IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES OF AMERICA ex rel. )

KATY KENNEDY and FRANK A. MATOS, )

THE STATE OF ILLINOIS ex rel. KATY )

KENNEDY, and FRANK A. MATOS, and )

KATY KENNEDY, individually, )

)

) Case No. 03 C 2750

Plaintiffs, )

)

vs. )

)

AVENTIS PHARMACEUTICALS, INC., )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Relators Katy Kennedy and Frank Matos have filed this qui tam action against

Aventis Pharmaceuticals, Inc. on behalf of the United States and the State of Illinois

under the False Claims Act, 31 U.S.C. § 3730(b) (FCA), and the Illinois Whistleblower

Reward and Protection Act, 740 ILCS 175/4(b) (IWRPA). Kennedy has also made a

claim on her own behalf against Aventis, claiming retaliation in violation of the Illinois

Whistleblower Act, 740 ILCS 174/20. Aventis asks the Court to dismiss the qui tam

claims in relators’ fourth amended complaint pursuant to Federal Rules of Civil

Procedure 9(b) and 12(b)(6) and to decline supplemental jurisdiction over Kennedy’s

state law claim. 

On December 10, 2008, the Court granted Aventis’s motion to dismiss the FCA

claims in relators’ third amended complaint for failure to state a claim. The Court stated
2

that it would convert the order into a final judgment unless relators filed a proposed

fourth amended complaint that satisfied Rules 9(b) and 12(b)(6). Relators filed a fourth

amended complaint on December 31, 2008. Aventis has again moved to dismiss. For

the following reasons, the Court grants Aventis’s motion in part and denies it in part. 

Background

When considering a motion to dismiss for failure to state a claim, the Court

accepts as true the facts alleged in the complaint and draws all reasonable inferences in

favor of the plaintiff. Newell Operating Co. v. Int’l Union of United Auto., Aerospace,

and Agr. Implement Workers of Am., 538 F.3d 583, 587 (7th Cir. 2008).

Relators allege that Aventis aggressively marketed its prescription drug Lovenox

to medical providers to induce them to prescribe it for “off-label” uses – in other words,

uses for which it had not been approved by the Food and Drug Administration. Charges

for off-label prescriptions, relators allege, are not properly reimbursable under the

Medicare program. They allege that by promoting off-label use of Lovenox, Aventis

knowingly caused hospitals to submit false claims for Medicare reimbursement. 

Relators also allege that Aventis made payments to hospitals and to Ben Muoghalu, a

pharmacist at Provena St. Joseph Medical Center and a member of that hospital’s

pharmacy formulary committee, to encourage them to prescribe Lovenox. Relators

characterize these payments as illegal kickbacks. The Court will discuss the pertinent

details of relators’ allegations in the body of this decision.

Discussion

The FCA imposes civil liability on “[a]ny person” who “knowingly presents, or
3

causes to be presented, to . . . the United States . . . a false or fraudulent claim for

payment or approval.” 31 U.S.C. § 3729(a)(1). To establish a claim under this section,

a relator must prove that there was a false or fraudulent claim; the defendant knew the

claim was false; and the defendant presented the claim or caused it to be presented to

the United States for payment or approval. United States ex rel. Fowler v. Caremark

Rx, LLC, 496 F.3d 730, 740-41 (7th Cir. 2007).

A person also violates the FCA if he “knowingly makes, uses, or causes to be

made or used, a false record or statement to get a false or fraudulent claim paid or

approved.” 31 U.S.C. § 3729(a)(2). To establish a claim under this provision, a relator

must prove that the defendant made, or caused someone to make, a statement to

receive money from the government; the statement was false; and the defendant knew

it was false. See Fowler, 496 F.3d at 741. If the claim under section 3729(a)(2) is

premised upon a false certification of regulatory compliance, the relator must also prove

that the certification was a condition of or prerequisite to payment by the government. 

United States ex rel. Crews v. NHS Healthcare of Ill., Inc., 460 F.3d 853, 858 (7th Cir.

2006); United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601,

604 (7th Cir. 2005).

The FCA “is an anti-fraud statute and claims under it are subject to the

heightened pleading requirements of Rule 9(b).” Fowler, 496 F.3d at 740. Rule 9(b)

requires a party to “state with particularity the circumstances constituting fraud . . . .” 

Fed. R. Civ. P. 9(b). This means that the complaint must allege “the who, what, when,

where and how” of the alleged fraud. Gross, 415 F.3d at 605 (quoting United States ex
4

rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003)).

A. Outlier payments

The Medicare claims process, at least as relators describe it in their fourth

amended complaint, appears rather complicated. The Court will attempt to simplify

things to the extent possible.

The process for submitting claims for Medicare patients, relators allege, is

entirely electronic. 4th Am. Compl. ¶ 22. Hospitals submit claims data to a “fiscal

intermediary” on an electronic document called a Universal Billing (UB) form. Id. ¶¶ 22,

24. The claims data, relators allege, includes all pharmaceutical products dispensed to

the patient. Id. ¶ 24.

Relators allege that when a Medicare patient is discharged, “procedure codes”

are assigned and entered on the UB form to reflect the patient’s treatment. The patient

is also assigned a “diagnosis related group” (DRG) code that corresponds to her

diagnosis. The DRG code is likewise recorded on the UB form. Id. ¶ 25. When the

fiscal intermediary receives the UB form from the hospital, it extracts the relevant data,

processes it, and determines the amount to be paid to the hospital. Id. ¶¶ 22-23. The

fiscal intermediary pays the hospital a fixed amount based on the patient’s DRG code. 

Id. ¶¶ 22, 25, 32. 

Relators allege that the Medicare statute and regulations provide that an

additional payment, called an outlier payment, is made to the hospital when “charges,

adjusted to cost” exceed a threshold. Id. ¶¶ 25, 32. According to relators, the charges

used to calculate outlier payments are all the charges reported on the UB form for the
5

particular patient; the hospital does not submit a separate outlier claim. Id. ¶¶ 25, 32.

Relators allege that the requisite adjustment of the charges to the hospital’s costs is

based on a total of the hospital’s costs for the prior year. Id. ¶ 33. Those costs are

found on a “cost report” that the hospital is required to submit to the fiscal intermediary

each year, showing the costs it incurred during the year and the proportion of those

costs attributable to Medicare. Id. ¶¶ 39, 45. Relators allege that the higher the

hospital’s costs, the higher its “charges, adjusted to cost” will be – as best as the Court

can tell, because a smaller “adjust[ment]” is required. See id. ¶¶ 33-34.

Relators allege that once the hospital’s charges for a patient are adjusted to cost,

the adjusted figure is compared to a cutoff point designed to eliminate from eligibility for

outlier payments hospital stays that are not unusually costly. Id. ¶ 35. The cutoff point,

according to relators, is the sum of the basic DRG payment, certain other standard

Medicare reimbursements, and a fixed dollar amount that the government sets called

the “outlier threshold.” Id. ¶ 36. If the hospital’s adjusted charges for a particular patient

exceed the cutoff point, it receives an outlier payment consisting of eighty percent of the

excess. Id. ¶¶ 36-37.

Relators allege that Aventis deliberately marketed Lovenox for off-label uses, see

id. ¶¶ 112-13, for the purpose of obtaining government payment for such uses. Id. ¶

114. Relators allege that charges for off-label Lovenox are not properly reimburseable

under the Medicare program. Id. ¶¶ 5 & 38. 

Relators do not contend – nor could they, from what the Court can determine –

that use of Lovenox off-label for a Medicare patient affects the DRG payment for that
 Relators do not allege that Alexian Brothers Hospital or Lutheran General 1

Hospital received kickbacks from Aventis.

6

patient. That payment, as the Court has indicated, is a fixed amount that does not

depend on the actual charges for the patient. 

Rather, relators contend that the use of Lovenox off-label for a Medicare patient

affects outlier payments to the hospital, both for that particular patient and for all other

Medicare patients. First, relators allege that the inclusion of a charge for off-label

Lovenox on a UB form increases the hospital’s costs and thus results in a smaller

adjustment of charges to costs in calculating outlier payments generally (not just for the

particular patient that was prescribed the drug). Id. ¶¶ 23, 33, 34 & 43. Relators

specifically allege that off-label Lovenox use was, in fact, included as a covered charge

in hospitals’ cost reports. Id. ¶ 45. Second, relators appear to allege that the inclusion

of a charge for off-label Lovenox on a patient’s UB form will result in an outlier payment

for that particular patient if the total charges for the payment, adjusted to cost, exceed

the cutoff point. See id. ¶¶ 23, 42, 44 & 114.

In their fourth amended complaint, relators identify a number of specific UB forms

submitted by Alexian Brothers Hospital and Lutheran General Hospital that, relators

say, included line item charges for off-label Lovenox prescribed to the particular

patient. Id. ¶¶ 115-63 & Ex. O. Relators do not appear to allege that the treatment of 1

any of these patients triggered an outlier payment for that particular patient. See id. 

Rather, relators allege that these non-reimburseable charges were among those

aggregated on the hospitals’ cost reports for the relevant years. Id. Relators do not

attempt to quantify the non-reimburseable charges for off-label Lovenox, but they allege
 This line item is a sum of several other figures on the cost reports. Relators do

2

not say what particular line item contained the alleged charges for off-label Lovenox.

7

those charges were included in a line item on the hospitals’ cost reports for “Total

Program inpatient costs.” See id. & Exs. B1-B7, line 49. 2

Relators allege that the inclusion of charges the off-label Lovenox on the

hospitals’ cost reports inflated all of those hospitals’ outlier payments once the formula

described earlier was applied. Id. ¶¶ 115-63. They allege that the inclusion of these

non-reimbursable charges in the cost reports was false and material to the

government’s decision in determining the hospitals’ outlier payments. Id. Relators have

not attempted to quantify the amount by which the hospitals’ outlier payments allegedly

was affected.

In short, relators have largely focused their claims concerning outlier payments

on the inclusion of charges for off-label Lovenox on the hospital’s cost report and the

allegedly consequent inflation of subsequent outlier payments generally.

Given the effect of the system of DRG-based payments, as noted earlier, it would

not appear that the UB form itself could be considered a false claim submitted for

payment – at least not with regard to inflated outlier payments. A hospital’s cost report,

however, may be considered to be a claim submitted to receive payment. See United

States v. Bourseau, 531 F.3d 1159, 1164 n.1 (9th Cir. 20008). Alternatively, the UB

forms that list charges for off-label Lovenox and the cost reports on which that

information is aggregated may be considered to contain false information that the

government uses, via the formula referenced earlier, to calculate subsequent outlier

payments to the hospital. Accordingly, the Court will assess relators’ claim regarding
8

outlier payments under both section 3729(a)(1) and section 3729(a)(2).

As the Court previously discussed, to state a claim under section 3729(a)(1),

relators must allege that Aventis caused a hospital to make a false claim to the

government, knowing the claim to be false. To state a claim under section 3729(a)(2),

relators must allege that Aventis caused a hospital to make a false statement to the

government in order to get a claim paid, knowing the statement to be false, and the

statement was a condition of payment. 

Relators have adequately alleged the making of false claims and false

statements to get claims paid. Again, the alleged false claims / statements involve the

inclusion of off-label Lovenox, a non-reimburseable expense, as part of “Total Program

inpatient costs” on the hospitals’ cost report. Aventis contends that relators are

speculating that any particular cost report includes charges for off-label Lovenox. But

relators allege exactly that. 4th Am. Compl. ¶¶ 115-63. They do not have to prove their

case in the complaint. 

Similarly, relators have alleged that Aventis knew the hospitals’ statements were

false. Id. ¶¶ 179, 182. Federal Rule of Civil Procedure 9 allows a plaintiff to allege a

defendant’s state of mind generally; particularized pleading is not required. Fed. R. Civ.

P. 9(b).

Relators likewise have adequately alleged that Aventis caused the hospitals to

make false statements on their cost reports. Defendants argue that relators offer no link

between anything they allege Aventis did and the inclusion of off-label Lovenox on cost

reports and that relators allege only that Aventis tried to increase sales for off-label
9

uses. Under the FCA, a defendant is answerable for “the natural, ordinary and

reasonable consequences of his conduct,” though not for anything beyond that. Allison

Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123, 2130 (2008) (internal

quotation marks and citation omitted). It is certainly true that someone other than

Aventis – specifically the hospitals – had to take its own action to include nonreimburseable charges for off-label Lovenox on its UB forms and on its cost reports.

But at least for purposes of a motion to dismiss, these later intervening factors do not

break the chain of causation as a matter of law. As one court stated in dealing with a

similar point, “such an intervening force only breaks the causal connection when it is

unforeseeable. In this case, when all reasonable inferences are drawn in favor of the

Relator, the participation of doctors and pharmacists in the submission of false Medicaid

claims was not only foreseeable, it was an intended consequence of the alleged

scheme of fraud.” United States ex rel. Franklin v. Parke-Davis, Div. of Warner-Lambert

Co., 147 F. Supp. 2d 39, 52-53 (D. Mass. 2001).

Finally, relators have sufficiently alleged that a hospital’s statements on its cost

report are a condition of its receipt of, and the amount of, outlier payments. See 4th

Am. Compl. ¶¶ 115-63. Relators have sufficiently alleged that a hospital’s statement of

expenses in its cost report is a condition of payment vis-à-vis outlier payments.

Specifically, their description of the role of the cost report in obtaining outlier payments

is adequate to constitute an allegation that the total of expenses that a hospital lists on

the report plays an essential role in determination of the amount of the hospital’s outlier

payments.
 This is not meant to suggest that the Court’s decision regarding the third 3

amended complaint reached an incorrect result. The thrust of the Court’s determination

was that because of the DRG payment system, prescription of off-label Lovenox does

not affect the basic amount paid for the treatment of the particular patient. That, of

course, does not eliminate the possibility of an outlier payment, but relators identified no

outlier payments in their third amended complaint. Thus the Court would have reached

the same conclusion regarding that version of the complaint irrespective of whether

there is a separate materiality requirement.

10

The Court’s decision concerning relators’ third amended complaint may be read

as suggesting there is a separate “materiality” requirement for claims under the FCA. 

See United States ex rel. Kennedy v. Aventis Pharms., Inc., No. 03 C 2750, 2008 WL

5211021, at *2-*3 (N.D. Ill. Dec. 10, 2008). It is not clear that a materiality requirement,

as such, exists for all types of FCA claims. Neither of the two cases the Court cited for

that proposition so held. Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732-33 (7th

Cir. 1999), required materiality, but it did so in the context of a claim alleged to be false

due to omissions, not misrepresentations. (United States v. Rogan, 517 F.3d 449, 452

(7th Cir. 2008), which likewise requires materiality, similarly concerned omissions, not

false statements.) And Gross, the other case the Court cited, did not impose a

materiality requirement in so many words but rather imposed a “condition of payment”

requirement. This serves the same function in a section 3729(a)(2) claim as requiring

materiality – making sure the false statement is significant and not tangential – but the

terminology is different. Gross specifically states that there are four requirements for a 3

claim under section 3729(a)(2), and “materiality,” as such, is not one of them. Gross,

415 F.3d at 604. 

Even if materiality is separately required for a claim under the FCA, relators have

made the necessary allegations. A statement is material if it has a natural tendency to
11

influence, or is capable of influencing, the decision of the body to which it was

addressed. See, e.g., Rogan, 517 F.3d at 452. Aventis contends that relators’

contention that inclusion of charges for off-label Lovenox in cost reports would increase

the hospital’s outlier payments is speculative. But relators do not have to prove this in

their complaint, and in any event, on a motion to dismiss, a plaintiff is entitled to

reasonable inferences from her allegations. See, e.g., Estate of Sims ex rel. Sims v.

County of Bureau, 506 F.3d 509, 512 (7th Cir. 2007). Based on relators’ description of

how outlier payments are calculated, a reasonable inference may be drawn that the

inclusion of non-reimbursable charges in a cost report does, in fact, increase outlier

payments to the hospital. This, combined with relators’ allegations that the hospitals in

question actually received significant outlier payments for the relevant time periods, is

sufficient to satisfy any separate materiality requirement that may exist. 

For these reasons, the Court concludes that relators have stated a claim with

regard to their allegations concerning the inclusion of charges for off-label Lovenox in

hospital cost reports.

B. Kickback allegations 

As noted earlier, relators allege that Aventis made payments to hospitals and

others to encourage their use and promotion of Lovenox for unapproved indications. 

4th Am. Compl. ¶ 82. They identify a number of hospitals to which Aventis allegedly

gave “kickbacks disguised as unrestricted grants . . . to induce their continued use

and/or promotion of Lovenox for unapproved indications.” Id. ¶¶ 84-85; see also id. ¶¶

102-03. Relators also allege that Aventis made significant payments to Muoghalu “to
12

give ten sham one hour talks,” “in order to induce him to keep Lovenox on hospital

formularies that [were] under his control.” Id. ¶ 83; see also id. ¶¶ 89-100.

According to relators, each of the payments to the hospitals and Muoghalu was a

kickback. See, e.g., id. ¶¶ 101-04. Specifically, relators allege that the payments

violated the federal anti-kickback statute. The anti-kickback statute makes it a crime to

(among other things) knowingly and willfully solicit, receive, offer, or pay remuneration in

return for purchasing or ordering any item or service for which payment may be made

under a federal health care program, including Medicare. 42 U.S.C. § 1320a-7b(b). 

Relators allege that Aventis violated this statute in connection with its payments to the

hospitals and Muoghalu. 4th Am. Compl. ¶ 81.

Relators allege that entities that violate the anti-kickback statute are rendered

ineligible to participate in the Medicare program and forfeit their ability to bill Medicare. 

Id. ¶¶ 65, 68. They also allege that to participate in the Medicare program, a hospital is

required to enter into an agreement with the government in which it certifies that it will

comply with laws and regulations concerning Medicare providers, including the antikickback statute, and that compliance with the provider agreement is a condition for

payment under the Medicare program. Id. ¶ 68. 

In addition, relators allege that hospitals that receive Medicare reimbursement

submit annual cost reports that include a certification that the hospital’s chief

administrator or her designee must sign. The certification, relators say, includes a

notice that misrepresentation or falsification of information is punishable by law, and that

“if services identified in this report were provided or procured through the payment
13

directly or indirectly of a kickback . . ., fines and/or imprisonment may result.” Id. ¶ 76. 

Relators also allege that a hospital that makes Medicare claims is required to

submit a certification that it will abide by applicable laws and regulations and that it

understands that “payment of a claim by Medicare is conditioned upon the claim and the

underlying transaction complying with such laws, regulations, and program instructions

(including, but not limited to, the Federal anti-kickback statute and the Stark law), and

on the provider’s compliance with all applicable conditions of participation in Medicare.” 

Id. ¶ 77. Relators further allege that a provider is required to disclose errors and

omissions in its claims and cost reports. Id. ¶ 78. 

Relators have not identified any particular Medicare claim for an individual patient

that involved goods or services allegedly obtained via payment of a kickback. Rather,

they allege that three particular hospitals – Provena St. Joseph (where Muoghalu

worked), Rockford Memorial Hospital, and Christ Medical Center – were rendered

ineligible for Medicare reimbursement for the year 2002 due to their receipt of the

alleged kickbacks from Aventis. According to relators, each of these entities received

tens of millions of dollars in Medicare reimbursement for that year despite its alleged

ineligibility. Id. ¶¶ 101-03.

Had relators alleged that one or more of the hospitals falsely certified, in

connection with a Medicare claim, that it had complied with the anti-kickback statute,

that might be sufficient to state a claim under section 3729(a)(2). See, e.g., United

States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 94 (3d Cir. 2009) (“Falsely

certifying compliance with the . . . Anti-Kickback Act[ ] in connection with a claim
14

submitted to a federally funded insurance program is actionable under the FCA.”). But

relators have identified no express false certification of compliance with the antikickback statute. Rather, they allege only that the hospitals promised they would

comply with the statute and affirmed their understanding that if they did not do so, they

would be ineligible for Medicare participation. This is a forward-looking statement – a

promise or undertaking – not a false representation. Relators have not alleged, let

alone identified, any certification by a hospital, in connection with a Medicare claim, that

it had acted in compliance with the anti-kickback statute.

Some courts (though, as best as this Court can determine, not the Seventh

Circuit), have concluded that a relators can make out a claim under section 3729(a)(2)

on what is referred to as a theory of implied false certification. As the Second Circuit

described it in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2000), “[a]n implied false

certification claim is based on the notion that the act of submitting a claim for

reimbursement itself implies compliance with governing federal rules that are a

precondition to payment.” Id. at 699. The Court agrees with the Second Circuit,

however, that this theory is viable in the Medicare context only when the underlying

statute upon which the FCA relator relies expressly states that the provider must comply

in order to be paid. Id. at 700. That is not true of the anti-kickback statute.

A conviction for violating the anti-kickback statute renders a person or entity

ineligible to participate in federal health care programs. See 42 U.S.C. § 1320a7b(b)(1).

None of the hospitals in question, however, has been convicted of violating the statute.

Relators appear to allege that simple receipt of a kickback renders a hospital ineligible
15

to participate in Medicare. See 4th Am. Compl. ¶ 104. This, however, is an allegation

regarding a proposition of law, not an allegation regarding a fact, and thus the Court is

not required to accept it in deciding a motion to dismiss. See, e.g., County of McHenry

v. Ins. Co. of the West, 438 F.3d 813, 818 (7th Cir. 2006). In their response to the

motion to dismiss, relators cite only two district court decisions to support their

contention that simple receipt of a kickback renders a hospital ineligible. One of those

cases, United States ex rel. Bidani v. Lewis, 264 F. Supp. 2d 612 (N.D. Ill. 2003), is

quite clearly a case about false certifications. The other, United States v. Rogan, 459 F.

Supp. 2d 692 (N.D. Ill. 2006), contains a sentence to the effect that compliance with the

anti-kickback statute is a condition of Medicare payment, but it does so in the context of

a citation to the prohibition that applies upon a conviction for violating the statute. Id. at

714. The Court cannot rule out the possibility that some other statute or regulation

renders a hospital ineligible due to simple receipt of a kickback – i.e., without a false

statement or certification – but relators have cited none, and the Court is not required to

hunt on its own.

The Court also notes that the Seventh Circuit stated in Gross that to make out a

false certification claim, the certification must be a condition of payment of a claim. 

Gross, 415 F.3d at 604. This suggests that making a false certification involving a

matter that is a condition of program eligibility, not a condition of payment of a claim,

does not give rise to FCA liability. See generally United States ex rel. Conner v.

Salinas Regional Health Center, Inc., 543 F.3d 1211, 1218 (10th Cir. 2008). But

because relators have not identified any express false certification, the Court need not
 This does not mean that relators’ kickback allegations are no longer part of the 4

case. Those allegations also form a significant part of their claim that Aventis caused

hospitals to make false cost reports that included charges for off-label Lovenox.

16

decide this point definitively.

For these reasons, the Court concludes that relators have failed to state a claim

under the FCA in connection with their kickback allegations. The Court thus need not

address Aventis’s other arguments in support of dismissal of relators’ kickback-related

claims in this regard. 

4

Conclusion

For the foregoing reasons, the Court grants Aventis’s motion to dismiss [docket

no. 171] in part and denies it in part. Counts 2, 3, 5, and 6 of the fourth amended

complaint are dismissed to the extent they are premised upon a false certification theory

arising from relators’ kickback allegations. Aventis’s motion is otherwise denied. The

Court directs Aventis to answer the fourth amended complaint by May 11, 2009. The

parties are directed to file a joint status report by May 18, 2009, with an agreed-upon or

separate proposals for a discovery and pretrial schedule. The case is set for a status

hearing on May 20, 2009 at 9:30 a.m.

________________________________

MATTHEW F. KENNELLY

 United States District Judge

Date: April 20, 2009