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U.S. ex rel. Emanuele v. Medicor Associates

United States District Court, W.D. Pennsylvania

March 15, 2017

U.S. ex rel. Tullio Emanuele, Plaintiff/Relator,
Medicor Associates, et al, Defendants.


          Joy Flowers Conti Chief United States District Judge

         I. Introduction

         Pending before the court are cross-motions for summary judgment filed by Plaintiff/Relator Tullio Emanuele (“Plaintiff”) (ECF No. 276) and defendants The Hamot Medical Center of the City of Erie (“Hamot”) (ECF No. 286), Medicor Associates, Inc. (“Medicor”) (ECF No. 280), and individually named defendants Robert J. Ferraro, M.D. (“Ferraro”), Charles M. Furr, M.D. (“Furr”), Richard W. Petrella, M.D. (“Petrella”), and Timothy C. Trageser, M.D. (“Trageser”) (ECF No. 282).[1] In his amended complaint (ECF No. 64), Plaintiff contends that each of the defendants submitted false claims for payment to the United States government based on referrals from Medicor and the physician defendants to Hamot that violated the Stark Act, 42 U.S.C. § 1395nn, and the Anti-Kickback Act, 42 U.S.C. § 1320a-7b. Plaintiff seeks damages pursuant to the False Claims Act, 31 U.S.C. § 3729(a)(1)(A)-(C) (the “FCA”). For the reasons that follow, Plaintiff's motion will be granted in part and denied in part; Hamot's and Medicor's motions will be denied; and the individual physicians' motion will be granted.

         II. Background

         From June 2001 through May 2005, Plaintiff was employed as a cardiologist at Medicor, a private practice medical group consisting of several cardiologists and internal medicine physicians. (Am. Compl. (ECF No. 64) ¶¶ 21-23; Hamot's Concise Statement of Material Facts (“Hamot C.S.F.”) (ECF No. 288) ¶ 5.) Physician defendants Petrella, Ferraro, Furr, and Trageser are each shareholders of Medicor engaged in the practice of cardiology. (Consolidated Statement of Material Facts (“C.S.M.F.) (ECF No. 328) ¶ 3.)

         Hamot is a tertiary care facility, regional referral hub, and Level II Trauma Center located in Erie, Pennsylvania. (Affidavit of Stephen Danch (“Danch Aff.”) (ECF No. 289-37) ¶ 4.) Since approximately 1998, Medicor has been the exclusive outside provider of cardiology services to Hamot. (Hamot C.S.F. (ECF No. 288) ¶ 18.) At some point prior to 2004, Hamot and Medicor expanded this relationship into a paired leadership model which became known as the Hamot Heart and Vascular Institute (“HHVI”). (Id. ¶ 20.) Hamot and Medicor cemented this relationship by entering into a series of medical directorship arrangements. (C.S.M.F. (ECF No. 328) ¶ 1.) As of 2005, these agreements included the following:

- Agreement for Medical Supervision and Direction of Clinical Cardiovascular Services (“Clinical Cardiology Agreement”);
- Agreement for Medical Supervision and Direction of Rehab/Restorative Cardiovascular Services (“Rehab/Restorative Cardiology Agreement”);
- Agreement for Medical Supervision and Direction of Regional Affiliate Hospital Cardiovascular Services (“Regional Affiliate Cardiology Agreement”);
- Agreement for Medical Supervision and Direction of Non-Invasive Cardiovascular Lab Services (“Non-Invasive Cardiology Agreement”);
- Agreement for Medical Supervision and Direction of Cardiac Catheterization Lab Services (“Cardiac Catheterization Lab Agreement”); and
- Agreement for Medical Supervision and Direction of Electrophysiology Services (“Cardiac Electrophysiology Agreement”).

(Id. ¶ 4.)[2] The medical directorship agreements provided for the following payments: $6, 250.00/month for Clinical Cardiology Services; $4, 166.00/month for Rehab/Restorative Cardiology Services; $5, 000.00/month for Regional Affiliate Hospital Services; $6, 666.66/month for Non-Invasive Cardiology Services; $6, 666.66/month for Cardiac Catheterization Lab Services; and $5, 000.00/month for Cardiac Electrophysiology Services. (Id. ¶ 5.)

         Each of the directorship agreements detailed specific services and responsibilities that Medicor was to provide for the duration of the agreement. For example, the Cardiac Catheterization Lab Services Agreement outlined the following duties:

1. Facilitate and implement best practices, utilizing outcomes date and established benchmarks;
2. Monitor clinical care and outcomes, discuss and improve clinical outcomes with service staff, and intervene when necessary;
3. Facilitate pre-operational management, care management and post procedure processes;
4. Respond to request for guidance and direction from service line leaders and case management staff;
5. Develop and implement clinical pathways, protocols, guidelines and disease management programs;
6. Assist in the establishment and adherence to budgets; and
7. Assist in the establishment and adherence to service delivery schedules.

         (C.S.M.F. (ECF No. 328) ¶ 117.) Dr. Trageser was assigned to provide services pursuant to the Cardiac Catheterization Lab Services Agreement. (Id. ¶ 119.) The Clinical Cardiovascular Services Agreement (assigned to Dr. Kelly Hayes), Cardiac Electrophysiology Agreement (assigned to Dr. Jeffrey Dakas), Non-Invasive Cardiology Services Agreement (assigned to Dr. David Strasser), Regional Affiliate Cardiology Agreement (assigned to Dr. Petrella), and Rehab/Restorative Cardiology Agreement (assigned to Dr. Furr) each provided for similar responsibilities and services. (Id. ¶¶ 121, 125, 129, 133, and 137.)

         As of 2006, the Regional Affiliate Hospital Services Agreement, Non-Invasive Cardiology Services Agreement, Cardiac Catheterization Lab Services Agreement, and the Cardiac Electrophysiology Services Agreement each contained the following language:

The terms of this Agreement shall begin on January 1, 2006 (the “Commencement Date”) and shall continue through December 31, 2006, at which time this Agreement shall terminate automatically, unless the parties have agreed in writing to an extension of renewal. If this Agreement is terminated as provided herein, the parties hereby agree that they shall not enter into a new agreement or arrangement with each other for the same or similar Services during the first year of the original term of this Agreement.

(C.S.M.F. (ECF No. 328) ¶ 6.) The Rehab/Restorative Cardiology Services Agreement contained substantially identical language:

The terms of this Agreement shall begin on January 1, 2006 (the “Commencement Date”) and shall continue through December 31, 2006, at which time this Agreement shall terminate automatically, unless the parties have agreed in writing to an extension of renewal.


         The Clinical Cardiology Services Agreement contained the following language in a 2006 addendum:

The terms of the Agreement shall be extended to December 31, 2006, at which time the Agreement shall expire, unless terminated sooner as provided for in the Agreement.

(Id. ¶ 7.)

         Upon reaching the stated expiration date of December 31, 2006, none of the original six medical directorship agreements were formally extended or renewed. (C.S.M.F. (ECF No. 328) ¶ 9.) Nonetheless, for much of 2007, Hamot and Medicor continued to operate as if the agreements were still in effect. (Id.) This course of conduct was acknowledged in a memorandum issued by Dr. Joseph McClellan, Senior Vice-President and Medical Director of Hamot Heart Institute, on September 26, 2007:

Medicor has six medical directorship contracts for, 1) electrophysiology, 2) cardiac catheterization, 3) non-invasive services, 4) clinical cardiovascular services, 5) rehab services, and 6) the Heart Institute diagnostic testing.
It is my understanding that the first 5 of these contracts officially expired on December 31, 2006, however, we have continued to operate under these agreements; the physicians have continued to fulfill the elements of these contracts and payment for these services has continued.
It is our suggestion that contracts be prepared to cover the period from January 1, 2007 until December 31, 2007 under the same terms with the same physicians, at which point they should all expire without any further clauses for automatic renewal. Our expectation is that all payments to the physicians will also cease when these contracts terminate, i.e., upon termination on December 31, 2007, there will no longer be any payment made to the Medicor physicians unless an agreement is reached to renew the contracts with them before that date.

(Id. ¶ 10.)

         On November 29, 2007, the parties executed formalized documents, characterized as “addendums, ” which provided that the terms of each of the five expired medical directorship agreements “shall be extended to December 31, 2007, at which time [the] Agreement shall expire, unless terminated sooner as provided for in the Agreement.” (Id. ¶ 16.)[3] Each addendum was backdated to January 1, 2007. (ECF Nos. 279-15, 279-17, 279-18, 279-19, 279-20, 279-21.) A cover letter attached to each addendum stated that, “after December 31, 2007, these Agreements will expire and no further payments will be made on these Agreements unless new Agreements have been completed and fully-executed.” (ECF No. 279-36.).

         On December 31, 2007, the five remaining medical directorship agreements again reached their stated termination date. (C.S.M.F. (ECF No. 328) ¶ 20.) As in 2007, the parties continued to tender invoices and payments in a manner consistent with their conduct pursuant to the written agreements. (Id.) On December 18, 2008, the parties executed another series of backdated addenda extending the terms of the original contracts “to June 30, 2009, ” at which point the agreements “[would] expire, unless terminated sooner as provided for in the Agreement.” (Id. ¶¶ 21-22.)

         The same circumstances presented in 2009. Despite reaching the stated termination date of the governing agreements on June 30, 2009, the parties continued to submit invoices and make payments pursuant to the agreements until March 31, 2010. (Id. ¶¶ 24-25.) At that time, Hamot and Medicor entered into a global Cardiology Outpatient Services Agreement that completely restructured their relationship and eliminated the various medical directorship arrangements between the parties. (Id. ¶ 25.)

         In the meantime, Hamot and Medicor had begun to discuss the possibility of entering into arrangements covering two additional service areas: a Women's Heart Health Program and a Chairman for Hamot's Department of Cardiovascular Medicine and Surgery (“CV Chair”). (Hamot C.S.F. (ECF No. 288) ¶ 18; C.S.M.F. (ECF No. 328) ¶¶ 212-13, 256.) Hamot and Medicor had begun working toward implementing a dedicated Women's Heart Program as early as 2007. (C.S.M.F. ¶ 212.) By February 25, 2008, Hamot was considering creating a new medical directorship position for Dr. Kelly Hayes for services performed in conjunction with the Women's Heart Program. (Id. ¶ 215.) Although the record contains a draft “Agreement for Medical Supervision and Direction of the Women's Cardiac Services Program” with a proposed effective date of July 1, 2008 (ECF No. 304-26), this document, prepared at some point after November 19, 2008, was never signed by the parties. (Id.; C.S.M.F. (ECF No. 328) ¶¶ 220-21; Irwin Depo. (ECF No. 289-22) at 134-35.) Lisa Irwin, Medicor's Rule 30(b)(6) designee, testified that she was “not aware that an agreement was signed but Dr. Kelly Hayes provided that medical directorship's services and still does.” (Irwin Depo. (ECF No. 289-22) at 134-35.) Despite the absence of a signed agreement, Hamot made payments to Medicor pursuant to this arrangement through March 31, 2010. (C.S.M.F. (ECF No. 328) ¶ 223.)

         Discussions concerning a paid CV Chair position arose in 2008, when Dr. McClellan's departure from Hamot led to Medicor physician Dr. Ferraro assuming the administrative duties of a CV Chair. (Hamot C.S.F. (ECF No. 288) ¶ 35; C.S.M.F. (ECF No. 328) ¶¶ 255-257.) By at least November 19, 2008, Hamot and Medicor had agreed that Dr. Ferraro should be compensated for this work. (C.S.M.F. (ECF No. 328) ¶ 259.) However, no formal arrangement memorializing this agreement exists. (Irwin Depo. (ECF No. 289-22) at 136-37.) Irwin testified that no formal document was ever executed with respect to Dr. Ferraro's payments for the CV Chair position, and Dr. Ferraro testified that he “never really had a formal directorship per se.” (Irwin Depo. (ECF No. 289-22) at 136-37; Ferraro Depo. (ECF No. 289-26) at 24.) Nonetheless, Hamot paid for Dr. Ferraro's services as CV Chair until March 31, 2010. (Hamot C.S.F. (ECF No. 288) ¶ 37.)

         III. Procedural History

         Plaintiff filed a complaint under seal on October 8, 2010, asserting four counts pursuant to §§ 3729 and 3732(a) of the FCA. (ECF No. 1.) A copy of the complaint was served upon the government and, on September 7, 2011, the government elected not to intervene. (ECF No. 10.) Plaintiff opted to proceed with the action on his own.

         On November 30, 2012, Plaintiff filed an amended complaint. (ECF No. 64.) Plaintiff's claims in that pleading fell into essentially two categories. First, he alleged that the medical directorship arrangements entered into between Hamot, Medicor, and an entity known as Flagship Cardiac, Vascular, and Thoracic Surgery of Erie (“Flagship”) were shams enacted for the purpose of inducing unlawful patient referrals. (Am. Compl. (ECF No. 64) ¶¶ 98-102.) Secondly, he alleged that Doctors Ferraro, Furr, Petrella, Trageser, and Donald Zone (“Zone”) “knowingly, systematically, routinely and repeatedly” performed medically unnecessary cardiac and vascular procedures for profit. (Id. ¶¶ 129-148.)

         Each defendant moved to dismiss pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. (ECF Nos. 67, 69, 71, 73.) On July 26, 2013, the district judge to whom this action was previously assigned entered a memorandum order dismissing Flagship and Dr. Zone from this action for failure to state a claim. (ECF No. 89.) The motions to dismiss filed by Hamot, Medicor, and the remaining physician defendants were denied. (Id.)

         On February 25, 2016, Plaintiff filed a notice withdrawing his claims based on medically unnecessary procedures. (ECF No. 253.)

         On July 8, 2016, Medicor (ECF No. 280), Hamot (ECF No. 286), and the physician defendants (ECF No. 282) filed motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. Plaintiff responded to each motion on August 22, 2016. (ECF Nos. 305, 306, 308.) Defendants filed reply briefs in support of their summary judgment motions on September 6, 2016. (ECF Nos. 317, 319.)

         On July 8, 2016, Plaintiff filed a cross-motion seeking partial summary judgment with respect to several discrete aspects of his Stark Act claim. (ECF No. 276.) The defendants responded to the motion (ECF Nos. 300, 303), and Plaintiff filed a brief in reply. (ECF No. 313.)

         On September 6, 2016, the defendants filed a joint motion to strike (ECF No. 321) the concise statements of material facts submitted by Plaintiff in response to the defendants' motions for summary judgment (ECF Nos. 307, 309.) On September 15, 2016, the defendants filed a similar motion to strike (ECF No. 324) the concise statement of material facts submitted by Plaintiff in support of his own summary judgment motion (ECF No. 314.)[4]

         On January 6, 2017, the United States Government sought and received leave to file a Statement of Interest with respect to several issues raised in the parties' summary judgment motions. (ECF No. 339.) On February 7, 2017, the defendants filed a response to the government's position statement. (ECF No. 341.) The government filed a reply on February 17, 2017. (ECF No. 344.)

         Each of these matters is now fully briefed and ripe for review.

         IV. Standard of Review

         Summary judgment may only be granted where the moving party shows that there is no genuine dispute as to any material fact, and that a judgment as a matter of law is warranted. Fed.R.Civ.P. 56(a). Pursuant to Federal Rule of Civil Procedure 56, the court must enter summary judgment against a party who fails to make a showing sufficient to establish an element essential to his or her case, and on which he or she will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In evaluating the evidence, the court must interpret the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences in his or her favor. Watson v. Abington Twp., 478 F.3d 144, 147 (3d Cir. 2007). The burden is initially on the moving party to demonstrate that the evidence contained in the record does not create a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). A dispute is “genuine” if the evidence is such that a reasonable trier of fact could render a finding in favor of the nonmoving party. McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). Where the nonmoving party will bear the burden of proof at trial, the moving party may meet its burden by showing that the admissible evidence contained in the record would be insufficient to carry the nonmoving party's burden of proof. Celotex Corp., 477 U.S. at 322. Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond his or her pleadings and designate specific facts by the use of affidavits, depositions, admissions or answers to interrogatories showing that there is a genuine issue of material fact for trial. Id. at 324. The nonmoving party cannot defeat a well-supported motion for summary judgment by simply reasserting unsupported factual allegations contained in his or her pleadings. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989).

         V. ...

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