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United States v. Bayer Corp.

United States District Court, D. New Jersey

April 22, 2019

BAYER CORP., et al, Defendants.


          Jose L. Linares, Judge, United States District Court

         This 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.

         I. BACKGROUND[1]

         Relator, 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 motions.

         A. Medicare Payment System

         The 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).

         Hospitals 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, [2] 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).

         Certain 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 certification:

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: 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:


CMS-2552-10, https:/ 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.

         B. Trasylol

         Trasylol 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.

         Relator 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).

         C. The 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."[3] 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.

         With 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).

         Two 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).

         D. Relevant Procedural History

         Since 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).

         At a 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).[4] The instant motions followed.


         Summary 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 (1986)).

         The 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.

         III. ANALYSIS

         Bayer 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 ...

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