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Third Circuit Says Qui Tam Complaint Sufficiently Stated Claims To Survive Motion To Dismiss


HLD, v. 32, n. 11 (November 2004)

Third Circuit Says Qui Tam Complaint Sufficiently Stated Claims To Survive Motion To Dismiss

Dr. Richard G. Schmidt (plaintiff), an orthopedic surgeon, filed a qui tam action under the False Claims Act (FCA), 31 U.S.C. �� 3729 et seq., claiming Zimmer, Inc. (Zimmer), a manufacturer and distributor of orthopedic implants and Mercy Health Systems (Mercy) violated the FCA by entering into an agreement that provided for illegal kickbacks in violation of the Anti-Kickback Statute, 42 U.S.C. �1320a-7b. Plaintiff alleged Zimmer entered into a contract with Premier Purchasing Partners (Premier), which was a purchasing agent for a group including Mercy, to provide Zimmer's orthopedic implants to Premier members. The contract provided for a reward system for participants that purchased a certain number of devices each year during a five-year period. The rewards were in the form of "cash or cash equivalents," which plaintiff alleged were illegal kickbacks because Medicare cost reports that did not disclose the rewards were submitted to the Medicare program.

Mercy allegedly induced some of its physicians to assist in meeting Zimmer's purchasing requirements. Plaintiff claimed Mercy solicited the payments and Zimmer knowingly paid such remuneration. Plaintiff also claimed defendants violated the Stark Act, 42 U.S.C. � 1395nn, by making Medicare claims pursuant to prohibited referrals. Zimmer and Mercy filed motions to dismiss, and Mercy settled with plaintiff. The district court granted Zimmer's motion to dismiss, holding that Zimmer itself had not submitted any false cost reports and plaintiff failed to show Zimmer caused Mercy to submit any false cost reports, and therefore plaintiff failed to state a cause of action for which relief could be granted. Plaintiff appealed.

The Third Circuit reversed the district court's judgment on the ground that it was "not clear that the alleged conduct of Zimmer passes muster under the Anti-Kickback and Stark Acts" and the "issues cannot be resolved in a motion to dismiss." Zimmer argued its marketing program offered discounts that are protected by the Anti-Kickback Statute's safe harbor. Under the safe harbor provision, a "discount" may be given in the form of a check, but plaintiff alleged cash payments were involved in the marketing plan and thus might turn out to be violations of the Anti-Kickback Statute after the record is fully developed. The appeals court also determined that the marketing program might violate the Stark Act because physicians allegedly made prohibited referrals, and plaintiff had sufficiently alleged a violation of the Stark Act in the complaint.

The appeals court then turned to the issue of the FCA and determined the complaint sufficiently alleged Zimmer knowingly assisted Mercy in presenting false claims to the government. Plaintiff alleged that Mercy certified to the government that it was in compliance with federal healthcare laws when Mercy knew it was not and was assisted by Zimmer in making the false claims. The appeals court determined that if plaintiff could prove the facts alleged in the complaint a jury could conclude Zimmer knowingly caused Mercy to file false claims. Accordingly, the appeals court reversed the district court's judgment and remanded the case for further proceedings.

United States ex rel. Schmidt v. Zimmer, Inc., No. 03-3695 (3d Cir. Oct. 6, 2004). To read the case, go to


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