Court Chills Reliance POD Alert Challenge

Chill out, dude, and don’t bleed until you’re shot!

That’s in essence what a federal court in California told Reliance Medical Systems, LLC, on February 5, 2014, as it dismissed the company’s constitutional challenge to the U.S. Department of Health and Human Services’ Office of Inspector General’s (OIG) March 26, 2013 Special Fraud Alert (Alert) on physician-owned distributors (PODs).

Reliance, which used to be involved in PODs, argued that the Alert “chilled” their right to speak to physicians about ownership in PODs. Reliance filed suit against the OIG on October 8, 2013, alleging that the Alert violated the First Amendment right of speech, due process rights under the Fifth and Fourteenth Amendments, and the Administrative Procedures Act.

But the Court didn’t address those issues, simply saying that Reliance didn’t have standing to challenge the Alert because they had not been harmed.

Specifically, the Court said the Alert had not been enforced in any way against Reliance. Thomas Bulleit and Peter Holman, of the law firm of Ropes and Gray LLP, said the Court made much of the fact that Reliance was not, at the time of the lawsuit, a POD, and, as such, could not conceivably have suffered any injury.

“Additionally, and perhaps most significantly, the Court rejected Reliance’s argument that the [Alert] ‘chilled’ speech regarding formation of a POD, noting that all criminal statutes, by their very nature, may have a ‘chilling effect’ on personal behavior, but that such effect—which is merely part of an agency’s authority to regulate economic conduct—does not amount to an actionable claim.”

The lawyers say the case leaves unanswered how a court would rule if someone could demonstrate an injury-in-fact. For example, if an existing POD could show that the OIG imposed penalties pursuant to the Alert. “However, courts typically grant significant deference to administrative agencies in their interpretation of laws they are charged with administering, and thus the [Alert] is likely to be viewed simply an exercise of OIG’s authority to interpret and implementing regulations. Thus, any injury to a POD in an enforcement action would be due to its alleged violation of the Anti-Kickback Statute, as interpreted by the applicable agency, and the [Alert] itself could not be the cause of the injury.”