good morning morning your honour's may please the court i am jeremy freedman and i'm a attorney representing the relator times bingham with me at councils table is jonathan krohn or one of the attorneys and trial counsel thank you for the opportunity to appear today i want to start with the center point claims but i want to make sure i have some time to address the aventura issues and i thought maybe in dealing with the center point claims i'd go over the facts of the unbroken chain of remuneration that flew from the hospital through tegra the intermediary to the doctors that were in the medical office building it started with a ninety nine year lease at a price of one point seven eight million dollars when the fair market value for that lease including the parking is meant was four point three eight million dollars and they weren't going to use it they were just going to rent it and these are called burn off leases because as tenants moved into the medical office building it c s obligation would burn off this  insured a positive cash flow into the intermediary and expose h c a to up to eight point three seven million dollars in additional costs that they would have to pay it turns out they paid up to one point four million dollars this is all in exhibit one sixty two dash five we focused here on what the doctors received and whether that was market value or not market value or  market value is at the essence of this case it's not the essence of the case judge but isn't the problem here giving a benefit to doctors that leads them to make recommendations to the hospital and therefore if the doctors are just getting their what they would normally get if they were it without fair market value and they were get just simply getting with fair market value and they were simply getting what they  for that there wouldn't be a problem if there was the issue of fair market value doesn't come into it unless there is an exception so for example there is an exception for leases because many hospitals will rent spaces to  doctors and that's a remuneration all we have to show in the prime official case is remuneration fair market value does not enter into that and if if they're paying all you have to do is show that the doctor's got something  without without saying what what its value is well that's not completely sure you do have to talk about the value of it and they got rents at the low bottom of the market rates and that's a factor it doesn't have to be below fair market value for it to be remuneration but the most important point here is that there's an investment interest the doctors were given an investment interest by agreeing to move into the into the medical office building for at least ten years when you have an investment interest between the doctors and the intermediary you don't look to the link to the what they got in the but they got paid by in terms of rents you look to appeal if you look at mr hetmans testimony it is in fact disputed he is an economist he's not an appraiser they didn't read do an appraisal the way he really had just adjusted the figures are you required to prove their market value as a part of the prime offish case and if the answer is no tell me why not we would we would prove fark mark my you have to show that we would have to show non market value if we don't have to show it non market value is a defense and as long as there's remuneration in fact you can have an a k s violation it will help me if you whenever you kickbacks that you ran i kicked back statutes the statutes in the case law and the regulations and sounds are clear that fair market value is not the issue unless there's enough to say it's not the issue it's not required it's not required to show room you make a prime your view is you do not have to establish that there was no fair market value but in the affirmative you can establish your prime aphasia case even if it was at fair market value yet your position yes what you need to show is remuneration if somebody hires me and pays me a fair market value for my fees that's remuneration then the question becomes under stark did under the layer very broad and c f r remuneration means any payment all the benefit may directly or in the very directly overtly or covertly in cash or car and that's correct your honor and so it is very broad and the reason why is because anytime there's a payment you don't want to argue over whether it's fair market value there's a payment then the question is if there's a payment if there's remuneration going on you have to fit within a safe harbor or you have to fit within a stark exception and not talking about stark now i'm only talking about the kickbacks th focus on the kickbacks that should ok under kickback statute it's a safe harbor and in order to to jenny means what it means that if you are going to want to rent an apartment from a hospital which happens all the time you have to meet the a k s x safe harbor for office rentals for space rentals and those require numerous things and i would say on this appeal it she has even waived that they have i read through their briefs there is no argument that they meet the k s safe harbor for for office rentals so the only real question is is there an safe harbor but it seems to me that there has to be if that but answer to it is it was fair market value if there is if you get to the safe harbor provision then there would be an argument over it but in this case there was no quote does not include am reading from the c f r does not include any payment made by a lassie to a less or for the use of premises so long as certain standards are met including that the aggregate rental charge is set in advance that's one is consistent with fair market value in an almost length transaction that's two and three is not determined in a manner that takes into account with any referrals or business otherwise generated between the parties for which payment may be made in whole or in part help me with respect to that was a residence suggesting this was fair market value and was there any evidence that went to whether or not the manner in which it was determined was related to the volume of or the value of any referrals so your honor i think you're reading the stark twenty forty two c f r section one thousand and one point nine five to be isn't that yes yes yes one thousand that's what i've read from b and that is the safe harbor exception for the a k act or the a k a s for so i'm simply asking whether there was record evidence a deuced here dealing with a fair market value and b whether it did or did not take into account the volume of any referrals there is evidence of that there is plenty of evidence because it was an investment in trust between the physicians and tegra you don't look to the fair market value of the rents you look at the fair market value of the transactions between h c a and and the intermediary and when when you look at that there was plenty of excess market value plus there were direct payments there was improvements to the promises that were given directly to these tenants there was maintenance there was paving there were free parking is there any evidence that this was determined in a matter that took into account the volume or value of any referrals or business otherwise generated yes you're on others there's direct evidence that h c a considered the volume of business went and that there was going to be generated by those doctors when they decided to fund the and subsidize the intermediary when they wanted to build a medical office building there were statistics indicated there was no change direct the direct effect on that score surely the whole purpose of doing this is have it ever doctors be next door that's not the test the test is you can't have doctors next door the test is are they getting fair market value or are they getting getting  a break is this a sweetheart deal in some way and it is you're exactly right your honor it is a question of whether there's a sweetheart deal hospital wants to have doctors next door and thinks that because of the convenience of the doctor being there and the hospital being there that they might get referrals that's just normal business practice that is but they cannot over fund the intermediaries so that money flows to the doctors to attract them to come in and become doctors referring doctors in the medical office building for ten years so the money that flows has to be money that would not be not be flowing in a normal business situation that's right and in this case i was i started out pointing out all the excess money that they were putting into the into the intermediary and then that all passed through in tens of thousands of dollars per year to the death medical groups and hundreds of thousands of dollars when the building got sold this investment interest that was given to the doctors so long as they agreed to become referring doctors in the medical office building next door that paid off big and that's that's the major part of the case and the payoff wasn't based on referrals the payoff was  square footage they were reading and so i don't see well the square footage that they're renting and the length of time that they're there and so if they're renting larger offices they're going to have more doctors and the longer they're there they're going to have more referrals so there is a relationship it's the more referrals part that is missing and what you just said you know the longer the doctors in the medical office building the long the more money they get and the more referrals they make so there is a doc direct connection but actually because i couldn't find that that and more referrals that the doctors were paid on the participation agreement in accordance with their referrals i thought it build out costs that the tenants would be given and that all of those costs fell within the fair market value it wasn't ordinary we have there's a dispute a fact over that in fact tell me where where that comes from well said i don't think h c a economists got it right because they said this and that and this is wrong that is wrong but there's no appraisal it's just like cross examination there's an appraisal of the land deal but there's no appraisal of the fair market value for the rents considering all those things you're right roger but we don't need that because the fair market value only comes into the play is if you're talking about one of the exceptions and in safe harbors we're talking about a k a s and in this case there is no attempt to try to claim that this is a rental space they needed to be signed at the time the amount had to be set in advance they had to be signed by both parties none of those things apply here that's why there is no claim by my brothers here that there is a safe harbor it's not in the briefs it wasn't down below and they've waived it so the only thing we really need to do is to prove a chain of of an unbroken chain of payments and and the subjective intent of h c a in doing those excessive subsidies is to build a medical office building and attract doctors there away from st mary's who is already developing a a medical center that was that was the kind that would have attracted doctors there trying to attract doctors by paying them money rather than building a good hospital yes you can build a office building and those because of the corporate integrity agreement h c a had a hard time doing that but they could have done it they needed a truly independent third party they needed to have all of these things audited not by manipulated audit thank you may please the court my name is scott ballenger with major martin goldberg and greg one trial for the defendant h c a if i may i'd like to start by trying to straighten out this burden of proof question because i think that's where all of this needs to start related argument that all that he has to allege or prove is some kind of financial relationship and then it somehow she shifts the burden to the defendant to prove that there was any non fair market value exchange is is just wrong under the statute and the case law let me start with the any kickback statute because judge marcus you quoted the stark definition of remuneration the any kickback statute definition of remuneration is different reviewed to me in a really important way it's remuneration is defined in the any kickback statute as a transfer of items or services for free or for other than fair market value that's forty two u thirteen twenty a dash seven a six so it is really later is a burden to plead and to prove facts establishing a transfer of items or services for free or for other than fair market value the relator is brief is built around citing cases that say that a transfer of anything of value can be the predicate for an anti kickback claim of course that's right but it has to be a transfer of anything of value for free or for less than fair market value all of the cases recognize including the cases that relate or cites that there has to be some non fair market value exchange under the any kickback statute as a matter of the relator is prima facie case now under stark the start definition of remuneration is broader but that's because the focus of the stark law is on compensation that varies with or takes into account the volume or value of referrals now the because there is no direct relationship between h c a and these doctors it's a two chain right the start regulations require proof of an indirect financial relationship that's forty two  r for eleven point three fifty four c two and an indirect financial relationship has three elements it requires an unbroken chain of financial connections that's true here but it also requires  in compensation at the link closest to the physicians that varies with or takes into account the volume or value of referrals and then it requires actual knowledge by the hospital of that improper  arrangement that's their burden to establish that an indirect financial relationship exists at all here at the outset and judge cooks and by the way they're trying to change the subject on appeal to the definition of an investment interest rather than the indirect financial relationship definition that's waived for they never made that argument below that the c f p a's are an investment interest but it makes their case worse not better because if you if you a's as an investment interest the regulation would tell you you then have to look at the non ownership or non investment interest closest to the physicians so you would shift from looking at the relationship between tegra and the physicians so looking at the relationship between h c a and tegra and you would ask does the relationship between h c a and tegra vary with or take into account the volume or value of referrals and the answer is an undisputed no on this record there's not even an allegation that the relationship between h c a and tegra took into account the volume or value of referrals so the really critical point is to keep separate the two the medicare medicaid or other federal health care program judge cook correctly recognized there is no such evidence on this record and so the basis of the district court's decision was that there there was no proof  that any doctor got a better than fair market economic deal which is the any kickback issue and there is no evidence in the record that any doctor got a deal that varied with or took into account the volume or value of referrals  value on the cash flow participation agreements the four points on that because it's actually the only dispute in the record relator repeatedly conceded that the base rent was fair market value so you're right to focus on the cash flow participation so four things first it's undisputed that the cash flow participation agreements were an exchange for the tenants agreeing to a ten year lease which is a huge financial commitment to the building  there is no evidence in the record from or later that a cash flow participation agreement at these percentages is not a fair exchange for signing a ten year lease second the only evidence that is in the record on that issue is actually the two thousand and seven standard business and lease terms memo from holiday properties to h c a which were later himself prepared related was the praiser at holiday properties who did the market rent study underlying that two thousand and seven memo from holiday to h ca and if you look at it it is in volume one of our supplemental appendix if you look at it you will see that it on its face acknowledges that this building is offering cash flow participation agreements you will also see that two out of the four comparable buildings that relate or himself used as cops to determine the fair market rent also had cashflow participation agreements and you will notice that related does not say in that document that the fair market rental range varies or changes in any way or depends in any way based on whether a particular tenet has a cash flow participation agreement or not it treats the cash existence or nonexistence of a cash flow participation agreement as a question totally separate from fair market rent and of course that's because it's pro quo for signing a ten year lease which is an entirely separate exchange third that document you will see does not anywhere say relator never said nobody at holiday ever said that  not rely on the two thousand and five market rent study that relate or spend so much ink attacking in this appeal when he was at holiday and he prepared the two thousand and seven study he never told h c a or anybody that there was anything wrong with that two thousand and five study or that it couldn't be relied on this is a false claims act case it was about knowing submission of a false claim to the government so how is h c a supposed to know forth the only evidence in the record  even if you did wrongly to treat those cash flow participation agreement payments as if they were a pure windfall and deduct them one for one dollar for dollar from the rent that was paid the only analysis and evidence that  rental range for the net rent that they paid that the net effect of these cash flow participation payments for the five non h c a physician groups they got them was to refer to reduce the overall net rent by i think about two dollars a square foot it was you know less than fifteen percent of reduction in the in the total rent and it was a consequence of committing to a ten year lease and then you know the lucky fact that the building appreciated between when these leases were signed and when the building was sold in two thousand and twelve now the total absence of evidence that a nyone got a non fair market deal or a deal that varied with referrals is dispositive and sufficient to affirm here but there are plenty of other fatal defects in the relator scase that would have required a summary judgment a way one of them is the exception for indirect compensation agreements under stark which is forty two c f r for eleven point three fifty seven p i think c a argued that the low end relator didn't even contested the requirements are clearly satisfied we it is true that we have not argued for alternative affirm and under the stark leasing i mean i'm sorry the any kickback statute leasing exception that your honour's discussed with my brother earlier in the argument but the requirements of that are are clearly satisfied these are leases that were set out in writing and specify everything the only real argument that they have made to the contrary is that the terms weren't set in quote quote unquote set in advance because the cash flow participation agreements could could swing up and down but i think if you look at the regulations forty two c f r four eleven point three fifty four d one you will see that set in advance just means that the formula has to be set in advance not that the amount has to be calculable in it help me  still be confused about it under that statute even if there was a legitimate purpose for the arrangement and a fair market value payment would that legitimize a payment if there was also an illegal purpose that is the so you inducing the federal health care program business or something worse well it's a it's a criminal statute and it requires proof that the defendant knowingly and willfully paid rent right the reason i asked that question is i was looking at this or a g s supplemental compliance program guidance for hospitals and it appears to say under the anti kickback statute neither the legitimate business purpose for the arrangement nor a fair market value payment will legitimize a payment if there is also an illegal purpose that is to say inducing the federal health care program business i think is that a fair statement of the law it might not but no i don't i don't think it is because that's their position i think that's their position but you understand i mean that's cited in the office of inspector general compliance guidance i think it doesn't get to tell us what the statute means but that's what he thinks it means and i think that it's out of this and out of context quotation from the elijah guides i think if you read the whole guidance you would not get that impression relator is relying illegal purpose as well it's kind of a mixed motive kind of an issue and i think the confusion your honor is if you look at these mixed motives cases that relate or is citing the vast majority of the of them are actually mixed payment cases where the doctor is being cousin said with some more mixed mode of who are going to believe so but the vast majority are mix payment cases and i think that's what the inspector general was talking about there where the doctor is being actually paid  a real service that has a value a fair market value but then there is some additional increment of non fair market compensation that violates the any kickback statutes remuneration definition and the rule that you can't pay non fair market compensation with the purpose to induce referrals to to a federal health care program remember it's not illegal as judge walker pointed out to have a purpose to have a successful hospital to get referrals to recruit doctors to your hospital the purpose that's forbidding even in part is a purpose to get referrals by paying improper  suggests that a violation could be sustained even if they were fair market value i believe that's inconsistent with the plain language of the statute and all of the case it may be at pages thirty may be right about the statute being clear on it but it's i suggest to you that there is there that puts a slightly different cast on carpet not stark but the anti kickback statute and gives an arguably broader meaning ok i think that that case law is is outdated your honor but regardless outdated more i i think the same statute as just the construction they put on it i believe that all of the recent cases that we cited the pages thirty two to thirty three of our brief recognize it's outdated in the sense that there is a better case law that's more persuasive not that the statute has changed i believe that's what you're set to leave that's correct you a purpose to induce referrals which this court has has held knowingly and willfully requires not just you know a purpose to induce referrals by paying unlawful remuneration for them but also that knowingly and willfully means knowledge of illegality at least in a general sense a bad purpose to just obey or disregard the law that's the starks case at one fifty seven f thirty thirty three from this court and i submit to you there is not an iota right to the point is if there's a good purpose and a bad purpose it's enough that there is a bad purpose as if you can all the words establish they acted with the intent to do something the law even if they had a good purpose at the same time that doesn't necessarily preclude stating record that's correct your honor but you have to be very precise about what the bad purpose is because relator is entire strategy in this case obfuscate around the fact that eighty eight one reason for building this medical office building in the first place was that h c a wanted to get more utilization of its hospital more referrals to the hospital there's nothing wrong with that one purpose that is forbidden even if it's only a partial motive is a purpose to get referrals by paying improper remuneration for them and all of the case law that relate or sites like the mcclatchy case front from the tenth circuit is really good on this the jury instructions that are given in these cases say that there's there is nothing wrong with it all i'm suggesting to you is that we're looking at the issue of intent to induce a referral in a mixed motive that there was a good motive and a bad motive and you can establish the bad motive prior preponderance that's enough to state a claim even if there are other wars was a good or a sound business reason we have no cases as long as you're precise about what the the forbidden motive is it's not a mere motive to increase utilization to recruit doctors to your hospital to have to build an attractive and convenient campus where doctors want to honor but you don't have to plead advice of counsel as an affirmative defense in the course of the summary judgment argument did you allude to reliance in good faith on advice of counsel we are as a means of bringing any claim that there was an awful inducement with a bad purpose yes among many other arguments for why relator has not oh i understand you made other arguments i'm just asking whether that was part of the the pleading and part of the proof that you were putting forth in this case yes your honor we pointed out that one reason why there's no evidence of consciousness of wrongdoing on this record is that counsel was involved in every stage there are lots of other reasons to got independent third party valuation opinions h c a insisted that all of the transaction documents require tegra to use fair market value terms and terms that didn't vary with the volume or value of referrals there's no triable case on scienter here and the district court also recognized that to turn this into a a false claims act case you have to actually show that some doctors referral judgment was corrupted and that a a claim for payment was submitted that would not otherwise have been friedman let me ask you a question right at the outset i want you to help me with the record and tell me specifically what evidence is there in this record that addressed taking into account the volume or value of any referrals or the business of the what he's trying to rated between the parties where will i find it you'll find that first you have to decide which link you're looking at and because of the investment link between the hospital and the and between the intermediary and the doctors you have to look at the link between the hospital and the intermediary did they take into account did they consider the volume of business that was going to be generated by this medical office building and clearly they did that's all throughout the planning stages and that was in mr johnson's deposition exhibit nineteen he goes around with the cash flow participation agreements and he goes to the different offices and he explains how much money they're going to get i think one of the most important points here was a quid pro quo we expect referrals to be not x but why as a result of the of the cash flow and that had better happen was there any evidence like that in this case at all there is in the most essential way that you don't even see it it's to get a doctor generally understood no it's to get a doctor to move into a normal practice that's getting a better call office building on campus so that doctors come in and refer that's normal that is why both stark and a k a s require that you either meet the safe harbor or the exceptions because it's go happen all the time so they have to make sure that when you fund money to an intermediary and the doctors have an investment interest in that that you have to make sure everything is that fair market value and there's not even a dispute that there's way over fair market value in the lease terms in the burned out leases in the create the maintenance that they did the paving that they did the parking that they did all of this came to the doctors for free because all that was given to tegra for free and document one sixty two dash five you see it has nothing to do with the lawyers trying to figure out how to make this legal in the second page boyer is the name of  tegra so it refers to boyer it says there is we could not do it m d participation was a major reason we invited boyer to this location far too much has been published locally to the medical community regarding this to make a hundred eighty degrees turn without a lot of turmoil now the words they offered all of these profit these deals these sweetheart deals to these doctors to move into the medical office building and to continue referring business and in order for them to change their mind once their lawyer said hey wait a second we're not allowed let physicians be investors we're not allowed to kick over all these extra costs then they said well it's nothing we can do about it if we created too much turmoil to go to judge marcus the point that you were making about that i was asking where in the record i can find evidence of the kind you more generally alluded to in your opening remarks in my opening remarks i want to know where there is evidence in this record that address taking into account the volume of value ok that would any were and are also a business otherwise generated between the parties you gave me a partial answer and you responded to a question judge walker had is there anything else in this increase hospital utilization and and in order to increase hospital use ation they were going to build a medical office building they were going to put those costs for the building medical office building off balance sheets so that it wouldn't be covered by their corporate integrity agreement and then they projected how much money was going to be generated how much business was going to be generated by those doctors in the medical office building so that's clear that they had in mind when they decided to build the offices inconsistent with normal business planning of this of the kind that you and your adversary and all of us seem to say is acceptable naturally they're going to be looking at how the deal will play out but that doesn't necessarily show a quid pro quo can you build a medical office building on campus to attract doctors so that you can make more money yes you can you can think about it and you can and you can think about it and maybe even project how that might work but but if you put extra money into the building in order to make that happen you're using the money that you're putting into the building above with your service now you know what you're suggesting it seems to me mr friedman is that they would have been they could they couldn't even look at the projected revenue they would get it's insane now they definitely  business would put up a building without calculating cost and again they would they have to audit it they have to say anything different than that and if it is tell me how the big difference here that that exhibit to the planning document shows that the well looking to increase hospital utilization there's no real dispute about that they built an office building in the hope that it would generate more revenue the big difference maybe it's some calculus is a general matter of that if that run afoul of the anti kickback does if the physicians have an investment interest in the building there's no question about it if the that's why the lawyer said i'm not i'm talking about the hospital yes if the hospital is going to build the building it has to make sure that there's no investor physicians it also has to make sure that the that the amount that's being paid is fair market value for rent they also have to charge them for use restriction waivers they have to charge them for the maintenance they have to charge them for the upgrading in the parking lot all of those things are normal business things you can't just give freebies to the to the  the doctors and so yes you can build it but as their own lawyer said you have to do your due diligence make sure there's no physician investors there were forces investors and they couldn't change it because they had already told the medical community that they were going to have that and it would cause too much disruption if they took that away nobody's saying that a hospital can't build a good medical building although h c a has a little problem because of their their repeat player and they have a history of doing this incorrectly and so they had to disclose all of these things to the to the government and audit them and they did not that's your other point  allow for you know what what evidence for the disclose it's another thing to not have that and have a basis upon which you know the complaint is going to be considered and then further evidence is permitted just as a matter of administration to allow the and then using that to kind of rip repair a deficient complaint that is deficient in the first place well in this case there was a claim that was not deficient and so the question is  if you if your case rests upon the first complaint that's not the only reason but that in this case when there is a when there is a claim going forward and you find out additional evidence of a different additional claim you should be able to amend the complaint plus later after discovery is done does that mean that or relator can't amend the complaint to add additional facts let's say they find out one of their facts is false that's wrong we got it wrong they can't amend their complaint to conform to proof this whole question goes away as soon as we adhere to the true nine b standards in this not case in the ninety's standards you basically say going forward  any party and any defendant would be crazy to not to object mightily to further discovery lest other things be developed that could result in a modification of the complaint they do they they object but it's ok that they're entitled to have the discovery limited to what's in the complaint if during the litigation you find additional information you're allowed to man the complaint in fact you're obligated to amend the complaint and there's nothing wrong with that what in looking at the ruling on twelve b six on the operative complaint this judge did not look at the operative complaint they'd she said we have to look back to the prior complaint that you made and it's particularly unfair here because the in the initial complaint mr bingham had plenty of information he already knew about the scheme that was headquarters and he also knew a lot of information about have insurance fact that was the original claim that he brought was based on aventura i'm going to ask you to bring your remarks to a conclusion you're almost eight minutes over what it lacked was a narrative in other words this saying to you can amend the complaint give me a narrative then when you give them the narrative you say up sorry it's too late you should be given to be the beginning that brings us back to pre one nine hundred thirty seven rules of civil procedure and you very much others are going to give you a moment or two your colleagues thanks very much to have to address this one issue since affirmed a decision that was just exactly like this when the relator in that case asked to file a fourth amended complaint based on newly discovered evidence of fraud supposedly that he obtained in discovery the district court held that letting him quote use documents obtained in discovery to overcome pleading hurdles would circumvent the purpose of will not be this court affirmed for the reasons set forth in the district court scholarly and thorough order that's five sixty eight f appendix seven eighty three from this court in two thousand fourteen and i just like to stress two points substantively the first is that nine b plays a really important role in pleading law generally but in key ten cases in particular as this court and many others have recognized there's big potential windfalls for a later as in these cases and therefore a very strong incentive to file a case even if you have no actual evidence of wrongdoing and hope something just turns up and as judge cooke pointed out below the united states has to make it intervention decision on the basis of the complaint that's filed within sixty days and so letting the relator resurrect a case that was insufficient when pleaded really messes with the way the statute is supposed to work around the government's option and the second important point is i think the one that judge walker was alluding to which is that the rule relator is seeking here won't actually help relator going forward or have any practical effect other than to curtail the district court's case management discretion because you're right judge walker no defendant will allow discovery to go forward while there is a ninety issue pending if the court accepts related argument judge cook in this case wanted to fast track discovery for the very good reason that it would lead to a rapid resolution of the center point claims on summary judgment she was right this was a triumph of the way you know rule one of the federal rules of civil procedure are supposed to work thank you much thank you all this court will be a