advertising while not authorized by Medicare to deliver services violates Lanham Act

Wound Care Concepts, Inc. v. Vohra Health Services, P.A., 2022 WL 320952, No. 19-62078-CIV-SMITH (S.D. Fla. Jan. 28, 2022)

Wound Care is a Medicare-enrolled supplier of surgical wound dressings to patients in nursing homes and other long-term care facilities nationwide under nonexclusive agreements; mostly facilities enter supply contracts with Wound Care on behalf of their patients under an assignment of benefits issued to the facilities by the patients. Defendants (with one exception) are physician practice groups and their management company. “Vohra Wound Physicians” is used to refer to their physician practice groups in marketing materials and in contracts with facilities. They represent themselves as a national wound care physician practice based in Florida, with hundreds of doctors providing physician services—and now wound dressings—to patients in facilities. Although defendants’ local physician practice Medicare supplier enrollment applications indicate that they operate in nine states only, they operate in 27 states.

Defendants came into competition with Wound Care by providing wound care supply services and began having their physicians add the phrase, “It is not medically necessary to order dressings from any DME supplier for this patient,” to the medical records of their patients. Defendants tell facilities that they are not a vendor; rather, they are a national physician’s practice that is compliant with all requirements under the Medicare supply program.

During parts of 2018 and 2019, defendants offered payments to their physicians to promote the supply program to facilities. Defendants argued that the payments to its physicians were made for administrative services associated with providing information on the program to the facilities. Payments were also made for physician training of physicians and physician training of nursing staff.

It was undisputed that Wound Care lost market share to defendants, including in the 18 states where defendants didn’t apply for Medicare authorization and during the incentive periods.

Wound Care obtained a legal opinion that the incentive schemes at issue violated anti-kickback laws and communicated to various facilities that, if they switched to defendants, they could be implicated in an investigation by the Centers for Medicare and Medicaid Service. But facilities that had already switched were apparently unconcerned about the legality or propriety of defendants’ program.

Wound Care’s tortious interference with contract claim: Because the supply agreements with the facilities weren’t exclusive and had no minimum use requirements, what defendants did didn’t trigger a breach. Tortious interference with business/economic relationships: Wound Care had longterm business relationships with 41 identified facilities, and defendants knew about them when their physicians worked alongside Wound Care in the facilities and when they asked facilities to fill out intake forms identifying their existing wound dressing supplier.

What about intentional and unjustified interference with the business relationship? Wound Care argued that operating in states without Medicare approval and giving incentive payments were unlawful interference. Defendants didn’t dispute that they applied to operate only in 9 states, nor that they didn’t indicate an intention to operate in multiple states beyond the 9 identified, although the form allowed them to do so. “While Defendants argue that they could have been organized as a national physician group operating in the same 27 states as they operate now, they were not.” The court held that operating in 18 additional states was improper. It “presents a competitive disadvantage to Medicare approved DMEPOS providers in those states, such as Plaintiffs, who had to meet more stringent regulatory requirements to qualify for the supply of Medicare reimbursable products.”  

As to the incentive scheme, defendants didn’t track how much time each physician spent on the administrative tasks associated with providing information to the facilities on the supply program, and physicians did not receive incentive payments unless a facility they referred registered and placed an order for wound dressings. Defendants themselves referred to the payments as an “incentive program.” Thus, at least some portion of the remuneration was tied to successful referral of facilities, and the court found violation of federal and Florida anti-kickback statutes. This established tortious interference, given that Wound Care also showed that it lost out to defendants in multiple facilities covered by the tortious interference. Summary judgment for Wound Care.

Counterclaim for tortious interference from Wound Care’s “smear campaign”: All else aside, defendants failed to show damage. They kept a log of the reasons facilities provided for not registering for their program, and it documented numerous independent reasons that facilities gave for declining to join.

Lanham Act false advertising:

Challenged statements: (1) Defendants are “the largest wound specialty practice focused exclusively on the post-acute sector;” (2) Defendants can provide wound care to “hundreds of thousands of patients annually across 27 states;” and (3) “[Vohra is] a national physician’s practice facilitating this option and not a vendor. The dressings are dispensed by the actual treating physician without a conflict of interest .. ..”

The statement that they can operate across 27 states was misleading, see above, and their violation of anti-kickback laws also made it misleading to advertise that the “dressings are dispensed by the actual treating physician without a conflict of interest.” Deceptiveness was also shown by the use of the same fictitious name “Vohra Wound Physicians,” creating the deceptive impression that defendants were one nationwide entity rather than 9 separate physician practice groups approved by Medicare to operate only in 9 states. The relevant consumer here was the facilities, which were the ones making purchasing decisions, not the patients who received the supplies.

Materiality: It was material that defendants weren’t authorized to operate in 18 states where they did operate. The court doesn’t say more than this, but it does stand to reason that a facility would want an authorized partner and not an unauthorized one.

Defendants’ counterclaim: Did Wound Care’s statements about the illegality of defendants’ program occur in commercial advertising or promotion? They were not “disseminated sufficiently to the relevant purchasing public to constitute [commercial] advertising.” Though there was evidence of internal communications and communication with a few third party medical supply executives, there was no evidence of any communication from Wound Care to the facilities themselves.

Injurious falsehood counterclaim: Defendants couldn’t show special damages as a direct consequence of the alleged falsehood, as noted above.  

Defamation per se counterclaim: Statements to defendants’ minority shareholder weren’t actionable: “a statement about a party to that party is not actionable,” nor were internal discussions. Likewise, sharing an opinion that defendants’ program wasn’t lawful based on a legal memo from counsel, included in the correspondence, was not actionable because it was just an opinion; the underlying facts were disclosed and were not from the speaker. However, a statement that the program violates “numerous [Stark Law] and Anti-Kickback regulations” was a representation of fact and accused defendants of committing a crime. (Given the conclusion above that the program did violate the anti-kickback laws, query how it could change the gist or sting that the program was not covered by the Stark Law.)

Florida Deceptive and Unfair Trade Practices Act counterclaim: Failed because defendants couldn’t show damages.