United States Ex Rel. Hutcheson v. Blackstone Medical, Inc.
2011 U.S. App. LEXIS 10972, 2011 WL 2150191, 647 F.3d 377 (2011)
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Rule of Law:
A claim submitted to the government for payment is 'false or fraudulent' under the False Claims Act if it fails to comply with a material precondition of payment, even if that precondition is established by a contractual agreement rather than a statute, and even if the non-compliance was caused by a third party unbeknownst to the entity submitting the claim.
Facts:
- From January 2004 to January 2006, Susan Hutcheson worked as a Regional Manager for Blackstone Medical, Inc., a medical device company.
- Hutcheson alleged that during this time, Blackstone engaged in a nationwide scheme to pay kickbacks to physicians to induce them to use Blackstone's products in spinal surgeries.
- The alleged kickbacks included sham consulting agreements, research grants, royalties, and lavish travel and entertainment.
- Blackstone knew that a significant percentage of spinal surgery patients were beneficiaries of federal healthcare programs like Medicare.
- As a result of the alleged kickbacks, physicians performed spinal surgeries on Medicare patients using Blackstone's devices.
- The physicians and hospitals involved in these surgeries had signed Provider Agreements with Medicare as a condition of participation.
- These agreements explicitly state that payment is conditioned on the 'underlying transaction' complying with federal laws, including the federal Anti-Kickback Statute (AKS).
- Hospitals also submitted annual Cost Reports certifying that the services identified were provided in compliance with applicable laws and regulations.
Procedural Posture:
- Relator Susan Hutcheson filed a qui tam action on behalf of the United States against Blackstone Medical, Inc. in the U.S. District Court for the District of Massachusetts.
- The United States declined to intervene in the suit but filed amicus briefs in support of Hutcheson.
- Blackstone filed a motion to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
- The district court granted Blackstone's motion to dismiss, holding that the hospital claims were not 'false or fraudulent' and that the physician claims, while false, were not 'materially' so.
- Hutcheson, as the relator, appealed the district court's dismissal to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does a medical device manufacturer cause the submission of a 'false or fraudulent' claim under the False Claims Act when it provides kickbacks to physicians, leading them and their hospitals to submit claims for Medicare reimbursement that represent compliance with the Anti-Kickback Statute as a condition of payment, even if the submitting hospitals are unaware of the kickbacks?
Opinions:
Majority - Lynch, Chief Judge
Yes, a manufacturer causes the submission of a false or fraudulent claim under such circumstances. The court rejected judicially-created categorical frameworks for analyzing False Claims Act (FCA) liability, such as 'express versus implied certification' and 'factually versus legally false' claims, because these distinctions are not found in the statute's text and can obscure its broad scope. The court held that a claim can be false or fraudulent if it represents compliance with a material condition of payment that was not, in fact, met. Here, the Provider Agreements and Hospital Cost Reports established compliance with the Anti-Kickback Statute (AKS) as a material precondition of Medicare payment for the 'underlying transaction.' Hutcheson's complaint sufficiently alleged that Blackstone's kickbacks tainted these underlying transactions, causing the resulting claims submitted by both physicians and unwitting hospitals to be false. The court rejected Blackstone's argument that a claim's falsity is limited to violations of preconditions expressly stated in statutes or that an innocent submitter's certification cannot be rendered false by a third party's actions, citing the FCA's 'causes to be presented' language and Supreme Court precedent holding non-submitting entities liable for causing an innocent party to submit a false claim.
Analysis:
This decision significantly broadened the theory of liability under the False Claims Act, particularly for third-party actors like pharmaceutical and medical device manufacturers. By rejecting narrow, judicially-created tests for 'falsity' and focusing instead on the violation of any material condition of payment—including those found in contracts like provider agreements—the court lowered the bar for plaintiffs. The ruling clarifies that a non-submitting entity can be held liable for 'causing' the submission of a false claim even if the submitting entity (e.g., a hospital) is completely unaware of the underlying misconduct (e.g., a kickback). This interpretation strengthens the government's and relators' ability to police fraud in federal healthcare programs by linking FCA liability directly to violations of the Anti-Kickback Statute through the contractual certifications providers make to the government.
