Infirmary Health Systems and its clinical subsidiary may be dismissed from a potential billion-dollar fraud case filed by a whistleblower in 2011 alleging their participation in a broad scheme to defraud Medicare and other government healthcare programs.

U.S. Magistrate Judge Sonja F. Bivens determined that the government, which took over the case on behalf of whistleblower Dr. Christian Heesch, failed to establish the corporate liability of the Infirmary as a defendant, which Heesch claimed unlawfully billed the government for more than $521 million in false claims between 2005-2011.

Heesch, a cardiologist and former employee of Diagnostic Physicians Group, was among a group of doctors contracted to work with Infirmary-affiliated clinics. In his complaint, Heesch claimed violations of the Stark Law and Anti-Kickback Statute in an arrangement where the Infirmary’s clinics received referrals from DPG physicians for health services that were billed to the government. In turn, the Infirmary compensated DPG physicians.

Infirmary Medical Clinics, P.C., (IMC) was created by Infirmary Health Systems in the 1980s to establish new clinic subsidiaries, including IMC-Diagnostic and Medical Clinic, P.C. and IMC-Northside Clinic, P.C., which are also individually named as defendants in the lawsuit.

Federal prosecutors took over the case last year under the False Claims Act, which allows whistleblowers to keep a portion of any settlement or penalty imposed in a case.

In her order filed April 11, Bivens acknowledged that “these allegations, if proven, will establish a violation of the False Claims Act,” but citing case law, determined that “these general assertions does not support a claim for vicarious liability against Infirmary Health and IMC because ‘knowledge [of violations] does not equate to causing the false claims and submission of false records.’

“Aside from alleging that the Infirmary Defendants have overlapping officers, executives and employees, the Government has not proffered facts sufficient to make a particularized showing that Infirmary Health and IMC participated in the submission of the false certifications by IMC-Diagnostic and IMC-Northside. Additionally, the Government has not put forth facts suggesting that there was such a unity of interest and ownership between the Infirmary Defendants that separate personalities of the entities no longer exist, or that respecting the distinct corporate forms would produce an inequitable result,” Bivens wrote.

Bivens also recommended the complete dismissal of a “reverse false claims” count against all defendants, concluding prosecutors failed to prove the defendants filed false records or statements in an attempt to avoid making payments to the government. Finally, Bivens recommended that IHS and IMC be dismissed from claims of mistaken payment and unjust enrichment. At the same time, she upheld the main complaint against the individual clinics.

Prosecutors have 14 days to respond to the order. U.S. Judge Kristi Dubose will make the ultimate decision on Bivens’ recommendations.

In a separate order filed the same day, Dubose denied a motion by Heesch to file a fourth amended complaint and dismissed the Infirmary defendants from Heesch’s claim of retaliation and wrongful discharge. Dubose found that while it was “reasonable to infer that the Infirmary Defendants had the capacity to exert some control over a physician’s continued employment with DPG…[Heesch] has not alleged any conduct on the part of the Infirmary Defendants to show that they retaliated against him ‘in the terms and conditions of employment’ because he was engaged in protected conduct.”

Speaking Friday, Infirmary attorney Cain O’Rear said he had not had time to discuss the order with his clients before he could make a statement. Heesch’s attorney, Christ Coumanis, did not immediately respond to a request for comment.

But in a statement issued Monday, Infirmary CEO Mark Nix said, “we are very pleased to see that Dr. Heesch’s unsubstantiated allegations have been dismissed and that the magistrate judge also has recommended dismissal of the government’s claims with respect to Infirmary Health System, Inc. and Infirmary Medical Clinics, P.C.. We remain prepared to defend the remaining claims asserted by the government and stand behind our position that the clinics acted in good faith and in the best interest of our patients.”

The government had demanded a jury trial in the case and was asking for three times the amount of the government’s loss, or more than $1.5 billion in compensation, plus civil penalties and “further relief.”

Updated at 3:21 p.m. April 13 to include the statement by Infirmary CEO Mark Nix.

Proposed order on motion to dismiss

Order on Motion to Dismiss USA vs IMC (Text)