The False Claims Act Investigations & Litigation team at Miles & Stockbridge won in the United States Court of Appeals for the Third Circuit on January 28, 2022.  Attorneys Jennifer J. Coyne and Joshua R. Chazen, successfully represented a hospital in an appeal before the Third Circuit involving claims brought by the owner of a durable medical equipment (“DME”) supplier who filed the action as a Relator under the federal False Claims Act (“FCA”).

In her complaint, the Relator alleged that the hospital, two providers, and two independent DME suppliers conspired to violate the FCA based upon underlying violations of the Anti-Kickback Statute and Stark laws, Medicare regulations addressing “freedom of choice,” and Medicare’s prohibition on billing for medically unnecessary services. The government declined to intervene, and all defendants filed for dismissal of the complaint. The United States District Court for the District of Delaware determined that the Relator failed to allege plausible violations under the FCA, dismissed the complaint with prejudice, and ruled that amendment would be futile. United States ex rel. O’Bier v. TidalHealth Nanticoke, Inc., No. 1:19-CV-687-SB, 2021 WL 1895049 (D. Del. May 11, 2021). The Relator appealed.

On appeal, the Third Circuit affirmed the District Court’s ruling. The Third Circuit held that the Relator failed to allege remuneration or even an indirect compensation arrangement necessary to support her Anti-Kickback and Stark law claims. Similarly, the Third Circuit found no violation of Medicare’s freedom of choice rule. The Court declined to definitively rule on whether the rule applies to patients, but noted that even if it did, the Relator’s own alleged facts indicated the exercise of patient choice, and that Realtor did not identify any of the patients as Medicare beneficiaries. The Third Circuit also found that the Relator did not plausibly allege that the defendants prescribed medically unnecessary DME and never alleged that the defendants billed Medicare for these services. The Third Circuit affirmed the dismissal of the conspiracy claim on the basis that none of the primary allegations survived. 

With regard to Relator’s request to amend the complaint, the Third Circuit found that the District Court acted within its discretion in dismissing the complaint with prejudice, because the Relator did not request leave to amend, never presented an amended complaint to the District Court, and alleged that she could not provide further evidence of Defendants’ alleged unlawful referral scheme.

Jen Coyne is a member in Miles & Stockbridge’s Health Care, Government Investigations, and Litigation & Dispute Resolution practices, and Josh Chazen is a member of the Firm’s Litigation & Dispute Resolution practice.