The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA, ef al., )
ex rel. CHRISTOPHER PIACENTILE, )
) No. 1:14-cv-3988
V. )
)
SNAP DIAGNOSTICS, LLC, e7 al., ) Hon. Charles R. Norgle
)
Defendants. )
OPINION
On May 29, 2014, Plaintiff Christopher Piacentile (“Plaintiff”) filed his complaint, on
behalf of the United States of America and California, Colorado, Connecticut, Delaware, Florida,
Georgia, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island,
Tennessee, Texas, Virginia, Washington, Wisconsin, and the District of Columbia, pursuant to
the gui tam provisions of the False Claims Act, as codified by 31 U.S.C. § 3730(b)(2). Plaintiff's
complaint alleges that Defendants Snap Diagnostics LLC (“Snap”), Gil Raviv, Ph.D. (“Raviv”),
Stephen Burton, (“Burton”), Leslie Gardea (“Gardea”), Apria Healthcare Group, Inc., Lincare
Holdings, Inc., DME Does, Physician Does (collectively, “Defendants”) were involved in a
scheme to, inter alia, defraud the United States through the filing of false and fraudulent
Medicare and Medicaid claims.
Following a years long investigation into Plaintiff's allegations, the United States filed its
Complaint in Intervention of the United States of America (the “Complaint”) on December 18,
2017. The civil Complaint alleges: Defendants filed false claims with Medicate for payments of
federal funds, Count I; made false statements to agents of the United States in connection with
their claims for payment of federal funds, Count II; and paid illegal kickbacks, bribes, or rebates
to treating physicians and independent sales representatives to induce patient referrals, Count ITI,
in violation of the False Claims Act, as codified at 31 U.S.C. § 3729. Before the Court is
Defendants’ motion to dismiss the Government’s Complaint. For the following reasons, the
motion is denied.
BACKGROUND
Snap is a provider of home sleep diagnostic testing. Their product, in conjunction with
an evaluation by a medical professional, is used in the diagnosis of Obstructive Sleep Apnea
(“Sleep Apnea”). Snap, following a physician’s order and referral, would ship a proprietary
Type 3! sleep machine to the patient who would be trained by a Territory Manager, the referring
physician, or a member of his staff on the machines use. After the taking the test, the patient or
physician would return the data cartridge(s) to Snap for analysis. Snap would then analyze and
process the data, interpret the results, and generate a report for the referring physician.
The Scheme
In an effort to drive up profits, Defendants orchestrated a scheme where they would
deploy their product and conduct multiple nights of Sleep Apnea tests—where only one night
was required. Moreover, Defendants allowed the prescribing physicians to bill their patient’s
insurance a carrier for the professional components of the tests, necessary and unnecessary.
False Claims
Founded in 1994, Snap provides home sleep tests to individuals to diagnose Sleep Apnea.
In 2009, following lobbying from Raviv, Medicare began to cover the cost of home sleep tests
for the diagnosis of Sleep Apnea. In a letter Raviv sent to Medicare, he indicated that it was
' “Home sleep monitors are typically classified into three categories: (i) Type 2, a full unattended
polysomnography device with seven or greater channels for collecting sleep data; (ii) Type 3, a limited channel
device (with between four and seven channels); and (iii) Type 4, a one- or two-channel device, usually using
oximetry (a measurement of oxygen in the blood) as one of the parameters.” Compl. In Intervention of the United
States of America, § 23.
routine practice for patients to undergo only a single night of home sleep testing to diagnose
Sleep Apnea. Indeed, Snap’s promotional documents aver that a diagnosis can almost always be
made in a single session. Compl. In Intervention of the United States of America [hereinafter,
“Compl.”], § 71. However, the Complaint alleges that in an effort to drive up profits Snap began
conducting two nights of testing per patient—allowing them to bill the patient and the patients
insurance twice. Compl. | 80-82.
Snap’s new procedure of analyzing both nights of data was not a blanket policy. Instead
Snap’s procedure was to analyze and bill for both nights of testing, only when the patient was
either covered by Medicare or self-pay. The decision to analyze and bill both nights of data was
not based on a clinical determination of the specific patient’s needs—i.e. whether multiple nights
of testing were medically necessary. The Complaint alleges that since October 2010, Snap has
and continues to analyze and bill two or more data sets to Medicare while analyzing only a single
night’s test when a patient has private insurance. Compl. § 87.
Burton herself stated: “For the vast majority of patients releasing all three nights would
not provide any more clinical value than one night... Sometimes there are important differences
that force the release of multiple reports. Yet, often there is no value to releasing multiple nights
as the data are consistent. It would simply cost more.” Compl. § 111. The Complaint provides
six examples of patients who were double billed (individually and to Medicare) for multiple
nights of unnecessary and duplicative testing. Compl. J 114-119.
Kickbacks
The Complaint alleges that the most egregious violation of the anti-kickback provision of
the False Claims Act was Snap’s “offering and encouraging referring physicians to bill for the
professional component” of the test, although SNAP physicians were performing the professional
component.” Compl. § 122. The Complaint further alleges that Territory Managers would
highlight the opportunity to bill private insurers for the professional component of the test
because typically private insurers would not have educational or certification requirements for
evaluating home sleep tests. The Complaint details conversations and correspondence between
the individual defendants discussing this business model and the anticipated increase in volume
of physician referrals.
The Complaint also alleges that the Defendants’ false claims were driven, at least in part,
by the inducements and commissions paid to their Territory Managers. The Complaint is replete
with allegations that Raviv and Defendants constructed a sales program that encouraged
Territory Managers to push medically unnecessary procedures to generate commissions and win
“challenges” where they would be rewarded for clients completing additional nights of testing.
The Complaint argues that because Territory Managers were paid on a per-test basis and were
encouraging the filing of false claims, all of the Medicare Payments made to Snap were paid as
the result of false claims.
Lastly, the complaint alleges that Snap provided free or no-copay tests to referring
physicians, their families, and key staff members in an effort to induce patient referrals. These
tests and services rendered by Snap were internally valued in excess of $1,000.00 per test. The
Government alleges that these inducements, like the commissions and kickbacks paid to other
actors, promoted referrals and encouraged prescriptions for medically unnecessary tests.
Diagnostic tests are separated into two components: technical and professional. For a home sleep test, providing
the recorder, analyzing the data, and generating a report to be reviewed by a physician constitute the “technical
component” of the test, while physician review and interpretation of the report constitute the “professional
component.” Defs. Snap Diagnostics, LLC, Gil Raviv, and Stephen Burton’s Mem. Of L. in Supp. of their Mot. To
Dismiss [hereinafter, “Motion to Dismiss”], 2.
ANALYSIS
Standard Of Decision
A motion under Rule 12(b)(6) tests the sufficiency of the complaint under the plausibility
standard, Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007), not the merits of the
suit. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). “[A]
plaintiff's claim need not be probable, only plausible: ‘a well-pleaded complaint may proceed
even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery
is very remote and unlikely.”” Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930,
935 (7th Cir. 2012) (quoting Twombly, 550 U.S. at 556). “*A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.’ To rise above the ‘speculative level’ of
plausibility, the complaint must make more than ‘[t]hreadbare recitals of the elements of a cause
of action, supported by mere conclusory statements.” Oakland Police & Fire Ret. Sys. v. Mayer
Brown, LLP, 861 F.3d 644, 649 (7th Cir. 2017) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). In deciding a Rule 12(b)(6) motion, the Court accepts as true all well-pleaded facts in a
plaintiff's complaint, and draws all reasonable inferences in his favor. Burke v. 401 N. Wabash
Venture, LLC, 714 F.3d 501, 504 (7th Cir. 2013) (citations omitted). “[A] a plaintiff is not
required to plead facts in the complaint to anticipate and defeat affirmative defenses. But when a
plaintiff's complaint nonetheless sets out all of the elements of an affirmative defense, dismissal
under Rule 12(b)(6) is appropriate.” Indep. Trust Corp., 665 F.3d at 935.
Defendants Argue that the Complaint Fails to Allege an Objective Falsity
In their motion, Defendants make a number of arguments. The first is that the Complaint
fails to allege an objective falsity. Defendants argue that “[a] claim is not objectively false when
reasonable persons can read the government’s guidance and disagree about whether the service
was properly billed to the government.” Motion to Dismiss, 7 (citing United States ex rel.
Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir. 1999)). Defendants continue to
argue that: (1) they relied on a reasonable interpretation of vague language in the Centers for
Medicare & Medicaid Services National Coverage Determination for Sleep Testing for
Obstructive Sleep Apnea (“Medicare Guidance”); (2) a disagreement about whether a test is
medically necessary fails to satisfy the objective falsity required by the False Claims Act; and (3)
that the Government failed to meet the heightened pleading standard of Rule 9(b)—“[t]he
absence of allegations addressing why the claims were medical unnecessary mandates the
Complaint be dismissed.” Motion to Dismiss, 13.
Defendants’ arguments about a reasonable interpretation of the Medicare Guidance and
disagreements about medical necessity are inappropriate at this stage of litigation. Each of these
arguments asks the Court to make a factual determination at the motion to dismiss stage, which
the Court cannot do. A motion to dismiss pursuant to 12(b)(6) looks only to weather the
complaint satisfies the plausibility standard, not the merits of the suit. Gibson, 910 F.2d at 1520.
Here, Defendants ask the Court to make a factual determination about: the reasonableness of its
statutory interpretation; whether it knowingly submitted false claims to Medicare; and whether
the tests were medically necessary. Because these arguments are inappropriate for a motion to
dismiss, they are disregarded.
As to the argument that the pleadings fail to satisfy the heightened pleading standard
articulated in Rule 9, the Court disagrees. The Complaint provides numerous examples of
multiple nights of tests being billed. Paragraphs 103, 114-119 allege that Medicare was billed
for at least one duplicative night of testing, the patient, the date or dates, and the amounts paid.
Defendants’ argument that the Government needs to allege why he tests were unnecessary—
beyond the Medicare Guidance’s determination that only one night of testing is medically
necessary—is without merit. This case is readily distinguishable from United States ex rel.
Presser v. Acacia Mental Health Clinic, LLC, where the plaintiff simply averred that the care
rendered was unnecessary, but was unable to point to “policies or practices at other medical
clinics, regulations, or other publications which call [defendant’s] policies into question.” 836
F.3d 770, 779 (7th Cir. 2016). Here, the Government repeatedly refers to Medicare Guidance
and Snap’s own past practices and literature. Accordingly, the Court finds that the Complaint
does satisfy the heightened pleading standard for fraud, pursuant to Rule 9(b).
Defendants Argue That The Complaint Fails To Allege Materiality
Next, Defendants argue that the Complaint fails to satisfy the materiality requirements
articulated in Universal Health Servs., Inc. v. United States and Massachusetts, ex_re/. Julio
Escobar and Carmen Correa, 136 S. Ct. 1989 (2016) (hereinafter, “Escobar”). They argue that a
complaint must do more than show the Government had the option to decline payment, and that
the Government’s and that regular payment of certain types of claims is strong evidence that a
requirement is not material. Moreover, Defendants urge the Court to shift the burden to the
Government to show: (1) had the Government been aware of the duplicative billing it would not
have paid the claims; (2) the Government warned Snap that duplicative billing was prohibited;
and (3) the Government made prior efforts to recoup payments made.
First, the Court disregards the argument that the Government’s routine payment of
duplicative claims is strong evidence that the requirements were not material. This is an
argument unfit for the motion to dismiss stage. Moreover, Defendants’ argument is based on the
logical falsity of post hoc ergo propter hoc and misstates the Supreme Court’s position in
Escobar. Second, Defendants cite United States v. Sanford-Brown, Ltd., which the Court finds
persuasive. 840 F.3d 445, 447 (7th Cir. 2016).
Sanford-Brown requires “two conditions [be] met: ‘first, the claim does not merely
request payment, also makes specific representations about the goods or services provided;
and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory,
or contractual requirements makes those representations misleading half-truths.” Sanford-
Brown, Ltd., 840 F.3d at 447 (7th Cir. 2016) (citing Escobar, 136 S. Ct. at 2001). Here, the
Complaint alleges that, according to Medicare Guidance, Medicare would only cover a second or
third night of Sleep Apnea testing where it was medically necessary. Thus, by submitting
subsequent nights of testing, Snap represented that those tests were medically necessary.
Therefore, by routinely submitting claims for unnecessary second and third nights of testing,
Defendants mislead the Government. Accordingly, the Court finds that the Complaint satisfies
the materiality requirement as articulated in Sanford-Brown and states claims for violations of
the False Claims Act.
Defendants Argue that the Complaint Fails to Allege Kickbacks
Defendants argue that the Complaint fails to plead violations of anti-kickback statute with
requisite particularity and that no inappropriate conduct took place. As an initial matter, the
Court finds Defendants’ Rule 9(b) argument without merit. The Complaint outlines numerous
instances of alleged kickbacks being distributed, the individuals involved, the method used, and
the time frame in which they took place. Accordingly, the Court finds the Complaint contains
the requisite particularity.
As to Defendants’ arguments that the billing of the professional component, free tests,
and commissions are not sufficient to allege fraud are without merit. Defendants’ argue, first,
that allowing physicians to bill for the professional component is not enough to show a violation
of the anti-kickback provision of the False Claims Act. This argument is unfounded. The
Complaint explicitly quotes Raviv and Burton discussing their “business model” wherein
referring physicians were able to bill of the professional component of the test saying that it
“drove volume[,]” Compl. § 127, and “the doctor’s making the money off the professional
component... So they’re—so we don’t have to pay, because we’ve given them, we’re giving
them... a billing.” Compl. § 132. Moreover, the following allegations quote Raviv discussing
the success of this inducement model. Compl. § 134.
Second, Defendants argue that because the IRS deemed Snap’s Territory Managers as
employees in the years prior to their internal classification as such, there can be no anti-kickback
statute violation. This is not an argument fit for a motion to dismiss.
Finally, Defendants argue that because no alleged false claims can be shown to result
from the free tests given to staff members, the Complaint cannot satisfy the heightened pleading
standard for fraud claims. The Court disagrees. The Complaint alleges that Territory managers
were encouraged to seek out an office champion—a nurse or office manager—and provide them
a free test because they would be a person “most valuable to Snap[.]” Compl. § 161 (quoting
Gardea). Additionally, the Complaint alleges the necessary who, what, and when required by
Rule 9. Accordingly, the Court finds the Complaint alleges violations of the anti-kickback
provisions of the False Claims Act with the requisite particularity.
Defendants Argue the Complaint Fails to Allege Claims Against Individual Defendants
Defendants’ final argument for dismissal is completely baseless. Defendants argue that
the communications within the Compliant are insufficient to infer more than the possibility of
misconduct by Burton or Raviv (the “Individual Defendants”) or that the Individual Defendants
acted knowingly. However, this argument ignores the numerous quotations within the
Complaint. The Complaint alleges the Individual Defendants orchestrated a scheme where:
individual Territory Managers were given illegal incentives, Medicare was being wrongfully
billed for multiple nights of testing, and doctors were given effort-free billing opportunities. The
Complaint directly quotes Individual Defendants discussing the “business model” and how their
kickback scheme would drive the volume of tests given and their duplicative billing would drive
up revenues. See Compl. {ff 79-81 & 84-90 (discussing multi-night testing, analyzing, and
billing); §§ 97-98 & 105 (quoting Raviv discussing profitability of multi-night billing); §§ 127-
129 & 131-132 (discussing generating revenue and giving doctors an effort-free billing).
Accordingly, the Court finds the Complaint does state claims against the Individual Defendants
for violations of the False Claims Act.
CONCLUSION
Because the Complaint satisfies the plausibility standard articulated by Bell Atlantic
Corporation _v. Twombly and Ashcroft _v. Iqbal; and because the Complaint satisfies the
heightened pleading standard of Rule 9(b) for fraud claims, Defendants’ motion to dismiss is
denied.
IT IS SO ORDERED.
ENTER:
7
L
wns etnibee ©
United States District Court
DATE: June 5, 2018
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