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United States ex rel. Allen v. Alere Home Montoring, Inc.

United States District Court, D. Massachusetts

August 29, 2018



          Patti B. Saris Chief United States District Judge.


         This False Claims Act ("FCA") case pertains to Medicare reimbursements for at-home blood-testing kits. The kits allow patients on blood-thinning medication to monitor their blood's clotting time at home rather than traveling to a hospital or clinic. The eight Defendants all supply these kits to patients and get reimbursed through Medicare. However, Defendants only provide kits to patients who test two to four times per month. According to Relator, this business practice of requiring two to four monthly tests as a precondition to providing kits induces doctors to order medically unnecessary tests. Thus, Defendants run afoul of the FCA because they get reimbursed by Medicare for tests they know are not medically necessary.

         After hearing and careful consideration, the motions to dismiss by Roche Health Solutions, Inc. ("Roche") (Dkt. No. 57), U.S. Healthcare Supply, LLC ("USHS") (Dkt. No. 87), Patient Home Monitoring, Inc. ("PHM") (Dkt. No. 91), and mdlNR, LLC ("mdlNR") (Dkt. No. 93) are ALLOWED. The motions by Alere Home Monitoring, Inc. ("Alere") (Dkt. No. 95), Cardiolink Corp. ("Cardiolink") (Dkt. No. 97), and Advanced Cardio Services ("ACS") (Dkt. No. 85) are ALLOWED IN PART and DENIED IN PART. The Court takes no action on the motion to dismiss filed by Tambra Investments, Inc. ("Tambra") (Dkt. No. 101), as the case against it has been stayed. Dkt. No. 136.


         The following facts are drawn from the First Amended Complaint (Dkt. No. 17) ("FAC") and attached documents, with all reasonable inferences drawn in favor of Relator. Allegations focused on specific Defendants are discussed later.

         I. Relator, Warfarin, and Blood Testing

         Relator James Allen is a 70-year-old former Marine who lives in western New York. FAC ¶¶ 14, 32, 39. Since 2010, Allen has taken the blood-thinner warfarin to treat atrial fibrillation and depressed left ventricle function. See FAC ¶¶ 33, 73. Because warfarin affects the blood's ability to clot, patients taking it must regularly monitor how long it takes for their blood to clot to ensure it remains within an acceptable range.[1] FAC ¶¶ 74-78. The correct range varies based on the condition being treated and each patient's reaction to specific doses of the drug. FAC ¶¶ 76-78. Therefore, testing is typically more frequent at the outset of a warfarin regimen. FAC ¶ 78. Once a proper dosage is determined and the patient stabilizes, testing can be less frequent, often once a month. FAC ¶¶ 78, 82.

         Historically, blood testing for warfarin patients was done via blood draw at an outpatient clinic. FAC ¶ 85. In the 1980s, companies began to develop portable machines and accompanying supplies that allowed patients to do this testing at home. FAC ¶ 86. In 2002, the Centers for Medicare and Medicaid Services ("CMS") began allowing those companies to seek Medicare reimbursements for at-home testing, but only for very narrow categories of patients. FAC ¶ 87.

         In 2008, after lobbying by a group that included Defendant Roche and a predecessor to Defendant Alere, CMS expanded its coverage for at-home testing. FAC ¶¶ 89-91. The new CMS determination permitted reimbursement for at-home testing for additional categories of patients and for up to one test per week. FAC ¶¶ 91, 93. In 2008, CMS paid a total of $5.5 million to all home-testing providers. FAC ¶ 8. In 2015, CMS paid over $116 million for at-home testing to the named Defendants, who received over 90 percent CMS's payments for such testing that year. FAC ¶ 7.

         When Allen initially began his warfarin treatment in 2010, he tested at a Department of Veterans Affairs facility near his home in Buffalo, New York. FAC ¶ 34. In 2013, Allen transferred his care to Dr. Brian Riegel at Buffalo Cardiology & Pulmonary Associates ("BCPA"). FAC ¶ 35. BCPA has a clinic dedicated to blood testing for warfarin patients, and this is where Allen would go for his tests. See FAC ¶¶ 36, 39. The clinic uses an algorithm to determine the appropriate testing frequency for each patient. FAC ¶ 36. Once a patient has received two consecutive in-range results, the patient is considered stable, and the algorithm directs testing once every four weeks. FAC ¶ 38. Relator remained in this system until 2014. See FAC ¶ 39.

         II. General Allegations

         Relator makes several general allegations against all eight Defendants. He alleges that once a patient's blood-clotting time has stabilized, testing more often than monthly is rarely necessary. FAC ¶¶ 80-83. But Defendants allegedly coerce patients and their doctors to agree to weekly testing (the maximum for which Medicare will reimburse) or to two tests per month without regard to whether those frequencies are medically necessary. FAC ¶¶ 109-16. They pressure doctors chiefly by removing less-frequent testing options from their pre-printed enrollment forms. FAC ¶¶ 118-21, 125-27. They also allegedly encourage the ordering of more tests than necessary through marketing material. FAC ¶¶ 128-29. For example, some marketing material references studies intended to lead patients and doctors to believe that more-frequent testing will lead to better health outcomes. FAC ¶¶ 130-31. Relator questions the validity and accuracy of these studies. FAC ¶¶ 130-41.

         Allen also challenges the test-result reporting protocols of Alere, ACS, PHM, and mdlNR. These companies' enrollment forms permit the prescribing physician to choose to receive reports (1) only monthly, or (2) only if the results are out-of-range. FAC ¶ 251. According to Allen, any Medicare reimbursement for a test whose result is not communicated to the prescribing physician violates Healthcare Common Procedure Coding System ("HCPCS") Billing Code GO249. FAC ¶¶ 252-53. Such reimbursements constitute payment for services not rendered. FAC ¶ 253.

         III. Procedural History

         Allen filed his complaint under seal in June 2016. Dkt. No. 1. He filed the FAC in June 2017. Dkt. No. 17. The FAC alleges five counts against all eight Defendants:

- Count I: presentment theory, 31 U.S.C. § 3729(a) (1) (A);
- Count II: false statements theory, 31 U.S.C. § 3729(a)(1)(B);
- Count III: reverse false claims theory, 31 U.S.C. § 3729(a)(1)(G);
- Count IV: payment under mistake of fact; and Count V: unjust enrichment.

         The United States declined to intervene in November 2017, and the case was unsealed. Dkt. Nos. 21-22. Each of the eight Defendants have filed motions to dismiss. Dkt. Nos. 57, 85, 87, 91, 93, 95, 97, 101. Allen opposed the motions in a joint filing. Dkt. No. 127. Before the hearing on the motions, the Court stayed the case against Tambra, per the parties' request. Dkt. No. 136.


         I. False Claims Act

         Relator relies on three provisions of the FCA that target three distinct types of false claims. First, under the presentment theory, the FCA "penalizes those who present, or cause to be presented, 'false or fraudulent claim[s] for payment or approval' to the federal government." Hagerty ex rel. United States v. Cyberonics, Inc., 844 F.3d 26, 31 (1st Cir. 2016) (alteration in original) (quoting 31 U.S.C. § 3729(a)(1)(A)). Under this theory, fraud "has two components: the defendant must submit or cause the submission of a claim for payment to the government, and the claim for payment must itself be false or fraudulent." Id. Second, under a false statements theory, the FCA punishes those who knowingly make or use "a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(B). Third, under a reverse false claims theory, the FCA imposes liability on those who knowingly conceal or improperly avoid an obligation to pay or transmit money or property to the government. Id. § 3729(a) (1) (G) .

         Unlike other circuits, the First Circuit has "rejected rigid divisions between factual and legal falsity, and express and implied certification, noting that the text of the FCA does not make such distinctions." United States ex rel. Jones v. Brigham & Women's Hosp., 678 F.3d 72, 85 (1st Cir. 2012). Instead, this Circuit "take[s] a broad view of what may constitute a false or fraudulent statement." Id. The scope of the FCA, then, is circumscribed primarily by "'strict enforcement of [its] materiality and scienter requirements.'" Id. at 85-86 (quoting United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 388 (1st Cir. 2011)).

         "[T]he [FCA] defines 'material' to mean 'having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.'" Universal Health Servs., Inc. v. United States, 136 S.Ct. 1989, 1996 (2016) (quoting 31 U.S.C. § 3729(b) (4)) . "The materiality standard is demanding." Id. at 2003. "A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment." Id. Nor is this element satisfied "where noncompliance is minor or insubstantial." Id.

[P]roof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.

Id. at 2003-04.

         "The [FCA's] scienter requirement defines 'knowing' and 'knowingly' to mean that a person has 'actual knowledge of the information,' 'acts in deliberate ignorance of the truth or falsity of the information,' or 'acts in reckless disregard of the truth or falsity of the information.'" Id. at 1996 (quoting 31 U.S.C. § 3729(b)(1)(A)).

         II. Medicare Rules and Regulations

         By statute, Medicare only covers tests 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. § l395y(a)(1)(A). By regulation, all diagnostic tests "must be ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a consultation or treats a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary's specific medical problem." 42 C.F.R. § 410.32(a). "Tests not ordered by the physician who is treating the beneficiary are not reasonable and necessary." Id.

         Thus, in order to be eligible for Medicare coverage, the at-home testing program described above must be prescribed by a treating physician as provided in 42 C.F.R. § 410.32(a) . See CMS, National Coverage Determination Manual, Chapter 1, Part 3, § 190.11 ("NCD § 190.11"). Four other criteria must also be met: (1) the patient must have been anticoagulated for at least three months prior to use of the home-testing device; (2) the patient must undergo a face-to-face educational program on anticoagulation management and must have demonstrated the correct use of the device prior to its use in the home; (3) the patient continues to correctly use the device; and (4) self- testing with the device should not occur more frequently than once a week. Id.

         Medicare reimbursements for at-home testing use at least three billing codes, including HCPCS Billing Codes GO248, GO249, and G0250. See CMS Manual System, Pub. 100-04, Transmittal 1562, July 25, 2008, Attachment: Business Requirements, at 2. The FAC focuses primarily on Billing Code GO249, which permits companies to bill Medicare for the "[p]rovision of test materials and equipment for home [blood coagulation] monitoring of [a] patient with either mechanical heart valve(s), chronic atrial fibrillation, or venous thromboembolism who meets Medicare coverage criteria." Id. It "includes [the] provision of materials for use in the home and reporting of test results to [a] physician; not occurring more frequently than once a week." Id.

         Ill. Standard of Review

         In analyzing whether a complaint has stated a claim sufficient to satisfy Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must set aside any statements that are merely conclusory and examine the factual allegations to determine if there exists a plausible claim upon which relief may be granted. Foley v. Wells Fargo Bank, N.A., 772 F.3d 63, 75 (1st Cir. 2014). The Court must draw reasonable inferences in the pleader's favor. Id.

         Because FCA claims sound in fraud, Rule 9(b) of the Federal Rules of Civil Procedure requires relators to allege their claims with particularity -- that is, with the "who, what, when, where, and how of the alleged fraud." Hagerty, 844 F.3d at 31 (quoting United States ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116, 123 (1st Cir. 2013)). That said, the First Circuit has "repeatedly emphasized that there is no checklist of mandatory requirements ...

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