Doctor concerned with health care law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Health Law Daily, August 29, 2017

Escobar materiality requirement met where referral payments occurred during time lapses in written contract

By Vanessa M. Cross, J.D., LL.M.

The Hamot Medical Center of the City of Erie (Hamot) and Medicor Associates, Inc. (Medicor) motion for reconsideration of the denial of their motion for summary judgment was denied in a relator’s qui tam action alleging that Hamot and Medicor submitted false claims for payments to the government in violation of Stark and the Anti-Kickback Act. A federal district court in Pennsylvania denied the motion because Hamot and Medicor did not show that the relator failed to properly plead materiality under Universal Health Servs., Inc. v. United States and Massachusetts, ex rel. Escobar related to payment referrals that allegedly occurred during times lapse in written contracts between Hamot and Medicor, and because they adduced no proper ground for reconsideration (U.S. ex rel. Emanuele v. Medicor Associates , August 25, 2017, Conti, J.).

Alleged bases for reconsideration. Hamot and Medicor argued for reconsideration of the denial of their summary judgment motion, substantially, by alleging that the relator failed to provide sufficient proof of materiality regarding the False Claims Act’s (FCA) requirement that, to be actionable, a misrepresentation must be material to the government’s payment decision. The court noted that under the Federal Rule of Civil Procedure 59(e), there are three grounds for a motion for reconsideration: (1) an intervening change in the law, (2) the availability of new evidence, or (3) the need to correct clear error of law or prevent manifest injustice.

Statutory writing requirement. The court broke down that both the Stark Act and the Anti-Kickback statute, both of which gave rise to the FCA claims, generally prohibit a health care entity from submitting payments to Medicare based upon referrals from physicians who have a “financial relationship” with the health care entity. The court noted that both statutes have safe harbor exceptions that permit payment referrals upon satisfaction of certain requirements. The statutory exception invoked here was the requirement that the pertinent financial arrangements be “in writing” and “signed by the parties.” The relators claimed, in part, that the some of the written documents governing the financial arrangements between Hamot and Medicor were allowed to lapse and that payments based on referrals that occurred during the lapse periods would not enjoy the safe harbor protection. Hamot and Medicor argued that any such lapses were “technical” violations of the statutory writing requirement that were not “material” within the meaning of FCA.

Materiality under Escobar. The parties and the court agreed at summary judgment that the United States Supreme Court’s decision in Escobar provided the standard for reviewing the materiality requirement. In setting out the standard in its memorandum opinion, the federal district court noted that the materiality standard is demanding and considered the following Escobar factors in evaluating materiality in the case at bar: (1) whether compliance with a statute is a condition of payment, (2) whether the violation goes to “the essence of the bargain” or is “minor or insubstantial,’ and (3) whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations.

Here, the court concluded that each of the Escobar factors supported a finding that payments based on referrals between the parties during time periods when written contracts governing the financial arrangements between the parties had lapsed favored a finding of materiality. The court found that the statutory writing requirement is not “minor or insubstantial” and goes to the very “essence of the bargain” between the government and health care providers. The court noted there was no evidence in the record related to the government’s refusing to pay claims based on Stark non-compliance, or, conversely, paying such claims despite actual knowledge of non-compliance. That factor was weighed by the court as being slightly in favor of materiality.

Third Circuit’s Petratos case. Hamot and Medicor sought reconsideration based on the Third Circuit Court of Appeal’s decision in United States ex rel. Petratos v. Genentech, Inc.. In Petratos, the relator alleged that the defendant drug manufacturer concealed data that would show the side effects of its cancer drug were more severe than reported. The relator argued that the physicians would not have prescribed the drug had they known the concealed information. The relator argued that the physicians submitted claims to Medicare for the drug that were not reasonable and necessary, but also conceded that the government would have reimbursed these claims with full knowledge of the purported noncompliance. Applying the Escobar standard for materiality, and relying on the relator’s concession that the government routinely paid the claims despite full knowledge of the defendant’s misrepresentations, the Petratoscourt held that the relator’s allegations did not meet Escobar’s materiality standard.

While Hamot and Medicor argued that Petratos represents an intervening change in the law, the federal district court noted that, by their own admission, Petratos is a “reinforcement” or “clarification” of existing law, rather than an alteration of the law. In denying their motion for reconsideration, the court noted that the Petratos court used the same Escobar factors that it used in denying the defendants motion for summary judgment. The court noted that the relator’s concession in Petratos that the government would have paid the claims with full knowledge of the alleged noncompliance was central to the court’s decision. No such concession was made by the relator in the case at bar.

The case is No. 10-245.

Attorneys: Colin J. Callahan, U.S. Attorney’s Office, for United States of America. Andrew M. Stone (Stone Law Firm, LLC) for Tullio Emanuele. Neal R. Devlin (Knox, McLaughlin, Gornall & Sennett) for Medicor Associates, Inc. Stephen S. Stallings (Stephen S. Stallings Attorney at Law) for The Hamot Medical Center of the City of Erie Pennsylvania.

Companies: Medicor Associates, Inc.; The Hamot Medical Center of the City of Erie Pennsylvania

MainStory: TopStory CaseDecisions CMSNews AntikickbackNews FCANews GCNNews ProviderNews QuiTamNews StarkNews PennsylvaniaNews

Back to Top

Health Law Daily

Introducing Wolters Kluwer Health Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.