Court Tosses Out $11 Million Verdict

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Summary: A multimillion-dollar verdict over whether providing free urine sample cups to doctors was proper has been dismissed by a federal court of appeals.

A federal appellate court has dismissed an $11.26 million verdict, Daily Report Online reports, but has failed to answer significant healthcare law questions that are the focus of the case.

  

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The case involves a dispute over a laboratory company’s giveaway of free urine specimen cups to physicians. A competitor challenged the giveaway as an illegal kickback under federal law. Such laws are designed to prevent conflicts of interest while curtailing health care spending. The competitor was awarded the multimillion-dollar verdict last year by a Florida jury.

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However, the Eleventh Circuit Court of Appeals has vacated the verdict. According to the appellate court, the federal judge who presided over the trial should not have exercised jurisdiction over state law claims in the case. These claims were actually the only ones heard by the jury. The Court of Appeals felt that the claims should not have been heard because of their complex and novel characteristics.

Since the court only decided the jurisdictional issue, it would not address the defendant’s claims that it did not violate federal law because the giveaway program was not an illegal kickback.

The urine specimen collection cups cost between $4 and $7. They are used to monitor patients’ pain medication use. These cups have chemically activated strips that instantly provide doctors with certain medical information. However, a lab must study the urine for a complete analysis.

Millennium Laboratories, now called Millennium Health, began giving free cups to doctors who agreed not to bill patients or insurance companies for the instant testing but would instead ship them to Millennium for additional analysis. Ameritox, a competitor, argued that the cups were a central selling point for Millennium, hurting Ameritox, which would not issue free cups.

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Ameritox next sued Millennium under the Lanham Act, which prohibits trademark infringement and false advertising. Additionally, Ameritox argued several state law claims applied, such as tortious interference and unfair competition.

Just before the trial last year, the Lanham Act claim, which was the only federal claim filed by Ameritox, was dismissed with a consent order after the judge ruled that Ameritox would not be able to recover monetary damages based on that claim. The trial went forward only on the state law claims and counterclaims.

On the verdict form, the jury was asked to consider whether the giveaway was in violation of federal Stark Law and Anti-Kickback Statute. The Stark Law prevents doctors from referring Medicare and Medicaid patients to facilities with which the doctors have a financial relationship. The Anti-Kickback Statute prohibits paying “remuneration” to encourage a referral for federally covered health care. Criminal penalties are also included in this statute.

Additionally, the jury was asked to determine whether Ameritox proved the state claims.

The jury decided that Millennium acted in violation of federal law and awarded Ameritox $2.75 million in compensatory damages, and another $12 million in punitive or exemplary damages under the state laws of Texas, Tennessee, and Florida. However, the total award was later reduced to $11.26 million. According to Law360, $3.5 million was cut from the punitive damages award.

During the appeal, Millennium argued that the judge should not have allowed the trial to proceed with only state law claims. Millennium also argued that it was improper to allow the jury to consider whether the cup giveaway violated the Stark Law and the Anti-Kickback Statute.

The kickback exemption centered on an interpretation by the Office of the Inspector General of the U.S. Department of Health and Human Services that exempted free items that are “integrally related” to the supplier’s services. Millennium argued that providing items to facilitate testing in a lab is not the same as providing physicians with money or tickets to sporting events to earn business.

Ameritox responded that, during trial, Millennium had not contested whether a violation of the federal statutes could lead to state law liability. Ameritox argued that the cups had value to the doctors, even if they did not bill for them. According to a separate article by Daily Report Online, Ameritox said that, if the cups were not valuable, the giveaway would not have induced doctors to sign agreements to use Millennium’s lab services. In an amicus brief, the Justice Department supported Ameritox, stating that the giveaway did violate the Stark Law and Anti-Kickback Statute.

The Eleventh Circuit Court of Appeals explained that the federal jurisdiction over the case was not based on the citizenship of the parties. When parties are from multiple states, federal jurisdiction is often appropriate. Instead, jurisdiction was based on initial involvement of federal claims, which gave the judge discretion over whether the state law claims would be addressed. By relying on federal statutes, the state law claims gave the judge novel and complex questions of state law.

In the states whose laws were being considered, only Texas had ever considered with a Stark or Anti-Kickback Statute violation could support a state law claim. Texas actually rejected using an Anti-Kickback Statute violation as the basis for a state unfair competition claim. Therefore, it was an abuse of discretion for the judge to retain jurisdiction over the claims, since federal courts should not normally decide state law issues.

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In response to Ameritox’s arguments that reversing the decision would waste the work that was done on the case, the court said, “Ameritox advanced outlandish legal theories and Millennium went along with it. Either party could have halted this farce long ago.”

Millennium’s appeal was successfully argued by former U.S. Solicitor General Paul Clement of Bancroft. Brock Hardaway, the CEO of Millennium, said, “Millennium defended this case vigorously over the past three years based on our firm belief that the company took every measure to ensure that its actions were appropriate and fully consistent with the letter of applicable laws.” He further said that Millennium was “fully committed to the highest business and ethical standards in everything we do as a company.”

Source: Daily Report Online

Photo credit: health.wusf.usf.edu, New York Law Journal (Clement)