                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-6-2004

Schmidt v. Zimmer Inc
Precedential or Non-Precedential: Precedential

Docket No. 03-3695




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"Schmidt v. Zimmer Inc" (2004). 2004 Decisions. Paper 175.
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                      PRECEDENTIAL                   Argued April 15, 2004

     UNITED STATES COURT                    BEFORE: RENDELL, STAPLETON,
          OF APPEALS                            and LAY,* Circuit Judges
     FOR THE THIRD CIRCUIT
                                               (Opinion Filed: October 6, 2004)

             NO. 03-3695

                                           Richard A. Sprague
   UNITED STATES OF AMERICA                Joseph A. Podraza, Jr. (Argued)
            EX REL.                        Sprague & Sprague
   RICHARD G. SCHMIDT, M.D.                135 South 19th Street
                v.                         Wellington Building, Suite 400
  ZIMMER, INC; MERCY HEALTH                Philadelphia, PA 19103
     SYSTEM, d/b/a, t/a MERCY               and
     FITZGERALD HOSPITAL;                  Martin I. Twersky
      MERCY HOSPITAL OF                    H. Laddie Montague, Jr.
       PHILADELPHIA, a/k/a/                Berger & Montague
    MISERICORDIA HOSPITAL;                 1622 Locust Street
 MERCY HAVERFORD HOSPITAL;                 Philadelphia, PA 19103
 MERCY COMMUNITY HOSPITAL;                  Attorneys for Appellant
 MERCY SUBURBAN HOSPITAL;
   MERCY CATHOLIC MEDICAL                  Steven L. Jackson (Argued)
            CENTER                         Baker & Daniels
                                           111 East Wayne Street, Suite 800
          Richard G. Schmidt,              Fort Wayne, IN 46802
               Appellant                    and
                                           Joan A. Yue
                                           Reed Smith
  On Appeal From the United States         1650 Market Street
              District Court               2500 One Liberty Place
For the Eastern District of Pennsylvania   Philadelphia, PA 19103
 (D.C. Civil Action No. 00-cv-01044)        Attorneys for Appellee Zimmer, Inc.
   District Judge: Hon. Eduardo C.
                Robreno

                                           * Hon. Donald P. Lay, United States
                                           Circuit Judge for the Eighth Circuit, sitting
                                           by designation.
                                                   Premier Purchasing Partners (“Premier”),
                                                   an organization which acts as a purchasing
        OPINION OF THE COURT                       agent for a group of entities, including
                                                   Mercy, that provide medical services for
                                                   which reimbursement may be sought under
STAPLETON, Circuit Judge:                          the M e d ic a re p ro g ra m (“Prem ier
                                                   Participants”). The contract committed
       Richard G. Schmidt, M.D.                    Zimmer to provide orthopedic implants to
(“Schmidt”), an orthopedic surgeon in              the Premier Participants for a period of
Bala Cynwyd, Pennsylvania, brought this            five years.
qui tam action pursuant to the False
Claims Act (“FCA”), 31 U.S.C. §§ 3729 et                   Under this contract, the Premier
seq., against defendant Zimmer, Inc.               Participants were rewarded if they
(“Zimmer”), a manufacturer, seller, and            purchased Zimmer’s products in sufficient
distributor of orthopedic implants. The            numbers to increase Zimmer’s market
District Court dismissed Schmidt’s                 share. Among these rewards was a
complaint for failure to state a claim under       “conversion incentive.” This incentive
Rule 12(b)(6) of the Federal Rules of Civil        was intended to compensate the Premier
Procedure. We will reverse the judgment            Participants for purchasing implants from
of the District Court.                             Zimmer rather than its competitors. Under
                                                   the “conversion incentive,” when a
                     I.                            Premier Participant purchased more than
                                                   the total number of implants it had
       In his first amended complaint,             purchased the year before, each additional
which is at issue in this appeal, Schmidt          implant could be purchased for a reduced
purported to allege FCA violations against         price of $200. In addition, the contract
both Zimmer and M ercy Health Systems              allegedly provided that each Premier
(“Mercy”).1 In particular, Schmidt alleged         Participant would receive a 2% bonus on
that Zimmer entered into a contract with           implant purchases if the Premier
                                                   Participant met the pre-set market share
                                                   and volume purchase commitments.
    1                                              Finally, the contract allegedly provided for
     Mercy is a Pennsylvania corporation
                                                   additional incentives “targeted to offset the
that owns and operates hospitals and other
                                                   costs associated with com petitive
health care facilities, including Mercy
                                                   conversion.” Each Premier Participant
Fitzgerald Hospital, Mercy Hospital of
                                                   would forfeit the foregoing rewards if they
Philadelphia a/k/a M isericordia Hospital,
                                                   failed to meet the commitments pre-set by
Mercy Haverford Hospital, Mercy
                                                   Zimmer.
Community Hospital, Mercy Catholic
Medical Center, and Mercy Suburban
                                                          Schmidt further alleged that the
Hospital.

                                               2
rewards provided under the contract were
paid to Mercy and the other Premier
Participants “in cash or cash equivalents,”
                                                          Furthermore, if services
and that these payments are a classic
                                                          identified by this report
example of “kickbacks.” Moreover, it was
                                                          were provided or procured
alleged that Zimmer and Mercy induced
                                                          through the payment directly
certain of its physicians and orthopedic
                                                          or indirectly of a kickback
departments to assist in meeting Zimmer’s
                                                          or were otherwise illegal,
prescribed volume and market share levels
                                                          criminal, civil and
by sharing with them all or part of the
                                                          administrative action, fines,
rewards received from Zimmer under the
                                                          and/or imprisonment may
contract.
                                                          result.
                                                  J.A. at 35-36. The form also requires the
       According to Schmidt, each
                                                  following certification by an officer or
Premier Participant reported its costs
                                                  administrator of the health care provider:
associated with the purchase of orthopedic
                                                          I hereby certify that I have
implants in annual cost reports that were
                                                          read the above statement
submitted to the United States Government
                                                          and that I have examined the
under the Medicare program.           The
                                                          accompanying electronically
reporting form, United States Department
                                                          filed or manually submitted
of Health and Human Services’s Form
                                                          cost report and the Balance
HCFA-2552, required a health care
                                                          Sheet and Statement of
provider to certify that the costs being
                                                          Revenue and Expenses
submitted were true and correct, and that
                                                          prepared by . . . (Provider
the provider had complied with all laws
                                                          Name(s) and Number(s)) for
and regulations regarding the provision of
                                                          the cost reporting period
health care services.2 Such certification,
                                                          beginning . . . and ending . .
                                                          . and that to the best of my
                                                          knowledge and belief it is a
       2
       Specifically, Form HCFA-2552,                      true, correct and complete
according to the first amended complaint,                 statement prepared from the
provides that:                                            books and records of the
      M i s r e p r e s e n ta t i o n or                 provider in accordance with
      falsification of any                                applic able instruc tion s,
      information contained in                            except as noted. I further
      this cost report may be                             certify that I am familiar
      punishable by criminal, civil                       with the laws and
      and administrative action,                          regulations regarding the
      fine and/or imprisonment                            provision of health care
      under federal law.                                  services and that the

                                              3
Schmidt alleged, was a cond ition                  alleged to have violated § 1320a-7b(b)(1)
precedent for Premier Participants to              by knowingly and wilfully soliciting or
obtain Medicare funds from the federal             receiving such unlawful remunerations,
government and to retain Medicare funds            and Zimmer was alleged to have violated
advanced by the federal government.                § 1320a-7b(b)(2) by knowingly and
Schmidt alleged that, despite these                wilfully paying or offering to pay such
requirements, the cost reports submitted by        unlawful remunerations.4 Both Mercy
Mercy and the other Premier Participants
did not disclose the rewards that they
allegedly received from Zimmer under the              4
                                                       42 U.S.C. § 1320a-7b(b) provides, in
contract.3 Schmidt further alleged that
                                                   relevant part, that:
Mercy and the other Premier Participants
                                                          (1) whoever knowingly and
also falsely certified on their cost reports
                                                          willfully solicits or receives
that they were in compliance with all laws
                                                          any remuneration (including
and regulations regarding the provision of
                                                          any kickback, bribe, or
health care services.
                                                          rebate) directly or indirectly,
                                                          overtly or covertly, in cash
       According to Schmidt, the
                                                          or in kind –
remunerations paid by Zimmer to Mercy
                                                          (A) in return for referring an
and the other Premier Participants under
                                                          individual to a person for
the contract were made in violation of the
                                                          the furnishing or arranging
federal Anti-Kickback Act, 42 U.S.C. §
                                                          for the furnishing of any
1320a-7b.     In particular, Mercy was
                                                          item or service for which
                                                          payment may be made in
              services identified in                      whole or in part under a
              this cost report were                       Federal health care program,
              provided            in                      or
              c o m p l i a nc e wit h                    (B) in return for purchasing,
              such laws and                               l e a s in g , or d e r in g, o r
              regulations.                                arranging             for     or
J.A. at 36.                                               recommending purchasing,
                                                          leasing, or ordering any
        3
         With the exception of Mercy,                     good, facility, service, or
Schmidt’s first amended complaint did not                 item for which payment may
identify any other Premier Participant who                be made in whole or in part
was alleged to have filed a false Form                    under a Federal health care
HCFA-2552 cost report. Nor did the                        program,
complaint indicate the number of cost                     shall be guilty of a felony
reports that were allegedly submitted by                  and upon conviction thereof,
Mercy or any other Premier Participant.                   shall be fined not more than

                                               4
                                                   and Zimmer were alleged to have violated
                                                   § 1320a-7b(a)(3) by failing to disclose to
                                                   the federal government the allegedly
               $ 2 5 , 0 0 0       o r
                                                   unlawful remunerations.5
               imprisoned for not
               more than five years,
               or both.                            and (2).
       (2) whoever knowingly and
                                                     5
       willfully offers or pays any                   42 U.S.C.§ 1320a-7b(a)(3) provides, in
       remuneration (including any                 relevant part, that:
       kickback, bribe, or rebate)                        Whoever . . . having
       directly or indirectly, overtly                    knowledge of the
       or covertly, in cash or in                         occurrence of any event
       kind to any person to induce                       affecting (A) his initial or
       such person –                                      continued right to any
       (A) to refer an individual to                      [benefit or payment under a
       a person for the furnishing                        Federal health care program
       o r arrang ing for th e                            (as defined in subsection (f)
       furnishing of any item or                          of this section)], or (B) the
       service for which payment                          initial or continued right to
       may be made in whole or in                         any such benefit or payment
       part under a Federal health                        of any other individual in
       care program, or                                   whose behalf he has applied
       (B) to purchase, lease, order,                     for or is receiving such
       or arrange for or                                  benefit or payment, conceals
       recommend purchasing,                              or fails to disclose such
       leasing, or ordering any                           event with an intent
       good, facility, service, or                        fraudulently to secure such
       item for which payment may                         benefit or payment either in
       be made in whole or in part                        a greater amount or quantity
       under a Federal health care                        than is due or when no such
       program,                                           benefit or payment is
       shall be guilty of a felony                        authorized, . . . shall (i) in
       and upon conviction thereof,                       the case of such a statement,
       shall be fined not more than                       representation, concealment,
       $25,000 or imprisoned for                          failure, or conversion by any
       not more than five years, or                       person in connection with
       both.                                              the furnishing (by that
In addition, § 1320a-7b(b)(3) provides                    person) of items or services
certain exceptions to, and safe harbors for,              for which payment is or may
acts within the scope of § 1320a-7b(b)(1)                 be made under the program,

                                               5
        Schmidt’s first amended complaint           complaint alleged that there was a
also alleged that both Mercy and Zimmer             “financial relationship” between Mercy
violated the Anti-Self-Referral Act (also           and certain physicians that worked at
known as the “Stark Act”), 42 U.S.C. §              Mercy’s facilities, and that such a
1395nn, by presenting, or causing to be             relationship also existed between Mercy
presented, Medicare reimbursement claims            and Zimmer.       Despite these alleged
for services furnished pursuant to                  financial relationships, according to the
prohibited referrals.6 Specifically, the            complaint, Mercy nonetheless unlawfully
                                                    sought Medicare reimbursements for
                                                    services furnished under prohibited
              be guilty of a felony                 referrals.
              and upon conviction
              thereof fined not                            Finally, based on these alleged
              more than $25,000 or                  violations of the Anti-Kickback Act and
              imprisoned for not                    the Stark Act, Schmidt alleged that
              more than five years                  Mercy’s certifications of compliance with
              or both, or (ii) in the               federal health care law, contained in its
              case of such a                        annual cost reports submitted to the federal
              s t a t e m e n t ,
              representation,
              concealment, failure,
              conversion, or                        1395nn(a)(1)(A), a physician may not refer
              provision of counsel                  Medicare patients to an entity for
              or assistance by any                  “designated health services,” including
              other person , be                     inpatient and outpatient hospital services,
              guilty        of         a            if the referring physician has a nonexempt
              misdemeanor and                       “financial relationship” with such entity.
              u p o n c o n v ic t i o n            Under § 1395nn(a)(1)(B), the entity is
              thereof fined not                     prohibited from presenting or causing to
              more than $10,000 or                  be presented a Medicare claim for services
              imprisoned for not                    furnished pursuant to a prohibited referral.
              more than one year,                   With certain exceptions, “financial
              or both.                              relationship” is defined as (1) an
                                                    ownership or investment interest in the
         6
          The Stark Act prohibits the               entity, or (2) a compensation arrangement
presentation of a claim to Medicare for a           with the entity. 42 U.S.C. § 1395nn(a)(2).
designated health service by an entity              See generally United States ex rel.
where the service was furnished pursuant            Thompson v. Columbia/HCA Healthcare
to a prohibited referral by a physician that        Corp., 125 F.3d 899, 901-02 (5th Cir.
has a financial relationship with the entity.       1997) (describing the operation of the
See 42 U.S.C. § 1395nn(a). Under §                  Stark Act).

                                                6
government on Form HCFA-2552, were                          it caused Mercy to submit
false.      Mercy’s false certifications,                   an allegedly false cost
according to the complaint, constituted                     report. But the Amended
violations of three provisions of the FCA,                  Complaint does not allege
rendering both Mercy and Zimmer liable:                     Zimmer                 reviewed,
(1) 31 U.S.C. § 3729(a)(1), which                           approved, or received copies
prohibits knowingly presenting, or causing                  of Mercy’s cost reports or
to be presented, to an officer or employee                  p a r t i c i p a t e d i n t h e ir
of the United States Government a false                     preparation; nor does it
claim for payment or approval, (2) §                        allege Zimmer certified the
3729(a)(2), which prohibits knowingly                       truthfulness of Mercy’s cost
making, using and/or causing to be made                     reports.
or used a false record, claim, or statement
to get a false claim paid or approved by the                Courts have found a party
federal government, and (3) § 3729(a)(7),                   caused the submission of a
barring false certifications intended to                    false claim by another party
conceal, avoid, or decrease an obligation                   only where the non-
to refund Medicare payments made by the                     submitting party purposely
federal government.                                         and intentionally duped the
                                                            submitting party to submit
        Both Mercy and Zimmer responded                     the false claim.
to the complaint by filing a motion to
dismiss. Zimmer’s motion to dismiss was            J.A. at 6-7 (citing United States v.
granted with prejudice; Mercy’s motion             Bornstein, 423 U.S. 303 (1976)).
was granted without prejudice and
Schmidt was allowed to file a second                                        II.
amended complaint against it. Ultimately,
Schmidt’s claim against Mercy was                          We exercise plenary review over
settled, and he filed this appeal of the           the District Court’s dismissal of a claim
order granting Zimmer’s motion to                  for failure to state a cause of action under
dismiss.                                           Fed. R. Civ. P. 12(b)(6). Pinker v. Roche
                                                   Holdings Ltd., 292 F.3d 361, 374 n.7 (3d
       The District Court explained its            Cir. 2002). 7 “A court should not dismiss a
decision to dismiss Schmidt’s FCA claim
against Zimmer in the following manner:
                                                        7
                                                         The District Court had jurisdiction
       It is undisputed that Zimmer
                                                   over this case under 28 U.S.C. § 1331 and
       never submitted any cost
                                                   31 U.S.C. § 3732, which specifically
       reports: Zimmer could be
                                                   confers jurisdiction for actions brought
       liable under the FCA only if
                                                   under the FCA. We have jurisdiction over

                                               7
complaint under Rule 12(b)(6) for failure            muster under the Anti-Kickback and Stark
to state a claim for relief ‘unless it appears       Acts. We therefore conclude that these
beyond doubt that the plaintiff can prove            issues cannot be resolved in the context of
no set of facts in support of his claims             a motion to dismiss. Accordingly, like the
which would entitle him to relief.’” Pryor           District Court, we assume without
v. National Collegiate Athletic Ass’n, 288           deciding for purposes of this appeal that
F.3d 548, 559 (3d Cir. 2002) (quoting                Zimmer’s marketing program violated
Conley v. Gibson, 355 U.S. 41, 45-46                 both Acts.
(1957)). “In evaluating the propriety of
the dismissal, we accept all factual                        Zimmer insists that the Anti-
allegations as true, construe the complaint          Kickback Act provides a safe harbor for
in the light most favorable to the plaintiff,        marketing programs offering discounts to
and determine whether, under any                     health care providers and that its program
reasonable reading of the complaint, the             was designed to take advantage of this safe
plaintiff may be entitled to relief.” Pinker,        harbor.     See 42 U.S.C. § 1320a-
292 F.3d at 374 n.7 (citing Colburn v.               7b(b)(3)(A); 42 C.F.R. § 1001.952(h).
Upper Darby Township, 838 F.2d 663,                  When the record is fully developed, this
665-66 (3d Cir.1988)).                               may turn out to be the case, but the
                                                     complaint alleged that the rewards given to
                     III.                            Mercy were paid to it in “cash or cash
                                                     equivalents” and this appears to be
        According to Zimmer, it is apparent          inconsistent with Zimmer’s safe harbor
from the face of the first amended                   theory. See 42 C.F.R. § 1001.952(h)(5)(i)
complaint that its marketing program did             (“The term discount does not include –
not violate the Anti-Kickback Act or the             Cash payment or cash equivalents (except
Stark Act. Because it concluded that                 that rebates as defined in [42 C.F.R. §
Zimmer was not alleged to have caused the            1001.952(h)(4)] may be in the form of a
presentation of a claim, the District Court          check).”).
did not reach this issue, assuming without
deciding that violations of those Acts had                  Similarly, we cannot say that it is
been alleged. Based on our reading of the            clear from the face of the complaint that
first amended complaint, it is not clear that        Zimm er’s marketing program was
the alleged conduct of Zimmer passes                 consistent with the Stark Act.         The
                                                     marketing scheme, according to the
                                                     complaint, allegedly involved both
                                                     Zimmer and Mercy sharing remunerations
this appeal pursuant to 28 U.S.C. § 1291
                                                     with physicians at Mercy in order to
because the District Court’s Order and
                                                     induce these physicians to help in meeting
Stipulation of Dismissal resulted in a final
                                                     Zimmer’s prescribed volume and market
decision.
                                                     share levels. In providing such help, these

                                                 8
physicians allegedly made “prohibited                               statement to conceal, avoid,
referrals” for Mercy to provide health                              or decrease an obligation to
services for which Mercy then allegedly                             pay or transmit money or
s o u g h t M e d i c a r e r e i m b u r s e m e n t.              property to the Government,
Inasmuch as the complaint alleges a                                 is liable to the United States
compensation arrangement, a referral for                            Government for a civil
services, and a Medicare claim for those                            penalty of not less than
services, Zimmer’s marketing scheme does                            $5,000 and not more than
not appear to be consistent with the Stark                          $10,000, plus 3 times the
Act.       See 42 U.S.C. § 1395nn(a);                               amount of damages which
Columbia/HCA Healthcare, 125 F.3d at                                the Government sustains
901-02.                                                             because of the act of that
                                                                    person . . . .
                        IV.
                                                             31 U.S.C. § 3729(a). In this context, “the
        The FCA provides, in relevant part:                  terms ‘knowing’ and ‘knowingly’ mean
                                                             that a person, with respect to information
        Any person who –                                     – (1) has actual knowledge of the
        (1) knowingly presents, or                           information; (2) acts in deliberate
        causes to be presented, to an                        ignorance of the truth or falsity of the
        officer or employee of the                           information; or (3) acts in reckless
        United States Government                             disregard of the truth or falsity of the
        or a member of the Armed                             information, and no proof of specific
        Forces of the United States a                        intent to defraud is required.” 31 U.S.C. §
        false or fraudulent claim for                        3729(b).8
        payment or approval;
        (2) knowingly makes, uses,
        or causes to be made or                                8
                                                                 The term “claim” as used in the FCA is
        used, a false record or
                                                             defined as including “any request or
        statement to get a false or
                                                             demand, whether under a contract or
        fraudulent claim paid or
                                                             otherwise, for money or property which is
        approved         by       the
                                                             made to a contractor, grantee, or other
        Government;
                                                             recipient if the United States Government
        (3) conspires to defraud the
                                                             provides any portion of the money or
        government by getting a
                                                             property which is requested or demanded,
        false or fraudulent claim
                                                             or if the Government will reimburse such
        allowed or paid; [or] . . .
                                                             contractor, grantee, or other recipient for
        (7) knowingly makes, uses,
                                                             any portion of the money or property
        or causes to be made or
                                                             which is requested or demanded.” 31
        used, a false record or
                                                             U.S.C. § 3729(c).

                                                         9
       A suit to enforce the liability thus               To establish a prima facie claim
created may be instituted in two ways:             under 31 U.S.C. § 3729(a)(1), a plaintiff
                                                   must show that: “(1) the defendant
       The       United        S tates             presented or caused to be presented to an
       Department of Justice may                   agent of the United States a claim for
       file suit to collect damages                payment; (2) the claim was false or
       suffered as the result of                   fraudulent; and (3) the defendant knew the
       fraudulent claims which                     claim was false or fraudulent.” Hutchins,
       cause government money to                   253 F.3d at 182. In order to prove a claim
       be expended from the                        under § 3729(a)(2), a plaintiff must also
       United States Treasury.                     show that the defendant made or used (or
       Alternatively, a private                    caused someone else to make or use) a
       plaintiff may bring a qui tam               false record in order to cause the false
       action on behalf of the                     claim to be actually paid or approved. See
       government to recover                       1 John T. Boese, Civil False Claims and
       losses incurred because of                  Qui Tam Actions § 2.01[B], at 2-20 (2d ed.
       fraudulent claims. 31 U.S.C.                2003) (citing United States ex rel. Aakhus
       § 3730(b)(1).         When a                v. DynCorp, Inc., 136 F.3d 676, 682 (10th
       private plaintiff brings a qui              Cir. 1998)). Finally, a claim under §
       tam action, the government                  3729(a)(7) requires a plaintiff to prove a
       is permitted to intervene.                  “reverse false claim”; that is, that the
       But the private plaintiff may               defendant made or used (or caused
       continue his suit even if the               someone else to make or use) a false
       government declines to                      record in order to avoid or decrease an
       intervene.      31 U.S.C. §                 obligation to the federal government. See
       3730(c)(1). If the qui tam                  Kennard v. Comstock Resources, Inc., 363
       suit is ultimately successful,              F.3d 1039, 1048 (10th Cir. 2004)
       the private plaintiff, known                (“Pursuant to § 3729(a)(7), Relators are
       as a relator, is entitled to up             required to allege that [the defendant] had
       to 30% of the funds the                     an existing, legal obligation to pay or
       government recovers. 31                     transmit money or property to the
       U.S.C. § 3730(d).                           Government and that [the defendant]
                                                   submitted false statements or records to
Hutchins v. Wilentz, Goldman & Spitzer,            conceal, avoid, or decrease that
253 F.3d 176, 181-82 (3d Cir. 2001), cert.         obl iga ti on.” ( i n t e r n a l q u o t a t i o n s
denied, 536 U.S. 906 (2002). The United            omitted)). 9
States declined to intervene in this case
and Schmidt accordingly proceeded as a
qui tam relator.                                         9
                                                        Moreover, we have held that FCA
                                                   claims must be pleaded with particularity

                                              10
       In United States ex rel. Marcus v.                   government to pay claims
Hess, 317 U.S. 537 (1943), the Supreme                      which were grounded in
Court explained the purpose of the                          fraud, without regard to
provisions of the FCA extending its                         whether that person had
coverage to those who “cause [a false                       direct contractual relations
claim] to be presented” and to those who                    with the government.
“conspire” to obtain payment of such
claims:                                              317 U.S. at 544. This statement of
                                                     purpose structures the issue for decision
       These       p r o v i s io n s,               here: Can it fairly be said that Zimmer
       considered together, indicate                 knowingly assisted in causing the
       a purpose to reach any                        government to pay claims which were
       person who knowingly                          grounded in fraud? Construing the facts
       assisted in causing the                       alleged in the first amended complaint in a
                                                     light most favorable to Schmidt, we
                                                     conclude that it can.
in accordance with Fed. R. Civ. P. 9(b).
                                                             “[A] false certification of
See United States ex rel. LaCorte v.
                                                     compliance [with applicable law] creates
SmithKline Beecham Clinical Labs., Inc.,
                                                     liability [under the FCA] when
149 F.3d 227, 234 (3d Cir. 1998). Here,
                                                     certification is a prerequisite to obtaining
the District Court held that Schmidt’s first
                                                     a government benefit.” United States ex
amended complaint did not satisfy Rule
                                                     rel. Hopper v. Anton, 91 F.3d 1261, 1266
9(b) with respect to the FCA claim against
                                                     (9th Cir. 1996); see Columbia/HCA
Mercy, but nonetheless expressed its belief
                                                     Healthcare, 125 F.3d at 902 (involving
that the defects as to particularity could be
                                                     alleged violations of the Anti-Kickback
cured easily by amending the complaint to
                                                     and Stark Acts); Harrison v. Westinghouse
specify the precise Form HCFA-2552 cost
                                                     Savannah River Co., 176 F.3d 776, 787
reports that were alleged to be false. The
                                                     (4th Cir. 1999).         A certificate of
District Court subsequently held that
                                                     compliance with federal health care law is
Schmidt’s second amended complaint
                                                     a prerequisite to eligibility under the
against Mercy was sufficient under Rule
                                                     Medicare program. See 42 C.F.R. §
9(b). We will therefore assume that
                                                     413.24(f )(4)(iv); Co lum bia/H C A
Schmidt’s first amended complaint with
                                                     Healthcare, 125 F.3d at 902. It follows
respect to Zimmer was similarly deficient
                                                     that Schmidt alleged a violation of the
under Rule 9(b), but that such deficiency
                                                     FCA when he alleged that Mercy certified
may be cured in the same manner as was
                                                     its compliance with federal health care law
the second amended complaint. See Fed.
                                                     knowing that certification to be false. The
R. Civ. P. 15(a) (stating that leave to
                                                     issue for resolution is thus whether, under
amend “shall be freely given when justice
                                                     the allegations of the complaint, Zimmer
so requires”).

                                                11
knowingly assisted in Mercy’s false                   subcontractor under the FCA, the
certification.                                        subcontractor’s FCA liability itself was not
                                                      questioned. In fact, the Supreme Court,
        It is true, as the District Court             citing to Hess, noted that “[i]t is settled
stressed, that the amended complaint does             that the [FCA] . . . gives the United States
not allege that Zimmer “reviewed,                     a cause of action against a subcontractor
approved, or received copies of M ercy’s              who causes a prime contractor to submit a
cost reports or participated in their                 false claim to the Government.” Id. at
preparation.” The case law indicates,                 309.
however, that a party may assist the filing
of a false claim in other ways.                               It does not appear from the opinion
                                                      of the Court in either Hess or Bornstein
        In Hess, for example, a group of              that the party actually presenting the
electrical contractors had devised a scheme           claims to the government was aware of the
under which they collusively bid contracts            fraudulent conduct. This was not a matter
being let by municipalities and school                material to the Court’s analysis, however.
districts that were participating in a federal        Given the Court’s view that the crucial
program providing federal funding. 317                issue was whether the defendants
U.S. at 539. Claims were submitted to the             knowingly assisted in the presentation of
government by the local sponsors and                  false claims, the knowledge and conduct of
there is no indication that the electrical            the defendant were what mattered and the
contractors participated in the preparation           outcome did not turn on whether the actual
or s u bm is si on o f t ho s e c la im s.            presenters were “duped” or participated in
Nevertheless, because those contractors               the fraudulent scheme.10 Accordingly, we
had knowingly pursued a scheme that, if               believe the District Court erred in
successful, would ultimately result in the            concluding that someone other than the
submission of a false claim to the                    actual presenter cannot be responsible
government, they were held to have caused             under the FCA in the absence of duping.
those claims to be presented.
                                                            Schmidt, like the plaintiffs in Hess
        Similarly, in United States v.                and Bornstein, alleges that Zimmer created
Bornstein, 423 U.S. 303, 307 (1976), a                and pursued a marketing scheme that it
defendant subcontractor supplied a prime              knew would, if successful, result in the
contractor with falsely marked substandard
electron tubes, knowing that the tubes
would in turn be used in the manufacture                 10
                                                           By way of example, we are confident
of radio kits sold by the prime contractor
                                                      that the subcontractor in Bornstein would
to the United States. Although the precise
                                                      have been held no less culpable under the
issue in the case was the number of
                                                      FCA had the prime contractor known that
statutory forfeitures assessable against the
                                                      the electron tubes were falsely marked.

                                                 12
submission by Mercy and others similarly           maintain their eligibility for Medicare
situated of compliance certifications              participation without certifying their
required by Medicare that Zimmer knew              compliance with federal health law. Thus,
would be false. If this conduct and this           when read in a light most favorable to
knowledge were proven at trial, a jury             Schmidt, one can reasonably infer from the
could conclude that Zimmer knowingly               foregoing that Zimmer must have known
caused Mercy’s false claims to be filed.           that Mercy could not purchase its implants,
                                                   receive kickbacks, and share those
        As we have indicated, Schmidt’s            kickbacks with its physicians, in the
complaint alleges that Zimmer came up              manner provided by the contract unless
with a marketing program that it knew to           Mercy falsely certified itself to be in
be in violation of the Anti-Kickback Act           compliance with federal law.
and the Stark Act. The alleged targets of
this scheme were health care providers that                While it is true that Mercy allegedly
Zimmer knew to be participants in the              made its own decision to file a false
Medicare program. The complaint avers,             certification, this is not inconsistent with a
for example, that the purpose of the               conclusion that Zimmer caused that filing.
conversion incentive prescribed in the             In United States ex rel. Cantekin v. Univ.
contract with Premier was intended to              of Pittsburgh, 192 F.3d 402, 416 (3d Cir.
“influence and obtain favorable treatment          1999),      this Court applied ordinary
from providers who participate in the              causation principles from negligence law
Medicare program by inducing them to               in determining responsibility under the
purchase Zimmer’s products and increase            FCA.       Under those principles, the
Zimmer’s market share for orthopedic               “intervention of a force which is a normal
implant hardware. . . .” JA at 38.                 consequence of a situation created by the
Moreover, it is a fair inference from the          actor’s . . . conduct is not a superseding
alleged facts regarding Zimmer’s business          cause of harm which such conduct has
and knowledge of the relevant market that          been a substantial factor in bringing
Medicare participation was an important,           about.” Restatement (Second) of Torts §
if not an essential, characteristic of the         443.11 Thus, assuming that a jury were to
Premier Participants. If Mercy and other
Premier Participants were unable to
maintain their eligibility to receive                  11
                                                          The fact that Mercy’s alleged false
Medicare funds, the purpose of Zimmer’s
                                                   certification was an unlawful act does not
marketing scheme – selling as many of it
                                                   render it a superseding cause that absolves
impla nts as possible to Prem ier
                                                   Zimmer from responsibility. As § 448 of
Participants – would be thwarted. We
                                                   the Restatement explains:
further regard it as a fair inference from
                                                           The act of a third person in
the facts alleged that Zimmer was aware
                                                           committing an intentional
that Premier Participants could not
                                                           tort or crime is a

                                              13
conclude that Zimmer’s marketing scheme                      We thus conclude, based on Hess
was a substantial factor in bringing about           and Bornstein, that Schmidt’s first
Mercy’s filing and that M ercy’s filing was          amended complaint, to the extent it is
a normal consequence of the situation                based on M ercy’s alleg ed fa lse
created by that scheme, Zimmer could be              certification of compliance with federal
found to have caused, and thus be held               health care law, states a claim upon which
responsible for, that filing.12                      relief can be granted, and we will remand
                                                     for further proceedings.13 In doing so, it is
                                                     important to note the limits of our ruling.
             superseding cause of                    Schmidt alleges that Mercy did not
             harm to another                         disclose to Medicare the illegal
             resulting therefrom,                    remunerations – i.e., that it made claims
             although the actor’s                    for more than it in fact paid Zimmer. This
             negligent conduct                       appears not to have been a part of
             created a situation                     Zimmer’s marketing scheme and, indeed,
             which afforded an                       the Premier contract expressly provides
             opportunity to the                      that:
             t hird p e r s o n to
             commit such a tort or                             Participating Members shall
             crime, unless the                                 disclose the specified dollar
             actor at the time of                              value of discounts or
             his negligent conduct                             reductions in price under
             realized or should                                any state or federal program
             have realized the                                 which provides cost or
             likelihood that such a                            charge-based reimbursement
             situation might be
             created, and that a
             third person might
                                                          13
             avail himself of the                           We have limited our discussion to
             opportunity to                          addressing the specific ground cited by the
             commit such a tort or                   District Court for dismissing Schmidt’s
             crime.                                  FCA claim against Zimmer. Although
Restatement (Second) of Torts § 448                  raised by the parties, the District Court did
(emphasis added).                                    not reach the issues of whether Schmidt
                                                     may proceed against Zimmer with respect
  12
     Further, as noted above, a jury finding         to unnamed Premier Participants that were
that Zimmer “knowingly” caused the filing            also alleged to have filed false
does not require scienter, but, rather, could        certifications of compliance with
be based on mere passive disregard that              applicable law. It is more appropriate, we
the jury finds to have been reckless. See            believe, to reserve this issue for the
U.S.C. § 3729(b).                                    District Court’s consideration on remand.

                                                14
       to s u ch P a r t i c i p atin g
       Members for the Products
       and services covered by this
       Agreement in accordance
       with applicable regulations.

J.A. at 121.

       It thus appears that Zimmer was at
least aware of the possibility that Mercy
might file a false claim for more than it
paid Zimmer. But mere awareness that
another may, or even has, chosen to make
such a claim does not alone constitute
“causing a false claim to be presented.”
See United States ex rel. Shaver v. Lucas
Western Corp., 237 F.3d 932 (8th Cir.
2001). Indeed, we do not understand
Schmidt’s brief before us to argue that
Zimmer can be held liable under the FCA
for this alleged violation of that Act by
Mercy. Schmidt does claim, however, that
the certification of compliance with health
care law is a prerequisite to entitlement to
Medicare payments and that false
certifications of compliance were
necessary consequences of Zimmer’s
marketing scheme.

                     V.

       The judgment of the District Court
will be reversed, and this matter will be
remanded for further p roceedings
consistent with this opinion.




                                               15
