The Eleventh Circuit Court of Appeals: A violation of AKS or Stark Law cannot be used to prove state law claims against a competitor for statutory unfair competition and common law

1330873_courthouseThis litigation involves claims of unfair competition and tortious interference under nine different states’ laws, where the claims are based, in part, upon alleged violations of the federal Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b), and Stark law (“Stark”), 42 U.S.C. § 1395nn(a).  Our Georgia business and healthcare law firm follows legal developments in the world of healthcare.

This particular dispute is between Ameritox Ltd and Millenium Laboratories, Inc.   These laboratories are competitors in the drug-screening/testing marketplace. Each sells to physician practices and other healthcare providers products and services that facilitate analysis of patient drug use, including point-of-care (POCT) cups. POCT cups are used by physician practices to collect and store urine samples. Additionally, POCT cups contain chemically activated strips that indicate the presence of particular drugs in the patient’s system. POCT cups thereby facilitate “qualitative testing,” informative of patients’ drug use. Such information is very limited, however; it does not, for example, reveal the precise quantity of a drug in the patient’s system. To obtain more meaningful information about the patient, a doctor must send the POCT cup to a clinical laboratory, for “confirmatory testing.” These two laboratories compete for that business.

Millenium, when relatively new in the drug-testing industry, implemented a program whereby it provided complimentary POCT cups to physicians for their promise to send used cups to Millenium for confirmatory testing. Some physicians entered a “free cup agreement” with Millenium. This agreement barred billing the federal government for the testing, which Millenium did apparently in an attempt to avoid violating Stark and AKS, which forbid certain remuneration in exchange for referrals where payment for the referred services could be made under a federal healthcare program.

Ameritox contends that with the advent of Millenium’s free-POCT program, it began to experience substantial losses in the POCT segment of its business. Ameritex sued Millenium in the United States District Court for the Middle District of Florida, alleging that Millennium unlawfully sought to increase its market share and profits by providing financial inducements and kickbacks, which, according to Ameritox, violated Stark and AKS among other laws. See Ameritox, Ltd. v. Millennium Labs., Inc., No. 8:11-cv-775-T-24-TBM (M.D. Fla. May 5, 2014).

In the lawsuit, federal jurisdiction was based on alleged violations of the Lanham Act, 15 U.S.C. § 1125, et seq., with supplemental jurisdiction under 28 U.S.C. § 1367(a) as to a variety of state law causes of action based upon the alleged wrong doing. Following much complicated procedural maneuvering in multiple courts, the case proceeding in the District Court, where the federal Lanham Act claim was ultimately mooted; the District Court kept the case based on supplemental federal jurisdiction over the state law claims. After a ten-day trial, a jury determined that Millennium violated the AKS and the Stark Law and Ameritox proved its state law claims, awarding Ameritox $14.755 million, mostly for punitive damages.

On appeal in the Eleventh Circuit Court of Appeals, the appellate panel noted that neither Stark nor AKS contain a remedy by way of a private right of action and determined that District Court’s jurisdictional analysis relating to the state law claims was “egregious” and a “clear error of judgment.”

The Court held that proof of a violation of “an independent federal statute” (Stark and AKS) would not establish conduct that violated the subject state laws (that served as the legal bases for the claims). Further, the Court determined that the District Court’s exercise of federal, supplemental jurisdiction over the case was improper because it would have the unnecessary effect of creating law in nine states. Finding there was no proper way to exercise federal supplemental jurisdiction over state law claims, the Eleventh Circuit reversed the District Court, vacating the judgment, and ordered that the parties could litigate their dispute in the state courts.

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Source: Eleventh Circuit Ameritox decision

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