938 F.3d 397
3rd Cir.2019Background
- UPMC is a multi‑billion‑dollar health system that owns hospitals and subsidiaries that employ neurosurgeons; the hospitals billed Medicare for inpatient and ancillary services generated by surgeons’ procedures.
- The named neurosurgeons were paid by subsidiaries under contracts with a base salary, annual wRVU (Work Unit) quotas, and a $45 bonus for each wRVU above quota.
- Relators allege surgeons artificially inflated wRVUs (misreporting assistant/teaching roles, upcoding, unnecessary/needlessly complex procedures), causing dramatic growth in billed wRVUs and large ancillary hospital charges—benefitting both surgeons and UPMC.
- The government intervened on physician‑service claims and settled for ~$2.5 million; relators pursued remaining claims alleging Stark Act violations as False Claims Act suits against UPMC and its physician‑employer subsidiaries.
- The District Court dismissed the relators’ second amended complaint for failure to state a claim; the Third Circuit reversed, holding the complaint plausibly alleged Stark Act and FCA violations and remanding for discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint plausibly alleged surgeons’ compensation “varies with, or takes into account” the volume/value of referrals | Relators: salary + wRVU bonus structure ties aggregate compensation to referrals because each procedure generates hospital ancillary billings; unusually high pay and wRVUs suggest compensation took referrals into account | Defendants: pay is for physicians’ personally performed services (legitimate productivity‑based compensation); high pay reflects market bargaining, not referral‑based remuneration | Court: Plausibly alleged both correlation (“varies with”) and causation (“takes into account”); pleaded facts (contract structure, extreme wRVUs, pay >90th percentile, bonuses > Medicare reimbursement, government settlement) suffice to survive 12(b)(6) |
| Whether relators pleaded a prima facie False Claims Act claim (falsity, presentation, scienter) | Relators: Medicare claims for referred hospital services were false because they violated the Stark Act; defendants knew or recklessly disregarded that compensation arrangements implicated Stark | Defendants: No falsity because exceptions apply; lacked scienter; allegations rest on correlation and industry‑standard pay | Court: FCA elements satisfied—claims were presented, plausibly false via Stark violation, and scienter pleaded (knowledge/reckless disregard by centralized corporate control and billing) |
| Whether the complaint met Rule 9(b) particularity for fraud/FCA claims | Relators: pleaded the who, what, when, where, how—corporate actors, timeframe (from 2006), centralized billing, contract terms, patterns of overbilling and incentive structure | Defendants: Relators failed to identify particular false claim dates/contents and thus failed Rule 9(b) | Court: Rule 9(b) satisfied; relators need not plead every claim date because the alleged scheme makes a whole set of claims false and they supplied the essential factual background |
| Who bears burden to plead/prove Stark Act exceptions in FCA suits | Relators: exceptions are affirmative defenses and thus defendants must plead/prove them; relators need not negate exceptions in the complaint | Defendants: Because falsity and knowledge are FCA elements, relators must plead that no Stark exception applies | Court: Burden stays with defendants; Stark exceptions operate as affirmative defenses under prior precedent (Kosenske); even if burden were on relators, they plausibly alleged no exceptions apply |
| Whether surgeons’ performance at hospitals constitutes a “referral” for designated health services | Relators: surgeon procedures generate hospital inpatient/ancillary services billed to Medicare—these are referrals under Stark regulations and agency guidance | Defendants: surgeons’ own professional services are not referrals; attendant services are incidental and not referrals for Stark purposes | Court: Attendant hospital and ancillary services billed by hospitals in connection with a surgeon’s personally performed services qualify as referrals; regulatory history supports broad construction to capture potential abuse |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: allegations must state a plausible claim for relief)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (Twombly plausibility standard for pleading)
- United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d Cir. 2009) (Stark Act exceptions treated as affirmative defenses; burden on defendant)
- United States ex rel. Schmidt v. Zimmer, 386 F.3d 235 (3d Cir. 2004) (elements of a prima facie Stark Act violation)
- United States ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015) (similar facts: productivity‑based pay can plausibly vary with referrals; evidentiary value of discovery)
- United States ex rel. Moore & Co. v. Majestic Blue Fisheries, 812 F.3d 294 (3d Cir. 2016) (Rule 9(b) particularity requirements for fraud claims)
- Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176 (3d Cir. 2001) (elements of a False Claims Act claim)
- Vorchheimer v. Philadelphian Owners Ass’n, 903 F.3d 100 (3d Cir. 2018) (standard of review for Rule 12(b)(6): de novo review)