On August 12, 2011, a Washington federal judge in Seattle ruled that plaintiffs in a qui tam lawsuit filed in 2005 could proceed with their False Claims Act (FCA) claims against a national provider of outpatient imaging services but dismissed plaintiffs’ Stark Law claims against the provider.

The case, United States ex rel., et al. v. Center For Diagnostic Imagining, Inc., et al., No. 2:05-cv-000058-RSL, is currently pending in the U.S. District Court for the Western District of Washington and involves various allegations against defendant Center for Diagnostic Imaging, Inc. (CDI) by a former CDI vice president and a Seattle radiologist.  Specifically before district judge Robert Lasnik was CDI’s motion to dismiss two counts of plaintiffs/relators’ fourth amended complaint:  one arising under the FCA for CDI’s alleged failure to obtain written physician orders for radiological exams before submitting “thousands” of claims to Medicare; and the other, under the Stark Law, for CDI’s alleged illegal payments to doctors for Medicare and Medicaid referrals.  CDI did not seek to dismiss other counts in plaintiffs’ amended complaint.

With respect to the FCA claims, plaintiffs advanced an implied false certification theory of liability.  Plaintiffs contended that while CDI did not expressly certify compliance when it submitted the claims at issue, it had nevertheless previously agreed to comply with Medicare’s mandatory written order requirement when it entered into its provider agreement with the Centers for Medicare and Medicaid Services (CMS).  Pursuant to 42 U.S.C. § 1395y(a)(1)(A), and other federal regulations, Medicare reimbursement is conditioned upon a provider’s showing that certain diagnostic tests were ordered by a physician and therefore were reasonable and medically necessary.

CDI argued that plaintiffs’ FCA claims should be thrown out because its alleged regulatory violations—i.e., failing to obtain written orders—were immaterial and could not, by themselves, provide the basis for liability.  A theory of implied false certification, CDI further argued, did not apply where the statute at issue did not expressly require provider compliance for reimbursement.  Judge Lasnik disagreed, first noting that “it is the false certification, not just the absence of medical necessity, that creates liability.”  Judge Lasnik next noted that the Ninth Circuit had considered whether to adopt an express compliance requirement under an implied false certification theory, but declined to do so.  Therefore, because CDI entered into a provider agreement with CMS whereby it acknowledged that claim reimbursement was conditioned upon its compliance with applicable laws and regulations, and because “in submitting a Medicare reimbursement form, a defendant implicitly certifies compliance with § 1395y(a)(1)(A),” CDI’s failure to comply with the regulation was indeed material.  For this and other reasons, the district court ruled that plaintiffs’ FCA count withstood CDI’s motion to dismiss.

With respect to plaintiffs’ Stark Law claims, the district court’s reasoning turned on what was missing from plaintiffs’ fourth amended complaint.  Specifically, Judge Lasnik ruled that plaintiffs failed to allege with sufficient specificity a “financial arrangement” for purposes of the Stark Law between CDI and certain of the referring physicians.  For certain other physicians, although plaintiffs sufficiently alleged a particular financial arrangement, they failed to allege sufficient facts with respect to the “who, what, where and how” of their referrals (e.g., when the referrals occurred, how many were made, the patients involved or what services the referrals involved).  The order noted that the latter point was especially problematic because the Stark Law prohibits only referrals of designated health services.  Plaintiffs’ claims of improper payments therefore amounted only to “general allegations and speculation.”  Because plaintiffs failed to satisfy the pleading requirements of Federal Rule of Civil Procedure 9(b), the district court dismissed their Stark Act claims.

A copy of the court’s decision in this case is available by clicking here.