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Decision raises the bar for defending False Claims Act cases

1st Circuit says non-submitting entities can be liable for false claims filed by others.

Whistleblower Susan Hutcheson,a former regional manager for Blackstone Medical, claimed to have observed nationwide business practices that violated the Anti-Kickback Statute (AKS). She claimed Blackstone employees offered surgeons cash and other financial incentives, including consulting contracts, research grants and travel and entertainment expenses, to induce them to use Blackstone’s devices in spinal surgeries. Because these physicians and their hospitals submitted claims for payment by Medicare for surgeries using the devices, she alleged in U.S. ex rel. Hutcheson v. Blackstone Medical that Blackstone had caused the medical professionals to violate the False Claims Act (FCA) by submitting false claims to the government.   

Hutcheson alleged that the hospital and physician claims were materially false or fraudulent because the alleged kickbacks could have affected Medicare’s decision whether to pay them. The key issue in the case was whether Blackstone, the sole defendant, was responsible for the alleged fraud in the Medicare claims, even though it did not submit the claims.

The 1st Circuit view flies in the face of the Supreme Court’s narrower and textual-focused reasoning in both Rockwell International v. United States ex. rel. Stone and Allison Engine v. United States ex. rel. Sanders, claims David Douglass, a partner at Shook, Hardy & Bacon.  

“The Blackstone decision is important,” says Douglass, “because it greatly expands the reach of the False Claims Act. The analysis is Orwellian. It continues a disturbing legislative and judicial trend of transforming the False Claims Act into a general-purpose, anti-fraud statute.”

Michael Kozubek

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