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United States ex rel. Beck v. TVG Capital GP, LLC

United States District Court, W.D. Arkansas, Fayetteville Division

October 5, 2017

UNITED STATES OF AMERICA ex rel. Dr. J. Thaddeus Beck, M.D., et al. PLAINTIFFS
v.
TVG CAPITAL GP, LLC, et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          TIMOTHY L. BROOKS UNITED STATE DISTRICT JUDGE

         Now pending before the Court are Defendants' Motion to Dismiss for Failure to State a Claim (Doc. 25) and Brief in Support (Doc. 26). Relators filed a Response in Opposition to the Motion (Doc. 31), and shortly thereafter, Defendants filed a Reply (Doc. 36). On the same date that Relators filed their opposition to the Motion to Dismiss, they filed a Motion for Leave to Amend the Complaint (Doc. 32), and attached a proposed amended complaint (Doc. 32-1) to the Motion. Defendants then filed a Response in Opposition to the Motion for Leave to Amend (Doc. 40), arguing that the Court should not permit Relators to file the proposed amended complaint because it contains many of the same deficiencies as the original complaint and still fails to state plausible claims against any of the Defendants.

         On October 3, 2017, the Court held a hearing on the two Motions, and counsel for the parties presented oral argument at that time. After oral argument, the Court ruled from the bench, granting in part and denying in part both of the Motions. The following Order explains in more detail the Court's reasoning behind its decision. To the extent anything in this Order conflicts with what was stated from the bench, this Order will control.

         I. BACKGROUND

         Relators, on behalf of the United States, filed this lawsuit under seal on November 4, 2015, alleging in Counts l-IV, separate violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729(a)(1)(A)-(C) and (G); and in Count V, violations of the federal criminal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), and the Stark Statute, 28 U.S.C. § 1395nn (a)(1) and (h)(6). Relators are a group of oncologists/hematologists who are members of Highlands Oncology Group, P.A., located in Northwest Arkansas. The Relators are Drs. Thaddeus Beck, Daniel Bradford, Gregory Oakhill, Stephen Rosenfield, Eric Schaefer, and Patrick Travis.

         The 23 Defendants include a number of businesses that are alleged to either provide radiation/oncology services or function as holding companies, billing companies, or administrative-support companies for radiation/oncology service providers. The Complaint provides the richest amount of detail about the companies that collectively do business as Landmark Cancer Center in Northwest Arkansas. According to the Complaint, Landmark Cancer Center is a "suite" of businesses that have partnered up to provide radiation/oncology services to the region. These three businesses that compose Landmark Cancer Center are Defendants Physicians Radiation Arkansas, LP, TruRadiation Partners Arkansas, LLC, and Northpoint Radiation Center, GP, LLC.

         The Complaint explains that certain individual Defendants, namely Jon Tryggenstad, David Dickey, and Lisa Sooter, created Landmark Cancer Center together and devised a business model that contemplated area physicians serving as limited partners. One of those physicians/limited-partners is alleged to be Defendant Kenneth E. Gardner. Relators believe that Dr. Gardner and other physicians entered into a partnership agreement with Defendant Physicians Radiation Arkansas, LP. The physicians then agreed to refer their patients to Landmark Cancer Center for "expensive radiation oncology therapy" in exchange for receiving a percentage of the profits that the business earned for providing these treatments. (Doc. 1, ¶ 54).

         The remaining 16 Defendants include TVG Capital GP, LLC, which is described as the "holding company" for Landmark Cancer Center's suite of businesses; and 15 other companies about which little is known except that they are physically located-or else managed by individuals who are physically located-in Texas, Oklahoma, or Kansas. Relators believe that these 15 businesses were set up by Tryggestad, Sooter, and Dickey to operate as Landmark Cancer Center does in Northwest Arkansas-that is, with a business structure that involves physicians/limited-partners engaging in illegal referral and profit-sharing behavior.

         Relators' theory of the case is that the business/partnership structure of Landmark Cancer Center violates the AKS and the Stark Statute. Relators maintain that "Defendants are required to certify compliance with the Anti-Kickback Statute [and the Stark Statute] as a condition of payment when they submit their claims [to the federal government] for payment, " (Doc. 1, ¶ 41); but because Defendants fail to comply with these statutes, all claims they submit to Medicare, Medicaid, and Tricare/CHAMPUS are legally false and violate the FCA. In other words, Relators do not contend that the amounts on any bills that Defendants submitted to the government for payment were factually false; instead, Relators argue that the bills are false because Defendants submitted them when they were not in compliance with the AKS and Stark Statute.

         The AKS prevents a defendant from knowingly soliciting or receiving remuneration-in the form of a kickback, bribe, or rebate-directly or indirectly, overtly or covertly, in cash or in kind, in exchange for referring a patient to an individual or entity that would perform a medical service paid in whole or in part by the government under a federal health care program. 42 U.S.C. § 1320a-7b(b)(1). The AKS also prohibits a defendant from knowingly offering to pay a kickback, bribe, or rebate to someone in order to induce that person to make a prohibited referral. 42 U.S.C. § 1320a-7b(b)(2). Similarly, the Stark Statute prohibits an entity from presenting a claim to Medicare for a "designated health service" if the service was provided as a result of a referral by a physician who has "a financial relationship" with the entity. 42 U.S.C. § 1395nn(a)(1).

         Defendants assert in their Motion to Dismiss that the Complaint fails to state a valid claim against them because it fails to comply with the heightened pleading standards for fraud under Rule 9(b). Relators oppose dismissal of the Complaint but have requested permission to file an amended complaint that purportedly cures any deficiencies Defendants identified in their Motion to Dismiss. Although Defendants concede that the proposed amended complaint includes more specific facts concerning some of the Defendants and some of the claims, they argue that the proposed amended complaint is still insufficient to meet Rule 9(b)'s pleading requirements, and the Court should not permit Relators to file it.

         II. LEGAL STANDARD

         To survive a motion to dismiss, a pleading must provide "a short and plain statement of the claim that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The purpose of this requirement is to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting BellAtl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The Court must accept as true all factual allegations set forth in the Complaint by Plaintiff, drawing all reasonable inferences in Plaintiffs favor. See Ashley Cty., Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009).

         However, the Complaint "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal,556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders 'naked assertions' devoid of 'further factual enhancement."' Id. In other words, "the pleading standard Rule 8 ...


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