Bellevue v. Universal Health Services of Hartgrove Inc.
Filing
44
MEMORANDUM Opinion and Order:For the foregoing reasons, Hartgrove's motion to dismiss 30 , is granted, and Bellevue's complaint is dismissed without prejudice. Bellevue is granted leave to replead his claims with a viable theory of liability by May 27, 2015. Signed by the Honorable Thomas M. Durkin on 4/24/2015:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA ex rel.
GEORGE BELLEVUE; STATE OF ILLINOIS ex
rel. GEORGE BELLEVUE; and GEORGE
BELLEVUE, individually,
Plaintiffs,
No. 11 C 5314
Judge Thomas M. Durkin
v.
UNIVERSAL HEALTH SERVICES OF
HARTGROVE INC., d/b/a HARTGROVE
HOSPITAL,
Defendant.
MEMORANDUM OPINION AND ORDER
George Bellevue brings this action on behalf of the United States of America
and the State of Illinois alleging that Universal Health Services of Hartgrove Inc.
(“Hartgrove”), violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729(a)(1)(A), (B),
and the Illinois False Claims Act (“IFCA”), 740 ILCS 175/3(a)(1)(A), (B), when it
submitted certain Medicaid reimbursement claims. See R. 1. Hartgrove has moved
to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1),
12(b)(6), and 9(b), for lack of jurisdiction and failure to state a claim. R. 30. For the
following reasons, Hartgrove’s motion is granted.
Legal Standard
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges
the Court’s subject matter jurisdiction. “The standard of review for a Rule 12(b)(1)
motion to dismiss depends on the purpose of the motion.” Bolden v. Wells Fargo
Bank, N.A., 2014 WL 6461690, at *2 (N.D. Ill. Nov. 18, 2014) (citing Apex Digital,
Inc. v. Sears, Roebuck & Co.,572 F.3d 440, 443-44 (7th Cir. 2009)). “If a defendant
challenges the sufficiency of the allegations regarding subject matter jurisdiction (a
facial challenge), the Court must accept all well-pleaded factual allegations as true
and draw all reasonable inferences in the plaintiffs favor.” Bolden, 2014 WL
6461690, at *2 (citing United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942,
946 (7th Cir. 2003)). A factual challenge to the court’s subject matter jurisdiction, on
the other hand, is based on the assertion that “the complaint is formally sufficient
but . . . there is in fact no subject matter jurisdiction.” United Phosphorus, 322 F.3d
at 946 (emphasis in original). When considering a factual challenge to the court's
jurisdiction, “[t]he district court may properly look beyond the jurisdictional
allegations of the complaint and view whatever evidence has been submitted on the
issue to determine whether in fact subject matter jurisdiction exists.” Evers v.
Astrue, 536 F.3d 651, 656-57 (7th Cir. 2008). “Where jurisdiction is in question, the
party asserting a right to a federal forum has the burden of proof, regardless of who
raised the jurisdictional challenge.” Craig v. Ontario Corp., 543 F.3d 872, 876 (7th
Cir. 2008).
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
2
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Additionally, it is well-established that the FCA “is an anti-fraud statute and
claims under it are subject to the heightened pleading requirements of Rule 9(b).”
Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 998 (7th Cir. 2014). Rule
9(b) requires a “plaintiff to do more than the usual investigation before filing [a]
complaint. Greater precomplaint investigation is warranted in fraud cases because
public charges of fraud can do great harm to the reputation of a business firm or
other enterprise (or individual).” Ackerman v. Nw. Mut. Life Ins. Co., 172 F.3d 467,
469 (7th Cir. 1999) (citations omitted). A complaint generally “must provide the
3
who, what, when, where and how” of the alleged fraud. United States ex rel. Fowler
v. Caremark RX, LLC, 496 F.3d 730, 740 (7th Cir. 2007).
Background
Hartgrove is a psychiatric hospital that is enrolled with the Illinois
Department of Healthcare and Family Services to receive reimbursement under the
federal Medicaid program, which provides medical assistance for individuals and
families with low incomes. R. 1 at 2 (¶ 5), 4-5 (¶ 15). Hartgrove’s license with the
Illinois Department of Public Health permits it to maintain 150 beds for acute
mental illness patients. Id. at 5 (¶ 18). Prior to September 30, 2009, Hartgrove was
approved to maintain 136 beds for acute mental illness patients. Id. (¶¶ 17-18).
Hartgrove has attached letters to its motion dated March 23, 2009, and May 5,
2009, that the Illinois Department of Public Health sent to Hartgrove, informing
Hartgrove that government audits had determined that Hartgrove had more
patients than authorized beds (i.e., it was “over census”) on at least 52 separate
occasions between December 3, 2008 and February 28, 2009. See R. 39-3; R. 39-4.
Bellevue has been a Hartgrove employee since October 2009, and is currently
employed there as a “nursing counselor.” R. 1-1 at 2 (¶ 4). Bellevue alleges that
Hartgrove actually maintains 152 beds for acute mental illness patients, even
though it is only authorized to maintain 150 such beds. Id. at 5 (¶ 19). Additionally,
Bellevue alleges that “some newly admitted adolescent patients suffering from
acute mental illness [are] not placed into patient rooms, but instead [are] placed
into dayrooms.” Id. at 11 (¶ 42). These patients sleep on a “rollout bed . . . . until a
4
patient room becomes available.” Id. at 12 (¶ 47). Bellevue provides 13 examples of
patients who were treated this way between January 1, 2011 and June 3, 2011. Id.
at 13-16 (¶¶ 52-64). Bellevue alleges that “[a]lthough these patients are not
assigned a room, Hartgrove nevertheless submits a claim to Medicaid for inpatient
care of the beneficiary, which essentially includes a patient room.” Id. at 12 (¶ 49).
Bellevue alleges that “[w]henever a patient was admitted in excess of
Hartgrove’s capacity, Hartgrove was in violation of State laws, rules, and
regulations.” Id. at 12-13 (¶ 50). Specifically, Bellevue alleges that Hartgrove
violated 77 Ill. Admin. Code § 250.230(b), which requires that a hospital shall
ensure that its “occupancy does not at any time exceed capacity, except in the event
of unusual emergency and then only as a temporary measure.” Id. at 9-10 (¶ 36).
Bellevue alleges that “[c]ompliance with these laws, rules, and regulations are
material and a condition of payment.” Id. at 12-13 (¶ 50).
Bellevue also alleges that in order to become a Medicaid provider in Illinois,
Hartgrove has twice certified that it will comply with federal and state regulations.
R. 1-1 at 6-8 (¶¶ 20-27). On April 8, 2004, Hartgrove signed a “Provider Enrollment
Application.” Id. at 6 (¶ 20); see id. at 41-42. By signing the “Provider Enrollment
Application,” Hartgrove certified that it understood “that knowingly falsifying or
willfully withholding information may be cause for termination of participation in
the Medical Assistance Program.” Id. at 42. Hartgrove also certified that it was “in
compliance with all applicable federal and state laws and regulations.” Id.
5
On April 8, 2004, Hartgrove also signed an “Agreement for Participation in
the Illinois Medical Assistance Program.” Id. at 6 (¶ 20); see id. at 22-23. By signing
the “Agreement for Participation,” Hartgrove agreed “to comply with all current and
future program policy provisions as set forth in the applicable Department of Public
Aid Medical Assistance Program handbooks.” Id. at 22 (¶ 1). Hartgrove also agreed
“to comply with applicable licensing standards as contained in State laws or
regulations.” Id. (¶ 2). The “Agreement for Participation” provided that Hartgrove
would “receive payment based on the Department’s reimbursement rate,” and that
Hartgrove “agrees to be fully liable for the truth, accuracy and completeness of all
claims submitted electronically or on hard copy to the Department for payment.” Id.
(¶¶ 6-7). Hartgrove also certified that “all services rendered on or after [the effective
date of the agreement] were rendered in compliance with and subject to the terms
and conditions of this agreement.” Id. at 23 (¶ 17).
Bellevue alleges that by signing the “Agreement for Participation,” Hartgrove
also agreed to be bound by the terms of the Illinois Department of Healthcare and
Family Service’s “Handbook for Providers of Medical Services.” Id. at 7-8 (¶¶ 26-27),
9 (¶ 31); see id. at 50-51. The Handbook provides the following:
For consideration for payment by the Department under
any of its authorized programs, covered services must be
provided to an eligible participant by a medical provider
enrolled for participation in the Illinois Medical
Assistance Program. Services provided must be in full
compliance with applicable federal and state laws . . . .
Id. at 51.
6
Additionally, Bellevue alleges that “[u]pon receipt of [Medicaid] payments,
[Hartgrove] is required to sign and retain a billing certification which certifies that
the services provided in the billing information were provided.” Id. at 8 (¶ 29).
Bellevue does not attach any of these “billing certifications,” but he alleges that
“[o]riginal billing certifications are in the possession of Hartgrove.” Id. at 9 (¶ 30).
Based on Hartgrove’s various certifications that it would comply with federal
and
state
regulations,
Bellevue
claims
that
when
Hartgrove
requested
reimbursement for patients who were admitted beyond Hartgrove’s authorized
capacity, “Hartgrove knowingly submitted a false or fraudulent claim for that
patient.” Id. at 12 (¶ 50). Bellevue alleges that “[t]hese claims are false in that
Hartgrove certified either explicitly or implicitly that it was in compliance with all
licensing standards contained in state law, rules, or regulations,” even though it
was allegedly in violation of 77 Ill. Admin. Code § 250.230(b) when Hartgrove was
over census. Id. at 13 (¶ 50). Bellevue alleges that Hartgrove has “submitted false
and/or fraudulent claim[s] from August 2001 to present.” Id. at 16 (¶ 65).
Bellevue alleges that he “voluntarily provided the information [on which the
allegations are based] to the [federal and state] Governments before filing this
action.” Id. at 3 (¶ 11). Bellevue also attached to his brief in opposition to
Hartgrove’s motion a letter from Bellevue’s counsel to the United States Attorney’s
Office in Chicago and the Illinois Attorney General’s Office, dated August 4, 2011,
stating:
Enclosed please find a copy of a disclosure statement,
without exhibits, and a complaint which I intend on filing
7
on behalf of George Bellevue in the United States District
Court, Northern District of Illinois, alleging violations of
the Federal and State False Claims Act.
R. 41-8. Bellevue did not attach the referenced “disclosure statement” to his
complaint or brief, but in his brief, Bellevue contends that the “disclosure
statements . . . outline[d] the fraud in detail.” R. 41 at 7.
Bellevue filed this complaint under seal on August 5, 2011. See R. 1. The
United States and the State of Illinois declined to intervene in the case, and Chief
Judge Castillo entered an order on September 30, 2014 unsealing the complaint. See
R. 17.
Analysis
As an initial matter, Hartgrove argues that any of Bellevue’s allegations
based on claims Hartgrove allegedly submitted prior to August 5, 2005 must be
dismissed because the FCA has a six-year statute of limitations. R. 39 at 20; see 31
U.S.C. § 3731(b)(1) (“A civil action under section 3730 may not be brought more
than 6 years after the date on which the violation of section 3729 is
committed . . . .”); see also 740 ILCS 175/5(b). Bellevue does not respond to this
argument. Accordingly, Bellevue’s action is limited to the allegation that false
claims were submitted on August 5, 2005 or later.
Additionally, Bellevue includes himself in his individual capacity as a
plaintiff in this case. Hartgrove argues that Bellevue “has not alleged any injury to
himself that would support Article III standing, nor has [Bellevue] identified a
cause of action that would allow him to sue Hartgrove over the conduct that is the
8
subject of this case.” R. 39 at 20. Bellevue does not respond to this argument either.
Hartgrove is correct that 31 U.S.C. § 3730(b)(1) creates rights of action only for the
Attorney General and “private persons” whose “action[s] shall be brought in the
name of the Government.” See also 740 ILCS 175/4(b)(1) (“The action shall be
brought in the name of the State.”). Accordingly, Bellevue’s claims in his individual
capacity are dismissed.
With respect to the rest of Bellevue’s claims, Hartgrove primarily argues that
those claims should be dismissed for the following reasons: (1) Bellevue’s allegations
were publicly disclosed prior to his disclosure letter or complaint; (2) Bellevue is not
an original source; (3) Bellevue has failed to state a valid theory of liability; and (4)
even if Bellevue’s theory of liability is valid, he has failed to plead it with
particularity sufficient to satisfy Federal Rule of Civil Procedure 9(b).
I.
Public Disclosure Bar
The FCA permits private citizens, known as “relators,” to file a civil action on
behalf of the government to recover money that the government paid on account of
false or fraudulent claims. 31 U.S.C. § 3730(b)(1). These actions are referred to as
qui tam actions. See United States ex rel. Yannacopoulos v. General Dynamics, 652
F.3d 818, 822 (7th Cir. 2011).1 “To establish civil liability under the [FCA], a relator
The statutory language and standards for the FCA and the IFCA are substantially
the same. See United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc.,
764 F.3d 699, 704 n.5 (7th Cir. 2014) (“the [IFCA] closely mirrors the FCA”); United
States ex rel. Kennedy v. Aventis Pharm., Inc., 512 F. Supp. 2d 1158, 1163 n.2 (N.D.
Ill. 2007) (“Case law regarding the FCA is also applicable to the [IFCA].”).
Accordingly, the Court’s analysis of the federal statute applies equally to Bellevue’s
claims under the state statute.
1
9
generally must prove (1) that the defendant made a statement in order to receive
money from the government; (2) that the statement was false; and (3) that the
defendant knew the statement was false.” Yannacopoulos, 652 F.3d at 822.2
A.
Public Disclosure
Hartgrove argues that Bellevue’s claims must be dismissed because they are
subject to the “public disclosure bar.” See United States ex rel. Heath v. Wis. Bell,
Inc., 760 F.3d 688, 690 (7th Cir. 2014). “Public disclosure” bars FCA actions,
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).
Prior to statutory amendments that apply to claims arising after March 23,
2010, see United States ex rel. Cause of Action v. Chi. Trans. Auth., 2014 WL
5333399, at *2 n.2 (N.D. Ill. Oct. 20, 2014), the FCA stripped courts of jurisdiction
over:
an action . . . based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative
hearing,
in
a
congressional,
administrative, or Government Accounting Office report,
hearing, audit, or investigation, or from the news
media . . . .
Specifically, these statutes prohibit “knowingly present[ing], or caus[ing] to be
presented, a false or fraudulent claim for payment,” and “knowingly mak[ing] or
us[ing] . . . a false record or statement material to a false or fraudulent claim” paid
by the government. See 31 U.S.C. §§ 3729(a)(1)(A), (B); 740 ILCS 175/3(a)(1)(A), (B).
2
10
31 U.S.C. 3730(e)(4)(A) (1986). By contrast, under the current version of the FCA, a
public disclosure has been made if:
substantially the same allegations or transactions as
alleged in the action were publicly disclosed (i) in a
Federal criminal, civil, or administrative hearing in which
the Government or its agent is a party; (ii) in a
congressional, Government Accountability Office, or other
Federal report, hearing, audit, or investigation; or (iii)
from the news media . . . .
31 U.S.C. § 3730(e)(4)(A) (2010). For purposes of determining whether the public
disclosure bar applies, however, this difference is immaterial because the Seventh
Circuit has interpreted the pre-amendment language to conform to the statute’s
current language. See Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 910
(7th Cir. 2009) (interpreting the old statute to prohibit actions in which the
“complaint describes allegations or transactions that are substantially similar to
those already in the public domain”) (emphasis added). Thus, although Bellevue’s
claims accruing before March 23, 2010 are governed by the old statute, the public
disclosure bar analysis is the same for all of his claims.
To determine whether a plaintiff has demonstrated that his allegations are
not “substantially the same” as publicly disclosed information, a court must engage
in a comparison of the previously publicly disclosed information and the plaintiff’s
allegations. See Leveski v. ITT Educ. Servs., Inc., 719 F.3d 818, 829 (7th Cir. 2013).
The plaintiff bears the burden of establishing the inapplicability of the public
disclosure bar. See Glaser, 570 F.3d at 913. To demonstrate that his allegations are
not “substantially the same” as publicly disclosed allegations, a plaintiff must do
11
more than “add[] extra details” or “additional instances” of false claims. See Heath,
760 F.3d at 691. Some of the factors used to determine whether a relator’s
allegations are substantially similar to those already publicly disclosed are: (1)
whether the time periods for the allegations or transactions overlap; (2) whether the
relator has first-hand knowledge of the allegations; (3) whether the allegations are
similar or involve different schemes such that independent investigation and
analysis was required; and (4) whether the relator presents genuinely new and
material information than that previously disclosed. See Leveski, 719 F.3d at 82933; Heath, 760 F.3d at 691-92.
Additionally, the public disclosure bar applies “only when either the
allegation of fraud or the critical elements of the fraudulent transaction themselves
are the subject of a governmental civil action or penalty proceeding or have already
been publicly disclosed.” Absher, 764 F.3d at 708 (emphasis in original). “If an
allegation of fraud has already been made, the analysis is straightforward. But even
if no allegation of fraud has been made, the [public disclosure bar] may still apply so
long as facts disclosing the fraud itself are in the government’s possession or the
public domain.” Id. In determining whether the “facts disclosing the fraud” are
public, “the court must determine whether facts establishing the essential elements
of fraud—and, consequently, providing a basis for the inference that fraud has been
committed—are in the government’s possession or the public domain.” Id.
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1.
Allegations Regarding Hartgrove’s Conduct Prior to
May 5, 2009
Hartgrove argues that Bellevue’s allegations were publicly disclosed by the
audit referred to in the letters the Illinois Department of Public Health sent to
Hartgrove on March 23, 2009, and May 5, 2009. See R. 39-3; R. 39-4.3 Bellevue
argues, to the contrary, that these letters and the audit “simply state that the
hospital was over census which is not enough for a reader to infer that a fraud had
been committed.” R. 41 at 7.
Bellevue cites the Seventh Circuit’s reasoning in Absher in support of his
argument that the letters from the Illinois Department of Public Health do not
disclose the “critical elements” of “fraud.” R. 41 at 5. In Absher the defendant
nursing home was accused of failing to meet the statutorily mandated standard of
care with respect to its residents’ hygiene, pressure sore management, instances of
scabies, and infection control. 764 F.3d at 708. The Seventh Circuit held that even
though government survey reports disclosed the defendant’s “provision of noncompliant care . . . . the surveys did not disclose facts establishing [the defendant]
misrepresented the standard of care in submitting claims for payment to the
government.” Id. at 708-09. The court held that it “is not enough” that “as soon as
The Court considers these documents even though they are outside the complaint
because Hartgrove’s motion is a factual challenge to the Court’s subject matter
jurisdiction over Bellevue’s claims that are governed by the FCA’s provisions as
they were prior to the 2010 amendments. See 31 U.S.C. 3730(e)(4)(A) (1986) (“No
court shall have jurisdiction over an action . . . .”). When considering a factual
challenge to the court’s jurisdiction, “[t]he district court may properly look beyond
the jurisdictional allegations of the complaint and view whatever evidence has been
submitted on the issue to determine whether in fact subject matter jurisdiction
exists.” Evers, 536 F.3d at 656-57.
3
13
the government learned that [the defendant] was providing non-compliant care, it
necessarily knew that at least some of [the defendant’s] claims for payment were for
the provision of non-compliant care.” Id. at n.10. Rather, the “government must also
have access to facts disclosing that [the defendant] had the scienter required by the
FCA.” Id. (emphasis added). Bellevue contends that, like the surveys disclosing
“non-compliant care” in Absher, the letters from the Illinois Department of Public
Health noting that Hartgrove had more patients than authorized are “not enough”
to show public disclosure “because [they do] not disclose facts of misrepresentation
in submitting claims for payment to the government.” R. 41 at 6.
As Hartgrove notes, whether the letters from the Illinois Department of
Public Health “disclose facts of misrepresentation,” as Bellevue puts it, is really a
question of whether the information in the letters is a sufficient basis to infer the
scienter element of a FCA violation—i.e., “knowingly” seeking payment on a false
basis. In Absher, the Seventh Circuit found that the government’s knowledge that
the defendant had on certain occasions not complied with the standard of care did
not
necessarily
constitute
knowledge
that
the
defendant
had
knowingly
misrepresented its compliance with the standard of care when requesting payments
from the government. 764 F.3d at 709 n.10. This is because determining whether a
standard of patient care has been violated involves a qualitative judgment.
Although the Seventh Circuit did not explain its reasoning in such detail, the mere
fact that the standard of care had been violated did not necessarily mean that the
defendant knew a statutory or regulatory violation had occurred when the
14
defendant sought payment from the government for the care. In other words, the
defendant in Absher could have mistakenly believed it was in compliance with the
standard of care when it sought payment, and then later been found to have
violated the standard of care through negligent (or perhaps reckless) conduct. In
such circumstances, the mere fact of a regulatory violation does not necessarily
imply the presence of the scienter required by the FCA, and thus, public disclosure
of a regulatory violation, by itself, does not necessarily bar a claim under the FCA
based on that violation.
Here, by contrast, Bellevue’s theory of fraud is that there can be no question
that Hartgrove knew that it had too many patients when it sought payment from
the government, because no qualitative judgment is involved in determining
whether the regulation limiting the number of patients has occurred. In other
words, Bellevue’s allegations amount to the theory that since the regulation at issue
permits only a binary option—i.e., either Hartgrove admitted an unauthorized
number of patients or it did not—there can be no question that Hartgrove acted
knowingly when it sought payment from the government for patients above its
authorized maximum. Bellevue must make this inference to allege fraud because he
has not alleged that he has personal knowledge of Hartgrove’s billing practices, so
he has no direct knowledge of Hartgrove’s scienter. But this inference works against
Bellevue with respect to analyzing whether his allegations have already been
publicly disclosed. For if Bellevue can infer scienter from Hartgrove’s receipt of
payment when it was over census, so can the government. Since the government
15
could have made the same inference based on its audit that Bellevue makes based
on his personal observations, the “critical elements” of “fraud” were not missing
from the government’s audit and letters as Bellevue contends. Thus, Bellevue’s
allegations are “substantially the same” as the information in the March 23 and
May 5, 2009 letters, and the letters constitute a prior public disclosure of Bellevue’s
allegations concerning that time period. As a result, Bellevue’s claims based on
allegations of Hartgrove’s conduct through May 5, 2009, can only proceed if
Bellevue is an “original source” of those allegations.
2.
Allegations Regarding Hartgrove’s Conduct After
May 5, 2009
Before proceeding to analyze whether Bellevue is an original source of his
allegations concerning Hartgrove’s conduct through May 5, 2009, the Court
addresses whether Bellevue’s allegations subsequent to the time period referenced
by the March 23 and May 5, 2009 letters were publicly disclosed. While it is
reasonable to infer based on the letters that the government was aware of any
payments it made for patients admitted beyond Hartgrove’s authorized capacity
prior to May 5, 2009, Hartgrove has not argued—let alone provided any evidence
demonstrating—that the government is aware that Hartgrove has continued to
engage in this practice, as Bellevue alleges. The Seventh Circuit has held that
allegations of fraud beyond the “time period” of which the government is already
aware can demonstrate that the allegations are not “substantially the same” as
publicly disclosed allegations. See Leveski, 719 F.3d at 829. Hartgrove argues that
Bellevue has “merely alleg[ed] ‘particular allegations of fraud that [were] not
16
mentioned’ in a prior public disclosure,” which the Seventh Circuit found “‘[was] not
enough to take [the] case outside the jurisdictional bar’ because the allegations
‘pertain[ed] to the same entity and described the same fraudulent conduct.’” R. 41 at
7 (quoting Glaser, 570 F.3d at 920). But in Glaser, the relator’s allegations were
about the same time period of which the government was already aware. 570 F.3d
at 911-12. By contrast, Bellevue has made allegations of conduct that occurred after
the time period reference in the March 23 and May 5 letters. Thus, Bellevue’s
allegations of fraud after May 5, 2009 are not “substantially the same” as the
information that has already been publicly disclosed in the March 23 and May 5,
2009 letters. Therefore, these claims are not barred by the public disclosure
doctrine.
B.
Original Source
Despite his allegations regarding Hartgrove’s conduct prior to May 5, 2009
being based upon publicly disclosed information, Bellevue’s claims regarding that
conduct may proceed if he can establish that he is an “original source” of that
information. See 31 U.S.C. § 3730(e)(4)(A). Prior to the 2010 amendments, “original
source” was defined as:
an individual who has direct and independent knowledge
of the information on which the allegation are based and
has voluntarily provided the information to the
Government before filing an action under this section
which is based on the information.
31 U.S.C. § 3730(e)(4)(B) (1986). “Direct” knowledge is that which is “based on [a
relator’s] own investigative efforts and not derived from the knowledge of others.”
17
Glaser, 570 F.3d at 917 (emphasis in original). For a relator to establish that it has
“independent” knowledge, the relator must be “someone who would have learned of
the allegation or transactions independently of the public disclosure.” Id. at 921. If
the information in question has already been publicly disclosed, “[t]he question is
whether the relator is an original source of the allegations in the complaint and not
. . . whether the relator is the source of the information in the published reports.”
United States ex rel. Baltazar v. Warden, 635 F.3d 866, 869 (7th Cir. 2011).
1.
Disclosing Information to the Government
As an initial matter, to be an original source Bellevue must have “voluntarily
provided the information to the Government before filing an action.” 31 U.S.C. §
3730(e)(4)(B) (1986). Hartgrove argues that Bellevue has failed to plead that he has
met “his burden to plead what he disclosed,” R. 42 at 10, in that he only pled that he
provided the government with “substantially all material evidence and information
he possess[es],” R. 1-1 at 3-4 (¶ 12), without attaching or describing that evidence
and information. But Bellevue has attached a letter addressed to both the United
States Attorney’s Office in Chicago and the Illinois Attorney General’s Office,
stating that he provided them with a copy of the complaint he filed the next day to
initiate this case. See R. 41-8.4 The complaint contains all the evidence and
information Bellevue has—i.e., his personal knowledge that Hartgrove is sometimes
“over census,” including 13 specific examples of when this occurred. The Court finds
The Court considers this letter even though it was not attached to or referenced by
the complaint, because it is relevant to the Court’s subject matter jurisdiction, for
the same reasons discussed with reference to the letters Hartgrove received from
the Illinois Department of Public Health.
4
18
Bellevue’s allegations and the attached letter sufficient to meet his burden to show
that he disclosed the information he had to the government prior to filing this
action.
2.
Direct and Independent Knowledge
Bellevue argues that he “has direct and independent knowledge of the
information” in his complaint in that as “an employee of [Hartgrove] [he] personally
observed and recorded, [Hartgrove] being over census, children who were Medicaid
beneficiaries sleeping in the dayroom, and rollaway beds being stored in a closet.” R.
41 at 7. Hartgrove cites the Seventh Circuit’s decision in Glaser, 570 F.3d at 921,
and argues that Bellevue has failed to plead that he is an original source because he
“has pled no facts, let alone direct and independent knowledge, of any fraudulent
billing related to those patients.” R. 39 at 9 (emphasis in original).
In Glaser, the plaintiff was treated a number of times at a clinic that billed
its services to Medicaid. 570 F.3d at 911. The plaintiff alleged that she was always
treated by a physician’s assistant, but the clinic billed Medicaid at a doctor’s rate.
Id. The Seventh Circuit held that the plaintiff had failed to allege that she had
“direct” knowledge of the basis for her claim because “the only knowledge [the
plaintiff] has of [the defendant’s] billing practices comes from her attorney.” Id. at
921. Moreover, the court rejected the plaintiff’s argument that the treatment she
received from the defendant gave her direct knowledge sufficient to support her
claim. The court reasoned that “the fraud alleged pertains to the billing, not the
treatment.” Id.
19
It is true that Bellevue does not allege that he has any direct knowledge of
Hartgrove’s bills or billing practices. But the Seventh Circuit’s reasoning in Glaser
does not destroy Bellevue’s ability to allege that Hartgrove fraudulently sought
payment from the government. The Seventh Circuit has also held that “knowledge
obtained through an investigation can be the basis for a qui tam action.” United
States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1017 (7th Cir. 1999)
(emphasis added). The relator in Lamers alleged that the defendant municipal bus
company was operating in violation of federal regulations that were conditions of
federal funding. The relator did not work for the defendant municipal bus company,
but “he had direct and independent knowledge derived from ‘walk[ing] the streets of
Green Bay observing the buses in action.’” Leveski, 719 F.3d at 838 (quoting
Lamers, 168 F.3d at 1017). “It was unnecessary for [the relator in Lamers] to prove
his personal knowledge that [the defendant] had fraudulently certified its
compliance with [the] regulations [at issue] at the outset of his suit,” because
“[c]learly, [the defendant] was certifying that it was in compliance since it was still
receiving [federal] funding—which meant that if [the relator’s] allegation were true,
[the defendant] was falsely certifying it was in compliance.” Leveski, 719 F.3d at
838; see also United State ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854 (7th
Cir. 2009) (engineer involved in building engines for the Air Force was permitted to
allege false billing because he knew the engines were not built to Air Force
specifications and the builder received payment from the Air Force anyway). The
Seventh Circuit reasoned that since it is “unlikely” for a relator to have actual
20
documentation of false billing “‘unless he works in the defendant’s accounting
department,’” relators must be permitted to allege false billing through an inference
like those in Lamers and Lusby, because “holding otherwise would have ‘take[n] a
big bite out of qui tam litigation.’” Leveski, 719 F.3d at 839 (quoting Lusby, 570 F.3d
at 854).5
As the Court reasoned above with respect to the public disclosure analysis,
the alleged binary nature of Hartgrove’s regulatory violation leads to the inference
that Hartgrove acted knowingly when it falsely certified that it did not exceed its
authorized number of patients. The Seventh Circuit cases discussed above show
that it has applied similar reasoning to the original source analysis. Thus,
Bellevue’s failure to directly allege fraudulent billing does not mean that he cannot
be an original source.
3.
Material Addition
Hartgrove also argues that Bellevue is not an original source because his
allegations are not “qualitatively different information than what had already been
discovered,” and are “merely the product and outgrowth of publicly disclosed
information.” R. 42 at 8 (citing United States ex rel. Fried v. W. Indep. Sch. Dist.,
527 F.3d 439, 443 (5th Cir. 2008)). Hartgrove acknowledges that “the Seventh
Circuit has not explicitly adopted the [Fifth Circuit’s] requirement that the
See also Lamers, 168 F.3d at 1018 (“In our case, we think it’s clear that [the
relator] provided a service to the [City agency] by keeping an eye on how the City’s
practices matched up to its statements. He may be viewed by some as a bit of a
busybody with his own agenda, but he is certainly not a parasite. And to a certain
degree, Congress wanted to encourage busybodies who, through independent
efforts, assist the government in ferreting out fraud.”).
5
21
Relator’s knowledge be qualitatively different.” R. 42 at 8. Hartgrove contends,
however, that three Seventh Circuit cases—Lamers, Leveski, and Glaser—exemplify
the Seventh Circuit’s application of this principle in practice, because in those cases
the court found relators to be original sources when they either disclosed their
information to the government prior to any public disclosure, or disclosed
information to the government that was uniquely in their possession. See R. 42
at 8-9.
The cases Hartgrove relies on are inapposite because in those cases the court
found that either the relator’s allegations were not publicly disclosed or that the
relator had disclosed information to the government prior to any public disclosure.
By contrast, the question here is what Bellevue has to allege to be an original
source even though his allegations have already been publicly disclosed. When the
Seventh Circuit has addressed allegations like Bellevue’s—allegations that were
publicly disclosed apart from relator’s disclosure—the Seventh Circuit has rejected
the kind of qualitative comparison of a relator’s allegation to publicly disclosed
information required by the Fifth Circuit. In Leveski, the Seventh Circuit held that
it is not “appropriate to ask whether [a relator] was the first person to bring [the
alleged violations] to the public’s attention. Rather, it is appropriate to ask whether
[the relator] is the original source of the specific allegations in her complaint.” 719
F.3d at 836 (emphasis added). This standard acknowledges that relator allegations
that are already publicly disclosed are necessarily “substantially similar” to the
publicly disclosed information; otherwise there would not have been a basis for a
22
court finding that the allegations were already publicly disclosed, and the original
source analysis would be superfluous. Requiring a relator to disclose allegations
that are “qualitatively different” from information in the public record would all but
disqualify
people
who
“learned
of
the
[same]
allegation
or
transactions
independently of the public disclosure” from being an original source. Glaser, 570
F.3d at 921 (quoting United States v. Bank of Farmington, 166 F.3d 853, 865 (7th
Cir. 1999)). But the Seventh Circuit has emphasized that the appropriate question
is how the relator learned about his own allegations, not whether his allegations
overlap with previously disclosed information. Since it is reasonable to infer that
Bellevue has personal knowledge of occasions when Hartgrove has been over census
based on Bellevue’s employment with Hartgrove, the Court finds that Bellevue is an
original source for his allegations of Hartgrove’s fraud prior to March 23, 2010.6
Therefore, none of Bellevue’s claims are barred by the public disclosure
doctrine.
II.
Failure to State a Claim Under the False Claims Act
A.
Theory of Fraud
In addition to Hartgrove’s argument that Bellevue’s claims are barred by
public disclosure, Hartgrove contends that Bellevue’s “allegations fail to state an
FCA claim as a matter of law.” R. 39 at 10. As the Court noted earlier, “[t]o
establish civil liability under the [FCA], a relator generally must prove (1) that the
The Court has already held that Bellevue’s allegations of fraud occurring after
May 5, 2009 are not “substantially the same” as allegations that have been publicly
disclosed, so the Court does not have to apply the amended definition of “original
source” in this case.
6
23
defendant made a statement in order to receive money from the government; (2)
that the statement was false; and (3) that the defendant knew the statement was
false.” Yannacopoulos, 652 F.3d at 822. Bellevue argues that two separate theories
of liability satisfy these elements: (1) Hartgrove “submitted false per diem claims to
Medicaid,” R. 41 at 9; and (2) Hartgrove’s “false certification and licensing violations
create false claims,” id.
1.
Worthless Services Claim
Bellevue argues that “[w]hen [Hartgrove] admitted a patient and placed that
patient into a dayroom, [as] opposed to a patient room, because the hospital . . . was
over capacity, and [Hartgrove] submitted a per diem claim for that patient, that
claim was false,” because “a patient room is required [and] essential to treatment.”
R. 41 at 9. In opposition, Hartgrove contends this claim is a “diminished value
theory of false claims” that the “Seventh Circuit rejected” in Absher. R. 42 at 11.
As already noted, in Absher the defendant nursing home was accused of
failing to meet the statutorily mandated standard of care for its residents. 764 F.3d
at 704-05. Besides engaging in the public disclosure analysis reviewed above, the
Seventh Circuit also held that the plaintiff had failed to “establish[] that [the
defendant’s] services were truly or effectively ‘worthless,’” and “any such claim
would be absurd in light of the undisputed fact that [the defendant] was allowed to
continue operating and rendering services of some value despite regular visits by
government surveyors. . . . [who] would certainly have noticed if [the defendant] was
providing no or effectively no care to its residents.” Id. at 710. “It is not enough to
24
offer evidence that the defendant provided services that are worth some amount
less than the services paid for.” Id. “That is, a ‘diminished value’ of services theory
does not satisfy this standard.” Id.
Bellevue has alleged an analogous claim. Bellevue has not alleged that
patients who slept on cots in the dayroom did not receive any treatment. Rather, he
alleges that they did not receive the one particular service of an individual room.
Certainly the regulations recognize that it is better to have a room of one’s own. See
77 Ill. Admin. Code § 250.230(b). But absent an allegation that the failure to
provide a room destroyed the effectiveness of the rest of the treatment provided,
Bellevue’s allegation that certain patients were deprived of this particular aspect of
the services to which they were entitled cannot serve as the basis for an FCA claim.
Thus, even if Bellevue’s allegations that Hartgrove falsely certified that it provided
rooms for patients when it did not are true, such facts do not establish liability
under the FCA.
Bellevue’s only argument in support of this theory of liability is that an
individual room is “essential” to the treatment Hartgrove provides to it patients. He
implies that failure to provide such a room constitutes a complete abdication of
Hartgrove’s obligation to treat its patients. Yet, Bellevue only makes this argument
in summary fashion in his brief and does not make any such allegations in his
complaint. Bellevue does not explain—either in his complaint or brief—why a room
is so essential to treatment. Bellevue alleges that the patients affected by
Hartgrove’s alleged failure to provide rooms suffered from “acute mental illness.” It
25
is not plausible to believe that the room Hartgrove is supposed to provide to such
patients is more “essential” than the therapy they also receive. Bellevue himself is a
therapeutic counselor. As such, he is in prime position to know whether Hartgrove’s
failure to provide rooms to certain patients has affected their treatment or
prognosis. Yet he makes no such allegations. There are no allegations explaining
why the deprivation of a room is so detrimental to a patient’s treatment that a claim
for services provided to a patient should be considered false. There are also no
allegations that any of the patients placed in the dayroom was left there for an
extended period of time. In fact, Bellevue’s allegations indicate that this was always
a short-term arrangement. See R. 1-1 at 12 (¶ 47) (“May of these patients are then
placed back into a dayroom until a patient room becomes available.”); id. at 12-23 (¶
50) (“Hartgrove knowingly submitted a false or fraudulent claim for that patient
whether or not the patient was given a room prior to the midnight census.”)
(emphasis added).7 The Court cannot reasonably infer that Hartgrove’s services
were worthless, making that theory of liability unavailable to support Bellevue’s
claims.
2.
False Certification Claim
Bellevue’s alternative theory of liability is that Hartgrove falsely certified
that it was in compliance with 77 Ill. Admin. Code § 250.230(b), which requires that
a hospital shall ensure that its “occupancy does not at any time exceed capacity,
except in the event of unusual emergency and then only as a temporary measure.”
In only one instance does Bellevue allege that a patient was housed in the
dayroom for “several days.” R. 1-1 at 15 (¶ 60).
7
26
The problem with this argument is that “[v]iolating a regulation is not synonymous
with filing a false claim.” United States ex rel. Grenadyor v. Ukranian Vill.
Pharmacy Inc., 772 F.3d 1102, 1107 (7th Cir. 2014). For violating a regulation to
imply false certification, the regulation violated must be a “condition[] of, or
prerequisite[] to, government payment.” Absher, 764 F.3d at 710; see also United
States ex rel. Gross v. AIDS Research Alliance-Chi., 415 F.3d 601, 604 (7th Cir.
2005) (“An FCA claim premised upon an alleged false certification of compliance
with statutory or regulatory requirements also requires that the certification of
compliance be a condition of or prerequisite to government payment.”).
Here, Bellevue does not allege that 77 Ill. Admin Code § 250.230(b) is a
condition of payment. Nor could he as there is no language in 77 Ill. Admin Code §
250.230(b) indicating that it is a condition of payment. Instead, Bellevue alleges
that the documents that Hartgrove signed certifying that it was in compliance with
licensing standards were conditions of payment. Despite these allegations, however,
Bellevue does not allege that Hartgrove signed and submitted any of these
documents in connection with obtaining any particular payment. See Gross, 415
F.3d at 604 (The FCA “requires that the fraudulent statement’s purpose must be to
coax payment of money from the government.”); cf. Absher, 764 F.3d at 703, 713
(“To receive reimbursement, [the defendant] was required to provide government
regulators with a completed [MDS] form on behalf of each resident. The form is . . .
a billing document . . . . [A] reasonable jury could certainly find that these MDS
forms were conditions of payment because they specifically affirm that
27
reimbursement is ‘conditioned on the accuracy and truthfulness of [the] information
contained in the forms.’”). Absent such a connection, the certification documents
Bellevue identifies in his complaint cannot support an FCA claim.
Furthermore, the certification documents Bellevue cites demonstrate that
their purpose is to establish or maintain Hartgrove’s status as a participating
Medicaid provider, and not part of the process for obtaining reimbursement for
services provided to particular patients. See R. 1-1 at 22-23, 41-42. To the extent
that these documents reference the process for billing and receiving reimbursement,
they do so only generally and prospectively. Such prospective certification can only
establish an FCA claim under a theory of fraudulent inducement where the plaintiff
alleges that the defendant never intended to comply with the conditions of
participation. See United States ex rel. Main v. Oakland City Univ., 426 F.3d 914,
917 (7th Cir. 2005) (“[F]raud requires more than breach of promise: fraud entails
making a false representation, such as a statement that the speaker will do
something it plans not to do.”); see also United States ex rel. Upton v. Family Health
Network, Inc., 900 F. Supp. 2d 821, 834 (N.D. Ill. Oct. 1, 2012) (“Relators’ argument
fails, however, because alleging that the claims are ‘conditions of participation’ is
only sufficient if the plaintiff asserts liability on the fraudulent inducement theory,
which Relators have not done.”). Absent an allegation that Hartgrove intended to
violate 77 Ill. Admin Code § 250.230(b) at the time it signed the certification
documents Bellevue cites, Hartgrove’s failure to comply with § 250.230(b) cannot
serve as the basis for an FCA claim, even if it is true that Hartgrove knew it had
28
not complied with § 250.230(b) when it requested such reimbursement. Bellevue has
made no such allegation of intent contemporaneous with Hartgrove signing the
certification documents. Therefore, Bellevue’s claims are dismissed because he has
failed to allege a viable theory of liability under the FCA.
B.
Allegations of Fraud
In case Bellevue should decide to replead his claims with a different theory of
liability, the Court addresses the application of Federal Rule of Civil Procedure 9(b)
to his complaint. Hartgrove argues that Bellevue has “fail[ed] to plead any facts
about the “who, what, when, where, and how’ of the alleged scheme, most notably
who at Hartgrove submitted a misrepresentation in a claim for payment, when that
misrepresentation was made, what was the content of that misrepresentation, or
how the misrepresentation was revealed to [Bellevue].” R. 39 at 18-19.
Hartgrove is correct that Bellevue does not allege these facts. But Bellevue
does not work in a position at Hartgrove that would give him access to such
particularized information. Plaintiffs who have limited information like Bellevue
are permitted to allege fraud based upon “information and belief” when “(1) the
facts constituting the fraud are not accessible to the plaintiff[,] and (2) the plaintiff
provides the grounds for his suspicions.” See Pirelli Armstrong Tire Corp., Retiree
Medical Benefits Trust v. Walgreen Co., 631 F.3d 436, 443 (7th Cir. 2011). The
Seventh Circuit has held that a relator who does not have personal knowledge of
particularized facts about the alleged fraud can nonetheless comply with Rule 9(b) if
the relator has sufficient circumstantial evidence of the fraud. See Lusby, 570 F.3d
29
at 854-55 (“We don’t think it essential for a relator to produce the invoices (and
accompanying representations) at the outset of the suit. True, it is essential to show
a false statement. But much knowledge is inferential . . . . It is enough to show, in
detail, the nature of the charge, so that vague and unsubstantiated accusations of
fraud do not lead to costly discovery and public obloquy.”). Thus, if Bellevue can
allege a viable theory of liability (which he has not done in his current complaint),
his inability to provide details of the billing would not necessarily doom his
amended complaint.
Nevertheless, “even as courts remain sensitive to information asymmetries
that may present a plaintiff from offering more detail,” the “grounds for the
plaintiff’s suspicions must make the allegations plausible.” Pirelli Armstrong Tire,
631 F.3d at 443. Even though Bellevue does not have to allege billing details to the
extent Hartgrove contends, Bellevue’s allegations are insufficient in a more prosaic
aspect. Bellevue alleges that Hartgrove falsely certified that it was in compliance
with 77 Ill. Admin. Code § 250.230(b) on the basis that Hartgrove continued to
receive Medicaid reimbursements even though it was over census on a number of
occasions. The regulation, however, does not simply prohibit hospitals like
Hartgrove from being over census. Rather, § 250.230(b) requires that a hospital
shall ensure that its “occupancy does not at any time exceed capacity, except in the
event of unusual emergency and then only as a temporary measure.” (emphasis
added). Bellevue ignores the provision that permits a hospital to be over census “in
the event of unusual emergency.” Absent allegations that Hartgrove was not over
30
census due to an “unusual emergency,” Bellevue has failed to allege that Hartgrove
violated the regulation at the heart of his claims. This is also a sufficient basis to
dismiss Bellevue’s claims.
Conclusion
For the foregoing reasons, Hartgrove’s motion, R. 30, is granted, and
Bellevue’s complaint is dismissed without prejudice. Bellevue is granted leave to
replead his claims with a viable theory of liability by May 27, 2015.8
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: April 24, 2015
Hartgrove asks the Court to dismiss Bellevue’s claims with prejudice because both
of Bellevue’s theories of liability fail as a matter of law. Nevertheless, the Court
cannot say with certainty that Bellevue does not possess additional facts which may
allow him to allege a different theory of liability than those the Court has rejected.
Thus, the Court grants Bellevue leave to amend his complaint, because it is not
necessarily futile for Bellevue to do so.
8
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