u.s. ex rel. westmoreland v. amgen, inc....

39U.S. EX REL. WESTMORELAND v. AMGEN, INC.Cite as 812 F.Supp.2d 39 (D.Mass. 2011)

In accordance with the FSA, the UnitedStates Sentencing Guidelines were amend-ed on November 1, 2010 to reduce the baseoffense levels for specific quantities of co-caine base.

II. Analysis

The First Circuit Court of Appeals hasexplicitly held that the FSA does not applyretroactively to persons whose wrongfulconduct occurred before August 3, 2010.United States v. Goncalves, 642 F.3d 245,254–55 (1st Cir.2011). Thus, the FSA doesnot apply to Rigaud’s sentencing becausehis wrongful conduct occurred long beforeAugust 3, 2010.

Rigaud’s motion is presumably prompt-ed by the First Circuit’s recent decision inUnited States v. Douglas, 644 F.3d 39 (1stCir.2011), in which the court created anexception to the general rule that the FSAdoes not apply retroactively. In Douglas,defendant’s wrongful conduct and guiltyplea occurred before the FSA and theamended Sentencing Guidelines went intoeffect. Nevertheless, the Court held thatthe FSA was correctly applied at the de-fendant’s sentencing because the sentenc-ing occurred after November 1, 2010 whenthe corresponding amendments to the Sen-tencing Guidelines were in effect. Id. (pin-cite not available). The Court concludedthat Congress intended to apply the FSAto the same sentences to which the newSentencing Guidelines applied, i.e. sen-tences imposed after November 1, 2010,despite the fact that the wrongful conductmay have occurred before August 3, 2010.

Rigaud’s case is readily distinguishablefrom Douglas because, not only was hesentenced well before November 1, 2010,he was also sentenced well before the en-actment of the FSA. Thus, there is nobasis upon which the FSA or the amendedSentencing Guidelines can or should be

applied to Rigaud’s sentence and his mo-tion for re-sentencing will be denied.

ORDER

In accordance with the foregoing, defen-dant’s motion for a review and amendmentof his sentence (Docket No. 151) is DE-NIED.

So ordered.

,

The UNITED STATES of America exrel. Kassie WESTMORELAND,

Plaintiff,

v.

AMGEN, INC.; International Nephrolo-gy Network renamed Integrated Ne-phrology Network, a d/b/a of DialysisPurchasing Alliance, Inc.; and ASDHealthcare, Defendants.

Civil Action No. 06–10972–WGY.

United States District Court,D. Massachusetts.

Sept. 15, 2011.

Background: Relator brought qui tam ac-tion against drug manufacturer and grouppurchasing organization (GPO) and whole-saler, alleging that they knowingly causedhealth care providers to make false repre-sentations material to the payment ofMedicare claims and conspired to get falseclaims paid by Medicare. After reversal ofa previous dismissal of claims brought onbehalf of certain states, 652 F.3d 103, de-fendants moved for partial judgment onthe pleadings, and parties filed cross-mo-tions for partial summary judgment.

40 812 FEDERAL SUPPLEMENT, 2d SERIES

Holdings: The District Court, Young, J.,held that:

(1) requirement of Anti–Kickback Statutecompliance contained in provideragreement’s certification was a precon-dition of Medicare payment, such thatliability under the False Claims Actcould be predicated on a violation ofthe Anti–Kickback Statute;

(2) since drug manufacturer did not in-clude overfill in calculating its drug’saverage sales price it correctly calcu-lated ASP in seeking Medicare reim-bursement for the drug;

(3) genuine issue of material fact existedas to whether GPO mailed annual dis-closure letters to its members as re-quired for compliance with safe harborrequirements of Anti–Kickback Stat-ute; and

(4) genuine issue of material fact existedas to whether wholesaler conspiredwith drug manufacturer and GPO todefraud the federal government bycausing providers to seek Medicare re-imbursement for free overfill.

Order in accordance with opinion.

1. United States O120.1

A claim is ‘‘materially false or fraudu-lent’’ within meaning of False Claims Act(FCA) if it represents compliance with amaterial condition of payment that was notin fact met. 31 U.S.C.(2006 Ed.)§ 3729(a)(1).

See publication Words and Phras-es for other judicial constructionsand definitions.


Preconditions of payment need not beexpressly designated as such to give riseto false or fraudulent claims within mean-ing of False Claims Act (FCA). 31U.S.C.A. § 3729 et seq.


False Claims Act (FCA) liability maybe imposed only where the defect in theclaim is material and where the defendantacts knowingly; a non-submitting entitymay be liable for knowingly causing a sub-mitting entity to submit a false or fraudu-lent claim, regardless whether the submit-ting entity knew or should have knownabout the non-submitting entity’s unlawfulconduct. 31 U.S.C.A. § 3729 et seq.

4. Health O533

To receive protection under statutoryand regulatory safe harbors of Anti–Kick-back Statute, a business arrangementmust fit squarely within a safe harbor;substantial compliance is not enough, al-though compliance is voluntary and failureto comply is not a per se violation of thestatute. Social Security Act, § 1128B(b),42 U.S.C.A. § 1320a–7b(b); 42 C.F.R.§ 1001.952.


False statement or misrepresentationthat is the premise of a False Claims Actaction need not be a certification; so longas the statement is knowingly false whenmade, False Claims liability can attach nomatter whether statement is a certifica-tion, assertion, statement, or secret hand-shake. 31 U.S.C.A. § 3729 et seq.


Requirement of Anti–Kickback Stat-ute compliance contained in provideragreement’s certification was a precondi-tion of Medicare payment, such that liabili-ty under the False Claims Act could bepredicated on a violation of the Anti–Kick-back Statute; compliance with the Anti–Kickback Statute factored into the govern-ment’s reimbursement decision since gov-ernment is not only unwilling to pay aclaim that is the product of criminal con-duct under the Anti–Kickback Statute, but


also to submit such a claim for reimburse-ment is in effect to ask the government tofund criminality retroactively, a result spe-cifically proscribed by the Anti–KickbackStatute. 31 U.S.C.A. § 3729 et seq.; SocialSecurity Act, §§ 1128B(b), 1815(a), 42U.S.C.A. §§ 1320a–7b(b), 1395g(a).

7. Health O557(2)Provider agreement, which required

providers to certify their compliance withthe Anti–Kickback Statute as a precondi-tion of Medicare payment, was adopted inaccordance with Paperwork Reduction Act(PRA) and represented a valid exercise ofCenters for Medicare and Medicaid Ser-vices’ (CMS) regulatory authority entitledto judicial deference; its certification clausewas consistent with the Medicare statutesand regulations as well as the purpose ofthe Anti–Kickback Statute. Social Securi-ty Act, § 1128B(b), 42 U.S.C.A. § 1320a–7b(b).

8. Health O535(1)Since drug manufacturer did not in-

clude overfill in calculating its drug’saverage sales price (ASP), it correctlycalculated ASP in seeking Medicare re-imbursement for the drug.

9. Evidence O71Under ‘‘mailbox rule’’ recognized at

federal common law, the proper and timelymailing of a document raises a rebuttablepresumption that the document has beenreceived by the addressee in the usualtime; even in the context of regular mail, apresumption of receipt is proper so long asthe record establishes that the notice wasaccurately addressed and mailed in accor-dance with normal office procedures.

10. Evidence O71Testimony by someone familiar with

company procedures and practices that theletter was sent, together with corroborat-ing evidence that the company procedures

and practices were followed in that partic-ular instance, is sufficient to establishproof of mailing.

11. Evidence O89

Generally, evidence of non-receipt isinsufficient to rebut the presumption ofreceipt under the mailbox rule, but it doespresent a triable question of fact whetherthe letter was properly sent.

12. Federal Civil Procedure O2498.4

Genuine issue of material fact existedas to whether group purchasing organiza-tion (GPO) mailed annual disclosure lettersto its members as required for compliancewith safe harbor requirements of Anti–Kickback Statute, precluding partial sum-mary judgment in favor of GPO or relatoron GPO’s safe harbor defense to relator’sclaim False Claims Act (FCA) claim basedon allegations that GPO conspired withdrug manufacturer and another defendantto defraud the federal government bycausing health care providers to seek reim-bursement for free overfill on drug pur-chased by GPO on each member’s behalf.42 C.F.R. § 1001.952(j)(2); 31 U.S.C.A.§ 3729 et seq.

13. Federal Civil Procedure O2498.4

Genuine issue of material fact existedas to whether wholesaler, which retaineddiscretion to give discounts to providersbuying drug and utilized the ‘‘passthrough’’ of the administrative fee to pro-vide such discounts, conspired with drugmanufacturer and group purchasing organ-ization (GPO) to defraud the federal gov-ernment by causing providers to seekMedicare reimbursement for free overfillof drug in violation of the False Claims Act(FCA), precluding summary judgment infavor of wholesaler or relator on FCAclaim.


Brian Perez–Daple, Shannon Kelley,United States Attorney’s Office, Robert M.Thomas, Jr., Thomas & Associates, AnnBurke Ackil, Massachusetts Attorney Gen-eral Office, Royston H. Delaney, Boston,MA, Bryan A. Carey, Derek Tam Ho,Jamil N. Jaffer, Joseph S. Hall, Marc A.Wallenstein, Mark C. Hansen, Silvija A.Strikis, Andrew C. Shen, Bryan A. Carey,Christopher C. Funk, David H. Wesely,Donna L. Owens, James M. Thunder, Ken-ley P. Farmer, Kimberly A. Briggs, KiranS. Raj, Michael S. Zuckman, Robert A.Roe, Thomas H. Humphries, Thomas B.Samuels, Wan J. Kim, William J. Conyng-ham, Kellogg, Huber, Hansen, Todd Evans& Figel, PLLC, Jessica S. Champa, UnitedStates Department of Justice, Jane Drum-mey, District of Columbia Attorney Gener-al’s Office, Washington, DC, Charles F.Kester, Lawrence M. Isenberg, Kester &Isenberg, Encino, CA, Suzanne E. Durrell,Durrell Law Office, Milton, MA, Eliseo Z.Sisneros, California Department of Justice,San Diego, CA, Dawn S. Shigezawa, Mi-chael L. Parrish, Office of the AttorneyGeneral, Honolulu, HI, Joseph B. Chervin,Illinois Attorney General’s Office, Chicago,IL, Jessica L. Harlan, Indiana AttorneyGeneral’s Office, Indianapolis, IN, MarkMatus, Michigan Department of AttorneyGeneral, East Lansing, MI, George S. Bell,III, Tennessee Attorney General’s Office,Nashville, TN, Carolyn T. Ellis, Christo-pher Y. Miller, Jay Speers, New YorkState Attorney General’s Office, NewYork, NY, Mark R. Shaffer, Loveland, CO,for Plaintiff.

Brien T. O’Connor, Kirsten V. Mayer,Michael J. Howe, William J. Dunn, Ropes& Gray LLP, Michael Kendall, BenjaminFranklin, Dana M. McSherry, Daniel A.Curto, Lauren M. Papenhausen, McDer-mott, Will & Emery LLP, Peter E. Ball,Ryan M. Cunningham, Sally & Fitch LLP,Boston, MA, David S. Rosenbloom, Doug-las E. Whitney, Holland M. Tahvonen, Jo-

celyn D. Francoeur, Joshua T. Buchman,McDermott, Will & Emery, Chicago, IL,Lauren S. Colton, Hogan Lovells US LLP,Baltimore, MD, William L. Webber, LawOffice of William L. Webber, LLC, Bethes-da, MD, Jon B. Dubrow, J. Clayton Ever-ett, Jr., McDermott Will & Emery LLP,Washington, DC, Matthew Jacobs, McDer-mott Will & Emery LLP, Menlo Park, CA,William Diaz, McDermott Will & EmeryLLP, Irvine, CA, David J. Kessler, Drink-er Biddle & Reath LLP, Eric W. Sitar-chuk, Matthew J.D. Hogan, Meredith S.Auten, Nathan J. Andrisani, Thomas J.Sullivan, Bethany N. Wong, Carolyn F.Yen, Erin C. Montgomery, James C. Car-roll, Morgan Lewis & Bockius LLP, JamesM. Becker, Buchanan Ingersoll & RooneyPC, Philadelphia, PA, Jennifer L. Dereka,Morgan Lewis & Bockius LLP, New York,NY, Laura H. McKaskle, Morgan Lewis &Bockius LLP, Los Angeles, CA, for Defen-dants.

MEMORANDUM

YOUNG, District Judge.

I. INTRODUCTION

Relator Kassie Westmoreland (‘‘the Re-lator’’) brings this qui tam action againstAmgen, Inc. (‘‘Amgen’’), International Ne-phrology Network (‘‘INN’’), and ASDHealthcare (‘‘ASD’’) (collectively, ‘‘the De-fendants’’) for violations of the federalFalse Claims Act, 31 U.S.C. §§ 3729–33.In her Fourth Amended Complaint, theRelator alleges that the Defendants know-ingly caused health care providers to makefalse representations material to the pay-ment of Medicare claims and conspired toget false claims paid by Medicare. Specifi-cally, the Relator alleges that, in violationof the federal Anti–Kickback Statute, theDefendants encouraged providers to sub-


mit claims for payment by Medicare forthe value of the excess product, or ‘‘over-fill,’’ contained in the vials of their drugAranesp but not included in Aranesp’s av-erage sales price (‘‘ASP’’). This Court hasupheld the Relator’s allegations as suffi-cient to state a claim under the FalseClaims Act.

There are now a number of other mo-tions pending decision by the Court.First, the Defendants move for partialjudgment on the pleadings under FederalRule of Civil Procedure 12(c). It is undis-puted that health care providers, in sign-ing mandatory Medicare Enrollment FormCMS–855 (‘‘the Provider Agreement’’),agree to comply with the Anti–KickbackStatute as a precondition of Medicare pay-ment. The Defendants, however, argue(1) that the clause in the Provider Agree-ment requiring a certification of compli-ance with the Anti–Kickback Statute iscontrary to the Medicare statutes and reg-ulations, which do not establish Anti–Kick-back Statute compliance as a preconditionof payment, and (2) that the adoption bythe Centers for Medicare and MedicaidServices [‘‘CMS’’] of the version of theProvider Agreement that includes the cer-tification clause was procedurally improperand outside the scope of its authority.The Relator, in opposition to the Defen-dants’ motion, argues (1) that the Anti–Kickback Statute itself establishes compli-ance as a precondition of Medicare pay-ment, and (2) that the certification of com-pliance in the Provider Agreement is avalid agency interpretation of the regula-tions. The United States, while not a par-ty to the action, has filed a statement ofinterest supporting the Relator’s position.

Second, the Relator and Amgen bringcross-motions for partial summary judg-ment as to Count IV of the Fourth Amend-ed Complaint, which alleges that Amgenartificially inflated Aranesp’s ASP by fail-

ing to include overfill as a ‘‘price conces-sion,’’ in violation of the False Claims Act,31 U.S.C. § 3729(a)(1)(A). In her memo-randum in support of her motion, the Rela-tor argues that, because Aranesp’s ASPwas artificially inflated, claims submittedby providers based on this ASP were falseand fraudulent as matter of law. Amgenasserts that federal rules and regulationsmake clear that overfill is not to be includ-ed in a drug’s ASP and that there is noevidence that Amgen intended to submitan inaccurate ASP for Aranesp.

Third, INN and ASD move for partialsummary judgment on the theory thatthey are shielded from liability by theAnti–Kickback Statute’s ‘‘safe harbor’’ pro-visions for group purchasing organizations(‘‘GPOs’’), 42 U.S.C. § 1320a–7b(b)(3)(C),and discounts, id. § 1320a–7b(b)(3)(A).The Relator brings a cross-motion for par-tial summary judgment, arguing that theGPO safe harbor is inapplicable to INNdue to its failure to comply with the for-malities set forth in the federal regulationsand due to its impermissibly close relation-ships with Amgen and ASD. With respectto ASD and the discount safe harbor, theRelator argues that the ‘‘pass through’’ ofan administrative fee paid by Amgen toINN to ASD, who utilized the funds toprovide discounts to providers, was unlaw-ful and indicative of the conspiracy to de-fraud Medicare in which the Defendantsallegedly have engaged.

A. Procedural Posture

In June 2006, the Relator filed this quitam action against Amgen, INN, ASD, andtwo other corporate defendants under thefederal False Claims Act and various relat-ed state laws on behalf of the UnitedStates, fifteen states, and the District ofColumbia. Relator’s Compl., ECF No. 1.In September 2009, the United States noti-fied the Court that it was not intervening


in the action at that time. U.S. NoticeNon–Intervention, ECF No. 71. Thestates and the District of Columbia (collec-tively, the ‘‘States’’) intervened by filing aseparate Multi–State Complaint in October2009, which they amended in December2009. Multi–State Compl. Intervention,ECF No. 85; Multi–State First Am.Compl., ECF No. 112. Subsequently, sev-eral states voluntarily dismissed, includingDelaware, Florida, Louisiana, Nevada,New Hampshire, and Texas. Notices Vol-untary Dismissal, ECF Nos. 120, 123, 148,153, 156, 163.

The Relator filed her Third AmendedComplaint in December 2009, bringingclaims on behalf of herself, the UnitedStates, Georgia, and New Mexico. Rela-tor’s Third Am. Compl., ECF No. 113.The Defendants subsequently moved todismiss Counts I–VI of the Third Amend-ed Complaint and the entirety of the Mul-ti–State First Amended Complaint. Am-gen’s Mot. Dismiss Relator’s Third Am.Compl., ECF No. 139; Amgen’s Mot. Dis-miss Multi–State First Am. Compl., ECFNo. 142; INN & ASD’s Mot. Dismiss Re-lator’s Third Am. Compl., ECF No. 138;INN & ASD’s Mot. Dismiss Multi–StateFirst Am. Compl., ECF No. 135. TheCourt dismissed the Multi–State FirstAmended Complaint and some of the Rela-tor’s federal claims under the federal FalseClaims Act’s first-to-file bar and the re-mainder of her claims without prejudiceunder Federal Rule of Civil Procedure12(b)(6). United States ex rel. Westmore-land v. Amgen, Inc., 707 F.Supp.2d 123(D.Mass.2010). The First Circuit hassince reversed the dismissal of the States’claims under the state False Claims Actsof California, Illinois, Indiana, Massachu-setts, New Mexico, and New York, andaffirmed the dismissal of the States’ claimsunder Georgia’s False Claims Act. NewYork v. Amgen, Inc., 652 F.3d 103 (1stCir.2011).

In May 2010, the Relator filed herFourth Amended Complaint, and the De-fendants again moved to dismiss. Rela-tor’s Fourth Am. Compl., ECF No. 238;Amgen’s Mots. Dismiss Relator’s FourthAm. Compl., ECF Nos. 251, 253; INN &ASD’s Mot. Dismiss Relator’s Fourth Am.Compl., ECF. No. 256. On July 21, 2010,the Court denied the Defendants’ Motionsto Dismiss the Relator’s Fourth AmendedComplaint. See United States ex rel.Westmoreland v. Amgen, Inc., 738F.Supp.2d 267 (D.Mass.2010). On August4, 2010, the Defendants answered the Re-lator’s Fourth Amended Complaint. Am-gen’s Answer Relator’s Fourth Am.Compl., ECF No. 286; INN & ASD’s An-swer Relator’s Fourth Am. Compl., ECFNo. 285. INN and ASD asserted theircompliance with certain safe harbor provi-sions of the federal Anti–Kickback Statuteas their Ninth Affirmative Defense. INN& ASD’s Answer Relator’s Fourth Am.Compl., Affirmative Defenses ¶ 15.

On February 18, 2011, INN and ASDfiled their Motion for Partial Judgment onthe Pleadings. INN & ASD’s Mot. PartialJ. Pleadings, ECF No. 367; Mem. Supp.INN & ASD’s Mot. Partial J. Pleadings,ECF No. 368. Amgen then moved to joinINN and ASD’s motion on March 1, 2011,and this Court allowed it the following day.Amgen’s Mot. Joinder INN & ASD’s Mot.Partial J. Pleadings, ECF No. 385; Mem.Supp. Amgen’s Mot. Joinder INN & ASD’sMot. Partial J. Pleadings, ECF No. 387.On March 11, 2011, the Relator opposedthe Defendants’ joint motion. Mem. Opp’nDefs.’ Mot. Partial J. Pleadings, ECF No.408. The Court granted the Defendantsleave to file a joint reply brief, which theydid on March 17, 2011. Joint Reply Mem.Supp. Defs.’ Mot. Partial J. Pleadings,ECF No. 419. On March 18, 2011, theUnited States filed its statement of inter-est. U.S. Br. Statement Interest INN &


ASD’s Mot. Partial J. Pleadings, ECF No.421. At oral argument on March 24, 2011,the Court denied the motion, and this opin-ion announces the Court’s reasoning forthat denial.

On March 1, 2011, the parties broughttheir various Motions for Partial SummaryJudgment. Amgen’s Mot. Partial Summ.J., ECF No. 376; Mem. Supp. Amgen’sMot. Partial Summ. J., ECF No. 377;INN & ASD’s Mot. Partial Summ. J., ECFNo. 379; Mem. Supp. INN & ASD’s Mot.Partial Summ. J., ECF No. 380; Relator’sMot. Partial Summ. J. Amgen, ECF No.383; Mem. Supp. Relator’s Mot. PartialSumm. J. Amgen, ECF No. 388; Relator’sMot. Partial Summ. J. INN & ASD, ECFNo. 384; Mem. Supp. Relator’s Mot. Par-tial Summ. J. INN & ASD, ECF No. 386.On March 22, 2011, the parties filed memo-randa in opposition. Mem. Opp’n Rela-tor’s Mot. Partial Summ. J. Amgen, ECFNo. 429; Mem. Opp’n Relator’s Mot. Par-tial Summ. J. INN & ASD, ECF No. 434;Mem. Opp’n Amgen’s Mot. Partial Summ.J., ECF No. 431; Mem. Opp’n INN &ASD’s Mot. Partial Summ. J., ECF No.437. Reply briefs were filed on April 1,2011. Reply Mem. Supp. Amgen’s Mot.Partial Summ. J., ECF No. 450; ReplyMem. Supp. INN & ASD’s Mot. PartialSumm. J., ECF No. 453; Reply Mem.Supp. Relator’s Mot. Partial Summ. J. Am-gen, ECF No. 452; Reply Mem. Supp.Relator’s Mot. Partial Summ. J. INN &ASD, ECF No. 454. At the hearing onApril 11, 2001, the Court orally denied theDefendants’ Motions for Partial SummaryJudgment on Counts I, II, III, V, VI, andVII of the Relator’s Fourth AmendedComplaint. Mot. Hearing Tr. (‘‘Tr. Summ.J. Mots.’’) 21:25 to 22:1–4, 22:13–20, ECFNo. 463. It took under advisement theremaining motions concerning Count IV ofthe Fourth Amended Complaint and INNand ASD’s Ninth Affirmative Defense. Id.

In an order dated August 25, 2011, theCourt denied the Relator’s Motion for Par-tial Summary Judgment that Amgen Arti-ficially Inflated the Average Sales Price ofAranesp in Violation of the False ClaimsAct, while allowing Amgen’s Motion forPartial Summary Judgment as to CountIV of the Fourth Amended Complaint in-sofar as it alleges that Amgen artificiallyinflated the Average Sales Price of Ara-nesp. Order, ECF No. 481. Additionally,the Court denied the Relator’s Motion forPartial Summary Judgment as to INN &ASD’s Ninth Affirmative Defense as wellas INN & ASD’s Motion for Partial Sum-mary Judgment with respect to its NinthAffirmative Defense. Id. This opinion ex-plains the Court’s rulings.

B. Legal Framework

1. False Claims Act

The False Claims Act prohibits false orfraudulent claims for payment to the fed-eral government and permits civil actionsbased on such claims to be brought by theAttorney General or by private individuals,referred to as ‘‘relators,’’ acting in thegovernment’s name. 31 U.S.C. § 3730(a)-(b). Where the government elects not tointervene, the so-called qui tam plaintiffmay proceed with the action as the govern-ment’s assignee. Id. § 3730(b)(4)(B).

At the time the Relator filed her com-plaint, the False Claims Act imposed liabil-ity on any person who either ‘‘knowinglypresents, or causes to be presented to anofficer or employee of the United StatesGovernment TTT a false or fraudulentclaim for payment or approval,’’ 31 U.S.C.§ 3729(a)(1), or ‘‘knowingly makes, uses,or causes to be made or used, a falserecord or statement to get a false or fraud-ulent claim paid or approved by the Gov-ernment,’’ id. § 3729(a)(2). See UnitedStates ex rel. Rost v. Pfizer, Inc., 507 F.3d720, 727 (1st Cir.2007).


[1, 2] A claim is ‘‘materially false orfraudulent’’ if it ‘‘represent[s] compliancewith a material condition of payment thatwas not in fact met.’’ United States ex rel.Hutcheson v. Blackstone Med. Inc., 647F.3d 377, 379 (1st Cir.2011). Determina-tion of whether a claim is materially falseor fraudulent ‘‘is a fact-intensive and con-text-specific inquiry.’’ Amgen, 652 F.3d at111. The first step of the analysis is toidentify preconditions of payment underthe relevant government program. See id.Preconditions of payment, however, neednot ‘‘be expressly designated as such togive rise to false or fraudulent claims.’’Blackstone Med., 647 F.3d at 387 (citingUnited States v. Science Applications Int’lCorp. (‘‘SAIC ’’), 626 F.3d 1257, 1269(D.C.Cir.2010)). The First Circuit has de-clined to adopt a categorical rule that pre-conditions of payment must derive verba-tim from a statute or regulation. Id. at388, 391, 393–94. A claim also may befalse or fraudulent for non-compliance witha contractual term, even if the contractdoes not specify compliance as a precondi-tion of payment. Id. at 387 (citing SAIC,626 F.3d at 1269); see United States exrel. Saltzman v. Textron Sys. Corp., No.09–11985–RGS, 2011 WL 2414207, at *3(D.Mass. June 9, 2011) (Stearns, J.). Butsee Amgen, 652 F.3d at 115–16 (suggestingthat a precondition of payment must beestablished by clear authority). Yet, ‘‘non-compliance with a contractual condition is[no] more necessary to establish that aclaim is false or fraudulent than non-com-pliance with an express statute or regula-tion, or an express misrepresentation on aform submitted with payment.’’ Black-stone Med., 647 F.3d at 394.

[3] The First Circuit’s rejection of ‘‘acircumscribed view of what it means for aclaim to be false or fraudulent,’’ id. at 387–88 (quoting SAIC, 626 F.3d at 1270), re-flects a belief that ‘‘other means exist to

cabin the breadth of the phrase ‘false orfraudulent’ as used in the [False ClaimsAct],’’ id. at 388. See United States ex rel.Nowak v. Medtronic, Inc., 806 F.Supp.2d310, 343–44 (D.Mass.2011) (Woodlock, J.).Specifically, liability may be imposed onlywhere the defect in the claim is materialand where the defendant acts knowingly.Id. Longstanding First Circuit precedentestablishes ‘‘that the [False Claims Act] issubject to a judicially-imposed require-ment that the allegedly false claim orstatement be material.’’ United States exrel. Loughren v. Unum Group, 613 F.3d300, 307 (1st Cir.2010). ‘‘[A] false state-ment is material if it has ‘a natural tenden-cy to influence, or [is] capable of influenc-ing, the decision of the decisionmakingbody to which it was addressed.’ ’’ Id.(quoting Neder v. United States, 527 U.S.1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35(1999)). Thus, the second step of the anal-ysis is to determine whether compliancewith the identified precondition of paymentis ‘‘material,’’ i.e., capable of influencingthe government’s decision to pay the claim.Amgen, 652 F.3d at 110–12. The FirstCircuit has observed that ‘‘[e]xpress con-tractual language may ‘constitute disposi-tive evidence of materiality,’ but materiali-ty may be established in other ways, ‘suchas through testimony demonstrating thatboth parties to the contract understoodthat payment was conditional on compli-ance with the requirement at issue.’ ’’Blackstone Med., 647 F.3d at 394.

In addition to materiality, the FalseClaims Act’s knowledge requirement oper-ates as another constraint on liability un-der the statute. A person acts ‘‘knowing-ly’’ if he or she ‘‘(1) has actual knowledgeof the information; (2) acts in deliberateignorance of the truth or falsity of theinformation; or (3) acts in reckless disre-gard of the truth or falsity of the informa-tion.’’ 31 U.S.C. § 3729(b). ‘‘Knowingly’’does not require ‘‘proof of specific intent todefraud.’’ Id. Under Supreme Court and


First Circuit case law, a non-submittingentity may be liable for knowingly causinga submitting entity to submit a false orfraudulent claim, regardless whether thesubmitting entity knew or should haveknown about the non-submitting entity’sunlawful conduct. Blackstone Med., 647F.3d at 390 (citing United States ex rel.Marcus v. Hess, 317 U.S. 537, 544–45, 63S.Ct. 379, 87 L.Ed. 443 (1943)). ‘‘[U]nlaw-ful acts by non-submitting entities maygive rise to a false or fraudulent claimeven if the claim is submitted by an inno-cent party.’’ Id. Representations by thesubmitting entity as to its own compliancewith preconditions of payment do not‘‘somehow immunize a non-submitting enti-ty from liability under the ‘causes’ clauseof the [False Claims Act].’’ Id. This isconsistent with the congressional intent inpassing the False Claims Act ‘‘to reach alltypes of fraud, without qualification, thatmight result in financial loss to the Gov-ernment.’’ Id. at 392 (quoting Cook Cnty.,Ill. v. United States ex rel. Chandler, 538U.S. 119, 129, 123 S.Ct. 1239, 155 L.Ed.2d247 (2003)).

2. Anti–Kickback Statute

The federal Anti–Kickback Statute pro-vides that:

(2) whoever knowingly and willfully of-fers or pays any remuneration (includingany kickback, bribe, or rebate) directlyor indirectly, overtly or covertly, in cashor in kind—(B) to purchase, lease, order, or arrangefor or recommend purchasing, leasing,or ordering any good, facility, service, oritem for which payment may be made inwhole or in part under a Federal healthcare program,shall be guilty of a felony and uponconviction thereof, shall be fined notmore than $25,000 or imprisoned for notmore than five years, or both.

42 U.S.C. § 1320A–7b(b). The statute hasbeen interpreted to cover any arrange-

ment where one purpose of the remunera-tion was to obtain money for the referralof services or to induce further referrals.United States v. Kats, 871 F.2d 105, 108(9th Cir.1989); United States v. Greber,760 F.2d 68, 69 (3d Cir.1985); see UnitedStates v. Bay State Ambulance & Hosp.Rental Serv., Inc., 874 F.2d 20, 33 (1stCir.1989) (‘‘The key to a Medicare Fraudcase is the reason for the payment—wasthe purpose of the payments primarily forinducement.’’).

A number of statutory and regulatorysafe harbors protect certain business ar-rangements that might otherwise violatethe Anti–Kickback Statute. See 42 U.S.C.§ 1320a–7b(b)(3)(A)–(J). These safe har-bors ‘‘apply only in very specific instanc-es,’’ United States v. Shaw, 106 F.Supp.2d103, 113 (D.Mass.2000) (Keeton, J.), to ‘‘ex-empt[ ] only a small subset of such trans-actions,’’ Bay State Ambulance, 874 F.2dat 31. Relevant here, such transactionsinclude the common business arrange-ments of GPOs, 42 U.S.C. § 1320a–7b(b)(3)(C); 42 C.F.R. § 1001.952(j), anddiscounts, 42 U.S.C. § 1320a–7b(b)(3)(A);42 C.F.R. § 1001.952(h).

[4] To receive protection, a businessarrangement must fit squarely within asafe harbor; substantial compliance is notenough, although compliance is voluntaryand failure to comply is not a per seviolation of the statute. OIG ComplianceProgram for Pharmaceutical Manufactur-ers, 68 Fed.Reg. 23731, 23734 (May 5,2003). ‘‘Whether a particular paymentpractice violates the statute is a questionthat can only be resolved by an analysis ofthe elements of the statute as applied tothat set of facts.’’ Medicare and StateHealth Care Programs: Fraud and Abuse;Clarification of the OIG Safe Harbor Anti–Kickback Provisions, 59 Fed.Reg. 37202,37203 (July 21, 1994). ‘‘[T]he gravamen ofa violation of the statute is ‘inducement’


and not necessarily the structure of thearrangement,’’ such that ‘‘case by case in-quiries must necessarily focus on the in-tent of the parties.’’ Medicare and StateHealth Care Programs: Fraud and Abuse;OIG Anti–Kickback Provisions, 56 Fed.Reg. 35952, 35955 (July 29, 1991) (citingBay State Ambulance, 874 F.2d at 29); seeShaw, 106 F.Supp.2d at 114 (‘‘[T]he funda-mental analysis required of a trier of factis ‘to recognize that the substance ratherthan simply the form of the transactionshould be controlling.’ ’’ (quoting 56 Fed.Reg. at 35957)). ‘‘The reason behind thetransaction and the requisite state of mindunderlying the criminal act are more sig-nificant than form and label.’’ Shaw, 106F.Supp.2d at 116. If the requisite intentto willfully or knowingly solicit or offer akickback is present, formal compliancewith a safe harbor is not sufficient to avoidliability under the Anti–Kickback Statute.Cf. Medicare and State Health Care Pro-grams: Fraud and Abuse; Clarification ofthe Initial OIG Safe Harbor Provisionsand Establishment of Additional Safe Har-bor Provisions Under the Anti–KickbackStatute, 64 Fed.Reg. 63518, 63530 (Nov.19, 1999).

II. MOTION FOR PARTIAL JUDG-MENT ON THE PLEADINGS

A. Facts

[5] The underlying facts are not rele-vant to the Court’s resolution of the Defen-

dants’ Motion for Partial Judgment on thePleadings. Instead, the issue here is thelegal validity of the certification of compli-ance with the Anti–Kickback Statute thatis contained in the Provider Agreementand to which health care providers attestin signing the form.1 The certificationreads:

I agree to abide by the Medicare laws,regulations and program instructionsthat apply to [me]. The Medicare laws,regulations, and program instructionsare available through the [Medicare]contractor. I understand that paymentof a claim by Medicare is conditionedupon the claim and the underlying trans-action complying with such laws, regula-tions, and program instructions (includ-ing, but not limited to, the Federal anti-kickback statute and the Stark law), andon the provider’s compliance with allapplicable conditions of participation inMedicare.

Relator’s Fourth Am. Compl., Exs. I–J(‘‘Provider Agreement’’), ECF Nos. 238–9,238–10 (emphasis added). The ProviderAgreement further states that this certifi-cation is one of the ‘‘requirements that theprovider must meet and maintain in orderto bill the Medicare program.’’ 2 Id.

B. Standard of Review

A Rule 12(c) motion implicates thepleadings as a whole. Aponte–Torres v.

1. There are two Provider Agreements—FormCMS–855A for institutional providers andForm CMS–855I for physicians and non-phy-sician practitioners—which contain nearlyidentical language. See Amgen, 707F.Supp.2d at 134 n. 3. For simplicity’s sake,they are both referred to as the ProviderAgreement. CMS is an agency within theUnited States Department of Health and Hu-man Services (‘‘HHS’’).

2. ‘‘[T]he false statement or misrepresentationthat is the premise of [a False Claims Act]action need not be a certification.’’ Nowak,

806 F.Supp.2d at 344–45. ‘‘So long as thestatement in question is knowingly false whenmade, it matters not whether it is a certifica-tion, assertion, statement, or secret hand-shake; False Claims liability can attach.’’Blackstone Med., 647 F.3d at 390 (quotingUnited States ex rel. Hendow v. University ofPhoenix, 461 F.3d 1166, 1172 (9th Cir.2006)).Here, however, the clause in the ProviderAgreement is perhaps best characterized as a‘‘certification,’’ and thus that is the term theCourt uses.


University of P.R., 445 F.3d 50, 54–55 (1stCir.2006). Because a motion for judgmenton the pleadings, like a motion to dismiss acomplaint, ‘‘involves some assessment ofthe merits,’’ the Court must ‘‘view the factscontained in the pleadings in the lightmost favorable to the party opposing themotion—here, the plaintiff—and draw allreasonable inferences in the plaintiff’s fa-vor.’’ Curran v. Cousins, 509 F.3d 36, 43(1st Cir.2007). A ‘‘court may not grant adefendant’s Rule 12(c) motion ‘unless itappears beyond doubt that the plaintiff canprove no set of facts in support of his claimwhich would entitle him to relief.’ ’’ Riv-era–Gomez v. de Castro, 843 F.2d 631, 635(1st Cir.1988) (quoting George C. FreyReady–Mixed Concrete, Inc. v. Pine HillConcrete Mix Corp., 554 F.2d 551, 553 (2dCir.1977)).

While this is the standard of reviewunder Rule 12(c), and while both the Rela-tor and the Defendants accept it as such,here there are no factual inferences todraw. Rather, the parties present differ-ing views on purely legal questions of stat-utory interpretation and administrativelaw. See Skinner v. Salem Sch. Dist., 718F.Supp.2d 186, 188 (D.N.H.2010) (‘‘Ques-tions of statutory interpretation are ‘ripefor resolution at the pleadings stage.’ ’’(quoting Simmons v. Galvin, 575 F.3d 24,30 (1st Cir.2009))). Unlike factual allega-tions, ‘‘[m]ere legal conclusions ‘are notentitled to the assumption of truth.’ ’’Sanchez v. Esso Standard Oil De P.R.,Inc., Civ. No. 08–2151–JAF, 2010 WL3069551, at *2 (D.P.R. Aug. 2, 2010) (quot-ing Ashcroft v. Iqbal, 556 U.S. 662, 129S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009)).‘‘[T]he Court is not required to adopt pure-ly legal conclusions asserted by the movingparty.’’ Crooker v. United States, Civ. No.08–10149–PBS, 2010 WL 3860597, at *5(D.Mass. Sept. 29, 2010) (Saris, J.) (citingPhoung Luc v. Wyndham Mgmt. Corp.,496 F.3d 85, 88 (1st Cir.2007)).

C. Analysis

1. Compliance with the Anti–KickbackStatute as a Precondition of

Medicare Payment

[6] The Defendants ask this Court tohold that, contrary to conventional wisdom,compliance with the Anti–Kickback Statuteis not and cannot be a precondition ofMedicare payment because it has no legalbasis, express or implied, in the Medicarestatutes or regulations. In United Statesex rel. Hutcheson v. Blackstone Medical,Inc., 694 F.Supp.2d 48 (D.Mass.2010), thisCourt acknowledged that ‘‘[t]he Medicarestatutes and regulations do not expresslycontain a precondition of compliance withthe Anti–Kickback Statute.’’ Id. at 66. Inthe same case on appeal, the First Circuitdeclined to address whether, without ex-press statutory or regulatory authoriza-tion, compliance with the Anti–KickbackStatute is nonetheless a precondition ofpayment. Blackstone Med., 647 F.3d at392. It was unnecessary for the court todecide the issue because the certificationclause in the Provider Agreement was‘‘sufficiently clear to establish that theclaims submitted by physicians represent-ed that the underlying transactions did notinvolve kickbacks to physicians prohibitedby the [Anti–Kickback Statute].’’ Id. at393 (emphasis in original omitted). Thephysicians, in signing the Provider Agree-ment, agreed that payment is conditionedon Anti–Kickback Statute compliance, andtherefore they were bound to abide by thecertification clause as matter of contractlaw. Id.

This Court could adopt the same ap-proach here and go no further. But theDefendants’ argument is effectively a chal-lenge to the validity of the contractualterm making compliance with the Anti–Kickback Statute a precondition of pay-


ment. The Defendants argue that, even ifhealth care providers agreed to it, thecertification clause in the Provider Agree-ment is inconsistent with the legal frame-work governing Medicare payment and re-flects improper agency rulemaking. Theseare novel claims fit for decision by thisCourt.

The Defendants first contend that theabsence of an express condition in theMedicare statutes makes clear that Con-gress meant to preclude compliance withthe Anti–Kickback Statute as a precondi-tion of payment. See Mem. Supp. INN &ASD’s Mot. Partial J. Pleadings 5–7. TheMedicare statutes contain various provi-sions specifying conditions of Medicarepayment, see, e.g., 42 U.S.C. § 1395f(‘‘Conditions of and limitation on paymentfor services’’); id. § 1395m (‘‘Special pay-ment rules for particular items and ser-vices’’), but only one of them relates to theAnti–Kickback Statute, see id. § 1395y(‘‘Exclusions from coverage and medicareas secondary payer’’). It reads:

No payment may be made under thistitle with respect to any item or serviceTTT furnished TTT by an individual orentity during the period when such indi-vidual or entity is excluded pursuant tosection 1320a–7, 1320a–7a, 1320c–5, or1395u(j)(2) of this title from participationin the program under this subchapter.3

Id. § 1395y(e)(1)(A). The Defendants sug-gest that this provision banning paymentto providers who violate the Anti–KickbackStatute is meant to cover only the periodthat these providers are actually excludedfrom participating in the Medicare pro-gram. In other words, the payment banwould not include the period before provid-ers formally are excluded but during whichthey are engaged in conduct in violation of

the Anti–Kickback Statute. To the extentthat the Provider Agreement makes com-pliance with the Anti–Kickback Statute aprecondition of payment, and not just par-ticipation, see Amgen, 707 F.Supp.2d at136 n. 4, it therefore goes beyond what theMedicare statutes intended.

The Defendants reach this interpreta-tion of 42 U.S.C. § 1395y(e)(1)(A) by con-trasting it to id. § 1395nn(g)(1), which pro-hibits payment for ‘‘a designated healthservice which is provided in violation of[the Stark Act],’’ and to id. § 1395nn(a)(1)(B), which prohibits submission of aclaim for a service furnished in violation ofthe Stark Act. The Defendants argue thatthese subsections of 42 U.S.C. § 1395nndemonstrate that, had Congress intendedto ban payment of a claim made in viola-tion of the Anti–Kickback Statute, it couldhave done so as it did with respect to theStark Act. Instead, Congress elected notto condition Medicare payment on Anti–Kickback Statute compliance, unless anduntil the provider has been excluded fromparticipation for an Anti–Kickback Statuteviolation. See Mem. Supp. INN & ASD’sMot. Partial J. Pleadings 7.

The Defendants’ argument amounts toan ‘‘absurdity.’’ United States ex rel. Po-gue v. Diabetes Treatment Ctrs. of Am.,565 F.Supp.2d 153, 159 (D.D.C.2008) (not-ing that to hold that compliance with theAnti–Kickback Statute is not a precondi-tion of Medicare payment would result inthe government funding illegal kickbacks).Preservation of the public fisc would beundermined if a provider could engage inconduct warranting exclusion from theprogram altogether yet still demand pay-ment until the time of formal exclusion.See United States ex rel. Wilkins v. Unit-

3. Sections 1320a–7(a)(1) and 1320a–7(b)(7) oftitle 42 authorize the exclusion of providers

who violate the Anti–Kickback Statute.


ed Health Grp., Inc., No. 10–2747, 659F.3d 295, 313–14 (3d Cir.2011); UnitedStates v. Rogan, 517 F.3d 449, 452 (7thCir.2008); cf. Amgen, 652 F.3d at 110–12(rejecting the Defendants’ position that adistinction between conditions of Medicaidpayment and conditions of Medicaid partic-ipation is relevant where providers, insigning forms akin to the Provider Agree-ment at issue here, have represented theircompliance with the Anti–Kickback Stat-ute). Congress cannot have intended thatthose brazen enough to violate the Anti–Kickback Statute (thereby risking criminalpenalties), yet clever enough not to becaught (thereby avoiding exclusion fromparticipation), would have their claims forMedicare payment paid with governmentfunds. See United States ex rel. Bidani v.Lewis, 264 F.Supp.2d 612, 615 (N.D.Ill.2003) (holding that to reimburse a claimant‘‘for supplies purchased illegally only be-cause the claimant had the luck of notbeing caught and convicted in the firstplace TTTT would put the government inthe position of funding illegal kickbacksafter the fact’’). Not only would this runcounter to public policy, but also it wouldbelie commonsense. See U.S. Br. State-ment Interest INN & ASD’s Mot. PartialJ. Pleadings 10–11. The Defendants havefailed to identify how or why Anti–Kick-back Statute compliance as an implied pre-condition of payment is contrary to theMedicare statutes.

Similar to their argument with respectto the Medicare statutes, the Defendantsnext argue that to deem compliance withthe Anti–Kickback Statute a preconditionof Medicare payment would be to directlycontravene the Medicare regulations. SeeMem. Supp. INN & ASD’s Mot. Partial J.Pleadings 7–9. The Secretary of HHS haspromulgated regulations governing Medi-care participation and payment for healthcare providers, including the contents ofthe Provider Agreement. Under 42

C.F.R. § 424.510(d)(3), when a providersigns the Provider Agreement, he or she‘‘attests that the information submitted isaccurate and that [he or she] is aware of,and abides by, all applicable statutes, regu-lations, and program instructions.’’ TheDefendants do not contest the validity ofthis regulation, but rather note the con-spicuous absence of any mention of theAnti–Kickback Statute within it. SeeMem. Supp. INN & ASD’s Mot. Partial J.Pleadings 8. It is difficult to see, however,how this regulation could be read not toinclude the Anti–Kickback Statute. Theregulation states that a provider who signsthe Provider Agreement is certifying thathe is in compliance with ‘‘all applicablestatutes.’’ 42 C.F.R. § 424.510(d)(3) (em-phasis added). Certainly, the Anti–Kick-back Statute is ‘‘applicable’’ to Medicare.See Shaw, 106 F.Supp.2d at 110 (statingthat the purpose of the Anti–KickbackStatute ‘‘was to address the ‘disturbingdegree [of] fraudulent and abusive prac-tices associated with the provision ofhealth services financed by the medicareand medicaid programs’ ’’ (quotingH.R.Rep. No. 95–393, pt. 2, at 44 (1977),reprinted in 1977 U.S.C.C.A.N. 3039,3047)). This is true even if ‘‘enforcementof the anti-kickback statute cannot be saidto be the central purpose of the Medicareprogram.’’ Amgen, 707 F.Supp.2d at 138.Indeed, Medicare regulations specificallyname the Anti–Kickback Statute as a stat-ute that is ‘‘designed to prevent or amelio-rate fraud, waste, and abuse.’’ 42 C.F.R.§ 422.504(h); id. § 423.505(h). The broadlanguage of 42 C.F.R. § 424.510(d)(3) doesnot foreclose—and in fact manifestly per-mits—the Secretary’s decision to requireproviders to certify their compliance withthe Anti–Kickback Statute in signing theProvider Agreement.

Additional regulatory support for Anti–Kickback Statute compliance as a precon-


dition of payment can be found in 42C.F.R. § 424.516(a)(1), which states that‘‘CMS enrolls and maintains an active en-rollment status for a provider or supplierwhen that provider or supplier certifiesthat it meets, and continues to meet, andCMS verifies that it meets, and continuesto meet, TTT [c]ompliance with title XVIIIof the [Social Security] Act and applicableMedicare regulations.’’ When the Anti–Kickback Statute was enacted in 1972, itwas in fact part of Title XVIII of theSocial Security Act. See Pub.L. No. 92–603, 86 Stat. 1419 (1972). Although it laterwas redesignated to a new section, TitleXI, see Pub.L. No. 100–93, § 4(d), 101Stat. 680, 688–89 (1989), Congress’ intentin doing so was to ‘‘broaden’’ ‘‘[t]he scopeof these [kickback, bribe, and false state-ments] provisions TTT to encompass of-fenses against’’ other federal entitlementprograms, in addition to Medicare. S.Rep.No. 100–109 (1987), reprinted in 1987U.S.C.C.A.N. 682, 698. There is no indica-tion that Congress meant for 42 C.F.R.§ 424.516(a)(1) to be read to exclude areference to the Anti–Kickback Statute.

Turning to the language of the Anti–Kickback Statute itself, the Defendants ar-gue that ‘‘Congress’s recent amendment tothe [statute] has laid to rest any argumentthat federal law (including Medicare stat-utes, regulations or other Medicare provi-sions) conditions Medicare payments upon[Anti–Kickback Statute] compliance.’’Mem. Supp. INN & ASD’s Mot. Partial J.Pleadings 9. On March 23, 2010, Congressamended the Anti–Kickback Statute tostate that:

a claim that includes items or servicesresulting from a violation of this section

constitutes a false or fraudulent claimfor purposes of [the False Claims Act].

Patient Protection and Affordable CareAct (‘‘the PPACA’’), Pub.L. No. 111–148,§ 6402(f), 124 Stat. 119, 759 (2010), adding42 U.S.C. § 1320a–7b(g).4 The Defen-dants contend that, prior to this amend-ment, Congress had not linked ‘‘illegal re-muneration’’ under the Anti–KickbackStatute to making a ‘‘false claim’’ for pay-ment under the False Claims Act. Be-cause it is the first time that the Anti–Kickback Statute expressly has incorporat-ed the False Claims Act, the Defendantsview it as a ‘‘substantive alteration’’ of thelaw. See Mem. Supp. INN & ASD’s Mot.Partial J. Pleadings 10 (citing LiquiluxGas Corp. v. Martin Gas Sales, 979 F.2d887 (1st Cir.1992)).

In Liquilux Gas, the First Circuitlooked to various factors in distinguishingan ‘‘alteration’’ from a ‘‘clarification’’:whether it fits within the existing languageof the statute; whether it clarifies an am-biguity and, if so, whether it follows fastupon the ambiguity’s discovery; whether itaffirms an administrative agency’s inter-pretation; and whether it declares thestatute’s original intent. Id. at 890. Here,the Defendants are correct that the PPA-CA did not purport to clarify an existingsection of the Anti–Kickback Statute. Norwas it included alongside other penalties,but rather as its own new subsection.

The amendment’s legislative history,however, evinces Congress’ intent to clari-fy, not alter, existing law that claims forpayment made pursuant to illegal kick-backs are false under the False ClaimsAct. Senator Ted Kaufman stated thatthe PPACA’s purpose was to ‘‘ensure that

4. The United States Supreme Court has statedthat the PPACA ‘‘makes no mention of retro-activity,’’ such that this new provision, 42U.S.C. § 1320a–7b(g), almost certainly is in-applicable to the present action. See Graham

Cnty. Soil & Water Conservation Dist. v. Unit-ed States ex rel. Wilson, ––– U.S. ––––, 130S.Ct. 1396, 1400 n. 1, 176 L.Ed.2d 225(2010).


all claims resulting from illegal kickbacksare ‘false or fraudulent,’ even when theclaims are not submitted directly by thewrongdoers themselves’’ and to ‘‘strength-en[ ] whistleblower actions based on medi-cal care kickbacks’’ ‘‘[b]y making all claimsthat stem from an illegal kickback subjectto the False Claims Act.’’ 155 Cong. Rec.S10852, S10853 (daily ed. Oct. 28, 2009)(Sen. Kaufman). The Senator identifiedthe specific impetus for the amendment as(1) ‘‘remed[ying]’’ a then-recent districtcourt decision that had ‘‘defeat[ed] legiti-mate [False Claims Act] enforcement ef-forts,’’ and (2) adopting the ‘‘success[ful]’’position that the Department of Justiceconsistently has advanced in ‘‘pursuingFalse Claims Act matters based on under-lying violations of the Anti–Kickback Stat-ute.’’ Id. (Sen. Kaufman). Because theintent of Congress is to be culled from theevents surrounding the passage of thePPACA, see Securities & Exch. Comm’n v.Capital Gains Research Bureau, Inc., 375U.S. 180, 199–200, 84 S.Ct. 275, 11 L.Ed.2d237 (1963), Senator Kaufman’s comments,made in advance of the PPACA beingsigned into law, reliably suggest that theamendment was intended not to create anew basis for liability but to clarify thereach of the Anti–Kickback Statute, whichhad been called into question by recentlitigation.5 See also Wilkins, 659 F.3d 295at 311 n. 19 (using the word ‘‘clarify’’ todescribe the effect of this recent amend-ment to the Anti–Kickback Statute).

The Relator, along with the UnitedStates, correctly suggests that the conclu-sion that compliance is precondition ofpayment is ‘‘rendered inescapable whenthe purpose of the [Anti–Kickback Statute]is considered within the context of theMedicare statute.’’ U.S. Br. StatementInterest INN & ASD’s Mot. Partial J.Pleadings 5. Medicare, facing literally mil-lions of claims per day, see id. at 6 n. 4,relies on providers to seek payment onlyon items or services ‘‘reasonable and nec-essary for the diagnosis or treatment ofillness or injury,’’ 42 U.S.C.§ 1395y(a)(1)(A). Kickbacks are designedto influence providers’ independent medi-cal judgment in a way that is fundamental-ly at odds with the functioning of thesystem as a whole. The Anti–KickbackStatute is intended not only to prohibit butalso to prevent such fraudulent conduct.See United States v. Kruse, 101 F.Supp.2d410, 413 (E.D.Va.2000) (stating that theAnti–Kickback Statute’s ‘‘legislative histo-ry also suggests a deterrent, and thuspunitive, purpose’’); H.R.Rep. No. 95–393,pt. 2, at 44, reprinted in 1977U.S.C.C.A.N. 3039, 3040, 3047, 3050 (stat-ing that the Anti–Kickback Statute wasenacted to ‘‘strengthen the capability ofthe Government to detect, prosecute, andpunish fraudulent activities under themedicare and medicaid programs’’). Ifproviders could demand payment forclaims resulting from kickback violations,

5. Citing Consumer Prod. Safety Comm’n v.GTE Sylvania, Inc., 447 U.S. 102, 100 S.Ct.2051, 64 L.Ed.2d 766 (1980), the Defendantsargue that Senator Kaufman’s statements areentitled to little or no weight. Reply Mem.Supp. Defs.’ Mot. Partial J. Pleadings 4. TheUnited State Supreme Court case on whichthe Defendants rely, however, was discussing‘‘[a] mere statement in a conference reportTTT as to what the Committee believes anearlier statute meant.’’ Id. at 118 n. 13, 100S.Ct. 2051 (emphasis added). The SupremeCourt remarked that ‘‘[s]uch history does not

bear strong indicia of reliability TTT becauseas time passes memories fade and a person’sperception of his earlier intention maychange. Thus, even when it would otherwisebe useful, subsequent legislative history willrarely override a reasonable interpretation ofa statute that can be gleaned from its lan-guage and legislative history prior to its en-actment.’’ Id. This undercuts the Defendants’argument because Senator Kaufman’s state-ments constitute ‘‘legislative history prior toits enactment,’’ even if they are less formalthan other types of legislative history.


then the Anti–Kickback Statute would bemeaningless legislation.

Moreover, courts, without exception,agree that compliance with the Anti–Kick-back Statute is a precondition of Medicarepayment, such that liability under theFalse Claims Act can be predicated on aviolation of the Anti–Kickback Statute.See, e.g., Wilkins, 659 F.3d at 313 (‘‘Com-pliance with the [Anti–Kickback Statute] isclearly a condition of payment under PartsC and D of Medicare and appellees do notrefer us to any judicial precedent holdingotherwise. In fact, the precedents holdthe opposite.’’); United States ex rel. Ko-senske v. Carlisle HMA, Inc., 554 F.3d 88,94 (3d Cir.2009) (‘‘Falsely certifying com-pliance with the TTT Anti–Kickback Act[ ]in connection with a claim submitted to afederally funded insurance program is ac-tionable under the [False Claims Act].’’);Pogue, 565 F.Supp.2d at 159 (‘‘Legion oth-er cases have held violations of [the Anti–Kickback Statute] TTT can be pursued un-der the [False Claims Act], since theywould influence the Government’s decisionof whether to reimburse Medicareclaims.’’); Rogan, 517 F.3d at 452 (reject-ing the argument that a kickback was im-material to the validity of Medicare andMedicaid claims); McNutt ex rel. U.S. v.Haleyville Med. Supplies, Inc., 423 F.3d1256, 1259 (11th Cir.2005) (‘‘[C]ompliancewith federal health care laws, including the[Anti–Kickback] Statute, is a condition ofpayment by the Medicare program.’’);United States ex rel. Schmidt v. Zimmer,Inc., 386 F.3d 235, 243 (3d Cir.2004) (‘‘Acertificate of compliance with federalhealth care law is a prerequisite to eligibil-ity under the Medicare program.’’); Unit-ed States ex rel. Ortega v. ColumbiaHealthcare, Inc., 240 F.Supp.2d 8, 13 n. 5(D.D.C.2003) (holding that ‘‘[c]ompliancewith [the Anti–Kickback Statute] is a con-dition for reimbursement under Medi-care’’); United States v. Ruttenberg, 625

F.2d 173, 177 n. 9 (7th Cir.1980) (statingthat Congress need not ‘‘have spelled outduties, beyond the duty of avoiding receiptand payment of kickbacks’’); UnitedStates ex rel. Lisitza v. Johnson & John-son, 765 F.Supp.2d 112, 127 (D.Mass.2011)(Stearns, J.) (‘‘The court agrees that in thecase of the [Anti–Kickback Statute], com-pliance is not merely a condition of partic-ipation in federal health care programs,but is also material to the government’sdecision to pay any claim resulting from akickback.’’); United States ex rel. Fry v.The Health Alliance of Greater Cincinna-ti, No. 1:03–CV–00167, 2008 WL 5282139,at *12 (S.D.Ohio Dec. 18, 2008) (‘‘Theclaims at issue in this case TTT involvecertification of compliance with the Anti–Kickback Statute, a condition of govern-ment payment.’’); United States ex rel.Thomas v. Bailey, No. 4:06CV00465 JLH,2008 WL 4853630, at *8 (E.D.Ark. Nov. 6,2008) (‘‘[C]ase law supports the propositionthat compliance with the Anti–KickbackStatute is a condition of payment under[the federal health care programs, includ-ing Medicare].’’); In re PharmaceuticalIndus. Average Wholesale Price Litig., 491F.Supp.2d 12, 18 (D.Mass.2007) (Saris, J.)(‘‘[T]he Medicare program requires provid-ers to affirmatively certify that they havecomplied with the Anti–Kickback Statute;failure to comply with the kickback laws,therefore, is, in and of itself, a false state-ment to the government.’’); United Statesex rel. Smith v. Yale Univ., 415 F.Supp.2d58, 91 (D.Conn.2006) (‘‘Medicare Regula-tions and the CMS [Provider Agreement]expressly provide that certification is aprecondition to governmental reimburse-ment. In order to obtain reimbursementand as a condition to governmental pay-ment, providers must certify that they arein compliance with the terms on the [Pro-vider Agreement].’’); Bidani, 264F.Supp.2d at 615–16 (finding a violation of


the Anti–Kickback Statute ‘‘material to thegovernment’s treatment of claims for reim-bursement’’ and that to find otherwise,‘‘would put the government in the positionof funding illegal kickbacks after thefact’’); United States ex rel. Kneepkins v.Gambro Healthcare, Inc., 115 F.Supp.2d35, 43 (D.Mass.2000) (O’Toole, J.) (holdingthat alleged violations of the Anti–Kick-back Statute were sufficient to state aclaim under the False Claims Act, despiteno express certification of compliance withapplicable law); United States ex rel.Thompson v. Columbia/HCA HealthcareCorp., 20 F.Supp.2d 1017, 1047 (S.D.Tex.1998) (‘‘[E]xplicit certifications of compli-ance with relevant healthcare laws andregulations TTT provided evidence that thegovernment conditioned its approval, pay-ment and Defendants’ retention of pay-ment funds on those certifications.’’).

The Defendants argue that none ofthese courts reached the ‘‘issue of firstimpression’’ whether the requirement ofAnti–Kickback Statute compliance con-tained in the Provider Agreement’s certifi-cation ‘‘represents a lawful exercise ofCMS’ administrative authority.’’ Joint Re-ply Mem. Supp. Defs.’ Mot. Partial J.Pleadings 1. Yet, even if no court explicitlyundertook the analysis that the Defen-dants ask this Court to undertake today, itis difficult to imagine these judges allreaching the same conclusion if that con-clusion were somehow contrary to theMedicare statutes and regulations. Moreimportantly, the Defendants have cited nocase reaching the opposite conclusion.This Court declines to deviate from well-established precedent that a provider mustbe in compliance with the Anti–KickbackStatute to seek and receive payment for aMedicare claim.

Courts appear to have reached the con-clusion that compliance with the Anti–Kickback Statute is a precondition of pay-

ment because, quite simply, kickbacks af-fect the government’s decision to pay.See, e.g., Rogan, 517 F.3d at 452 (‘‘[I]nfor-mation that a hospital has purchased pa-tients by paying kickbacks has a goodprobability of affecting the [government’s]decision [to reimburse].’’); Pogue, 238F.Supp.2d at 264 (‘‘Certification of compli-ance with the statute or regulation allegedto be violated must be so important to thecontract that the government would nothave honored the claim presented to it if itwere aware of the violation.’’); see alsoLisitza, 765 F.Supp.2d at 127. This rea-soning is consistent with the First Circuit’sfocus on reading a materiality requirementinto the False Claims Act as a limitationon the phrase ‘‘false or fraudulent,’’ ratherthan inquiring into the source of a particu-lar precondition of payment. See Black-stone Med., 647 F.3d at 388 (citing Lough-ren, 613 F.3d at 306–07). Liability for thesubmission of a false claim can arise onlywhere compliance with a precondition ofpayment is material, that is, capable ofinfluencing the government’s decision topay. See Amgen, 652 F.3d at 110–12; seealso United States ex rel. Bierman v. Or-thofix Int’l, N.V., 748 F.Supp.2d 123, 128(D.Mass.2010) (Harrington, J.).

Here, compliance with the Anti–Kick-back Statute clearly factors into the gov-ernment’s reimbursement decision; notonly is the government unwilling to pay aclaim that is the product of criminal con-duct under the Anti–Kickback Statute, butalso to submit such a claim for reimburse-ment is in effect to ask the government tofund criminality retroactively, a result spe-cifically proscribed by the Anti–KickbackStatute. See 42 U.S.C. § 1320a–7b(b).‘‘[T]he Government does not get what itbargained for when a defendant is paid byCMS for services tainted by a kickback.’’Wilkins, 659 F.3d at 314; see Rogan, 517F.3d at 452 (‘‘The United States is entitledto guard the public fisc against schemes


designed to take advantage of overworked,harried, or inattentive disbursing officers;the False Claims Act does this by insistingthat persons who send bills to the Trea-sury tell the truth.’’). The fact that theProvider Agreement identifies compliancewith the Anti–Kickback Statute as a ‘‘re-quirement[ ] that the provider must meetand maintain in order to bill the Medicareprogram,’’ see Provider Agreement, is ‘‘dis-positive evidence’’ of its materiality.Blackstone Med., 647 F.3d at 394. Yet,even if the Provider Agreement did notidentify compliance with the Anti–Kick-back Statute as a precondition of payment,this materiality analysis strongly suggeststhat, because the government will not paykickback-tainted claims, Anti–KickbackStatute compliance must be a preconditionof payment. See id. (‘‘If kickbacks affect-ed the transaction underlying a claim, TTT

the claim failed to meet a condition ofpayment.’’)

2. Legal Validity of CMS’s Procedureand Authority for Adopting the

Provider Agreement

[7] The Defendants next contend that,even if Anti–Kickback Statute complianceas a payment precondition is not at oddswith the Medicare statutes and regulationsor the language of the Anti–Kickback Stat-ute itself, the adoption of the ProviderAgreement was procedurally flawed andundertaken without proper agency authori-ty. Mem. Supp. INN & ASD’s Mot. Par-tial J. Pleadings 10–19. The Defendantsacknowledge that, in adopting the ProviderAgreement, CMS had to comply only withthe Paperwork Reduction Act (‘‘the PRA’’)and did so, yet they argue that the agen-

cy’s procedure for including the certifica-tion of Anti–Kickback Statute compliancein the Provider Agreement ‘‘cast a heavycloud over its purported administrative in-terpretation that Medicare conditions pay-ment on [Anti–Kickback Statute] compli-ance.’’ Id. at 14.

In making this argument, the Defen-dants recite the history of the creation ofthe Provider Agreement, which the Rela-tor does not dispute. In February 2001, inaccordance with the PRA, CMS publishednotice of revisions to the Provider Agree-ment, which included the addition of thecertification. Agency Information Collec-tion Activities: Proposed Collection; Com-ment Request, 66 Fed.Reg. 8807 (Feb. 2,2001); Decl. James M. Becker (‘‘BeckerDecl.’’), Ex. 5 (‘‘Supporting Statement forPaperwork Reduction Act Submissions’’),ECF No. 369–5. In July 2001, also inaccordance with the PRA, CMS submittedthe revised form to the Office of Manage-ment and Budget (‘‘OMB’’) for approval.6

See Becker Decl., Exs. 6a–6b (‘‘MedicareFederal Health Care Provider/SupplierEnrollment Application I’’), ECF Nos.369–6, 369–7. In September 2001, OMBapproved the revised Provider Agreement,but ‘‘under the firm condition that in thenext few months, [it is] republished andopened for public comment along with theproposed rules governing provider enroll-ment TTTT [because] it would have beenmost beneficial to initially release [the Pro-vider Agreement] with [the] proposedrule[s] so that the public could review allof CMS’ enrollment policies as a compre-hensive package.’’ Becker Decl., Ex. 3(‘‘Notice of Office of Management and

6. The Defendants state that CMS, in its sub-mission to OMB, did not give a reason for orlegal citation in support of its inclusion of thecertification clause in the Provider Agree-ment, see Mem. Supp. INN & ASD’s Mot.Partial J. Pleadings 12, although CMS’s ‘‘Sup-porting Statement for Paperwork Reduction

Act Submissions’’ contained various citationsto the Medicare statutes or regulations, seeSupporting Statement for Paperwork Reduc-tion Act Submissions 2. The Defendants donot go so far as to suggest, however, that theProvider Agreement failed to comply with thePRA.


Budget Action I’’), ECF No. 369–3. Thus,although CMS had complied with the PRAwith respect to developing the ProviderAgreement, OMB gave it only conditionalapproval because CMS had yet to engagein Medicare enrollment rulemaking pursu-ant to the Administrative Procedure Act(‘‘the APA’’), and these rules would ‘‘haveimplications for the burden and practicalutility of [the Provider Agreement].’’ Id.

In 2003, in accordance with OMB’s man-date, CMS published its proposed rules,along with the Provider Agreement.Medicare Program; Requirements for Es-tablishing and Maintaining Medicare Bill-ing Privileges, 68 Fed.Reg. 22064 (Apr. 25,2003). CMS explained that its proposedrules ‘‘would require that all providers andsuppliers TTT complete an enrollment formand submit specified information to us, andperiodically update and certify to the accu-racy of the enrollment information, to re-ceive and maintain billing privileges in theMedicare program.’’ Id. at 22064. Thistime, however, the Provider Agreementdid not contain the reference to compliancewith the Anti–Kickback Statute within thecertification clause. Rather, it stated sim-ply:

I agree to abide by the Medicare laws,regulations and program instructionsthat apply to me. The Medicare laws,regulations and program instructionsare available through the Medicare con-tractor.7

Becker Decl., Exs. 7a–7c (‘‘Medicare Fed-eral Health Care Provider/Supplier Enroll-ment Application II’’), ECF Nos. 369–8 to369–10; see 68 Fed.Reg. at 22075. CMSexplained that the form had been changed

‘‘to provide a better understanding ofMedicare policy.’’ 68 Fed.Reg. at 22074.

After receiving comments and republish-ing the enrollment application in July 2005,see Agency Information Collection Activi-ties: Proposed Collection; Comment Re-quest, 70 Fed.Reg. 39513 (July 8, 2005),CMS issued its final enrollment rules inApril 2006, see Medicare Program; Re-quirements for Providers and Suppliers ToEstablish and Maintain Medicare Enroll-ment, 71 Fed.Reg. 20754 (Apr. 21, 2006).The rules added 42 C.F.R. § 424.510(d)(3),which states that a provider, in signing thecertification clause of the Provider Agree-ment, attests to his compliance with ‘‘allapplicable statutes, regulations, and pro-gram instructions.’’ This time the full cer-tification was again included in the form;in other words, CMS reverted back to the2001 version, which explicitly refers to theAnti–Kickback Statute. 71 Fed.Reg. at20764. In so doing, CMS indicated that ithad ‘‘considered’’ ‘‘comments regarding theprovider/supplier enrollment applicationsthat were published in 2001.’’ Id. OMBthereafter approved the final rules and therevised Provider Agreement. BeckerDecl., Ex. 8 (‘‘Notice of Office of Manage-ment and Budget Action II’’), ECF No.369–11.

The Defendants argue that this amountsto a ‘‘checkered procedural history’’ be-cause the only version of the ProviderAgreement ever published in the FederalRegister was the 2003 version that did notcontain the certification of Anti–KickbackStatute compliance. Mem. Supp. INN &ASD’s Mot. Partial J. Pleadings 16. Thisis an inaccurate statement. In July 2005,in accordance with the PRA, CMS publish-

7. This version removed the reference to com-pliance with not only the Anti–Kickback Stat-ute but also the Stark Act, which even theDefendants concede clearly is a preconditionof Medicare payment. See Mem. Supp. INN& ASD’s Mot. Partial J. Pleadings 6–7. This

suggests that CMS did not remove the secondpart of the certification clause because it haddecided that Medicare payment is not condi-tioned on compliance with the Anti–KickbackStatute after all.


ed in the Federal Register a ‘‘proposedcollection[ ]’’ of information, inviting publiccomments on the Provider Agreement andincluding an online link to it. 70 Fed.Reg.at 39513. Not only did this satisfy thePRA, which even the Defendants concedeis the applicable statute for publication ofthe Provider Agreement, but also it pro-vided notice and an opportunity for com-ments under the more stringent, but ulti-mately inapplicable, requirements of theAPA.8 Even though CMS, in its final publi-cation of the form, did not specify what ledit to revert back to the 2001 version, ‘‘ ‘no-tice’ provisions are neither invariably norprimarily designed to afford exhaustivedisclosure, but to alert interested partiesthat their substantive rights may be affect-ed’’ by the rule change. Visiting NurseAss’n of North Shore, Inc. v. Bullen, 93F.3d 997, 1010 (1st Cir.1996), overruled ondifferent grounds by Long Term CarePharmacy Alliance v. Ferguson, 362 F.3d50, 57 (1st Cir.2004); see Natural Res. Def.Council, Inc. v. United States Envtl. Prot.Agency, 824 F.2d 1258, 1283 (1st Cir.1987)(holding that even substantial changes to aproposed rule are allowed, so long as theykeep with the character of the originalscheme and extend logically from the no-tice and comment period); Athens Cmty.Hosp. v. Heckler, 565 F.Supp. 695, 699(E.D.Tenn.1983) (‘‘The Secretary [of HHS]need not respond to all specific issuesraised in comments on [a] proposed rule.’’).Because the Provider Agreement wasproperly enacted, the Court rejects theDefendants’ argument that it is procedur-ally infirm.

Finally, the Defendants argue that CMSlacked authority under the Medicare stat-utes and regulations to adopt the ProviderAgreement and that, accordingly, the formis not entitled to deference by this Court.Mem. Supp. INN & ASD’s Mot. Partial J.Pleadings 12–13. Each time CMS publish-ed the Provider Agreement pursuant tothe PRA, it included a statement of its‘‘[s]pecific [a]uthority to [c]ollect [e]nroll-ment [i]nformation.’’ See, e.g., 68 Fed.Reg. 22064. The most relevant statutoryprovision identified reads:

The Secretary shall periodically deter-mine the amount which should be paidunder this part to each provider of ser-vices TTT except that no such paymentsshall be made to any provider unless ithas furnished such information as theSecretary may request in order to deter-mine the amounts due such providersunder this part for the period with re-spect to which the amounts are beingpaid or any prior period.

42 U.S.C. § 1395g(a); see id. § 1395l (e)(‘‘No payment shall be made to any provid-er of services or other person under thispart unless there has been furnished suchinformation as may be necessary in orderto determine the amounts due such provid-er or other person under this part for theperiod with respect to which the amountsare being paid or for any prior period.’’).The Defendants argue that this provision‘‘is not a license for CMS to create pay-ment conditions in addition to ones estab-lished by Congress.’’ Mem. Supp. INN &ASD’s Mot. Partial J. Pleadings 13.

The First Circuit has interpreted 42U.S.C. § 1395g(a) to ‘‘grant[ ] the Secre-

8. The Provider Agreement was subject only tothe PRA, whereas it was the agency’s Medi-care enrollment rules (which are not at issuehere) that were subject to the APA. WhileOMB admonished CMS for failing to engagein rulemaking under the APA prior to issuingthe 2001 version of the Provider Agreement,OMB made clear that this shortcoming had

no bearing on the validity of the form itself, solong as CMS followed up with proper rule-making, which it did. See Notice of Office ofManagement and Budget Action I. There-fore, this Court need not dwell on whether theProvider Agreement was adopted pursuant tothe APA.


tary broad discretion TTT in determiningwhat information is required from provid-ers as a condition of payment.’’ VisitingNurse Ass’n Gregoria Auffant, Inc. v.Thompson, 447 F.3d 68, 77 (1st Cir.2006)(emphasis added). This clearly supportsthe validity of CMS’s inclusion of the Anti–Kickback Statute certification in the Pro-vider Agreement ‘‘as a condition of pay-ment.’’ The Defendants, however, arguethat this First Circuit precedent is inappo-site because the court was interpreting aprecondition of payment expressly statedin 42 U.S.C. § 1395f(b)(1)(A) regarding re-imbursement only for ‘‘the reasonablecost’’ of Medicare services. See Joint Re-ply Mem. Supp. Defs.’ Mot. Partial J.Pleadings 4. While the Defendants arecorrect that the Visiting Nurse Associa-tion Gregoria Auffant court was interpret-ing an express precondition, here compli-ance with the Anti–Kickback Statute is animplied but nonetheless definitive precon-dition of government payment. To holdthat the Secretary cannot require informa-tion from providers with respect to thisfirmly established precondition would be toundercut his ‘‘broad discretion as to whatinformation to require as a condition ofpayment to providers under the Medicareprogram.’’ Community Hosp. of Monte-rey Peninsula v. Thompson, 323 F.3d 782,790 (9th Cir.2003). ‘‘Since ‘Congress hasexplicitly left [this] gap for the agency tofill,’ any regulation regarding the issuemust be ‘given controlling weight unless [itis] arbitrary, capricious, or manifestly con-trary to the statute,’ ’’ which it is not. Id.(quoting Chevron U.S.A., Inc. v. Natural

Res. Def. Council, Inc., 467 U.S. 837, 843–44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)).CMS has not exceeded its authority under42 U.S.C. § 1395g(a) by requiring provid-ers to certify their compliance with theAnti–Kickback Statute as a precondition ofMedicare payment.9

Furthermore, the Provider Agreementis a valid agency interpretation of its ownregulation 42 C.F.R. § 424.510(d)(3), whichstates that, when a provider signs the Pro-vider Agreement, he or she ‘‘attests thatthe information submitted is accurate andthat the provider TTT is aware of, andabides by, all applicable statutes, regula-tions, and program instructions.’’ ‘‘WhereCongress has entrusted rulemaking andadministrative authority to an agency,courts normally accord the agency particu-lar deference in respect to the interpreta-tion of regulations promulgated under thatauthority.’’ South Shore Hosp., Inc. v.Thompson, 308 F.3d 91, 97 (1st Cir.2002).‘‘[S]o long as it is ‘reasonable,’ that is, solong as the interpretation ‘sensibly con-forms to the purpose and wording of theregulations,’ ’’ courts should give effect tothe meaning that an agency has attachedto its own regulation. Martin v. Occupa-tional Safety & Health Review Comm’n,499 U.S. 144, 150–51, 111 S.Ct. 1171, 113L.Ed.2d 117 (1991) (internal citations omit-ted). Here, CMS reasonably interpreted42 C.F.R. § 424.510(d)(3), specifically itsphrase ‘‘abides by TTT all applicable stat-utes,’’ to include compliance with the Anti–Kickback Statute, such that providers maybe required to certify their compliance to

9. The Defendants also argue that 42 U.S.C.§ 1395g(a) only authorizes the Secretary tocollect information necessary ‘‘to determinethe amounts due,’’ not to determine compli-ance with another statute. Joint Reply Mem.Supp. Defs.’ Mot. Partial J. Pleadings 5 (quot-ing 42 U.S.C. § 1395g(a)). But in order forCMS to determine the amounts due to a pro-vider, it necessarily must know whether theprovider is (or at least attests to be) in compli-

ance with the Anti–Kickback Statute because,as discussed, it would be contrary to publicpolicy, as well as commonsense and logic, ifthe agency were required to pay claims taint-ed by kickbacks. See infra. Thus, informa-tion necessary to determine the amounts duemay include, by extension, information as tothe provider’s compliance with the Anti–Kick-back Statute.


seek Medicare reimbursement. In the ab-sence of any plain error or inconsistencywith the Medicare statutes or regulations,see South Shore Hosp., 308 F.3d at 97, theCourt defers to this reasonable interpreta-tion of the agency’s own regulation, whichitself properly was enacted pursuant to theSecretary’s statutorily-granted authorityto administer the Medicare program.

Although the Defendants attempt tostyle their motion as raising novel issues oflaw, this Court follows the well-establishedholding of numerous other circuit and dis-trict courts that compliance with the Anti–Kickback Statute is a precondition ofMedicare payment, even if not expresslystated in the Medicare statutes and regula-tions or the Anti–Kickback Statute itself.The Provider Agreement, which requiresproviders to certify their compliance withthe Anti–Kickback Statute, was adopted inaccordance with the PRA and represents avalid exercise of CMS’s regulatory authori-ty entitled to judicial deference. Its certi-fication clause is consistent with the Medi-care statutes and regulations as well as thepurpose of the Anti–Kickback Statute.The Defendants’ Motion for Judgment onthe Pleadings is denied.

III. CROSS–MOTIONS FOR PARTIALSUMMARY JUDGMENT ONCOUNT IV OF RELATOR’SFOURTH AMENDED COM-PLAINT

A. Facts in the Light Most Favor-able to Amgen 10

Amgen manufactures biologics, includingAranesp and the related drug EPOGEN.

Amgen’s Resp. Relator’s Rule 56.1 State-ment Facts Supp. Mot. Partial Summ. J.(‘‘Amgen’s Resp. SOF’’) ¶ 1, ECF No. 430.In 1985, Amgen entered into a ProductLicense Agreement with Ortho Pharma-ceutical Corporation (‘‘Ortho’’), a subsid-iary of Johnson & Johnson, by which Am-gen gained the exclusive right to marketEPO (under the name ‘‘EPOGEN’’) in theUnited States for use with dialysis patientsand Ortho gained the exclusive right tomarket EPO (under the name ‘‘Procrit’’) inthe United States for all other uses, includ-ing with cancer patients. Id. ¶ 5. Amgen,however, could market Aranesp in theUnited States for non-dialysis uses. Id.¶ 6. In 2001, the Food and Drug Adminis-tration (‘‘FDA’’) approved Aranesp for usein the United States for treatment of ane-mia associated with chronic renal failure.Id. ¶ 7. In 2002, the FDA approved its usefor chemotherapy-induced anemia in pa-tients with nonmyeloid malignancies. Id.Between 2001 and 2010, Amgen’s world-wide revenues from Aranesp totaled morethan $23,700,000,000. Id. ¶ 4.

Aranesp is sold in single dose vials. Id.¶ 8. A medical provider may use a singledose vial for multiple doses to multiplepatients as long as the vial contents areused within the prescribed period. Id.‘‘Overfill’’ is the amount of liquid in excessof the volume indicated on a drug’s labelnecessary to provide a high degree of as-surance that even a self-administering pa-tient consistently can withdraw and admin-ister the full labeled dose of a drug despitethe numerous variables and factors that

10. As required on motions for summary judg-ment, the factual summary presented hereconsists of undisputed facts as to which theRelator bears the burden of proof and disput-ed facts in the light most favorable to Amgen,the non-moving party. The Court is to reviewthe record as a whole, but ‘‘it must disregardall evidence favorable to the moving party

that the jury is not required to believe.’’Reeves v. Sanderson Plumbing Prods., Inc., 530U.S. 133, 151, 120 S.Ct. 2097, 147 L.Ed.2d105 (2000). Accordingly, the Court must dis-regard evidence in favor of the Relator—evenif uncontradicted—that the jury would be freeto disbelieve. See id.


affect the fill volume of a vial and theamount that can be withdrawn and admin-istered. Id. ¶ 9; Amgen’s Rule 56.1 State-ment Facts Supp. Mot. Partial Summ. J.(‘‘Amgen’s SOF’’) ¶¶ 14–17, 19, ECF No.378. The purpose of overfill is not only toallow a medical provider to administer thelabeled dosage amount of a drug, but alsoto allow for even the unskilled self-admin-istering patient consistently to withdrawand administer the labeled dosage and toaccount for filling variability. Id. ¶ 19;Amgen’s Resp. SOF ¶ 9. The amount ofthe drug that cannot be administered be-cause it sticks to the vial or needle, knownas ‘‘hold up volume,’’ varies depending onthe skill of the person administering it.Amgen’s SOF ¶¶ 21–22.

The FDA has authority to regulate over-fill and set limits on its amount. Id. ¶ 1.The amount of overfill should be sufficientto ensure the total amount of drug in a vialmeets the standards, tests, assays, andother specifications set forth in the UnitedStates Pharmacopeia (‘‘USP’’) compendia.Id. ¶¶ 2, 3. For ‘‘informational’’ purposesonly, the USP recommends overfill of 0.10mL for a vial of 1.0 mL. Id. ¶¶ 48–50;Amgen’s Resp. SOF ¶ 10. Aside from thevolume of the syringe and the size of theneedle, however, USP and FDA standardsdo not impose requirements on manufac-turers when determining a drug’s appro-priate target fill, including overfill, in avial. Amgen’s SOF ¶¶ 8–9. The FDAdoes require manufacturers to report theamount of overfill as part of the BiologicLicense Application (‘‘BLA’’) process for adrug and to provide the rationale for thatamount. Id. ¶¶ 10–11. The FDA evalu-ates only whether the manufacturer’s pro-

posed amount of overfill is scientificallyjustified. Id. ¶ 24. An amount of overfillis considered scientifically unjustified if itwould jeopardize patients’ health by risk-ing the delivery of either too little or toomuch of the drug. Id. ¶¶ 25–26. TheFDA will not approve a drug’s BLA if ithas concerns about the drug’s overfillamount. Id. ¶ 31.

Because overfill falls within the regula-tory authority of the FDA, CMS has nopolicy concerning the proper amount ofoverfill. Id. ¶ 58. Through 2010, CMSnever denied a claim for Medicare reim-bursement because the claim included theamount of overfill included in a drug’s vial.Id. ¶ 60. In November 2010, CMS issueda new final rule prohibiting providers fromseeking reimbursement for overfill effec-tive January 1, 2011. Id. ¶ 61. CMS con-tinued to pay claims including overfill forthe months of November and December2010. Id. ¶ 62. The new rule does notrestrict providers’ use or administration ofoverfill. Id. ¶ 64.

At the time that Amgen submitted itsBLA for Aranesp to the FDA in 1999, thedrug’s proposed target fill volume was1.168 mL v/0.040 mL. Id. ¶ 34. In 2000and 2001, Amgen produced a limited num-ber of vials of Aranesp with a target fillvolume of 1.190 v/0.040 mL, meaning theyhad a target overfill of 19.0%. Id. ¶¶ 37, 41.Less than a month after approval by theFDA, however, Amgen reduced the targetfill volume for Aranesp back to 1.168 mL.11

Id. ¶ 41. The FDA approved both thebrief increase in target fill volume and thereduction back to the original amount as‘‘acceptable and adequately reported.’’ 12

Id. ¶¶ 12–13, 40, 42; Amgen’s Resp. SOF

11. As a point of comparison, in 2003, Amgenreduced the amount of overfill in EPOGENvials from 16.8% to 14.4%, and then againreduced EPOGEN’s overfill amount to 11.1%in 2004. Amgen’s Resp. SOF ¶ 13.

12. Between 2003 and 2010, the FDA ap-proved BLAs for at least six other injectableliquid biologics with target overfills in excessof 20%. Amgen’s SOF ¶ 54.


¶ 12. In 2008, Amgen reduced the overfillin Aranesp vials to 14.3%. Amgen’s SOF¶ 45.

On January 1, 2005, Medicare beganreimbursing Aranesp claims on the basisof the ASP that Amgen reported to CMSevery quarter. Amgen’s Resp. SOF ¶ 33.Amgen did not account for overfill in calcu-lating Aranesp’s ASP. Id. ¶ 39. Amgen’sRule 30(b)(6) designee for pricing policydeclared under oath that he ‘‘believed atthe time of submission, and believe[s] now,that all ASP reports for Aranesp havebeen accurate when they did not treatoverfill as an adjustment for ASP report-ing items. As a result, [he] believe[s] Am-gen’s quarterly submissions to CMS forAranesp properly did not take overfill intoaccount when calculating and reportingASP and in submitting the ASP-relateddata.’’ Decl. William Dunn Supp. Opp’nRelator’s Mot. Partial Summ. J. Amgen,Ex. 37 (Declaration of Fred Manak, Jr.)(‘‘Manak Decl.’’) ¶¶ 9, 10, ECF No. 433–37.

In 2005, the Office of the Inspector Gen-eral (‘‘OIG’’) conducted an audit of Am-gen’s ASP calculation for Aranesp. Am-gen’s Resp. SOF ¶ 41. Amgen discussedwith OIG its ASP process and the datacomponents that factored into the calcula-tion. Id. OIG requested and received doc-uments containing Amgen’s written meth-odology, assumptions, and underlying data.Id. OIG concluded that ‘‘[o]verall, Amgen’sASP calculation methodology for Aranespcomplied with federal requirements.’’ 13

Decl. Kirsten Mayer Supp. Amgen’s Mot.Partial Summ. J., Ex. 28 (‘‘2007 OIG Au-dit’’), ECF No. 381–28.

Because it was captured in an email,Amgen does not dispute that its seniorfinance manager once remarked to otherAmgen employees that ‘‘overfill rates are atype of hidden discount to customers.’’Amgen’s Resp. SOF ¶ 30. Amgen, howev-er, did not instruct its sales representa-tives to market overfill or to discuss theamount of overfill in Aranesp vials withcustomers. Id. ¶ 15. Amgen did not in-struct its sales representatives to discusswith customers how to draw up and admin-ister overfill. Id. ¶ 21. Nor did Amgendirect INN, with which Amgen enteredinto a GPO Agreement in September 2003,to promote overfill in Aranesp vials tocustomers.14 Id. ¶¶ 2, 16. Numerous pro-viders who have testified in this case, how-ever, have stated their belief that seekingMedicare reimbursement for overfill wasentirely lawful and a common practice inthe nephrology industry. Amgen’s SOF¶¶ 72–73.

B. Facts in the Light Most Favor-able to the Relator

Amgen is the manufacturer of Aranesp.Relator’s Rule 56.1 Statement Facts Supp.Mot. Partial Summ. J. Amgen (‘‘Relator’sSOF Amgen’’) ¶ 1, ECF No. 389. TheFDA has approved the use of Aranesp fortreatment of anemia associated with chron-ic renal failure and of chemotherapy-in-duced anemia. Id. ¶ 6–7. Aranesp is soldin single-dose vials and single-dose pre-filled syringes. Id. ¶ 8.

Overfill is drug product contained in vi-als of injectable drugs in excess of thelabeled dosage. Id. ¶ 9. The FDA has theauthority to regulate overfill and set limitsas to the amount, but the FDA has not set

13. Its non-compliance concerned ‘‘price con-cessions’’ and ‘‘minor calculation errors;’’Amgen’s exclusion of overfill in its ASP calcu-lation was not at issue. 2007 OIG Audit 3–4.

14. Amgen does not appear to dispute thatINN’s sales representatives in fact engaged ina practice of marketing overfill, although Am-gen suggests that such discussions with cus-tomers were reactive, not proactive. Amgen’sResp. SOF ¶ 16.


a specific level of generally permissibleoverfill. Relator’s Resp. Amgen’s Rule56.1 Statement Facts Supp. Mot. PartialSumm. J. (‘‘Relator’s Resp. SOF Amgen’’)¶ 1, ECF No. 432. FDA regulations andUSP compendia require that the amount ofoverfill be in sufficient excess of the la-beled volume to permit withdrawal andadministration of the labeled amount. Id.¶¶ 2, 6; Relator’s SOF Amgen ¶ 9. Since2001, the USP has recommended a targetoverfill of 10%. Relator’s SOF Amgen¶ 10. The only legitimate purpose of over-fill is to guarantee that a health care pro-vider can administer the labeled dosageamount. Id. ¶ 9.

The FDA requires manufacturers to dis-close the amount of a drug’s target overfillas part of the BLA process. Relator’sResp. SOF Amgen ¶¶ 10, 30. There is norequirement, however, that manufacturersdisclose the rationale behind target overfilllevels. Id. ¶ 11. The FDA will not ap-prove a drug’s BLA if it has concernsabout the amount of target overfill in adrug. Id. ¶ 31. The FDA has taken fur-ther action in cases where it has had con-cern that a drug included a potentiallyexcessive amount of overfill. Id. ¶ 32.Drug manufacturers that fail to complywith USP tests can be found liable underthe Food, Drug, and Cosmetic Act(‘‘FDCA’’) for selling misbranded or adul-terated drugs. Id. ¶ 4.

Amgen used the drug Kineret, whichhad different physical properties than Ara-nesp, to set target fill volume for Aranesp.Id. ¶¶ 13, 37. Amgen’s reliance on Kiner-et, instead of Aranesp, for Aranesp filltesting was not disclosed to the FDA. Id.¶ 37. After the failure of the Kineret ‘‘con-formance lot’’ between 1999 and 2000, Am-

gen introduced a new formula for settingtarget overfill volumes that took additionalvariables into account. Id. These variablesincluded the ‘‘hold-up volume of the sy-ringe,’’ the ‘‘vial hold-up volume,’’ and the‘‘process variability.’’ Id. ¶ 15. There isno scientific rationale, however, that canbe applied to determine how to account forthe range of sophistication of who willadminister the drug (i.e., a medical provid-er or unskilled, self-administering patient).Id. ¶¶ 16, 18. Amgen did not making anyprovision for the range of sophisticationamong providers in setting Aranesp’s tar-get overfill. Id. ¶¶ 16, 21.

Aranesp’s overfill was increased from16.8% to 19.0% in November 2000. Id.¶ 38. At that time, Amgen’s BLA for Ara-nesp was pending, but Agmen did not noti-fy the FDA of the proposed change inrelation to the Aranesp BLA. Id. Amgen’smanufacturing expert testified that he‘‘would have filed it, personally, to theBLA.’’ Id. Amgen notified the FDA onlyafter it had already increased the targetoverfill to 19.0%. Id. ¶ 40. Amgen manu-factured a limited number of lots at thistarget overfill volume in 2000 and 2001before implementing a reduction back to16.8% target overfill. Id. ¶ 41. The FDAapproved this 16.8% amount and neitherraised an issue with respect to Amgen’svalidation of an appropriate target overfillvolume for Aranesp nor expressed concernthat Aranesp’s overfill was excessive-al-though, as noted, Amgen did not informthe FDA that it had tested overfill volumeusing a different drug, Kineret. Id. ¶¶ 12,42. In 2008, Amgen implemented a two-phase process to further decrease Ara-nesp’s overfill: (1) from 16.8% to 14.3%,and (2) from 14.3% to 13.0%.15 Id. ¶ 45.

15. Only phase one of the two-phase processhas been carried out, such that the currentoverfill target for Aranesp is 14.3%. Relator’sResp. SOF Amgen ¶ 45. The Relator argues

this means providers are receiving 1.3% moreoverfill than even Amgen has determined tobe necessary. Id.


This two-phase process came at the recom-mendation of Amgen’s marketing depart-ment and did not reflect a manufacturingreason. Id. ¶¶ 16, 21, 45 n. 38.

Amgen did not account for overfill in itsASP calculation for Aranesp. Relator’sSOF Amgen ¶ 39. Amgen never informedCMS that it was not accounting for overfillin calculating Aranesp’s ASP. Relator’sResp. SOF Amgen ¶ 171. Amgen similar-ly did not disclose its exclusion of overfillfrom Aranesp’s ASP calculation when OIGaudited it in 2005. Id. ¶ 175. The objec-tive of OIG’s audit was to ‘‘determinewhether Amgen’s ASP calculation method-ology for Aranesp complied with Federalrequirements and guidance.’’ Id. ¶ 174.OIG’s Rule 30(b)(6) witness testified thatoverfill was ‘‘not an issue discussed byeither side during the context of that au-dit.’’ Relator’s Resp. SOF Amgen, Ex. 2(Deposition of Nicole Freda) (‘‘FredaDep.’’) 214:16–18, ECF No. 432–3. Amgennever received official approval from agovernment for its exclusion of overfillfrom Aranesp’s ASP calculation. Relator’sSOF Amgen ¶ 42.

Acting in concert with INN, Amgenmarketed the ‘‘economic benefits’’ of Ara-nesp’s overfill to providers and instructedthem to bill Medicare for the overfillamount, in addition to the labeled dosage.Id. ¶¶ 15–16. Amgen produced an ‘‘Ara-nesp Profile’’ that included informationabout overfill ‘‘to be discussed if directlyasked.’’ Id. ¶ 17. Amgen’s sales team wasencouraged to push providers to ask aboutoverfill and, when asked, to distribute tothem a ‘‘standard overfill letter’’ detailingthe amount of overfill in vials of Aranesp.Id. ¶¶ 17–18. Amgen and INN developedspreadsheets comparing (1) the reimburse-ment cost of Aranesp including overfillversus excluding overfill, and (2) the reim-bursement cost advantage of Aranesp ver-sus the competitor drug Procrit when ov-

erfill was included. Id. ¶¶ 20, 29. Thesespreadsheets were shown to medical pro-viders. Id. Amgen’s senior finance manag-er referred to overfill as ‘‘a type of hiddendiscount to customers.’’ Id. ¶ 30. In 2004,however, Amgen had been specifically ad-vised by an outside consulting firm it hadretained that medical providers should nothave been seeking Medicare reimburse-ment for overfill because Aranesp’s pricereflected only the labeled dosage. Id.¶¶ 31, 37.

C. Standard of Review

Summary judgment is proper where‘‘there is no genuine dispute as to anymaterial fact and the movant is entitled tojudgment as a matter of law.’’ Fed.R.Civ.P. 56(a). An issue of fact is ‘‘genu-ine’’ if there exists a sufficient evidentiarybasis on which the trier of fact could findfor the non-moving party. Anderson v.Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct.2505, 91 L.Ed.2d 202 (1986). A fact is‘‘material’’ if it will affect the outcome ofthe case under the applicable law. Id. Themoving party bears the burden of showingthat no genuine issue of material fact ex-ists. Celotex Corp. v. Catrett, 477 U.S.317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265(1986). ‘‘The evidence of the non-movantis to be believed, and all justifiable infer-ences are to be drawn in his favor.’’Anderson, 477 U.S. at 255, 106 S.Ct. 2505.Save as to facts admitted by both parties,the court must disregard all evidence—even if unopposed—which the jury is freeto reject, i.e., all evidence upon which aparty bears the burden of proof. Reeves,530 U.S. at 151, 120 S.Ct. 2097. Thus,summary judgment may be granted whena fair-minded jury could reach only oneconclusion: in favor of the moving party.

D. Analysis

The Relator argues that overfill is a‘‘free good’’ with ‘‘independent value’’ to


medical providers, such that it reduces thedrug’s total acquisition cost. Mem. Supp.Relator’s Mot. Partial Summ. J. Amgen 5.Because Amgen did not account for overfillas a ‘‘price concession’’ in determining Ar-anesp’s ASP, the Relator claims that Ara-nesp’s ASP is artificially inflated. Id. Am-gen acknowledges that it did not includeoverfill in Aranesp’s ASP calculation, butasserts that whether overfill is to be in-cluded as a factor in determining a drug’sASP is a purely legal question. Mem.Opp’n Relator’s Mot. Partial Summ. J.Amgen 1. If, as matter of law, overfill ispart of the ASP calculation, then the ASPthat Amgen calculated for Aranesp cannotbe deemed false or fraudulent.

In simplified terms, a drug’s ASP repre-sents the manufacturer’s total sales divid-ed by the total number of units of the drugsold in a quarter. 42 U.S.C. § 1395w–3a(c)(1)(A)–(B). Manufacturers are re-quired to ‘‘deduct price concessions’’ fromthe numerator of this mathematical equa-tion, which include volume discounts,prompt pay discounts, cash discounts, freegoods that are contingent on any purchaserequirement, chargebacks, and rebates.Id. § 1395w–3a(c)(3); 42 C.F.R.§ 414.804(a)(2)(i). Overfill is not explicitlymentioned in the statute as a type of priceconcession. Acting in conjunction withOIG, the Secretary of HHS, which housesCMS, has the authority to identify ‘‘otherprice concessions’’ beyond those alreadyenumerated in the statute, but it has notdone so with respect to overfill. 42 U.S.C.§ 1395w–3a(c)(3).

The exclusion of overfill as a price con-cession is, in fact, a conscious choice byCMS. In November 2010, the agency, con-sistent with its rulemaking authority under42 U.S.C. § 1395w–3a(c)(5)(C), promulgat-ed its final rule with respect to ‘‘[d]eter-mining the [p]ayment [a]mount for [d]rugsand [b]iologicals [w]hich [i]nclude [i]nten-

tional [o]verfill.’’ Medicare Program;Payment Policies Under the Physician FeeSchedule and Other Revisions to Part Bfor CY 2011, 75 Fed.Reg. 73170, 73466(Nov. 29, 2010). The final rule definitivelyconcludes that overfill is not included inthe ASP calculation and that medical pro-viders may not seek reimbursement for it.It reads, in substantial part:

Since [April 1, 2008], [CMS has] be-come aware of situations where manu-facturers, by design, include a smallamount of ‘intentional overfill’ in con-tainers of drugs. We understand this‘intentional overfill’ is intended to com-pensate for loss of product when a doseis prepared and administered properly.For instance, a hypothetical drug is in-tended to be delivered at a 0.5 mg dosethat must be drawn into a syringe froma vial labeled for single use only. Thevial is labeled to contain 0.5 mg of prod-uct but actually contains 1.5 mg of prod-uct. The additional 1.0 mg of product isincluded, by design, and is intended tobe available to the provider so as toensure a full 0.5 mg dose is administeredto the patient.

Our ASP payment calculations arebased on data reported to us by manu-facturersTTTT In order to accurately cal-culate Medicare ASP payment limitsunder section 1847A of the Act, we in-terpret ‘‘the amount in one item’’ to bethe amount of product in the vial orother container as indicated on the FDAapproved label.

It has been longstanding Medicarepolicy that in order to meet the generalrequirements for coverage under the‘‘incident to’’ provision, services or sup-plies should represent an expense in-curred by the physician or entity billingfor the services or supplies. Such physi-cians’ services and supplies includedrugs and biologicals under section


1861(s)(2)(A) of the Act. In accordancewith this policy, providers may only billfor the amount of drug product actuallypurchased and that the cost of the prod-uct must represent an expense to thephysician.

We further understand that when aprovider purchases a vial or container ofproduct, the provider is purchasing anamount of drug defined by the productpackaging or label. Any excess product(that is, overfill) is provided withoutcharge to the provider. In accordancewith our current policy as explainedabove, providers may not bill Medicarefor overfill harvested from single usecontainers, including overfill amountspooled from more than one container,because that overfill does not representa cost to the provider. Claims for drugsand biologicals that do not represent acost to the provider are not reimbursa-ble, and providers who submit suchclaims may be subject to scrutiny andfollow up action by CMS, its contractors,and OIG.

Because such overfill is currently notincluded in the calculation of paymentlimits under the methodology in section1847A of the Act and does not representan incurred cost to the provider, weproposed to update our regulations at 42CFR part 414 Subpart K to clearly statethat Medicare ASP payment limits arebased on the amount of product in thevial or container as reflected on theFDA-approved label. We also proposedto update our regulations at Subpart Jto clearly state that payment foramounts of free product, or product inexcess of the amount reflected on the

FDA-approved label, will not be madeunder MedicareTTTT

Our policy is not intended to limit theuse of intentional overfill during the careof beneficiaries or in medical practice;such measures are beyond CMS’ author-ity. Rather, we are clarifying our ASPpricing and payment policies, describinghow we utilize manufacturer reporteddata, and updating our regulations at 42CFR part 414.

Id. at 73466–67 (internal citations omitted).The regulations themselves now state that‘‘[t]he manufacturer’s average sales pricemust be calculated based on the amount ofproduct in a vial or other container asconspicuously reflected on the FDA ap-proved label,’’ 42 C.F.R. § 414.804(a)(6);that ‘‘CMS calculates an average salesprice payment limit based on the amountof product included in a vial or other con-tainer as reflected on the FDA-approvedlabel,’’ id. § 414.904(a)(3)(i); that ‘‘[a]ddi-tional product contained in the vial or oth-er container does not represent a cost toproviders and is not incorporated into theASP payment limit,’’ id. § 414.904(a)(3)(ii);and that ‘‘[n]o payment is made foramounts of product in excess of that re-flected on the FDA-approved label,’’ id.§ 414.904(a)(3)(iii).

In responding to comments to the pro-posed rule, CMS stated that these addi-tions to the Medicare regulations areclarifications, not policy changes.16 CMSremarked that ‘‘[t]he intent of this pro-posal is merely to clarify that the Medi-care ASP payment limit is based on theamount of drug conspicuously indicatedon the FDA label, and that no paymentwill be made for any intentional overfill

16. CMS indicated its ‘‘appreciat[ion for] thecomments in support of our proposal,’’ in-cluding some commenters’ mention of ‘‘ongo-ing litigation which alleges that some manu-facturers provided kickbacks to providers by

marketing and furnishing intentional overfilland encouraging providers to bill federalhealth care programs to increase the provid-ers’ profits and sales volumes for the drugs.’’75 Fed.Reg. at 73467.


included as free drug for the properpreparation of a single therapeutic dose.’’75 Fed.Reg. at 73467; see id. at 73468(‘‘[T]he intent of this proposal is to clarifythat the ASP payment limit is currentlybased on the amount of drug indicated onthe FDA label, and that no payment willbe made for any intentional overfill.’’ (em-phasis added)); id. at 73468–69 (‘‘The in-tent of this proposal is to clarify that theASP payment limit is based on theamount of drug clearly identified as theamount on the FDA label and packaging.We do not intend to change the ASP cal-culation methodology to include inten-tional overfill because of the operationaldifficulty in accurately identifying theamount of overfill.’’ (emphasis added));id. at 73469 (‘‘Our policy clarifies that wewill not pay for intentional overfill.’’).17

When asked at deposition whether thenew rule represents ‘‘a change in pay-ment policy,’’ CMS’s Rule 30(b)(6) witnesstestified that the new rule is ‘‘a furtherapplication of the policy requiring theprovider to have incurred a cost TTTT

[and] to the way in which we calculateprices for Part B drugs.’’ 18 Decl. of Wil-liam Dunn Supp. Opp’n Relator’s Mot.Partial Summ. J. Amgen, Ex. 1 (Deposi-tion of John F. Warren) (‘‘Warren Dep.’’)214:24–25, 215:9–12, ECF No. 433–1.This witness also testified that CMS hadnever suggested that overfill should be

included in the ASP calculation and thatit was his ‘‘understanding up until thispoint that manufacturers have, in fact, re-ported their ASP data based on the FDAapproved label amounts,’’ i.e., not includ-ing overfill. Id. at 228:10–25, 229:1–2.

CMS’s rules and regulations confirmAmgen’s position that overfill is not, andnever was to have been, accounted for inAranesp’s ASP calculation.19 There is,however, a plausible inconsistency in therules and regulations that the Relator triesto exploit. CMS, in its November 2010rulemaking, characterized overfill as ‘‘ex-cess product’’ that ‘‘is provided withoutcharge to the provider’’ and ‘‘free productfor which the provider did not incur acost.’’ 75 Fed.Reg. at 73466, 73468. Indefining overfill as such, CMS failed toexplain the difference, if any, between‘‘free product’’ and ‘‘free goods that arecontingent on any purchase requirement’’and must be accounted for as ‘‘price con-cessions’’ when calculating a drug’s ASP.42 U.S.C. § 1395w–3a(c)(3); 42 C.F.R.§ 414.804(a)(2)(i)(D). The Relator arguesthat, because CMS has termed overfill‘‘free product,’’ it is therefore a price con-cession that must be deducted from theASP determination. Mem. Supp. Relator’sMot. Partial Summ. J. Amgen 5–6. But,this argument contradicts the entirety ofthe November 2010 rule, which states that

17. CMS also rejected the arguments of thosecommenters who ‘‘disagree[d] that Medicarehas a longstanding policy that an expensemust be incurred by the provider in order forpayment to be made by Medicare,’’ who notedthat there is no law or regulation prohibitinga provider from billing for intentional overfill,and who stated that CMS had not expressedconcern about overfill in the face of past OIGreports detailing providers’ use of it in a waythat altered their costs. 75 Fed.Reg. at73469. CMS reiterated that its policy of re-imbursing only for expenses actually incurredby medical providers under the ‘‘incident-to’’provision is ‘‘longstanding.’’ Id.

18. The witness acknowledged that the newrule ‘‘is an application [of CMS’s policy re-quiring the provider to have incurred a cost]that the agency has never before articulated,’’but did not adopt counsel’s characterizationof it as ‘‘novel.’’ Warren Dep. 215:13–19.

19. The Rule 30(b)(6) witness for CMS an-swered affirmatively when asked whether theagency ‘‘has determined that overfill amountsshould—have not been and should not bereported for ASP purposes.’’ Warren Dep.214:6–10.


overfill is not included in the ASP calcula-tion. Furthermore, while CMS did notexplicitly reject the notion that overfill is afree good contingent on a purchase re-quirement,20 it recognized its authority toidentify additional price concessions thatmust be accounted for in the ASP calcula-tion and ‘‘declin[ed] to consider overfill tobe [an in-kind] discount for purposes of theASP calculation.’’ 21 75 Fed.Reg. at 73468.

In addition, even though CMS has char-acterized overfill as ‘‘free product,’’ theagency has not suggested that overfill hasindependent value. The Anti–KickbackStatute ‘‘makes it illegal to offer, pay, soli-cit or receive anything of value as aninducement to generate business payableby Medicare or Medicaid.’’ Publication ofOIG Special Fraud Alerts, 59 Fed.Reg.65372, 65375 (Dec. 19, 1994) (emphasisadded); see 42 U.S.C. § 1320a–7a(i)(6)(broadly defining ‘‘remuneration’’ as‘‘transfers of items or services for free orother than fair market value’’); Klaczak v.Consolidated Med. Transp., 458 F.Supp.2d622, 678 (N.D.Ill.2006) (‘‘Remuneration, forpurposes of the [Anti–Kickback Statute], isdefined broadly, meaning ‘anything of val-ue.’ ’’); 56 Fed.Reg. at 35958 (‘‘Congress’sintent in placing the term ‘remuneration’

in the statute in 1977 was to cover thetransferring of anything of value in anyform or manner whatsoever.’’). BecauseCMS has deemed overfill ‘‘not reimbursa-ble,’’ 75 Fed.Reg. at 73466, it can have noindependent value attached to it apartfrom the rest of the dosage in the vial.The only legitimate purpose of overfill is toensure that providers and self-administer-ing patients are able to draw up the fulldosage amount, and the FDA recommendsthat manufacturers include it for this pur-pose. Cf. 56 Fed.Reg. at 35978 (‘‘[Where afree computer] can only be used as part ofa particular service that is being provided,for example, printing out the results oflaboratory tests TTTT it appears that thecomputer has no independent value apartfrom the service that is being provided andthat the purpose of the free computer isnot to induce an act prohibited by thestatute. Rather, the computer is part of apackage of services provided at a pricethat can be accurately reported to theprograms.’’).

If the Relator were correct that overfillis free product with independent value,such an arrangement would be inherentlysuspect and could violate the Anti–Kick-back Statute.22 See OIG Advisory Op. No.

20. OIG’s Rule 30(b)(6) witness stated that,although the agency had been informed thatproviders were utilizing and billing for over-fill, he never instructed manufacturers likeAmgen to include overfill in the average ac-quisition cost, and he did not consider overfillto be a free good contingent on any purchaserequirement. Decl. William Dunn Supp.Opp’n Relator’s Mot. Partial Summ. J. Am-gen, Ex. 2 (Deposition of David Tawes)(‘‘Tawes Dep.’’) 75:8–18, ECF No. 433–2.

21. CMS identified ‘‘operational feasibility’’ asthe ‘‘practical reason’’ for which it did notconsider overfill to be a discount for purposesof the ASP calculation. 75 Fed.Reg. at73468. ‘‘The amount of overfill in vials variesfrom drug to drug and often is not easily orconsistently quantifiable because actual fillamounts may also vary slightly due to the

manufacturing process. In contrast, manu-facturer sales data, ASP calculations, and ASPpayment limits use exact quantities of drugthat are represented by exact monetary val-ues.’’ Id.

22. Previously, this Court held that the Relatoradequately had alleged that Amgen included‘‘excess’’ overfill in its Aranesp vials, or moreoverfill than was necessary to withdraw thelabeled dosage, and that such ‘‘excess overfillis in effect free doses of Aranesp, which createthe potential for providers to profit fromMedicare reimbursement.’’ Amgen, 738F.Supp.2d at 273–74. The Court’s intention,however, was not to limit its holding to ‘‘ex-cess’’ overfill, as opposed to overfill generally.The Court recognized that the Medicare Re-imbursement Policy Manual indicated that


04–16 at 4, 2004 WL 5701861 (Nov. 18,2004), also available at http://oig.hhs.gov/fraud/docs/advisoryopinions/2004/ao0416.pdf. But the potential for fraud does notdevelop into actual fraud under the FalseClaims Act without the requisite knowl-edge that providing the free product wouldcause, and does in fact cause, a false claimto be presented to the government forMedicare payment. The illegality ariseswhere drug manufacturers, like Amgen,and their affiliates, like INN and ASD,encourage health care providers to seekreimbursement for any independent valuethe overfill may have had but for whichthey did not pay. The fraud is in askingthe government to pay a debt that it doesnot owe because the debt was never in-curred by the provider.

In her reply memorandum, the Relatoradmits that, in its November 2010 rule-making, CMS declined ‘‘to require manu-facturers to uniformly deduct all overfill

amounts as a ‘price concession’ in its ASPcalculations.’’ Reply Mem. Supp. Rela-tor’s Mot. Partial Summ. J. Amgen 7. Tak-ing a slightly different tack in light of this,she then argues that, since CMS did notexplicitly foreclose the possibility of indi-vidual exceptions to its general rule thatoverfill is not a factor in a drug’s ASP de-termination, Amgen still had an obligationto deduct overfill from Aranesp’s ASP cal-culation because the manufacturer was ac-tively encouraging providers to bill forthat overfill. Id. at 8. In essence, theRelator claims that Amgen should havealtered Aranesp’s ASP calculation to ac-count for its allegedly illegal marketingscheme.

What the Relator fails to consider inmaking this argument is that CMS’s No-vember 2010 rule has two parts: first,overfill is not a cost to the provider andthus is not a factor in a drug’s ASP, and,second and accordingly, providers must

Medicare would reimburse a claim only up tothe labeled amount and not including anyoverfill. Id. at 274 n. 11. Now that CMS hasfurther clarified that all overfill, regardless ofFDA approval, medical necessity, or adminis-tration to the patient, ‘‘is free product forwhich the provider cannot incur a cost’’ andthus is not reimbursable, 75 Fed.Reg. at73468, this Court’s prior use of the phrase‘‘excess overfill’’ appears to have been a re-dundancy in terms, at least with respect to thepropriety of billing for and marketing thevalue of overfill under the False Claims Act.

The concept of ‘‘excess overfill’’ continues,however, to constitute the very foundation ofthe Relator’s claim that the Defendantscaused providers to submit kickback-taintedfalse claims. Excess overfill is that which isin excess of the target fill volume approved bythe FDA after reviewing whether the manu-facturer has complied with mandatory testingprocedures set forth in FDA regulations andUSP compendia. Because the FDA mandatesthat manufacturers include some amount ofoverfill to ensure that patients receive neithertoo much nor too little of a drug, the inclu-sion of overfill in the drug’s vial implicatesthe Anti–Kickback Statute only where the

amount exceeds the FDA-approved level.Where overfill is excessive, suspicions proper-ly arise that it has been given to providers foran illegitimate purpose, i.e., to induce them topurchase more Aranesp. Amgen, 738F.Supp.2d at 273–74; see United States ex rel.Woodard v. DaVita, Inc., Memorandum & Or-der 22–23, No. 1:05–CV–227 (E.D.Tex. May 9,2011), ECF No. 137.

Here, it is undisputed that the FDA ap-proved the target overfill level proposed inAranesp’s BLA, which was 1.168 mL v/0.04mL. The propriety of the FDA’s review andapproval of this level is not a proper juryissue, but there remains a triable issue of factwhether the overfill contained in Aranesp vi-als actually comported with the FDA-ap-proved level at all times. See Amgen, 738F.Supp.2d at 274 n. 9. Whether the briefincrease to 19% overfill was properly dis-closed to and approved by the FDA is also anissue for the factfinder. See id. These factualdisputes bear primarily on the Relator’s kick-back claim, but they also may be relevant tothe allegations that the Defendants marketedAranesp in part by emphasizing that its vialscontained more overfill than those of its com-petitor drug.


not bill Medicare for overfill.23 The firstpart of the rule necessitates the secondpart if the government is to be protectedfrom false claims. Only together do thesetwo parts create a workable approach toMedicare reimbursement. The fact thatthe second part of the rule may have beenviolated in this case by Amgen allegedlyencouraging providers to bill for overfilldoes not mean the Court must carve outan exception to the applicability of the firstpart of the rule for Amgen’s calculation ofAranesp’s ASP. Rather, Amgen was re-quired to comply with both parts of therule, and the fact that it complied with thefirst part does not preclude liability at trialfor causing providers to submit false orfraudulent claims in violation of the secondpart. See In re Pharmaceutical Indus.Average Wholesale Price Litig., 491F.Supp.2d at 19 (suggesting that, although‘‘mere publication of a false [averagewholesale price (‘‘AWP’’) ], without more,does not constitute an offer of remunera-tion where reimbursement is based on amedian of AWPs, TTTT the publication of afalse AWP with the specific intent to in-duce purchase of [the manufacturer’s]branded drug in conjunction with a strate-gy of ‘marketing the spread’ to the provid-ers’’ may constitute a kickback); 68 Fed.Reg. at 23736 (‘‘The conjunction of manip-ulation of the AWP to induce customers topurchase a product with active marketingof the spread is strong evidence of theunlawful intent necessary to trigger theanti-kickback statute.’’); see also UnitedStates ex rel. Duxbury v. Ortho BiotechProds., L.P., 579 F.3d 13, 30–32 (1st Cir.2009) (reversing the district court’s dis-

missal of a False Claims Act complaintalleging that a drug manufacturer gavehealth care providers free product so thatthey could submit it for Medicare reim-bursement).

The Court hastens to add that, even ifthe Relator proves at trial that Amgen,along with INN & ASD, marketed Ara-nesp by encouraging providers to billMedicare for the drug’s overfill, the Defen-dants cannot be held liable unless theyacted knowingly in causing providers tosubmit false claims for payment. The De-fendants must have either known that itwas unlawful to seek Medicare reimburse-ment for overfill, even where administeredto the patient, or acted in deliberate igno-rance or reckless disregard of the truth orfalsity of this information. See 31 U.S.C.§ 3729(b); United States v. President &Fellows of Harvard Coll., 323 F.Supp.2d151, 189 (D.Mass.2004) (Woodlock, J.)(holding that innocent mistakes and negli-gence are not actionable under the FalseClaims Act). CMS, in its November 2010rulemaking, repeatedly stated that its deci-sion not to reimburse providers for overfillwas but an application of its longstandingpolicy to cover only those expenses thatproviders actually incur. See, e.g., 75 Fed.Reg. at 73469. At the same time, CMSissued the rule to ‘‘clarify’’ its approach tooverfill, suggesting there was some ambi-guity before the rule was announced. Inaddition, until the rule took effect on Janu-ary 1, 2011, CMS continued to pay claimsfor Medicare reimbursement irrespectiveof the inclusion of overfill.

23. The Relator acknowledges that CMS couldhave reached the same result by mandatingthat overfill is to be included in a drug’s ASPcalculation, in which case a manufacturer likeAmgen could have passed the cost of overfillonto the providers who, in turn, could havesought reimbursement for it. See Mem.Supp. Relator’s Mot. Partial Summ. J. Amgen

18. Because CMS elected to exclude overfillfrom the ASP calculation, Amgen’s ASP forAranesp was properly calculated, but thisdoes not exempt Amgen from liability if infact it improperly represented overfill as re-imbursable and promoted the reimbursementvalue of Aranesp’s overfill to providers.


Thus, liability in this case may turn onwhether CMS’s policy prohibiting reim-bursement for overfill was sufficientlyclear prior to the issuance of its November2010 rule, such that the Defendants’ mar-keting scheme, if proved, must have beenundertaken at least in reckless disregardof the policy. As a mixed question of lawand fact, it is for the jury to decide wheth-er it was unreasonable to expect that, giv-en the state of the law at the time, theDefendants could have known or recklesslydisregarded that overfill was not reimburs-able and that therefore marketing it assuch was unlawful. See President & Fel-lows of Harvard Coll., 323 F.Supp.2d at192; United States ex rel. Suter v. Nation-al Rehab Partners, Inc., Nos. CV–03–015–S–BLW, CV–03–128–S–BLW, 2009 WL3151099, at *9 (D.Idaho Sept. 29, 2009)(holding that the reasonableness of a de-fendant’s interpretation of a regulation is arelevant inquiry with respect to the knowl-edge requirement of the False Claims Act,while noting ‘‘[t]he scant case law on thisissue’’); United States v. Newport NewsShipbuilding, Inc., 276 F.Supp.2d 539, 564(E.D.Va.2003) (holding that ‘‘both the clari-ty of the regulation and the reasonablenessof a [defendant’s] interpretation’’ are ‘‘in-dicative of a reckless disregard’’); see alsoLoughren, 613 F.3d at 308 n. 10 (‘‘[M]ixedquestions of law and fact have typicallybeen resolved by juries.’’ (citing UnitedStates v. Gaudin, 515 U.S. 506, 512, 115

S.Ct. 2310, 132 L.Ed.2d 444 (1995))). Inmaking this determination, the jury prop-erly may consider that the Defendantswere obliged to take reasonable steps toensure their compliance with applicablestatutes and regulations and may not now‘‘hide[ ] behind a shield of self-imposedignorance.’’ United States v. Cabrera–Diaz, 106 F.Supp.2d 234, 238 (D.P.R.2000).If the Relator can show that the Defen-dants knew that CMS interpreted its regu-lations to exclude reimbursement for over-fill prior to November 2010 and that theDefendants’ marketing of Aranesp’s over-fill was inconsistent with the regulations asinterpreted by CMS, then ‘‘any possibleambiguity of the regulations is water un-der the bridge.’’ Minnesota Ass’n ofNurse Anesthetists v. Allina Health Sys.Corp., 276 F.3d 1032, 1053 (8th Cir.2002).

[8] On these cross-motions for partialsummary judgment, however, the issue be-fore the Court is simply whether Amgencorrectly calculated Aranesp’s ASP, and itdid. Because the ASP calculation does notinclude overfill and because Amgen fol-lowed this methodology in calculating Ara-nesp’s ASP, the Court need not addressthe Relator’s additional arguments thatAmgen had a legal duty to report its as-sumption that overfill was not included inthe ASP calculation and that Amgen failedto meet this duty.24 Even if Amgen failedto comply with a reporting obligation, such

24. For the proposition that drug manufactur-ers must identify any and all assumptionsmade in calculating a drug’s ASP, the Relatorcites a ‘‘question and answer’’ posted onCMS’s website. Mem. Supp. Relator’s Mot.Partial Summ. J. Amgen 9 n. 11 (citing CMSAnswers (published Sept. 16, 2004, updatedNov. 2, 2010)). It reads in full:

Can manufacturers make assumptions withrespect to a particular aspect of the AverageSales Price (ASP) calculation in the absenceof specific guidance in the Social Security Actor Federal regulations?

In the absence of specific guidance in theSocial Security Act or Federal regulations, themanufacturer may make reasonable assump-tions in its calculations of Average Sales Price(ASP), consistent with the general require-ments and the intent of the Social SecurityAct, Federal Regulations, and its customarybusiness practices. These assumptionsshould be submitted along with the ASP dataand the signed certification form.CMS Answers. The Relator is correct that,before November 2010, overfill was not ad-dressed in either the Medicare laws or regula-tions, such that, arguably, it was a matter


failure could not have resulted in an artifi-cially inflated ASP because CMS has con-firmed the validity of the ‘‘assumption’’that overfill is not a factor in the ASPcalculation. Furthermore, Amgen’s intentor knowledge in making its ASP calcula-tion is irrelevant because the ASP it sub-mitted to CMS each quarter was not erro-neous as matter of law. The Relator againmistakenly conflates the fraud Amgen al-legedly committed in urging providers toseek reimbursement for free overfill withan alleged, but unproven, impropriety inits ASP calculation. Having moved forsummary judgment only with respect toAmgen’s ASP calculation for Aranesp, theRelator’s motion is denied, and Amgen’smotion on this same matter is granted.25

IV. CROSS–MOTIONS FOR PARTIALSUMMARY JUDGMENT AS TOINN & ASD’S NINTH AFFIRMA-TIVE DEFENSE

A. Facts in the Light Most Favor-able to the Relator 26

INN purports to be a legitimate GPO.Relator’s Rule 56.1 Statement Facts Supp.

Mot. Partial Summ. J. INN & ASD (‘‘Rela-tor’s SOF INN & ASD’’) ¶ 1, ECF No.390. INN was established by Raj Mante-na, an entrepreneur, who started otherspecialty GPOs at that same time, includ-ing ION and IPN. Id. ¶ 4–5. Amerisour-ceBergen Corporation (‘‘ABC’’) acquired a100% interest in Mantena’s GPOs between2000 and 2003. Id. ¶ 6. In terms of ABC’scorporate structure, Mantena’s GPOs weregrouped with ASD under ABC’s subsid-iary, AmerisourceBergen Specialty Group(‘‘ABSG’’). Id. ¶ 7. INN was sometimesreferred to as ‘‘doing business as’’ theseother entities, particularly IPN, and some-times described as having its own corpo-rate structure. Id. ¶¶ 5, 14. Certain INNexecutive-level employees used email ad-dresses with the domain names ‘‘ionon-line.com’’ or ‘‘ipnonline.com.’’ Id. ¶ 9. Thesalaries paid to INN employees were de-ducted from the revenue of all of Mante-na’s GPOs. Id. ¶ 10.

ASD is a distributor of specialty phar-maceutical products. Relator’s Resp. INN& ASD’s Rule 56.1 Statement Facts Supp.

with respect to which drug manufacturerscould have made reasonable assumptions andshould have reported those assumptions toCMS.

As Amgen points out, however, whether itfailed to meet a reporting requirement withrespect to assumptions made in the ASP cal-culation is distinct from whether it actuallymiscalculated Aranesp’s ASP. Mem. Opp’nRelator’s Mot. Partial Summ. J. Amgen 15.Thus, the Court need not decide whether thissubregulatory, online ‘‘question and answer’’stating that providers ‘‘should’’ submit theirassumptions is sufficient to impose a legalreporting duty on drug manufacturers.

25. The Relator asks the Court to hold Amgenliable for the full amount paid by Medicarefor every claim for Aranesp submitted sinceJanuary 1, 2005, when ASP replaced AWP asthe basis for Medicare reimbursement. Mem.Supp. Relator’s Mot. Partial Summ. J. Amgen19 & n. 19. Because these claims were not

based on an artificially inflated ASP for Ara-nesp, and because Amgen’s liability otherwisehas not been established in the context ofthese cross-motions, there can be no damagescalculation at this time. Likewise, the propertheory for assessing damages in a pricing caseis irrelevant.

26. As required on motions for summary judg-ment, the factual summary presented hereconsists of undisputed facts as to which INN& ASD bear the burden of proof and disputedfacts in the light most favorable to Relator,the non-moving party. The Court is to reviewthe record as a whole, but ‘‘it must disregardall evidence favorable to the moving partythat the jury is not required to believe.’’Reeves v. Sanderson Plumbing Prods., Inc., 530U.S. 133, 151, 120 S.Ct. 2097, 147 L.Ed.2d105 (2000). Accordingly, the Court must dis-regard evidence in favor of INN & ASD—evenif uncontradicted—that the jury would be freeto disbelieve. See id.


Mot. Partial Summ. J. (‘‘Relator’s Resp.SOF INN & ASD’’) ¶ 2, ECF No. 439.ASD and INN formerly had an exclusivepartnership as distributor-GPO. Id. ¶ 2.INN’s Rule 30(b)(6) witness is actuallyemployed by ASD to oversee both thedistribution and group purchasing aspectsof INN’s business. Relator’s SOF INN &ASD ¶¶ 12, 14. INN and ASD share anaccounting department, and their financialreports are consolidated and reported toABSG as ‘‘ASD operations.’’ Id. ¶¶ 15–16.

Amgen is a therapeutics company in thebiotechnology industry that develops prod-ucts to treat kidney disease. Relator’sResp. SOF INN & ASD ¶ 3. In September2003, INN and Amgen signed a GPOagreement. Relator’s SOF INN & ASD¶ 18. At that time, Amgen was the onlymanufacturer with which INN dealt. Re-lator’s Resp. SOF INN & ASD ¶ 2. Almostall of INN’s revenue came from sellingAranesp. Id. Pursuant to the GPO agree-ment, INN also received an administrativefee from Amgen, fixed at 3% of all sales ofAranesp, except between April 1, 2004 andAugust 14, 2004, when it was set at 1% ofall sales plus 2% earned through growth ofINN members’ purchases of Aranesp, asmeasured by Aranesp’s increased captureof the market share, as compared to thecompetitor drug Procrit. Relator’s SOFINN & ASD ¶ 21.

INN was aware of its disclosure require-ment under the Anti–Kickback Statute toinform each of its members at least annu-ally of the amount of administrative fees itreceived from each vendor with respect topurchases made on the provider’s behalf.Id. ¶ 91. The reporting requirement wasincluded in INN’s agreements with itsmembers as well as its GPO agreementwith Amgen. Id. ¶ 92. INN has not pro-duced photocopies of these annual lettersas they were sent. Id. ¶ 95. It has pro-duced a set of twenty-six draft letters with

edits marked from 2003 as well as oneadditional form letter from 2008. Id.¶¶ 95–96. INN’s Rule 30(b)(6) witness tes-tified at deposition to his ‘‘understanding’’that the raw data regarding purchases wassent to an outside firm that completed amail merge and mailed the actual disclo-sure letters. Relator’s Resp. INN &ASD’s Supplemental Rule 56.1 StatementFacts Supp. Mot. Partial Summ. J.(‘‘Rela-tor’s Resp. Supp’l SOF INN & ASD’’), Ex.N (Deposition of William J. Venus) (‘‘Ve-nus Dep.’’) 77:18–24, ECF No. 455–14.The witness, however, had seen only asample letter prior to his deposition andcould not recall or was not aware of thedetails. Relator’s Resp. Supp’l SOF INN& ASD ¶ 38. INN has not produced evi-dence of this outside firm’s work on itsbehalf. Id. ¶ 41. INN also contends thatin more recent years the letters were sentby facsimile to its members, but INN hasnot produced evidence of these letters. Id.¶ 44.

Upon receiving the 3% administrativefee from Amgen, INN then passedthrough one-third of the fee (equal to 1%of all sales of Aranesp) to ASD. Relator’sSOF INN & ASD ¶ 23. This ‘‘passthrough’’ of the administrative fee fromAmgen to INN to ASD was part of theINN/ASD business model. Id. ¶¶ 23–24.INN did not disclose to its members orallyor in writing that it passed through aportion of the administrative fee from Am-gen to ASD. Id. ¶ 25. The ‘‘pass through’’of the administrative fee paid by Amgenrepresented all of the revenue that ASDreceived from INN. Id. ¶ 26. ASD alsoreceived money from Amgen in the form ofchargebacks, fee-for-service agreementfees, and service fees. Id. ¶ 27. Charge-backs represented the difference betweenASD’s wholesale acquisition cost of Ara-nesp and the price paid by INN’s mem-bers under the GPO agreement. Id. ¶ 28.Fee-for-service agreement fees were to


compensate ASD for distribution-relatedservices it provided, such as transmittingdata, managing inventory, processingchargebacks, and maintaining a certainnumber of filled orders. Id. ¶ 29. Ser-vices fees were paid by Amgen to ASDwhere a provider was given 120 days topay for the Aranesp purchased. Id. ¶ 30.

INN and ASD worked together to mar-ket and sell Aranesp to providers. Id.¶¶ 52–53. ASD informed INN of medicalpractices that were not members of INNbut were purchasing Aranesp or its com-petitor Procrit, and INN utilized this infor-mation to recruit the practices to join itsmembership. Id. ¶ 54. In addition, Am-gen provided INN with target lists ofhealth care providers whose business itsought to capture. Id. ¶ 56. INN thenreferred providers to ASD for the pur-chase of Aranesp and offered discounts onAranesp contingent on a commitment topurchase exclusively through ASD. Id.¶¶ 71–72. INN members who purchasedAranesp from ASD received additional dis-counts above the price documented in theGPO agreement between INN and Amgen.Id. ¶ 31. ASD was not required by itscontract with Amgen, however, to give dis-counts beyond the price negotiated by Am-gen and its customers. Relator’s Resp.Supp’l SOF INN & ASD ¶ 4.

Some of these discounts were funded bythe ‘‘pass through’’ of the administrativefee from Amgen to INN to ASD. Relator’sSOF INN & ASD ¶ 32. The discountsderived from the ‘‘pass through’’ varied inamount and were not offered uniformly toall INN members. Id. ¶ 33. ASD did notkeep records documenting how these dis-counts were calculated or applied. Id.¶ 34. ASD did not inform INN regularlyof the discounts INN’s members received,and INN did not request information re-garding ASD’s use of the ‘‘pass through.’’Id. ¶¶ 35–36. ASD’s standard invoice to

providers failed to specify the nature andamount of all discounts. Relator’s Resp.Supp’l SOF INN & ASD ¶ 3. The formerchief operating officer of ABSG expressedconcerns about the legality of the ‘‘passthrough’’ because it was a GPO adminis-trative fee not earned by ASD. Relator’sSOF INN & ASD ¶¶ 42–43. His employ-ment was summarily terminated twoweeks after he brought these concerns toABC’s chief executive officer. Id. ¶ 49.

When Amgen reduced the administra-tive fee from 3% to 1% in 2004, ASDstated that it could not afford to offeradditional discounts to INN members ifthe ‘‘pass through’’ was reduced, and itwas INN’s sales director who sharedASD’s position with Amgen. Id. ¶¶ 79–81.Amgen then reinstated the 3% administra-tive fee. Id. ¶ 83. In 2006, Amgen re-quired an amendment to its GPO agree-ment with INN that no portion of theadministrative fee would be passedthrough to ASD. Id. ¶ 84. ASD remainedable to offer additional discounts to INNmembers, however, because INN and ASDwere commonly owned by ABSG. Id. ¶ 85.

The Defendants all shared the samepurported policy against marketing thevalue of overfill. Id. ¶ 59. Amgen estab-lished the policy because it believed dis-cussing the potential profitability of over-fill with providers was illegal. Id. ¶ 60.After learning of Amgen’s policy, INNand ASD were instructed to follow thesame unwritten policy. Id. ¶ 61. Despitethe policy, the Defendants utilized finan-cial models comparing the acquisitioncost versus the reimbursement for Ara-nesp for providers. Id. ¶ 58. They gaveinformation to health care providersabout overfill in Aranesp vials, includingin comparison to Procrit vials. Id. ¶ 62.It was assumed that INN, as a purport-ed GPO, could ‘‘go where pharma cannotgo.’’ Id. ¶¶ 65–66. Accordingly, as mat-


ter of routine sales practice, INN direct-ed its strategic account managers(‘‘SAMs’’) to market Aranesp based onthe amount of overfill contained in thevials and to explain to providers thatMedicare reimbursement for overfillmade Aranesp a more profitable drugthan Procrit. Id. ¶ 63. Sales calls andpresentations were sometimes coordinat-ed such that Amgen representativeswould leave at the time that INN dis-cussed overfill with providers; at othertimes Amgen participated in the presen-tations. Id. ¶¶ 67–68, 70.

B. Facts in the Light Most Favor-able to INN & ASD

INN is a GPO specializing in the sup-port of community-based nephrology prac-tices. INN & ASD’s Rule 56.1 StatementFacts Supp. Mot. Partial Summ. J. (‘‘INN& ASD’s SOF’’) ¶ 1, ECF No. 382. GPOsallow for the efficient distribution of medi-cal devices, supplies, and drugs. INN &ASD’s Supplemental Rule 56.1 StatementFacts Supp. Mot. Partial Summ. J. (‘‘INN& ASD’s Supp’l SOF’’) ¶ 33, ECF No. 436.Consistent with the safe harbor provisionsof the Anti–Kickback Statute, a GPO mayreceive administrative fees from vendors,including pharmaceutical manufacturers.Id. ¶ 24. This compensation structure in-centivizes a GPO to sell to its membersmore of the vendors’ products in its portfo-lio. Id. ¶ 27. It is also not uncommon fora GPO to ‘‘pass through’’ a portion of theadministrative fees that it receives fromvendors to its members. Id. ¶ 28. In thisway, a GPO can provide more favorablepricing to its members. Id. As a purchas-ing agent for its members, a GPO willdiscuss with its members the economicconsequences of their purchases by layingout the relative costs and expenses of vari-ous products. Id. ¶¶ 29–30. From themembers’ perspective, the primary reasonto join a GPO is to take advantage of

economic benefits like better pricing ondevices, supplies, and drugs as well asservices like educational opportunities.INN & ASD’s SOF ¶ 21.

Mantena created INN as part of a net-work of specialty GPOs. Id. ¶¶ 39, 44, 49.ABC later acquired the entire network,including INN. Id. ¶ 52. In 2002, a yearafter INN was formed and before it wasacquired by ABC, Mantena approachedAmgen, the manufacturer of the drug Ara-nesp, about entering into a GPO agree-ment with INN. Id. ¶ 60. After an initialrejection and renewed pursuit by Mantena,the parties entered into a nonexclusiveGPO agreement for the sale of Aranesp inSeptember 2003. Id. ¶¶ 61–65, 67. Theagreement provided that INN would re-ceive an administrative fee from Amgen inthe amount of 3% of all Aranesp sales toINN’s members. Id. ¶ 68.

At the time it formed the GPO agree-ment with Amgen, INN already had 180members. Id. ¶ 66. INN disclosed to itsmembers in writing the 3% administrativefee it would be receiving from Amgen,although Amgen was not referred to byname. Id. ¶ 69. INN also informed itsmembers that it would disclose to them inwriting on an annual basis the amount itreceived in fees from each vendor for pur-chases made on their behalf. Id. For theyears 2003 to 2006, INN utilized an outsidefirm, Bulk Mailing and Addressing, Inc.(‘‘BMA’’), to send its members the annualdisclosure letters. INN & ASD’s Supp’lSOF ¶ 35. INN would prepare the temp-late for the letter and then send the ‘‘rawdata around the purchases’’ to BMA forcompletion of the mail merge and mailingof the letters. Id. ¶¶ 37–38. The recordincludes an email titled ‘‘IUN/IDN/INNMailer’’ from IPN’s contract manager,Brett Howery, to a BMA employee, Vin-cent Buscemi, purporting to send ‘‘letterspre-merged for the mailing’’ and including


an attachment, among others, called‘‘Merged INN 2003 Admin Fee Let-ter.doc.’’ INN & ASD’s Supp’l SOF, Ex. 12(Dec. 21, 2004 Email from Brett Howeryto Vincent Buscemi) (‘‘Howery Email’’),ECF No. 436–12; see INN & ASD’s Supp’lSOF, Ex. 13 (Dec. 28, 2004 Email fromVincent Buscemi to Brett Howery) (‘‘Bus-cemi Email’’), ECF No. 436–13. In hisdeclaration, BMA’s president, Paul Ort,identified a draft annual disclosure letteras an example of the type of mail it wouldmail on INN’s behalf on a regular basis.INN & ASD’s Supp’l SOF, Ex. 15 (Decla-ration of Paul W. Ort) (‘‘Ort Decl.’’) ¶ 7,ECF No. 436–15. A subpoena to produceBMA’s records related to its business withINN could not be served on BMA’s custo-dian of records, however, as BMA ap-peared to no longer operate at its location.INN & ASD’s Supp’l SOF ¶¶ 45–49. Forthe years 2007 and 2008, unidentified INNemployees supervised by INN’s managerof member services, Jennifer Russell, sentthe letters by facsimile. INN & ASD’sSupp’l SOF, Ex. 23 (Declaration of Jenni-fer Russell) (‘‘Russell Decl.’’) ¶¶ 3, 5–6,ECF No. 436–23. In 2009, unidentifiedINN employees supervised by Russell sentthe letters by regular mail. Id. ¶ 7.

ASD is INN’s preferred, but not itsonly, wholesaler. INN & ASD’s Supp’lSOF ¶ 12. As a wholesaler, ASD pur-chases products from pharmaceutical man-ufacturers at wholesaler acquisition cost(‘‘WAC’’). Id. ¶ 1. ASD then sells anddistributes the products to health care pro-viders, including pursuant to the terms setforth in the providers’ contracts withGPOs and manufacturers. Id. ¶ 2. ASDretains discretion to offer discounts in ad-dition to the terms of these contracts. Id.In fact, pursuant to most agreements be-tween manufacturers and wholesalers,wholesalers are required to provide addi-tional discounts to providers. Id. ¶ 4.ASD’s standard invoice informs providers

of that stated prices may include discounts,which providers are obligated to report.Id. ¶ 3. It reads:

Sales reflected on this invoice may in-clude price discounts or be subject tosubsequent reductions or adjustments inprice, which may be reflected on otherdocumentation. Buyer will comply withall applicable federal and state laws re-quiring it to report or reflect such dis-counts, reductions, or adjustments oncost reports or claims submitted to fed-eral or state healthcare programs orother third party payers, retain this in-voice and related pricing documentation,and make the invoice and such documen-tation available on request to federal orstate healthcare program or other thirdparty payer representatives.

Id. ASD reports to manufacturers the con-tract price and the number of units of theproduct sold and distributed by ASD. Id.¶ 5. The manufacturers then provide ASDwith a ‘‘chargeback,’’ or the difference be-tween the contract price and ASD’s acqui-sition cost. Id.

ASD entered into a wholesaler distribu-tion agreement with Amgen in accordancewith these customary practices. Id. ¶ 6.ASD purchases Aranesp, among otherproducts, from Amgen and sells it to ne-phrology practices based on the providers’contracts with Amgen, while retaining dis-cretion to offer additional discounts. Id.¶ 7. Maintaining a record of discounts giv-en to providers, ASD then reports its salesand prices to Amgen, which in turn paysASD chargebacks. Id. ¶¶ 8–10. ASD hasits own sales team. Id. ¶ 14.

From 2007 to 2010, INN and ASDshared an accounting department and con-solidated their financial reports. Id. ¶ 21.INN’s SAMs directed providers to ASD’sinternal sales team to establish new ac-counts and manage the logistics of order-


ing portfolio products like Aranesp. Id.¶ 16. INN then passed through one-thirdof the administrative fee it received fromAmgen to ASD as a way to reimburseASD for certain pricing discounts ASDprovided to INN’s members and for per-forming certain distribution services relat-ed to INN’s GPO agreement with Amgen.INN & ASD’s SOF ¶ 73. INN passedthrough portions of the administrative feesit received from vendors other than Am-gen to ASD as well. Id. ¶ 75. Further-more, ASD offered INN members addi-tional discounts based on their purchasevolume and payment terms that were notfunded by the ‘‘pass through’’ of the ad-ministrative fee from Amgen to INN toASD. INN & ASD’s Resp. Relator’s Rule56.1 Statement Facts Supp. Mot. PartialSumm. J. (‘‘INN & ASD’s Resp. SOF’’)¶ 39, ECF No. 435. In 2006, however,INN and Amgen amended their GPOagreement to prohibit the ‘‘pass through’’of a portion the administrative fee to ASD.INN & ASD’s SOF ¶ 76. At that time,INN ceased paying the ‘‘pass through’’ toASD. Id. ¶ 77.

INN discussed with providers the ‘‘eco-nomics’’ of their purchasing decisions, in-cluding how to maximize profit. Id. ¶¶ 83–84. INN utilized financial spreadsheetsthat illustrated the acquisition costs of cer-tain drugs versus their reimbursementcosts. Id. ¶ 84. The recruitment of ne-phrology practices to INN by INN’sSAMs included a discussion of this eco-nomic calculus. Id. ¶ 85. The SAMs be-lieved that they were operating under theGPO safe harbor of the Anti–KickbackStatute when they had these discussionswith providers. Id. ¶¶ 86–89, 91.

INN’s members raised questions withINN’s SAMs about the amount of overfillin Aranesp vials. Id. ¶ 100. Amgen pro-vided information to INN’s SAMs aboutthis overfill. Id. ¶ 101. INN developed a

policy that SAMs were not to initiate com-munication with providers about overfillbut could answer questions and clarify theamount of overfill in the vials. Id. ¶ 102.INN believes that the use of overfill isultimately a clinical decision. Id. ¶ 103.Similar but distinct from INN’s policy,ASD’s approach to overfill was not to raisethe issue with providers and to refer pro-viders directly to Amgen if questionsarose. INN & ASD’s Supp’l SOF ¶ 23.

C. Standard of Review

Summary judgment is proper where‘‘there is no genuine dispute as to anymaterial fact and the movant is entitled tojudgment as a matter of law.’’ Fed.R.Civ.P. 56(a). An issue of fact is ‘‘genu-ine’’ if there exists a sufficient evidentiarybasis on which the trier of fact could findfor the non-moving party. Anderson, 477U.S. at 248, 106 S.Ct. 2505. A fact is‘‘material’’ if it will affect the outcome ofthe case under the applicable law. Id. Themoving party bears the burden of showingthat no genuine issue of material fact ex-ists. Celotex Corp., 477 U.S. at 323, 106S.Ct. 2548. ‘‘The evidence of the non-movant is to be believed, and all justifiableinferences are to be drawn in his favor.’’Anderson, 477 U.S. at 255, 106 S.Ct. 2505.Save as to facts admitted by both parties,the court must disregard all evidence—even if unopposed—which the jury is freeto reject, i.e., all evidence upon which aparty bears the burden of proof. Reeves,530 U.S. at 151, 120 S.Ct. 2097. Thus,summary judgment may be granted whena fair-minded jury could reach only oneconclusion: in favor of the moving party.

D. Analysis

1. INN and the GPO Safe Harborof the Anti–Kickback Statute

INN does not dispute that it discussedwith providers the ‘‘economics’’ of their


purchasing decisions, including how tomaximize profit, by comparing the acquisi-tion costs of certain drugs with their reim-bursement costs. INN argues, however,that it was operating under the GPO safeharbor of the Anti–Kickback Statute, suchthat it is exempt from liability for any falseclaims for overfill submitted by providersin this case. See Mem. Supp. INN &ASD’s Mot. Partial Summ. J. 8–9. TheRelator disputes that INN meets the strictrequirements for safe harbor protectionset forth in the federal statute and regula-tions. First, she argues that INN hasfailed to prove that it mailed annually let-ters disclosing the administrative fees itreceived from vendors, see Mem. Supp.Relator’s Mot. Partial Summ. J. INN &ASD 6–7, and, second, she contends that,even if INN did follow this disclosure re-quirement, the close relationships that itmaintained with Amgen and ASD are soinconsistent with the congressional intentin creating the GPO safe harbor as tomake it inapplicable to INN, see id. at 8–9.

The GPO exception to the Anti–Kick-back Statute is ‘‘designed to apply to pay-ments from vendors to entities authorizedto act as a GPO for individuals or entitieswho are furnishing Medicare or Medicaidservices.’’ 56 Fed.Reg. at 35953. Theterm ‘‘group purchasing organization’’ isdefined by federal regulations as an ‘‘enti-ty authorized to act as a purchasing agentfor a group of individuals or entities whoare furnishing services for which paymentmay be made in whole or in part underMedicare, Medicaid or other Federalhealth care programs.’’ 42 C.F.R.§ 1001.952(j)(2). For the safe harbor pro-tection to apply, the entities on whosebehalf the GPO acts must be neither whol-ly owned by the GPO nor subsidiaries of aparent company that owns the GPO,whether directly or through another whol-ly-owned entity. Id. There also must be awritten agreement between the GPO and

each entity specifying the fee that vendors,like pharmaceutical companies, will paythe GPO. Id. § 1001.952(j)(1). The stan-dard fee that GPOs may receive is 3% orless of the purchase price of the goods orservices, but the parties may set the fee ata higher amount, provided they so specifyin their agreement. Id. § 1001.952(j)(1)(i)-(ii). Where the entity who is receiving thegoods or services from the vendor is ahealth care provider, the GPO must dis-close in writing to the provider annuallythe amount it received in fees from eachvendor with respect to purchases made onthe provider’s behalf. Id. § 1001.952(j)(2).

Here, INN properly entered into a writ-ten agreement with each of its members.In these agreements, INN stated that itwould disclose in writing to each memberannually the amount it received in feesfrom each vendor for purchases made onthe member’s behalf. Thus, the sole dis-pute with respect to INN’s compliancewith the safe harbor requirements con-cerns whether the annual disclosure letterswere in fact mailed.

[9] Under the well-settled ‘‘mailboxrule’’ recognized at ‘‘federal common law,’’‘‘the proper and timely mailing of a docu-ment raises a rebuttable presumption thatthe document has been received by theaddressee in the usual time.’’ Hoefs v.CACV of Colorado, LLC, 365 F.Supp.2d 69,72–73 (D.Mass.2005) (adopting the Reportand Recommendation of Neiman, M.J.)(quoting Schikore v. BankAmerica Supple-mental Ret. Plan, 269 F.3d 956, 961 (9thCir.2001)). ‘‘[E]ven in the context of regu-lar mail, a presumption of receipt is properso long as the record establishes that thenotice was accurately addressed andmailed in accordance with normal officeprocedures.’’ Lopes v. Gonzales, 468 F.3d81, 85 (2d Cir.2006). On these cross-mo-tions for summary judgment, however, the


issue is not whether the annual disclosureletters actually were received by INNmembers, but rather whether INN mailedthem as required by the GPO safe harborprovisions. ‘‘Since the focus here is ononly whether notice was mailed, the mail-box rule does not operate in this context.’’Custer v. Murphy Oil USA, Inc., 503 F.3d415, 419 (5th Cir.2007).

[10, 11] The mailbox rule remains‘‘germane,’’ however, because ‘‘[a] thresh-old question for the application of the mail-box rule is whether there is sufficient evi-dence that the letter was actually mailed.’’Id. ‘‘[T]estimony by someone familiar withcompany procedures and practices that theletter was sent,’’ together with corroborat-ing evidence that the company proceduresand practices were followed in that partic-ular instance, is sufficient to establishproof of mailing. Davis v. U.S. Bancorp,383 F.3d 761, 766 (8th Cir.2004); see Unit-ed States v. Ekong, 518 F.3d 285, 287 (5thCir.2007) (‘‘A sworn statement is credibleevidence of mailing for the purposes of themailbox rule.’’ (quoting Custer, 503 F.3d at420)). Generally, evidence of non-receiptis insufficient to rebut the presumption ofreceipt under the mailbox rule, but it doespresent a triable question of fact whetherthe letter was properly sent. See In reSchepps Food Stores, Inc., 152 B.R. 136,139–40 (Bankr.S.D.Tex.1993); see also Inre Yoder Co., 758 F.2d 1114, 1117 (6thCir.1985) (‘‘Testimony of non-receipt is evi-dence that the notice was not mailed.’’).

[12] The summary judgment recordcontains no direct proof that the annualdisclosure letters were mailed, such as cop-ies of the letters as sent, postmarked en-velopes, certified mail receipts, or facsimilerecords. See Custer, 503 F.3d at 419–20.Instead, the circumstantial evidence pro-duced by INN consists of a set of twenty-six draft disclosure letters from 2003;templates for other years; testimony by

INN’s Rule 30(b)(6) witness that it wasINN’s custom to send ‘‘the raw dataaround the purchases’’ to BMA for comple-tion of a mail merge and actual mailing ofthe letters; an email from Brett Lowery,IPN’s contract manager, to BMA employ-ee Vincent Buscemi transmitting the 2003letter ‘‘premerged for the mailing;’’ a dec-laration by Paul Ort, BMA’s president,that INN was BMA’s client from 2003 to2006 and that BMA regularly completedmail merges and mailed pieces of mail likethe disclosure letter on INN’s behalf; anda declaration by Jennifer Russell, INN’smanager of member services, that employ-ees whom she supervised sent the lettersby facsimile for the years 2007 and 2008and by regular mail for the year 2009.This evidence establishes that INN had aroutine procedure in place for mailing theannual disclosure letters, although itchanged over time. The email from Low-ery to Buscemi sending the 2003 disclosureletter to be mail-merged and printed andRussell’s declaration stating that she su-pervised the mailings for years 2007 to2009 provide some corroboration that theprocedure in place at the time was fol-lowed.

The Relator argues that, where INNhas been in continual operation since 2001and started out with 180 members, a set oftwenty-six draft letters from 2003 andsample letters from other years fall shortof the evidentiary showing required toprove INN is a legitimate GPO entitled toclaim the safe harbor protection. SeeMem. Supp. Relator’s Mot. Partial Summ.J. INN & ASD 6; Reply Mem. Supp.Relator’s Mot. Partial Summ. J. INN &ASD 2–5. Furthermore, she contends thatOrt’s declaration is unsubstantiated, par-ticularly where a subpoena could not beserved on BMA’s custodian of records be-cause BMA appeared to have ceased busi-ness operations at its location. Reply


Mem. Supp. Relator’s Mot. Partial Summ.J. INN & ASD 5–6. Also, in response toLowery’s email attaching the 2003 letter,Buscemi sent an email stating that theletters were missing signatures and thatthe addresses to which the letters were tobe mailed were incomplete. See BuscemiEmail; Reply Mem. Supp. Relator’s Mot.Partial Summ. J. INN & ASD 4. There isno evidence in the record that Lowery orany other INN employee corrected theseproblems identified by Buscemi so that theletters could be mailed. Finally, the Rela-tor contends that, if INN employees su-pervised by Russell in fact had sent theletters by facsimile or regular mail in morerecent years, one would assume that copiesor records would have been kept in INN’sfiles, and yet Jennifer Russell’s rather cur-sory and non-specific declaration is theonly evidence of their mailing that INNhas adduced. See Tr. Summ. J. Mots.12:24–25, 13:1; Reply Mem. Supp. Rela-tor’s Mot. Partial Summ. J. INN & ASD9–11.

Because INN bears the burden of proofon its affirmative defense that it is protect-ed by the GPO safe harbor of the Anti–Kickback Statute, the Court must disre-gard all of its evidence in its favor, even ifuncontradicted, that the jury would be freeto disbelieve. The Relator has made noadmission material to whether INN hasmet the safe harbor disclosure require-ments. This leaves only the undisputedfacts, which are that INN acknowledgedits duty to disclose in its agreements withmembers and that the some draft andtemplate fee disclosure letters do exist.The inference to be drawn from thesefacts, if any, as to whether INN compliedwith its obligation to send annual disclo-sure letters to its members must be re-served for the jury. For this reason, theCourt denies the partial summary judg-ment motions of both parties. Further-more, while the Relator’s memorandum ef-

fectively pokes holes in the sufficiency ofINN’s evidence, she has not produced evi-dence that providers did not receive thedisclosure letters, and even if her eviden-tiary presentation could be viewed as de-monstrative of non-receipt, this would sim-ply raise a question of fact, not warrantsummary judgment.

Assuming that at trial INN could proveby a fair preponderance of the evidencethat it strictly complied with the annualdisclosure letter requirement, the Relatorargues that INN still cannot assert theGPO safe harbor as an affirmative defensebecause, by allegedly conspiring with Am-gen and ASD to sell as much Aranesp aspossible through marketing the Medicarereimbursement value of overfill, INN vio-lated the fiduciary duty that it owed itsmembers as their purchasing agent. Asmatter of law, the Court agrees with theRelator’s position that statutory and regu-latory compliance alone cannot absolveINN of liability under the False ClaimsAct if the relationship between the Defen-dants is shown to have revolved around amarketing scheme intended to induce pro-viders to bill Medicare for the value ofAranesp’s overfill, where the Defendantseither knew, deliberately ignored, or actedin reckless disregard of CMS’s policy thatoverfill is not reimbursable. But, this con-clusion is rooted not in principles of agencylaw, as the Relator suggests, although theytoo may lend support for it.

Regardless whether INN is protectedby the Anti–Kickback Statute safe harbor,this Court is aware of no legal precedent,binding or persuasive, holding that a legiti-mate GPO cannot be held liable for caus-ing providers to submit false claims forgovernment payment. The GPO safe har-bor exists to exclude the ‘‘payment prac-tice[ ]’’ of vendors paying GPOs adminis-trative fees as part of an agreement tofurnish goods or services to health care


providers and other entities from beingtreated as an ‘‘illegal remuneration’’ underthe Anti–Kickback Statute. 42 C.F.R.§ 1001.952(j); see 42 U.S.C. § 1320a–7b(b)(3) (providing that the definition of‘‘illegal remuneration’’ ‘‘shall not apply toTTT any amount paid by a vendor of goodsor services to a person authorized to act asa purchasing agent for a group of individu-als or entities who are furnishing servicesreimbursed under a Federal health careprogram’’). Nowhere in the statute orregulations is it suggested that a GPO,solely by virtue of being a GPO, may en-gage in activities that would otherwisesubject it to criminal or civil liability.

Thus, even if the Relator could showthat INN breached its fiduciary duty to itsmembers, or that Amgen paid INN theadministrative fee for an improper pur-pose, see Bay State Ambulance, 874 F.2dat 29; Shaw, 106 F.Supp.2d at 121, or thatthis administrative fee was not a ‘‘bonafide service fee’’ because it improperly waspassed through to ASD and providers inthe form of discounts, see 42 C.F.R.§ 414.802, it would be of no consequence inadjudicating the False Claims Act issues.INN’s potential liability under the FalseClaims Act is independent of any claim ofexemption from liability that it may haveunder the Anti–Kickback Statute for itsreceipt of the administrative fee from Am-gen. Furthermore, even if the Court as-sumes the truth of INN’s contention that,as a purchasing agent, it lawfully coulddiscuss the ‘‘economics’’ of different drugswith providers, this was not a license for itknowingly to urge providers to bill Medi-care for expenses they did not incur.

2. ASD and the Discount Safe Harborof the Anti–Kickback Statute

The parties agree that at least up until2006 one-third of the 3% administrative feethat Amgen paid to INN was passedthrough to ASD. ASD concedes that, pur-

suant to its agreement with Amgen, itretained discretion to give discounts toproviders buying Aranesp and that it uti-lized the ‘‘pass through’’ of the administra-tive fee to provide such discounts. ASDargues that in so doing it was protected bythe discount safe harbor of the Anti–Kick-back Statute. Mem. Opp’n Relator’s Mot.Partial Summ. J. 13–15. The Relator, in afootnote only, argues that ASD may notrely on this safe harbor because ‘‘the un-disputed evidence shows that ASD did notkeep records sufficient to show any man-ner by which Aranesp discounts were allo-cated and funded.’’ Mem. Supp. Mot. Par-tial Summ. J. INN & ASD 9 n. 6. Sheprimarily focuses, however, on the ‘‘passthrough’’ of the administrative fee fromAmgen to INN to ASD to providers in theform of discounts as improper under feder-al regulations. Id. 8–9.

The discount safe harbor is ‘‘intended toencourage price competition that benefitsthe Medicare and Medicaid programs.’’ 56Fed.Reg. at 35953. ‘‘[L]imited in applica-tion to reductions in the amount a sellercharges for a good or service to the buy-er,’’ a discount may ‘‘take the form of aspecified price break, or the inclusion of anextra quantity of the item purchased ‘at noextra charge.’ ’’ Id. (‘‘The remuneration ina discount is merely a lowered price that apurchaser would obtain from a seller,which is made as an inducement to pur-chase larger quantities.’’). It does not‘‘protect many kinds of marketing incen-tive programs such as cash rebates, freegoods or services, redeemable coupons, orcredits.’’ Id. To qualify as a discount, thereduction in the amount a buyer is chargedby the seller must be ‘‘based on an arms-length transaction,’’ 42 C.F.R.§ 1001.952(h)(5), and ‘‘not [made] througha joint-venture or collusive contract,’’Shaw, 106 F.Supp.2d at 116 (citing 56 Fed.Reg. at 35977). Furthermore, the seller


must comply with disclosure requirementsby ‘‘fully and accurately report[ing] suchdiscount on the invoice, coupon or state-ment submitted to the buyer,’’ 42 C.F.R.§ 1001.952(h)(2)(ii)(A); id.§ 1001.952(h)(2)(iii)(B), and ‘‘the value ofthe discount must be accurately reflectedin the actual purchase price,’’ 64 Fed.Reg.at 63527.

The Court need not address in depthASD’s argument that its provision of dis-counts to providers, funded in part by the‘‘pass through’’ of the administrative fee,was covered by the discount safe harbor ofthe Anti–Kickback Statute. For the samereason that it is ultimately immaterialwhether INN is a legitimate GPO becausethis alone does not immunize it from FalseClaims Act liability, ASD’s claim of safeharbor protection for the ‘‘pass through’’-funded discounts given to providers has nobearing on whether ASD independently oras part of a conspiracy with the otherDefendants encouraged the submission ofclaims for reimbursement for overfill inviolation of the False Claims Act.

Turning to the Relator’s argument withrespect to the ‘‘pass through’’ of the ad-ministrative fee, an administrative fee paidby a vendor, like Amgen, to a GPO, likeINN, is bona fide service fee, so long as itis ‘‘not passed on in whole or in part to aclient or customer of an entity, whether ornot the entity takes title to the drug.’’ 42C.F.R. § 414.802. Federal regulations es-tablish that ‘‘bona fide service fees are notconsidered price concessions’’ for purposesof calculating a drug’s ASP. Id. § 414.804.

[13] The Relator originally had allegedthat, because the administrative fee paidby Amgen to INN was then passedthrough to ASD and providers in the formof discounts, this fee should have been, butwas not, deducted from Aranesp’s ASPcalculation. The Court dismissed thisclaim under the False Claims Act’s first-

to-file bar, 31 U.S.C. § 3730(b)(5). SeeAmgen, 707 F.Supp.2d at 131. Withoutretreating from that ruling, the Court doesnot preclude the possibility that, at trial,evidence of the administrative fee beingpassed through yet not deducted accord-ingly from Aranesp’s ASP may be admissi-ble for the limited purpose of showing thenature of the relationship between the De-fendants. There remains a genuine dis-pute of fact as to whether ASD conspiredwith Amgen and INN to defraud the fed-eral government by causing providers toseek reimbursement for free overfill. Re-latedly, on this summary judgment record,whether ASD actively marketed overfill toproviders is a question for the jury.

V. CONCLUSION

For the reasons stated above, the Courtannounced its rulings orally at the motionhearings [ECF Nos. 440, 463] and by sub-sequent written Order [ECF No. 481]:

1 DENYING the Defendants’ Motionfor Partial Judgment on the Pleadings[ECF No. 367];

1 DENYING the Relator’s Motion forPartial Summary Judgment that AmgenArtificially Inflated the Average SalesPrice of Aranesp [ECF No. 383];

1 ALLOWING Amgen’s Motion for Par-tial Summary Judgment [ECF No. 376] asto Count IV of the Relator’s FourthAmended Complaint insofar as it allegesthat Amgen artificially inflated the Aver-age Sales Price of Aranesp;

1 DENYING Amgen’s Motion for Par-tial Summary Judgment [ECF No. 376] asto the allegations within Count IV of theRelator’s Fourth Amended Complaint thatAmgen caused health care providers tosubmit false or fraudulent claims for gov-ernment payment in violation of the FalseClaims Act, and as to all other counts ofthe Relator’s Fourth Amended Complaint;

83BACHORZ v. MILLER–FORSLUNDCite as 812 F.Supp.2d 83 (D.Mass. 2011)

1 DENYING the Relator’s Motion forPartial Summary Judgment as to INN &ASD’s Ninth Affirmative Defense [ECFNo. 384];

1 DENYING INN & ASD’s Motion forPartial Summary Judgment [ECF No.379].

,

Gary J. BACHORZ and CarmeloA. Scuderi, Plaintiffs

v.

Shauna MILLER–FORSLUND, Ex-ecutrix of the Estate of Nairn

L. Miller, Defendant.

C.A. No. 09–cv–30132–MAP.

United States District Court,D. Massachusetts.

Sept. 22, 2011.

Background: Commercial tenant broughtaction against executrix of deceased land-lord’s estate, seeking specific performanceof an option to purchase leased property.Executrix filed counterclaims for breach ofcontract and declaratory judgment, andparties cross-moved for summary judg-ment.

Holdings: The District Court, Ponsor,Senior District Judge, held that:

(1) landlord waived his right under leaseto demand written consent before ten-ant could sublet premises, and

(2) landlord’s waiver also waived conditionprecedent in lease’s option to purchase.

Ordered accordingly.

1. Landlord and Tenant O76(3)Under Massachusetts law, commercial

landlord waived his right under lease todemand written consent before tenantcould sublet premises, even though leasecontained an anti-waiver clause, by allow-ing tenant’s auto business, which was tech-nically a subtenant, to operate on premiseswithout prior written consent, by continu-ing to accept tenant’s rent payments de-spite knowing of tenant’s violation of lease,and by expressly acknowledging and ac-cepting tenant’s violation in an effort toinduce tenant to deal with roof of buildingon premises.

2. Estoppel O52.10(2, 3)Under Massachusetts law, waiver is

the intentional relinquishment of a knownright and can be either express or implied.

3. Estoppel O52.10(3)Under Massachusetts law, waiver may

be inferred from a party’s conduct wherethe conduct is consistent with and indica-tive of an intent to relinquish voluntarily aparticular right such that no other reason-able explanation of the conduct is possible.

4. Estoppel O52.10(3)Where waiver is not explicit, it must

be premised on clear, decisive and un-equivocal conduct under Massachusettslaw.

5. Landlord and Tenant O76(3), 92(1)Under Massachusetts law, commercial

landlord’s waiver of his right under leaseto demand written consent before tenantcould sublet premises also waived condi-tion precedent in lease’s option to purchasepremises requiring that tenant not be indefault; landlord explicitly contemplatedoption to purchase when he acknowledgedand accepted tenant’s violation of lease’swritten consent requirement in an effort toinduce tenant to deal with roof of buildingon premises.

u.s. ex rel. westmoreland v. amgen, inc....

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