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Fresenius Medical Care v. United States: HEALTH | SUBPOENA - no abuse enforcing administrative subpoena regarding Medicare billing; 'cold comfort' letter no bar

1 The Honorable Rodney W. Sippel, United States District Judge for the Eastern
District of Missouri.
United States Court of Appeals
No. 07-2299
Fresenius Medical Care, *
Appellant, **
Appeal from the United States
v. * District Court for the Eastern
* District of Missouri.
United States of America, *
Appellee. *
Submitted: February 15, 2008
Filed: May 16, 2008
Before BYE, RILEY, and BENTON, Circuit Judges.
BENTON, Circuit Judge.
The United States Attorney for the Eastern District of Missouri issued two
subpoenas to Fresenius Medical Care, seeking, as relevant here, information related
to the administration of Epogen, a drug given to dialysis patients. Fresenius sought
to quash or modify the subpoenas. The district court1 denied the motion. Fresenius
appeals. Having jurisdiction under 28 U.S.C. 1291, this court affirms.
Fresenius Medical Care (FMC), a hemodialysis provider, operates more than
1,500 outpatient dialysis facilities in the United States. FMCs patients require
dialysis because they have End Stage Renal Disease (ESRD). Medicare has a special
program for ESRD patients, who are entitled to coverage for medical expenses. The
vast majority of FMCs patients receive the drug Epogen, which reduces or eliminates
anemia in dialysis patients. Providers, like FMC, are reimbursed a fixed amount per
volume unit of Epogen prescribed and administered. The cost of Epogen is
significant. Physicians commonly prescribe it using algorithms, which lower or raise
the amount prescribed in response to changes in the patients blood. For example, a
physician may direct that, if a patients hemoglobin is greater than 12, the Epogen
dosage should be reduced a certain percentage.
In October 1995, the United States Attorney for the District of Massachusetts
began investigating National Medical Care, Inc., which FMC acquired shortly
thereafter. The investigation resulted in the production of more than six million pages
of documents. FMCs use and billing of Epogen were among the subjects of the
investigation. In January 2000, FMC entered into a series of guilty pleas and civil
settlement agreements. FMC agreed to pay the United States approximately 3
million, and in exchange, received releases and dismissals with prejudice from some
claims. The United States Attorney refused, however, to release FMC from any
subject dealing with Epogen until it investigated other complaints.
The Office of the Inspector General also investigated FMCs Epogen practices,
and in December 2001, published a report titled Review of Epogen Internal Control
Procedures at FMC Massachusetts Providers for Calendar Year 1999. The report
reviewed about 4,600 Epogen claims, and found that FMC generally established
adequate internal controls and procedures to ensure that claims submitted for [Epogen]
are supported and billed in accordance with Medicare rules and regulations. It also
identified 14 claims, out of a random sample of 200, where more Epogen was
administered than prescribed by the physician.
As a result of further investigation, the United States Attorney for the District
of Massachusetts asserted that FMC improperly billed Medicare for Epogen
administered to patients as part of a clinical trial. FMC entered a civil settlement on
this issue in May 2002, paying the government approximately .6 million, and
obtaining a release. Along with the settlement, the United States Attorney issued a
cold comfort letter to FMC. The letter stated:
[N]either the United States Department of Justice nor the Office of
Inspector General for the Department of Health and Human Services has
any open or pending civil or criminal investigations or cases against the
Companies except [for the two Epogen cases being settled in association
with the letter.] In addition . . . neither the Department of Justice nor the
Inspector General has any present intention, based on the facts now
known to them, to initiate any investigation and/or to file or pursue
litigation against the Companies. . . . The representations made in this
letter are made as of April 19, 2002, and are based on surveys we
conducted or caused to be conducted of the office of Inspector General
of the Department of Health and Human services, the United States
Attorneys for all districts, and of certain organizational parts of the
Department of Justice which the Companies and my Office agreed to be
On April 25, 2002, six days after the representation date in the cold comfort
letter, a False Claims Act complaint was filed by a qui tam relator in the United States
District Court for the Eastern District of Texas. The complaint accused Amgen, the
maker of Epogen, of (among other things) improperly creating physician protocols
that overused Epogen, causing excess payments by Medicare. The complaint stated
2 Hematocrit level is the volume of red blood cells in a given volume of blood.
See Robert K. Ausman, MD & Dean E. Snyder, JD, Medical Library: Lawyers
Edition 6- 13:1 (1990). The suggested target hematocrit range for patients prescribed
Epogen is 30 to 36 percent. See Thompson, Physicians Desk Reference 565
(Kathleen Engel ed., 62nd ed. 2008). The Department of Health and Human
Services suggests that providers like FMC use a threshold hematocrit value of 37.5
percent in targeting aberrant cases. Department of Health and Human Services,
Health Care Financing Administration, Program Memorandum
Intermediaries/Carriers, HCFE-Pub. 60AB (July 1998).
the FMC did not employ such protocols. The complaint acknowledged that the relator
made a witness statement to the United States before the complaint was filed.
For several years before 2005, the United States Attorney for the Eastern
District of Missouri investigated Gambro Healthcare, Inc., a dialysis provider and
competitor of FMC. As part of the Gambro investigation, the United States Attorney
received an allegation that FMC had submitted Medicare claims for Epogen that was
not medically necessary. On April 1, 2005, the United States Attorney issued an
administrative subpoena to FMC, seeking, in part, information regarding FMCs
Epogen policies and practices, from December 1, 1996, through April 30, 2005. After
the subpoena issued, the United States Attorney conducted a review of FMCs
Medicare claims for Epogen, using information directly from Medicare. The review
showed that FMC submitted a significant number of claims for patients whose
hematocrit levels exceeded 37.5% on a rolling average basis.2 The United States
Attorney found this suspicious, and issued another subpoena to FMC on February 14,
2006. The second subpoena sought more specific information about FMCs Epogen
policies, including patient records and audits regarding the medical necessity of
Epogen. The second subpoena covered January 1, 1996, through March 10, 2006.
FMC moved to quash or modify the subpoenas, arguing that the previous
settlements and cold comfort letter precluded the government from investigating
FMCs Epogen policies and practices before April 19, 2002. The district court denied
FMCs motion, finding the subpoenas a valid exercise of the investigatory power of
the United States Attorney under 18 U.S.C. 3486. The court also found that the
subpoenas are not overly burdensome, and the information the subpoenas seek is
not precluded by the previous settlements and cold comfort letters.
A district courts decision to enforce an administrative subpoena is reviewed
for an abuse of discretion. EEOC v. Technocrest Sys., Inc., 448 F.3d 1035, 1038 (8th
Cir. 2006).
A subpoena is properly enforced if (1) issued pursuant to lawful authority, (2)
for a lawful purpose, (3) requesting information relevant to the lawful purpose, and
(4) the information sought is not unreasonable. United States v. McDonnell Douglas
Corp., 751 F.2d 220, 226 (8th Cir. 1984), citing Oklahoma Press Publg. Co. v.
Walling, 327 U.S. 186, 208-09 (1946).
The two subpoenas here meet the first three requirements. The subpoenas were
issued pursuant to 18 U.S.C. 3486, authorizing the Attorney General to issue
administrative subpoenas in any investigation relating to a federal health care
offense. 18 U.S.C. 3486(a). See United States v. Bailey (In re Subpoena Duces
Tecum), 228 F.3d 341, 350 (4th Cir. 2000) ([T]he 3486 subpoena power [for health
care offenses] falls within the legitimate governmental power of inquisition on a
matter in which the government has a legitimate interest. . . .). The lawful purpose
of the subpoenas was to investigate FMCs Epogen practices, due to allegations of
wrongdoing. See 18 U.S.C. 286 (crime of conspiracy to defraud the United States
with respect to claims); 18 U.S.C. 1035 (crime of knowingly making false
statements involving a health care benefit program); 31 U.S.C. 3729 (False Claims
Act); 42 U.S.C. 1320c-5(a) (health care providers must ensure that services paid for
by the government are medically necessary and supported by evidence of medical
necessity). Finally, the documents sought, mostly relating to FMCs policies and use
of Epogen, and its relationship with Amgen, are reasonably relevant to an authorized
investigation. See Technocrest, 448 F.3d at 1040 (ordering production of documents
reasonably relevant to the investigation), citing United States v. Morton Salt Co., 338
U.S. 632, 652 (1950); Doe v. United States, 253 F.3d 256, 267 (6th Cir. 2001) ([T]he
DOJs subpoena power in investigating federal health care offenses is meant to be
FMC asks this court to quash or modify the subpoenas to preclude the
production of documents related to FMCs use and administration of Epogen prior to
April 19, 2002, and FMCs use or implementation after that date of policies and
procedures that were adopted prior to that date. FMC asserts that the required
production of these documents is unreasonable, because it is entitled to rely on the
governments assertion in the cold comfort letter that it did not intend to initiate any
investigation and/or to file or pursue litigation against FMC based on the facts now
At issue is whether the cold comfort letter immunizes FMC from further
investigation relating to Epogen. The letter states, neither the Department of Justice
nor the Inspector General has any present intention, based on the facts now known to
them, to initiate any investigation and/or to file or pursue litigation against [FMC].
This is simply an assurance from the government that, based on the facts it then knew,
it was not then planning any further investigation. The letter does not preclude the
United States from investigating FMC based on new facts. In fact, allowing the
preclusive effect FMC seeks would hinder the United States Attorney in carrying out
lawful duties. See Oklahoma Press, 327 U.S. at 213 (allowing district courts to
decide statutory coverage at the subpoena stage would substantially affect the
Department of Labors ability to carry out its investigative duty); Doe, 253 F.3d at 267
(one main legislative purpose of HIPPA, containing 3486, is to combat health care
fraud and abuse). Since the government received allegations against FMC during the
3 Since the government has not asserted any particular claims against FMC, it
is premature to address the full preclusive effect, if any, of the cold comfort letter. See
Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 509 (1943) (subpoenas were
enforceable even though company claimed it was not covered by the statute because
if there were no [violations] found, the issue of coverage would be academic);
Texas v. United States, 523 U.S. 296, 301 (1998) (Determination of the scope . . . of
legislation in advance of its immediate adverse effect in the context of a concrete case
involves too remote and abstract an inquiry for the proper exercise of the judicial
function.), quoting Intl Longshoremens and Warehousemens Union, Local 37
v. Boyd, 347 U.S. 222, 224 (1954).
Gambro investigation, the cold comfort letter does not have any preclusive effect on
the two subpoenas.3
FMC contends that in order for it (and the courts) to fully understand the scope
of the comfort letter, the government should disclose the Texas relators pre-filing
witness statement, and its theories for the current Epogen investigation. Since this
court has determined that the comfort letter does not preclude investigation, there is
no need for these disclosures.
FMC also argues that the subpoenas are unreasonable because they request
documents given the government in previous investigations. It is generally
unreasonable for the government to subpoena documents already in its possession.
See Doe, 253 F.3d at 265 (for a subpoena to be properly enforceable the information
cannot already be in the DOJs possession); In re Special April 1977 Grand Jury, 581
F.2d 589, 594 (7th Cir. 1978) (As [Judge Weinfelds rule in Iozia regarding
subpoenas under Fed. R. Crim. P. 17(c)] has been applied, it is used to avoid allowing
a party who may have the needed document in its own possession, or could easily
obtain it from another source, to force the subpoenaed party to bear the costs of
searching for the document.). See also United States v. Powell, 379 U.S. 48, 56
(1964) (IRS Commissioner must show that that the information sought is not already
4 On remand, the district court has discretion to modify the subpoenas upon an
identification of specific documents already in the governments possession, or an
agreement between FMC and the government about documents already in the
governments possession.
within the Commissioners possession before a subpoena issued under IRC 7602
will be enforced).
Here, however, FMC does not identify which subpoenaed documents are
already in the governments possession. Some of the documents the OIG obtained for
its investigation may be covered by the current subpoenas. However, the OIGs
investigation covered only Massachusetts providers in the year 1999, while the
subpoenas cover all providers from 1996 through 2006. The January 2000 settlement
agreement covered allegations through 1999, but was entirely related to Intradialytic
Parenteral Nutrition (IDPN), a topic not covered by these subpoenas. The May 2002
settlement agreement relates to Epogen, but covers only conduct through June 1996.
From the record here, it is not possible to determine which subpoenaed documents are
already in the governments possession. Given FMCs failure to identify the
documents already in the governments possession, it was not an abuse of discretion
for the district court to refuse to modify the subpoena.4 See Doe, 253 F.3d at 268-69
(enforcing administrative subpoena where individual made only general and
conclusory statements as to why the subpoena was an undue burden, and individual
made no attempt to reach a reasonable accommodation with the government), citing
Morton Salt, 338 U.S. at 653.
The judgment of the district court is affirmed.


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