & Medicaid Services Common Procedure Coding System ('HCPCS') as the standard codes to be used for physician services and other health care services." Id."HCPCS codes can define a single test or a panel (a group of tests that are commonly performed together)." Dep't of Health & Human Servs. Office of Inspector Gen., Questionable Billing for Medicare Part B Clinical Laboratory Services at 2 (2014). One "common Medicare fraud scheme[ ] involving clinical lab services ... [is] unbundling tab tests." Id."Unbundling is the practice of inappropriately reporting each component of a service or procedure instead of reporting the single comprehensive code." Id. at 2 n.12.
An entity seeking reimbursement for services provided to Medicare patients must submit a CMS-1500 form to the MAC. See United States ex rel. Hobbs v. MedQuest Assocs., Inc., 711 F.3d 707, 711 (6th Cir. 2013) ("The[CMS-1500] form[ ] reflect[s] the treatment or services provided and identif[ies] the [entity that] provided them."). The CMS-1500 form requires the entity to certify that, among other things, "the services on this form were medically necessary." Health Insurance Claim Form ("CMS-1500") at 2, available at https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/CMS1500.pdf (last visited Sept. 12, 2018).
2. The Anti-Kickback Statute
The Anti-Kickback Statute prohibits payments in exchange for referrals to federal healthcare programs, specifically prohibiting:
knowingly and willfully offer[ing] or pay[ing] 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)(2)(A).
Unfortunately, the occurrence of kickbacks is reportedly common in the context of laboratory tests billed to Medicare. In 1994, the U.S. Department of Health and Human Services, Office of Inspector General ("OIG"), issued a Special Fraud Alert that addressed laboratory practices that violated the Anti-Kickback Statute, including, but not limited to, "routine waiver of Medicare Part B co-payments and deductibles." Publication of OIG Special Fraud Alerts, 59 Fed. Reg. 65,372, 65,373 (Dec. 19, 1994) ("1994 OIG Special Fraud Alert"). And the OIG has made clear that "disguising remuneration for Federal referrals through offers or payments of inflated amounts for non-Federal business or simply by offering or paying remuneration for non-Federal referrals to 'pull through' the Federal business" "may violate the [A]nti-[K]ickback [S]tatute." Dep't of Health & Human Servs. Office of Inspector Gen., Advisory Opinion No. 00-8: Spectrum Housing, d/b/a Housing Referrals of Maine at 5 (2000).
Consequently, in 2005, the OIG issued an Advisory Opinion stating:
Where a laboratory pays a referring physician to perform blood draws, particularly where the amount paid is more than the laboratory receives in Medicare reimbursement, an inference arises that the compensation is paid as an inducement to the physician to refer patients to the laboratory ....
Dep't of Health & Human Servs. Office of Inspector Gen., Advisory Opinion No. 05-08 at 4 (2005) ("2005 OIG Advisory Opinion"). Thereafter, in 2014, the OIG issued a Special Fraud Alert regarding other laboratory payments to referring physicians, stating that it "ha[d] become aware of arrangements under which clinical laboratories are providing remuneration to physicians to collect, process, and package patients' specimens." Dep't of Health & Human Servs. Office of Inspector Gen., Special Fraud Alert: Laboratory Payments to Referring Physicians at 3 (2014) ("2014 OIG Special Fraud Alert"). The OIG noted that some of these arrangements may implicate the Anti-Kickback Statute, particularly if, inter alia, "[p]ayment exceeds fair market value for services actually rendered by the party receiving the payment,"id. at 4, or the "[p]ayment is for services for which payment is also made by a third party, such as Medicare," id. at 5.
3. The Stark Law
The Stark Law prohibits physicians from referring patients to anyone with whom he or she has a financial relationship. Specifically, "if a physician (or an immediate family member of such physician) has a financial relationship with an entity ... [,] the physician may not make a referral to the entity for the furnishing of designated health services." 42 U.S.C. § 1395nn(a)(1)(A). A financial relationship is defined as "an ownership or investment interest in the entity, or ...a compensation arrangement ... between the physician (or an immediate family member of such physician) and the entity." Id. § 1395nn(a)(2)(A)-(B).
4. The False Claims Act
"The False Claims Act imposes civil liability on any person who knowingly submits false claims to the government." United States ex rel. Dig. Healthcare, Inc. v. Affiliated Comput. Servs., Inc., 778 F.Supp.2d 37, 44-45 (D.D.C. 2011) (Walton, J.) (citing 31 U.S.C. §§ 3729 - 3733 ). Its purpose is "to reach all types of fraud, without qualification, that might result in financial loss to the Government," and "reaches beyond 'claims' which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money." United States v. Neifert-White Co., 390 U.S. 228, 232-33, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) (noting that "the Court has consistently refused to accept a rigid, restrictive reading [of the Act]").
"[V]iolations of [the Anti-Kickback] and Stark [statutes] can be pursued under the False Claims Act, since they would influence the government's decision of whether to reimburse Medicare Claims." United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 565 F.Supp.2d 153, 159 (D.D.C. 2008) ( Pogue II ).
Three provisions of the False Claims Act are at issue in this case. Section 3729(a)(1)(A) creates liability for "any person who ... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). Section 3729(a)(1)(B) creates liability for "any person who ... knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." Id. § 3729(a)(1)(B). And § 3729(a)(1)(G), known as the "reverse false claims" provision, creates liability for "any person who ... knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to ... the Government." Id. § 3729(a)(1)(G).
B. Factual Background and Procedural History
The relator is a retired individual who previously "had a long career in the commercial reference laboratory business," 2d Am. Compl. ¶ 20, and was a member of the Board of Directors of Boston Heart "from 2007 until majority control of the Company was acquired by Bain Capital Venture Fund in late 2010," id. ¶ 101. "Boston Heart is a medical laboratory that specializes in advanced lipid testing." Id. ¶ 22.
The relator filed his original Complaint under seal on August 28, 2012. See Relator's Complaint for Money Damages and Civil Penalties for Violations of the False Claims Act, 31 U.S.C. § 3730(b)(2) (Aug. 28, 2012), ECF No. 1. On August 19, 2016, the United States declined to intervene in this case, see Notice of Election to Decline Intervention (Aug. 19, 2016), ECF No. 24, and the Court therefore unsealed the case, see Order at 1 (Aug. 24, 2016), ECF No. 25. On February 18, 2016, the relator filed his First Amended Complaint. See Amended Complaint for Money Damages and Civil Penalties for Violations of the False Claims Act (Feb. 18, 2016), ECF No. 19. On September 20, 2017, the Court denied Boston Heart's motion to dismiss the relator's First Amended Complaint without prejudice and granted the relator's request for leave to file a Second Amended Complaint, see Order at 7 (Sept. 20, 2017), ECF No. 39, which he did on October 4, 2017, see 2d Am. Compl. at 1.
The Second Amended Complaint contains three causes of action: (1) a violation of the "false presentment" provision of the False Claims Act, see 2d Am. Compl. ¶¶ 108-12; see also 31 U.S.C. § 3729(a)(1)(A) ; (2) a violation of the "false statements" provision of the False Claims Act, see 2d Am. Compl. ¶¶ 113-17; see also 31 U.S.C. § 3729(a)(1)(B) ; and (3) a violation of the "reverse false claims" provision of the False Claims Act, see 2d Am. Compl. ¶¶ 118-21; see also 31 U.S.C. § 3729(a)(1)(G).
The relator asserts five theories of liability against Boston Heart that form the basis of his three causes of action: four alleged kickback schemes and one other purported violation of Medicare requirements. See id. ¶ 1 ("[Boston Heart] provides at least four forms of illegal kickbacks to doctors and clinics in order to induce those doctors and clinics to refer Medicare business to them, and bills Medicare for redundant and unnecessary testing."). The four alleged illegal kickback schemes are: (1) "waiving co-payments or patient deductible payments from doctors' privately-insured patients," for physicians who "send all of their lipid-related business, including Medicare business," to Boston Heart, id. ¶ 2; (2) paying physicians inflated packaging fees, in excess of the actual cost of packaging and shipping specimens to Boston Heart, to induce physicians to refer their Medicare business to Boston Heart, see id. ¶ 4; (3) performing and billing the government for laboratory tests ordered by physicians who are Boston Heart shareholders in violation of the Stark Law, see id. ¶ 6; and (4) paying "outrageous consulting fees to referring physicians," id. ¶ 7. According to the relator:
Each of these practices constitute[s] an illegal kickback scheme, no more legal than if [Boston Heart] handed doctors envelopes of cash in exchange for Medicare referrals. [Boston Heart] violated the False Claims Act by charging Medicare and other federally funded healthcare programs for lab tests that were referred to [ ] Boston Heart by providers because of kickbacks offered to those providers by [Boston Heart].
Id. ¶ 8. Boston Heart's other purported Medicare violation is performing and billing the government for medically unnecessary tests ordered through its own test panels. See id. ¶¶ 11-13. Each alleged theory of liability asserted in the Second Amended Complaint is now described in further detail below.
1. Waiving Co-Payments and Deductibles Theory of Liability
The relator alleges that from 2011 through 2016, id. ¶¶ 1, 98-99, 103, Boston Heart waived patients' co-payments and deductibles, in violation of the Anti-Kickback Statute, "as an incentive for physicians to refer business to Boston Heart," id. ¶ 39. According to the relator, private health insurance companies typically "require that a patient ordering a laboratory test make a co-payment of approximately 20% of allowable charges to the laboratory." Id. ¶ 40. And, "[p]rivate insurance companies also require their patients to make a deductible payment to the laboratory until the patient has met his [or] her deductible amount for the year."Id. The relator alleges that "Boston Heart's most common panel of tests is the Complete One panel, which costs $614.29." Id. ¶ 42. Therefore, a 20% co-payment for the Complete One panel "would be approximately $122," if it were charged. Id. The relator alleges that Boston Heart's waiver of co-payments and deductibles were thus a "great benefit to the doctors, who [we]re able to attract and retain the business of patients by promising no co-payments or patient deductible amounts," and that "[k]nowing this, [Boston Heart] promise[d] physicians that it w[ould] waive the co[-]payment[s], as long as the physicians send all of their lipid-related business-including Medicare business-to [Boston Heart]." Id. ¶ 42; see also id. ¶¶ 43-44 (alleging the same waiver scheme and benefits for patients' deductibles). The relator further alleges that this scheme encouraged medically unnecessary tests because, "[b]y waiving patient deductible[s] and co-payments, the physician [wa]s no longer subject to any restraint on whether tests [we]re medically necessary because they [we]re free for patients," and "by removing the patient's financial stake in the transaction, [Boston Heart] ha[d] neutralized one of the market's inherent checks on frivolous treatment-individual monetary responsibility for the cost of care." Id. ¶ 46. According to the relator, Boston Heart "more than ma[d]e[ ] up" the amount of money it lost on the waived co-payments and deductibles "with the profits it earn[ed] on the Medicare referrals." Id. ¶ 45.
To support this allegation, the relator submitted with his Second Amended Complaint a copy of an Explanation of Benefits ("EOB") for a patient who received Boston Heart tests. See id., Exhibit ("Ex.") 3 (EOB (Jan. 25, 2017) ). According to the relator, the EOB shows that $4,000 in costs were not covered by the patient's insurance, but that "the patient was never charged for the tests." Id. ¶ 43; see also id. ¶ 81 ("For the 2017 EOB ..., the insurer declined all charges, which amounted to over $4,000, but the patient never received an invoice for any amount.").
The relator alleges that Boston Heart continued its waiver practice until 2016, even though in 2014, the Department of Justice pursued enforcement actions against three different laboratories based on their "alleged failure to invoice patients for deductibles and co-payments." Id. ¶ 47 (alleging that the Department of Justice intervened in one false claims act action against one laboratory and settled with two others). According to the relator, in 2016, Boston Heart, "knowing the co-pay[ment] waivers violated the False Claims Act," id. ¶ 48, "tweaked its fraud," and instead of waiving co-payments and deductibles entirely, instead began "to charge patients a 'special fee' named a 'Know It Now [Fee],' " id. ¶ 3; see also id. ¶ 48 (alleging that Boston Heart replaced its co-payment and deductible waiver scheme "with a new form of inducement for patient invoices"); id., Ex. 2 (Know It Now Fee Schedule).
The relator alleges that the Know It Now Fee "[wa]s the amount ... charged to patients in lieu of a standard calculation of their co-pay[ment] or deductible," and that this Fee "[wa]s a fraction of the co-payment requirement (usually in excess of $100) based on Boston Heart's charges to insurance companies." Id. ¶ 3 (alleging that the Fee is $2 or less for 75% of Boston Heart's tests, and is $7 or less for 95% of its tests); id. ¶ 49 (similar). According to the relator, the Know It Now Fee was "billed to patients as the total amount owed if [the patients] ha[d] not yet met their deductible for the year," and "where Boston Heart collect[ed] from an insurer for the services, and the only patient responsibility [wa]s for a co-payment, Boston Heart bill[ed] the 'Know [I]t Now' [Fee] to the patients, rather than the 20% co-payment." Id. ¶ 49. The relator alleges that "Boston Heart agree[d] with physicians up front that it w[ould] send 'two invoices' to the patients, but states that they 'd[id] not send patients to collections,' " id. ¶ 50, and therefore, the Know It Now Fee was "effectively [a] waiver[ ] of patients' co-payments and deductibles," id. ¶ 51. Moreover, the relator alleges that "within months of Boston Heart beginning to invoice patients for deductibles and co-payments, even through use of its below cost, 'Know [I]t Now' [F]ees, Boston Heart lost 40% of its revenue." Id. ¶ 70. The relator also names over fifty individual physicians or medical practices who participated in the alleged waiver scheme until 2016. See id. ¶¶ 98-99.
2. Packaging Fees Theory of Liability
The relator alleges that Boston Heart, from 2011 through 2016, see id. ¶¶ 1, 69, 103, induced physicians to refer their Medicare business to Boston Heart by paying them packaging fees that are greater than the actual cost of packaging and shipping specimens to Boston Heart for testing, see id. ¶¶ 4, 53. The relator supports his allegation that these fees were inflated by comparing the standard Medicare draw fee of $3 with the amount Boston Heart allegedly paid to cover the physicians' costs associated with both drawing and shipping the specimens to Boston Heart. See id. ¶¶ 55, 57-58, 62. "Medicare allows the person who collects a specimen to bill Medicare for a nominal specimen collection fee in certain circumstances, including times when the person draws a blood sample," 2014 OIG Special Fraud Alert at 3, and the standard amount that the Centers for Medicare & Medicaid Services ("CMS") allows physicians or laboratories to charge in draw fees is $3, id. at 3 n.10; accord 2d Am. Compl. ¶ 55. CMS also reimburses "packaging fees," which are the costs of "processing and packaging specimens for transport to a clinical laboratory through a bundled payment." 2014 OIG Special Fraud Alert at 4.
According to the relator, Boston Heart paid physicians between $15 and $25 to cover their costs associated with drawing specimens and packaging them for shipping to the laboratory. 2d Am. Compl. ¶¶ 62, 64. The relator alleges that this payment constituted a kickback, and relies on the 2005 OIG Advisory Opinion prohibiting excessive draw fees in support of this assertion. See id. ¶¶ 54-55 (citing 2005 Advisory Opinion). In that Advisory Opinion, the OIG concluded that a laboratory paying a physician a draw fee of $6, plus blood-drawing supplies, would implicate the Anti-Kickback Statute. See 2005 Advisory Opinion at 4. The relator applies this conclusion to Boston Heart's alleged $15 to $25 packaging fee payments to physicians as support for his position that these payments also amounted to kickbacks. See 2d Am. Compl. ¶ 55 (alleging that "[t]he 'packaging' fees paid by [Boston Heart] to referring providers in this case are no different" than the scenario in the 2005 Advisory Opinion).
And, the relator alleges that "Boston Heart encourage[d] physicians to break up their testing needs among multiple colluding laboratories in order to receive draw fees from multiple sources rather than have one lab perform all the tests." Id. ¶ 59. The relator specifically identifies Health Diagnostic Laboratories, Singulex, Liposcience, and Atherotech as other colluding laboratories. Id. According to the relator, this scheme "facilitate[d] multiple 'packaging' fees per patient, rather than just one fee per patient, regardless of the number of labs to which the tests specimens [we]re sent." Id.; see also id. ¶ 61 (alleging that Boston Heart "promote[d] this practice by sponsoring seminars that discuss[ed] how profitable splitting up tests between laboratories c[ould] be for physicians.").
Further, the relator alleges that after the OIG issued its 2014 Special Fraud Alert warning that certain blood-specimen collection, processing, and packaging arrangements could implicate the Anti-Kickback Statute, see id. ¶ 63; see also 2014 OIG Special Fraud Alert at 2-5, "[i]n late 2014 and 2015," 2d Am. Compl. ¶ 62, Boston Heart began using third parties, "including, but not limited to LLmobileLab, Biotex, and VeniExpress," to funnel the fees to the physicians, id. ¶ 64; see also id. ¶ 63 ("After an OIG ruling in 2014 ..., rather tha[n] stop the practice of incentivizing physician referrals through cash payments, Boston Heart simply changed its scheme to further conceal it by using third parties to make the payments to physician staff and families, rather than Boston Heart paying physicians directly."). In other words, the relator alleges that Boston Heart changed its packaging fee payment process in order to avoid detection by the government, see id. ¶¶ 63-66, and, as an example, states that a Boston Heart sales representative, Heidi Ann Mooney, told a California physician that "[the Department of Justice] said we can't pay you [the physician] directly, so we pay [a third party], they take some of the money and they pay you. It's all about perception," id. ¶ 66 (alterations in original); see also id. (alleging that a Biotex representative told the physician that "it didn't even matter if [the payee] was a relative as long as the last names were different" (alteration in original) ). The relator alleges that Boston Heart ceased paying packaging fees after October 31, 2016, see id. ¶ 69, and also names over fifty individual physicians or medical practices who participated in the alleged packaging fees scheme, see id. ¶¶ 98-99.
3. Self-Referrals Theory of Liability
The relator alleges that, from 2011 through 2015, see id. ¶¶ 1, 99, two physicians who were Boston Heart shareholders referred their patients to Boston Heart for laboratory testing in violation of the Stark Law, id. ¶ 83, 99. To support this allegation, the relator relies on the CMS Voluntary Self-Referral Disclosure Protocol. See id. ¶ 85; see also Ctrs. for Medicare & Medicaid Servs., U.S. Dep't of Health & Human Servs., CMS Voluntary Self-Referral Disclosure Protocol (2010) ("CMS Protocol"). The CMS Protocol states that "conduct that raises liability risks under the physician self-referral law may also raise liability risks under ... the federal [A]nti-[K]ickback [S]tatute," CMS Protocol at 1; see also 2d Am. Compl. ¶ 85, and therefore, the relator claims, "each laboratory test Boston Heart billed to Medicare and performed on a patient referred by a physician with a financial stake in Boston Heart constitute[d] a violation of the [ ] False Claims Act," 2d Am. Compl. ¶ 85. The relator names two individual physicians who allegedly were Boston Heart shareholders and referred business to Boston Heart without disclosing their ownership interests to their patients. See id. ¶ 99.
4. Speaking and Consulting Fees Theory of Liability
The relator alleges that Boston Heart "paid outrageous consulting fees to referring physicians"; specifically, over $200,000 in 2012 and 2013 to a nurse practitioner and a physician who "were among the top referral sources to [Boston Heart]." Id. ¶ 7. According to the relator, these
fees were paid primarily for these physicians to solicit physician clients for Boston Heart by speaking at seminars where they explained to physicians how much money they could make by receiving packaging fees and splitting specimens between multiple labs, and how Boston Heart's large panels would have no impact on their patients.
Id. (emphasis removed).
5. Medically Unnecessary Testing Theory of Liability
Finally, the relator alleges that, "from at least 2009 to [2017]," id. ¶ 97, Boston Heart performed and billed for medically unnecessary tests by "encourag[ing] doctors to order their pre-selected panel tests," id. ¶ 87, and compares the industry-standard four-test lipid panel to Boston Heart's eight-test panel, id. ¶ 91; see also id., Ex. 1 (Boston Heart Test Panel). The relator relies on a MAC's Future Local Coverage Determination ("Determination") to support his allegation that these extra tests were medically unnecessary. See id. ¶ 86. That Determination states that "[cardiovascular] risk assessment panels, consisting of various combinations of biochemical, immunologic, hematologic, and molecular tests, is considered screening when performed on an asymptomatic patient, and, as such, are not a Medicare benefit." 2d Am. Compl., Ex. 4 (Future Local Coverage Determination (LCD): MoIDX: Biomarkers in Cardiovascular Risk Assessment (L36129) (Aug. 20, 2015) ) at 2. The relator also relies on purported statements made by Dr. Paul Ziajka, a cardiologist, to support his allegation that Boston Heart's additional tests in its lipid panel were medical unnecessary. Id. ¶ 95. And the relator alleges that Boston Heart's practice of billing for each test on its panel separately, or unbundling, allowed it to "charge Medicare over $100 per lipid panel, rather than the $18.97 allowed by Medicare." Id. ¶ 92.
II. STANDARD OF REVIEW
A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Thus, to survive a motion to dismiss for "failure to state a claim upon which relief can be granted," Fed. R. Civ. P. 12(b)(6), the complaint "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face,' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). Although the Court "must treat the complaint's factual allegations as true [and] must grant [the] plaintiff the benefit of all reasonable inferences from the facts alleged," Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (first alteration in original) (citation omitted), legal allegations devoid of factual support are not entitled to this assumption, see, e.g., Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Moreover, a plaintiff must provide more than "a formulaic recitation of the elements of a cause of action." Hinson ex rel. N.H. v. Merritt Educ. Ctr., 521 F.Supp.2d 22, 27 (D.D.C. 2007) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). "And, '[i]n determining whether a complaint states a claim, the court may consider the facts alleged in the complaint, documents attached thereto or incorporated therein, and matters of which it may take judicial notice.' " Farah v. Esquire Magazine, 736 F.3d 528, 534 (D.C. Cir. 2013) (alterations in original) (quoting Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007) ).
Fraud claims are subject to the heightened pleading requirement of Rule 9(b), which provides that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b) ; see also United States ex rel. Heath v. AT & T, Inc., 791 F.3d 112, 123 (D.C. Cir. 2015) (applying Rule 9(b) to claims filed pursuant to the False Claims Act). "The rule serves to 'discourage[ ] the initiation of suits brought solely for their nuisance value, and safeguards potential defendants from frivolous accusations of moral turpitude.' " Heath, 791 F.3d at 123 (alteration in original) (quoting United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004) ). Further, "the complaint must be particular enough to 'guarantee all defendants sufficient information to allow for preparation of a response.' " Id. (quoting Williams, 389 F.3d at 1256 ). " Rule 9(b) is not an antithesis of Rule 8(a)'s 'short and plain statement' requirement, but rather a supplement to it." Baker v. Gurfein, 744 F.Supp.2d 311, 315 (D.D.C. 2010) (Walton, J.) (citing Williams, 389 F.3d at 1256 ). Accordingly, in order to withstand a motion to dismiss for failure to plead a False Claims Act claim with the degree of particularity required by Rule 9(b), a "complaint must ... provide a defendant with notice of the who, what, when, where, and how with respect to the circumstances of the fraud." Stevens v. InPhonic, Inc., 662 F.Supp.2d 105, 114 (D.D.C. 2009) (Walton, J.) (internal citation and quotation marks omitted).
III. ANALYSIS
A. Count I: The False Presentment Claim Cause of Action
The elements of a false presentment claim cause of action are "(1) the defendant submitted or caused to be submitted a claim to the government, (2) the claim was false, and (3) the defendant knew the claim was false." United States ex rel. Morsell v. Symantec Corp., 130 F.Supp.3d 106, 118 (D.D.C. 2015) (quoting United States ex rel. Tran v. Comput. Scis. Corp., 53 F.Supp.3d 104, 121-22 (D.D.C. 2014) ); see also 31 U.S.C. § 3729(a)(1)(A).
1. The Falsity Element of the Claim
Under the False Claims Act, a claim may be either factually false, "in which a ... claimant submits information that is untrue on its face," United States v. Kellogg Brown & Root Servs., Inc., 800 F.Supp.2d 143, 154 (D.D.C. 2011), or legally false, in which the claim "rest[s] on a false representation of compliance with an applicable federal statute, federal regulation, or contractual term," id. (quoting United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010) ( SAIC ) ). "A legally false claim, also known as a 'false certification,' can be either 'express' or 'implied.' " Id. (quoting SAIC, 626 F.3d at 1266). "An express false certification occurs when a claimant explicitly represents that he or she has complied with a contractual condition, but in fact has not complied." Id. An implied false certification, on the other hand, occurs when a claimant "makes no affirmative representation but fails to comply with a contractual or regulatory provision 'where certification was a prerequisite to the government action sought.' " Id. (quoting SAIC, 626 F.3d at 1266 ).
As stated above, kickbacks and violations of the Stark Law are actionable under the False Claims Act. Under a theory of implied certification, "where the government pays funds to a party, and would not have paid those funds had it known of a violation of a law or regulation, the claim submitted for those funds contain[s] an implied certification of compliance with the law or regulation and [is] fraudulent." United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238 F.Supp.2d 258, 264 (D.D.C. 2002) ( Pogue I ); see Pogue II, 565 F.Supp.2d at 159 ("Legion [of] other cases have held violations of [the Anti-Kickback Statute] and Stark can be pursued under the [False Claims Act], since they would influence the Government's decision of whether to reimburse Medicare claims."); see also United States ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 28, 33 (D.D.C. 2003) ("[C]ompliance with the Anti-Kickback [Statute] and Stark laws would affect the government's decision to pay."); United States ex rel. Ortega v. Columbia Healthcare, Inc., 240 F.Supp.2d 8, 13 n.5 (D.D.C. 2003) ("Compliance with [the Anti-Kickback Statute and the Stark Law] is a condition for reimbursement under Medicare, and [the defendants] impliedly certified compliance with these law[s] in submitting claims to Medicare.").
Boston Heart argues that the relator fails to plausibly allege that its four alleged kickback schemes constitute kickbacks under the Anti-Kickback Statute, and therefore, the relator fails to plausibly allege the falsity element of a false presentment claim. Def.'s Mem. at 9. Boston Heart additionally argues that the relator fails to plausibly allege that its practice of unbundling violates a Medicare provision or that Boston Heart charges for medically unnecessary tests, id. at 30, 33-34, and therefore, the relator does not plausibly allege the falsity element regarding Boston Heart's test panel billing practices, id. at 30. The Court will consider each challenge in turn.
a. Boston Heart's Alleged Kickback by Waiving Co-Payments and Deductibles
In response to the relator's allegation that Boston Heart's waiver of patients' co-payments and deductibles constitutes a kickback, Boston Heart first argues that the relator fails to allege that this practice provides any value to physicians, and thus cannot constitute a kickback. Def.'s Mem. at 24-25. The Court is unpersuaded by this argument because the relator does allege that the purported scheme benefits physicians. Specifically, the relator alleges:
Waiving patients' insurance co-payments and deductibles is of significant benefit to physicians and their patients: physicians are not forced to explain expensive deductible and co-payment requirements to angry patients[,] and patients receive free laboratory testing. Physicians market free testing to their patients to make their offices more appealing, thereby improving the physicians' revenues.
2d Am. Compl. ¶ 37. In the Court's view, this allegation sufficiently alleges how Boston Heart's purported waiver practice provided value to physicians; namely, by saving their time not spent on explaining co-payment and deductible charges to patients and providing them an opportunity to market free laboratory testing.
Second, Boston Heart argues that the relator "fails to plausibly and with particularity allege inducement, an essential element of a kickback violation." Def.'s Mem. at 25; see also Def.'s Reply at 19-20 (contending that there was no connection between the purported reduction in costs and the inducement to physicians). Boston Heart relies heavily on Georgia ex rel. Hunter Laboratories, LLC v. Quest Diagnostics Inc., No. 13-cv-01838 (SCJ), 2014 WL 12543888 (N.D. Ga. Mar. 14, 2014), for its position that "discounts do not establish an improper/illegal referral or Medicaid claim from such referral," Def.'s Mem. at 4. In Hunter Laboratories, the plaintiffs "allege[d that the defendants] operated [a] kickback scheme by improperly offering deeply discounted fees for laboratory services paid for by medical providers." 2014 WL 12543888, at *1. The district court granted the defendants' motion to dismiss, finding that the plaintiffs "fail[ed] to articulate any specific kickback at issue," particularly because they did not allege what the discounted rates were, and when and to whom they were offered. Id. at *4.
Boston Heart's reliance on Hunter Laboratories is misplaced. The district court in Hunter Laboratories did not state that discounts cannot constitute an unlawful referral as a matter of law; rather, it held that the plaintiffs "fail[ed] to provide sufficient particularity to satisfy the pleading standard of Rule 9(b)." Id. Moreover, the relator here does not allege that Boston Heart only provided discounts on co-payment and deductible payments, but rather alleges that Boston Heart waived these fees entirely. See 2d Am. Compl. ¶ 32 ("The first form of illegal remuneration is the waiver of private insurance co-payments and deductibles."). Therefore, Hunter Laboratories does not provide a basis for dismissal due to failure to allege inducement.
Third, Boston Heart argues that the 1994 OIG Special Fraud Alert, upon which the relator relies to support his allegation that waiving co-payments and deductibles constitute kickbacks, does not reference privately insured patients, and therefore is not applicable. See Def.'s Mem. at 25 ("[T]he 1994 Alert concerns Medicare beneficiaries and does not apply to waivers of amounts owed by privately insured patients."). The relator argues in response that "Boston Heart's reading of the 1994 OIG Fraud Alert is overly narrow and ignores the rationale underlying the OIG's position," namely, that the payments at issue in that document "were improper not because it was a managed care patient or government funded payer, but instead because promising a physician [his or her] patients will not be charged a co-pay is a thing of value." Pl.'s Opp'n at 19-20 (emphasis removed).
The Court agrees with the relator. Although Boston Heart is correct that the 1994 OIG Special Fraud Alert references waiver of charges to managed care patients as an "example[ ] of lab services arrangements that may violate the [A]nti-[K]ickback [S]tatute," it notes that this example fits the category of "cases where the provision of free services results in a benefit to the provider," and thus, "the [A]nti-[K]ickback [S]tatute is implicated." 1994 OIG Special Fraud Alert, 59 Fed. Reg. at 65,377. In this case, the relator alleges that Boston Heart waives physicians' privately insured patients' co-payments and deductibles, "so long as the physicians send all of their lipid-related business-especially the highly profitable Medicare business-to [Boston Heart]." See 2d Am. Compl. ¶ 44 (emphasis removed); see also id. ¶ 42. In the Court's view, this allegation, if true, would also implicate the Anti-Kickback Statute because it would constitute the provision of free services, i.e., the waiver of co-payments and deductibles, that result in a benefit to the provider, i.e., by saving the physicians' time not spent on explaining co-payment and deductible charges to patients and providing them an opportunity to market free laboratory testing. And, the relator alleges that the objective of Boston Heart's waiver of co-payments and deductibles scheme is to gain additional Medicare business, which in turn results in federal funds being acquired by Boston Heart as a result of its fraudulent kickback scheme. See id. ¶ 45. Accordingly, Boston Heart's argument that the relator fails to plausibly allege inducement because the 1994 OIG Special Fraud Alert does not specifically reference privately insured patients fails. Therefore, the Court finds that the relator sufficiently alleges that Boston Heart's waiver of patients' co-payments and deductibles constitutes a kickback, and therefore, sufficiently alleges the falsity element of a false presentment claim under the False Claims Act.
b. Boston Heart's Alleged Kickback Through Packaging Fees
Boston Heart argues that the relator fails to allege that the packaging fees Boston Heart paid physicians were above fair market value, and thus cannot constitute kickbacks. Def.'s Mem. at 13-14. According to Boston Heart, the relator incorrectly conflates draw fees and packaging fees. See id. at 15 ("The 2014 Special Fraud Alert explicitly distinguishes between Medicare's $3.00 'nominal specimen collection fee,' which has its own CPT code, and Medicare's 'reimburse[ment] [to] physicians for processing and packaging specimens for transport to a clinical laboratory,' ...." (brackets in original) ). As stated previously, a "draw fee" is "a nominal specimen collection fee ... [that can be assessed] when the person draws a blood sample through venipuncture (i.e., inserting into a vein a needle with syringe or vacuum tube to draw the specimen)," 2014 OIG Special Fraud Alert at 3, whereas a "packaging fee" refers to the costs of "processing and packaging specimens for transport to a clinical laboratory through a bundled payment," id. at 4. According to Boston Heart, the $3 fee set by Medicare that the relator references is the draw fee only, and the higher amount that Boston Heart pays physicians is actually the packaging fee. Def.'s Mem. at 14-15. Accordingly, Boston Heart argues that because the relator has failed to allege that Boston Heart has paid more than the fair market value for packaging, no kickback scheme has been plausibly alleged. Def.'s Mem. at 15-16. The Court disagrees.
The relator plainly alleges that "[t]he second form of illegal remuneration provided by [Boston Heart] to induce the referral of Medicare business is the payment to physicians of inflated 'packaging' fees." 2d Am. Compl. ¶ 53. Although it is true that the relator cites to the 2005 OIG Advisory Opinion regarding draw fees, see id. ¶ 54 (citing 2005 OIG Advisory Opinion at 4), the relator does not "conflate[ ]" the draw fees referenced in the Advisory Opinion with Boston Heart's packaging fees, as Boston Heart contends, see Def.'s Mem. at 15, but rather relies on the Advisory Opinion as prohibiting similar conduct, see 2d Am. Compl. ¶ 55 (alleging that Boston Heart's payment of packaging fees "to referring providers in this case are no different" than the illegal draw fees paid by a laboratory in the Advisory Opinion). Specifically, the relator alleges that "[a]s in the [draw] fees paid in the Advisory Opinion's scenario, the 'packaging' fee and other 'compensation provides an obvious financial benefit to the referring physician, and it may be inferred that this benefit would be in exchange for referrals to the lab.' " Id. (quoting 2005 OIG Advisory Opinion at 4); see also id. ¶ 60 (discussing the costs associated with drawing and packaging specimens). Accordingly, the Court finds that the relator sufficiently alleges that Boston Heart's payment of packaging fees constitutes a kickback, and therefore, sufficiently alleges the falsity element of a false presentment claim under the False Claims Act to avoid dismissal under Rule 12(b)(6).
c. Boston Heart's Alleged Kickback Through Speaking and Consulting Fees
Boston Heart argues that the relator fails to allege that the $200,000 paid to the physician and nurse practitioner for their consultation and speaking services was anything more than "a typical arms-length contract in which compensation is paid solely in exchange" for services and therefore, cannot constitute a kickback. Def.'s Mem. at 29 (quoting Cooper v. Pottstown Hosp. Co., 651 Fed. App'x 114, 116 (3d Cir. 2016) ). The Court disagrees.
The relator alleges:
The consulting fees were paid primarily for [the physician and nurse practitioner] to solicit physician clients for Boston Heart by speaking at seminars where they explained to physicians how much money they could make by receiving packaging fees and splitting specimens between multiple labs, and how Boston Heart's large panels would have no impact on their patients.
2d Am. Compl. ¶ 7 (emphasis removed). The relator, therefore, alleges both that the amount paid to the physician and nurse practitioner was not proportional to the purported service provided, see id. (labelling them "outrageous"), and that the fees were paid to the physician and nurse practitioner for their efforts to induce other physicians to refer patients' laboratory tests to Boston Heart, see id.
Regarding the amounts paid to the physician and nurse practitioner, whether these amounts were in fact not proportional to the services provided is a factual matter that is not appropriate for the Court to decide at this time. See Trudeau, 456 F.3d 178 at 193. As to Boston Heart's argument that the relator fails to allege that Boston Heart paid such fees to obtain referrals of Medicare patients, see Def.'s Mem. at 29, although it is true that the relator does not specifically mention Medicare patients in this portion of his Second Amended Complaint, he does allege that the two individuals paid by Boston Heart were explaining to other physicians the benefits of Boston Heart's packaging fees, see 2d Am. Compl. ¶ 7. As stated previously, the relator alleges that the packaging fees were part of the quid pro quo between Boston Heart and various physicians. See id. ¶¶ 4, 53, 98. Thus, taking the relator's allegations as true, as the Court must, the Court reasonably infers that the relator's reference to packaging fees incorporates his allegations elsewhere in the Second Amended Complaint regarding the alleged kickback scheme through inflated packaging fees. See id. ¶¶ 62-66. Accordingly, the Court finds that the relator sufficiently alleges that Boston Heart's purported payment of inflated speaking and consulting fees paid to a physician and nurse practitioner amounts to kickbacks, and therefore, sufficiently alleges the falsity element of a false presentment claim under the False Claims Act.
d. Boston Heart's Alleged Kickback in Violation of the Stark Law Through Stakeholder Physicians' Referrals
Boston Heart argues that the relator's allegations that it engaged in a kickback scheme through physician self-referrals "are no more than bald assertions." Def.'s Mem. at 34. The Court disagrees. The relator alleges that Boston Heart received referrals from physicians who were Boston Heart shareholders, 2d Am. Compl. ¶ 84, and provides the names of two specific physicians, id. ¶ 99. Taking the relator's allegations as true, this practice would violate the Stark Law because that statute prohibits a physician from referring patients to an entity in which the physician has an ownership interest, see 42 U.S.C. § 1395nn(a)(1)(A)-(B), and accordingly, can constitute a False Claims Act violation, see Pogue II, 565 F.Supp.2d at 159 (holding that a violation of the Stark Law is actionable under the False Claims Act). Accordingly, the Court finds that the relator has properly alleged a violation of the Stark Law, and therefore, sufficiently alleges the falsity element of a false presentment claim under the False Claims Act.
e. Boston Heart's Alleged Medically Unnecessary Testing
Boston Heart argues that the relator fails to plausibly allege that unbundling constitutes a false claim because unbundling is expressly allowed by Medicare. Def.'s Mem. at 30. Although Boston Heart is correct that CMS permits laboratories to unbundle lipid panel tests, see Processing Manual § 90.2 (Note) ("If a laboratory chooses, it can bill each of the component tests of ... panels individually, but payment will be based upon [the Medicare] rules."), the Court is not persuaded that unbundling, on its own, forms the basis of the relator's theory of liability. Rather, as explained above, the relator alleges that Boston Heart "encourage[d] doctors to order [its] pre-selected panel tests," 2d Am. Compl. ¶ 87, which purportedly contain four additional tests that are medically unnecessary, id. ¶¶ 91, 95, and by billing for each test on its panel separately, Boston Heart "charge[s] Medicare over $100 per lipid panel, rather than the $18.97 allowed by Medicare," id. ¶ 92. And, although the relator specifically acknowledges that CMS allows parties to unbundle lipid panels, he alleges that Boston Heart
is not protected by the fact that CMS allows parties to bill component parts of panels individually so long as they accept the lower panel reimbursement amount because Boston Heart's bloated lipid panel has no unique CPT code or lowered reimbursement amount. Thus, b[y] adding redundant tests, Boston Heart is able to bill for substantially more than it would receive if it properly tested and billed.
Id. ¶ 94. Therefore, the basis of the claim is not unbundling in isolation, but rather allegedly including medically unnecessary tests in its test panels and billing Medicare for those additional tests. See id. ¶¶ 91-94. Accordingly, Boston Heart's argument fails.
Boston Heart additionally argues that the relator fails to adequately allege that it billed for medically unnecessary tests because he "[failed] to identify any Medicare or other requirement mandating the composition of tests on a lipid panel," and "there is not a single factual allegation supporting the conclusory assertion that Boston Heart cannot also include the 'four additional tests' on its own lipid panel, as long as it bills for them correctly." Def.'s Mem. at 33. The Court again disagrees.
The relator's primary allegation is not that Boston Heart violated a specific lipid panel standard, but rather that Boston Heart encouraged and billed Medicare for medically unnecessary tests. And, "improper inducements such as providing kickbacks or promoting medically unnecessary testing" is a violation of the False Claims Act. United States ex. rel Lutz v. Berkeley Heartlab, Inc., 225 F.Supp.3d 487, 501, 497 (D.S.C. 2016) (declining to dismiss the government's False Claims Act allegations against a laboratory for "encourag[ing] physicians to order tests that were medically unnecessary"); see also Groat II, 296 F.Supp.3d at 166 (holding that "laboratories have a legal duty to ensure that they do not submit claims for medically unnecessary tests" and that promoting medically unnecessary tests is a violation of the False Claims Act). Therefore, because the relator alleges that Boston Heart's additional tests on their lipid panels are medically unnecessary because they contain Apo B and LDL-P tests, 2d Am. Compl. ¶¶ 86, 95, and it is not the Court's role to make medical necessity determinations at this stage of the litigation, see United States ex rel. Groat v. Boston Heart Diagnostics Corp., 255 F.Supp.3d 13, 27-29 (D.D.C. 2017) (Walton, J.) ( Groat I ) (declining to make medically necessity determinations at the motion to dismiss stage), the relator does allege a violation of a Medicare requirement, i.e., that the tests Boston Heart billed were not medically necessary. Therefore, the Court finds that the relator plausibly alleges falsity under this theory of liability.
In summary, the Court finds that the relator adequately alleges the falsity element of his presentment claim with respect to each of his five theories of liability because in each instance, he alleges that Boston Heart submitted legally false claims. See Groat I, 255 F.Supp.3d at 23 (holding that the relator sufficiently pleaded the falsity element by "alleg[ing] that Boston Heart failed to comply with the Medicare rules restricting covered services to those that are medically necessary"); Ortega, 240 F.Supp.2d at 13 n.5 ("Compliance with [the Anti-Kickback Statute and the Stark Law] is a condition for reimbursement under Medicare, and [the defendants] impliedly certified compliance with these law[s] in submitting claims to Medicare.").
2. The Knowledge Element of the Claim
The knowledge element of a false presentment cause of action requires a defendant to have "actual knowledge of the information" related to the false claim or to "act[ ] in deliberate ignorance ... [or] reckless disregard of the truth or falsity of the information" related to the false claim. 31 U.S.C. § 3729(b)(1)(A). However, the statutory definition of "knowledge" does not require "proof of specific intent to defraud." Id. § 3729(b)(1)(B). Moreover, "[b]ecause Rule 9(b) permits knowledge to be pled generally, there is no basis for dismissal for failure to plead knowledge with particularity." United States v. Honeywell Int'l, Inc., 798 F.Supp.2d 12, 22 (D.D.C. 2011).
With respect to the five foregoing theories of liability, the relator relies on his experience as a former member of Boston Heart's Board of Directors to allege that Boston Heart's false claims were made knowingly and willfully. According to the relator, he was a member of Boston Heart's Board of Directors "from 2007 until majority control of [Boston Heart] was acquired by Bain Capital Venture Fund in late 2010," and he "resigned from the [B]oard around the fourth quarter of 2010," 2d Am. Compl. ¶ 101, although "he remained a shareholder," id. ¶ 104. He alleges that during his time on the Board of Directors, "competitors' policies of paying packaging and handling ... fees to physicians and never billing patients was discussed at several board meetings. During those meetings, [the relator] and others voiced concerns about the propriety and legality of the conduct, and it was ultimately decided that Boston Heart would not employ [those policies]." Id. ¶ 102; see also id. ¶ 101 ("Prior to his resignation, [the relator] advised Boston Heart against engaging in the practices described in the [Second Amended Complaint] on several occasions."). However, according to the relator, after Bain Capital Venture Fund acquired Boston Heart, "Boston Heart instituted the payment of packaging fees to physicians and of never billing patients for co[-payments] or deductibles." Id. ¶ 103. The relator alleges that he sent three letters to Boston Heart's Board of Directors from September to November of 2011, warning it of the potential liability issues related to its practices regarding self-referrals, packaging fees, and waiving of co-payments and deductibles, but received no response. Id. ¶¶ 105-06.
Boston Heart argues that the letters that the relator alleges to have sent it "were merely [the relator's] recitation of what violations he believes Boston Heart was committing," and "do not in any way reflect that Boston Heart actually engaged in such conduct or that it did so with the requisite intent." Def.'s Mem. at 3. The relator argues in response that Boston Heart must have known "that [its] conduct was unlawful, knew [it] was acting with a bad purpose, or knew [it] was acting with evil intent without justifiable excuse." Relator's Opp'n at 14-15 (quoting United States ex rel. Lutz v. Berkeley Heartlab, Inc., No. 9:14-230 (RMG), 2017 WL 4803911, at *3 (D.S.C. Oct. 23, 2017), appeal docketed, No. 18-1813 (4th Cir. July 18, 2018) ).
The Court agrees with Boston Heart's argument that the letters the relator alleges he sent to it demonstrate that the relator thought that Boston Heart was engaged in illegal conduct (and perhaps that Boston Heart was aware of the relator's opinion), but not that Boston Heart knew or should have known that it was indeed engaging in such conduct. In the Court's view, this is not sufficient to show that Boston Heart itself thought that its conduct was illegal. Accordingly, the Court does not find that the relator's letters to Boston Heart are sufficient to satisfy the knowledge element. Compare with Honeywell Int'l, 798 F.Supp.2d at 23-24 (concluding that the government adequately alleged the defendant's knowledge by pleading that it "intentionally obscured its ... data" and its "bad faith in selectively disclosing those findings").
The relator, however, makes other factual allegations regarding Boston Heart's knowledge with respect to the specific theories of liability, which the Court will consider in turn.
a. Boston Heart's Knowledge that Its Waivers of Co-payments and Deductibles Were Unlawful
Regarding the co-payment and deductible waivers, the relator relies on Boston Heart's conduct following the Department of Justice's action taken against Berkeley Heart Laboratories for waiving co-payments and deductibles to demonstrate Boston Heart's knowledge. See 2d Am. Compl. ¶¶ 47-48. First, the relator alleges:
In 2014, the Department of Justice intervened in a false claims act complaint against Berkeley Heart Laboratories, alleging the failure to invoice patients for deductibles and co-payments to be illegal inducements under the Anti-Kickback laws-strong evidence the government considered the practice to be illegal. The same year, the Department of Justice settled with two other Boston Heart competitors for $49 million based on their alleged failure to invoice patients for deductibles and co-payments. Despite this, Boston Heart continued.
Id. ¶ 47. The relator further alleges:
Eventually, knowing the co-pay waivers violated the False Claims Act, in 2016 Boston Heart ceased the 100% waivers of co-pays and deductibles and replaced them with a new form of inducement for patient invoices. As described to a southern California physician by Boston Heart sales person Mooney, "insurance companies in some states require that we must bill patients, so we came up with a fee schedule. It is not a co-pay or a deductible, but rather a special fee."
Id. ¶ 48. In other words, the relator alleges that once Boston Heart realized that the Department of Justice might discover its waiver scheme, it adopted its "Know It Now Fee." Id. ¶¶ 48-50. The relator contends that this fee is so low that it is "effectively [a waiver] of patients' co-payments and deductibles," id. ¶ 51, and accordingly, Boston Heart "continue[d] to offer inducements to physicians despite knowing that waiving co-pay[ment]s or deductibles is illegal," id. ¶ 50 (emphasis added). Thus, the relator alleges that Boston Heart evidenced its knowledge that its practice of waiving co-payments and deductibles was illegal when it "came up with a fee schedule" to replace its waiver practice. Id. ¶ 48. Taking the relator's allegations as true, the Court finds that the relator sufficiently alleges the knowledge element with respect to his waiver theory by alleging that Boston Heart implemented its "Know It Now Fee" in order to avoid detection of its waiver practice by the Department of Justice. See Honeywell Int'l, 798 F.Supp.2d at 23 (concluding that the relators adequately alleged knowledge by noting that the relator "intentionally obscured" its data to avoid the negative consequences of its disclosure); see also United States v. Newman, No. 16-1169 (CKK), 2017 WL 3575848, at *8 (D.D.C. Aug. 17, 2017) ("The Court will not dismiss this case at the outset merely because the allegations in the complaint are rebutted by assertions about [the d]efendant's state of mind in her briefing on her motion to dismiss.").
b. Boston Heart's Knowledge that Its Payment of Packaging Fees Was Unlawful
Regarding the relator's allegation that Boston Heart had knowledge that its inflated packaging fees paid to physicians would induce the physicians to increase their referral of Medicare business to Boston Heart, the relator relies on Boston Heart's actions following the OIG's 2014 Special Fraud Alert that laboratories' payment of packaging fees, among other services, to referring physicians