United States District Court, D. New Jersey
UNITED STATES OF AMERICA ex rel. LAURIE SIMPSON, Plaintiff-Relator,
BAYER CORP., et al, Defendants.
L. Linares, Judge, United States District Court
matter comes before the Court by way of cross-motions for
partial summary judgment by Plaintiff-Relator Laurie Simpson,
(ECF No. 324), and Defendants Bayer Corporation, Bayer
Healthcare Pharmaceuticals, Inc., and Bayer Healthcare, LLC
(collectively, "Bayer"), (ECF No. 323). Bayer has
opposed Relator's motion, (ECF No. 329), and Relator has
opposed Bayer's motion, (ECF No. 330). The United States
(the "Government"), though declining to intervene
in this matter, (ECF No. 16), has filed a statement of
interest. (ECF No. 338). The Court held oral argument on the
cross-motions on March 11, 2019. (ECF No. 344). For the
following reasons, the Court denies both motions.
a former Bayer employee, filed this qui tarn action
under the whistleblower provisions of the False Claims Act
("FCA"), 31 U.S.C. § 3729 et seg., on
August 5, 2005. (ECF No. 1). The Government declined to
intervene. (ECF No. 16). As relevant to the present motions,
Relator alleges that Bayer caused the submission of false
claims to federal health programs related to a Bayer
pharmaceutical, Trasylol, (1) by marketing Trasylol for
off-label uses that were not reasonable and necessary, and
(2) by paying kickbacks to physicians and other healthcare
professionals to induce increased use of Trasylol.
(See ECF No. 324-1 ("Rel. Br.") at 19-20;
10AC ¶¶ 187-214). The allegations underlying this
dispute have been described on several occasions, most
recently in the Court's March 16, 2015 Opinion granting
in part and denying in part Bayer's motion to dismiss the
Ninth Amended Complaint. (ECF No. 208). Accordingly, and in
the interest of judicial economy, the Court includes an
abbreviated statement of the factual and procedural history
to the extent such background is relevant to the instant
Medicare Payment System
present dispute arises in the context of the reimbursement
system used by Medicare. Medicare is a federal health
insurance program for individuals with disabilities and the
elderly. 42 U.S.C. § 1395 et seq. Medicare Part
A covers inpatient hospital services and items used during
inpatient stays. See 42 U.S.C. § 1395c; 42
C.F.R. § 409.10(a)(5). With certain exceptions not
applicable here, Medicare reimburses hospitals for items and
services provided to beneficiaries during inpatient stays
"through fixed, bundled payments on a per discharge
basis under the Inpatient Prospective Payment System
('IPPS')." (Rel. 56.1 ¶5); see also
42 U.S.C. § 1395ww(d); 42 C.F.R. §§
412.1, 412.60. Under the IPPS, "inpatient services are
reimbursed a fixed amount based upon the Diagnosis Related
Group ('DRG') classification of the inpatient
stay." (Rel. 56.1 ¶6); see also 42 C.F.R.
§§ 412.1, 412.2, 412.60. DRG classifications and
payment rates are created by the Centers for Medicare and
Medicaid Services ("CMS") based on the aggregation
of weighted factors and average costs over time. See
42 C.F.R. § 412.60. Congress adopted the IPPS in order
to incentivize hospitals to manage operating costs
efficiently, as costs above the fixed payment are borne by
the hospital. Dist. Hosp. Partners, L.P. v. Burwell,
786 F.3d 46, 49 (D.C. Cir. 2015).
submit requests for reimbursement to the Government using a
HCFA CMS-1450 form, also called a UB-92/UB-04 ("UB
form"). (Rel. 56.1 ¶ 10). During the Relevant Time
Period,  hospital providers submitted claims for
reimbursement for inpatient stays using the UB form or its
electronic equivalent. (Rel. 56.1 ¶ 10). Such claims
were based on the assigned DRG classification for the
Medicare beneficiary during a given inpatient stay, and
reimbursements in turn depended on the DRG classification,
"rather than on the costs of the specific items and
services provided to the particular patient." (Rel. 56.1
¶ 6); see also 42 C.F.R. §412.60.
Nevertheless, the parties agree that DRG payments constitute
"payment in full for all inpatient items and services
provided" to patients. (Rel. 56.1 ¶ 8); see
also 42 C.F.R. §§ 412.2(b), 412.50(a).
items and services are not reimbursable by Medicare. The
Medicare statute provides that "no payment may be
made... for any expenses incurred for items or services"
which "are not reasonable and necessary for the
diagnosis and treatment of illness or injury or to improve
the functioning of a malformed body member." 42 U.S.C.
§ 1395y(a)(1)(A). In order to participate in Medicare,
hospital providers submit an enrollment application to CMS
called a form CMS-855A. (Rel. 56.1 ¶ 4; Bayer Reply 56.1
¶ 4). The form CMS-855A includes the following
I agree to abide by the Medicare laws, regulations and
program instructions that apply to this provider. The
Medicare laws, regulations, and program instructions are
available through the Medicare contractor. I understand that
payment of a claim by Medicare is conditioned upon the claim
and the underlying transaction complying with such laws,
regulations, and program instructions (including, but not
limited to, the Federal anti-kickback statute and the Stark
law), and on the provider's compliance with all
applicable conditions of participation in Medicare.
(Rel. 56.1 ¶ 4); see also CMS-855A § 15
¶ 3, https: www.cms.gov/Medicare. CMS-Forms/CMS-
Forms/downloads/cms855a.pdf. Hospitals also submit annual
reports to CMS called forms CMS-2552, see 42 C.F.R.
§ 413.20(b), which require a mandatory certificate of
compliance, which includes the following certification:
MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION
CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY CRIMINAL,
CIVIL AND ADMINISTRATIVE ACTION, FINE AND, OR IMPRISONMENT
UNDER FEDERAL LAW. FURTHERMORE, IF SERVICES IDENTIFIED IN
THIS REPORT WERE PROVIDED OR PROCURED THROUGH THE PAYMENT
DIRECTLY OR INDIRECTLY OF A KICKBACK OR WERE OTHERWISE
ILLEGAL, CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINES AND
OR IMPRISONMENT MAY RESULT.
The CMS-2552 also requires certification from an officer or
administrator of the provider: "I further certify that I
am familiar with the laws and regulations regarding the
provision of health care services, and that the services
identified in this cost report were provided in compliance
with such laws and regulations." Id.
is Bayer's trade name for aprotinin, a drug that was
approved by the Food and Drug Administration
("FDA") for intravenous administration to reduce
blood loss in patients undergoing cardiopulmonary bypass
during the course of coronary artery bypass graft
("CABG") surgery. (Rel. 56.1 ¶ 1). Trasylol
was among the items and services administered during
inpatient stays that were reimbursed through bundled DRG
payments. (Bayer Reply 56.1 ¶ 9). Beyond this basic
background, many facts concerning Trasylol remain disputed by
the parties and subject to ongoing discovery.
alleges that "Bayer engaged in unlawful marketing,
including off-label marketing and payment of kickbacks, in
order to increase the market share" of Trasylol, and
"engaged in a campaign of concealment and disinformation
concerning Trasylol's safety and efficacy that continued
at least until May 2008, when Bayer recalled Trasylol from
the market." (10AC ¶ 9). Specifically, Relator
alleges that Bayer knowingly promoted Trasylol to physicians
and hospitals for potentially harmful off-label uses that
lacked sufficient medical support and were not reasonable and
necessary. (10AC ¶ 394). Furthermore, Relator raises
detailed allegations of a far-reaching kickback scheme
through which Bayer invited physicians and other healthcare
professionals to attend all-expenses-paid
"consulting" trips throughout the United States,
paid them "consulting" fees, and lavished them with
grants and other gifts in exchange for increased promotion
and use of Trasylol. (10AC ¶¶ 15, 187214). As a
consequence of Bayer's alleged conduct, Trasylol's
market share grew, resulting in considerable profit to Bayer.
(10AC ¶¶ 13, 118-19). Bayer denies many of
Relator's factual allegations concerning the kickback
scheme and the promotion of Trasylol for off-label uses,
(see generally ECF No. 222), but the parties do not
raise those underlying factual disputes for purposes of the
instant motions, which focus instead on the DRG reimbursement
mechanism, (see generally Rel. 56.1; Bayer 56.1).
False Claims Act and the Anti-Kickback Statute
"The False Claims Act is meant 'to reach all types
of fraud ... that might result in financial loss to the
Government.'" U.S. ex rel. Petratos v. Genentech
Inc., 855 F.3d 481, 486 (3d Cir. 2017) (quoting Cook
Cty. v. U.S. ex rel. Chandler, 538 U.S. 119, 129
(2003)). The FCA imposes liability on any person who:
"(A) knowingly presents, or causes to be presented [to
the United States Government], a false or fraudulent claim
for payment or approval; [or] (B) knowingly makes, uses, or
causes to be made or used, a false record or statement
material to a false or fraudulent claim." 31 U.S.C. §
3729(a)(1)(A)-(B). "A [FCA] violation includes four
elements: falsity, causation, knowledge, and
materiality." Petratos, 855 F.3d at 487.
respect to the falsity element, "[a] false or fraudulent
claim may be either factually false or legally false."
Greenfield, 880 F.3d at 94. "A claim is
factually false when the claimant misrepresents what goods or
services ... it provided to the Government."
Id. (quoting U.S. ex rel. Wilkins v. United
Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011)). A
claim is legally false when the claimant misrepresents
"its compliance with a statutory, regulatory, or
contractual requirement." Id. Relator argues
here that Bayer caused the submission of claims that were
legally false. (Rel. Br. at 28 n.28).
statutory requirements are relevant to Relator's claims
of legal falsity. First, if a claim "does not comply
with statutory conditions for payment," including that
the items and services claimed are '"reasonable and
necessary for the diagnosis and treatment of illness or
injury, '" as required by the Medicare statute, it
is a false claim. Petratos, 855 F.3d at 487 (quoting
42 U.S.C. § 1395y(a)(1)(A)). Second, a claim may be
legally false where there is an underlying violation of the
Anti-Kickback Statute ("AKS"). Greenfield,
880 F.3d at 95. The AKS prohibits "knowingly and
willfully offer[ing] or pay[ing] any remuneration (including
any kickback, bribe, or rebate) ... to any person to induce
such person ... to refer an individual to a person for the
furnishing ... of any item or service for which payment may
be made in whole or in part under a Federal health care
program." 42 U.S.C. § 1320a-7b(b)(2)(A). It is
well-settled that "claims for payment made pursuant to
illegal kickbacks are false under the [FCA],"
Greenfield, 880 F.3d at 95 (quoting U.S. ex rel
Westmoreland v. Amgen, Inc., 812 F.Supp.2d 39, 52 (D.
Mass. 2011)). In 2010, Congress amended the AKS to clarify
existing law, expressly providing that "a claim that
includes items or services resulting from a violation of [the
AKS] constitutes a false or fraudulent claim for purposes of
[the FCA]." 42 U.S.C. § 1320a-7b(g).
Relevant Procedural History
the initiation of this lawsuit, the Court has decided three
motions to dismiss, narrowing Relator's claims and legal
theories in the process. (See ECF Nos. 130, 147,
208). In the causes of action that remain in the
now-operative Tenth Amended Complaint and that are relevant
to the present motions, Relator alleges that Bayer caused the
submission of false claims in two ways: (1) by unlawfully
promoting Trasylol for off-label uses that were not
"reasonable and necessary" under the Medicare
statute, and (2) by paying kickbacks to physicians and other
healthcare professionals to induce increased use of Trasylol,
in violation of the AKS. (10AC ¶¶ 1-2, 9-21).
Discovery has been and remains ongoing as of 2016.
(See ECF No. 320).
settlement conference held on September 5, 2018, (ECF No.
319), the parties agreed that one of Bayer's defenses-
that surgeries in which Trasylol was administered were
reimbursed through the bundled DRG payment system, thereby
preventing FCA liability—presented a narrow legal issue
that was ripe for the Court's decision on summary
judgment. (See Rel. Reply 56.1 ¶ 19
("[Relator] agrees that Bayer's DRG defense presents
a narrow legal issue . . . that the Court can and should
decide . . . without considering" factual arguments
about the record.); ECF No. 323-1 ("Bayer Br.") at
6 ("With respect to [the issue before the Court], no
material facts are in dispute, and the parties have agreed
that the Government's fixed-fee system presents a pure
legal issue that is ripe for this Court's
resolution.")). Thereafter, the Court directed the
parties to submit cross-motions for partial summary judgment
on "the narrow issue of whether [Bayer] may be liable
under the False Claims Act... for claims for Medicare and
Medicaid reimbursement for surgical procedures in which
Trasylol was administered, regardless of whether the relevant
requests for reimbursement were 'bundled' rather than
itemized, and regardless of whether the administration of
Trasylol in said procedures affected the total amounts of the
corresponding reimbursements." (ECF No.
321). The instant motions followed.
judgment is appropriate when, drawing all reasonable
inferences in the non-movant's favor, there exists no
"genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). "[T]he moving party must show that
the non-moving party has failed to establish one or more
essential elements of its case on which the non-moving party
has the burden of proof at trial." McCabe v. Ernst
& Young, LLP, 494 F.3d 418, 424 (3d Cir. 2007)
(citing Celotex Corp. v. Catrett, Ml U.S. 317, 32223
Court must consider all facts and their reasonable inferences
in the light most favorable to the non-moving party. See
Pa. Coal Ass 'n v. Babbitt, 63 F.3d 231, 236 (3d
Cir. 1995). If a reasonable juror could return a verdict for
the non-moving party regarding disputed issues of material
fact, summary judgment is not appropriate. See Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
"[A]t the summary judgment stage the judge's
function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a
genuine issue for trial." Id. at 249.
presently raises a threefold defense to liability under the
FCA for claims for surgeries during which Trasylol was
administered. First, Bayer argues that Relator fails to
identify any claim for payment for Trasylol because Trasylol
is not identified on any claim form. (Bayer Br. at 7, 20-21).
Second, Bayer argues that, even assuming Relator could
identify claims for Trasylol, those claims are not false
claims under either an express or implied false certification
theory. (Bayer Br. at 21-22). Third, Bayer argues that
Relator cannot show that any alleged fraud related to
Trasylol was material to the Government's decision to pay
claims for those surgeries—a requirement for FCA claims
of legal falsity—because DRG payment amounts do not
change based on whether Trasylol was or was not administered.
(Bayer Br. at 23 30). Relator responds that FCA liability may
still attach under these circumstances, notwithstanding the
absence of a Trasylol line item on the claim forms or the
absence of a financial impact of the ...