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Tuesday, December 10, 2019

Massachusetts court dismisses False Claims Act suit against Smith and Nephew alleging overcharges


By Tomas Kassahun | Sep 27, 2018


BOSTON (Legal Newsline) – The U.S. District Court of the District of Massachusetts has ruled in favor of a medical equipment supplier that was alleged to have overcharged health care systems.

Cavallino Consulting LLC filed the qui tam lawsuit on Aug. 17 against Smith and Nephew Inc., alleging violations of the Federal False Claims Act. The court, however, didn’t see any specific evidence to prove the allegations against the defendant and allowed the defendant's motion to dismiss.

According to the court, Cavallino is a consulting firm that “'routinely conducts Transportation Overcharge Recovery Audits' for health care systems." The court adds that Smith and Nephew Inc. is a supplier of medical equipment and supplies.

“Defendant holds various contracts to provide medical equipment and supplies to hospitals owned and operated by the federal government, including those operated by the Department of Veteran’s Affairs,” the opinion stated. 

According to the court, "at least some of these contracts require the supplier to charge the government the actual cost of expedited shipping."

Cavallino said Smith and Nephew charged the government hospital more than the actual cost.  

“Defendants receive substantial discounts on expedited shipping from United Parcel Service Inc. and Federal Express Corp. and have failed to pass these discounts onto the government,” the allegations stated, as cited in the ruling. “Specifically, Smith received discounts ranging from 35 percent to 65 percent on its expedited shipping rates that it has failed to pass on to the government hospitals.”

Cavallino said the allegations in the complaint are based on knowledge and information gained through (its) extensive experience advising hospitals in organizational improvements.

Cavallino added that its investigations spanning the last decade revealed that Smith used the scheme to overcharge for expedited shipping.

"The relator alleges that by making claims to government hospitals for payment for expedited delivery of medical equipment and supplies without passing that discount or rebate on the government, defendant has overcharged those hospitals and thereby made false claims for payment," the ruling states.

Smith and Nephew said the plaintiff "fails to identify a single sale or associated shipping charge (expedited or otherwise) made under that contract, or any other contract... to any VA hospital anywhere in the country," the ruling states.

The court agreed with Smith and Nephew. 

“Although the complaint alleges that the fraudulent conduct has occurred 'from at least 2008 to the present,' the complaint does not identify any specific orders that a government hospital placed with defendant for equipment or supplies, a single government hospital to which any equipment or supplies were shipped, or any specific claims submitted to the government hospitals for payment under any contract,” the opinion stated. 

According to the court, the precedent acknowledges that a plaintiff doesn’t need to state every detail when alleging a violation of the False Claims Act, but “some of this information for at least some of the claims must be pleaded.” 

“Relator’s complaint in this case fails to make any showing sufficient to pass muster under Rule 9(b) as to any claim, and thus cannot survive defendant’s motion to dismiss,” the opinion stated. 

The opinion was written by U.S. District Judge Indira Talwani.

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