Arizona Court Rejects Defendants’ Bid for Summary Judgment in Summit Center Kickbacks Case

On June 15, 2022, a Federal Judge in the United States District Court for the District of Arizona ruled that a lawsuit concerning illegal kickbacks to physicians was fit to proceed, denying Defendants’ attempt to defeat the legal action.

The whistleblower lawsuit alleges that Northern Arizona Healthcare Corporation (“NAHC”), Northern Arizona Orthopedic Surgery Center, LLC, and Flagstaff Medical Center, Inc. (together, “Defendants”), which collectively operate healthcare facilities throughout northern Arizona, violated the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., and Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, by purchasing a physician-owned surgery center at an inflated price in order to reward the physicians for their past business and induce them to refer future business to Defendants.

In early 2013, Defendants began considering the acquisition of Summit Surgery and Recovery Care Center, Inc. (“Summit Center”), then owned by 16 individual physicians. The whistleblower, an executive at NAHC at the time, researched the facility and estimated the fair market value of the Summit Center to be between $8 and $10 million, which he reported to NAHC’s CEO in December 2013.

Shortly after leaving the company, the whistleblower learned that Defendants purchased the Summit Center for an exorbitant $25.1 million. Alarmed, the whistleblower filed this lawsuit in February 2018, alleging that Defendants paid the excessive sum to unlawfully reward the physician-owners and that all claims the physicians submitted to government healthcare programs for services performed at Defendants’ facilities after the April 1, 2015 acquisition date violated the FCA.

In November 2020, Defendants moved to dismiss the lawsuit, arguing that the whistleblower failed to sufficiently describe the “who, what, when, where, and how” of the alleged fraud as required under the heightened pleading standard of Federal Rule of Civil Procedure 9(b). Defendants also maintained that the whistleblower failed to demonstrate that the Defendants acted willfully. The District Court disagreed and denied the motion in January 2021, finding that the whistleblower pled sufficient facts to support an inference of fraud and admonishing Defendants for submitting briefs that read more “like a closing jury argument or summary judgment motion.”

After an extensive period of discovery and document exchange, Defendants filed a motion for summary judgment in April 2022. In the motion, Defendants argued that there were no material factual disputes and that they were therefore entitled to summary judgment as a matter of law on three grounds: (1) the deal was commercially reasonable, (2) the whistleblower did not demonstrate Defendants acted knowingly, and (3) the whistleblower did not show causation under the AKS. In response, the whistleblower argued that NAHC ignored obvious expenses which lowered the true fair market value of Summit Center, which Defendants knew was lower than $25 million.  The whistleblower also asserted that the causation requirement under the AKS was not as high a bar as Defendants espoused, and that it had been satisfied.

On June 15, 2022, the District Court largely denied Defendants’ motion.

With respect to the first issue, the Court found genuine disputes of material fact, refusing to “disregard [the whistleblower and his expert’s] contradicting opinions and valuations.” As to the second issue, the Court determined that the whistleblower “provided evidence from which a jury could find that Defendants acted with either actual knowledge or deliberate ignorance of their overpayment.” Finally, addressing the third issue, the Court explained that direct, but-for causation is not required under the AKS and that “a reasonable jury could find that the inflated purchase price was a substantial factor in causing the physician-owners to perform surgeries at Defendants’ facilities.”

The whistleblower is represented by Miller Shah LLP, Youman & Caputo LLC, and Jennings Haug Keleher McLeod LLP. The lawsuit will now proceed through the pretrial stage and is on track to reach trial shortly thereafter. Updates will be posted to this blog as the matter progresses. The case caption is Kuzma v. Northern Arizona Healthcare Corporation et al, No. 3:18-cv-08041, filed in the United States District Court for the District of Arizona.

Under the FCA’s whistleblower provision, individuals may bring lawsuits on behalf of the Federal Government against entities suspected of misusing government money. Whistleblowers are eligible to receive between 10 and 30 percent of the recouped funds. Federal whistleblower programs, such as the FCA scheme, have recovered billions in taxpayer dollars and are an important part of the government’s anti-fraud toolkit.

The legal team at Miller Shah LLP has significant experience representing whistleblower matters. If you have any questions regarding this subject or this post, please contact John Roberts (jcroberts@millershah.com) or Stephen Rutkowski (strutkowski@millershah.com). The firm can also be reached toll-free at (866) 540-5505.

Miller Shah LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. The firm is an active member of Integrated Advisory Group (IAG Global), which provides clients access to excellent legal and accounting resources around the globe. For more information about the firm, please visit https://www.millershah.com.

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