USA, et al. v. Mayo Foundation

Filing 71

ORDER : IT IS ORDERED THAT:1.Mayos Motion to Dismiss Relators Second Amended Complaint [Docket No. 49] is GRANTED IN PART and DENIED IN PART.2.The first claim of Relators Second Amended Complaint is DISMISSED for lack of subject matter jurisdiction.3 .To the extent Mayo moves to dismiss the part of Relators second claim of the Second Amended Complaint as to which the government has intervened, the motion is DENIED as moot. The second claim is otherwise DISMISSED for failure to state a claim.4.The governments motion to file a statement of interest [Docket No. 58] is GRANTED. Mayo may file a response.(Written Opinion). Signed by Judge Joan N. Ericksen on July 22, 2011. (slf)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
United States of America ex rel. David
Ketroser, Gary Latz, Robert Smith, and
William Kennedy,
Plaintiffs,
v.

Civil No. 07-4676 (JNE/AJB)
ORDER

Mayo Foundation,
Defendant.

Donald Warren, Esq., and Phillip Benson, Esq., Warren – Benson Law Group, and Annie
Mathisen, Esq., appeared for David Ketroser, Gary Latz, Robert Smith, and William Kennedy.
Ann Bildtsen, Esq., and Chad Blumenfield, Esq., Office of the United States Attorney for the
District of Minnesota, appeared for the United States of America.
John Lundquist, Esq., and Dulce Foster, Esq., Fredrikson & Byron, P.A., and Sherry Hubert,
Esq., Mayo Clinic, appeared for Mayo Foundation.

David Ketroser, Gary Latz, Robert Smith, and William Kennedy (collectively, Relators)
brought this action on behalf of the United States against Mayo Foundation (Mayo) under the
False Claims Act (FCA).1 In their Second Amended Complaint, Relators asserted two claims.
First, Mayo allegedly violated the FCA by submitting “false claims for payment to Medicare and
Medicaid for histopathology services wherein the water based blue stained frozen slide had been
destroyed after three days.” According to Relators, Mayo implicitly misrepresented that it had
performed a histopathology procedure approved by the Clinical Laboratory Improvement
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The FCA has been amended since this action’s commencement. The Court cites the FCA
as it appeared when Relators brought this action. See Schindler Elevator Corp. v. United States
ex rel. Kirk, 131 S. Ct. 1885, 1889 n.1 (2011) (amendments in the Patient Protection and
Affordable Care Act do not apply to pending cases); United States ex rel. Vigil v. Nelnet, Inc.,
639 F.3d 791, 796 n.4 (8th Cir. 2011) (declining to resolve retroactivity of amendments in the
Fraud Enforcement and Recovery Act of 2009).
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Amendments of 1988 (CLIA), which requires retention of the examined slide for ten years, by
submitting the claims for payment. Second, Mayo allegedly violated the FCA by “bill[ing]
Medicare, Medicaid and other federally sponsored health care programs for surgical pathology
services that have not been performed.” In particular, Relators alleged:
[W]hen Mayo has prepared and examined water based blue stained frozen slides
and charged federally sponsored health care programs for these services, it has
additionally charged for the preparation of unfrozen permanent section slides,
gross and microscopic examination of the permanent section slides and the
preparation of reports for such examinations, which Mayo represented were done
on the same or approximately the same dates for the same patients even though no
such slide preparations, gross and microscopic examinations or reports for such
examinations were done.
The government has intervened in the part of the action that alleges Mayo submitted claims for
payment for permanent slides it never made and examinations it never did. The case is before
the Court on Mayo’s Motion to Dismiss Relators’ Second Amended Complaint.2 For the reasons
set forth below, the Court dismisses Relators’ first claim for lack of subject matter jurisdiction.
The Court dismisses the part of Relators’ second claim as to which the government did not
intervene for failure to state a claim.
Relators’ first and second claims are based on 31 U.S.C. § 3729(a)(1), (2) (2006).
Section 3729(a)(1) imposes liability on any person who “knowingly presents, or causes to be
presented, to an officer or employee of the United States Government . . . a false or fraudulent
claim for payment or approval.” Section 3729(a)(2) imposes liability on any person who
“knowingly makes, uses, or causes to be made or used, a false record or statement to get a false
or fraudulent claim paid or approved by the Government.” “A person may bring a civil action

2

The government moved for leave to file a statement of interest. The Court grants the
motion. Mayo may file a response to the government’s statement.

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for a violation of section 3729 for the person and for the United States Government.” Id.
§ 3730(b)(1).
I.

Relators’ first claim
Mayo contends that Relators’ first claim should be dismissed for lack of subject matter

jurisdiction. See Fed. R. Civ. P. 12(b)(1). The Court considers Mayo’s contention under Rule
12(b)(1) as a factual challenge to jurisdiction. See Osborn v. United States, 918 F.2d 724, 72930 & n.6 (8th Cir. 1990). Mayo relies on the FCA’s public disclosure bar, which states:
No court shall have jurisdiction over an action under this section 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, unless the action is brought by the Attorney General or the person bringing
the action is an original source of the information.
31 U.S.C. § 3730(e)(4)(A). It is undisputed that Relators’ first claim is based on allegations that
were publicly disclosed before Relators brought this action. See United States ex rel. Kinney v.
Stoltz, 327 F.3d 671, 674 (8th Cir. 2003); Hays v. Hoffman, 325 F.3d 982, 987 (8th Cir. 2003);
Minn. Ass’n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1042 (8th Cir.
2002). The Court turns to the parties’ dispute regarding whether Relators are original sources of
the information.
An original source is “an individual who has direct and independent knowledge of the
information on which the allegations 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). “A relator has direct knowledge when he sees it with his own eyes.”
Kinney, 327 F.3d at 674; see United States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699,
703 (8th Cir. 1995). “The False Claims Act is intended to encourage individuals who are either
close observers or involved in the fraudulent activity to come forward, and is not intended to

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create windfalls for people with secondhand knowledge of the wrongdoing.” Kinney, 327 F.3d
at 674. Independent knowledge means “knowledge not derived from the public disclosure.”
Minn. Ass’n of Nurse Anesthetists, 276 F.3d at 1048; see Barth, 44 F.3d at 703.
Here, Relators argue that they have direct and independent knowledge of the information
on which the first claim is based “because they saw with their own eyes patient files and
Medicare [Explanation of Benefit] forms that showed that Mayo had billed the federal programs
for frozen section consultations even though it was violating CLIA regulations by failing to
retain the frozen slides.” The Court rejects this argument. The record is replete with public
disclosures of the information on which Relators base their first claim. For instance, a
declaration filed in separate litigation that concluded before this action was brought disclosed
that the College of American Pathologists (CAP) had repeatedly noted Mayo’s failure to
permanently retain frozen slides in bi-annual inspections that started in the mid-1990s. A letter
written by Ketroser and filed in that same litigation raised the possibility that Mayo’s practice
may subject Mayo to “enormous False Claims Act damages.” In an affidavit filed in that same
litigation, Ketroser stated that he had not had “any access to the in-depth information necessary
to uncover [Mayo’s] practice of discarding slides after three days” before a Mayo doctor’s
deposition. Ketroser’s construction of a theory of liability and his discussions with his fellow
Relators3 do not transform Relators into original sources. See Hays, 325 F.3d at 990-91
(rejecting “catalyst” theory; stating that one “who obtains secondhand information from an
individual who has direct knowledge of the alleged fraud does not himself possess direct

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Ketroser represented co-relator William Kennedy in a medical malpractice suit against
Mayo. Ketroser represented the trustee for the heirs of Dolores Mae Smith in the separate
litigation noted above. Co-relator Robert Smith is the surviving spouse of Dolores Mae Smith.
Ketroser and his cousin, co-relator Gary Latz, reviewed the medical records of Ketroser’s uncle,
Leon Latz.
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knowledge”); A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1245 (9th Cir. 2000) (“‘A
relator’s ability to recognize the legal consequences of a publicly disclosed fraudulent transaction
does not alter the fact that the material elements of the violation already have been publicly
disclosed.’” (quoting United States ex rel. Findley v. FPC-Boron Emps.’ Club, 105 F.3d 675,
688 (D.C. Cir. 1997))); United States ex rel. Kreindler & Kreindler, 985 F.2d 1148, 1159 (2d
Cir. 1993) (“Although Kreindler conducted, as counsel, the litigation that resulted in public
disclosure of information concerning Black Hawk helicopters upon which Kreindler relies to
bring the qui tam action, UTC and its employees were the original sources of the information
disclosed in that litigation.”); United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v.
Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991) (“[T]he relator must possess substantive
information about the particular fraud, rather than merely background information which enables
a putative relator to understand the significance of a publicly disclosed transaction or
allegation.”). Accordingly, the Court dismisses Relators’ first claim for lack of subject matter
jurisdiction. In light of this conclusion, the Court need not consider the parties’ remaining
arguments about the first claim.
II.

Relators’ second claim
Mayo contends that Relators’ reports claim—the part of the second claim as to which the

government did not intervene—should be dismissed for lack of subject matter jurisdiction
pursuant to the public disclosure bar.4 The Court does not discern a public disclosure of the
allegations regarding Mayo’s alleged failure to prepare reports in the materials cited. The Court
denies Mayo’s motion to dismiss Relators’ reports claim for lack of subject matter jurisdiction.

4

In their memorandum, Relators characterize the part of the claim at issue as “instances
where Mayo has accessed and examined a surgical pathology slide without producing the
required report.”
5

Mayo also asserts that the reports claim should be dismissed for failure to state a claim.
See Fed. R. Civ. P. 12(b)(6). When ruling on a Rule 12(b)(6) motion, a court must accept the
facts alleged in the complaint as true and grant all reasonable inferences in favor of the plaintiff.
Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir. 2009).
Relators’ second claim relates to surgical pathology services that include accession,
examination, and reporting. Mayo contends that the report need not be written; Relators assert
that it does. The billing codes applicable to the claims submitted by Mayo do not explicitly
require written reports. In addition, the regulation that sets forth the Medicare conditions of
payment for physician pathology services requires a written report for clinical pathology
services, see 42 C.F.R. § 415.130(c)(3), but there is no requirement of a written report for
surgical pathology services, see id. §§ 415.102(a), .130(b). The Court dismisses Relators’
reports claim.
The Court is not persuaded by Relators’ assertion that 42 C.F.R. § 410.32(d)(1)(v)
requires a different conclusion. It states: “Medicare Part B pays for covered diagnostic
laboratory tests that are furnished by . . . [a] laboratory, if it meets the applicable requirements
for laboratories of part 493 of this chapter . . . .” Part 493 “sets forth the conditions that all
laboratories must meet to be certified to perform testing on human specimens under the [CLIA].”
42 C.F.R. § 493.1. It also “applies to laboratories seeking payment under the Medicare and
Medicaid programs. The requirements are the same for Medicare approval as for CLIA
certification.” Id. Relators acknowledged that “Mayo has been evaluated and accredited by
CAP every two years since the mid-1990’s and has been CLIA certified by [the Department of
Health and Human Services] for histopathology, based on CAP’s accreditation process, since
October 13, 1995.”

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Mayo asserts that the remainder of Relators’ second claim should be dismissed because it
essentially repeats the allegations of the government’s complaint in partial intervention. Relators
concede that the government’s pleading “is the operative complaint” with respect to the claims in
which it has intervened. Accordingly, the Court denies as moot Mayo’s motion to dismiss the
remainder of Relators’ second claim.
III.

Conclusion
Based on the files, records, and proceedings herein, and for the reasons stated above, IT

IS ORDERED THAT:
1.

Mayo’s Motion to Dismiss Relators’ Second Amended Complaint [Docket
No. 49] is GRANTED IN PART and DENIED IN PART.

2.

The first claim of Relators’ Second Amended Complaint is DISMISSED
for lack of subject matter jurisdiction.

3.

To the extent Mayo moves to dismiss the part of Relators’ second claim of
the Second Amended Complaint as to which the government has
intervened, the motion is DENIED as moot. The second claim is
otherwise DISMISSED for failure to state a claim.

4.

The government’s motion to file a statement of interest [Docket No. 58] is
GRANTED. Mayo may file a response.

Dated: July 22, 2011
s/ Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge

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