United States Ex Rel. Schmidt v. Zimmer, Inc.

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
10-6-2004
Schmidt v. Zimmer Inc
Precedential or Non-Precedential: Precedential
Docket No. 03-3695
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PRECEDENTIAL Argued April 15, 2004
UNITED STATES COURT BEFORE: RENDELL, STAPLETON,
OF APPEALS and LAY,* Circuit Judges
FOR THE THIRD CIRCUIT
(Opinion Filed: October 6, 2004)
NO. 03-3695
Richard A. Sprague
UNITED STATES OF AMERICA Joseph A. Podraza, Jr. (Argued)
EX REL. Sprague & Sprague
RICHARD G. SCHMIDT, M.D. 135 South 19th Street
v. Wellington Building, Suite 400
ZIMMER, INC; MERCY HEALTH Philadelphia, PA 19103
SYSTEM, d/b/a, t/a MERCY and
FITZGERALD HOSPITAL; Martin I. Twersky
MERCY HOSPITAL OF H. Laddie Montague, Jr.
PHILADELPHIA, a/k/a/ Berger & Montague
MISERICORDIA HOSPITAL; 1622 Locust Street
MERCY HAVERFORD HOSPITAL; Philadelphia, PA 19103
MERCY COMMUNITY HOSPITAL; Attorneys for Appellant
MERCY SUBURBAN HOSPITAL;
MERCY CATHOLIC MEDICAL Steven L. Jackson (Argued)
CENTER Baker & Daniels
111 East Wayne Street, Suite 800
Richard G. Schmidt, Fort Wayne, IN 46802
Appellant and
Joan A. Yue
Reed Smith
On Appeal From the United States 1650 Market Street
District Court 2500 One Liberty Place
For the Eastern District of Pennsylvania Philadelphia, PA 19103
(D.C. Civil Action No. 00-cv-01044) Attorneys for Appellee Zimmer, Inc.
District Judge: Hon. Eduardo C.
Robreno
* Hon. Donald P. Lay, United States
Circuit Judge for the Eighth Circuit, sitting
by designation.
Premier Purchasing Partners (“Premier”),
an organization which acts as a purchasing
OPINION OF THE COURT agent for a group of entities, including
Mercy, that provide medical services for
which reimbursement may be sought under
STAPLETON, Circuit Judge: the M e d ic a re p ro g ra m (“Prem ier
Participants”). The contract committed
Richard G. Schmidt, M.D. Zimmer to provide orthopedic implants to
(“Schmidt”), an orthopedic surgeon in the Premier Participants for a period of
Bala Cynwyd, Pennsylvania, brought this five years.
qui tam action pursuant to the False
Claims Act (“FCA”), 31 U.S.C. §§ 3729 et Under this contract, the Premier
seq., against defendant Zimmer, Inc. Participants were rewarded if they
(“Zimmer”), a manufacturer, seller, and purchased Zimmer’s products in sufficient
distributor of orthopedic implants. The numbers to increase Zimmer’s market
District Court dismissed Schmidt’s share. Among these rewards was a
complaint for failure to state a claim under “conversion incentive.” This incentive
Rule 12(b)(6) of the Federal Rules of Civil was intended to compensate the Premier
Procedure. We will reverse the judgment Participants for purchasing implants from
of the District Court. Zimmer rather than its competitors. Under
the “conversion incentive,” when a
I. Premier Participant purchased more than
the total number of implants it had
In his first amended complaint, purchased the year before, each additional
which is at issue in this appeal, Schmidt implant could be purchased for a reduced
purported to allege FCA violations against price of $200. In addition, the contract
both Zimmer and M ercy Health Systems allegedly provided that each Premier
(“Mercy”).1 In particular, Schmidt alleged Participant would receive a 2% bonus on
that Zimmer entered into a contract with implant purchases if the Premier
Participant met the pre-set market share
and volume purchase commitments.
1 Finally, the contract allegedly provided for
Mercy is a Pennsylvania corporation
additional incentives “targeted to offset the
that owns and operates hospitals and other
costs associated with com petitive
health care facilities, including Mercy
conversion.” Each Premier Participant
Fitzgerald Hospital, Mercy Hospital of
would forfeit the foregoing rewards if they
Philadelphia a/k/a M isericordia Hospital,
failed to meet the commitments pre-set by
Mercy Haverford Hospital, Mercy
Zimmer.
Community Hospital, Mercy Catholic
Medical Center, and Mercy Suburban
Schmidt further alleged that the
Hospital.
2
rewards provided under the contract were
paid to Mercy and the other Premier
Participants “in cash or cash equivalents,”
Furthermore, if services
and that these payments are a classic
identified by this report
example of “kickbacks.” Moreover, it was
were provided or procured
alleged that Zimmer and Mercy induced
through the payment directly
certain of its physicians and orthopedic
or indirectly of a kickback
departments to assist in meeting Zimmer’s
or were otherwise illegal,
prescribed volume and market share levels
criminal, civil and
by sharing with them all or part of the
administrative action, fines,
rewards received from Zimmer under the
and/or imprisonment may
contract.
result.
J.A. at 35-36. The form also requires the
According to Schmidt, each
following certification by an officer or
Premier Participant reported its costs
administrator of the health care provider:
associated with the purchase of orthopedic
I hereby certify that I have
implants in annual cost reports that were
read the above statement
submitted to the United States Government
and that I have examined the
under the Medicare program. The
accompanying electronically
reporting form, United States Department
filed or manually submitted
of Health and Human Services’s Form
cost report and the Balance
HCFA-2552, required a health care
Sheet and Statement of
provider to certify that the costs being
Revenue and Expenses
submitted were true and correct, and that
prepared by . . . (Provider
the provider had complied with all laws
Name(s) and Number(s)) for
and regulations regarding the provision of
the cost reporting period
health care services.2 Such certification,
beginning . . . and ending . .
. and that to the best of my
knowledge and belief it is a
2
Specifically, Form HCFA-2552, true, correct and complete
according to the first amended complaint, statement prepared from the
provides that: books and records of the
M i s r e p r e s e n ta t i o n or provider in accordance with
falsification of any applic able instruc tion s,
information contained in except as noted. I further
this cost report may be certify that I am familiar
punishable by criminal, civil with the laws and
and administrative action, regulations regarding the
fine and/or imprisonment provision of health care
under federal law. services and that the
3
Schmidt alleged, was a cond ition alleged to have violated § 1320a-7b(b)(1)
precedent for Premier Participants to by knowingly and wilfully soliciting or
obtain Medicare funds from the federal receiving such unlawful remunerations,
government and to retain Medicare funds and Zimmer was alleged to have violated
advanced by the federal government. § 1320a-7b(b)(2) by knowingly and
Schmidt alleged that, despite these wilfully paying or offering to pay such
requirements, the cost reports submitted by unlawful remunerations.4 Both Mercy
Mercy and the other Premier Participants
did not disclose the rewards that they
allegedly received from Zimmer under the 4
42 U.S.C. § 1320a-7b(b) provides, in
contract.3 Schmidt further alleged that
relevant part, that:
Mercy and the other Premier Participants
(1) whoever knowingly and
also falsely certified on their cost reports
willfully solicits or receives
that they were in compliance with all laws
any remuneration (including
and regulations regarding the provision of
any kickback, bribe, or
health care services.
rebate) directly or indirectly,
overtly or covertly, in cash
According to Schmidt, the
or in kind –
remunerations paid by Zimmer to Mercy
(A) in return for referring an
and the other Premier Participants under
individual to a person for
the contract were made in violation of the
the furnishing or arranging
federal Anti-Kickback Act, 42 U.S.C. §
for the furnishing of any
1320a-7b. In particular, Mercy was
item or service for which
payment may be made in
services identified in whole or in part under a
this cost report were Federal health care program,
provided in or
c o m p l i a nc e wit h (B) in return for purchasing,
such laws and l e a s in g , or d e r in g, o r
regulations. arranging for or
J.A. at 36. recommending purchasing,
leasing, or ordering any
3
With the exception of Mercy, good, facility, service, or
Schmidt’s first amended complaint did not item for which payment may
identify any other Premier Participant who be made in whole or in part
was alleged to have filed a false Form under a Federal health care
HCFA-2552 cost report. Nor did the program,
complaint indicate the number of cost shall be guilty of a felony
reports that were allegedly submitted by and upon conviction thereof,
Mercy or any other Premier Participant. shall be fined not more than
4
and Zimmer were alleged to have violated
§ 1320a-7b(a)(3) by failing to disclose to
the federal government the allegedly
$ 2 5 , 0 0 0 o r
unlawful remunerations.5
imprisoned for not
more than five years,
or both. and (2).
(2) whoever knowingly and
5
willfully offers or pays any 42 U.S.C.§ 1320a-7b(a)(3) provides, in
remuneration (including any relevant part, that:
kickback, bribe, or rebate) Whoever . . . having
directly or indirectly, overtly knowledge of the
or covertly, in cash or in occurrence of any event
kind to any person to induce affecting (A) his initial or
such person – continued right to any
(A) to refer an individual to [benefit or payment under a
a person for the furnishing Federal health care program
o r arrang ing for th e (as defined in subsection (f)
furnishing of any item or of this section)], or (B) the
service for which payment initial or continued right to
may be made in whole or in any such benefit or payment
part under a Federal health of any other individual in
care program, or whose behalf he has applied
(B) to purchase, lease, order, for or is receiving such
or arrange for or benefit or payment, conceals
recommend purchasing, or fails to disclose such
leasing, or ordering any event with an intent
good, facility, service, or fraudulently to secure such
item for which payment may benefit or payment either in
be made in whole or in part a greater amount or quantity
under a Federal health care than is due or when no such
program, benefit or payment is
shall be guilty of a felony authorized, . . . shall (i) in
and upon conviction thereof, the case of such a statement,
shall be fined not more than representation, concealment,
$25,000 or imprisoned for failure, or conversion by any
not more than five years, or person in connection with
both. the furnishing (by that
In addition, § 1320a-7b(b)(3) provides person) of items or services
certain exceptions to, and safe harbors for, for which payment is or may
acts within the scope of § 1320a-7b(b)(1) be made under the program,
5
Schmidt’s first amended complaint complaint alleged that there was a
also alleged that both Mercy and Zimmer “financial relationship” between Mercy
violated the Anti-Self-Referral Act (also and certain physicians that worked at
known as the “Stark Act”), 42 U.S.C. § Mercy’s facilities, and that such a
1395nn, by presenting, or causing to be relationship also existed between Mercy
presented, Medicare reimbursement claims and Zimmer. Despite these alleged
for services furnished pursuant to financial relationships, according to the
prohibited referrals.6 Specifically, the complaint, Mercy nonetheless unlawfully
sought Medicare reimbursements for
services furnished under prohibited
be guilty of a felony referrals.
and upon conviction
thereof fined not Finally, based on these alleged
more than $25,000 or violations of the Anti-Kickback Act and
imprisoned for not the Stark Act, Schmidt alleged that
more than five years Mercy’s certifications of compliance with
or both, or (ii) in the federal health care law, contained in its
case of such a annual cost reports submitted to the federal
s t a t e m e n t ,
representation,
concealment, failure,
conversion, or 1395nn(a)(1)(A), a physician may not refer
provision of counsel Medicare patients to an entity for
or assistance by any “designated health services,” including
other person , be inpatient and outpatient hospital services,
guilty of a if the referring physician has a nonexempt
misdemeanor and “financial relationship” with such entity.
u p o n c o n v ic t i o n Under § 1395nn(a)(1)(B), the entity is
thereof fined not prohibited from presenting or causing to
more than $10,000 or be presented a Medicare claim for services
imprisoned for not furnished pursuant to a prohibited referral.
more than one year, With certain exceptions, “financial
or both. relationship” is defined as (1) an
ownership or investment interest in the
6
The Stark Act prohibits the entity, or (2) a compensation arrangement
presentation of a claim to Medicare for a with the entity. 42 U.S.C. § 1395nn(a)(2).
designated health service by an entity See generally United States ex rel.
where the service was furnished pursuant Thompson v. Columbia/HCA Healthcare
to a prohibited referral by a physician that Corp., 125 F.3d 899, 901-02 (5th Cir.
has a financial relationship with the entity. 1997) (describing the operation of the
See 42 U.S.C. § 1395nn(a). Under § Stark Act).
6
government on Form HCFA-2552, were it caused Mercy to submit
false. Mercy’s false certifications, an allegedly false cost
according to the complaint, constituted report. But the Amended
violations of three provisions of the FCA, Complaint does not allege
rendering both Mercy and Zimmer liable: Zimmer reviewed,
(1) 31 U.S.C. § 3729(a)(1), which approved, or received copies
prohibits knowingly presenting, or causing of Mercy’s cost reports or
to be presented, to an officer or employee p a r t i c i p a t e d i n t h e ir
of the United States Government a false preparation; nor does it
claim for payment or approval, (2) § allege Zimmer certified the
3729(a)(2), which prohibits knowingly truthfulness of Mercy’s cost
making, using and/or causing to be made reports.
or used a false record, claim, or statement
to get a false claim paid or approved by the Courts have found a party
federal government, and (3) § 3729(a)(7), caused the submission of a
barring false certifications intended to false claim by another party
conceal, avoid, or decrease an obligation only where the non-
to refund Medicare payments made by the submitting party purposely
federal government. and intentionally duped the
submitting party to submit
Both Mercy and Zimmer responded the false claim.
to the complaint by filing a motion to
dismiss. Zimmer’s motion to dismiss was J.A. at 6-7 (citing United States v.
granted with prejudice; Mercy’s motion Bornstein, 423 U.S. 303 (1976)).
was granted without prejudice and
Schmidt was allowed to file a second II.
amended complaint against it. Ultimately,
Schmidt’s claim against Mercy was We exercise plenary review over
settled, and he filed this appeal of the the District Court’s dismissal of a claim
order granting Zimmer’s motion to for failure to state a cause of action under
dismiss. Fed. R. Civ. P. 12(b)(6). Pinker v. Roche
Holdings Ltd., 292 F.3d 361, 374 n.7 (3d
The District Court explained its Cir. 2002). 7 “A court should not dismiss a
decision to dismiss Schmidt’s FCA claim
against Zimmer in the following manner:
7
The District Court had jurisdiction
It is undisputed that Zimmer
over this case under 28 U.S.C. § 1331 and
never submitted any cost
31 U.S.C. § 3732, which specifically
reports: Zimmer could be
confers jurisdiction for actions brought
liable under the FCA only if
under the FCA. We have jurisdiction over
7
complaint under Rule 12(b)(6) for failure muster under the Anti-Kickback and Stark
to state a claim for relief ‘unless it appears Acts. We therefore conclude that these
beyond doubt that the plaintiff can prove issues cannot be resolved in the context of
no set of facts in support of his claims a motion to dismiss. Accordingly, like the
which would entitle him to relief.’” Pryor District Court, we assume without
v. National Collegiate Athletic Ass’n, 288 deciding for purposes of this appeal that
F.3d 548, 559 (3d Cir. 2002) (quoting Zimmer’s marketing program violated
Conley v. Gibson, 355 U.S. 41, 45-46 both Acts.
(1957)). “In evaluating the propriety of
the dismissal, we accept all factual Zimmer insists that the Anti-
allegations as true, construe the complaint Kickback Act provides a safe harbor for
in the light most favorable to the plaintiff, marketing programs offering discounts to
and determine whether, under any health care providers and that its program
reasonable reading of the complaint, the was designed to take advantage of this safe
plaintiff may be entitled to relief.” Pinker, harbor. See 42 U.S.C. § 1320a-
292 F.3d at 374 n.7 (citing Colburn v. 7b(b)(3)(A); 42 C.F.R. § 1001.952(h).
Upper Darby Township, 838 F.2d 663, When the record is fully developed, this
665-66 (3d Cir.1988)). may turn out to be the case, but the
complaint alleged that the rewards given to
III. Mercy were paid to it in “cash or cash
equivalents” and this appears to be
According to Zimmer, it is apparent inconsistent with Zimmer’s safe harbor
from the face of the first amended theory. See 42 C.F.R. § 1001.952(h)(5)(i)
complaint that its marketing program did (“The term discount does not include –
not violate the Anti-Kickback Act or the Cash payment or cash equivalents (except
Stark Act. Because it concluded that that rebates as defined in [42 C.F.R. §
Zimmer was not alleged to have caused the 1001.952(h)(4)] may be in the form of a
presentation of a claim, the District Court check).”).
did not reach this issue, assuming without
deciding that violations of those Acts had Similarly, we cannot say that it is
been alleged. Based on our reading of the clear from the face of the complaint that
first amended complaint, it is not clear that Zimm er’s marketing program was
the alleged conduct of Zimmer passes consistent with the Stark Act. The
marketing scheme, according to the
complaint, allegedly involved both
Zimmer and Mercy sharing remunerations
this appeal pursuant to 28 U.S.C. § 1291with physicians at Mercy in order to
because the District Court’s Order and
induce these physicians to help in meeting
Stipulation of Dismissal resulted in a final
Zimmer’s prescribed volume and market
decision.
share levels. In providing such help, these
8
physicians allegedly made “prohibited statement to conceal, avoid,
referrals” for Mercy to provide health or decrease an obligation to
services for which Mercy then allegedly pay or transmit money or
s o u g h t M e d i c a r e r e i m b u r s e m e n t. property to the Government,
Inasmuch as the complaint alleges a is liable to the United States
compensation arrangement, a referral for Government for a civil
services, and a Medicare claim for those penalty of not less than
services, Zimmer’s marketing scheme does $5,000 and not more than
not appear to be consistent with the Stark $10,000, plus 3 times the
Act. See 42 U.S.C. § 1395nn(a); amount of damages which
Columbia/HCA Healthcare, 125 F.3d at the Government sustains
901-02. because of the act of that
person . . . .
IV.
31 U.S.C. § 3729(a). In this context, “the
The FCA provides, in relevant part: terms ‘knowing’ and ‘knowingly’ mean
that a person, with respect to information
Any person who – – (1) has actual knowledge of the
(1) knowingly presents, or information; (2) acts in deliberate
causes to be presented, to an ignorance of the truth or falsity of the
officer or employee of the information; or (3) acts in reckless
United States Government disregard of the truth or falsity of the
or a member of the Armed information, and no proof of specific
Forces of the United States a intent to defraud is required.” 31 U.S.C. §
false or fraudulent claim for 3729(b).8
payment or approval;
(2) knowingly makes, uses,
or causes to be made or 8
The term “claim” as used in the FCA is
used, a false record or
defined as including “any request or
statement to get a false or
demand, whether under a contract or
fraudulent claim paid or
otherwise, for money or property which is
approved by the
made to a contractor, grantee, or other
Government;
recipient if the United States Government
(3) conspires to defraud the
provides any portion of the money or
government by getting a
property which is requested or demanded,
false or fraudulent claim
or if the Government will reimburse such
allowed or paid; [or] . . .
contractor, grantee, or other recipient for
(7) knowingly makes, uses,
any portion of the money or property
or causes to be made or
which is requested or demanded.” 31
used, a false record or
U.S.C. § 3729(c).
9
A suit to enforce the liability thus To establish a prima facie claim
created may be instituted in two ways: under 31 U.S.C. § 3729(a)(1), a plaintiff
must show that: “(1) the defendant
The United S tates presented or caused to be presented to an
Department of Justice may agent of the United States a claim for
file suit to collect damages payment; (2) the claim was false or
suffered as the result of fraudulent; and (3) the defendant knew the
fraudulent claims which claim was false or fraudulent.” Hutchins,
cause government money to 253 F.3d at 182. In order to prove a claim
be expended from the under § 3729(a)(2), a plaintiff must also
United States Treasury. show that the defendant made or used (or
Alternatively, a private caused someone else to make or use) a
plaintiff may bring a qui tam false record in order to cause the false
action on behalf of the claim to be actually paid or approved. See
government to recover 1 John T. Boese, Civil False Claims and
losses incurred because of Qui Tam Actions § 2.01[B], at 2-20 (2d ed.
fraudulent claims. 31 U.S.C. 2003) (citing United States ex rel. Aakhus
§ 3730(b)(1). When a v. DynCorp, Inc., 136 F.3d 676, 682 (10th
private plaintiff brings a qui Cir. 1998)). Finally, a claim under §
tam action, the government 3729(a)(7) requires a plaintiff to prove a
is permitted to intervene. “reverse false claim”; that is, that the
But the private plaintiff may defendant made or used (or caused
continue his suit even if the someone else to make or use) a false
government declines to record in order to avoid or decrease an
intervene. 31 U.S.C. § obligation to the federal government. See
3730(c)(1). If the qui tam Kennard v. Comstock Resources, Inc., 363
suit is ultimately successful, F.3d 1039, 1048 (10th Cir. 2004)
the private plaintiff, known (“Pursuant to § 3729(a)(7), Relators are
as a relator, is entitled to up required to allege that [the defendant] had
to 30% of the funds the an existing, legal obligation to pay or
government recovers. 31 transmit money or property to the
U.S.C. § 3730(d). Government and that [the defendant]
submitted false statements or records to
Hutchins v. Wilentz, Goldman & Spitzer, conceal, avoid, or decrease that
253 F.3d 176, 181-82 (3d Cir. 2001), cert. obl iga ti on.” ( i n t e r n a l q u o t a t i o n s
denied, 536 U.S. 906 (2002). The United omitted)). 9
States declined to intervene in this case
and Schmidt accordingly proceeded as a
qui tam relator. 9
Moreover, we have held that FCA
claims must be pleaded with particularity
10
In United States ex rel. Marcus v. government to pay claims
Hess, 317 U.S. 537 (1943), the Supreme which were grounded in
Court explained the purpose of the fraud, without regard to
provisions of the FCA extending its whether that person had
coverage to those who “cause [a false direct contractual relations
claim] to be presented” and to those who with the government.
“conspire” to obtain payment of such
claims: 317 U.S. at 544. This statement of
purpose structures the issue for decision
These p r o v i s io n s, here: Can it fairly be said that Zimmer
considered together, indicate knowingly assisted in causing the
a purpose to reach any government to pay claims which were
person who knowingly grounded in fraud? Construing the facts
assisted in causing the alleged in the first amended complaint in a
light most favorable to Schmidt, we
conclude that it can.
in accordance with Fed. R. Civ. P. 9(b).
“[A] false certification of
See United States ex rel. LaCorte v.
compliance [with applicable law] creates
SmithKline Beecham Clinical Labs., Inc.,
liability [under the FCA] when
149 F.3d 227, 234 (3d Cir. 1998). Here,
certification is a prerequisite to obtaining
the District Court held that Schmidt’s first
a government benefit.” United States ex
amended complaint did not satisfy Rule
rel. Hopper v. Anton, 91 F.3d 1261, 1266
9(b) with respect to the FCA claim against
(9th Cir. 1996); see Columbia/HCA
Mercy, but nonetheless expressed its belief
Healthcare, 125 F.3d at 902 (involving
that the defects as to particularity could be
alleged violations of the Anti-Kickback
cured easily by amending the complaint to
and Stark Acts); Harrison v. Westinghouse
specify the precise Form HCFA-2552 cost
Savannah River Co., 176 F.3d 776, 787
reports that were alleged to be false. The
(4th Cir. 1999). A certificate of
District Court subsequently held that
compliance with federal health care law is
Schmidt’s second amended complaint
a prerequisite to eligibility under the
against Mercy was sufficient under Rule
Medicare program. See 42 C.F.R. §
9(b). We will therefore assume that
413.24(f )(4)(iv); Co lum bia/H C A
Schmidt’s first amended complaint with
Healthcare, 125 F.3d at 902. It follows
respect to Zimmer was similarly deficient
that Schmidt alleged a violation of the
under Rule 9(b), but that such deficiency
FCA when he alleged that Mercy certified
may be cured in the same manner as was
its compliance with federal health care law
the second amended complaint. See Fed.
knowing that certification to be false. The
R. Civ. P. 15(a) (stating that leave to
issue for resolution is thus whether, under
amend “shall be freely given when justice
the allegations of the complaint, Zimmer
so requires”).
11
knowingly assisted in Mercy’s false subcontractor under the FCA, the
certification. subcontractor’s FCA liability itself was not
questioned. In fact, the Supreme Court,
It is true, as the District Court citing to Hess, noted that “[i]t is settled
stressed, that the amended complaint does that the [FCA] . . . gives the United States
not allege that Zimmer “reviewed, a cause of action against a subcontractor
approved, or received copies of M ercy’s who causes a prime contractor to submit a
cost reports or participated in their false claim to the Government.” Id. at
preparation.” The case law indicates, 309.
however, that a party may assist the filing
of a false claim in other ways. It does not appear from the opinion
of the Court in either Hess or Bornstein
In Hess, for example, a group of that the party actually presenting the
electrical contractors had devised a scheme claims to the government was aware of the
under which they collusively bid contracts fraudulent conduct. This was not a matter
being let by municipalities and school material to the Court’s analysis, however.
districts that were participating in a federal Given the Court’s view that the crucial
program providing federal funding. 317 issue was whether the defendants
U.S. at 539. Claims were submitted to the knowingly assisted in the presentation of
government by the local sponsors and false claims, the knowledge and conduct of
there is no indication that the electrical the defendant were what mattered and the
contractors participated in the preparation outcome did not turn on whether the actual
or s u bm is si on o f t ho s e c la im s. presenters were “duped” or participated in
Nevertheless, because those contractors the fraudulent scheme.10 Accordingly, we
had knowingly pursued a scheme that, if believe the District Court erred in
successful, would ultimately result in the concluding that someone other than the
submission of a false claim to the actual presenter cannot be responsible
government, they were held to have caused under the FCA in the absence of duping.
those claims to be presented.
Schmidt, like the plaintiffs in Hess
Similarly, in United States v. and Bornstein, alleges that Zimmer created
Bornstein, 423 U.S. 303, 307 (1976), a and pursued a marketing scheme that it
defendant subcontractor supplied a prime knew would, if successful, result in the
contractor with falsely marked substandard
electron tubes, knowing that the tubes
would in turn be used in the manufacture 10
By way of example, we are confident
of radio kits sold by the prime contractor
that the subcontractor in Bornstein would
to the United States. Although the precise
have been held no less culpable under the
issue in the case was the number of
FCA had the prime contractor known that
statutory forfeitures assessable against the
the electron tubes were falsely marked.
12
submission by Mercy and others similarly maintain their eligibility for Medicare
situated of compliance certifications participation without certifying their
required by Medicare that Zimmer knew compliance with federal health law. Thus,
would be false. If this conduct and this when read in a light most favorable to
knowledge were proven at trial, a jury Schmidt, one can reasonably infer from the
could conclude that Zimmer knowingly foregoing that Zimmer must have known
caused Mercy’s false claims to be filed. that Mercy could not purchase its implants,
receive kickbacks, and share those
As we have indicated, Schmidt’s kickbacks with its physicians, in the
complaint alleges that Zimmer came up manner provided by the contract unless
with a marketing program that it knew to Mercy falsely certified itself to be in
be in violation of the Anti-Kickback Act compliance with federal law.
and the Stark Act. The alleged targets of
this scheme were health care providers that While it is true that Mercy allegedly
Zimmer knew to be participants in the made its own decision to file a false
Medicare program. The complaint avers, certification, this is not inconsistent with a
for example, that the purpose of the conclusion that Zimmer caused that filing.
conversion incentive prescribed in the In United States ex rel. Cantekin v. Univ.
contract with Premier was intended to of Pittsburgh, 192 F.3d 402, 416 (3d Cir.
“influence and obtain favorable treatment 1999), this Court applied ordinary
from providers who participate in the causation principles from negligence law
Medicare program by inducing them to in determining responsibility under the
purchase Zimmer’s products and increase FCA. Under those principles, the
Zimmer’s market share for orthopedic “intervention of a force which is a normal
implant hardware. . . .” JA at 38. consequence of a situation created by the
Moreover, it is a fair inference from the actor’s . . . conduct is not a superseding
alleged facts regarding Zimmer’s business cause of harm which such conduct has
and knowledge of the relevant market that been a substantial factor in bringing
Medicare participation was an important, about.” Restatement (Second) of Torts §
if not an essential, characteristic of the 443.11 Thus, assuming that a jury were to
Premier Participants. If Mercy and other
Premier Participants were unable to
maintain their eligibility to receive 11
The fact that Mercy’s alleged false
Medicare funds, the purpose of Zimmer’s
certification was an unlawful act does not
marketing scheme – selling as many of it
render it a superseding cause that absolves
impla nts as possible to Prem ier
Zimmer from responsibility. As § 448 of
Participants – would be thwarted. We
the Restatement explains:
further regard it as a fair inference from
The act of a third person in
the facts alleged that Zimmer was aware
committing an intentional
that Premier Participants could not
tort or crime is a
13
conclude that Zimmer’s marketing scheme We thus conclude, based on Hess
was a substantial factor in bringing about and Bornstein, that Schmidt’s first
Mercy’s filing and that M ercy’s filing was amended complaint, to the extent it is
a normal consequence of the situation based on M ercy’s alleg ed fa lse
created by that scheme, Zimmer could be certification of compliance with federal
found to have caused, and thus be held health care law, states a claim upon which
responsible for, that filing.12 relief can be granted, and we will remand
for further proceedings.13 In doing so, it is
important to note the limits of our ruling.
superseding cause of Schmidt alleges that Mercy did not
harm to another disclose to Medicare the illegal
resulting therefrom, remunerations – i.e., that it made claims
although the actor’s for more than it in fact paid Zimmer. This
negligent conduct appears not to have been a part of
created a situation Zimmer’s marketing scheme and, indeed,
which afforded an the Premier contract expressly provides
opportunity to the that:
t hird p e r s o n to
commit such a tort or Participating Members shall
crime, unless the disclose the specified dollar
actor at the time of value of discounts or
his negligent conduct reductions in price under
realized or should any state or federal program
have realized the which provides cost or
likelihood that such a charge-based reimbursement
situation might be
created, and that a
third person might
13
avail himself of the We have limited our discussion to
opportunity to addressing the specific ground cited by the
commit such a tort or District Court for dismissing Schmidt’s
crime. FCA claim against Zimmer. Although
Restatement (Second) of Torts § 448 raised by the parties, the District Court did
(emphasis added). not reach the issues of whether Schmidt
may proceed against Zimmer with respect
12
Further, as noted above, a jury finding to unnamed Premier Participants that were
that Zimmer “knowingly” caused the filing also alleged to have filed false
does not require scienter, but, rather, could certifications of compliance with
be based on mere passive disregard that applicable law. It is more appropriate, we
the jury finds to have been reckless. See believe, to reserve this issue for the
U.S.C. § 3729(b). District Court’s consideration on remand.
14
to s u ch P a r t i c i p atin g
Members for the Products
and services covered by this
Agreement in accordance
with applicable regulations.
J.A. at 121.
It thus appears that Zimmer was at
least aware of the possibility that Mercy
might file a false claim for more than it
paid Zimmer. But mere awareness that
another may, or even has, chosen to make
such a claim does not alone constitute
“causing a false claim to be presented.”
See United States ex rel. Shaver v. Lucas
Western Corp., 237 F.3d 932 (8th Cir.
2001). Indeed, we do not understand
Schmidt’s brief before us to argue that
Zimmer can be held liable under the FCA
for this alleged violation of that Act by
Mercy. Schmidt does claim, however, that
the certification of compliance with health
care law is a prerequisite to entitlement to
Medicare payments and that false
certifications of compliance were
necessary consequences of Zimmer’s
marketing scheme.
V.
The judgment of the District Court
will be reversed, and this matter will be
remanded for further p roceedings
consistent with this opinion.
15