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From Health Law Daily, February 13, 2015

Kickbacks between doctor and owner of device distributor not excused due to their engagement

By Harold M. Bishop, J.D.

A joint motion, brought by two individuals and the two limited liability companies they formed, to dismiss a government’s intervening complaint in a qui tam action brought under the False Claims Act (FCA), based on the submission of Medicare and Medicaid claims made in violation of the Anti-Kickback Statute, was denied by the district court. The court found that the government’s allegations that CMS mistakenly paid claims under the belief that the defendants were in compliance with the law, and that “but for” this mistaken belief they would have denied the claims, were sufficient to survive a motion to dismiss. The court also rejected an argument that the alleged inducement and remuneration between the two of the defendants was merely because they were engaged. The court further dismissed an argument that even if the purchase of certain implanted devices were a result of kickbacks, the professional fees of the surgeon were not (U.S. ex rel. Cairns v. D.S. Medical LLC, February 11, 2015, Fleissig, A.).

Background. The United States intervened in a qui tam action alleging that Midwest Neurosurgeons LLS (MWN) and its owner, Dr. Sonjay Fonn (Dr. Fonn), and D.S. Medical LLC (DSM) and its owner, Deborah Seeger (Seeger), violated the False Claims Act (FCA), 31 U.S.C. § 3729-33, by submitting to Medicare and Medicaid claims for payment that were false because they violated the federal criminal Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b).

The intervening complaint alleged that Seeger is Dr. Fonn’s fiancée and that the couple incorporated DSM to serve as the distributor of medical devices and supplies to Dr. Fonn and his neurosurgery practice, MWN. Through DSM, Seeger allegedly demanded and was paid exorbitant commissions by medical device manufacturers for spinal implant devices and supplies purchased by the hospital where Dr. Fonn performed spinal fusion surgeries. The hospital’s purchases were based on Dr. Fonn’s decision to use those devices and supplies during operations he performed.

According to the complaint, once DSM started operations, Dr. Fonn altered the way he practiced medicine, generally using more spinal implants and performing more surgeries than he typically performed. For example, in December 2008, the first full month of operation of DSM, Dr. Fonn allegedly ordered approximately $1,330,090 worth of spinal implants for his surgeries, more than twice as much as his nearest medical peer in the local health care market. The commissions paid to DSM and Seeger by the manufacturers were allegedly used to purchase a house where Dr. Fonn and Seeger resided, a boat, an airplane and various home improvements, which they shared.

Motion to strike. The defendants, personally offended by the tone of the government’s allegations, initially moved to strike portions of the government’s intervening complaint as redundant, immaterial, impertinent, and scandalous. The court, however, concluded that none of the challenged portions of the complaint were sufficiently improper to necessitate striking (see Nothing scandalous here, government’s qui tam allegations will stand, January 22, 2015).

Intervening complaint. The intervening complaint sets forth, in three counts, the government’s theories of how the defendants violated the FCA. Count I asserts: (1) that Dr. Fonn, personally and through MWN, solicited and received remuneration from Seeger and DSM in return for causing the hospital to purchase implant devices through DSM, for which payment was made by Medicare or Medicaid; (2) that Seeger and DSM paid remuneration to Dr. Fonn and MWN to induce Dr. Fonn to order implant devices through Seeger and DSM, for which payment was made by Medicare or Medicaid; and (3) that all four defendants thereby caused false claims for payment to be presented to the United States government.

Count II asserts that Dr. Fonn, Seeger, and DSM, individually and collectively, solicited and received commissions or remuneration from the device manufacturers in return for ordering, or having the hospital order, implant devices from the manufacturer, and that all four defendants thereby caused false claims for payment to be presented to the United States. Count III asserts that the four defendants conspired to violate the FCA as asserted in Count II. The defendants moved to dismiss all counts for failure to state a claim.

Motion to dismiss. According to defendants’ motion to dismiss, the claims submitted by the hospital to CMS for reimbursement would be false only if they were for items (or services) that would not have been purchased “but for” the defendants’ kickback scheme. However, the complaint alleges that Dr. Fonn specifically chose the devices from the manufacturer for the purpose of benefitting from the kickback scheme. According to the court, this is tantamount to the government alleging that Dr. Fonn would not have chosen those particular devices but for the kickback scheme, and is sufficient to state a claim under the FCA.

In addition, the court did not agree with the defendants that the facts as alleged established “the inescapable conclusion” that the inducement and remuneration between the two sets of defendants was merely the product of Dr. Fonn and Seeger’s close personal relationship. According to the court, while Dr. Fonn’s financial relationship with Seeger and DSM in connection with the implant devices is not per se improper, as defendants concede it would have been under the Stark Act, 28 U.S.C. §1395, had they been married, their personal relationship did not conclusively shield them here.

The court also rejected the defendants’ argument that even if the purchase of the implant devices were a result of kickbacks, Dr. Fonn’s professional services were not. The professional services for which MWS sought reimbursement were to implant the very devices for which Dr. Fonn allegedly accepted kickbacks. Therefore, the court found that these services were the result of the same financial incentives that colored Dr. Fonn’s selection of the manufacturer and involved the same underlying transaction, such that Dr. Fonn and MWS would not be entitled to payment by Medicare and Medicaid for those services.

The defendants’ motion to dismiss was denied.

The case is No. 1:12CV00004 AGF.

Attorneys: Suzanne J. Moore, Office of U.S. Attorney, for United States of America. Jeffrey B. Jensen (Husch Blackwell, LLP) for Paul Cairns. Sanford J. Boxerman (Capes and Sokol) for D.S. Medical LLC. James G. Martin (Dowd Bennett, LLP) for Midwest Neurosurgeons, LLC.

Companies: D.S. Medical LLC; Midwest Neurosurgeons, LLC

MainStory: TopStory CaseDecisions FCANews AntikickbackNews EnforcementNews MedicaidPaymentNews MDeviceNews PaymentNews QuiTamNews MissouriNews

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