the issue on appeal in that case was whether the state action doctrine protects physicians from antitrust liability when they conduct a state-mandated peer review process. The United States Supreme Court held that it does not. The state action doctrine has absolutely no relevance to the case at bar, and plaintiff's reliance on it is misplaced.
Dr. Baglio failed to indicate any evidence from which we may conclude that a genuine issue of material fact remains for trial on this issue. He offers no proof that the decision to terminate his employment at the pathology laboratory in any way restricted pathology services in the marketplace. He offers no proof that any of the activities of any of the defendants restricted the competition for pathology services within the area served by Aliquippa Hospital or by the Medical Center. Indeed, both his response and his Memorandum of Law are remarkably silent on this crucial threshold issue. He merely contends that "contrary to what the Defendants contend in respect of the Count I and Count II Sherman § claims, Plaintiff has presented evidence of injury to himself, and injury to participants in the marketplace who paid for kickbacks, in addition to paying for services." Pl.'s Mem. at P 40.
This conclusory allegation only reinforces our finding that the injury suffered was personal. Considering the record as a whole, we find no evidence from which to conclude that Dr. Baglio has suffered an antitrust injury. He has thus failed to meet the first prong of the antitrust standing analysis.
Even if he had been so injured, Dr. Baglio would not have standing to raise his antitrust claims without also establishing that he is the most appropriate plaintiff. A showing of antitrust injury is necessary but not sufficient to establish antitrust standing, and a plaintiff may indeed have suffered an antitrust injury yet not be considered the proper plaintiff to bring an antitrust action. Alberta Gas, 826 F.2d at 1240. See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 93 L. Ed. 2d 427, 107 S. Ct. 484 (1986).
To determine whether a plaintiff is a proper antitrust plaintiff, courts have focused on whether there are more direct victims of the alleged antitrust violations, and whether the plaintiff can effectively represent the interests of such victims. Huhta, 1994 U.S. Dist. LEXIS 7327, 1994 W.L. 245454 at *2. Put another way, where there exists "an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement," such persons, not one who has suffered a more indirect harm from the defendant's conduct, are the proper plaintiffs to bring an antitrust action. Associated General Contractors, 459 U.S. at 542.
The defendants argue that even if Dr. Baglio had suffered an antitrust injury, he lacks standing to bring this action because he is not the most efficient plaintiff. We agree. Dr. Baglio alleges that the defendants caused harm not only to himself, but to "participants in the marketplace who paid for kickbacks, in addition to paying for services." Pl.'s Mem. at P 40. We read this allegation to mean that patients needing pathology services would bear increased costs because of the actions of the defendants.
Dr. Baglio is not the appropriate plaintiff to represent the interests of those who might use the pathology lab. It is these patients and the larger payor community who would be directly injured by the alleged antitrust violations, and therefore they must bring an action on their own behalf. Huhta, 1994 U.S. Dist. LEXIS 7327, 1994 W.L. 245454 at *2; Todorov v. DCH Healthcare Authority, 921 F.2d 1438, 1455 (11th Cir. 1991).
Dr. Baglio has failed to meet either prong of the test for antitrust standing. He has failed to prove an antitrust injury, because he has only alleged personal harm. And even if the alleged injury violated Section 1, Dr. Baglio has not established that he is the most appropriate plaintiff to redress the harm. Accordingly, we find that the plaintiff lacks standing to raise any of the antitrust claims made against any of the defendants in this action. Since we will grant summary judgment on all antitrust claims contained in Counts I, II, III, and IV of the complaint, as to all defendants, we need not reach Dr. Baglio's substantive antitrust allegations.
B. RICO Claims
RICO provides a private right of action under 18 U.S.C. § 1964(c) for violations of the statute. Under RICO,
any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.
18 U.S.C. § 1964(c).
In other words, in order for a plaintiff to recover damages under the RICO statute, the complaint must aver a violation of Section 1962 (a), (b), (c), or (d), as well as an injury to business or property by reason of this violation. This latter "by reason of" pleading requirement is one of causation, and is commonly referred to as RICO standing. Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1164 (3d Cir. 1989).
Dr. Baglio's complaint includes two RICO claims. Count V alleges that all defendants except Baska and Heinle conducted the affairs of an enterprise through a pattern of racketeering activity in violation of Section 1962(c). Count VI alleges that all the defendants conspired to violate Section 1962(c), in violation of Section 1962(d), Conspiracy to Conduct Racketeering Activities.
We understand the structure of plaintiff's RICO claims to be as follows:
Plaintiff alleges that the Physician Defendants, the Administrative Defendants, and Med-Chek formed an association in fact which he calls the "Aliquippa Enterprise." Compl. at P 121. The Aliquippa Enterprise acted through Aliquippa Hospital, itself an enterprise within the meaning of 18 U.S.C. §§ 1961(4) and 1962(c)(1), to conduct a series of joint ventures designed for the financial benefit of each of the defendants. Compl. at P 121(A). One such joint venture involved the hospital pathology laboratory. It is alleged that the acts taken in furtherance of these joint ventures were both predicate acts under Section 1962(c) and acts taken in furtherance of a conspiracy under Section 1962(d). Compl. at P 121. Plaintiff claims that these acts formed a pattern of racketeering under Section 1962(c). Pl.'s Mem. of Law at P 10.
A second enterprise was allegedly formed by defendants Thomas and Hersch. The Complaint denominates this as an association in fact called the "Beaver Enterprise," and contends that it operated through DECA Labs, itself an enterprise within the meaning of 18 U.S.C. §§ 1961(4) and 1962(c)(1), to obtain control of medical services in Beaver County. Compl. at PP 121, 122. The alleged purpose of the Beaver Enterprise was "to take over the acute care health delivery system in Beaver County, and surrounding counties, and to control the delivery of ancillary health care services." Pl.'s Mem. of Law at P 6(a). One of the health services it allegedly sought to control was the Aliquippa Hospital pathology laboratory. Pl.'s Mem. of Law at P 6(a).
Dr. Baglio asserts that some of the activities of both the so-called Aliquippa Enterprise and the so-called Beaver Enterprise constituted Medicare and Medicaid fraud under the anti-kickback provisions of 42 U.S.C. § 1320a-7(b) and 62 P.S. § 1407, violating those statutes as well as the Travel Act, 18 U.S.C. § 1952. Pl.'s Mem. of Law at P 7; Rico Case Stmt. at P 5.
We note that the Commonwealth of Pennsylvania brought charges of Medicaid fraud against MCE, charging that MCE, operating through DECA Labs, made payments to physicians in exchange for blood sample work performed on Medicaid patients. Pl.'s Ex. 373. The Commonwealth charged that some physicians referred blood samples to the lab without operating blood-collection stations, and that this constituted paying kickbacks for patient referrals in violation of the antikickback provisions of the Medicaid statute. On October 26, 1990, MCE pled no contest to one charge of Medicaid fraud, and paid a $ 5,000 fine plus costs.
Plaintiff further contends that the activities of the Beaver Enterprise acting through DECA Labs and the Aliquippa Enterprise acting through Aliquippa Hospital, as well as what he terms the "racketeering-gangster war between Aliquippa Hospital and the Aliquippa Enterprise, on the one hand, and the DECA and the Beaver Enterprise, on the other hand," caused injury in violation of Section 1962(c). Compl. at P 122. Plaintiff claims that he was personally injured by his termination as director of the pathology lab at Aliquippa Hospital and by the de facto termination of his staff privileges at that facility. Compl. at P 122.
In addition, Dr. Baglio alleges that the activities of each of the defendants to this action were part of a conspiracy, in violation of Section 1962(d). He claims that the Physician Defendants, the Administrative Defendants, and Med-Chek entered a conspiracy to divert fees for pathology services at Aliquippa Hospital, including Medicare and Medicaid reimbursement monies, to a joint venture for personal gain. Compl. at P 186. Plaintiff further contends that the TMC Defendants entered into a conspiracy, the object of which was "the attempted monopolization of pathology services in Beaver County." Compl. at P 187. He claims that this scheme was carried out (1) by diverting fees for pathology services, including reimbursement for Medicare and Medicaid, to the DECA Labs joint venture and (2) by destroying competent pathology laboratory services at Aliquippa Hospital. Compl. at P 187.
We turn first to the defendants' arguments for summary judgment on plaintiff's Section 1962(c) claim.
1. Section 1962(c)
Section 1962(c) prohibits:
any person employed by or associated with any enterprise engaged in, or in the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c)
A claim alleging a pattern of racketeering under Section 1962(c) requires proof of four elements: (1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated, directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that the defendant participated through a pattern of racketeering activity that must include the allegation of at least two racketeering acts. Shearin, 885 F.2d at 1165.
Liability under Section 1962(c) is limited to those who participate in the operation or management of the enterprise itself. Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 1178, 122 L. Ed. 2d 525 (1993). This includes upper management as well as lower-level employees acting under their direction. Id. An enterprise also may be operated or managed by outsiders, where they exert control over the enterprise, through, for example, bribery. Id. However, a business may not be held liable under a theory of respondeat superior. Leonard v. Shearson Lehman/American Exp. Inc, 687 F. Supp. 177, 182 (E.D. Pa. 1988), citing Petro-Tech, Inc. v. Western Co. of North America, 824 F.2d 1349, 1359 (3d Cir. 1987).
In addition, the Court of Appeals for the Third Circuit requires that under Section 1962(c) the "person" be distinct from the "enterprise." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993). Section 1962(c) liability attaches only to the "person." "The RICO "person" is the active wrongdoer, while the RICO "enterprise" is the passive instrumentality through which the "person" performs the predicate acts." Leonard v. Shearson Lehman/American Exp. Inc, 687 F. Supp. 177, 181-82 (E.D. Pa. 1988), citing Petro-Tech, Inc. v. Western Co. of North America, 824 F.2d 1349, 1359 (3d Cir. 1987). A corporate defendant may be a "person" and thus liable under Section 1962(c), but only if it, through a pattern of racketeering, conducted the affairs of an enterprise other than itself. Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 268 (3d Cir. 1995), citing Petro-Tech, 824 F.2d at 1358.
Merely committing the predicate offense does not violate Section 1962(c). Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). The plaintiff must also show causation between the activity and the injury. It is well settled that the plaintiff cannot prevail upon a Section 1962 (c) claim unless he has been injured in his business or property by the conduct constituting the violation. Sedima, 473 U.S. at 496. Even if the underlying predicate acts formed a pattern of racketeering activity, they must also have directly caused the plaintiff's injury. "The requirement of injury in one's 'business or property' limits the availability of RICO's civil remedies to those who have suffered injury-in-fact." Holmes v. SIPC, 503 U.S. 258, 277, 117 L. Ed. 2d 532, 112 S. Ct. 1311 (1992). There must be a direct relationship between the injury asserted and the injurious conduct alleged. Id. Only where proximate cause exists does a plaintiff have standing to raise a RICO claim. Id.
In their respective motions for summary judgment, each of the defendants to this action argues that Dr. Baglio lacks standing to assert his Section 1962(c) claims because the alleged predicate acts did not cause the alleged harm. Thus, as a threshold issue, we must determine whether the alleged predicate acts injured the plaintiff in his business or property. If the element of causation is lacking, then Dr. Baglio lacks standing under the statute and we need not address the substance of his RICO claims.
We note that none of the plaintiff's submissions directly address his standing to raise a claim under Section 1962(c). The plaintiff asserts that an injury under Section 1962(c) need not be a "racketeering injury," and we agree. Mem. of Law at PP 22, 23. Section 1962 does not contain a distinct racketeering injury requirement. Sedima, 473 U.S. at 495. However, the alleged harm must be caused by the underlying predicate acts. The only causation argument advanced in plaintiff's Memorandum of Law is the following conclusory statement:
23. There is evidence that a jury may find as a fact, that Plaintiff's termination was the direct and proximate cause of the ALIQUIPPA HOSPITAL physicians' violation of the Hobbs Act at 18 U.S.C. § 1951 in making threats against the property of ALIQUIPPA HOSPITAL, to-wit, ALIQUIPPA HOSPITAL'S Medicare and Medicaid revenue from clinical pathology laboratory services, as well as other acts of racketeering activity in furtherance of the racketeering scheme.
Pl.'s Mem. at Law at § 23.
We suspect that plaintiff means that the alleged activities of the Physician Defendants caused plaintiff's termination, and not the other way around.
Dr. Baglio asserts that the alleged injury to business or property is "being terminated from his profession of medicine in his area of specialty, being clinical pathology." RICO Case Stmt. at P 15. The question we must pose, then, is whether any of the alleged predicate acts caused Dr. Baglio to lose his position as director of the pathology lab. We have discerned a number of predicate acts from the materials submitted by the plaintiff, and find that, even if these acts occurred as the plaintiff claims, none of them proximately caused the harm complained of.
Joint Ventures and Alleged Medicare and Medicaid Violations
Dr. Baglio alleges numerous ways in which the defendants, through joint venture arrangements, violated the anti-kickback portions of the Medicare and Medicaid statutes and therefore the Travel Act. He alleges that the Medical Center Defendants referred lab work to DECA Labs in exchange for "kickbacks." Rico Case Stmt. at P 2. He claims that these kickbacks were disguised as rental payments, but were in fact fraudulent violations of the Medicare and Medicaid statutes, 42 U.S.C. § 1320a-7(b) and 62 Pa. C.S.A. § 1407. Rico Case Stmt. at P 5 The predicate acts alleged in connection with this scheme involved mailing Medicare/Medicaid reimbursement checks to DECA Labs, and mailing kickback checks, disguised as rent checks, to the Baska, Heinle and Thomas corporations, in violation of 18 U.S.C. § 1341. Rico Stmt. at P 5. The plaintiff emphasizes that the defendants pled no contest to one charge of Medicaid fraud, and paid a fine.
With respect to the remaining defendants, plaintiff contends that the actions of various defendant physicians, officers, and directors in promoting and establishing the Aliquippa Hospital clinical pathology laboratory joint venture, were similarly based upon a scheme of Medicare and Medicaid kickbacks. Pl.'s Mem. of Law at P 19.
The only Court of Appeals to address alleged Medicare and Medicaid kickbacks in the context of health care joint ventures is the Ninth Circuit. Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995). Hanlester does not appear to support plaintiff's position:
The fact that a large number of referrals resulted in the potential for a high return on investment, or that the practical effect of low referral rates was failure for the labs, is insufficient to prove that appellants offered or paid remuneration to induce referrals.
Hanlester, 51 F.3d at 1399.
In other words, physician self-referral joint ventures are not prohibited per se by the plain language of the statute. However, we need not reach the issue of whether the conduct of the defendants in the action before us constituted such fraud. Even if the actions of any of the defendants violated the anti-kickback provisions of the Medicare and Medicaid statutes, such violations did not directly cause Dr. Baglio to lose his position as director of the pathology lab because he was not the target of any such fraud.
Medicare and Medicaid fraud is perpetrated upon the United States government. To strengthen the government's ability to prosecute fraud and abuse in the Medicare-Medicaid system, Congress amended the antikickback statute in 1977. Medicare-Medicaid Anti-fraud and Abuse Amendments, Pub.L. No. 95-142, 91 Stat. 1174, 1182 (1977). In 1987, Congress consolidated the antikickback provisions of state and federal health care programs into § 1128B(b) of the Social Security Act, 42 U.S.C. § 1320(a)-7b. These amendments allow the imposition of penalties and assessments for fraudulent submission of Medicare and Medicaid claims. The purpose of such penalties is to make the government whole for moneys expended in paying fraudulent claims and in investigating fraudulent submissions. Bernstein v. Sullivan, 914 F.2d 1395 (9th Cir. 1990).
Hanlester is again instructive. We note that Hanlester was brought by the Secretary for Health and Human Services, who has the authority under the Act to impose civil penalties for violations. The Court of Appeals for the Ninth Circuit stated that:
The remedial purpose of § 1128(b) is to enable the Secretary to protect federally-funded health care programs and their beneficiaries and recipients from future conduct which is or might be harmful.