Health Law Daily Wrap Up, FRAUD AND ABUSE—D.N.J.: Court dismisses counts alleging health care fraud, citing no allegations that defendant made any false or fraudulent statement, (Jun 7, 2024)

By Robert Margolis, J.D.

Defendant allegedly, to obtain sales commissions, bribed patients to obtain drug prescriptions that were “medically unnecessary.”

The federal district court in New Jersey has dismissed without prejudice three counts of health care fraud and one count of conspiracy to commit health care fraud against a sales representative at a compounding pharmacy, holding that the Government’s superseding indictment did not allege that the sales representative made any false statements to any health care plan (U.S. v. Mattia, No. 2:21-cr-00576 (BRM)(D.N.J. June 3, 2024)).

Alleged bribery. The defendant worked both as an employee of, and union representative for, a telecommunications company, and as a sales representative selling compounded medications for a marketing company and compounding pharmacies. The Government alleged that the sales representative bribed “Individual-1” to induce him to obtain “medically unnecessary” compounded prescription medications from the compounding pharmacies, so that the sales representative would receive commissions from the pharmacies. Though it does not explain how, the superseding indictment alleges that the sales representative “secured and caused to be secured” the signature of a doctor on the prescription forms for Individual-1, despite that patient not having a doctor/patient relationship with the doctor and there being no “medical necessity” for the prescription. The telecommunications company’s health plan then was billed for the “medically unnecessary” medications, after which the sales representative received a percentage of that amount in commissions. The sales representative was charged with three counts of health care fraud in violation of 18 U.S.C. § 1347 and § 2; one count of conspiracy to commit health care fraud in violation of 18 U.S.C. § 1349; one count of witness tampering in violation of 18 U.S.C. § 1512(b)(3); and one count of obstruction of health care investigation in violation of 18 U.S.C. § 1518.

After the sales representative pled not guilty to all counts, he moved to dismiss the four counts asserting health fraud and conspiracy to commit health fraud. He also brought an “omnibus motion” raising several procedural and evidentiary issues. The court granted the motion to dismiss, and denied the omnibus motion without prejudice to refile as applicable later in the case.

Indictment insufficient. The sales representative argued that the fraud counts of the superseding indictment should be dismissed because (1) they do not sufficiently allege violation of the health fraud statutes in that they do not identify any misstatement or omission made by anyone, or identify what n the claims submitted to the health plan was false and fraudulent; and (2) the vagueness of the term “medically unnecessary” renders the statutes alleged in the fraud counts unconstitutionally vague. The Government countered that the superseding indictment sufficiently alleged the fraud scheme and the constitutional argument was premature. The court found the indictment to be insufficient, and did not reach the constitutional argument.

The statute prohibiting health care fraud, 18 U.S.C. § 1347, requires acts of “misrepresentation” in connection with the delivery of, or payment for, health care benefits, items, or services. The Third Circuit has held that a scheme to defraud in violation of that statute “must involve some sort of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension.” United States v. Pearlstein, 576 F.2d 531, 535 (3d Cir. 1978). The Government must therefore identify a statement made by the defendant that constituted a “false statement.” The court found that the superseding indictment failed to do so.

In particular, while the superseding indictment alleged that the sales representative bribed Individual-1 to obtain “medically unnecessary” prescriptions, somehow secured the signature on prescription forms of a doctor with no relationship to Individual-1, and then caused “false and fraudulent insurance claims” to be submitted based on those prescriptions, it did not identify any false or fraudulent statement or omission by the sales representative. Nor did it allege how the false insurance claims were “caused” to be submitted or who submitted those claims. Finally, it did not allege what, if any, false or fraudulent statements or misrepresentations appeared on the allegedly false insurance claims. As the court pointed out, the superseding indictment did not allege that the sales representative himself falsely wrote or stated in the claims that the prescriptions were “medically necessary” when they were not, and then submitted the claim for reimbursement from the health plan.

The government argued that under the circumstances alleged, there was an “implicit representation” that the prescriptions were legitimate, when in fact they were not. Namely, the claims submitted to the health plan falsely implied that (1) the doctor had examined Individual-1 and legitimately prescribed the medication, when he had not done so, and (2) Individual-1 needed the medication. Because the claims were based on bribes, not on legitimate need, those implicit representations were false, according to the Government, and the health plan relied on them to pay the claims.

But as the sales representative pointed out, and the court agreed, there were no allegations that the sales representative himself made any representations, implicit or otherwise, that were transmitted to the health plan. To the extent the prescriptions were false, there were no allegations that the prescriptions themselves, as opposed to insurance claims, were submitted to the health plan. And there were no allegations that the sales representative submitted the claims himself. The court also noted that the superseding indictment was devoid of allegations that the sales representative had any interaction with the doctor, the pharmacy benefit management company, or the health plan, let alone any allegation of a particular misrepresentation the sales representative made to anyone. While in certain circumstance, bribing someone to obtain a “medically unnecessary” prescription may violate some other statute, such as the Anti-Kickback statute (42 U.S.C. § 1320a-7b(b)), it is not in and of itself health care fraud, according to the court.

Vague term. In addition, the court noted that there is no singular or static definition for “medically unnecessary,” which renders that term vague such that it can have different meanings depending on the context. But because the court resolved the motion on other grounds, it did not reach the sales representative’s argument that the health care fraud statutes are unconstitutionally vague.

The case is No. 2:21-cr-00576 (BRM).

Judge: Martinotti, B.

Attorneys: Chelsea Coleman, U.S. Department of Justice, for the U.S. Amy Danielle Luria (Critchley, Kinum & Luria, LLC) for Carmine A. Mattia, Jr.

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