United States of America v. Crescendo Bioscience, Inc.

Background

STF, LLC brought a qui tam lawsuit on behalf of the United States and California under the federal False Claims Act, the California False Claims Act, and the California Insurance Frauds Prevention Act. The United States and California declined to intervene. STF’s amended complaint asserted seven causes of action against Crescendo Bioscience, Inc. and Myriad Genetics, Inc.

STF alleged two referral-inducement schemes. First, it alleged that Crescendo paid physicians $15 for each patient whose blood was drawn and whose sample was sent to Crescendo for testing. STF claimed that the payments exceeded fair market value and were intended to induce physicians to order Crescendo’s VectraDA test and refer patients, including patients whose testing would be paid for by Medicare or Medicaid. Second, STF alleged that Crescendo capped patients’ copayments and deductibles at $25 and generally did not send patients to collections, giving physicians an incentive to refer additional patients.

Defendants’ Arguments and Legal Standards

The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 9(b). Rule 12(b)(6) tests whether a complaint states a plausible claim for relief. Rule 9(b) requires fraud to be pleaded with particularity, including enough information about the misconduct to give defendants notice of the alleged wrongdoing. The court also considered the defendants’ argument that STF lacked capacity to sue because its California business status had been suspended.

Court’s Analysis

The court treated the capacity issue as moot because STF had corrected its status and was listed as active. The court also granted the parties’ requests for judicial notice of California Secretary of State records.

As to the processing-fee scheme, the court held that STF plausibly alleged that the payments were intended to induce referrals. The court explained that a payment may violate the federal Anti-Kickback Statute if one purpose is to induce referrals of business payable by a federal healthcare program, even if the payment is also intended to compensate for services and even if it is claimed to be fair market value. The alleged $15-per-sample payments, payment structure, and related patient-fee waivers supported a reasonable inference of improper inducement.

The court also held that STF satisfied Rule 9(b). Although STF did not identify a particular physician or a specific payment transaction, it described the alleged contracts, specimen kits, blood draws, monthly invoices, payments by Myriad, and the alleged purpose of the arrangement in sufficient detail. The court found that a complaint need not identify a specific transaction if it provides particular details of the scheme and reliable indications that false claims were submitted.

The court further found that STF plausibly alleged the required knowledge, or “scienter,” for its federal claims. Allegations that the defendants described the payments as fair market value despite knowing they were illegal, together with communications about concealing the patient-fee practices, supported a plausible inference of knowledge. The court emphasized that proving a specific intent to defraud the government was not required under the False Claims Act.

For the patient-fee scheme, the court found that STF plausibly alleged a connection between limiting patients’ financial responsibility and inducing physicians to refer business. The alleged ability to reassure patients that they would owe no more than $25 could benefit physicians and encourage referrals. The court also found that STF pleaded this scheme with sufficient particularity, citing the alleged $25 cap, the promise not to send patients to collections, and named salesperson Kerri Jacobson’s April 2016 text messages and emails.

Finally, the court rejected the defendants’ challenges to STF’s California Insurance Frauds Prevention Act claims. The court found that STF’s allegations about the two schemes and the private insurers allegedly harmed were sufficiently detailed at the motion-to-dismiss stage. It also declined to limit those claims at that stage to insurance claims involving California payors regulated by the California Department of Insurance.

Disposition

The court denied the defendants’ motion to dismiss. It ordered the defendants to file answers to STF’s amended complaint within 14 days and set a telephonic case-management conference for June 25, 2020.