Not-So-Safe Harbor: Court Finds Relator Need Not Plead Facts To Negate Anti-Kickback Statute Safe Harbor

• Published date: 20 April 2022
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: Arnold & Porter
• Author: Ms Paula Ramer

A recent decision may make it harder for defendants to obtain dismissal of an FCA case on the grounds that a relator has failed to plead facts that would refute the elements of an affirmative defense.

On February 23, 2022, in United States ex rel. Chao v. Medtronic, PLC, No. 2:17-cv-01903, 2022 WL 541604 (C.D. Cal., Feb. 23, 2022), the court denied Medtronic's motion to dismiss, finding that a relator is not required to plead facts that would negate one or more of the elements of an affirmative defense.

The case'originally filed in 2017'has a long and winding history. The relator's complaint, which has been amended numerous times, included a number of kickback allegations. Chief among them was that Medtronic paid physician "proctors" to teach other physicians how to use one of its devices, and that those payments were in fact kickbacks intended to incentivize physicians to order more of its device. Id. at *1.

After the government declined to intervene in 2020, Medtronic moved to dismiss the complaint in January 2021. Medtronic argued, in part, that the relator had not "plead[ed] with particularity a cognizable AKS violation falling outside of safe harbor protection." Medtronic Motion to Dismiss Relator's First Amended Complaint [Dkt. 67], at p. 7, filed Jan. 13, 2021. Specifically, Medtronic argued that the relator had offered only a "conclusory contention that the personal services safe harbor does not apply, because the payments were not reasonably necessary or exceeded fair market value." Id. at p. 10.

In April 2021, the court granted the motion in part and denied it in part. Of particular relevance here, Judge Mark Scarsi noted in a footnote that "[t]here is a dispute between the parties as to whether the safe harbor exceptions may properly be considered under a Motion to Dismiss." 2021 WL 4816647, fn 2 (C.D. Cal., Apr. 12, 2021). Citing United States v. Corinthian Colleges, 655 F.3d 984, 993-94 (9th Cir. 2011), the court determined that it "must properly consider whether the relator's claims sufficiently allege that the safe harbor provisions do not apply in establishing their FCA claim." Id. at fn 2.

In its April 2021 decision, the court found that although the relator had alleged that proctors were overpaid, he had not alleged what fair market value (FMV) is for the services provided and therefore found that "Relator's many allegations of overpayment are conclusory and, without an alleged point of fair market value for reference, the Court...