George Bellevue v. Universal Health Services of H
Filing
Filed opinion of the court by Judge Bauer. AFFIRMED. William J. Bauer, Circuit Judge; Frank H. Easterbrook, Circuit Judge and David F. Hamilton, Circuit Judge. [6859833-1] [6859833] [15-3473]
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In the
United States Court of Appeals
For the Seventh Circuit
No. 15‐3473
GEORGE BELLEVUE,
Plaintiff‐Appellant,
v.
UNIVERSAL HEALTH SERVICES OF
HARTGROVE, INCORPORATED, doing
business as HARTGROVE HOSPITAL,
Defendant‐Appellee.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11 C 5314 — Thomas M. Durkin, Judge.
ARGUED FEBRUARY 15, 2017 — DECIDED AUGUST 8, 2017
Before BAUER, EASTERBROOK, and HAMILTON, Circuit Judges.
BAUER, Circuit Judge. Relator and plaintiff‐appellant George
Bellevue filed a qui tam action under the False Claims Act
(FCA), 31 U.S.C. § 3729 et seq., and its Illinois analog, the
Illinois False Claims Act (IFCA), 740 Ill. Comp. Stat. 175/1
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et seq., on behalf of the United States and the State of Illinois
against defendant‐appellee Universal Health Services of
Hartgrove, Incorporated (“Hartgrove”). Bellevue argues that
Hartgrove violated the FCA under a number of theories,
including false certification and fraudulent inducement. The
district court granted Hartgrove’s motion to dismiss the
complaint for failure to state a claim of fraud with particularity
as required by Federal Rules of Civil Procedure 12(b)(6) and
9(b).
I. BACKGROUND
Hartgrove is a psychiatric hospital that primarily serves
children with mental illness. It is enrolled with the Illinois
Department of Healthcare and Family Services to receive
reimbursement for treating patients through Medicaid. On
April 8, 2004, Hartgrove signed a Provider Enrollment Appli‐
cation certifying that it understood “that knowingly falsifying
or wilfully withholding information may be cause for termina‐
tion of participation” in the State’s Medical Assistance Pro‐
gram. It further certified that it was in compliance with all
applicable federal and state laws and regulations.
On the same date, Hartgrove signed an Agreement for
Participation in the Medical Assistance Program, in which it
agreed to comply with all federal and state laws and regula‐
tions. Hartgrove agreed “to be fully liable for the truth,
accuracy and completeness of all claims submitted … to the
Department […] for payment.” It also promised that “all
services rendered on or after [the effective date of the agree‐
ment] were rendered in compliance with and subject to the
terms and conditions” of the agreement. Upon receipt of
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Medicaid reimbursements, Hartgrove is required to certify that
the services provided in the billing information were actually
provided.
Hartgrove’s license, issued by the Illinois Department of
Public Health, permits it to maintain 150 beds for patients with
acute mental illness, but it actually maintains 152 beds. Prior
to September 30, 2009, Hartgrove was permitted to maintain
136 beds for acute mental illness patients. Newly admitted
adolescent patients suffering from acute mental illness are
placed in a room used for daytime group therapy, known as a
“dayroom,” rather than patient rooms. These patients sleep on
rollout beds until a patient room becomes available. This
occurred on 13 separate occasions between January 1, 2011,
and June 3, 2011. Hartgrove submitted claims for inpatient care
to Medicaid on behalf of these patients even though they were
not assigned a room.
Bellevue joined the Hartgrove staff in October 2009, serving
as a nursing counselor until October 2014. He contends that
Hartgrove knowingly submitted fraudulent claims for reim‐
bursement to Medicaid by admitting new patients with acute
mental illness in excess of its 150‐bed capacity and permitting
these patients to sleep in the dayroom rather than in a private
room. He further contends that Hartgrove certified, “either
explicitly or implicitly,” that it was in compliance with licens‐
ing standards contained in state law, rules, and regulations,
even though it was over capacity. See Ill. Admin. Code tit. 77,
§ 250.230(b). Prior to filing his complaint, Bellevue voluntarily
provided the information on which his allegations are based to
federal and state government authorities.
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Bellevue filed suit on August 5, 2011; the United States
and the State of Illinois declined to intervene. Hartgrove
moved to dismiss the complaint under Rules 12(b)(1), 12(b)(6),
and 9(b), on December 29, 2014. Specifically, Hartgrove
argued that Bellevue’s suit was foreclosed by the FCA’s public‐
disclosure bar, which deprived the district court of
jurisdiction.1 It also argued that Bellevue’s complaint failed
on the merits. The district court disagreed with Hartgrove’s
jurisdictional argument, but agreed that Hartgrove failed on
the merits; the court granted the motion without prejudice
on April 24, 2015.
Bellevue filed an amended complaint on June 26, 2015.
Hartgrove moved to dismiss on July 13, 2015, renewing its
arguments from the previous motion. The district court found
that Bellevue failed to state a claim, and the court granted the
motion with prejudice on October 5, 2015. Bellevue filed a
motion to reconsider in light of the United States Supreme
Court’s decision in Universal Health Services, Inc. v. United States
ex rel. Escobar, 136 S. Ct. 1989, 1999 (2016), in which the Court
1
In support of its motion, Hartgrove attached a March 23, 2009, letter from
the Illinois Department of Public Health and a May 5, 2009, letter and report
from the U.S. Centers for Medicare & Medicaid Services that disseminated
findings from two IDPH audits conducted in March 2009. IDPH found that
Hartgrove’s patient count exceeded the number it was permitted under its
license on both audit dates, and therefore was “over census.” The CMS
report noted that Hartgrove was over census on at least 52 separate
occasions between December 3, 2008, and February 28, 2009. These
materials were properly before the district court because they were
submitted to determine whether subject‐matter jurisdiction existed. See
Evers v. Astrue, 536 F.3d 651, 656–57 (7th Cir. 2008) (citation omitted).
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held that an implied false certification theory is a viable basis
for liability under the FCA. The district court denied the
motion on October 20, 2015, finding that Bellevue’s amended
complaint failed to state a claim for implied false certification.
This appeal followed.
II. DISCUSSION
The FCA permits “both the Attorney General and private
qui tam relators to recover from persons who make false or
fraudulent claims for payment to the United States.” Graham
Cnty. Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 559 U.S. 280, 283 (2010). To establish civil liability
under the FCA, a relator generally must show that “(1) the
defendant made a statement in order to receive money from
the government; (2) the statement was false; (3) the defendant
knew the statement was false; and (4) the false statement was
material to the governmentʹs decision to pay or approve the
false claim.” United States ex rel. Marshall v. Woodward, Inc., 812
F.3d 556, 561 (7th Cir. 2015) (citation omitted).2
The FCA also seeks to prevent parasitic lawsuits by
“opportunistic plaintiffs who have no significant information
2
The IFCA “closely mirrors the FCA,” and to date we have not found any
difference between the statutes that is material to a jurisdictional or merits
analysis. United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc.,
764 F.3d 699, 704 n.5 (7th Cir. 2014); see also United States ex rel. Kennedy v.
Aventis Pharms., Inc., 512 F. Supp. 2d 1158, 1163 n.2 (N.D. Ill. 2007) (“Case
law regarding the FCA is also applicable to the [IFCA].”); Scachitti v. UBS
Fin. Servs., 831 N.E.2d 544, 557–59 (Ill. 2005) (applying FCA case law to a
jurisdictional analysis of the IFCA). The district court applied its analysis of
the FCA equally to the IFCA claims. We will proceed in the same fashion.
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to contribute of their own … .”Graham Cnty., 559 U.S. at 294
(citation omitted). In furtherance of this goal, Congress enacted
the public‐disclosure bar because “[w]here a public disclosure
has occurred, [the relevant governmental] authority is already
in a position to vindicate society’s interests, and a qui tam
action would serve no purpose.” United States ex rel. Feingold v.
AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th Cir. 2003) (citation
omitted).
On appeal, Hartgrove argues that the district court erred
in its finding that the FCA’s public‐disclosure bar contained in
31 U.S.C. § 3730(e)(4) did not apply to Bellevue’s claims; a
decision that we review de novo. United States ex. rel. Heath v.
Wis. Bell, Inc., 760 F.3d 688, 690 (7th Cir. 2014) (citation omit‐
ted). In 2007, the Supreme Court held that § 3730(e)(4) is a
jurisdictional requirement that must be addressed before a
court can reach the merits of the FCA claims. Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 467–70 (2007). Therefore, we
address this issue at the outset.
Congress amended the public‐disclosure bar in March 2010.
Because Bellevue’s allegations extend from August 5, 2005, to
the present,3 covering both pre‐ and post‐amendment time
periods, we examine both versions of the statute.
3
Although Bellevue contends that Hartgrove submitted false claims from
August 2001 to the present, the district court dismissed Bellevue’s claims
that arose prior to August 5, 2005, due to the FCA’s six‐year statute of
limitations. See 31 U.S.C. § 3731(b)(1). It also dismissed Bellevue’s claims in
his individual capacity. Bellevue does not challenge either action by the
district court, so we need not address these claims further.
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Prior to the 2010 amendments, § 3730(e)(4) provided:
(A) No court shall have jurisdiction over an
action under this section based upon the public
disclosure of allegations or transactions in a …
congressional, administrative, or Government
Accounting Office report, hearing, audit, or
investigation … unless … the person bringing
the action is an original source of the informa‐
tion.
(B) For purposes of this paragraph, “original
source” means an individual who has direct and
independent knowledge of the information on
which the allegations are based and has volun‐
tarily provided the information to the Govern‐
ment before filing an action under this section
which is based on the information.
After the 2010 amendments, § 3730(e)(4) provides:
(A) The court shall dismiss an action or claim
under this section, unless opposed by the Gov‐
ernment, if substantially the same allegations or
transactions as alleged in the action or claim
were publicly disclosed … in a congressional,
Government Accountability Office, or other
Federal report, hearing, audit, or investigation
… unless … the person bringing the action is an
original source of the information.
(B) For purposes of this paragraph, “original
source” means an individual who … has knowl‐
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edge that is independent of and materially adds
to the publicly disclosed allegations or transac‐
tions, and who has voluntarily provided the
information to the Government before filing an
action under this section.4
As an initial matter, we have noted that Congress removed
the phrase “[n]o court shall have jurisdiction over an action
under this section” and replaced it with “[t]he court shall
dismiss an action or claim under this section” in the 2010
amendment to § 3730(e)(4)(A). Absher, 764 F.3d at 706. The
Supreme Court’s holding in Rockwell regarding the jurisdic‐
tional nature of the public‐disclosure bar was based on the
inclusion of the phrase “[n]o court shall have jurisdiction over
an action under this section.” Id. (citing Rockwell, 549 U.S. at
467). Because this language has been removed from the statute,
it is unclear whether the language of the 2010 amendment
is jurisdictional. Cause of Action v. Chi. Transit Auth., 815 F.3d
267, 271 n.5 (7th Cir. 2016). We have previously noted that
other circuits have found that the language of the 2010 amend‐
ment is not jurisdictional, but we have declined to decide this
issue in our circuit. Id. Because some of Bellevue’s allegations
occurred pre‐amendment, we address the public‐disclosure bar
as a jurisdictional one. See id. (applying the pre‐amendment
version of § 3730(e)(4)(A), where the contested conduct
spanned both pre‐ and post‐amendment time periods).
4
Shortly after the public‐disclosure bar of the FCA was amended, the
IFCA was amended and re‐codified effective July 27, 2010. The amendments
mirror those of the FCA. See 740 Ill. Comp. Stat. 175/4 (2010).
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In addition, we have held that the amendment to
§ 3730(e)(4)(A) involved “a change to what constitutes a ‘public
disclosure,’” and thus is a substantive change that is not
retroactive. United States ex. rel. Bogina, v. Medline Indus., Inc.,
809 F.3d 365, 369 (7th Cir. 2016) (citation omitted). Conse‐
quently, “the pre‐2010 version of [§ 3730(e)(4)(A)] governs
conduct that occurred in that era while the new version
governs only more recent conduct.” Id. at 368 (collecting cases).
However, this change is not significant, as “we have previously
interpreted the phrase ‘based upon [a] public disclosure’ to
mean ‘substantially similar to publicly disclosed allegations’
… .” Leveski v. ITT Educ. Servs., Inc., 719 F.3d 818, 828 n.1 (7th
Cir. 2013) (citation omitted); see also Bogina, 809 F.3d at 368
(noting that the change in statutory language is not significant).
The current version of the statute expressly incorporates the
“substantially similar” standard in accordance with the
interpretation of this circuit and most other circuits. Leveski,
719 F.3d at 828 n.1.
In contrast to § 3730(e)(4)(A), our cases have found that
the amendment to the “original source” definition in
§ 3730(e)(4)(B) is a clarification rather than a substantive
change, and therefore is retroactive. Bogina, 809 F.3d at 369;
see also Cause of Action, 815 F.3d at 283 n.22 (citing Bogina, 809
F.3d at 368–69) (applying the 2010 definition of original source
to conduct occurring prior to 2010). Because the district court
decided the instant case prior to Bogina and Cause of Action, we
take a fresh look to ensure that subject‐matter jurisdiction is
present.
Hartgrove argues that Bellevue’s claims were publicly
disclosed by the IDPH and CMS letters and audit report from
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March and May 2009. Determining whether to apply the
public‐disclosure bar requires the court to complete a three‐
step inquiry. First, we examine whether the relator’s allega‐
tions have been “publicly disclosed.” Cause of Action, 815 F.3d
at 274 (citation omitted). If so, we next ask whether the lawsuit
is “based upon,” i.e., “substantially similar to” the publicly
disclosed allegations. Id. (citation omitted). “If it is, the public‐
disclosure bar precludes the action unless ‘the relator is an
original source of the information upon which the lawsuit is
based.’” Id. (citation and brackets omitted). “The relator bears
the burden of proof at each step of the analysis.” Id. (citation
omitted).
Applying the three‐step framework, we first address
whether Bellevue’s allegations were publicly disclosed. “[T]he
allegations in a complaint are publicly disclosed when the
critical elements exposing the transaction as fraudulent are
placed in the public domain.” Id. (citation and quotation marks
omitted). “This definition presents two distinct issues: whether
the relevant information was placed in the public domain, and,
if so, whether it contained the critical elements exposing the
transaction as fraudulent.” Id. (citation and quotation marks
omitted).
Bellevue does not dispute that the information was in the
public domain; he contends that the letters and audit report
state merely that Hartgrove was over census without any
reference to a knowing misrepresentation of facts, which is a
critical element of fraud. The district court found that the
government had enough information to infer scienter from the
results of its audits. We agree. We have held that the public‐
disclosure bar applied in instances “where one can infer, as a
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direct and logical consequence of the disclosed information,
that the defendant knowingly—as opposed to
negligently—submitted a false set of facts to the Government.”
Id. at 279 (citing Absher, 764 F.3d at 709 n.10).
Bellevue relies on Absher, in which we held that the govern‐
ment’s knowledge that the defendant had failed to comply
with a patient’s standard of care did not necessarily mean that
the defendant had knowingly misrepresented its compliance
when requesting payments from the government. 764 F.3d at
708–09. As we recognized in Cause of Action, decisions regard‐
ing a patient’s standard of care involve “qualitative judg‐
ments,” and thus there was an equally plausible inference that
the Absher defendant’s error was a mistake rather than a
knowing violation. 815 F.3d at 279. Therefore, it was inappro‐
priate to apply the public‐disclosure bar in Absher.
Here, as in Cause of Action, the audit report and letters
provided a sufficient basis to infer that Hartgrove was present‐
ing false information to the government. See id. The kind of
qualitative judgments at issue in Absher are not present in this
case. As the district court noted, because Bellevue did not
have personal knowledge of Hartgrove’s billing practices, his
allegations necessarily required him to infer that Hartgrove
was knowingly over census. There is no reason that the
government could not have made the same inference based on
its audits. Therefore, we find that Bellevue’s allegations were
publicly disclosed.
Moving to the second step, we address whether Bellevue’s
allegations are substantially similar to the publicly disclosed
allegations. There are several factors courts consider in
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determining whether this standard is met: whether relators
present genuinely new and material information beyond what
has been publicly disclosed; whether relators allege “a differ‐
ent kind of deceit”; whether relators’ allegations require
“independent investigation and analysis to reveal any fraudu‐
lent behavior”; whether relators’ allegations involve an entirely
different time period than the publicly disclosed allegations;
and whether relators “supplied vital facts not in the public
domain[.]” Cause of Action, 815 F.3d at 281 (collecting cases).
The district court found that Bellevue’s allegations concern‐
ing Hartgrove’s conduct through May 5, 2009 (the issuance
date of CMS’s letter), are substantially similar to the publicly
disclosed allegations.5 However, it found that Bellevue’s
allegations that Hartgrove continued its billing practices
beyond May 5, 2009, involves a different time period. Thus, it
concluded that Bellevue’s claims concerning conduct after
May 5, 2009, are not substantially similar to the publicly
disclosed allegations.
We agree with the district court as to Bellevue’s allegations
through May 5, 2009. Bellevue’s complaint describes the same
contested conduct and pertains to the same entity. In addition,
the time periods overlap. Furthermore, Bellevue did not
5
Hartgrove correctly points out that the 2010 amendments to
§ 3730(e)(4)(A), added the qualification that an audit report must be
“Federal” in order to qualify as a public disclosure, and the IFCA amend‐
ment correspondingly limited public disclosures to “State” audit reports, see
740 Ill. Comp. Stat. 175/4 (2010). Therefore, after the 2010 amendments, the
May 5, 2009, CMS audit report and letter is relevant to Bellevue’s FCA
claims, and the March 23, 2009, IDPH audit and letter is relevant to his
IFCA claims.
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supply any genuinely new and material information in his
amended complaint. Bellevue argues that his allegation that
Hartgrove knowingly exceeded its capacity constitutes new
information, but as we stated above, scienter can be inferred
from the audit report and letters. Bellevue also argues that he
provided new information by alleging that Hartgrove ex‐
ceeded its capacity as part of its regular business practice as
opposed to a temporary measure resulting from an emergency.
This is, at best, a conclusory allegation that lacks any factual
support. We have found that such conclusory allegations fail
to meet the particularity standards required by Rule 9(b), and
therefore are insufficient to evade the public‐disclosure bar. See
Bogina, 809 F.3d at 370.
As to Bellevue’s post‐May 5, 2009, allegations, we must
disagree with the district court in light of our recent holding in
Cause of Action. We recognize that in Leveski, we found that the
relator’s allegations were not substantially similar to those
contained in a previous lawsuit because they involved a
different time period. See 719 F.3d at 829–30. But in arriving at
this conclusion, we also considered that the relator’s allega‐
tions involved wrongdoing by a separate department, per‐
tained to a more sophisticated scheme, and named specific
individuals. See id. at 830–33.
In Cause of Action, we found that although the audit report
had considered conduct through 2004, the defendant’s conduct
in subsequent years was part of its “continuing practice” of
misreporting data to the government. 815 F.3d at 278 n.14. We
held that the relator’s claim of a continuing practice “does not
warrant our characterizing [the relator’s] allegations as not
substantially similar” to the allegations disclosed in the audit
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report. Id. at 281–82; see also Bogina, 809 F.3d at 370 (finding that
relator’s allegation that the fraud continued to present day,
along with other minor details, was an “unimpressive”
difference from a previous complaint and did not preclude
application of the public‐disclosure bar). Here, as in Cause of
Action, Bellevue’s allegations pertain to the same entity and
describe the same contested conduct as the publicly disclosed
information. Therefore, we find that Bellevue’s post‐May 5,
2009, allegations, are substantially similar to the publicly
disclosed allegations.
Moving to the third step, we ask whether Bellevue was an
original source of the information upon which the allegations
in his complaint were based. The district court, applying the
pre‐2010 definition of original source, found that although
Bellevue did not allege that he had direct knowledge of
Hartgrove’s billing practices, it nonetheless could be reason‐
ably inferred that he had acquired direct knowledge through
his employment. It also found that Bellevue “materially
added” to the publicly disclosed allegations with his personal
knowledge of specific instances in which Hartgrove was over
census.
After the district court’s decision, Bogina made clear that
the amended definition of “original source” controls. See
809 F.3d at 369. Therefore, Bellevue must show that he “has
knowledge that is independent of and materially adds to the
publicly disclosed allegations or transactions” and “has
voluntarily provided the information to the Government
before filing [its] action.” 31 U.S.C. § 3730(e)(4)(B) (2010). It is
undisputed that Bellevue voluntarily provided information
concerning his allegations to the government before filing suit.
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In order to possess “independent knowledge,” the relator
must “have learned of the allegation or transactions independ‐
ently of the public disclosure.” Cause of Action, 815 F.3d at 283
(citation omitted). As the district court noted, we have permit‐
ted an inference of independent knowledge where the relator
had an opportunity to observe the contested conduct. See
Leveski, 719 F.3d at 838; United States ex rel. Lamers v. City of
Green Bay, 168 F.3d 1013, 1017 (7th Cir. 1999). However, we
need not decide whether Bellevue is entitled to such an
inference because he has not “materially add[ed]” to the
publicly disclosed allegations.
Bellevue recycles the district court’s analysis regarding
his material addition to the publicly disclosed allegations.
However, this line of reasoning was foreclosed by Cause of
Action. In that case, we found that because the plaintiff’s
allegations were “substantially similar to” the publicly dis‐
closed allegations, the plaintiff did not “materially add” to the
public disclosure and could not be an original source. 815 F.3d
at 283 (citation omitted). This conclusion applies with equal
force here, and Bellevue has not provided a reason to diverge
from it. Thus, we find that Bellevue is not an original source of
the allegations, and his FCA and IFCA claims are precluded by
the public‐disclosure bar.
III. CONCLUSION
The allegations in this case fall within the public‐disclosure
bar to the FCA, and, therefore, the district court properly
dismissed the amended complaint with prejudice. The judg‐
ment of the district court is AFFIRMED.
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