United States of America v. Reliance Medical Systems, LLC et al, No. 2:2014cv06979 - Document 258 (C.D. Cal. 2021)
Court Description: ORDER DENYING DEFENDANTS MOTION TO DISMISS FIRST AMENDED COMPLAINT, 232 by Judge Dean D. Pregerson: Defendants Motion to Dismiss is DENIED. IT IS SO ORDERED. See order for details. (shb)
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United States of America v. Reliance Medical Systems, LLC et al Doc. 258 Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 1 of 6 Page ID #:6423 1 2 O 3 4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8 9 UNITED STATES OF AMERICA, 10 Plaintiff, 11 12 13 14 ) ) ) ) ) ) ) ) ) ) v. RELIANCE MEDICAL SYSTEMS,LLC; APEX MEDICAL TECHNOLOGIES, LLC; KRONOS SPINAL TECHNOLOGIES, LLC; BRET BERRY; JOHN HOFFMAN; ADAM PIKE, Case No. CV 14-06979 DDP (JCx) ORDER DENYING DEFENDANTS’ MOTION TO DISMISS FIRST AMENDED COMPLAINT [Dkt. 232] 15 Defendants. 16 17 Presently before the court is Defendants’ Motion to Dismiss 18 the First Amended Complaint.1 Having considered the submissions of 19 the parties and heard oral argument, the court denies the motion 20 and adopts the follow Order. 21 I. Background 22 The United States’ First Amended Complaint alleges that 23 Defendants used Physician-Owned Distributorships (“PODs”)to present 24 false or fraudulent claims to Medicare. (First Amended Complaint 25 (“FAC”) ¶¶ 76, 310, 315.) As alleged in the FAC, Defendants 26 operated a scheme through which physician-investors in, or 27 28 1 For purposes of this Order, “Defendants” refers to all named defendants, with the exception of John Hoffman. Dockets.Justia.com Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 2 of 6 Page ID #:6424 1 employees of, spinal implant distribution companies were paid a 2 portion of the distribution companies’ profits from spinal implant 3 device sales. 4 alleges that spinal fusion surgeries related to this scheme were 5 tainted by kickbacks to the doctors choosing the spinal implant 6 products, and were, in some cases, not medically necessary. 7 ¶¶ 3-4.) 8 Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b(b), and, by 9 extension, the False Claims Act, 31 U.S.C. § 3729, insofar as the 10 (See, e.g., FAC ¶ 96.) In short, the government (FAC This scheme, the government alleges, violated the Anti- tainted surgeries led to false or fraudulent claims to Medicare. 11 The FAC also includes allegations regarding the Department of 12 Health and Human Services’ (“HHS”) Office of Inspector General 13 (“OIG”) regulatory authority related to the AKS. 14 alleges, for example, that OIG, pursuant to its regulatory 15 authority, has issued several “fraud alerts” concerning joint- 16 ventures between physicians and non-physicians that are “intended 17 not so much to raise investment capital legitimately to start a 18 business, but to lock up a stream of referrals from the physician 19 investors and to compensate them indirectly for these referrals.” 20 (FAC ¶ 70 (quoting Special Fraud Alert: Joint Venture Arrangements 21 (OIG-89-4)).) 22 aware of the AKS’ prohibitions, “including the OIG guidance . . . 23 .” 24 references to what “OIG guidance states.” 25 215, 223.) The government (FAC ¶ 71.) The government further alleges that Defendants were The government’s allegations include several (FAC ¶¶ 183, 190, 208, 26 Defendants now move to dismiss the FAC, contending that 27 Congress has impermissibly delegated lawmaking authority to OIG. 28 II. Legal Standard 2 Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 3 of 6 Page ID #:6425 1 A complaint will survive a motion to dismiss when it 2 “contain[s] sufficient factual matter, accepted as true, to state a 3 claim to relief that is plausible on its face.” 4 556 U.S. 662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 5 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a 6 court must “accept as true all allegations of material fact and 7 must construe those facts in the light most favorable to the 8 plaintiff.” 9 Although a complaint need not include “detailed factual Ashcroft v. Iqbal, Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). 10 allegations,” it must offer “more than an unadorned, 11 the-defendant-unlawfully-harmed-me accusation.” Iqbal,556 U.S. at 12 678. 13 statement of a legal conclusion “are not entitled to the assumption 14 of truth.” Id. at 679. In other words, a pleading that merely 15 offers “labels and conclusions,” a “formulaic recitation of the 16 elements,” or “naked assertions” will not be sufficient to state a 17 claim upon which relief can be granted. Id. at 678 (citations and 18 internal quotation marks omitted). 19 Conclusory allegations or allegations that are no more than a “When there are well-pleaded factual allegations, a court 20 should assume their veracity and then determine whether they 21 plausibly give rise to an entitlement of relief.” Iqbal, 556 U.S. 22 at 679. Plaintiffs must allege “plausible grounds to infer” that 23 their claims rise “above the speculative level.” Twombly, 550 U.S. 24 at 555-56. 25 claim for relief” is “a context-specific task that requires the 26 reviewing court to draw on its judicial experience and common 27 sense.” Iqbal, 556 U.S. at 679. 28 III. Discussion “Determining whether a complaint states a plausible 3 Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 4 of 6 Page ID #:6426 1 All legislative powers granted in the Constitution are vested 2 in Congress. U.S. Const. art. I. Congress cannot cede or transfer 3 its legislative authority to any other branch of government. 4 Gundy v. United States, 139 S. Ct. 2116, 2123 (2019). 5 may, however “confer substantial discretion on executive agencies 6 to implement and enforce the laws.” 7 United States, 488 U.S. 361, 372 (1989) (internal quotation marks 8 omitted). 9 an executive agency is constitutionally permissible so long as the See Congress Id. (quoting Mistretta v. It is well established that a delegation of authority to 10 statutory delegation supplies an “intelligible principle to guide 11 the . . . use of discretion.” 12 the non-delegation principle sets a low bar. 13 upheld, for example, such broad guiding commandments as a mandate 14 “to regulate in the public interest” and “to protect the public 15 health.” 16 omitted). 17 principle insufficiently intelligible, and has found a delegation 18 of authority impermissible only twice in its history, where 19 Congress supplied no guiding policy or standard whatsoever. Gundy, 139 S. Ct. at 2123. Thus, The Supreme Court has Id. at 2129 (internal quotation marks and citations Indeed, the Court has never found a particular guiding Id. 20 Nevertheless, Defendants contend here that Congress has 21 unconstitutionally delegated policy-making authority to OIG. 22 Defendants’ argument centers on two, related statutory provisions. 23 In 1987, Congress required HHS to identify practices that do not 24 constitute impermissible kickbacks. Sec. 14, PL 100–93, 101 Stat 25 680. 26 annually. 27 appropriate, issue a “special fraud alert” that “informs the public HHS must update these “safe harbor” provisions at least 42 U.S.C. § 1320a-7d(a)(1)(A). 28 4 HHS may also, where Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 5 of 6 Page ID #:6427 1 of practices which the Inspector General considers to be suspect or 2 of particular concern . . . .” 3 42 U.S.C. § 1320a-7d(c). Congress provided not one, but nine principles to guide HHS in 4 these two tasks. 42 U.S.C. § 1320a-7d(a)(2). 5 considerations are a particular practice’s effect on the “quality 6 of healthcare services,” “access to health care services”, and 7 “competition among healthcare providers.” 8 guiding principles allows HHS to consider “[a]ny other factors the 9 Secretary deems appropriate in the interest of preventing fraud and Id. 10 abuse in Federal health care programs . . . .” 11 1320a-7d(a)(2)(I). 12 Among those guiding The last of the 42 U.S.C. § Defendants seize upon the last criterion’s use of the phrase 13 “any other factors” to support their argument that Congress has 14 impermissibly abdicated its lawmaking authority to HHS. 15 phrase cannot, however, be read in isolation from the remainder of 16 the criterion, which specifies that “any other factors” must be 17 related to “the interest of preventing fraud and abuse.” 18 be no serious dispute that if principles such as “the public 19 interest” and “the public health” are sufficiently intelligible to 20 steer statutory authorizations clear of the non-delegation 21 doctrine, so too is “the interest of preventing fraud and abuse in 22 Federal health care programs.” 23 Defendants do not engage with the reality of this low bar, 24 contending instead that “the Supreme Court, as currently 25 constituted, disfavors broad delegations of legislative authorities 26 . . . [a]nd the ‘intelligible principle’ standard is likely to have 27 a short future.” That There can See Gundy, 139 S. Ct. at 2129. (Mot. at 15 n. 6.) 28 5 This Court, of course, must Case 2:14-cv-06979-DDP-JC Document 258 Filed 08/06/21 Page 6 of 6 Page ID #:6428 1 apply the law as it currently stands.2 2 delegation of authority to HHS to determine safe harbors and issue 3 notices regarding OIG’s opinion of certain payment practices is 4 guided by an intelligible principle, it does not violate the 5 Constitution. Because Congress’ 6 The court notes that Defendants’ concerns appear to be rooted 7 less in the propriety of Congress’ delegation of authority than in 8 Defendants’ own assumptions about how the government can or will 9 seek to prove its claims. Defendants assert that “OIG drives [AKS] 10 prosecutions,” and that “[i]t takes a courageous prosecutor to defy 11 the wishes of the OIG.” 12 however, that OIG special fraud alerts are akin to advisory 13 opinions, and do not have the force of law. 14 18:2.) 15 in determining how the law will be applied in this case, regardless 16 whether the government’s allegations echo OIG’s opinions. 17 IV. 18 19 (Mot. at 17-18.) The government concedes, (Opposition at 7:18- Furthermore, wish as it might, OIG does not have any role Conclusion For the reasons stated above, Defendants’ Motion to Dismiss is DENIED. 20 IT IS SO ORDERED. 21 22 Dated: 8-6-2021 DEAN D. PREGERSON United States District Judge 23 24 2 25 26 27 28 For this same reason, the court declines Defendants invitation to ignore the Ninth Circuit’s decision in Hanlester Network v. Shalala, 51 F.3d 1390, 1398 (9th Cir. 1995) and find the AKS unconstitutionally vague. The Hanlester court explicitly addressed, and rejected, a vagueness challenge to the AKS. Id. Indeed, the appellants in Hanlester, like Defendants here, argued that HHS’ promulgation of safe harbors rendered the AKS vague. Id. at n.11. 6
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