Federal Appeals Court Rebuffed Unfair Competition Claims But Didn’t Decide Stark, AKS Liability

The Eleventh Circuit Court of Appeals ruled that a federal court didn't have jurisdiction to hear state law claims of unfair competition in a lawsuit that led to a multi-million dollar jury award against Millennium Health. But it didn't issue any opinion on whether the conduct in dispute violated the federal Anti-kickback Statute or Stark law (See GCA, February 2015, p.1). The appeals court explained that Ameritox had really raised state law issues when it argued that point-of-care testing (POCT) cups Millennium supplied to referring physicians for free violated state unfair competition laws because those practices violated the federal AKS and Stark law. Declaring that the federal trial court's decision to hear the "novel and complex state-law claims" was an abuse of discretion, the appeals court said it "resulted in the needless creation of new law for nine states and permitted parties that were either ignorant of the law or disingenuous to waste scarce judicial resources."

Millennium and Ameritox are competitors who provide drug testing to physicians' patients. POCT cups include chemically activated strips that detect drugs in urine samples, allowing physicians to obtain limited information in their office about whether drugs are present in the urine. They then send the sample in the POCT cup to the laboratory for confirmatory testing. Physicians can bill Medicare for the testing performed in office using the POCT cups. Using a standard specimen cup would not allow such billing because the physicians wouldn't be performing a test. Millennium provided the POCT cups for free to physicians who signed Free Cup Agreements (FCA) agreeing to send those used cups to Millennium for confirmatory testing and agreeing not to bill federal programs for the in-office test. The provision of these cups could violate AKS and Stark if considered remuneration in exchange for referrals. Millennium's position was that because the physicians agreed not to bill for the in-office test, these arrangements didn't violate the AKS or Stark. Ameritox filed a lawsuit in federal court alleging Millennium's arrangements violated state unfair competition laws and involved kickbacks in violation of state and federal law. The jury found Millennium tortiously interfered with Ameritox business in multiple states and its conduct was unfair competition under state law and awarded more than $14 million in damages. Millennium appealed.

The issue on appeal was whether a violation of AKS or Stark law proved unfair competition or deceptive business practices in violation of state laws. The appeals court said, "Allowing the state-law claims to be tried using the Stark/AKS theory was egregious, constituting a clear error of judgment." The court said Ameritox either didn't know it would base its state law claims on violations of federal AKS and Stark law or it concealed that intention. Thus, the court said Ameritox was responsible for waste of judicial resources and it would create "perverse incentives" to allow Ameritox to claim the case should now stay in federal court to avoid a waste of resources by starting all over again in state court.

What the court refused to decide was whether the conduct at issue did violate the Stark law or AKS or other state law or whether violations of the Stark law and AKS should support claims of unfair competition under state law. However, while claiming it expressed "no opinion whatsoever" about violations of Stark, AKS or state law and "no view as to whether it would be wise" to allow Stark law and AKS violations to prove violations of state law, the court did say: "It certainly does not require any great leap of logic to believe that a company that profits by declining to comply with government regulations enjoys an unfair advantage vis-à-vis its competitors who choose to obey the law." The court also left the door open for the parties to litigate their claims "in a proper forum."

Takeaway: Federal court rules in favor of Millennium on procedural issue but leaves some uncertainty by refusing to decide whether conduct violated AKS and Stark law.