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United States ex rel. Phalp v. Lincare Holdings, Inc.

United States Court of Appeals, Eleventh Circuit

May 26, 2017

UNITED STATES OF AMERICA, Ex Rel. GERRY PHALP AND MATT PEOPLES, Plaintiffs-Appellants,
v.
LINCARE HOLDINGS, INC. and LINCARE, INC., d/b/a Diabetics Experts of America, Defendants-Appellees.

         Appeal from the United States District Court For the Southern District of Florida D.C. Docket No. 1:10-cv-21094-KMW

          Before MARCUS and BLACK, Circuit Judges, and COHEN, [*] District Judge.

          COHEN, District Judge

         Plaintiffs Gerry Phalp and Matt Peoples (collectively "Relators") brought a qui tam action pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3733 ("FCA"), alleging that Defendants submitted claims to Medicare without adequate authorization from the relevant Medicare beneficiaries and claims that were the product of unsolicited telemarketing calls to Medicare beneficiaries. Relators appeal summary judgments granted to Defendants with respect to each issue.

         We affirm the district court with one modification. Although the district court applied an erroneous scienter standard, the evidence proffered by Relators as to Defendants' state of mind with respect to the assignment of benefits forms was insufficient to survive summary judgment under the proper standard. The district court did not err in granting summary judgment on Relators' claims that Defendants violated Medicare's unsolicited telephone contact rules.

         I. BACKGROUND

         A. Facts

         Relators are former salespersons for Lincare, Inc. ("Lincare"), which does business as Diabetic Experts of America ("Diabetic Experts"). Defendants are Relators' former employer and related entities. Lincare supplies Medicare patients suffering from chronic obstructive pulmonary disease with oxygen, respiratory, and other therapy services. Diabetic Experts is a fictional name Lincare registered in 2004 to sell diabetic-testing supplies.[1] Lincare Holdings, Inc. ("Holdings") is a holding company for its wholly-owned subsidiary, Lincare, Inc., and other subsidiaries. Additionally, Holdings supports the information systems of Lincare and Diabetic Experts by providing, among other things, a database which contains the telephone numbers for Diabetic Experts' customers.

         During the relevant time period, Diabetic Experts was in the practice of supplying Medicare patients with diabetic-testing supplies. Specifically, Diabetic Experts would place calls to individuals to whom Lincare previously had provided Medicare-covered items related to chronic obstructive pulmonary disease. Diabetic Experts would offer these individuals a free diabetic-testing monitor and sell them diabetic-testing supplies, including blood-testing strips.[2] After selling diabetic-testing strips to these individuals, Diabetic Experts would submit claims to Medicare using authorizations, or assignments of benefits ("AOBs"), previously provided by the Medicare beneficiaries to Lincare in connection with Lincare's provision of items related to chronic obstructive pulmonary disease. Diabetic Experts did not obtain AOBs that were specifically related to diabetic testing supplies. Instead, Diabetic Experts submitted the AOBs given to Lincare that were generic in nature and provided that the Medicare beneficiaries agreed: (1) to rent or purchase "certain medical equipment, products, supplies, prescription drugs and/or associated services" from "Lincare and its affiliates;" (2) that Lincare would provide "HME [home medical equipment] and Supplies" or "DME [durable medical equipment];" and (3) to assign Medicare benefits to Lincare.

         B. Procedural Background

         Relators alleged in their Second Amended Complaint ("Complaint") that Defendants violated the FCA by submitting reimbursement claims to Medicare that were non-compliant with Medicare regulations in two respects: (1) the reimbursement claims submitted by Defendants were based upon improper generic authorizations given to Lincare in connection with the provision of items related to chronic obstructive pulmonary disease and failed to include a new authorization when Defendants requested reimbursement for diabetic blood-testing strips; and (2) the claims submitted to Medicare arose out of telemarketing calls with beneficiaries that violated Medicare's unsolicited telephone contact rules. The Complaint included six examples of claims submitted by Defendants to Medicare on behalf of six different Medicare beneficiaries which were alleged to be illustrative of Defendants' unlawful conduct.

         Defendants moved for summary judgment. They contended that the claims filed on behalf of these exemplars complied with the applicable Medicare regulations and could not form the basis of any FCA claim. The district court issued an order on July 13, 2015 (the "July Summary Judgment Order"), granting Defendants' motion for summary judgment on the six exemplars, but recognized the possibility that its order may not be dispositive of the entire case. United States ex rel. Phalp v. Lincare Holdings, Inc., 116 F.Supp.3d 1326, 1361 (S.D. Fla. 2015). Subsequently, Relators cited evidence of three additional exemplars which were alleged to be illustrative of Defendants' practice of unlawfully telemarketing Medicare beneficiaries. The district court issued a second order on January 11, 2016 (the "January Summary Judgment Order"), granting Defendants' motion for summary judgment on the three additional exemplars. United States ex rel. Phalp v. Lincare Holdings, Inc., No. 10-CV-21094, 2016 WL 3961840 (S.D. Fla. Jan. 11, 2016). Relators appeal portions of those two orders to this Court.

         1. The July Summary Judgment Order

         The district court held that the evidence was insufficient to create a genuine issue of material fact with regard to scienter-that is, whether the defendants "knew or should have known that its policies or practices violated the applicable statutes and implementing regulations." The district court analyzed Relators' "best evidence" of scienter, which consisted of two emails. One dealt with an entirely different compliance issue. In the second email, Lincare personnel wrote that "they '[m]ay need to reconsider [their] process for Patient Agreements, '" but the email postdated the relevant transactions by several months. The court concluded that these two emails did not "allow a reasonable jury to conclude that Diabetic Experts knowingly submitted false claims."

         Citing United States ex rel. Hixson v. Health Mgt. Sys., Inc., 613 F.3d 1186, 1191 (8th Cir. 2010), the district court stated that when a defendant claims that the governing law is ambiguous, "[t]o prevail under the False Claims Act, 'relators must show that there is no reasonable interpretation of the law that would make the allegedly false statement true.'" The district court expanded on this line of reasoning, stating that "a defendant's 'reasonable interpretation of any ambiguity inherent in the regulations belies the scienter necessary to establish a claim of fraud under the FCA.'" Based on this reasoning, as "an alternative and independent ground" for granting summary judgment in favor of Defendants, [3] the court concluded "as a matter of law that, with regard to the six exemplars, no reasonable jury could find for Relators on the questions of whether Defendants submitted false claims or made or used false records with the requisite scienter."

         2. The January Summary Judgment Order

         At the conclusion of the July 13 Summary Judgment Order, the district court invited the parties to submit a status report indicating what, if any, claims remained in the case. Relators supplemented the record with evidence of three additional exemplars, who were previous clients of Lincare's wholly owned subsidiaries, Med4Home and Reliant. Relators alleged that Diabetic Experts' telemarketing of these beneficiaries was in violation of Medicare's prescription against unsolicited telephone contact. See 42 U.S.C. ยง 1395m(a)(17)(A). Relators argued that, unlike Diabetic ...


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