United States v. Coloplast Corp.
327 F. Supp. 3d 300
D.D.C.2018Background
- Shield California Health Care Center (Shield) purchased Coloplast medical supplies under contracts with high invoice prices and large end-of-quarter rebates, and then submitted Medi‑Cal reimbursement claims using invoice prices without accounting for the rebates.
- Coloplast and Shield negotiated tiered rebates (up to ~66–70%) tied to quarterly purchase volumes; Shield consistently achieved top rebate tiers during the relevant period.
- Medi‑Cal’s Upper Billing Limit (UBL) caps reimbursement at 100% markup of a provider’s "net purchase price," which the regulation defines to include discounts, rebates, and other price‑reducing allowances known at the time of billing.
- Plaintiffs (former Coloplast employees) sued as qui tam relators under the federal False Claims Act and California’s analogous statute, alleging Shield knowingly submitted false claims by omitting the off‑invoice rebates from net purchase price calculations; Shield moved for summary judgment.
- The government previously investigated similar practices in United States ex rel. Donath v. Whitestone, which settled for $5 million; parties dispute whether that settlement or draft communications gave Shield assurance its off‑invoice rebate practice was acceptable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality of omitting Coloplast rebates from net purchase price | Omitting large, known rebates was central to the reimbursement amount; a jury could find the omission would influence Medi‑Cal’s payment decision | Continued government payment and prior settlement show the practice was immaterial or accepted | Denied summary judgment on materiality; a reasonable jury could find omission material |
| Scienter (knowledge/recklessness) | Evidence of prearranged high invoices/guaranteed rebates, negotiations to hide rebates, and Donath settlement support knowing or reckless disregard | Regulation ambiguous; Shield had objectively reasonable interpretation and claimed governmental guidance and assurances | Denied summary judgment on scienter; jury could find Shield acted with actual knowledge or reckless disregard |
| Motion to strike plaintiffs' declarations (discovery disclosure issue) | Plaintiffs submitted declarations supporting materiality; one witness (Watson) not disclosed in discovery | Shield argued untimely disclosure and lack of foundation | Court struck Watson declaration as undisclosed and improper and did not rely on it; motion otherwise denied as moot |
Key Cases Cited
- Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (Supreme Court establishing FCA materiality framework)
- United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103 (1st Cir.) (application of Escobar materiality principles)
- United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir.) (materiality measured by effect on government payment behavior)
- United States v. DynCorp Int'l, LLC, 253 F. Supp. 3d 89 (D.D.C.) (government would not pay claims it knew were "outrageously excessive")
- O'Connor v. Steeves, 994 F.2d 905 (1st Cir. 1993) (summary judgment: view disputed facts in light most favorable to nonmovant)