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United States ex rel. Troncoso v. REGO International, LLC

United States District Court, S.D. Florida

May 15, 2018

UNITED STATES OF AMERICA, ex rel. Rafael Troncoso, Plaintiff,
REGO INTERNATIONAL, LLC, et al., Defendants.



         THIS CAUSE came before the Court on Defendants, Kinetic, Inc. and Rego International, LLC's Motion to Dismiss First Amended Complaint [ECF No. 64], filed March 23, 2018. On April 6, 2018, Relator, Rafael Troncoso, filed an Opposition to Defendants' Joint Motion to Dismiss [ECF No. 68]. Defendants have not filed a reply memorandum addressing Relator's arguments in opposition. On April 20, 2018, Relator filed a Notice of Settlement [ECF No. 69], requesting the Court dismiss Relator's claims against Kinetic. On April 23, 2018, the Court entered an Order [ECF No. 70] dismissing Kinetic; thus, the Motion is moot as it pertains to any arguments raised by Kinetic (see Mot. 1-8).[1] The Court has carefully considered the parties' written submissions, the record, and applicable law.

         I. BACKGROUND

         The First Amended Complaint (“FAC”) [ECF No. 26] describes a scheme Rego developed to recruit and pay physicians to make referrals for braces, transcutaneous electrical nerve stimulation units (“T.E.N.S. units”), and compound creams, resulting in millions of dollars of false claims being paid by the United States. (See generally id.). As part of the scheme, Rego conspired with Kinetic and RX Pro Pharmacy Compounding. (See id. ¶¶ 41, 53). First, Rego offered physicians payments for referrals - some of which were for Medicare and Medicaid patients. (See id. ¶¶ 36, 44). Then, Kinetic and RX Pro Pharmacy would make those payments. (See id.). Unaware of the illegal referral payments, the United States caused numerous false claims submitted by Kinetic and RX Pro Pharmacy to Medicare and Medicaid to be paid. (See id. ¶¶ 41-42, 53-54).

         Rego “describes itself as a business that specializes in ‘Revenue Enhancement programs for Healthcare Professionals and Institutions.'” (Id. ¶ 12). Rego recruits physicians to participate in its “stock and bill” program, which it touts as a “legally compliant way to make ‘passive income.'” (Id. ¶ 16; see also id. ¶ 2). Rego does not enter into these agreements with physicians directly, but instead solicits agreements for Kinetic and RX Pro Pharmacy. (See id. ¶¶ 13, 36, 44).

         Under the “stock and bill” program, physicians are provided with an inventory of braces by durable medical equipment (“DME”) providers, which the physicians then prescribe to their patients. (See id. ¶ 17). The patient is effectively given little or no choice regarding where to buy the brace, purchasing it at the physician's office from Kinetic. (See id. ¶ 18). The physician's staff has the patient fill out paperwork allowing the DME provider to bill the patient's insurance company directly for the brace, so the patient does not pay Kinetic out of pocket. (See id. ¶¶ 18-19).

         The DME provider can then charge the insurance carrier much higher prices for the braces than the patient would pay if she had purchased the same brace at a pharmacy because by billing an insurer directly, the DME provider may utilize the maximum allowable rate set forth in the contract between the insurance company and the Centers for Medicare and Medicaid Services. (See id. ¶ 21). Rego has its sales staff pick up prescriptions and corresponding insurance paperwork from physicians' offices and restock physicians' inventory. (See id. ¶ 20). Rego is paid a commission for each referral the pharmacies receive under the “stock and bill” contracts it generates. (See id. ¶ 15).

         Physicians are paid a monthly “fitting fee” by the DME provider they contract with. (See id. ¶ 22). The more expensive the brace, the higher its referral value. (See id. ¶ 23). The agreements typically pay $75 per back brace, $65 per knee brace, and similar prices for walkers and wrist braces. (See id.). The monthly “fitting fee” is usually set the first three months of the program, and is decided by averaging the number and type of braces the office refers per month. (See id. ¶ 24). The fee has nothing to do with whether the physician or physician's assistant actually fits a patient for a brace. (See id. ¶¶ 26-27). If a physician does not meet his or her monthly average, the payments stop and the contract is terminated, or the fee is revised down. (See id.). The monthly fitting fee is typically in the range of $1, 000 to $2, 500 per month. (See id. ¶ 25).

         In addition to the fitting fee, physicians' offices are also paid a monthly administrative fee and rental fee for storing the braces. (See id. ¶ 28). These fees increase monthly payments to participating physicians by approximately $100. (See id.). Additionally, Rego directs its salesforce to make cash payments to office administrators, and takes participating physicians to expensive meals and events in order to “grease the wheels and keep the illegal referral network operating smoothly.” (Id. ¶ 4).

         In addition to the “stock and bill” program, Rego solicits physicians to prescribe expensive compound creams sold by RX Pro Pharmacy and T.E.N.S. units sold by Kinetic. (See id. ¶¶ 3, 29). Rego offers physicians a $25.00 payment from RX Pro Pharmacy for each compound prescription submitted to RX Pro Pharmacy. (See id. ¶ 14). Rego's salesforce also routs referrals of T.E.N.S. units to Kinetic. (See id. ¶ 29). Physicians are paid an additional $100 if they prescribe a T.E.N.S. unit with a back brace. (See id. ¶ 30). The payments to physicians are only made, however, if the prescriptions are submitted to and filled by RX Pro Pharmacy and Kinetic. (See id.).

         Relator formerly worked as a salesperson for Rego and its associated medical equipment providers. (See id. ¶ 6). He gained knowledge of the referral scheme through his work for Rego, including recruiting physicians and managing physicians' accounts. (See id. ¶¶ 6, 34). Relator also had conversations with Bill Rego, the principal of Rego, about how to bill certain claims to comply with Medicare billing guidelines. (See id. ¶ 34).

         Relator brings claims under the qui tam provision of the False Claims Act (“FCA”) for Rego's submission of false claims to Medicare and Medicaid for braces (Count I), and for compound creams and T.E.N.S. units (Count II). (See generally id.). Relator also alleges Rego violated the Anti-Kickback Statute (“AKS”), see 42 U.S.C. § 1320a-7b, by offering referral payments to induce physicians to prescribe braces, T.E.N.S. units, and compound creams from Kinetic and RX Pro Pharmacy. (See FAC ¶¶ 37, 46).

         In its Motion, Rego argues the claims alleged do not satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). (See generally Mot.). Rego also requests the Court grant the Motion with prejudice since Relator has already amended his complaint. (See id. 12).

         II. ...

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