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From Health Law Daily, November 26, 2018

Allegations of loans for referrals sufficient to sustain AKS and FCA claims past motion to dismiss

By Sheryl Allenson, J.D.

Finding that the U.S. government sufficiently pleaded violations of the Anti-Kickback Statute (AKS) as well as violations of the False Claims Act (FCA), a federal district court in Texas rejected a hospice registered nurse’s bid to dismiss the case against him, finding that it was plausible that the nurse made payments in exchange for referrals (United States ex. rel. Capshaw v. White, November 20, 2018, Godbey, D.).

The hospice nurse, along with a medical doctor not subject to this motion, owned a group of hospice companies in North Texas. The government alleged that after the two formed their hospice business, they were in contact with a home care company that was in "great financial distress." Thereafter, the parties made a deal whereby the hospice nurse and medical doctor would infuse money and equity to the home care company in exchange for the referral of Medicare patients. As a result, almost $3 million was transferred to the home care company and about 70 percent of their Medicare patients were referred to the hospice.

Thereafter, litigation ensued and the case went through a number of court procedures. Ultimately, the government was permitted to partially intervene against the hospice nurse and doctor and claims under the AKS and FCA were asserted against the two. The court explained that the net for AKS claims is deep. "As long as any part of the transaction was intended to induce referrals, the transaction violates the law," the court wrote, citing a Fifth Circuit case. The court also laid out the standard for FCA violations and explained how the two statutes are intertwined.

At the outset, the court found that the government sufficient alleged that the nurse violated the AKS, noting that the government’s complaint "painstakingly" tracked the loans to and referrals out of the home care company. Here, the government went beyond providing a "formulaic recitation of the elements," the court said. "If true, its allegations plausibly place [the nurse] in the middle of a scheme at odds with the AKS," the court wrote.

Next, the court found sufficient allegations that the nurse violated the FCA by submitting Medicare claims "tainted" by illegal referrals. Specifically, there were allegations of at least 24 patient referrals resulting in the submission of at least 180 Medicare claims. As a result, the court found that there were allegations that the nurse presented false claims to the government for payment in violation of the FCA.

The court found that the government got over the second elemental hurdle of showing that the nurse knowingly presented the Medicare claims. It is important to note that the term knowingly is defined as either acting with actual knowledge that the information was false or in the alternative, acting with deliberate ignorance or reckless disregard of the truth. In this instance, the government’s complaint included allegations that the nurse signed documents certifying his business was compliant with the AKS, notwithstanding the fact that he received referrals from the home care company. Thus, it was plausible that he acted knowingly, the court found. These allegations far exceeded the conclusory pleadings disallowed by Rule 9(b) and Supreme Court precedent.

The court explained that here the AKS and FCA are linked together. Compliance with the AKS is a condition for payment of Medicare or Medicaid claims, and therefore claims submitted for "services rendered in violation of these statutes may be ‘false or fraudulent’ for the purposes of the FCA."

In order to determine whether an alleged AKS violation forms the basis for a FCA claim, the court must decide whether the violation is material. Citing the U.S. Supreme Court decision of United States ex. rel. Escobar, the court noted that not all violations are material. "The critical question is whether the Government’s decision to issue payment would change had it known of the transgression." Drawing on case law from the Southern District of New York, the court ruled that AKS violations were material under Escobar for three reasons.

Here, the court found first that government sufficiently alleged that the hospice nurse presented it with false claims. The government’s allegations included specific examples that resulted in almost 200 Medicare claims, and in payment of more than $18 million in claims paid out on illegally referred patients. Furthermore, according to the government, the hospice nurse signed several documents asserting that his company was complying with the AKS, although the business accepted referrals. Based on the hospice nurse’s experience and familiarity with the hospice care business, the court found that it could be plausibly inferred, at a minimum, that the he acted in either deliberate ignorance or reckless disregard that his certifications were false. Accordingly, the court denied the nurse’s motion to dismiss.

The case is No. 3:12-CV-4457-N.

Attorneys: Ted B. Lyon, Jr. (Ted B. Lyon & Associates) for Christopher Sean Capshaw. J. Scott Hogan, U.S. Attorney's Office, for the United States. Jeffrey T. Hall (Law Office of Jeffrey Hall, Inc.) for Be Gentle Home Health Inc. d/b/a Phoenix Home Health Care. Steven E. Clark (Clark Firm PLLC) and Cameron James Asby (Duane Morris LLP) for Goodwin Home Health Services Inc. and Vinayaka Associates LLC d/b/a A&S Home Health Care.

Companies: Be Gentle Home Health Inc. d/b/a Phoenix Home Health Care; Goodwin Home Health Services Inc.; Vinayaka Associates LLC d/b/a A&S Home Health Care

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