Woundkair Concepts, Inc., Dan Anderson, and Kim Anderson v. Richard F. Walsh, Medica-Rents Co., Ltd. and MED-RCO, Inc. ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00349-CV
WOUNDKAIR CONCEPTS, INC., APPELLANTS
DAN ANDERSON, AND KIM
ANDERSON
V.
RICHARD F. WALSH, MEDICA- APPELLEES
RENTS CO., LTD., AND MED-RCO,
INC.
----------
FROM THE 17TH DISTRICT COURT OF TARRANT COUNTY
----------
MEMORANDUM OPINION1
----------
Appellants Woundkair Concepts, Inc., Dan Anderson, and Kim Anderson
sued Appellees Richard F. Walsh, Medica-Rents Co., Ltd., and MED-RCO, Inc.2
for breach of contract. We will refer to the parties generally as ―WCI‖ and
1
See Tex. R. App. P. 47.4.
2
MED-RCO is the general partner of Medica-Rents Co.
―Medica-Rents‖ except where context requires more specificity. The trial court
granted summary judgment in favor of Medica-Rents. In three issues, WCI
argues that the trial court erred by granting summary judgment, by finding that no
party was entitled to relief, and by sustaining objections to the affidavit of Dan
Anderson. Because we hold that the trial court erred by granting summary
judgment, we reverse.
The Andersons own Woundkair Concepts, Inc. In 2004, the Andersons
and Woundkair Concepts entered into a contract (Marketing Agreement) with
Medica-Rents Co., Ltd. and Walsh (individually and as president of Medica-
Rents‘s general partner3). The agreement provided that it was effective from
November 1, 2004 to October 31, 2011.
The Marketing Agreement called for Woundkair Concepts to provide
marketing services and for Medica-Rents to act as a supplier. Medica-Rents
agreed to use Woundkair Concepts ―as its exclusive marketing agent.‖ Medica-
Rents was to hire and maintain its own sales force ―in its direct areas,‖ but
Medica-Rents salespeople were to ―follow the direction of WCI sales
management.‖
3
Medica-Rents‘s answer stated that Walsh signed this agreement ―as
president of MED-RCO, the general partner of Medica-Rents, Inc.‖ The
agreement does not actually state the name of the general partner, however. It
states that he signed as ―President of the General Partner‖ of ―Medica-Rents Co.,
Ltd.‖
2
In the agreement, Woundkair Concepts agreed to use Medica-Rents ―as its
exclusive supplier for ROHO mattresses, wound care supplies[,] and negative
pressure wound therapy.‖ The agreement made Medica-Rents responsible for
providing product ―for rental in acute care and home care venues‖ and ―for sales
to accounts and individuals in the WCI areas.‖ The agreement further provided
that Medica-Rents would bill for all product it provided and that Woundkair would
not bill any entity for Medica-Rents‘s product without written consent from
Medica-Rents. In the agreement, Medica-Rents agreed to pay a commission to
WCI of twenty percent ―of gross collected revenue from wound care programs
promoted by WCI and billed through Medica-Rents[] (wound care dressings,
negative pressure wound therapy[,] and supplies).‖
In 2006, WCI sued Medica-Rents for breach of the Marketing Agreement.
WCI alleged that in order to avoid having to pay commissions that were due
under the agreement, Medica-Rents created alleged breaches by WCI of the
Marketing Agreement to manufacture a reason to terminate the agreement.
Medica-Rents answered and filed counterclaims for breach of contract,
conversion, unjust enrichment, as well as for a declaratory judgment that the
Marketing Agreement was void for illegality. Medica-Rents then filed a motion for
summary judgment asserting the defense of illegality, alleging that the contract
3
was unenforceable because it violated 42 U.S.C. § 1320a-7b of the federal
Social Security Act4 and, therefore, violated the public policy of Texas.
WCI responded that Medica-Rents had failed to prove each essential
element of a violation of the Anti-Kickback Statute and that the evidence showed
that WCI had not knowingly and willfully intended to violate the statute, that the
agreement compensated them for acts that were not prohibited by the statute,
and that the Marketing Agreement was exempted from the reach of the statute by
a bona fide employment relationship among the parties.
The trial court signed an order granting summary judgment for Medica-
Rents based on its finding that ―the Marketing Agreement at issue in this lawsuit
is an illegal contract and therefore violates the public policy of the State of
Texas.‖ The order further stated that ―[a]ccordingly, . . . no party is entitled to any
relief for any claims of any other party.‖
Standard of Review
We review a summary judgment de novo.5 We consider the evidence
presented in the light most favorable to the nonmovant, crediting evidence
favorable to the nonmovant if reasonable jurors could, and disregarding evidence
4
42 U.S.C.A. § 1320a-7b (West Supp. 2011) (―the Anti-Kickback Statute‖);
§ 1305 (West 2011) (stating that ―[t]his chapter may be cited as the ‗Social
Security Act‘‖).
5
Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010).
4
contrary to the nonmovant unless reasonable jurors could not.6 We indulge
every reasonable inference and resolve any doubts in the nonmovant‘s favor.7 A
defendant is entitled to summary judgment on an affirmative defense if the
defendant conclusively proves all the elements of the affirmative defense. 8 To
accomplish this, the defendant-movant must present summary judgment
evidence that conclusively establishes each element of the affirmative defense.9
Analysis
WCI argues in its first issue that the trial court erred by finding as a matter
of law that the Marketing Agreement is an illegal contract and therefore violates
the public policy of the State of Texas.
Neither party argues that the Marketing Agreement is ambiguous. The
construction of an unambiguous contract is a question of law for the court, which
we review de novo.10 We must examine the entire agreement to determine the
parties‘ intent and give effect to each provision so that none is rendered
meaningless.11
6
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844,
848 (Tex. 2009).
7
20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008).
8
Frost Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508–09 (Tex. 2010); see
Tex. R. Civ. P. 166a(b), (c).
9
See Chau v. Riddle, 254 S.W.3d 453, 455 (Tex. 2008).
10
Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011).
11
Id.
5
A contract that cannot be performed without violating the law is void. 12 But
a contract that could have been performed in a legal manner will not be declared
void merely because it may have been performed in an illegal manner or
because illegal acts were committed in carrying it out.13 When two constructions
of a contract are possible, a court should give preference to the construction that
does not result in violation of the law.14 And when the illegality does not appear
on the face of the contract, it will not be held void unless the facts showing its
illegality are before the court.15
Thus, if the Marketing Agreement is not illegal on its face and could have
been performed in a legal manner, then the trial court erred by finding as a
matter of law that it is an illegal contract.16 And if the Marketing Agreement is
susceptible to two constructions, one of which would require a violation of the law
and one of which would not, we must give preference to the construction that
does not result in violation of the law.17 We therefore consider the terms of the
Marketing Agreement and the other summary judgment evidence to determine
12
Lewis v. Davis, 145 Tex. 468, 472–73, 199 S.W.2d 146, 148–49 (1947).
13
Id.; Corporate Leasing Int’l, Inc. v. Groves, 925 S.W.2d 734, 738 (Tex.
App.—Fort Worth 1996, writ denied).
14
Lewis, 199 S.W.2d at 149; Gupta v. E. Idaho Tumor Inst., Inc., 140
S.W.3d 747, 752 (Tex. App.—Houston [14th Dist.] 2004, pet. denied).
15
Lewis, 199 S.W.2d at 149; Gupta, 140 S.W.3d at 752.
16
See Groves, 925 S.W.2d at 738.
17
See Lewis, 199 S.W.2d at 149.
6
whether the trial court correctly determined that the Marketing Agreement is
illegal as a matter of law.
Medica-Rents asserted in its summary judgment motion that the Marketing
Agreement is void for illegality because it violates subsection (b)(1) of the Anti-
Kickback Statute. This provision makes it a criminal offense when any person
knowingly and willfully solicits or receives any remuneration . . .
directly or indirectly, overtly or covertly, in cash or in kind—
(A) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service
for which payment may be made in whole or in part under a
Federal health care program, or
(B) in return for purchasing, leasing, ordering, or arranging for
or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in
whole or in part under a Federal health care program.18
The Marketing Agreement provided that ―Medica-Rents will use WoundKair
Concepts, Inc. as its exclusive marketing agent during the term of this
agreement,‖ that WCI would manage certain territories, and that WCI would
receive twenty percent ―of gross collected revenue from wound care programs
promoted by WCI and billed through Medica-Rents.‖ The agreement does not
define the terms ―marketing,‖ ―managing,‖ or ―promoted,‖ nor does it describe
what WCI‘s duties would be under these provisions or what types of activities
would be included.19 Medica-Rents concedes that the Marketing Agreement
18
42 U.S.C.A. § 1320a-7b(b)(1).
19
See Plano Surgery Ctr. v. New You Weight Mgmt. Ctr., 265 S.W.3d 496,
500–02 (Tex. App.—Dallas 2008, no pet.) (construing an agreement under which
7
does not on its face violate subsection (b)(1) and that ―[n]othing in the [Marketing]
Agreement explicitly requires the party to perform an illegal task.‖ The question,
then, is whether the summary judgment evidence shows as a matter of law that
the Marketing Agreement could not be performed in a way that does not violate
this provision of the Anti-Kickback Statute.20
As an initial matter, we consider Medica-Rents‘s assertion that WCI failed
to preserve its argument that ―[e]vidence outside the Agreement does not
conclusively prove there is no way the Agreement can be performed in a legal
manner‖ because it did not raise this argument in the trial court. Medica-Rents
moved for summary judgment on the ground that the contract was void for
illegality, and it was therefore Medica-Rents‘s burden to establish this affirmative
defense as a matter of law.21 If Medica-Rents did not meet this burden, then it
was not entitled to summary judgment, and WCI was not required to challenge
the legal sufficiency of Medica-Rents‘s summary judgment ground in the trial
PSC would manage day-to-day operations of a surgical center, New You would
provide ―marketing services,‖ and the ―net cash‖ from surgical services would be
divided between the two and holding that the agreement was not facially illegal
because neither ―marketing services‖ nor ―net cash‖ was defined in the
agreement and the agreement could be performed lawfully by PSC paying New
You a percent of ―net cash‖ for ―marketing services‖ not involving the violation of
the statute at issue in that case).
20
See Lewis, 199 S.W.2d at 149; Gupta, 140 S.W.3d at 752.
21
See Frost Nat’l Bank, 315 S.W.3d at 508–09.
8
court in order to make that challenge on appeal.22 Furthermore, WCI‘s response
asserted generally that Medica-Rents had failed to conclusively prove that the
Marketing Agreement violated the Anti-Kickback Statute and asserted specifically
that ―the evidence does not conclusively prove that the agreement required [WCI]
to engage in prohibited referrals or the furnishing of Medicare-reimbursable
items.‖ WCI also asserted that the summary judgment evidence raised a fact
issue on each element of the subsection of the Anti-Kickback Statute relied on by
Medica-Rents. We therefore reject Medica-Rents‘s contention that WCI failed to
preserve its complaint for appeal. We now review the summary judgment
evidence provided by Medica-Rents to determine whether Medica-Rents met its
burden of proof to show that the Marketing Agreement could not be performed
without violating § 1320a-7b(b)(1).
Subsection (b) of the Anti-Kickback Statute is divided into two parts.
Subsection (b)(1) addresses recipients of remuneration (that is, individuals who
solicit or receive remuneration in return for making referrals). Subsection (b)(2)
addresses the other side of the transaction: individuals who pay or offer to pay
remuneration in order to induce referrals. Medica-Rents did not allege in its
summary judgment motion that the Marketing Agreement violated subsection
22
See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678
(Tex. 1979) (providing that on appeal, the nonmovant may challenge the legal
sufficiency of the grounds raised in the summary judgment motion without first
raising that challenge in the trial court).
9
(b)(2), and we therefore do not consider whether the agreement is illegal under
that provision and consider only the applicability of subsection (b)(1).23
Subsections (b)(1) and (b)(2) are each further divided into two parts, with
subparagraph (A) addressing the referral of individuals, and subparagraph (B)
addressing the referral of services or goods.24 Thus, subsection (b)(1)(A)
prohibits the referring of individuals for the furnishing (or for the arranging for the
furnishing of) an item or service in return for receiving remuneration for that
referral. This provision would apply, for example, to a doctor who receives
remuneration from a hospital in return for referring patients to the hospital.25 The
Marketing Agreement would violate this part of the Anti-Kickback Statute if it
called for WCI to receive remuneration in return for referring individuals to
Medica-Rents for the furnishing of (or arranging for the furnishing of) Medica-
Rents product, when the individual‘s payment for that product may be made by
Medicare.26 In this case, no evidence shows that the Marketing Agreement could
23
See McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341
(Tex. 1993) (stating that a summary judgment motion ―must stand or fall on the
grounds expressly presented in the motion‖).
24
See United States v. Polin, 194 F.3d 863, 867 (7th Cir. 1999); see also
United States v. Stewart Clinical Lab., Inc., 652 F.2d 804, 806-07 (9th Cir. 1981)
(construing the same language in a different section of the Social Security Act).
25
See, e.g., United States v. Borrasi, 639 F.3d 774, 776 (7th Cir. 2011).
26
See 42 U.S.C.A. § 1320a-7b(b)(1)(A) (prohibiting receiving remuneration
―in return for referring an individual to a person for the furnishing or arranging for
the furnishing of any item . . . for which payment may be made in whole or in part
under a Federal health care program‖). The Anti-Kickback Statute does not refer
specifically to Medicare, using instead the term ―federal health care program.‖
10
not be performed without violating this section. No evidence showed that the
Marketing Agreement required WCI to refer individuals for goods or services.
Instead, the only evidence on this question is the testimony of the Andersons in
which they stated that WCI did not did not refer individuals to Medica-Rents for
the furnishing of Medica-Rents goods. Medica-Rents did not offer any evidence
in contravention of the Andersons‘ testimony, such as testimony from Walsh,
much less evidence establishing as a matter of law that the Marketing Agreement
required WCI to obtain referrals or make sales.
Medica-Rents points to Nursing Home Consultants, Inc. v. Quantum
Health Services, Inc. as support for its argument that the Marketing Agreement
violated subsection (b)(1).27 But the marketing agreement in that case differed
from the one in this case. NHC served as an intermediary between nursing
home residents and medical suppliers.28 Quantum was a medical supplier that
provided its supplies to nursing home patients.29 The agreement between NHC
and Quantum called for NHC ―to identify Medicare recipients who needed the
medical supplies that Quantum provided, and to put those recipients in contact
See 42 U.S.C.A § 1320a-7b(f) (defining ―federal health care program‖). For
simplification and because the parties themselves refer to payments by
Medicare, in this opinion we will use ―Medicare‖ to mean any federal health care
program that is implicated by the statute.
27
926 F. Supp. 835 (E.D. Ark. 1996), aff’d, 112 F.3d 513 (8th Cir. 1997).
28
Id. at 838.
29
Id.
11
with Quantum.‖30 Quantum would then sell its products to the nursing home on
behalf of the residents. The agreement called for NHC to refer persons who
needed supplies to Quantum, and those supplies were covered by Medicare. 31
The agreement therefore fell within the application (b)(1)(A).
In this case, however, the agreement did not on its face require WCI to
refer persons who need Medicare-covered supplies (or anyone else) to Medica-
Rents, and the evidence does not show that the agreement could not be
performed without it doing so. Because the evidence therefore did not show as a
matter of law that the contract could not be performed without violating
subsection (b)(1)(A), the trial court could not have properly granted summary
judgment on this ground.32
An offense under subsection (b)(1)(B) may be committed based on a
number of different behaviors. First, WCI would commit a criminal offense if it
received remuneration in return for purchasing, leasing, or ordering a product, if
some or all of the payment for the product may come from Medicare.33 In
reviewing the summary judgment evidence, we find no evidence that shows that
30
Id. at 839.
31
Id. at 843.
32
See Lewis, 199 S.W.2d at 149 (―[W]here the illegality does not appear on
the face of the contract it will not be held void unless the facts showing its
illegality are before the court.‖).
33
See 42 U.S.C.A. § 1320a-7b(b)(1)(B) (prohibiting the knowing and willful
receipt of remuneration in return for purchasing, leasing, or ordering any item for
which payment may be made in whole or in part under Medicare).
12
the Marketing Agreement required WCI to purchase, lease, or order Medica-
Rents product (the payment for which may come from Medicare) in exchange for
remuneration. The trial court therefore could not have properly granted summary
judgment based on this part of the Anti-Kickback Statute.34
Subsection (b)(1)(B) also makes it a criminal offense to receive
remuneration in return for recommending the purchase, lease, or ordering of a
product, if some or all of the payment for that purchase may come from
Medicare. Thus, the Marketing Agreement would fall within this provision‘s
application if its performance required WCI to recommend Medica-Rents
products to potential customers or to third parties who would in turn recommend
Medica-Rents products to potential customers, if the payment for the products
may come from Medicare.
Medica-Rents argues that the Marketing Agreement ―requires Medica-
Rents to pay commissions to Appellants based on [WCI‘s] promotion of Medica-
Rents‘[s] products.‖ Assuming that Medica-Rents is arguing that this provision
required WCI to recommend Medica-Rents products in violation of the statute,
we conclude that Medica-Rents did not establish this ground for summary
judgment as a matter of law.
Some evidence raises a surmise or suspicion that WCI may have had a
role in direct marketing of Medica-Rents products, but it falls short of constituting
34
See Lewis, 199 S.W.2d at 149.
13
a scintilla of evidence of the fact, much less of establishing that fact as a matter
of law.35 Dan stated in his affidavit attached to WCI‘s response that Medica-
Rents ―purchased a $10,000 display booth for [WCI] to use at trade shows on
behalf of Medica-Rents.‖ But Dan did not expound on what occurred at the trade
shows and whether Kim or Dan made direct contact with customers or potential
sources of referrals for Medica-Rents customers, and this evidence in no way
showed that the Marketing Agreement required them to attend trade shows or
perform direct marketing.
Medica-Rents also directed the trial court to Dan‘s testimony at a hearing.
Although this part of Dan‘s testimony was not relied on by Medica-Rents in its
summary judgment motion, we note that at that hearing, Dan stated that the
Marketing Agreement contemplated that Medica-Rents would ―eventually transfer
all of their current offices and all of their employees under Woundkair Concepts‖
because ―Medica-Rents no longer wanted to have its own sales force.‖ The
agreement contained a section listing Medica-Rents offices that ―are to be
transitioned to WCI,‖ but it contains no explanation of what the term ―transitioned‖
meant or what the transition encompassed, and in any case Dan‘s testimony
suggests that this transitioning was never completed. Neither party points out or
relies on this testimony in their briefs, and Medica-Rents did not direct the trial
35
See Serv. Corp. Int’l v. Guerra, 348 S.W.3d 221, 228 (Tex. 2011) (stating
that evidence is more than a scintilla if it would allow reasonable and fair-minded
people to differ in their conclusions and that evidence that does no more than
create a surmise or suspicion is no evidence).
14
court‘s attention to this part of the hearing testimony (or any specific part of the
hearing testimony) as support for its arguments in its summary judgment motion.
Even if Medica-Rents had relied on this evidence in support of its motion, we
conclude that this testimony is too vague and ambiguous to constitute evidence
that the Marketing Agreement called for WCI to recommend Medica-Rents
product as prohibited by the Anti-Kickback Statute.36
On the other hand, WCI produced competent summary judgment evidence
that WCI did not deal with potential purchasers and did not recommend the
purchase of Medica-Rents products to anyone. Kim testified that rather than
soliciting sources of referrals, she and her husband merely educated Medica-
Rents salespeople and were paid a percentage of the revenues from the
business generated by the Medica-Rents salespeople as a result of WCI‘s
education. And in WCI‘s response to the summary judgment motion, it pointed
out portions of Kim‘s and Dan‘s deposition testimony in which they testified that
under the agreement, they did not personally market Medica-Rents‘s product.
Kim testified that WCI ―didn‘t obtain referrals‖ and that WCI ―just educated
[Medica-Rents sales staff] on sales technique and products.‖
Dan testified that WCI‘s ―promotion‖ under the agreement did not include
WCI actively marketing the product but rather in ―locating opportunities and
managing Medica-Rents sales personnel who actually marketed the products.‖
36
See id.
15
Dan testified that by ―locating opportunities,‖ he meant that they would train
Medica-Rents salespeople on how to identify possible customers, such as
hospitals, long-term care facilities, or home health care providers. He stated that
WCI did not try to locate patients who would use Medica-Rents products. And in
Dan‘s hearing testimony attached by Medica-Rents to its summary judgment
motion, Dan stated that the agreement called for WCI to be paid for managing
employees, stating, ―That is what the contract is for. Managing the sales force,
that is what I got paid for.‖
Even if the evidence had shown that in practice WCI violated this provision
of the Anti-Kickback Statute in its performance of the Marketing Agreement,
nothing in the evidence relied upon by Medica-Rents or by the Andersons in
response showed that WCI could not perform the contract without recommending
Medica-Rents products to others. The trial court therefore could not have
properly granted summary judgment based on this part of the Anti-Kickback
Statute.37
Finally, the statute prohibits a party from receiving remuneration in return
for arranging for the purchase, lease, or ordering of an item, the payment for
which may come from Medicare. As stated above, the parties agree that the
contract did not on its face implicate this subsection. But Medica-Rents argues
that the summary judgment evidence showed that the Marketing Agreement
37
See Lewis, 199 S.W.2d at 149.
16
nevertheless could not be performed without violating this part of the Anti-
Kickback Statute.
In Medica-Rents‘s sur-reply brief, it contends that the evidence showed
that the agreement violated the Anti-Kickback Statute‘s prohibition on ―arranging
for the furnishing of any item‖ for which payment may be made by Medicare.
Medica-Rents argues that agreement makes WCI responsible for ―‗obtaining all
paperwork for billing as well as documentation required by the account, carrier[,]
or insurance company‘‖ and that ―[t]hus, [WCI] played a part in arranging for the
ordering of Medica-Rents‘[s] products by obtaining the necessary documentation,
including insurance information.‖ As it did in the trial court, Medica-Rents also
points specifically to Kim‘s deposition testimony in which she stated that under
the agreement, ―We were going to be managing their facilities, employees,
product placement, product pick up, service, maintaining Medica-Rents‘[s]
inventory, and managing Medica-Rents salespeople.‖
We disagree with Medica-Rents‘s view of the evidence. Kim‘s testimony
and the language of the agreement do not indicate that the Marketing Agreement
called for WCI to perform the kind of ―arranging‖ prohibited by the statute. The
―arranging‖ done by WCI appeared to be nothing more than completing
necessary paperwork for the sales of Medica-Rents product made by Medica-
Rents employees. The evidence, rather than establishing as a matter of law that
WCI violated the Anti-Kickback Statute in its performance of the Marketing
Agreement, at the least raised a fact issue about whether it performed in a legal
17
manner. And even if the evidence had not raised a fact issue about WCI‘s
compliance with the law in its performance under the agreement, the summary
judgment evidence did not show as a matter of law that it was not possible for the
parties to perform under the Marketing Agreement without violating this part of
the Anti-Kickback Statute.
The evidence, at the least, raises a fact issue on whether the commission
payments to WCI in this case were to compensate WCI only for services
rendered, not for activities prohibited by the statute, and were wholly attributable
to WCI‘s provision of services to Medica-Rents.38 The evidence does not
establish as a matter of law that the agreement called for WCI to be
compensated as an inducement to generate business payable by Medicare. 39
Instead, the evidence suggests that Medica-Rents employees generate the
business and are the people doing the ―arranging‖ that is governed by the Anti-
Kickback Statute.
38
See United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989) (stating that
it is a correct statement of the law that the Anti-Kickback Statute is violated
unless the payment at issue was ―wholly and not incidentally attributable to the
delivery of goods or services‖).
39
Cf. Advisory Op. No. 97-4, 1997 WL 34684552, at *4 (Dep‘t of Health &
Human Servs. Office of Inspector Gen. Sept. 25, 1997) (stating that a provider‘s
routine waiver of Medicare copayments may violate the Anti-Kickback Statute
because when providers ―forgive financial obligations for reasons other than
genuine financial hardship of the particular patient, they unlawfully may be
inducing the patient to purchase items or services in violation of the anti-kickback
statute‘s proscription against offering or paying something of value as an
inducement to generate business payable by‖ Medicare).
18
Cases construing this statute do not suggest a different result. The Fifth
Circuit, for example, has suggested that the statute only governs payments to
decisionmakers and that if the payments at issue are not made to a person in a
position to make referrals, then the payments are not prohibited by the statute. 40
Although the Miles court construed subparagraph (b)(2)(A) and expressly did not
consider whether the activities in that case violated (b)(2)(B)—the counterpart to
(b)(1)(B) with respect to the payment of remuneration for referrals—it does not
appear that the court has expanded its application of the statute beyond
payments to individuals who are in a decision-making position to refer individuals
for services or to purchase goods or services and who could be improperly
influenced by the payments.41
Other federal circuits take a broader view of the statute‘s application, but
even cases from those circuits support our view that the statute does not apply to
the type of ―arranging‖ called for by the Marketing Agreement. In United States
v. Ruttenberg,42 for example, the Seventh Circuit stated the ―obvious truisms‖
that Medicare kickback schemes not only increase costs to the government, but
can also freeze competing suppliers from the Medicare system, mask the
40
See United States v. Miles, 360 F.3d 472, 480 (5th Cir. 2004).
41
See id. at 480 n.3 (noting the appellants‘ argument that their conduct
may have violated (b)(2)(B) because their payments to a marketing service might
have been ―recommendations‖ to doctors who then ―referred‖ patients to the
appellants and declining to speculate on the correctness of the appellants‘
arguments because they had not been charged with a violation of (B)).
42
625 F.2d 173, 177 n.9 (7th Cir. 1980).
19
possibility of government price reductions, misdirect program funds, and provide
―strong temptations to order more . . . supplies than needed.‖ Based on the
summary judgment evidence, none of these concerns are implicated by the
agreement here either on its face or in practice because the evidence does not
show as a matter of law that WCI had any relationship with potential Medica-
Rents customers or with sources of referrals of potential customers.
Similarly, the First Circuit has noted that ―[t]he gravamen of Medicare
Fraud is inducement‖ and that ―[g]iving a person an opportunity to earn money
may well be an inducement to that person to channel potential Medicare
payments towards a particular recipient.‖43 Here, the summary judgment
evidence suggested that WCI was not in any position to channel potential
Medicare payments toward Medica-Rents.44
Furthermore, regulations promulgated by the Office of the Inspector
General of the Department of Health and Human Services support the conclusion
that the concern of the statute is to limit the opportunity to provide financial
incentives in exchange for referrals.45 Medica-Rents did not produce sufficient
43
United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874
F.2d 20, 29 (1st Cir. 1989).
44
See also United States v. Greber, 760 F.2d 68, 71 (3d Cir. 1985) (―The
statute is aimed at the inducement factor.‖).
45
See Medicare and State Health Care Programs: Fraud and Abuse; OIG
Anti-Kickback Provisions, 56 Fed. Reg. 35,952, 35,953 (Dep‘t of Health & Human
Servs. July 29, 1991) (stating that a proposed regulation ―set forth a safe harbor
provision for joint ventures and other arrangements involving payments for
personal services or management contracts, but only if certain standards are met
20
summary judgment evidence to establish as a matter of law that the Marketing
Agreement triggered application of the statute because the summary judgment
evidence is that WCI did not make any referrals, nor did it make any
recommendations to someone who is in the position to make referrals, and it was
not required to do so by the agreement.46 Accordingly, the Marketing Agreement
does not give the opportunity to provide financial incentives to WCI in exchange
for referrals or recommendations.
The Inspector General has noted that with respect to marketing
arrangements involving health care goods and services, ―[p]ercentage
compensation arrangements are potentially abusive . . . because they provide
financial incentives that may encourage overutilization of items and services and
may increase program costs.‖47 In this case, however, the concern raised by the
Inspector General is not an issue because the summary judgment evidence is
that under the Marketing Agreement, WCI only ―arranged‖ for the ordering of
Medica-Rents goods in that it processed the sales that had already been made
that limit the opportunity to provide financial incentives in exchange for referrals‖)
(rules codified at 42 C.F.R. Part 1001).
46
Cf. Med. Dev. Network, Inc. v. Prof’l Respiratory Care/Home Med. Equip.
Servs., 673 So. 2d 565, 566 (Fla. Dist. Ct. App. 1996) (holding illegal a contract
under which PRC agreed to pay MDN a percentage of all business developed by
MDN‘s marketing of PRC‘s durable medical supplies to clients and whereby MDN
would contact users of medical equipment and promote the use of PRC‘s
equipment); see also Miles, 360 F.3d at 480 n.3.
47
Advisory Opinion No. 98-1, 1998 WL 35287756, at *4 (Dep‘t of Health &
Human Servs. Office of Inspector Gen., Mar. 19, 1998).
21
by Medica-Rents salespeople. There is no opportunity for the agreement to
encourage overuse of items or services or increase Medicare program costs
because WCI did not sell product or point out sources of referrals.48 The
evidence does not show that WCI was required by the Marketing Agreement to
do anything related to ―arranging for‖ product purchases but take care of filling
out paperwork and shipping Medica-Rents product.49 The agreement simply
does not provide any financial incentives to WCI in exchange for directing
sources of business to Medica-Rents. Medica-Rents did not establish as a
matter of law that the Marketing Agreement could not be performed without
violating this part of the Anti-Kickback Statute.
In summary, the parties agree that the Marketing Agreement is not illegal
on its face, and Medica-Rents did not establish as a matter of law that WCI could
not perform the contract without violating § 1320a-7b(b)(1). Accordingly, the trial
court could not have properly granted summary judgment on the ground that the
Marketing Agreement was void for illegality under this part of the Anti-Kickback
Statute.50 We therefore hold that the trial court erred by granting summary
judgment for Medica-Rents on the ground that the contract was illegal under
48
Cf. id. (addressing a marketing agreement between A and B in which B
was involved in active marketing, ―including direct contacts . . . to physicians who
order and dispense‖ the products made by A).
49
See 56 Fed. Reg. 35,952, 35,973 (stating that percentage contracts or
contracts based on overall volume are not per se violations of the statute).
50
See Lewis, 199 S.W.2d at 149.
22
§ 1320a-7b(b)(1). Because we reach our holding based on Medica-Rents‘s
failure to establish illegality as a matter of law, we need not reach WCI‘s
argument that the agreement is not illegal because it falls within the ―safe harbor‖
for bona fide employment relationships51 or that Medica-Rents had to establish
that WCI knowingly and willfully intended to violate the law by entering into the
Marketing Agreement.
In its second issue, WCI argues that the trial court erred by finding as a
matter of law that no party is entitled to any relief for any claims of any other
party, leaving the parties as the trial court found them. WCI asserts that the trial
court found that ―no party is entitled to any relief‖ and that this finding was based
only on the court‘s finding that the Marketing Agreement was illegal as a matter
of law. Because we have held that the trial court erred by granting summary
judgment, we overrule this issue as moot.
In its third and final issue, WCI argues that the trial court erred by
sustaining objections to paragraphs two and four of Dan‘s affidavit. The
objected-to portions of the affidavit were statements made by Dan relating to
whether he and Kim had a bona fide employment relationship with Medica-Rents.
Because we have held that the trial court erred by granting summary judgment
51
See 42 C.F.R. § 1001.952 (2007) (providing that the term ―remuneration‖
in the Anti-Kickback Statute ―does not include any amount paid by an employer
to an employee, who has a bona fide employment relationship with the employer,
for employment in the furnishing of any item or service for which payment may be
made in whole or in part‖ under Medicare).
23
because Medica-Rents did not meet its burden of proof to show that the
Marketing Agreement is void for illegality, we need not consider whether the
agreement fell within the safe harbor for employment relationships. We overrule
this issue as moot.
Conclusion
Having sustained WCI‘s first issue, which is dispositive, we reverse the trial
court‘s summary judgment and remand this cause to the trial court for further
proceedings.
LEE ANN DAUPHINOT
JUSTICE
PANEL: DAUPHINOT, GARDNER, and GABRIEL, JJ.
DELIVERED: March 22, 2012
24