United States of America et al v. Halifax Hospital Medical Center et al

Filing 109

ORDER granting in part and denying in part 77 Motion to dismiss. Signed by Judge Gregory A. Presnell on 3/19/2012. (ED)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
UNITED STATES OF AMERICA,
ex. rel. and ELIN BAKLID-KUNZ, Relator,
Plaintiffs,
-vs-

Case No. 6:09-cv-1002-Orl-31DAB

HALIFAX HOSPITAL MEDICAL
CENTER, d/b/a Halifax Health, a/k/a
Halifax Community Health System, a/k/a
Halifax Medical Center and HALIFAX
STAFFING, INC.,
Defendants.
_______________________________________

ORDER
This matter comes before the Court without a hearing on the Motion to Dismiss the
Complaint in Intervention (Doc. 77) filed by the Defendants, the response in opposition (Doc. 83)
filed by the Government, and the reply (Doc. 99) filed by the Defendants.
I.

Background
This qui tam action was originally filed on June 16, 2009. On October 4, 2011, the

Government announced that it had elected to intervene as to certain claims made by the relator,
Elin Baklid-Kunz (“Baklid-Kunz”) against Halifax Hospital Medical Center (“Halifax Hospital”)
and Halifax Staffing, Inc. (“Halifax Staffing”).1 More specifically, the Government announced it

1

According to the allegations in the Government’s Complaint in Intervention, Halifax Hospital
owns and operates hospitals in Volusia County and surrounding counties, while Halifax Staffing, a
subsidiary, provides staffing services to Halifax Hospital in exchange for payments to cover the cost
of employee salaries, benefits, and administrative costs. (Doc. 73 at 3).

would intervene in regard to claims by Baklid-Kunz that the Defendants had financial relationships
with a number of physicians who were making referrals to Halifax Hospital. Because of those
financial relationships, Baklid-Kunz alleged, the referrals violated the Stark Amendment to the
Medicare Act, 42 U.S.C. § 1395nn (the “Stark Amendment”), and bills submitted as a result of
those referrals violated the False Claims Act, 31 U.S.C. § 3729 et. seq. (henceforth, the “FCA”).
On November 4, 2011, the Government filed its Complaint in Intervention (Doc. 73) (henceforth,
the “Intervenor’s Complaint”), essentially reiterating these allegations.
The Government asserts three claims for violation of the FCA – Presentation of False
Claims (Count I), Use of False Statements to Get False Claims Paid (Count II), and Use of False
Records Material to an Obligation to Pay (Count III). The Government also asserts claims for
Unjust Enrichment (Count IV) and Payment by Mistake (Count V), as well as one count (Count
VI) in which the Government seeks disgorgement, imposition of a constructive trust, and an
accounting. By way of the instant motion, the Defendants seek dismissal of all six counts, on
multiple grounds.
II.

Legal Standards
A.

Motions to Dismiss

Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim
showing that the pleader is entitled to relief,” so as to give the defendant fair notice of what the
claim is and the grounds upon which it rests. Conley v. Gibson, 35 U.S. 41, 47, 78 S.Ct. 99, 2
L.Ed.2d 80 (1957), overruled on other grounds, Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A Rule 12(b)(6) motion to dismiss for failure to state a
claim merely tests the sufficiency of the complaint; it does not decide the merits of the case.
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Milbum v. United States, 734 F.2d 762, 765 (11th Cir.1984). In ruling on a motion to dismiss, the
Court must accept the factual allegations as true and construe the complaint in the light most
favorable to the plaintiff. SEC v. ESM Group, Inc., 835 F.2d 270, 272 (11th Cir.1988). The Court
must also limit its consideration to the pleadings and any exhibits attached thereto. FED. R. CIV.
P. 10(c); see also GSW, Inc. v. Long County, Ga., 999 F.2d 1508, 1510 (11th Cir. 1993).
The plaintiff must provide enough factual allegations to raise a right to relief above the
speculative level, Twombly, 550 U.S. at 555, 127 S.Ct. at 1966, and to indicate the presence of the
required elements, Watts v. Fla. Int’l Univ., 495 F.3d 1289, 1302 (11th Cir.2007). Conclusory
allegations, unwarranted factual deductions or legal conclusions masquerading as facts will not
prevent dismissal. Davila v. Delta Air Lines, Inc., 326 F.3d 1183, 1185 (11th Cir. 2003).
In Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), the Supreme Court explained that a complaint
need not contain detailed factual allegations, “but it demands more than an unadorned,
the-defendant-unlawfully-harmed-me accusation. . . . A pleading that offers ‘labels and
conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ . . . Nor
does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Id. at 1949 (internal citations omitted). “[W]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct, the complaint has alleged – but it has not
‘show[n]’ – ‘that the plaintiff is entitled to relief.’” Id. at 1950 (quoting Fed. R. Civ. P. 8(a)(2)).
B.

The Stark Amendment

The goal of the Stark Amendment to the Medicare Act, 42 U.S.C. § 1395nn, is “to curb
overutilization of services by physicians who could profit by referring patients to facilities in
which they have a financial interest.” See Jo-Ellyn Sakowitz Klein, The Stark Laws: Conquering
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Physician Conflicts of Interest?, 87 GEO. L.J. 499, 511 (1998). To accomplish this goal, the Stark
Amendment places limits on such referrals, providing in pertinent part that
if a physician … has a financial relationship with an entity specified in paragraph
(2), then
(A) the physician may not make a referral to the entity for the
furnishing of designated health services for which payment otherwise
may be made under this subchapter, and
(B) the entity may not present or cause to be presented a claim under
this subchapter or bill to any individual, third party payor, or other
entity for designated health services furnished pursuant to a referral
prohibited under subparagraph (A).
42 U.S.C. § 1395nn(a)(1). Under the Stark Amendment, a physician has a “financial relationship”
with an entity if the physician has “an ownership or investment interest in the entity,” or “a
compensation arrangement”2 with it. 42 U.S.C. § 1395nn(a)(2).
Although the baseline rule is that any financial relationship between a referring physician
and a medical facility implicates the Stark Amendment, there are a number of exceptions. For
example, services performed or supervised by the referring physician or by another physician in
the same practice group are not covered by the prohibition on referrals and claims in 42 U.S.C.
§ 1395nn(a)(1). 42 U.S.C. § 1395nn(b)(1). Similarly, equipment leases between physicians and
medical facilities are not “financial relationships” for purposes of the Stark Amendment, which
also provides exceptions for what are termed “bona fide employment relationships” and “personal
service arrangements.” 42 U.S.C. § 1395nn(e)(1)(B).

2

A “compensation arrangement” consists, with certain exceptions, of “any arrangement
involving any remuneration between a physician ... and an entity”. 42 U.S.C. § 1395nn(h)(1)(A).
“The term ‘remuneration’ includes any remuneration, directly or indirectly, overtly or covertly, in cash
or in kind.” 42 U.S.C. § 1395nn(h)(1)(B).
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C.

The False Claims Act

The FCA was enacted in 1863 with the principal goal of stopping the massive frauds
perpetrated by private contractors during the Civil War. Vt. Agency of Natural Res. v. U.S. ex rel.
Stevens, 529 U.S. 765, 781, 120 S.Ct. 1858, 1867, 146 L.Ed.2d 836 (2000) (citing United States v.
Bornstein, 423 U.S. 303, 309, 96 S.Ct. 523, 528, 46 L.Ed.2d 514 (1976)). It permits private
persons to file a form of civil action – known as qui tam – against (and recover damages on behalf
of the United States from) any person who (1) knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval or (2) knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false or fraudulent claim. 31 U.S.C.
§ 3729(a)(1)(A)-(B).
Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a
claim submitted to a federally funded insurance program is actionable under the FCA. See United
States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir.2004) (citing United States ex
rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.1997)); United
States v. Rogan, 459 F.Supp.2d 692, 717 (N.D.Ill.2006).
D.

Rule 9(b)

A complaint must “state[ ] with particularity ... the circumstances constituting fraud or
mistake.” Fed.R.Civ.P. 9(b). Rule 9(b)’s particularity requirement applies to claims brought
under the FCA. Hill v. Morehouse Medical Associates, Inc., 2003 WL 22019936 (11th Cir. 2003).
To state a claim under the False Claims Act that complies with Rule 9(b), “the complaint must
allege ‘“facts as to time, place, and substance of the defendant’s alleged fraud,” [and] “the details
of the defendants’ allegedly fraudulent acts, when they occurred, and who engaged in them.”’”
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Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005) (quoting United States ex rel.
Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1310 (11th Cir. 2002)). The failure to satisfy
Rule 9(b) is a ground for dismissal of a complaint. Id. The crux of a complaint under the False
Claims Act is the submission of a fraudulent claim for payment, see id. at 1013; United States ex
rel. Atkins v. McInteer, 470 F.3d 1350, 1357 (11th Cir.2006), so to survive a motion to dismiss, a
complaint must allege with particularity that false claims were actually submitted to the
government.
III.

Analysis
A.

Medicaid

The Government asserts that the Defendants submitted and caused others to submit false
and fraudulent claims for payment to Medicaid, in violation of the FCA. (Intervenor’s Complaint
at 24). The Defendants contend that these allegations fail as a matter of law. Under the Medicaid
program, providers such as the Defendants are reimbursed by state governments, not the federal
government. The Defendants argue that, even if one assumes that improper claims were submitted
to Medicaid in this matter, neither the Stark Amendment nor the Medicaid statute prohibited the
resulting reimbursement payments to the Defendants from the state of Florida, and therefore there
could be no FCA violation.
However, the Medicaid statute does impose limits on referrals and reimbursements along
the same lines as those imposed in the Stark Amendment. Specifically, 42 U.S.C. § 1396b(s),
titled “Limitations on certain physician referrals,” provides that
no payment shall be made to a State under this section for expenditures for medical
assistance under the State plan consisting of a designated health service (as defined
in subsection (h)(6) of section 1395nn of this title) furnished to an individual on
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the basis of a referral that would result in the denial of payment for the service
under subchapter XVIII of this chapter if such subchapter provided for coverage of
such service to the same extent and under the same terms and conditions as under
the State plan.
42 U.S.C. § 1396b(s). Thus the Medicaid statute prohibits payments to a state for medical services
resulting from improper referrals, as defined under the Stark Amendment. Under the FCA, a
defendant may be liable for submitting its own false claim or for causing another to submit a false
claim. 31 U.S.C. § 3729(a)(1). Accordingly, the Plaintiff’s theory in regard to the Medicaid
claims is that the Defendants caused the state of Florida to submit false claims to the federal
government for services furnished on the basis of improper referrals. This allegation is sufficient
to survive a Rule 12(b)(6) challenge.
B.

Signed Writings and Compensation Set in Advance

At various points in the Intervenors’ Complaint, the Government raises issues relating to
the compensation agreements between Halifax and one or more of the physicians, such as that a
particular agreement was not signed or that the terms of compensation were not “set in advance”.
For example, the Government asserts that “[a] number of the employment agreements between
Halifax Staffing and the neurosurgeons were either never signed or signed after the effective date
of the employment agreement” and that in October 2000, the employment agreement between
Halifax Staffing and one neurosurgeon “was amended effective July 10, 2000 to provide for the
doctor to receive additional compensation”. (Intervenor’s Complaint at 20). The Defendants
argue that neither the Stark Amendment nor the FCA requires signed writings or terms being set in
advance, and therefore these allegations, even if true, cannot give rise to a violation. (Doc. 78 at 9-

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10). However, the Government does not allege that these things, in and of themselves, give rise to
a violation. Accordingly, the Defendant’s argument on this point fails.
C.

Direct or Indirect Financial Relationship

The Defendants contend that the Complaint fails to set out whether the financial
relationship between Halifax and the physicians at issue is a direct relationship or an indirect
relationship. Although the Stark Amendment does distinguish between the two – some exceptions
apply to direct financial relationships, but not to indirect financial relationships, and vice versa –
nothing in its language requires that the particulars of that relationship be established in the
complaint, and the Defendants have not cited to any cases imposing such a requirement.
Accordingly, this argument is rejected.
D.

Financial Relationship Exceptions

As noted above, the Stark Amendment’s definition of financial relationships provides for
certain exceptions; relationships falling within these exceptions do not trigger the prohibitions on
referrals. The Defendants argue that the Government has failed to plead that the relationships at
issue in this case do not fall within these exceptions. Again, however, while the Stark Amendment
sets forth these exceptions, nothing in its language requires that the applicability of such
exceptions be denied in the initial pleadings. And the Defendants have not cited to any cases
imposing such a requirement. Rather, these exceptions would appear to be affirmative defenses
that must be raised by the Defendants.
For example, in Jackson v. Seaboard Coast Line R. Co., 678 F.2d 992 (11th Cir. 1982), a
union was found to have violated Title VII of the Civil Rights Act of 1964 by participating in
racially discriminatory promotion practices. On appeal, the union argued that the plaintiff had
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failed to show that the alleged discrimination had not resulted from the normal operation of a bona
fide seniority system.3 Id. at 1012. The Court of Appeals held that the Title VII exemption for
bona fide seniority systems was an affirmative defense that had to be pled by a defendant in its
answer. Id. at 1013. Because the Defendant had failed to assert the bona fide seniority system
affirmative defense in its answer, it had waived the issue. Id.
Even in the Defendants’ formulation, these exceptions resemble affirmative defenses rather
than elements of a cause of action: For example, in regard to the “bona fide employment
relationship” exception, the Defendants contend that the Intervenor’s Complaint “does not allege
facts that, even if true, deny Halifax the protection of the Stark exception for bona fide employment
relationships.” As they most closely resemble affirmative defenses, it is the Defendants’
obligation to plead that they apply rather than the Government’s obligation to plead that they do
not apply.
E.

Rule 9(b)

The Defendants contend that the Government has failed to satisfy Rule 9(b)’s particularity
requirement in regard to a number of the allegations made in the Intervenor’s Complaint. (Doc. 78
at 34-36). They argue that the Government has failed to identify (1) the particular compensation
agreements that violate the Stark Amendment; (2) the compensation agreements that were not
signed or were signed after the fact; (3) the components of the compensation paid to the various

3

The Civil Rights Act of 1964 provides in pertinent part that “it shall not be an unlawful
employment practice for an employer to apply different standards of compensation, or different terms,
conditions, or privileges of employment pursuant to a bona fide seniority or merit system ... provided
that such differences are not the result of an intention to discriminate because of race, color, religion,
sex, or national origin.” 42 U.S.C. § 2000e-2(h).
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physicians that were based on the volume or value of referrals; (4) the components of that
compensation that were not based on fair market value; and (5) any specific instances where
services were rendered by a nurse or a physician’s assistant rather than a doctor. The Defendants
do not specify the grounds for demanding greater particularity in these areas. So far as the Court
can see, the allegations in these five areas are relevant to affirmative defenses that the Defendants
might raise rather than elements of the Government’s causes of action. As such, there is no
justification for requiring a heightened degree of specificity in regard to these allegations.
F.

Rule 12(b)(6) Failure to State a Claim Under the False Claims Act
Pursuant to Rule 12(b)(6), the Defendants assert that the Government has failed to state a

claim under the False Claims Act because they have not identified any false records or false
statements and have failed to show the presentment of any false claims by Halifax. The
Defendants have not cited any case law or statutory language that makes such an identification a
requirement for purposes of Rule 12(b)(6).
The Defendants also complain that the Intervenor’s Complaint does not include any factual
allegations which, if true, would establish that the Defendants acted “knowingly” for purposes of
the FCA. (Doc. 78 at 38). Under the FCA, a person acts “knowingly” if he or she “(1) has actual
knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the
information; or (3) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C.
§ 3729(b). No proof of specific intent is required. Id. And Rule 9(b) permits knowledge to be
alleged generally, which the Government has done.

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G.

Statutes of Limitation
The Defendants contend that any damages claims that arose prior to June 16, 2003 must be

dismissed pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction because they fall outside
of FCA’s statute of limitations. (Doc. 78 at 38). The expiration of a statute of limitation is an
affirmative defense rather than a bar to jurisdiction. See, e.g., Gordon v. National Work Alliance,
675 F.2d 356, 360 (D.C.Cir. 1982). Accordingly, the requested dismissal for lack of subject
matter jurisdiction must fail.
H.

Eleventh Amendment
The Defendants spend three pages asserting that they are immune from suit under the FCA

pursuant to the Eleventh Amendment. (Doc. 78 at 32-35). By order dated June 6, 2011, the Court
considered and rejected this argument. (Doc. 46).
I.

Common Law Causes of Action
The Defendants seek dismissal of Count IV on the grounds that the Government has not

alleged a prima facie case of unjust enrichment under Florida law. However, the Government’s
rights arising under a nationwide federal program such as this one are governed by federal law, not
state law. United States ex rel. Roberts v. Aging Care Home Health, Inc., 474 F.Supp.2d 810, 820
(W.D.La. 2007) (citing United States v. Vernon Home Health, 21 F.3d 693, 695 (5th Cir. 1994)).
As such, any failure by the Government to establish a prima facie case under Florida law would
not be relevant.
The Defendants also argue that Count V, the Government’s Payment by Mistake claim,
should be dismissed because the Government cannot prevail on its FCA and Stark Act claims.
Such an argument is premature at this stage of the proceedings.
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Finally, the Defendants seek dismissal of Count VI, which asserts claims for disgorgement,
constructive trust, and an accounting. The Defendants point out, correctly, that these are remedies,
not causes of action. Count VI will be dismissed with prejudice.
In consideration of the foregoing, it is hereby
ORDERED that the Motion to Dismiss the Complaint in Intervention (Doc. 77) is
GRANTED IN PART AND DENIED IN PART. Count VI is hereby DISMISSED WITH
PREJUDICE. In all other respects, the motion is DENIED.
DONE and ORDERED in Chambers, Orlando, Florida on March 19, 2012.

Copies furnished to:
Counsel of Record
Unrepresented Party

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