United States of America v. Maimonides Medical Center

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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UNITED STATES OF AMERICA and STATE

OF NEW YORK ex rel. Yitzchok Zylberberg,

Plaintiffs, MEMORANDUM AND ORDER

v. 19-CV-4239 (RPK) (SJB)

MAIMONIDES MEDICAL CENTER and

MMC PHARMACY, INC.,

Defendants.

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RACHEL P. KOVNER, United States District Judge:

Relator Yitzchok Zylberberg filed this qui tam action, claiming that defendants violated

the False Claims Act, 31 U.S.C. § 3729 et seq., and the New York False Claims Act, N.Y. State

Fin. Law § 187 et seq., because defendant Maimonides Medical Center steered patients to

defendant MMC Pharmacy, Inc. in violation of the federal Anti-Kickback Statute, 42 U.S.C.

§ 1320a-7b(b), and the Physician Self-Referral Law (“Stark Law”), 42 U.S.C. § 1395nn.

Defendants move to dismiss the complaint. For the reasons explained below, the motion is granted,

and the complaint is dismissed with prejudice.

BACKGROUND

The following facts are taken from the second amended complaint and are assumed to be

true for purposes of this order.

Relator’s challenge concerns a “med-to-beds” program operated by defendants

Maimonides Medical Center and MMC Pharmacy. See Second Am. Compl. (“SAC”) ¶¶ 14–25

(Dkt. #29); Mem. in Supp. of Mot. to Dismiss 1 (Dkt. #53) (describing the program as a “med-to-

beds” program); Mem. in Opp’n to Mot. to Dismiss 8 (Dkt. #54) (same nomenclature).

Maimonides Medical Center is a hospital located in Kings County, New York. SAC ¶ 9.

MMC Pharmacy is a pharmacy located on property that is owned and used exclusively by the

Medical Center. Id. at ¶¶ 10–11. “Upon information and belief,” MMC Pharmacy “is owned

and/or controlled by” the Medical Center. Id. at ¶ 11. Relator worked for the Medical Center as

a pharmacist between 1992 and 2019. Id. at ¶¶ 12–13.

In the program that relator challenges, defendants arranged for MMC Pharmacy to deliver

medications to patients who were being treated at the Medical Center, thereby enabling the patients

to obtain their medicines at the Medical Center itself, upon discharge from the hospital. Id. at

¶¶ 14–15. Pharmacists at the Medical Center would also provide discharge counseling to patients

regarding medications that had been dispensed by MMC Pharmacy. Id. at ¶ 17A. Upon relator’s

information and belief, a majority of discharged patients received medications in this way, and

many used Medicare and Medicaid to pay for their medications. Id. at ¶¶ 14, 17A, 20. Other retail

pharmacies were not given similar access to discharged patients at the Medical Center, and relator

did not observe patients being given the choice of obtaining their post-discharge prescriptions from

other pharmacies. Id. at ¶ 19.

The Medical Center occasionally directed relator to provide discharge counseling to

patients who received their medications from MMC Pharmacy. Id. at ¶ 17. “After performing this

service on several occasions,” relator “objected to providing such counseling, voicing concerns

that it was improper for the Hospital to steer its patients to MMC Pharmacy and that the MMC

Pharmacy pharmacists who are dispensing such medications are obligated to provide such

counseling to the discharged outpatients.” Ibid. The Medical Center then stopped requiring relator

to provide MMC Pharmacy medications to these discharged patients, or to provide counseling to

them about MMC Pharmacy medications, but continued to assign other pharmacists at the Medical

Center to do so. Ibid.

Relator filed this lawsuit in July 2019, filed an Amended Complaint in October 2019, and

filed a Second Amended Complaint in December 2021. See generally Compl. (Dkt. #1); First Am.

Compl. (Dkt. #4); SAC. The Second Amended Complaint asserts qui tam claims under the False

Claims Act and the New York False Claims Act, SAC ¶¶ 26–31, in addition to certain other claims

that relator has dismissed voluntarily. See SAC ¶¶ 32–42; July 5, 2022 Letter 3 (Dkt. #47).

Both the United States and New York declined to intervene. See Not. of Election to Decline

Intervention (Dkt. #31).

Defendants move to dismiss the Second Amended Complaint for failure to state a claim.

Relator opposes the motion and “attached a proposed Third Amended Complaint . . . just in case

the Court rules that” the Second Amended Complaint fails to state a claim. Mem. in Opp’n to

Mot. to Dismiss 24; see Proposed Third Am. Compl. (Dkt. #54-1).

STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a

complaint based on “failure to state a claim upon which relief can be granted.” To avoid dismissal

on that basis, a complaint must plead “enough facts to state a claim to relief that is plausible on its

face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(discussing Fed. R. Civ. P. 8). The facial “plausibility standard is not akin to a ‘probability

requirement.’” Ibid. (quoting Twombly, 550 U.S. at 556). But it requires a plaintiff to allege

sufficient facts to enable the court to “draw the reasonable inference that the defendant is liable for

the misconduct alleged.” Ibid. In evaluating a motion to dismiss under Rule 12(b)(6), the court

must accept all facts alleged in the complaint as true. Ibid. But it need not adopt “[t]hreadbare

recitals of the elements of a cause of action” that are “supported by mere conclusory statements.”

Ibid.

Claims brought under the False Claims Act are subject to the heightened pleading standard

of Federal Rule of Civil Procedure 9(b), which provides that “a party must state with particularity

the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions

of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b); see Gold v. Morrison-

Knudgson Co., 68 F.3d 1475, 1477 (2d Cir. 1995). “To satisfy this Rule, a complaint alleging

fraud must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the

speaker, (3) state where and when the statements were made, and (4) explain why the statements

were fraudulent.’” United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016)

(quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)). “Claims under

the [False Claims Act] analogues,” such as the New York False Claims Act, “must also satisfy

Rule 9(b).” United States ex rel. Hart v. McKesson Corp., 602 F. Supp. 3d 575, 585–86 (S.D.N.Y.

2022).

DISCUSSION

The motion to dismiss is granted.

The False Claims Act prohibits “knowingly present[ing] . . . a false or fraudulent claim for

payment or approval,” 31 U.S.C. § 3729(a)(1)(A), “to an officer, employee, or agent of the United

States,” id. § 3729(b)(2)(A)(i). See Kellogg Brown v. Root Servs., Inc. v. U.S., ex rel. Carter, 575

U.S. 650, 653 (2015). “A claim is false within the meaning of the [False Claims Act] if it ‘falsely

certifies compliance with a . . . statute, regulation or contractual term,’” United States ex rel. Ladas

v. Exelis, Inc., 824 F.3d 16, 26 (2d Cir. 2016) (citation omitted), and the misrepresentation is

“material to the Government’s payment decision,” Bishop v. Wells Fargo & Co., 870 F.3d 104,

107 (2d Cir. 2017) (citation omitted). Likewise, “[w]hen . . . a defendant makes representations

in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements,

those omissions can be a basis for liability if they render the defendant’s representations

misleading with respect to the goods or services provided.” Universal Health Servs., Inc. v. U.S.

ex rel. Escobar, 579 U.S. 176, 187 (2016). The New York False Claims Act “mirrors the federal

[False Claims Act], and New York courts look to federal law to interpret the state statute.” United

States ex rel. Pelullo v. Am. Int’l Grp., Inc., 757 F. App’x 15, 17 (2d Cir. 2018) (citing State of

New York ex rel. Seiden v. Utica First Ins. Co., 943 N.Y.S.2d 36, 39 (App. Div. 2012)).

Here, relator alleges that defendants are liable under the False Claims Act and the New

York False Claims Act on the theory that defendants sought Medicare and Medicaid

reimbursements while either expressly or impliedly representing that they were in compliance with

relevant statutes while, in relator’s view, defendants were in fact violating the Anti-Kickback

Statute and the Stark Law.1 SAC ¶¶ 25, 27, 30. But as explained below, relator has not plausibly

alleged a violation of either statute. Accordingly, relator has not plausibly alleged that defendants

made false or fraudulent claims for payment or approval based on false certifications of compliance

with the law. The motion to dismiss is therefore granted. Further, because relator’s proposed

1 Relator argues in his memorandum of law in opposition to the motion to dismiss that “Defendants violated the Anti-

Kickback Statutes (‘AKS’), the Stark Laws, the New York Public Health Law and other laws.” Mem. in Opp’n to

Mot. to Dismiss 6–7. Because relator’s False Claims Act and New York False Claims Act claims do not allege

predicate violations of the New York Public Health Law or “other laws,” see SAC ¶¶ 27, 30, and the parties have not

briefed those issues, see generally Mem. in Supp. of Mot. to Dismiss (Dkt. #53); Mem. in Opp’n to Mot. to Dismiss,

the Court does not consider those alleged violations here. See Williams v. Rosenblatt Secs. Inc., 136 F. Supp. 3d 593,

609 (S.D.N.Y. 2015) (“A plaintiff cannot amend his complaint in [a] response to a motion to dismiss.”); Mathie v.

Goord, 267 F. App’x 13, 14 (2d Cir. 2008).

Third Amended Complaint fails to cure the deficiencies outlined in this Order, leave to amend is

denied.

I. Relator Has Not Plausibly Alleged a Violation of the Anti-Kickback Statute

Relator has not plausibly alleged that defendants violated the Anti-Kickback Statute. That

statute prohibits “knowingly and willfully” offering, soliciting, receiving, or paying “any

remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly,

in cash or in kind . . . in return for referring an individual to a person for the furnishing or arranging

for the furnishing of any item or service for which payment may be made in whole or in part under

a Federal health care program.” 42 U.S.C. §§ 1320a-7b(b)(1)–(2). The term “remuneration” is

defined as “transfers of items or services for free or for other than fair market value,” id. § 1320a-

7a(i)(6), and courts have found that the term has an “expansive scope,” State v. MedImmune, Inc.,

342 F. Supp. 3d 544, 552–53 (S.D.N.Y. 2018) (collecting cases).

Relator’s theory is that defendants’ meds-to-beds program violated the Anti-Kickback

Statute because the Medical Center has a financial interest in MMC Pharmacy. Specifically,

relator contends that because the Medical Center “owns and/or has a financial interest in MMC

Pharmacy,” the Medical Center “received substantial amounts of revenue on account of” using

MMC Pharmacy for patients’ prescriptions, SAC ¶ 22, which, in relator’s view, means that the

Medical Center received “remuneration . . . for referring” patients to MMC Pharmacy, 42 U.S.C.

§ 1320a-7b(b)(1)–(2). See Mem. in Opp’n to Mot. to Dismiss 8–10. In relator’s view, “while it is

permissible, and may even be preferable, for an in house pharmacy to deliver pharmaceuticals

directly to patients being discharged from the hospital” when the pharmacy is part of the hospital,

“in our case such meds-to-beds program is illegal because the Hospital is steering the business to

a different entity, the offsite Pharmacy, in which it has a financial interest.” Id. at 9. Defendants

vigorously dispute this theory, arguing that “a corporate relationship between two entities who

refer one another patients does not render the referrals unlawful.” Reply in Supp. of Mot. to

Dismiss 2 (Dkt. #55).

But even assuming arguendo that financial links between the Medical Center and MMC

Pharmacy mean that MMC Pharmacy provided remuneration to the Medical Center to induce

referrals of federal and state health care program business, relator’s allegations nevertheless fail to

state a claim because relator has not plausibly alleged that defendants acted with the requisite

mental state. “[A] person must ‘knowingly and willfully’ provide prohibited remuneration to be

liable” under the Anti-Kickback Statute, “which means she must have offered the payment with

the intent to violate a known legal duty.” Pfizer, Inc. v. U.S. Dep’t of Health and Human Servs.,

42 F.4th 67, 79 (2d Cir. 2022); see United States ex rel. Hart v. McKesson Corp., No. 15-CV-903

(RA), 2023 WL 2663528, at *7 (S.D.N.Y. Mar. 28, 2023). In other words, “to satisfy the [Anti-

Kickback Statute’s] scienter requirement, [a relator] must plead facts that give rise to a plausible

inference that [a defendant] knew its conduct was unlawful.” Hart, 2023 WL 2663528, at *7

(citation omitted). “[B]ecause Federal Rule of Civil Procedure 9(b) allows ‘conditions of a

person’s mind [to] be alleged generally,’ the plaintiff may allege that the defendant acted willfully

‘through circumstantial evidence . . . e.g., proof that a defendant took several actions inconsistent

with a good-faith belief that his conduct was legal.’” United States v. Novartis AG, No. 04-CV-

4265 (NGG) (RLM), 2011 WL 13234720, at *9 (E.D.N.Y. Feb. 8, 2011) (citation omitted).

The Second Amended Complaint does not plausibly allege that defendants acted with

knowledge that their conduct was unlawful. Its only allegation going to this element is that relator

“voic[ed] concerns that it was improper for the Hospital to steer its outpatients to MMC Pharmacy”

and that “[o]n account of his complaint, the Hospital no longer required Mr. Zylberberg to continue

providing MMC Pharmacy medications to outpatients.” SAC ¶ 17. But this allegation that relator

criticized the meds-to-beds program with MMC Pharmacy as “improper,” without more, does not

plausibly suggest that defendants themselves believed their conduct violated a known legal duty.

See, e.g., Hart, 2023 WL 2663528, at *9 (“[A]llegations about things that [relator] said to other

sales employees within the company, without more, does not establish what [the company]

believed about offering the business tools to oncology practices. But even if the Court were to

credit Hart’s allegations as somehow speaking to the company’s knowledge, beliefs about the

‘inappropriate’ or ‘unethical’ nature of providing the business tools is, without more, insufficient

to adequately plead purported knowledge of unlawfulness—let alone an ‘intentional violation of a

known legal duty.’”) (quoting Pfizer, 42 F.4th at 77); United States ex rel. Fitzer v. Allergan, Inc.,

No. 17-CV-668 (SAG), 2021 WL 4133713, at *7 (D. Md. Sept. 10, 2021) (concluding that “the

fact that relator told Allergan that he believed the physician locator violated the [Anti-Kickback

Statute]” did not “indicate[] that Allergan was acting with malintent”).

No more persuasive is relator’s argument that “it is obvious that the Hospital and the

Pharmacy, which are sophisticated and prominent entities in the health care field, would be aware

of the illegality of steering patients in violation of the [False Claims Act].” Mem. in Opp’n to Mot.

to Dismiss 23. Relator falls far short of showing that defendants’ conduct was so “obvious[ly]” a

violation of the Anti-Kickback Statute that scienter can be inferred from their mere

“sophisticat[ion]” as entities in the health care field. Ibid. And the complaint “lack[s] specific

allegations of the type that other courts have found to support a plausible inference of knowledge

that the conduct was unlawful, such as actions taken to conceal the fraudulent scheme,” “notice

from counsel that the program may be unlawful,” “cancellation of the program due to concerns

over its lawfulness,” “or a service without legitimate value that was a pretext to provide

remuneration.” Hart, 2023 WL 2663528, at *10 (collecting cases).

II. Relator Has Not Plausibly Alleged a Violation of the Stark Law

Relator has not plausibly alleged a violation of the Stark Law, either. The statute provides

that “if a physician (or an immediate family member of such physician) has a financial relationship

with an entity specified in paragraph (2), then . . . the physician may not make a referral to the

entity for the furnishing of designated health services.” 42 U.S.C. § 1395nn(a)(1)(A). By its plain

terms, the statute prohibits only referrals involving physicians (or their immediate family

members). Because the defendants are businesses—not physicians—relator has not plausibly

alleged that either defendant violated the Stark Law. See, e.g., Aero Med, Inc. v. White Mountain

Communities Hosp., Inc., No. 11-CV-8031 (PHX) (GMS), 2012 WL 4086531, at *4 n.3 (D. Ariz.

Sept. 17, 2012) (“[T]he Stark Anti-Referral Law prohibits physicians from referring patients to

entities in which the physician has a financial interest. 42 U.S.C. § 1395nn(a) (2012). It is

inapplicable here because [White Mountain Regional Medical Center] is not a physician.”); Brown

v. Tethys Bioscience, Inc., No. 10-CV-1245, 2013 WL 65456, at *10 (S.D. W. Va. Jan. 4, 2013)

(“By its plain terms, the Stark Act applies to physician referrals. Weiss does not even attempt to

provide a rationale as to how the section of the Stark Act cited by her, 42 U.S.C. § 1395nn(a)(1),

should apply in this case given that neither she nor Tethys is a physician.”) (internal citation

omitted); United States v. Razalan, 725 F. Supp. 2d 636, 641 (E.D. Mich. 2010) ([T]he self-referral

ban applies only to physicians.”); United States ex rel. Roberts v. Aging Care Home Health, Inc.,

No. 02-CV-2199, 2008 WL 2945946, at *8 (W.D. La. July 25, 2008) (“Mr. Davis argued, and the

Government concedes, that only physicians . . . can violate the Stark Statute.”).

III. The Complaint Is Dismissed With Prejudice

The complaint is dismissed with prejudice. In general, “[l]eave to amend a complaint ‘shall

be freely given when justice so requires,’” Parker v. Columbia Pictures Indus., 204 F.3d 326, 339

(2d Cir. 2000) (quoting Fed. R. Civ. P. 15(a)), but “[l]eave may be denied ‘for good reason,

including futility.’” TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 505 (2d Cir. 2014) (citation

omitted). “When the plaintiff has submitted a proposed amended complaint, the district judge may

review that pleading for adequacy and need not allow its filing if it does not state a claim upon

which relief can be granted.” Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991).

Relator’s proposed third amended complaint fails to cure the scienter deficiencies

identified in this Order. The proposed complaint’s only additional allegation going to defendants’

state of mind is that “[d]efendants knew, or acted recklessly in not knowing, that it was illegal for

the Hospital to steer patients to its affiliated pharmacy, MMC Pharmacy.” Proposed Third Am.

Compl. ¶ 22E. This allegation is “conclusory and not entitled to be assumed true,” Iqbal, 556 U.S.

at 671; see ibid. (disregarding an allegation that defendants “‘knew of, condoned, and willfully

and maliciously agreed to subject [plaintiff]’ to harsh conditions of confinement”), and so the

proposed complaint fails to state a plausible violation of the Anti-Kickback Statute for the reasons

already discussed. Likewise, the proposed complaint does not—and could not—include any

allegations showing that the Stark Law applies to defendants. And while relator requests leave to

file a fourth proposed amended complaint “if the Court rules that additional changes besides what

is included in the proposed Third Amended Complaint are needed,” Mem. in Opp. to Mot. to

Dismiss 24, leave is denied because relator was on notice of the identified deficiencies and failed

to cure them in the proposed Third Amended Complaint, see Mem. in Supp. of Mot. to Dismiss

16–17 (arguing that scienter is inadequately pleaded); id. at 10 (arguing that the Stark Law does

not apply to defendants).2

CONCLUSION

The motion to dismiss is granted, and the complaint is dismissed with prejudice.

SO ORDERED.

/s/ Rachel Kovner

RACHEL P. KOVNER

United States District Judge

Dated: September 27, 2023

Brooklyn, New York

2 The proposed Third Amended Complaint raises two new legal theories that were not included in the Second

Amended Complaint. Specifically, it alleges that defendants violated the False Claims Act and the New York False

Claims Act based on alleged violations of New York Public Health Law Section 238-a (prohibiting certain referrals

between health-care providers) and New York State Education Law Section 6530(17) (prohibiting the exercise of

undue influence on patients for financial gain). See Proposed Third Am. Compl. ¶¶ 1, 28–29, 32–33. Leave to amend

is denied as to these new theories. This action was filed more than four years ago, and relator has already filed three

iterations of the complaint. Relator neglected to present these legal theories in any of his prior complaints and, in fact,

voluntarily dismissed claims that were brought directly under Public Health Law Section 238-a and Education Law

Section 6530(17). See July 5, 2022 Letter 3. Permitting relator to re-introduce at this late hour his allegations that

defendants violated these state statutes—now through the lense of the False Claims Act and New York False Claims

Act—would result in undue delay and undue prejudice. See, e.g., Barrows v. Forest Labs., Inc., 742 F.2d 54, 58 n.11

(2d Cir. 1984).