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A. Clifford Edwards Triel D. Culver EDWARDS, FRICKLE & CULVER 1648 Poly Drive, Suite 206 P.O. Box 20039 Billings, Montana 59104 Telephone: (406) 256-8155 Fax: (406) 256-8159 [email protected] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA BILLINGS DIVISION UNITED STATES OF AMERICA [UNDER SEAL], Plaintiff, v.

Case No: FILED UNDER SEAL PURSUANT TO 31 U.S.C. § 3730(b)(2),OF THE FALSE CLAIMS ACT

[UNDER SEAL]., Defendant.

COMPLAINT AND DEMAND FOR JURY TRIAL

Case 1:12-cv-00078-DWM Document 1 Filed 06/26/12 Page 2 of 31

A. Clifford Edwards Triel D. Culver EDWARDS, FRICKLE & CULVER 1648 Poly Drive, Suite 206 P.O. Box 20039 Billings, Montana 59104 Telephone: (406) 256-8155 Fax: (406) 256-8159 [email protected] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA BILLINGS DIVISION UNITED STATES OF AMERICA ex rel. GLENN SCHMASOW, Plaintiff, v. ENDOGASTRIC SOLUTIONS, INC.,

Case No: FILED UNDER SEAL PURSUANT TO 31 U.S.C. § 3730(b)(2),OF THE FALSE CLAIMS ACT COMPLAINT AND DEMAND FOR JURY TRIAL

Defendant.

Plaintiffs and qui tam Relator, Glenn Schmasow (“Mr. Schmasow” or “Relator”), by and through their counsel of record, allege as follows: 1.

This is a qui tam action to recover treble damages and civil penalties

on behalf of the United States under the False Claims Act, 31 U.S.C. § 3729 et seq., as amended by the Fraud Enforcement & Recovery Act (FERA), arising from false and fraudulent statements, records and claims made and caused to be made by

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Defendant EndoGastric Solutions, Inc., (“EndoGastric”) and/or its agents and employees. 2.

This qui tam case is brought against Defendant EndoGastric for

conducting a fraudulent marketing and inducement campaign that utilized kickbacks and caused upcoded claims to be presented to the Medicare program for reimbursement. 3.

This Complaint has been filed in camera and under seal pursuant to

31 U.S.C. § 3730(b)(2). It will not be served on Defendant until the Court so orders.

A copy of the Complaint and written disclosure of substantially all

material evidence and information Relator possesses has been served on the Attorney General of the United States and the United States Attorney for the District of Montana contemporaneously pursuant to 31 U.S.C. § 3730(b)(2) and Fed. R. Civ. P. 4(d). PARTIES 4.

Plaintiff is the United States of America ex rel. Glenn Schmasow. At

all times relevant to this Complaint, the United States funded the provision of medical care for eligible patients pursuant to the Medicare program, acting through the Health Care Financing Administration or its successor, the Centers for Medicare & Medicaid Services within the United States Department of Health and Human Services. Page 3 of 31

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5.

Plaintiff/Relator Glenn Schmasow is a resident of Billings, Montana.

Mr. Schmasow is a former employee of Defendant EndoGastric. Mr. Schmasow was employed by Defendant as a Program Development Manager from July 6, 2010 through October 18, 2010. 6.

Upon information and belief, Defendant EndoGastric is a for-profit

Delaware corporation with its principal place of business in the state of Washington at 8219 – 154th Avenue NE, Redmond Washington, 98052 and a registered service address of 300 Deschutes Way SW, Suite 304, Tumwater, Washington, 98501. Defendant EndoGastric is a medical device company focused on the design, manufacture and marketing of instruments used in surgical therapies for the treatment of chronic acid reflux. JURISDICTION AND VENUE 7.

This action arises under the False Claims Act, as amended, 31 U.S.C.

§§ 3729-3733. This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1345 and 31 U.S.C. § 3732(a). 8.

The Court has personal jurisdiction over Defendant because 31 U.S.C

§ 3732(a) authorizes nationwide service of process and because Defendant has at least minimum contacts with the United States. Moreover, Defendant transacts business in this District, has carried out its fraudulent marketing and inducement campaign in this District, and facilitates the submission of claims for payment for Page 4 of 31

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services rendered within this District. The Complaint has been filed timely within the period prescribed by 31 U.S.C. § 3731(b). 9.

Venue is proper in this District pursuant to 31 U.S.C. § 3732(a) and

28 U.S.C. § 1391(b)-(c).

Defendant can be found in, and transacts or has

transacted business in the District.

Specifically, Defendant has marketed its

products to St. James Healthcare in Butte, Montana and North Valley Hospital in Whitefish, Montana, and has performed numerous acts proscribed by 31 U.S.C. § 3729, et seq. within this District. DIRECT AND INDEPENDENT KNOWLEDGE OF VIOLATIONS OF THE FALSE CLAIMS ACT 10.

Under 31 U.S.C. § 3730(e), there has been no statutorily relevant

public disclosure of the “allegations or transactions” in this Complaint.

The

allegations and transactions set forth in this Complaint have not been publicly disclosed within the meaning of the False Claims Act. Relator has direct and independent knowledge of the information on which the allegations in this Complaint are based.

Relator voluntarily provided the information to the

Government before filing this suit. 11.

Relator is an original source of information given to the United States

regarding Defendant’s knowing engagement in illegal conduct in violation of federal laws and regulations that resulted in the payment of false or fraudulent

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claims by the United States. This conduct includes, but is not limited to, violations of 31 U.S.C. § 3729(a)(1) of the False Claims Act. 12.

Section 3729(a)(1)(A) provides that any person who “knowingly

presents, or causes to be presented, a false or fraudulent claim for payment or approval” is liable to the United States Government. 31 U.S.C. § 3729(a)(1)(A) (emphasis added). In his capacity as Program Development Manager, Relator acquired information that Defendant caused claims to be submitted to the government that were false, and that Defendant knew to be false. See, e.g., United States v. Southland Mgmt. Corp., 288 F.3d 665, 674-75 (5th Cir. 2002), aff'd en banc, 326 F.3d 669 (5th Cir.2003). 13.

Under section 3729(a)(1)(B), a defendant is liable to the United States

Government if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 3729(a)(1)(B).

31 U.S.C. §

In his capacity as Program Development Manager, Relator

acquired information that Defendant caused false records to be made, caused these records to be submitted to the government to pay the claims, and knew the records were false. See, e.g., Southland Mgmt. Corp., 288 F.3d at 674-675.

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STATUTORY AND REGULATORY FRAMEWORK THE FALSE CLAIMS ACT 14.

Section 3729 of the False Claims Act (“FCA”) provides, in pertinent

part: (a) Liability for Certain Acts. (1) In general. Subject to paragraph (2), any person who— (A) (B) (C)

knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval; knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

… is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410), plus 3 times the amount of damages which the Government sustains because of the act of that person.” … (3) Costs of civil actions. A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages. 15.

The four elements of a false certification claim are: (1) a false

statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due. Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 997 (9th Cir. 2010) (citations omitted). To establish the materiality element, “the false statement or course of Page 7 of 31

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conduct must be material to the government's decision to pay out moneys to the claimant.” Id. To establish materiality, the term “certification” has no special significance; rather, “the question is merely whether the false certification-or assertion, or statement-was relevant to the government's decision to confer a benefit.” Id. MEDICARE 16.

In 1965, Congress enacted Title XVIII of the Social Security Act,

which established the Medicare Program to provide health insurance for the elderly and disabled. 42 U.S.C. § 1395, et seq. The Medicare program enables the elderly and disabled to obtain necessary medical services from medical providers throughout the United States. Payments from the Medicare Program come from a trust fund (Medicare Trust Fund) that is funded through payroll deductions taken from the work force, in addition to government contributions. 17.

The Medicare Program is administered through the United States

Department of Health and Human Services, and specifically, the Centers for Medicare and Medicaid Services (“CMS”), an agency of HHS. Much of the daily administration and operation of the Medicare Program is managed through contractors, typically private insurance companies, that contract with the CMS. These private insurance companies are charged with and responsible for accepting

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Medicare claims, determining coverage, and making payments from the Medicare Trust Fund. 18.

Medicare Part A (the Basic Plan of Hospital Insurance) covers the

cost of hospital inpatient stays and post-hospital nursing facility care. Medicare Part B (the Voluntary Supplemental Insurance Plan) covers the cost of physician services, certain pharmaceutical products, diagnostic tests, and other medical services not covered by Part A. 19.

Critical to the continued success and viability of the Medicare

Program and the solvency of the Medicare Trust Fund is the fundamental concept that medical providers only bill the Medicare Trust Fund for medical treatments or services that are legitimately ordered by a physician and, therefore, medically necessary.

Additionally, those treatments and services that are legitimately

ordered by a physician must be coded and billed properly, and, based upon those codes, are compensated at the Medicare fee schedule rate. 20.

Physicians and other health care providers, when submitting a claim

for payment for medical treatment or services provided to a Medicare recipient, must certify that the treatment or service was reasonable and necessary for the diagnosis or treatment of illness or injury. Soc. Sec. Act 1862(a)(1)(A); 42 U.S.C. 1395y(a)(1)(A).

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21.

Medicare reimbursement payments are based on the Healthcare

Common Procedure Coding System (HCPCS). HCPCS is a standardized coding system designed to ensure that Medicare, Medicaid, and other federal health care programs pay for services rendered to patients by attending physicians and other healthcare professionals in accordance with payment schedules tied to the level of professional effort required to render specific categories of medical care. To ensure normalization of descriptions of medical care rendered and consistent compensation for similar work, both programs tie levels of reimbursement to standardized codes. 22.

The Current Procedural Terminology (“CPT”) codes are Level I

HCPCS codes and are published and updated annually by the American Medical Association (“AMA”). 23.

Base CPT codes are five-digit numbers organized in numeric

sequences that identify both the general area of medicine to which a procedure relates and the specific medical procedures commonly practiced by physicians and other health care professionals working in that field. 24.

The instructions that accompany the CPT manual direct providers to

“not select a CPT code that merely approximates the service provided.” Rather, if no accurate service or procedure or service exists among the standard CPT codes,

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providers are instructed to “report the service using the appropriate unlisted procedure or service code.” 25.

Codes listed after each subsection in the CPT Manual and ending in -

99 are “unlisted” codes. Correct code assignment occurs after the document for the claim is reviewed by the carrier. 26.

Physicians typically submit claims for professional services on Form

CMS-1500. The claim form sets forth the diagnostic code describing the patient’s presenting condition and the procedural codes. On the claim form, the physician certifies that the services were “medically indicated and necessary to the health of the patient ….” 27.

In addition to compliance with other national or local coverage

criteria, Medicare requires as a condition of coverage that services by reasonable and medically necessary. 42 U.S.C. § 1395y(a)(1)(A). 28.

Medical providers must provide economical medical services and,

then, provide such services only where medically necessary. 42 U.S.C. § 1320c(a)(1). 29.

Medical providers must provide evidence that the service is medically

necessary and appropriate. 42 U.S.C. § 1320c-5(a)(3). 30.

Providers must ensure that services provided are not substantially in

excess of the needs of such patients. 42 U.S.C. § 1320a-7(b)(6)&(8). Page 11 of 31

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31.

Medicaid is a joint federal/state program that provides care for

indigent and disabled people. Although the Medicaid program is administered by the states, it is funded in a significant part by the federal government. Defendant’s actions, as set forth here, caused significant damage to federal and state Medicaid programs within each state where Defendant transacts business. THE ANTI-KICKBACK STATUTE 32.

The federal health care Anti-Kickback statute, 42 U.S.C. § 1320a-

7b(b), arose out of Congressional concern that payoffs to those who can influence health care decisions will result in goods and services being provided that are medically unnecessary, of poor quality, or even harmful to a vulnerable patient population. To protect the integrity of federal health care programs from these difficult to detect harms, Congress enacted a prohibition against the payment of kickbacks in any form, regardless of whether the particular kickback actually gives rise to overutilization or poor quality of care. 33.

The Anti-Kickback statute prohibits any person or entity from making

or accepting payment to induce or reward any person for referring, recommending or arranging for the purchase of any item for which payment may be made under a federally-funded health care program.

42 U.S.C. § 1320a-7b(b).

Under this

statute, medical device companies may not offer or pay any remuneration, in cash or kind, directly or indirectly, to induce physicians or others to order or Page 12 of 31

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recommend products that may be paid for by a federal health care program. The law not only prohibits outright bribes and rebate schemes, but also prohibits payments by a company that has one of its purposes inducement of a physician to perform additional procedures using the company’s products. 34.

The Federal Anti-Kickback Act makes it a crime to knowingly and

willfully solicit or receive any remuneration (including any kickback, bribe or rebate), 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 [Medicare] or a State 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 [Medicare] or a State health care program. 35.

In an Anti-kickback Statute analysis, it is immaterial whether

remuneration induces one in a position to refer or recommend. It is sufficient that the remuneration may induce one to refer or recommend. United States v. Greber, 760 F.2d 68, 71 (3rd Cir.), cert. denied, 474 U.S. 988 (1985). Under Greber, it is also irrelevant that there are other legitimate reasons for the remuneration. If one purpose is to induce referrals, then the Anti-kickback Statute is violated. Id. at 71. The term “any remuneration” also encompasses economic arrangement, such as Page 13 of 31

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discounts and free ancillary services. The Anti-Kickback Act has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. United States v. Kats, 871 F.2d 105 (9th Cir. 1989). 36.

For purposes of the Anti-Kickback Act, an act is willful if “the act

was committed voluntarily and purposely, with the specific intent to do something the law forbids, that is with a bad purpose, either to disobey or disregard the law. United States v. Starks, 157 F.3d 833, 837-38 (11th Cir. 1998). 37.

Violation of the Anti-Kickback Act subjects the violator to exclusion

from participation in federal health care programs, civil monetary penalties, and imprisonment of up to five years per violation. 42 U.S.C. §§ 1320a-7(b)(7), 1320a7a(a)(7); see also 42 U.S.C. §1320a-7(b). GENERAL ALLEGATIONS OF CONDUCT TRANSORAL INCISIONLESS FUNDOPLICATION (“TIF”) 38.

The medical device and its associated experimental medical procedure

at issue in this case was designed and used to treat acid reflux, specifically gastroesophageal reflux disease (“GERD”). 39.

Traditionally, doctors surgically treated GERD with a nissen

fundoplication. A nissen fundoplication is a surgical procedure where the upper part of the stomach is wrapped or, plicated, 360 degrees around the lower end of Page 14 of 31

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the esophagus and stitched in place to reconstruct a durable anti-reflux valve and tighten the lower esophageal sphincter. A nissen fundoplication can be performed with an open incision or laparoscopically through the use of trocars. 40.

Defendant claims to have pioneered an incision-less procedure,

known as Transoral Incisionless Fundoplication (“TIF”). The TIF procedure is only performed in conjunction with Defendant’s surgical medical device, called the EsophyX and EsophyX² (collectively “EsophyX”), with the same treatment goal as the nissen fundoplication except with only a 270 degree or less wrap around the lower end of the esophagus. 41.

The TIF procedure is an experimental procedure, and costs hospitals

approximately $6,500. 42.

CPT Code 43280 is for a Laparoscopic Nissen Fundoplication (“Lap

Nissen” or “LNF”).

CPT Code 43280 is associated with a higher degree of

morbidity and mortality. Consequently, the Lap Nissen lends itself to more use of inpatient coding than an incisionless TIF procedure. If a hospital or surgeon codes and bills for inpatient, they receive a reimbursement from Medicare that is substantially more than for the outpatient coding and billing for a TIF. 43.

When a patient with a known diagnosis enters a hospital for a specific

minor surgical procedure like TIF that is expected to keep him in the hospital for

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only a few hours (less than 24), he should be considered an outpatient for billing and coverage purposes. 44.

The TIF procedure has been performed successfully as an outpatient

procedure for years but there is no CPT Code for this procedure because it is experimental. Therefore, the only CPT code that can be used for this procedure is the “unlisted” CPT Code, 43499. However, using the unlisted CPT Code, 43499, for the non-surgical, outpatient procedure results in unstable and lower reimbursement rates from Medicare and private carriers. 45.

Upon information and belief, as of June 30, 2011, 5,842 people had

undergone the TIF procedure in the United States. 46.

Upon information and belief, as of June 30, 2011, 452 physicians have

performed the TIF procedure in the United States. 47.

Upon information and belief, 6,621 EsophyX devices have been sold

in the United States as of June 30, 2011. 48.

Upon information and belief, over 550 facilities have purchased the

EsophyX device throughout the United States as of June 30, 2011. DEFENDANT ENDOGASTRIC’S UPCODING 49.

Upcoding essentially means “mislabeling diagnoses or treatments on

claim forms to increase the reported value of the claim.” U.S. ex rel. Obert-Hong

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v. Advocate Health Care, 211 F.Supp.2d 1045, 1051 (N.D. Ill. 2002); U.S. ex rel. Harris v. Bernad, 275 F.Supp.2d 1, 3-4 (D.D.C. 2003). 50.

When a claimant submits a claim for Medicare reimbursement to the

Government, the claimant must provide documentation that supports the claim. See, e.g., U.S. ex rel. Harris v. Bernad, 275 F.Supp.2d 1, 3 (D.D.C. 2003). Appropriate documentation typically includes correct coding of certain services to enable the Government to reimburse the healthcare provider at the proper rate. 51.

The Office of the Inspector General (“OIG”) views any type of

improper coding as fraud. See “OIG Compliance Program Guidance for Clinical Laboratories,” 63 Fed. Reg. 45,076, 45,078 (Aug. 24, 1998). 52.

Defendant is aggressively marketing and causing the upcoding of the

TIF procedure for Medicare claims to induce hospitals and physicians to purchase and use their products: a. For the hospital inpatient setting, Defendant is inducing the wrongful coding of a TIF as an open procedure ICD-9 44.66 when TIF is not an open procedure – rather it is incisionless. Defendant informs hospitals that the upcoding of the TIF procedure as a hospital inpatient procedure will result in a larger reimbursement of either $14,534 for DRG 327 (Stomach, esophageal and duodenal procedure with cc) or

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$7,445 for DRG 328 (Stomach, esophageal and duodenal procedure without cc). b. For physician services (both inpatient and outpatient) or the hospital outpatient setting, Defendant is advising physicians to wrongfully code a TIF as a Lap Nissen under CPT Code 43280, which is a laparoscopic procedure, as the most effective method for increasing reimbursement.

However, the TIF procedure does not involve

laparoscopy. Laparoscopy involves small incisions (5mm to 12mm) and the use of trocars. 53.

Defendant’s sales training materials instructed sales representatives to

advise physicians that, although TIF could be billed as an unlisted code, more profit could be earned by billing under CPT Code 43280. 54.

By billing TIF under the CPT code for a Lap Nissen, physicians could

illegally obtain coverage of claims even from carriers with “no coverage” policies for TIF. Physicians could avoid the review of their claim that would be triggered by billing under the unlisted code. 55.

Dr. John Pennings of Post Falls, Idaho has accurately summarized

Defendant’s fraudulent conduct in causing doctors and hospitals to use the Lap Nissen CPT Code, stating “the only way to get [adequately] reimbursed for the incisionless procedure is to commit Medicare fraud.” Kevin Skruch, a Program Page 18 of 31

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Development Manager for Defendant, was responsible for instructing Dr. Pennings on how to code the TIF procedure. 56.

Relator was employed by Defendant for a little over three months in

2010 until he resigned for ethical reasons because Defendant refused to stop upcoding and Relator could no longer compromise his integrity and long standing reputation as a medical device salesperson by working for Defendant. 57.

Defendant employed six Regional Managers, and six Program Sales

Managers, whose responsibilities include closing sales with hospitals at the executive level.

Defendant employed approximately 35 to 40 Program

Development Managers in the United States. 58.

Relator’s position with Defendant was Program Development

Manager for the Montana, Idaho, and Wyoming territory.

As Program

Development Manager, Relator’s objective was to sell the surgeon clinically on Defendant’s medical device for performing the TIF procedure to treat GERD and to motivate the surgeon to set up an executive meeting between the surgeon, the hospital’s Chief Executive Officer, and Defendant’s Program Sales Manager. It was the responsibility of the Program Sales Manager to close the sale of the EsophyX devices. Defendant would not allow the hospital to buy any less than six devices.

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59.

During Relator’s employment, he reported to Manny Montoya,

Director of Program Sales and Regional Sales Manager for the West. In October of 2010, Manny Montoya was promoted to Director of Sales.

On behalf of

Defendant, Mr. Montoya implemented and participated in a marketing scheme that included upcoding, false leverage, and kickbacks. The focus of the sales and marketing team was to upcode the TIF procedure as a Lap Nissen procedure. The sales representatives were trained to work with physicians and hospital coders to ensure they used codes that would maximize their reimbursement. 60.

On or about September or October 2010, Mr. Montoya traveled to

Butte, Montana and told a physician coder at St. James Hospital that “they should code the TIF procedure just like a Lap Nissen.” 61.

Defendant systematically misrepresented that the use of the Lap

Nissen CPT code for the TIF procedure was proper. Defendant knew that if it told the surgeons and/or hospitals that the proper code to use is the “unlisted” CPT Code (43499), then the reimbursement will not make it as financially lucrative to the surgeon or hospital, and Defendant was less likely to sell the TIF procedure. The Medicare program reimburses a CPT Code of 43280 at a higher level than a CPT Code of 43499.

Defendant is causing “upcoding,” to occur-- that is,

submitting claims with CPT codes that represented a level of care or treatment higher than the care or treatment actually provided to get higher reimbursements. Page 20 of 31

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62.

Reports from Defendant in October 2010 indicated that Defendant

was successfully convincing physicians and/or hospitals to place incision required trocars during a TIF procedure which is referred to as a “hybrid case” in order to achieve upcoding from a TIF procedure to a Lap Nissen. The use of incisions during a TIF completely undermines the main advantage of TIF which includes “Incisionless” as part of its name. 63.

There is awareness in the medical provider community that upcoding

a TIF to a Lap Nissen is fraudulent. For example, Dr. John Pennings in Post Falls, Idaho, after initially coding the TIF procedure as a Lap Nissen, refused to engage in such a practice because his hospital would no longer allow him to code it that way. Dr. Stephen Schmid, after coding two TIF procedures as a Lap Nissen, said that he could no longer code it as such because it is illegal. 64.

Defendant knows it is causing Medicare fraud to be committed, yet

continues to cause doctors and hospitals to use fraudulent codes.

Defendant

knowingly causes false claims to be submitted to the government for reimbursement. Relator is specifically aware of Defendant recommending that upcoded claims be submitted by the following facilities: Mountain View Hospital in Idaho Falls, Idaho; Northwest Specialty Hospital in Post Falls, Idaho; North Canyon Medical Center in Gooding, Idaho; North Valley Hospital in Whitefish, Montana. Kevin Skruch, a Program Development Manager for Defendant, was Page 21 of 31

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responsible for instructing Mountain View Hospital, Northwest Speciality Hospital, and North Canyon Medical Center on coding the TIF procedure as Lap Nissen. 65.

Upon information and belief, these facilities caused upcoded

Medicare reimbursement claims to be submitted for the TIF procedures performed at their facilities. 66.

Numerous physicians using these facilities confirmed that Defendant

caused them to use the Lap Nissen CPT Code 43280 so that they will be reimbursed for a higher amount.

Relator is specifically aware of Defendant

recommending upcoding for procedures performed by the following physicians in 2010: Dr. David Chamberlain, Dr. Brad Smith, and Dr. Eric Baird in Idaho Falls, Idaho; Dr. Stephen Schmid in Twin Falls, Idaho; Dr. John Pennings in Post Falls, Idaho; Dr. Jared Barton in Evanston, Wyoming; Dr. Ryan Gunlikson in Whitefish, Montana. 67.

As

a

reasonably

foreseeable

consequence

of

Defendant’s

misrepresentation to physicians and medical providers that they should bill TIF under incision-related codes, numerous physicians have submitted and, continue to submit, claims for reimbursement for TIF under incision-related codes.

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68.

Claims for reimbursement for TIF submitted under codes for

procedures involving incisions are false claims within the meaning of the Federal False Claims Act. ADDITIONAL INDUCEMENTS GIVEN BY ENDOGASTRIC 69.

Defendant also provides physicians with other tangible and in-kind

services to induce performance of TIF procedures and sales of its products. 70.

In order to persuade physicians to train to perform TIF, Defendant’s

sales representatives market the practices of certain key physicians and the TIF procedure to referring physicians. Defendant regularly pays for and sends out marketing brochures on behalf of doctors and pays for print ads for individual doctors and medical facilities. Defendant regularly pays the cost of marketing materials on behalf of doctors and medical facilities seeking referral of patients for TIF. 71.

Manny Montoya was responsible for implementing a co-marketing

support scheme for Defendant. He instructed Defendant’s sales representatives to stage co-marketing or patient referral events for medical providers of TIF. If the medical facility agreed to purchase six EsophyX devices at $3,400 per device, Defendant supposedly agreed to contribute up to 50% of the cost of the event up to $2,000 per event with no limit on the number of events.

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72.

However, although the medical providers were supposed to fund 50%

of the costs of the events, this rarely occurred and the patient referral events were funded entirely by Defendant in violation of the Anti-kickback Statute. 73.

For example, on September 27, 2010, a “Patient Seminar” was held in

Twin Falls, Idaho, on behalf of North Canyon Hospital in Gooding, Idaho. All of the expenses were paid by Defendant. Following the seminar, a co-marketing agreement with North Canyon Hospital represented that the hospital purportedly contributed $21,000 to previous TIF marketing including the patient seminar but, in actuality, the hospital did not contribute any funds nor pay its proportionate 50% share. 74.

David Schummers, Vice President of Marketing for Defendant,

authorized the payment by Defendant of all associated expenses with the promotion of the TIF procedure at the North Canyon Hospital. 75.

Shellie Amundson, Director of Community Relations at North

Canyon Hospital, stated that this co-marketing program by Defendant with North Canyon Hospital is illegal. 76.

Many of the patient seminars were used as false leverage to close the

sale. Physicians and CEO’s were told that if they did not agree to purchase the EsophyX device, they would lose the opportunity to present at an impending patient seminar to one of their physician/hospital competitors. Many of these Page 24 of 31

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impending events were not real. For example, on October 13, 2010, Mr. Montoya told his sales team the following: ”Team, effective immediately, we have to make a conscious effort to ensure these events are real. If we do it right, the account will buy and we now have to implement the event anyway. If they don’t, we can look for a surgeon to do the event or realistically someone from EGS will.” 77.

Claims for reimbursement for TIF from hospitals and physicians that

have received kickbacks are not eligible for reimbursement by Medicare as adherence to the Anti Kickback Statute is a condition of payment. 78.

Kickback-tainted claims for reimbursement are false claims within the

meaning of the Federal False Claims Act. COUNT ONE FALSE CLAIMS ACT VIOLATIONS 31 U.S.C. § 3729(A)(1) 79.

Relator realleges and incorporates by reference all preceding

paragraphs of this Complaint as if fully set forth herein. 80.

Defendant, by and through its agents, officers and employees,

knowingly, or in reckless disregard or deliberate ignorance of the truth or falsity of the information involved, caused to be presented false or fraudulent claims for payment or approval, to state and federal health care programs, including, but not limited to Medicare, in violation of 31 U.S.C. § 3729(a)(1). 81.

Defendant, by and through its agents, officers and employees,

knowingly, or in reckless disregard or deliberate ignorance of the truth or falsity of Page 25 of 31

Case 1:12-cv-00078-DWM Document 1 Filed 06/26/12 Page 26 of 31

the information involved, caused to be made or used, a false record or statement material to a false or fraudulent claim, in violation of 31 U.S.C. § 3729(a)(1). 82.

Defendant, by and through its agents, officers and employees,

knowingly, or in reckless disregard or deliberate ignorance of the truth or falsity of the information involved, conspired with health care providers to commit a violation of subparagraph (A) and (B) of 31 U.S.C. § 3729(a)(1). 83.

Defendant has defrauded federally-funded health insurance programs

by inducing illegal coding of procedures/services and causing false claims for payment to be presented to state and federal health care programs across the United States. 84.

Defendant has engaged in a number of illegal actions which have

resulted in the submission of false claims. Defendant has engaged in a number of billing schemes and schemes involving pricing/coding practices which are prohibited by federal and state law, which resulted in illegal claims being presented for payment to federal programs. 85.

Defendant has also conspired to commit violations of the false claims

act by knowingly counseling and advising physicians and hospitals about how to falsely and fraudulently code their TIF procedure in such a way as to maximize their profits and submit a false claim for payment by federally-funded insurance programs, despite the fact that each of the conspirators knew or should have known Page 26 of 31

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the correct code for the TIF procedure and that use of the improper code was fraudulent. 86.

The four elements of a false certification claim are: (1) a false

statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due. Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 997 (9th Cir. 2010) (citations omitted). To establish the materiality element, “the false statement or course of conduct must be material to the government’s decision to pay out moneys to the claimant.” Id. To establish materiality, the term “certification” has no special significance; rather, “the question is merely whether the false certification-or assertion, or statement-was relevant to the government's decision to confer a benefit.” Id. 87.

As a result of said illegal actions by Defendant, the United States of

America has been, and will continue to be, severely damaged. COUNT TWO ANTI-KICKBACK ACT VIOLATIONS (42 U.S.C. § 1320A-7B(B)(1)-(2)) 88.

Relator realleges and incorporates by reference all preceding

paragraphs of this Complaint as if fully set forth herein. 89.

In addition to the other claims set forth herein, Defendant violated the

Federal Anti-Kickback Statute, which makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person to refer patients Page 27 of 31

Case 1:12-cv-00078-DWM Document 1 Filed 06/26/12 Page 28 of 31

or lease services regarding patients who are beneficiaries of a federal healthcare program. 42 U.S.C. §1320a-7b(b)(1)-(2). 90.

Healthcare claims that involve kickbacks have been determined to

violate the Federal Fair Claims Act as well.

Patient Protection and Affordable

Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010) (amending the Medicare and Medicaid Patient Protection Act of 1987, 42 U.S.C. §1320a-7b (g)). 91.

Defendant arranged for the furnishing of an item or service for which

payment was made in whole or in part by Medicare or a federal or state health care program, and for which it received additional business, referrals, and remuneration, based upon the representation that the TIF procedure and device could be billed at a fraudulent rate. Defendant arranged for or recommended purchasing, leasing, or ordering its TIF procedure for which payment might be made in whole or in part under Medicare or a federal or state health care program, based upon the representation that the TIF procedure could be billed at a fraudulent rate. Defendant agreed to fund co-marketing patient referral events and waived the facilities contribution requirement. 92.

Consequently, physicians and hospitals around the country have

recommended Defendant and its TIF procedure to recipients and beneficiaries of federal programs such as Medicare and Medicaid.

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93.

The decision as to the type and nature of services given to a patient

should be based solely upon the best interest of the patient and not based upon the potential profitability due to a difference in the cost versus billing. 94.

Referring physicians and hospitals receive remuneration and profit

from the procedure, and Defendant directly profited from the improper referrals made by the physicians and hospitals. 95.

As a result of said illegal actions by Defendant, the United States of

America has been, and will continue to be, severely damaged. 96.

Accordingly, Defendants are liable for all damages caused by their

violations of the Anti-Kickback Act, administrative sanctions, penalties of $50,000 per kickback violation and all other damages permissible pursuant to 42 U.S.C. §1320a7(b). PRAYER FOR RELIEF WHEREFORE, Relator prays for judgment as follows: (a)

Defendant be ordered to cease and desist from causing the submission

of any more false claims or otherwise violating 31 U.S.C. §3729 or 42 U.S.C. §1320a-7(b); (b)

That judgment be entered for Relator and against Defendant in the

amount of each and every false or fraudulent claim, multiplied as provided by 31 U.S.C. § 3729(a), plus a civil penalty of not less than $5,500.00 nor more than Page 29 of 31

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$11,000 per claim, as provided by 31 U.S.C. § 3729(a), to the extent such multiplied penalties shall fairly compensate the United States of America for losses resulting from the various schemes undertaken by Defendant, together with penalties for specific claims to be identified at trial after full discovery, and multiplied in accordance with 31 U.S.C. § 3729(a); (c)

That Relator be awarded the maximum amount allowed pursuant to 31

U.S.C. § 3730(d); (d)

That judgment be entered for Relator and against Defendant in the

amount of each and every violation of the Anti-Kickback Act, as provided by 42 U.S.C. §1320a-7(b), for all amounts authorized by said statute, plus additional sanctions of $50,000.00 per kickback violation; (e)

That judgment be entered for Relator and against Defendant for any

costs, including, but not limited to, court costs, expert fees and all attorney fees incurred by Relator in the prosecution of this suit; (e)

That Relator be awarded an amount the Court decides is reasonable

after collecting the civil penalty and damages pursuing this matter, which award, by statute, shall not be less than 15% nor more than 25% of the proceeds of this action or the settlement of any such claim if the Government intervenes in the action, and not less than 25% nor more than 30% if the Government declines to intervene in this action; and Page 30 of 31

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(f)

That Relator be granted such other and future relief as the Court

deems just and proper. DEMAND FOR JURY TRIAL Relator demands trial by jury. DATED this 26th day of June, 2012. EDWARDS, FRICKLE & CULVER By: /s/ Triel D. Culver__________ Triel D. Culver Attorneys for Plaintiff/Relator

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