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Government of Bermuda v. Lahey Clinic, Inc.

United States District Court, D. Massachusetts

March 8, 2018

GOVERNMENT OF BERMUDA, Plaintiff,
v.
LAHEY CLINIC, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          Indira Talwani, United States District Judge

         The Government of Bermuda (“Bermuda”) brings a federal claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and state claims under Massachusetts General Laws c. 93A, § 11, and common law theories of conspiracy, fraud, and unjust enrichment against Defendants Lahey Clinic, Inc., and Lahey Clinic Hospital, Inc. (collectively, “Lahey”). Before the court is Lahey's Motion to Dismiss the Plaintiff's Complaint Pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) [#16]. For the reasons set forth below, Lahey's motion is ALLOWED.

         I. Standard of Review

         A motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss a complaint for failure to state a claim upon which relief can be granted is properly allowed when the complaint does not 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 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). Considering the complaint in the light most favorable to the plaintiff, see Germanowski v. Harris, 854 F.3d 68, 71 (1st Cir. 2017), the court will “determine whether the factual allegations are sufficient to support the reasonable inference that the defendant is liable.” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016) (quoting Cardigan Mtn. Sch. v. N.H. Ins. Co., 787 F.3d 82, 84 (1st Cir. 2015)).

         II. Allegations in the Complaint

         This case involves an alleged conspiracy between Lahey and Dr. Ewart Brown (“Brown”). Brown is the former Premier of Bermuda, a longstanding Member of Bermuda's Parliament, and the owner of two private health clinics in Bermuda. Compl. ¶ 8 [#1]. Bermuda alleges that Lahey paid Brown bribes disguised as “consulting fees, ” gave him discounts on medical equipment and services, and made political donations to his campaign, in return for which Brown ensured Lahey: 1) “made millions of dollars reading and interpreting medically unnecessary MRI and CT scans performed at Brown's clinics”; 2) “received preferential treatment when bidding on healthcare contracts issued by the Bermudian Government”; and 3) “obtained privileged access to Bermudian patients that it could service at its facilities in Massachusetts and in Bermuda.” Id. ¶ 1; see also ¶¶ 9, 31, 45. The Complaint describes these three distinct schemes are as follows.

         A. Scanning Scheme

         In the “scanning scheme, ” Lahey and Brown allegedly conspired to conduct medically unnecessary scans at Brown's two on-island clinics (the “Brown Clinics”) for profit. Pursuant to exclusive contracts between Lahey and the Brown Clinics, Lahey interpreted imaging results forwarded electronically from the Brown Clinics in Bermuda to Lahey in Massachusetts and sent electronic reports back to the Brown Clinics for a fee. Compl. ¶¶ 70-71. Brown allegedly paid this fee out of the money he received from insurers after submitting claims for reimbursement. Id. ¶ 70. Lahey also assisted with certain scans performed at the Brown Clinics from its campus in Massachusetts “by giving specific instructions on how to carry out the scan including where the patient should be positioned.” Id. ¶ 82. Brown allegedly induced patient referrals for diagnostic scanning at the Brown Clinics “by offering paid kickbacks, which he dubbed ‘commissions, ' ranging from between 5% to 17.5% of reimbursements to local physicians.” Id. ¶ 92.

         As a direct result of this scheme, the Brown Clinics allegedly conducted and Lahey interpreted “thousands of medically unnecessary tests” at Bermuda's expense. Id. ¶ 70. Bermuda paid Brown for these tests when he submitted claims for reimbursement to Bermuda public insurers; Brown in turn paid Lahey's fees. Id.[1] Bermuda alleges Lahey “must have known” these tests were unnecessary “for several years, ” due to the fact that Bermuda was conducting scans “at a rate disproportionate to like nations.” Id. ¶ 81.

         The Complaint alleges a secondary effect of the scanning scheme, namely that “MRI and CT scanning on the island increased exponentially, ” causing Bermudian insurance rates to increase. Id. ¶ 70. In Bermuda, insurers are required to provide each insured a minimum package of medical benefits called Standard Health Benefits. Id. ¶ 83. The government subsidizes payment of Standard Health Benefit “claims” for certain Bermudians. Id. ¶ 84. Each year, the Ministry of Health, Seniors and Environment determines a Standard Premium Rate for the Standard Health Benefits based on the claims experience of all insured participants. Id. ¶ 85. The Complaint alleges that “[i]n part as a result of [the scanning scheme] . . . the Standard Premium Rate for the Standard Health Benefits package provided to each Bermudian citizen more than doubled between Fiscal Year 2007 ($140.92) and Fiscal Year 2016 ($338.07).” Id. ¶ 86. Insured Bermudians paid higher premiums, and Bermuda provided higher subsidies. Id. ¶ 85. Brown allegedly influenced this increase further by “constantly appl[ying] pressure to government officials to increase remuneration for tests undertaken by the Brown Clinics and read by Lahey, notwithstanding their already high price tag.” Id. ¶ 90.

         B. Bidding Scheme

         In the second alleged scheme, Lahey secured several lucrative subcontracts over other healthcare service providers as a result of its relationship with Brown. The Complaint describes subcontracts for two specific projects.

         The first project was a $13.5 million, five-year contract to develop a long-term healthcare strategy for the island and “revamp” Bermuda's state-run hospital, King Edward Memorial Hospital (“KEMH”). Brown allegedly “used his role as Premier” to facilitate a meeting between Lahey and the Bermuda Minister of Health to discuss Lahey's involvement in the “new” hospital. Compl. ¶ 50. Brown then secured the KEMH contract for a U.S.-based healthcare management and consulting company known as Kurron Shares of America, Inc. (“Kurron America”). Brown allegedly controlled Kurron America through his relationship with its owner, a former business associate, and used this control to facilitate a subcontract on the project with Lahey. Id.[2]

         The second project involved an annual $1.3 million contract with a separate company, Kurron Bermuda, to develop “FutureCare, ” a Bermudian public insurance plan for citizens over 65. Id. ¶ 59. Brown allegedly used his “influence and connections to ensure that Lahey was favored over other potential U.S. healthcare providers, including Johns Hopkins, for lucrative contracts relating to ‘FutureCare.'” Id.[3]

         C. Preferred Provider Scheme

         In the third scheme, Bermuda public insurers made Lahey a “preferred provider” of medically necessary services not available in Bermuda, allegedly due to “Lahey's continued payments to and exploitation of Brown.” Compl. ¶ 63. Lahey is one medical service provider in a “network” of preferred providers. Id. ¶ 64. As a result, Lahey treats “[h]undreds of Bermudians” who travel to Lahey in Massachusetts each year for treatment, id., and it also “services Bermudians remotely from its campus in Massachusetts, ” id. ¶ 66. Bermuda's Health Insurance Plan, a basic government-funded health plan for persons of all ages, paid 60% of usual and customary charges for medically necessary services by in-network providers such as Lahey, and 50% for out-of-network providers. Id. ¶ 64. FutureCare paid 75% of these services for in-network providers, and 65% for out-of-network providers. Id. Bermuda alleges that between 2010 and 2016, Bermuda's Health Insurance Plan and FutureCare paid Lahey over $10 million for services Lahey performed at its facilities in Massachusetts as a preferred provider, id. ΒΆ 59, and the Bermudian ...


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