UNITED STATES OF AMERICA, ex rel COMPLIN v. NORTH CAROLINA BAPTIST HOSPITAL et al
Filing
83
MEMORANDUM OPINION AND RECOMMENDATION, signed by MAG/JUDGE L. PATRICK AULD on 12/20/2016. RECOMMENDED that Baptist's Motion (Docket Entry 64 ) and CHS's Motion (Docket Entry 67 ) be granted and Plaintiff's Second Amended Complaint be dismissed with prejudice. (Butler, Carol)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
UNITED STATES OF AMERICA,
ex rel. COMPLIN,
Plaintiff,
v.
NORTH CAROLINA BAPTIST HOSPITAL
and THE CHARLOTTE-MECKLENBURG
HOSPITAL AUTHORITY,
Defendants.
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1:09cv420
MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
This
case
comes
before
the
undersigned
United
States
Magistrate Judge for a recommendation on “Defendant North Carolina
Baptist Hospital’s Motion to Dismiss Plaintiff’s Second Amended
Complaint” (Docket Entry 64) (“Baptist’s Motion”) and “Defendant
Carolinas Healthcare System’s Motion to Dismiss Plaintiff’s Second
Amended
Complaint”
(Docket
Entry
67)
(“CHS’s
Motion,”
and
collectively with Baptist’s Motion, the “Motions to Dismiss”). For
the reasons that follow, the Court should grant the Motions to
Dismiss and dismiss “Relator’s Second Amended Complaint” (Docket
Entry 62) with prejudice.
BACKGROUND
In June 2009, Complin1 commenced a qui tam2 action by filing
a Complaint asserting claims under the federal False Claims Act, 31
U.S.C. § 3729 et seq. (the “FCA”), against North Carolina Baptist
Hospital
(“Baptist”)
and
The
Charlotte-Mecklenburg
Hospital
Authority (“CHS”) for allegedly obtaining improper “Medicare and/or
Medicaid and/or TriCare reimbursement[s]” (Docket Entry 1, ¶ 1).
In July 2010, Complin amended the Complaint to add parallel claims
under the North Carolina False Claims Act, N.C. Gen. Stat. § 1-605
et seq. (the “NC FCA”).
Complaint”).)
In
(See Docket Entry 16 (the “First Amended
February
2016,
Complin
again
amended
its
pleading, this time pursuing a “substantially different” Medicare
reimbursement theory under the FCA against Baptist and CHS and
adding retaliation claims against Baptist under the FCA and NC FCA
(collectively, the “Acts”). (Docket Entry 61 at 2; see also Docket
Entry 62 (the “Second Amended Complaint”).)
1 Complin constitutes “a Delaware general partnership which
. . . is not an entity distinct from its partners.” (Docket Entry
1, ¶ 16; Docket Entry 16, ¶ 16; see also Docket Entry 62, ¶ 7.)
2 “Qui tam is short for the Latin phrase qui tam pro domino
rege quam pro se ipso in hac parte sequitur, which means ‘who
pursues this action on our Lord the King’s behalf as well as his
own.’”
Vermont Agency of Nat. Res. v. United States ex rel.
Stevens, 529 U.S. 765, 768 n.1 (2000).
Subject to certain
limitations, including intervention by the United States, an
individual may pursue a qui tam claim on behalf of the United
States. See 31 U.S.C. § 3730.
2
I.
Statutory Background
Medicare
Part
A
provides
hospital
benefits for the elderly and disabled.
1395i-5.
(and
other)
insurance
See 42 U.S.C. §§ 1395c to
Hospitals participating in Medicare Part A may submit
interim bills and must submit an annual cost report (the “Medicare
Cost
Report”)
services.
to
receive
reimbursement
for
eligible
Medicare
See 42 U.S.C. § 1395g; 42 C.F.R. §§ 405.1801(b)(1),
413.20, 413.60.
Hospitals submit these reports to designated
fiscal intermediaries, which audit the Medicare Cost Reports and
calculate the appropriate reimbursement amounts for each hospital.
See 42 U.S.C. §§ 1395h, 1395kk-1; 42 C.F.R. §§ 405.1801(b)(1),
405.1803, 413.24.
The hospital’s administrator or chief financial
officer must sign the Medicare Cost Report, with the following
certification immediately preceding such signature:
I hereby certify that I have read the above
certification statement and that I have examined the
accompanying electronically filed or manually submitted
cost report and the Balance Sheet and Statement of
Revenue and Expenses prepared by ______ (Provider Name(s)
and Number(s)) for the cost reporting period beginning
___ and ending ___ and that to the best of my knowledge
and belief, this report and statement are true, correct,
complete and prepared from the books and records of the
provider in accordance with applicable instructions,
except as noted. I further certify that I am familiar
with the laws and regulations regarding the provision of
health care services, and that the services identified in
this cost report were provided in compliance with such
laws and regulations.
3
42 C.F.R. § 413.24(f)(4)(iv).
for
their
Medicare
Cost
Hospitals utilize Form CMS-2252-10
Reports.
See
Medicare
Provider
Reimbursement Manual, Part II, Chapter 40.3
The Centers for Medicare and Medicaid Services (“CMS”) bear
responsibility
for
“administering
the
Medicare
and
Medicaid
programs” and “interpret[ing] Medicare policies, procedures and
rules.”
(Docket Entry 43 at 4.)
CMS provides detailed guidance
for completing Medicare Cost Reports. See, e.g., Medicare Provider
Reimbursement Manual, Part II, Chapter 40.
For instance, CMS
specifies that certain fringe benefits qualify for inclusion in the
hospital’s costs, including the cost of any health insurance
premiums that the hospital incurs on behalf of its employees. Id.,
Part I, § 2144.4.4
The hospital’s “unrecovered cost of medical services rendered
to employees” likewise qualifies as an includable cost.
Id.
(citing id. § 332.1). This fringe benefit refers to “[a]llowances,
or reduction in charges, granted to employees for medical services
as fringe benefits related to their employment,” which “are usually
3
For fiscal years between September 1996 and May 2010,
hospitals
utilized
CMS
Form
2552-96.
See https://www.cms.gov/Research-Statistics-Data-and-Systems/Down
loadable-Public-Use-Files/Cost-Reports/Hospital-1996-form.html
(last visited Dec. 28, 2016).
4 According to CMS, fringe benefits constitute “amounts paid
to, or on behalf of, an employee, in addition to direct salary or
wages, and from which the employee . . . derives a personal
benefit.” Id. § 2144.
4
given
under
employee
hospitalization
and
personnel
health
programs.” Id. § 332. Because these discounts “are not considered
courtesy allowances,” “any costs of the services not recovered by
the provider from the charge assessed the employee are allowable
costs.”
Id.; see also id. § 300 (explaining that “courtesy
allowances are deductions from revenue and are not to be included
in allowable costs”).
To facilitate correct calculations, CMS
specifically details the appropriate method for including the
unrecovered cost of this fringe benefit in the Medicare Cost
Report.
See id. § 332.1 (providing sample calculations for 30%
employee discount).
CMS further specifies how hospitals should account for “health
insurance and health-related costs” in their Medicare Cost Reports
wage index information.
Id., Part II, § 4005.2, at
40-62.5
Hospitals that purchase employee health insurance can include any
“[p]remium costs” and any “[c]osts paid to external organizations
for plan administration.”
Id.
Hospitals that self-fund their
employee health insurance can likewise include “[c]osts paid to
external organizations for plan administration.” Id. In addition,
5 The terms “domestic claim” and “domestic care” refer to
healthcare services that a hospital provides to its own employees.
See, e.g., Medicare Provider Reimbursement Manual, Part II,
§ 3605.2, at 36-36.
Per CMS instructions, in completing their
Medicare Cost Reports, hospitals “are not required to remove from
domestic claims costs, the personnel costs that are associated with
hospital staff who deliver the services to employees.”
Id.
§ 4005.2, at 40-62.
5
CMS instructs any hospital with “a Third-Party Administrator (TPA)”
for its plan to include the “[a]mount the TPA pays to the hospital
or other health care providers for services rendered under the
plan.”
Id.
However, a self-funding hospital that lacks a TPA can
include only the “[h]ospital’s payment to unrelated health care
providers
for
services
rendered,
under
the
plan,
to
[the]
hospital’s employees” and the “[c]osts the hospital incurs in
providing services under the plan to its employees.”
Id.
Finally, various regulations impact hospitals’ Medicare Cost
Reports and reimbursements.
For instance, subject to certain
exceptions, “costs applicable to services, facilities, and supplies
furnished to the provider by organizations related to the provider
by common ownership or control are includable in the allowable cost
of the provider at the cost to the related organization.”
C.F.R. § 413.17(a).
42
Those costs, however, “must not exceed the
price of comparable services, facilities, or supplies that could be
purchased elsewhere.”
II.
In
Id.
Procedural Background
the
Complaint
and
First
Amended
Complaint,
Complin
challenged the alleged failure of Baptist and CHS (collectively,
the “Hospitals”) to comply with Medicare “and similarly situated
governmental health insurance programs[’]” independent fiduciary
requirements for their self-funded health insurance plans (Docket
Entry 1, ¶ 14).
(See Docket Entries 1, 16.)
6
In those complaints,
Complin maintained that the Hospitals “co-owned a managed care
organization, MedCost, which consisted of a Preferred Provider
Organization
‘TPA’).”
(or
‘PPO’)
and
a
Third
Party
Administrator
(Docket Entry 1, ¶ 9; Docket Entry 16, ¶ 9;)6
(or
Complin
further explained that,
[f]or several years, both [H]ospitals have been using
MedCost’s PPO network and its Third Party Administrator
(“TPA”) for their respective self-funded health plans.
. . . As a PPO rental network, MedCost’s business model
is to secure negotiated (discounted) rates from
physicians and hospitals as a condition of participation
in exchange for potential increased patient volume or the
protection from the loss of existing patient volumes by
these participating physicians and hospitals.
This
network is then ‘rented’ by self-funded companies and
insurance companies seeking discounted health care
services.
(Docket Entry 16, ¶ 44; accord Docket Entry 1, ¶ 37.)
According to the Complaint and First Amended Complaint,
[t]he lynchpin of these frauds was the Hospitals’
purposeful disregard of the requirement that they each
needed to have in place an independent fiduciary with
legal control of their respective self-funded employee
health benefit Plans (“Plans”). Without an independent
fiduciary with the ability to intervene on behalf of the
Plans’ employees, the Hospitals’ scheme — to select, use,
and control MedCost as a vendor to Hospitals’ Plans —
resulted in the victimization of the Plans’ members (the
“employees”) and the Government, Medicare, Medicaid and
TriCare.
(Docket Entry 1, ¶ 12; Docket Entry 16, ¶ 12.)
The Hospitals
primarily committed such fraud, Complin asserted, by offering a
6
According to these pleadings, “[a] ‘Third Party
Administrator’ or ‘TPA’ is an independent entity hired by the Plan
Sponsor to pay claims and provide administrative services to the
Plan.” (Docket Entry 1 at 4 n.1; Docket Entry 16 at 4 n.1.)
7
smaller discount on healthcare services to MedCost participants
than they did to participants in other “managed care contracts”
such as “BCBSNC, United Health Care, etc.”
(Docket Entry 1, ¶ 40;
Docket Entry 16, ¶ 47.) This conduct, Complin maintained, inflated
the Hospitals’ Medicare Cost Report wage data and Medicare and
Medicaid reimbursements.
(See Docket Entry 1, ¶¶ 9-15, 29-61;
Docket Entry 16, ¶¶ 9-15, 35-69.)
In addition, Complin alleged,
the absence of an independent fiduciary disqualified certain Plan
contributions that the Hospitals (improperly) claimed as allowable
Medicare expenses.
For
six
allegations.
(Docket Entry 1, ¶ 52; Docket Entry 16, ¶ 59.)
years,
the
United
States
investigated
(See generally Docket Entries 6-48.)7
Complin’s
In so doing,
7
The United States summarized Complin’s allegations as
follows:
Specifically, Complin alleges that Baptist and [CHS]
included inflated costs of employee health insurance in
their respective cost reports causing Medicare and
Medicaid to pay both hospitals in excess of what they
should have been paid if the employee health insurance
costs had been reported correctly.
Complin also alleges that Baptist and [CHS] failed
to comply with Medicare rules and regulations requiring
self-insurance plans to be managed by fiduciaries and
requiring the hospitals to report any “related parties”
as that term is defined by Medicare.
As a result of
Baptist’s and [CHS’s] failure to report their related
party,
MedCost,
and
comply
with
self-insurance
regulations requiring a fiduciary, [Complin] alleges that
the funds contributed to the plans by the hospitals
should be disallowed in their cost reports.
(Docket Entry 43 at 2 (paragraph numbering omitted).)
8
the United States received guidance from CMS on “both issues in
this case,” namely (1) whether each of the Hospitals needed “a
fiduciary because it was self-insured and (2) [whether] MedCost was
a ‘related party,’ as defined by Medicare, that [the Hospitals]
failed to disclose on [their] cost report[s] and that costs of
services provided to [their] own employees were inflated on the
cost
reports.”
(Docket
Entry
43
at
4.)
As
part
of
this
investigation, the United States audited the Hospitals’ “Medicare
[C]ost
[R]eports
for
the
years
in
question”
and
reviewed
“voluminous documentation produced by Baptist” (Docket Entry 31 at
4-5; see also Docket Entry 40 at 4-5) “and MedCost in order to
determine if false claims have been submitted to the government”
(Docket Entry 43 at 5; see Docket Entry 46 at 4-5).
By August
2014, CMS determined that the Hospitals were “not required to have
a fiduciary for [their] self-insurance plan[s, resolving] that
allegation in the [First Amended C]omplaint.”
4.)
(Docket Entry 43 at
In August 2015, after CMS finished reviewing information from
the Hospitals and MedCost regarding the “related party” issue (see
id. at 4-5; Docket Entry 46 at 4-5), the United States officially
declined to intervene in this action.
(See Docket Entry 48 at 1.)
Six months later, Complin filed the Second Amended Complaint
(Docket Entry 62), which, Complin concedes, “is substantially
different than the [First] Amended Complaint.” (Docket Entry 61 at
2; see also id. at 3 (same), 4 (explaining that “the Second Amended
9
Complaint
differs
Complaint”).)
substantially
from
the
[First]
Amended
As an initial matter, the Second Amended Complaint
asserts that Complin constitutes “[t]he nominal Plaintiff” in this
case, but that “[t]he real Plaintiff/Relator is Joseph H. Vincoli”
(Docket Entry 62, ¶ 7), a former Baptist employee (see id., ¶ 8).8
Next, the Second Amended Complaint takes issue with the domestic
care costs identified on the Hospitals’ Medicare Cost Reports.
Specifically,
the
Second
Amended
Complaint
alleges
that
the
Hospitals violated the FCA by failing to reduce the sum listed for
their employee healthcare services from the amount that MedCost
paid the Hospitals for those services to the Hospitals’ “out-ofpocket costs” for those services.
(See id., ¶¶ 1-2, 23-32, 57-
71.)9 Finally, the Second Amended Complaint maintains that Baptist
violated the Acts’ anti-retaliation provisions by “exercise of its
influence to cause the State of North Carolina’s termination of
8 In conjunction with filing the Second Amended Complaint,
Vincoli filed a “Notice of Ratification by Joseph Vincoli of Acts
of Complin,” which states that Vincoli (1) “is one and the same
person as Complin, the plaintiff and relator in this action,” and
(2) “ratifies and confirms any and all actions taken in this
proceeding in the name of Complin.” (Docket Entry 70 at 1.) This
Memorandum Opinion henceforth refers to the plaintiff/relator in
this action as “Vincoli.”
9
Although acknowledging Vincoli’s prior allegation that
MedCost constitutes a TPA (see id. at 14 n.5), the Second Amended
Complaint maintains that MedCost constitutes “a sham entity which
is owned and controlled by the Hospitals, which is contractually
designated as a ‘plan supervisor’ rather than a ‘third party
administrator,’ and which acts only as a disbursing agent to write
checks on the Hospitals’ own bank accounts to pay themselves” (id.,
¶ 29).
10
[Vincoli’s] employment with the Department of Public Safety” in
December 2013.
(Id., ¶ 84; see also id., ¶ 97.)
The Hospitals moved to dismiss the Second Amended Complaint on
the grounds, inter alia, that it failed to comply with the pleading
requirements of Rule 9(b) of the Federal Rules of Civil Procedure
(the “Rules”), and also failed to allege the requisite scienter for
an FCA claim.
(Docket Entries 64, 67.)
In response, Vincoli
maintained that the Second Amended Complaint “states valid and
plausible claims,” but “request[ed] leave to file a Third Amended
Complaint” “if the Court believes that further development of the
particulars
of
the
fraud
and
retaliation
claims
are
[sic]
required.” (Docket Entry 73 (the “Response”) at 30.) In addition,
the
Response
proffers
new
factual
allegations
in
support
of
Vincoli’s retaliation claims and indicates a desire to amend the
Second Amended Complaint to add “blacklisting” claims against
Baptist.
(Id. at 24 n.44.)
Vincoli also sought leave to file a surreply opposing the
Motions to Dismiss.
granted this leave.
(See Docket Entry 79 at 1-2.)
The Court
(See Text Order dated July 12, 2016.)
Noting
that the Response proffers only Vincoli’s proposed additional
retaliation allegations, the Court directed that any surreply
“clearly
set
allegations
forth
[Vincoli]
any
additional,
would
include
fraud-related,
in
any
Third
factual
Amended
Complaint.” (Id.) Vincoli subsequently filed a surreply outlining
11
additional factual allegations regarding his fraud and retaliation
claims.
(See Docket Entry 81 (the “Surreply”).)
DISCUSSION
I. Pleading Standards
To survive a Rule 12(b)(6) motion, a complaint must contain
sufficient factual allegations “to ‘state a claim to relief that is
plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). To qualify as plausible, a claim needs sufficient factual
content to support a reasonable inference of the defendant’s
liability for the alleged misconduct.
U.S. at
556).
Facts
that
remain
Id. (citing Twombly, 550
“‘merely
consistent
with’”
liability fail to establish a plausible claim for relief.
Id.
Moreover, “[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. (internal quotation
marks and citation omitted; second set of brackets in original).
In reviewing a motion to dismiss, the Court must “accept the
facts alleged in the complaint as true and construe them in the
light most favorable to the plaintiff.”
Coleman v. Maryland Court
of Appeals, 626 F.3d 187, 189 (4th Cir. 2010), aff’d sub nom.,
Coleman v. Court of Appeals of Md., __ U.S. __, 132 S. Ct. 1327
(2012).
The Court must also “draw all reasonable inferences in
12
favor of the plaintiff.”
E.I. du Pont de Nemours & Co. v. Kolon
Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (internal quotation
marks omitted).
conclusions
Nevertheless, the Court “will not accept ‘legal
couched
as
facts
or
unwarranted
unreasonable conclusions, or arguments.’”
inferences,
United States ex rel.
Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455 (4th Cir.
2013) (quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th
Cir. 2012)).
.
.
.
a
“At bottom, determining whether a complaint states
plausible
claim
for
relief
.
.
.
will
‘be
a
context-specific task that requires the reviewing court to draw on
its judicial experience and common sense.’” Francis v. Giacomelli,
588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 679).
On
a
complaint
Rule
in its
12(b)(6)
motion,
entirety, as
the
well
incorporated into the complaint.”
“[C]ourt
as
evaluates
documents
attached
the
or
E.I. du Pont, 637 F.3d at 448.
The Court may also consider documents “attached to the motion to
dismiss,
so
authentic.”
long
as
they
are
integral
to
the
complaint
and
Philips v. Pitt Cty. Mem’l Hosp., 572 F.3d 176, 180
(4th Cir. 2009).
Finally, the Court “may properly take judicial
notice of matters of public record” when ruling on a motion to
dismiss.
In
Id.
addition
to
satisfying
the
Rule
12(b)(6)
facial
plausibility standard, a complaint alleging qui tam claims must
satisfy the heightened pleading requirements of Rule 9(b). Nathan,
13
707 F.3d at 455.
At a minimum, the FCA plaintiff must “describe
the time, place, and contents of the false representations, as well
as the identity of the person making the misrepresentation and what
he obtained thereby.”
omitted).
Id. at 455-56 (internal quotation marks
“More precisely, the complaint must allege ‘the who,
what, when, where and how of the alleged fraud.’”
United States ex
rel. Ahumada v. NISH, 756 F.3d 268, 280 (4th Cir. 2014) (quoting
United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525
F.3d 370, 379 (4th Cir. 2008)).
“Requiring such particularized
pleading . . . ‘prevent[s] frivolous suits, . . . eliminat[es]
fraud actions in which all the facts are learned after discovery,
and . . . protect[s] defendants from harm to their goodwill and
reputation.’”
Id. (ellipses and all three sets of brackets in
original) (quoting Nathan, 707 F.3d at 456).
Moreover, “‘a qui tam plaintiff, who has suffered no injury in
fact, may be particularly likely to file suit as a pretext to
uncover unknown wrongs.’”
United States ex rel. Owens v. First
Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 732 (4th Cir.
2010) (quoting United States ex rel. Karvelas v. Melrose-Wakefield
Hosp., 360 F.3d 220, 231 (1st Cir. 2004)). Accordingly, “Rule 9(b)
plays an especially important role in the context of FCA qui tam
actions.”
Id. at 731.
Nevertheless, “generally, [the C]ourt
should hesitate to dismiss a complaint under Rule 9(b) if the
[C]ourt is satisfied (1) that the defendant has been made aware of
14
the particular circumstances for which [it] will have to prepare a
defense at trial, and (2) that [the] plaintiff has substantial
prediscovery
evidence
of
those
facts.”
Smith
v.
Clark/Smoot/Russell, 796 F.3d 424, 432 (4th Cir. 2015) (internal
quotation marks omitted).
II.
FCA Liability
As pertinent to this action, the FCA imposes liability upon
any person who “knowingly presents” to the United States “a false
or
fraudulent
claim
for
payment
or
approval,”
31
U.S.C.
§ 3729(a)(1)(A), or “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)(B).
(See Docket Entry 62, ¶¶ 101-
06.)10 “To plead an FCA claim, a relator must plausibly allege four
distinct elements:
‘(1) [ ] there was a false statement or
fraudulent course of conduct; (2) made or carried out with the
requisite scienter [knowledge]; (3) that was material; and (4) that
caused the government to pay out money or to forfeit moneys due
(i.e.,
that
involved
a
“claim”).’”
United
States
ex
rel.
Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir.), cert.
denied, __ U.S. __, 135 S. Ct. 85 (2014) (both sets of brackets in
original) (quoting Harrison v. Westinghouse Savannah River Co., 176
10 The FCA defines “‘knowing’ and ‘knowingly’” to “mean that
a person, with respect to information — (i) has actual knowledge of
the information; (ii) acts in deliberate ignorance of the truth or
falsity of the information; or (iii) acts in reckless disregard of
the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1).
15
F.3d 776, 788 (4th Cir. 1999)). “To satisfy th[e] first element of
an FCA claim, the statement or conduct alleged must represent an
objective falsehood.”
Wilson, 525 F.3d at 376.
To satisfy the
second element, a complaint “‘must set forth specific facts that
support an inference of fraud.’” Id. at 379 (quoting United States
ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375,
385 (5th Cir. 2003)).
The United States Supreme Court recently cautioned that the
FCA’s scienter requirement qualifies as “rigorous.”
Universal
Health Servs., Inc. v. United States, __ U.S. __, __, 136 S. Ct.
1989,
2002
(2016).
Thus,
although
one
need
not
possess
a
“‘specific intent to defraud,’” the FCA does “‘not punish honest
mistakes or incorrect claims submitted through mere negligence.’”
Owens, 612 F.3d at 728 (first quoting 31 U.S.C. § 3729(b); then
quoting United States ex rel. Hochman v. Nackman, 145 F.3d 1069,
1073
(9th
Cir.
1998)).
Moreover,
“imprecise
statements
or
differences in interpretation growing out of a disputed legal
question are similarly not false under the FCA.”
at 377 (internal quotation marks omitted).
Wilson, 525 F.3d
Accordingly, “‘[w]here
there are legitimate grounds for disagreement over the scope of a
. . . regulatory provision, and the claimant’s actions are in good
faith, the claimant cannot be said to have knowingly presented a
false claim.’”
United States ex rel. Kirk v. Schindler Elevator
Corp., 130 F. Supp. 3d 866, 877 (S.D.N.Y. 2015) (ellipsis in
16
original) (quoting United States v. Southland Mgmt. Corp., 326 F.3d
669, 684 (5th Cir. 2003) (en banc) (Jones, J., concurring), and
collecting cases); see also, e.g., Rostholder, 745 F.3d at 703
(“Because the Medicare and Medicaid statutes do not prohibit
reimbursement
for
drugs
packaged
in
violation
of
the
[FDA
regulations], [the defendant] could not have knowingly submitted a
false claim for such drugs.” (emphasis in original)).
III.
Preliminary Matters
To begin with, the Second Amended Complaint specifies that
Vincoli and Baptist “entered into a Settlement and Mutual Release
Agreement” (the “Release”) in May 2008, by which Vincoli “released
all claims that he might have had against [Baptist] prior to the
effective date of the agreement.”
(Docket Entry 62, ¶ 9.)11
Vincoli’s Response explains that, per its execution date, the
Release became effective on May 30, 2008. (Docket Entry 73 at 2.)12
As such, Vincoli concedes that “any qui tam or retaliation claims
against [Baptist] that arose from conduct that occurred prior to
11
Baptist submitted the Release in support of Baptist’s
Motion. (See Docket Entry 65-1.) Because the Release qualifies as
integral to the Second Amended Complaint (see Docket Entry 62, ¶ 9)
and Vincoli does not dispute its accuracy (see Docket Entry 73 at
2), the Court may properly consider it in ruling on the Motions to
Dismiss, see Pitt Cty. Mem’l Hosp., 572 F.3d at 180.
12 According to the Second Amended Complaint, the Release’s
effective date constitutes May 28, 2008. (Docket Entry 62, ¶ 9.)
Baptist provided a partially executed copy of the Release, from
which the Court cannot independently confirm its effective date.
(See Docket Entry 65-1 at 6.)
17
May 30, 2008, have been released by Vincoli.”
omitted).)
(Id. (emphasis
The Court should therefore grant Baptist’s request to
dismiss with prejudice all claims against it that arose on or
before May 30, 2008 (see Docket Entry 65-1 at 3 (releasing “any and
all claims of any nature, whether known or unknown, which [Vincoli]
may have . . . through the Effective Date of this Agreement”)).
See United States ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d
319 (4th Cir. 2010) (affirming dismissal with prejudice of qui tam
claim as barred by relator’s general release).
Next, the Second Amended Complaint concedes that the Release
bars any retaliation claim against Baptist related to Vincoli’s
termination on October 2, 2007.
(Docket Entry 62, ¶ 83.)
It
asserts, though, that Baptist engaged in retaliation by filing a
lawsuit against Vincoli in 2011 for violating the Release’s nondisparagement provisions.
(See id., ¶¶ 84, 88.)
Nevertheless,
Vincoli’s Response concedes that the statute of limitations bars
any retaliation claim that Vincoli may have possessed against
Baptist related to that lawsuit.
(Docket Entry 73 at 28.)
Thus,
the only alleged act of retaliation in the Second Amended Complaint
for which Vincoli could possibly obtain relief involves “the State
of North Carolina’s termination of Relator’s employment” in 2013.
(Docket Entry 62, ¶¶ 83-84, 97-99.)
The Court should therefore
dismiss Vincoli’s retaliation claims insofar as they seek recovery
18
regarding his 2007 termination or the 2011 lawsuit.
(See id.,
¶¶ 84, 111-13, 118-20.)
Finally, the Second Amended Complaint maintains that the
Hospitals’ allegedly false Medicare Cost Reports “constitute false
or fraudulent claims in violation of Section 3729(a)(1)(A) of the
federal [FCA] . . . and/or false records or statements material to
a false or fraudulent claim in violation of Section 3729(a)(1)(B)
of the federal [FCA].”
(Id., ¶ 21.)
Vincoli’s alternative
theories notwithstanding, “[a] relator still must show that the
government paid a false claim to prove a violation of the false
statement or record provision of the FCA.”
(internal quotation marks omitted).
Owens, 612 F.3d at 733
Accordingly, for purposes of
the Motions to Dismiss, the Court need only consider whether
Vincoli’s allegations on this front sufficiently allege a violation
of the FCA’s false claims provision, 31 U.S.C. § 3729(a)(1)(A).
IV.
Vincoli’s Allegations
According
to
Vincoli,
he
served
as
Baptist’s
“Associate
Director of Patient Financial Services, Managed Care Contracting,
between July 10, 2006, and October 2, 2007,” in which role he
“dealt with MedCost . . ., an administrative contractor to the
healthcare benefit plans of both [Baptist] and CHS, which was owned
by the two hospitals in the proportions of 50% each.”
Entry 62, ¶ 8.)
(Docket
Vincoli asserts that he initially received
“positive feedback from his [Baptist] superiors,” but “was fired by
19
[Baptist] on October 2, 2007, as a result of his complaints about
transactions by which [Baptist] paid itself more for domestic care
of its employees than commercial insurers were willing to pay for
the same services.”
(Id., ¶ 9.)
Shortly before entering into the
Release with Baptist, Vincoli allegedly disclosed “all material
facts to the United States” regarding this alleged fraud.
¶¶ 6, 9.)
January
(Id.,
Vincoli maintains that, more than seven years later (on
28,
2016),
he
“disclosed
to
the
United
States
all
additional facts and theories of liability raised in th[e Second
A]mended [C]omplaint.”
(Id., ¶ 6.)
As relevant to the Motions to Dismiss, the Second Amended
Complaint makes the following allegations:
A.
Fraud Allegations
In summary, the Hospitals violated the FCA “by failing to
disclose on their Medicare Cost Reports more than a billion dollars
in related-party transactions and by falsely claiming more than a
billion
dollars
in
fictitious
costs
for
employee
benefits that were not actually out-of-pocket costs.”
healthcare
(Id., ¶ 1.)
“Because the provision of healthcare to their own employees is
considered to be a ‘related party transaction,’ the applicable
federal laws mandated . . .
that the [Hospitals] reduce the
reported amounts for domestic care to only the actual unreimbursed
costs” on their Medicare Cost Reports.
(Id., ¶ 2.)
The Hospitals
failed to reduce these “amounts to the actual unreimbursed costs,
20
and thereby knowingly, falsely, and improperly inflat[ed] those
amounts,”
increasing
their
Medicare
reimbursements
and
the
pertinent Medicare “Wage Index” for their geographic area, which in
turn increased the Medicare reimbursement rates to other hospitals
in the region.
(Id.)
More specifically, CHS manages, leases, or owns “some 39
hospitals in North Carolina, South Carolina, and Georgia, including
those shown on Exhibit A which file Medicare Cost Reports.”
(Id.,
¶ 11 (emphasis omitted).) “[Vincoli] contends that CHS caused each
of these owned, leased or managed hospitals to file false Medicare
Cost Reports.” (Id.) The Hospitals submitted the subject Medicare
Cost Reports “electronically on or about the dates stated on
Exhibit A.”
(Id., ¶ 60.)
Exhibit A specifies the “Particulars of
False Claims,” including the name of the relevant hospital, its
Medicare provider number, the relevant fiscal year, the “Fiscal
Intermediary with Whom Cost Report Filed,” the “Approximate Date
Cost Report Filed or Was Due,” and the “Approximate Amount of Cost
Overstatement.”
(Docket Entry 62-1 at 1.)
“[A]n officer or
administrator of the Hospitals” certified that each Medicare Cost
Report “is ‘true, correct, complete’ and ‘prepared . . . in
accordance
with
applicable
instructions,
except
as
noted.’”
(Docket Entry 62, ¶ 19 (italicized font omitted; ellipsis in
original).)
That individual “‘further certif[ied] that [he or she
is] familiar with the laws and regulations regarding the provision
21
of health care services, and that the services identified in this
cost
report
were
regulations.’”
provided
in
compliance
with
(Id. (italicized font omitted).)
such
laws
and
Moreover,
Defendant
Hospitals
have
knowingly
made
those
certifications on their annual Medicare Cost Reports each
year from approximately 2000 to the present when, in
truth and in fact, the “charges” from the hospitals to
themselves for treating their own employees were not
disclosed as related-party transactions, the charges were
not reduced to unrecovered costs, and the actual costs
were more than doubled . . . .
(Id., ¶ 20.)
Baptist and CHS self-fund employee health benefit plans for
their respective 12,500 and 60,000 employees. (Id., ¶¶ 10-11.) In
so doing, they utilize MedCost, a “captive or affiliated entit[y,]
. . . as [a] ‘plan supervisor[].’”
(Id., ¶ 28.)
Notably, although
Vincoli previously alleged that MedCost constituted “a ‘TPA,’
contractually it is not a ‘third party administrator’ under its
agreements with the Hospital[s],” but instead constitutes merely “a
‘plan supervisor’ with ministerial duties only and does not enjoy
that degree of independence from oversight, direction and control
that would be required to make it a ‘third party.’”
n.5.)
(Id. at 14
Thus,
[b]ecause the [Hospitals’] healthcare plans are organized
with “plan supervisors” rather than true “third party
administrators,” because MedCost Services is a captive
affiliate of the [Hospitals] rather than a “third party,”
and because MedCost Services, as the “plan supervisor,”
does not pay claims from its own funds, the Defendant
Hospitals do not qualify for a CMS ruling that permits
the reporting as allowable healthcare cost for wage index
purposes of “amounts” a third party administrator “pays
22
to the hospital or other health care providers.” See
Medicare Provider Reimbursement Manual § 4005 at p. 40-62
. . . . [The H]ospitals cannot in good faith transform
related-party transactions with themselves into allowable
costs by interposing a sham entity which is owned and
controlled by the Hospitals, which is contractually
designated as a “plan supervisor” rather than a “third
party administrator,” and which acts only as a disbursing
agent to write checks on the Hospitals’ own bank accounts
to pay themselves.
(Id., ¶ 29 (footnote omitted).)
Pursuant to Provider - St. Francis Hospital Greenville, South
Carolina
Provider
No.:
42-0023
v.
Intermediary
–
BlueCross
Blueshield Association/Palmetto Government Benefits Administrators,
Case No. 04-1774, 2007 WL 1774634 (P.R.R.B. Apr. 19, 2007), a
hospital engages in a related-party transaction when it “purchases
healthcare services for its employees from itself pursuant to a
self-funded employee healthcare benefit plan.”
¶ 12.)
(Docket Entry 62,
In regard to such services, a hospital may only report on
its Medicare Cost Report “its ‘unrecovered cost,’ which amounts to
only fees paid to third parties for plan administrative services,
as offset by employee contributions, deductibles or co-payments.”
(Id., ¶ 14 (citing “Provider Reimbursement Manual §§ 332.1 and
2144.4”).)
A hospital must disclose related-party transactions on
“Worksheet A-8-1 of Form CMS-2552.”
(Id., ¶ 15.)
In providing domestic care, a hospital reports the costs it
incurs for pertinent supplies and salaries “in the appropriate
corresponding cost centers on the hospital’s Medicare Cost Report
such as the Outpatient Clinic.”
23
(Id., ¶ 14.)
However, “when a
hospital
purchases
healthcare
services
from
itself,
proper
adjustment of the charges would require that they be reduced to
zero.”
(Id.)
To
achieve
this
result,
the
hospital
must
“reclassify the hospital’s already reported corresponding costs for
cost centers such as the Outpatient Clinic (Line 60.05 on Worksheet
A) . . . to the cost center for Employee Benefits (Line 4 or 5 on
Worksheet A).”
¶ 18.)
(Id.)
The Hospitals failed to do so.
(See id.,
Instead, with a “motive . . . to inflate their Medicare
reimbursements through the wage-index adjustment,” the Hospitals
“knowingly and willfully” overstated their domestic care costs and
failed to disclose their MedCost related-party transactions on
their Medicare Cost Reports.
(Id., ¶ 46; accord id., ¶ 18.)
In that regard:
Examples of false Medicare Cost Report claims made or
caused to be made by [Baptist] and CHS on CMS Form 2552
include those described on the Attached Exhibit A. Each
of the Medicare Cost Reports listed on Exhibit A ha[s]
been carefully examined by [Vincoli] and necessarily
lead[s] to the plausible inference that domestic care
claims paid by the Defendant Hospitals to themselves were
reported as allowable costs on the Medicare Cost Report
without declaring them related-party transactions or
reducing the claims to actual unrecovered costs because
(1) [Vincoli] knows from personal experience that the
Defendant Hospitals organized their employee healthcare
benefit plans as self-funded plans that paid themselves
for domestic care of employees; (2) [Vincoli] knows from
personal experience and industry custom that hospitals
with such self-funded plans account for all “losses” on
claims for employee healthcare as employee benefit costs
whether the claims involve third-party providers or
domestic claims paid by the hospitals to themselves;
(3) there are no entries on Worksheet A-8-1 of the
Hospitals’ Medicare Cost Reports that self-report
related-party transactions involving domestic care
24
claims; (4) there are no entries on Worksheet A-8 of the
Hospitals’ Medicare Cost Reports adjusting employee
benefit costs to remove domestic care claims; and
(5) there are no entries on Worksheet A or A-6 of the
Hospitals’ Medicare Cost Reports reclassifying costs of
domestic care to Employee Benefits from other cost
centers, which would be seen if domestic care claims were
reduced to unrecovered costs.
(Id., ¶ 69.)
B.
Retaliation Allegations
Baptist and the North Carolina State Health Plan (the “NC
Plan”) entered into a contract effective July 1, 2003, to June 30,
2008,
regarding
Baptist’s
provision
participants (the “SHP contract”).
of
services
(Id., ¶ 76.)
to
NC
Plan
In December 2008
and January 2009, Vincoli informed the NC Plan that Baptist had
failed to provide it with notices of interest rate changes that
impacted the percentage discount applicable to Baptist’s outpatient
services under the SHP contract, resulting in an alleged $1.34
million overpayment to Baptist (the “NC Claim”).
(See id., ¶¶ 75-
81.)13 In February 2010, North Carolina Medicaid hired Vincoli, who
transferred in November 2010 to another state agency that later
became part of the North Carolina Department of Public Safety (the
“NC DPS”).
(Id., ¶ 87.)
At the NC DPS, Vincoli proposed cost-
saving measures related to inmate care that saved North Carolina
significant money.
(Id.)
Throughout his tenure at the NC DPS,
Vincoli received “‘outstanding’” employment reviews.
(Id., ¶ 97.)
13
Vincoli does not pursue the NC Claim in this action.
(Id., ¶¶ 75, 82.)
25
“In late 2010 or early 2011,” Baptist discovered that Vincoli
had reported its alleged wrongdoing regarding the SHP contract to
North Carolina officials, prompting Baptist to file a lawsuit
against Vincoli in January 2011 for violating the Release’s nondisparagement clause.
(Id., ¶ 88.)
During discovery in that
lawsuit, Vincoli obtained documents relevant to the NC Claim (the
“Discovery Documents”).
(Id., ¶ 89.)
Vincoli asked the North
Carolina Auditor’s office to subpoena him “so that he could provide
these documents to the Auditor,” which occurred in July 2015.
(Id.)
“In June 2011, on information and belief, [Baptist] learned of
the filing of this qui tam action through the issuance of subpoenas
by the Office of Inspector General, Department of Health and Human
Services, and through communications with the Office of the United
States Attorney.”
(Id., ¶ 91.)
In September 2011, the North
Carolina Auditor determined that Baptist’s failure to provide rate
change notices resulted in a $1.34 million estimated overpayment,
but that Baptist bore no obligation to provide such notices under
the SHP contract.
(Id., ¶ 81.)
The North Carolina Attorney
General adopted the Auditor’s conclusion that North Carolina lacked
“grounds for legal recourse against [Baptist]” regarding this
alleged overpayment.
(Id.)
In October 2011, Baptist withdrew its
lawsuit “against Vincoli to avoid adverse publicity in the news
media and perhaps also to protect itself against allegations that
26
it was retaliating against Vincoli on account of his filing of this
action.”
(Id., ¶ 92.)
In January 2013, Vincoli filed a State Property Incident Form
with the State of North Carolina that included the Discovery
Documents (the “Form”).
(Id., ¶ 93.)
In July 2013, Vincoli copied
his North Carolina General Assembly representative, “Donny Lambeth,
a former [Baptist] executive, on two emails, one of which concerned
[Vincoli’s] efforts to report the $1.34 million overpayment . . .
and
the
of
Labor
investigation of CHS’ status as a governmental entity.”
(Id.,
¶ 94.)
other
of
which
concerned
a
Department
“Representative Lambeth forwarded those emails to MedCost
Vice President Joel Groce, including a note stating: ‘Here is this
weeks (sic) email from JV.
him set up.’
Pass along to your attorney until I get
On information and belief, . . . Lambeth sent similar
e-mails to [Baptist],” which emails Lambeth failed to produce,
“despite requests that he do so.”
(Id.)
In August 2013, Vincoli discovered that, in violation of North
Carolina law, the NC DPS failed to submit his Form to the State
Bureau of Investigation (the “SBI”). (Id., ¶ 95.) Vincoli emailed
the North Carolina Director of Prisons about this failure, “stating
(among other things), that the [NC DPS] executive who made the
decision not to forward the documents to the [SBI] was Ellis Boyle,
who, prior
to
his
appointment to
the
department
by
Governor
McCrory, formerly worked for the law firm providing counsel to
27
[Baptist] in this qui tam action.”
although
“Vincoli
managerial
exempt
did
not
status,”
meet
(Id., ¶ 96.)
the
“Governor
In October 2013,
established
McCrory’s
criteria
for
administration
reclassified Vincoli as ‘managerial exempt’ and stripped him of his
North Carolina Personnel Act protections . . . .
In December 2013,
Governor McCrory’s administration fired Vincoli without notice,
severance, or even a full day’s pay for his last day at work.”
(Id., ¶ 97.)
Further:
The state’s explanation for why Vincoli was fired
was that they bought a computer program that could do his
job. However, Vincoli’s supervisor was not even involved
in the decision to fire him. If the mere purchase of a
computer program that could do Vincoli’s job was the true
reason for his firing, rather than a pretext, Vincoli
would have surely received at least notice and a full
day’s pay for his last day of work. All in all, the
termination process had such a punitive nature and
overtones to it that it was clear that someone or some
organization of importance or influence wanted Vincoli
fired for reasons unrelated to his job performance.
On information and belief, the Governor’s office
took these punitive and discriminatory employment actions
against Vincoli at the behest of his former employer,
North Carolina Baptist Hospital (and accomplished, at
least
partly,
via
Representative
Lambeth’s
communications), whose motive was to crush Vincoli
financially and thereby silence his complaints in this
qui tam action and his complaints about the $1.34 million
owed by [Baptist] to the State of North Carolina.
Representative Lambeth has refused to answer questions
about the matter or to turn over copies of e-mails from
his legislative e-mail account that refer to Vincoli.
(Id., ¶¶ 98-99 (footnote and paragraph numbering omitted); see also
id. at 36 n.8 (“On January 6, 2014, Representative Lambeth engaged
28
in an e-mail exchange with CHS officer Joseph Piemont by which
Lambeth reported to CHS on ‘the recent efforts’ by Vincoli and
asked Piemont to ‘[l]et me know how I can help you in Raleigh,’
i.e. with state government in the capital.
It may well be that CHS
conspired with Lambeth and [Baptist] to retaliate against Vincoli,
but [Vincoli] is not yet in a position, prior to discovery, to make
that allegation.” (first set of brackets in original).)
C.
Proposed Allegations
In the Response and Surreply, Vincoli proposes to add the
following allegations to any Third Amended Complaint:
Baptist’s counsel, Randy Loftis, told Vincoli’s former lawyer,
Robert Zaytoun, that the North Carolina hospital community “is very
tight and” if Vincoli sued “the hospital that the hospital would do
‘everything in its power to make sure he never worked for another
hospital in the State again.’
Vincoli recorded these comments in
a May 17, 2012 e-mail to Representative Donny Lambeth 19 months
before he was fired by the state in December, 2013.” (Docket Entry
73
at
24
n.44
(emphasis
in
original);
accord
id.
at
29.)
Representative Lambeth served as “President of [Baptist] from 2007
until 2011.”
(Id. at 24 n.43.)
Baptist “was placed on notice” “that [it] w[as] guilty of
filing false cost reports” “through a demand letter on or about
November 7, 2007 written by [Vincoli’s] attorney Robert Zaytoun to
McLain Wallace, legal counsel for [Baptist],” which “stat[ed,]
29
‘these overstated costs may have been rolled up into the hospital’s
Medicare and Medicaid cost reports (under the line item ‘Employee
Health Care Costs’).
If this is indeed true, the hospital may well
have overstated its costs to Medicare and Medicaid . . . .’”
(Docket Entry 81 at 7 (italicized font omitted).)
In turn,
CHS was placed on notice that its Medicare [C]ost
[R]eports contained overstated related-party charges when
the Complaint and First Amended Complaint in this matter
were partially unsealed and served upon CHS on or about
September 14, 2010 (D.E. 17 & 19), yet did nothing to
correct its earlier-filed cost reports and continued
thereafter filing cost reports that reported fictitious
costs and failed to disclose related-party transactions.
(Docket Entry 81 at 7.)
In regard to Baptist’s assertion that “a more plausible
explanation of Mr. Vincoli’s termination is that ‘he is a difficult
employee with a pattern of wrongfully accusing his employers of
engaging in unethical or illegal conduct’” (id. at 8), Vincoli
states that
[h]e has made only three complaints of unethical or
illegal conduct and they all concerned [Baptist] or CHS:
(1) the complaint that [Baptist] violated ERISA by
engaging itself through MedCost’s provider network to
provide care to its own employees at above-market rates;
(2) the complaint that [Baptist] and CHS overstated costs
on their Medicare cost reports and failed to disclose
related-party transactions; and (3) the complaint that
[Baptist] intentionally failed to notify the N.C. State
Health Plan (“SHP”) of its rate increases, causing the
SHP to overpay for services.
(Id. at 9.)
During Vincoli’s employment at Baptist, his
six-month review was excellent. His annual review (after
he had raised the ERISA issue with CFO Gina Ramsey) was
mixed. [Vincoli’s] boss (Rhonda Miller) told him that
30
Gina Ramsey (the CFO) had instructed Miller not to write
his review because Ramsey was going to write it herself.
The mixed annual review written by Ramsey retaliated
against [Vincoli] for his criticism of Ramsey’s actions
concerning the ERISA issue.
(Id. at 9 n.7.)
Finally, Vincoli’s job at the NC DPS qualifies as a hospital
job, as “Vincoli worked for the [NC DPS’s] Division of Health
Services and the Central Prison Health Care Complex, the latter
being the North Carolina hospital for inmates.”
V.
Rule 9(b) Challenges
A.
(Id. at 9-10.)
“Who” Committed the Fraud
The Hospitals seek dismissal of Vincoli’s lawsuit for failure
to identify the perpetrators of the alleged fraud.
(See Docket
Entry 64 at 2 (contending that the Second Amended Complaint “fails
to identify any [Baptist] agent who participated in the alleged
fraud”); Docket Entry 67 at 1-2 (same as to CHS agent).)
particular,
the
Hospitals
maintain
that
the
Second
In
Amended
Complaint “never identifies the name of a single [Baptist or] CHS
agent or representative who was involved in the alleged scheme. It
notes that [the Medicare] Cost Reports contained a certification
‘by an [unnamed] officer,’ but it fails to provide any identifying
details about that ambiguous person, such as his . . . role or job
description.”
(Docket Entry 68 at 10-11 (final set of brackets in
original) (citing Docket Entry 62, ¶ 59); see also Docket Entry 66
at 12-13.)
31
In
response,
satisfied
the
Vincoli
‘who’
asserts
element
by
that
he
“has
identifying
the
substantially
persons
who
committed the fraud as the corporate officers who certified the 324
cost reports for the 33 affiliates of the [Hospitals].”
Entry 73 at 16.)
(Docket
He contends that the Hospitals “are required by
law to maintain the cost report documents, including the original
certifications by their own officers and administrators,” from
which they can discern the relevant individuals.
(Id. at 15.)
He
further argues:
[T]he Medicare [C]ost [R]eports are official documents
generated by the accounting departments of the hospitals
and certified by high-ranking corporate officers.
[Vincoli] has identified the persons who committed the
fraud as the corporate officers of the 33 affiliates who
certified the cost reports and he has described the 324
cost report claims with great particularity.
It is
impossible that the [Hospitals] are unaware of who
certified the reports or that they have any doubt about
the fraud they are alleged to have committed.
(Id. at 16-17.)
The Second Amended Complaint primarily presents allegations
regarding actions by “the Hospitals.” (See, e.g., Docket Entry 62,
¶¶ 63 (“In truth and in fact, the Hospitals knowingly, willfully
and
recklessly
related-party
disregarded,
transactions
misrepresented
on
their
Medicare
and
Cost
concealed
Reports
. . . .”), 65 (“In truth and in fact, the Defendant Hospitals,
having knowledge of their undisclosed related-party transactions,
knowingly and willfully concealed and failed to disclose those
transactions with an intent fraudulently to secure continued”
32
Medicare
reimbursements.),
prospective
and
66
(“Defendant
retrospective
claims
Hospitals
for
submitted
payment,
falsely
certifying that they had not engaged in violations of the Related
Party Rule . . . .”).)
However, one of its 121 paragraphs alleges
that
[t]hose Medicare Cost Reports also contained the
following certification executed annually by an officer
of each Defendant Hospital:
. . . . .
(Signed) (Signature on File)
Officer or Administrator of Provider
(Id., ¶ 59.)
Vincoli’s Response clarifies that these “officer[s]
of each [of the] Hospital[s]” (id.) — rather than any other of the
Hospitals’ 72,500 employees — constitute the alleged perpetrators
of the fraud.
(See Docket Entry 73 at 13-17.)
In addition, the
Second Amended Complaint alleges that all “[h]ospitals filing their
Medicare Cost Reports electronically are required to submit a paper
certification, which must be signed and dated.”
(Docket Entry 62,
¶ 60.) It further alleges that the Hospitals executed the required
paper certifications for each Medicare Cost Report.
(See id.)
Importantly, Exhibit A identifies the relevant Medicare Cost
Reports by provider, fiscal year, and submission date. (See Docket
Entry
62-1.)
employees
Hospitals
implicated
corresponding
Report.
The
in
the
certification
can
ascertain
alleged
for
each
(See Docket Entry 62, ¶ 60.)
fraud
the
names
of
the
by
examining
the
Medicare
Cost
specified
Under these circumstances,
Rule 9(b) does not require identification of the names of the
33
certifying officers involved in the alleged fraud.
Smith, 796
F.3d
at
432-33
(rejecting
Rule
9(b)
See, e.g.,
challenge
to
allegations involving false certification of pay records where the
plaintiff identified the perpetrators as the corporate defendants
and provided charts “specifically identifying [the plaintiff’s] pay
and comparing it to the applicable [federal] pay scales”); see also
United States ex rel. Bledsoe v. Community Health Sys., Inc., 501
F.3d 493, 506 (6th Cir. 2007) (rejecting contention that, “in
addition to alleging specific false claims, the [plaintiff] must
plead the identity of the specific individual employees within the
defendant
corporation
who
submitted
false
claims
to
the
government,” and “hold[ing] that while such information is relevant
to the inquiry of whether a relator has pled the circumstances
constituting fraud with particularity, it is not mandatory”).
Thus, in light of the Second Amended Complaint’s certification
allegations
and
Vincoli’s
clarification
regarding
the
alleged
perpetrators, the Court should reject this Rule 9(b) contention.
B.
Indicia of Reliability
The
Complaint
Hospitals
“lack[s]
further
contend
plausibility
and
that
the
the
Second
required
Amended
indicia
of
reliability under Rule 9 because Mr. Vincoli . . . has no actual
knowledge of the alleged fraud.”
34
(Docket Entry 64 at 2; Docket
Entry 67 at 1.)14 In so arguing, CHS emphasizes that “Vincoli lacks
any person[al] knowledge about CHS because he never worked there.”
(Docket Entry 68 at 6.)
Baptist similarly highlights the short
duration of Vincoli’s employment and notes that Vincoli has not
“explain[ed] how he might have any ‘personal knowledge’ about
[Baptist’s] preparation of its Medicare Cost Reports after his
October 2007 termination.”
(Docket Entry 66 at 14-15 (emphasis in
original).)15
The extent of a relator’s personal knowledge about a purported
fraudulent scheme affects the relator’s ability to allege a qui tam
claim with sufficient particularly under Rule 9(b).
Compare
Harrison, 176 F.3d at 781-83, 790-94 (concluding that allegations
satisfied Rule 9(b) where the plaintiff alleged personal knowledge
of the certification process and misrepresentations made therein),
with United States ex rel. Clausen v. Laboratory Corp. of Am.,
Inc., 290 F.3d 1301, 1313-15 (11th Cir. 2002) (affirming Rule 9(b)
dismissal of complaint brought by a “corporate outsider,” and
acknowledging difficulties such plaintiffs face compared to “[m]ost
14
In making this argument, the Hospitals do not raise a
public-disclosure challenge, see 31 U.S.C. § 3730(e)(4), to
Vincoli’s allegations. (See generally Docket Entries 64, 66-68,
76-78.)
15
In that regard, the Hospitals emphasize that Vincoli
cannot know their intent in submitting the relevant Medicare Cost
Reports. (See Docket Entry 66 at 14-15; Docket Entry 68 at 8.)
This contention relates to the Hospitals’ scienter challenge,
analyzed in Section VI.
35
relators in qui tam actions[, who] are insiders”).
However, at
least in the absence of an original source requirement, see 31
U.S.C. § 3730(e)(4), neither the FCA nor Rule 9(b) mandates that a
relator possess personal knowledge of the alleged fraud.
See 31
U.S.C. §§ 3729-33; Fed. R. Civ. P. 9(b).16 Thus, for instance, even
“a busybody with his own agenda” who discovers fraud through
investigative
efforts
rather
than
insider
knowledge
appropriate circumstances, serve as a qui tam relator.
may,
in
United
States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1017-18
(7th Cir. 1999); see also United States ex rel. Bunk v. Government
16 The cases upon which the Hospitals rely similarly do not
impose an independent personal knowledge requirement. (See, e.g.,
Docket Entry 66 at 8, 13-14 (citing Cade v. Progressive Cmty.
Healthcare, Inc., No. 1:09-cv-3522, 2011 WL 2837648, at *9-10 (N.D.
Ga. July 14, 2011); United States ex rel. Saldivar v. Fresenius
Med. Care Holdings, Inc., 972 F. Supp. 2d 1317, 1335 (N.D. Ga.
2013); United States ex rel. Walterspiel v. Bayer A.G., No.
1:12cv773, 2014 WL 7332303, at *5 (M.D.N.C. Dec. 19, 2014), aff’d,
639 F. App’x 164 (4th Cir.), cert. denied, __ U.S. __, 137 S. Ct.
162 (2016)).)
Instead, they involve circumstances where the
relators failed to sufficiently allege the particulars of the
fraud, including that the defendants actually submitted fraudulent
claims to the government. See Walterspiel, 2014 WL 7332303, at *1,
*4-6 (recommending dismissal of a complaint, regarding actions by
the defendants’ John, Jane, and Joe Doe employees, that “contains
no allegation of any detail regarding the claims made on government
funds in any respect”); Saldivar, 972 F. Supp. 2d at 1333-35
(explaining that relators who fail to satisfactorily allege
presentment of a false claim may, under Eleventh Circuit precedent,
be able to avoid Rule 9(b) dismissal if “the relator’s complaint
provides ‘indicia of reliability’ that support the relator’s
allegations,” and concluding that the relator failed to satisfy
either test); Cade, 2011 WL 2837648, at *9-11 (dismissing complaint
where relator failed to describe the process a third party utilized
in submitting claims to government, noting that “nothing in the
[c]omplaint indicates with any reliability that she would even know
whether or not [the d]efendants submitted any such claims”).
36
Logistics N.V., __ F.3d __, 2016 WL 6695787 (4th Cir. Nov. 15,
2016) (evaluating successor liability on $24 million FCA judgment
in
consolidated
qui
tam
action
brought
by
“[r]elators
[who]
operated businesses that provided to the [government] services much
like those performed by [certain defendants],” id., __ F.3d at __,
2016 WL 6695787, at *2); United States ex rel. May v. Purdue Pharm.
L.P., 811 F.3d 636 (4th Cir. 2016) (evaluating application of
public-disclosure bar to qui tam suit brought by, inter alia, the
wife of the defendant’s former employee, who learned “[t]he facts
of the fraudulent scheme,” id. at 638, from the attorney who
represented her husband in a former qui tam suit).
Here, Vincoli alleges a fraudulent scheme that becomes evident
upon review of the Hospitals’ Medicare Cost Reports, if one knows
of the allegedly self-dealing relationship between MedCost and the
Hospitals (MedCost’s joint owners).
Vincoli maintains that he
learned of this relationship through his employment at Baptist.
(Docket Entry 62, ¶ 8.)
He further asserts that he reviewed the
Hospitals’ publically available Medicare Cost Reports.
¶ 69.)
(Id.,
He also specifically identifies the relevant Medicare Cost
Reports, the dates that the Hospitals submitted those reports to
the federal government via the fiscal intermediaries, and the
omissions on those reports that (under his interpretation of
Medicare rules) reveal the fraudulent claims contained therein.
(See
id.,
¶¶
18,
69;
Docket
37
Entry
62-1.)
Under
these
circumstances, Vincoli’s lack of personal knowledge regarding the
Hospitals’ preparation of their Medicare Cost Reports does not (in
and
of
itself)
necessitate
dismissal
of
his
Second
Amended
Complaint.17
VI.
A.
Scienter Challenge
Second Amended Complaint
The Hospitals also ask the Court to dismiss this action for
failure to allege the requisite scienter, i.e., the Hospitals
contend that the Second Amended Complaint alleges insufficient
facts to establish that the Hospitals knowingly submitted false
claims to the United States.
(Docket Entry 66 at 8-11; Docket
Entry 68 at 12-16.)18
In particular, the Hospitals maintain that
the
Complaint
Second
Amended
(1)
contains
only
conclusory
17 However, this lack of personal knowledge hinders Vincoli’s
ability to sufficiently allege scienter. Moreover, this conclusion
does not mean that the Second Amended Complaint satisfies Rule
9(b).
For instance, serious questions exist regarding whether
Vincoli alleges the “how” of the fraud with sufficient
particularity.
To take but one example, the Second Amended
Complaint lacks factual allegations supporting its conclusory
assertion that “CHS caused each of these owned, leased or managed
hospitals [listed on Exhibit A] to file false Medicare Cost
Reports.” (Docket Entry 62, ¶ 11.) Because the Hospitals do not
press such Rule 9(b) challenges — and because (as discussed below)
Vincoli’s qui tam claim fails to sufficiently allege scienter — the
Court need not resolve whether the Second Amended Complaint
satisfies each component of Rule 9(b)’s “who, what, when, where,
and how” mandate.
18 In urging dismissal, the Hospitals also emphasize that
Vincoli’s qui tam theory depends entirely upon his interpretation
of various Medicare rules and regulations.
(See, e.g., Docket
Entry 66 at 10; Docket Entry 68 at 1, 15; Docket Entry 76 at 3 &
n.1; Docket Entry 77 at 9 & n.10.)
38
assertions that they acted knowingly and (2) lacks any factual
allegations that plausibly support an inference that they “acted
with any scienter in presenting a (supposedly) false claim to the
Government.”
(Docket Entry 66 at 10.)
In response, Vincoli
maintains that he “is not required . . . to allege that the
[Hospitals]
.
.
.
knew
about
the
decision
of
the
Provider
Reimbursement Review Board in St. Francis Hospital Greenville.”
(Docket Entry 73 at 5 (emphasis in original).)
urges
the
Court
to
rely
upon
Instead, Vincoli
“circumstantial
purportedly permits an inference of scienter.
evidence”
that
(Id. at 5-7.)
Although Rule 9(b) does not impose a heightened pleading
requirement for allegations of knowledge and intent, “an FCA
plaintiff still must set forth specific facts that support an
inference of fraud.”
marks
omitted).
Wilson, 525 F.3d at 379 (internal quotation
Significantly,
the
Second
Amended
Complaint
contains no allegations suggesting that anyone at the Hospitals
possessed awareness of the St. Francis Hospital decision upon which
Vincoli’s allegations of fraud depend. (See generally Docket Entry
62.) Conceding this deficiency (see Docket Entry 73 at 5), Vincoli
argues that “the Court must keep in mind that every person is
presumed to know the law.”
(Id. at 4 (citing various criminal
decisions, including Cheek v. United States, 498 U.S. 192, 199
(1991)).)
In general, “ignorance of the law or a mistake of law is
39
no defense to criminal prosecution,” Cheek, 498 U.S. at 199,19 but
Vincoli supplies no support for the proposition that this criminal
precept applies in civil qui tam actions (see Docket Entries 73,
81).
Nevertheless,
Vincoli
maintains
—
without
supporting
authority — that “[the Hospitals’] failure to be aware of the
relevant
laws
certifying
and
that
regulations
they
were
in
in
fact
their
own
aware
of
industry,
those
after
laws,
is
sufficient in and of itself for the Court to draw an inference of
‘recklessness,’ thereby satisfying the scienter requirement of the
FCA.”
(Docket Entry 73 at 5.)
Medicare
constitutes
“a
complex
and
highly
technical
regulatory program.” Almy v. Sebelius, 679 F.3d 297, 302 (4th Cir.
2012) (internal quotation marks omitted).
Pursuant to Medicare
regulations, fiscal intermediaries review hospitals’ Medicare Cost
Reports to determine their appropriate Medicare reimbursements for
each fiscal year, after which a hospital can appeal the fiscal
intermediary’s determination to the Provider Reimbursement Review
Board (the “Board”), see 42 U.S.C. § 1395oo, and subsequently
appeal the Board’s decision to the Administrator of CMS (the
“Administrator”), see 42 C.F.R. §§ 405.1801, 405.1875; see also
Medicare Provider Reimbursement Manual, Part I, § 2927.
The
19
Notably, even in the criminal context, Congress has
relaxed this “common-law presumption” for certain offenses, such as
federal criminal tax offenses, “largely due to the complexity of
the [relevant] laws.” Id. at 199-200.
40
Board’s decisions “do not bind CMS or the Secretary” of Health and
Human Services (the “Secretary”).
St. Luke’s Hosp. v. Sebelius,
611 F.3d 900, 907 n.10 (D.C. Cir. 2010).
decisions lack precedential value.
Furthermore, the Board’s
See, e.g., Almy v. Sebelius,
749 F. Supp. 2d 315, 326-27 (D. Md. 2010) (collecting cases holding
that lower agency decisional bodies such as the Board cannot bind
federal agencies, and rejecting contention that “the non-binding,
non-precedential rulings of lower-level contractors may together
constitute
an
authoritative
agency
interpretation
directly
attributable to the Secretary”), aff’d, 679 F.3d 297 (4th Cir.
2012); St. Francis Hosp., 2007 WL 1774634, at *4 (explaining that
the Board “holds no authority beyond this specific case”).
Indeed, not even the Administrator’s decisions constitute
precedent.
See Community Care Found. v. Thompson, 318 F.3d 219,
227
Cir.
(D.C.
Administrator,’
2003)
which
(observing
constitute
that
the
“‘[d]ecisions
final
decisions
by
the
of
the
Secretary, ‘are not precedents for application to other cases’”
(quoting
Medicare
§ 2927(C)(6)(e))).
Provider
Reimbursement
Manual,
Part
I,
Instead, a decision by the Administrator may
be examined and an administrative judgment made as to
whether it should be given application beyond the
individual case in which it was rendered.
If it has
application beyond the particular provider, the substance
of the decision will, as appropriate, be published as a
regulation, HCFA Ruling, manual instruction, or any
combination thereof so that the policy []or clarification
of policy having a basis in law and regulations may be
generally known and applied by providers, intermediaries,
and other interested parties.
41
Medicare Provider Reimbursement Manual, Part I, § 2927(C)(6)(e)
(emphasis added).
Under these circumstances, a lack of awareness of one Board
decision
upon
regulations
certifying
regarding
the
“familiar[ity]
provision
of
with
health
the
laws
and
care
services”
(Docket Entry 62, ¶ 19) does not suffice to establish scienter.
Any contrary holding would improperly transform the FCA from a
punishment for defrauding the United States into a mechanism for
enforcing non-precedential regulatory determinations.
See Owens,
612 F.3d at 728 (explaining that the FCA does “not punish honest
mistakes or incorrect claims submitted through mere negligence”
(internal quotation marks omitted)); see also Universal Health,
__ U.S. at __, __, 136 S. Ct. at 1996, 2004 (observing that FCA
“liability is essentially punitive in nature” with “treble damages
plus civil penalties of up to $10,000 per false claim,” and
“emphasiz[ing] . . . that the [FCA] is not a means of imposing
treble damages and other penalties for insignificant regulatory
. . . violations” (internal quotation marks omitted)).
Vincoli next argues that the Court can infer scienter from the
Hospitals’ purported “motive and opportunity” to defraud the United
States.
(Docket Entry 73 at 5-6.)
Vincoli derives this “motive
and opportunity” argument from the securities litigation context.
(See id. at 6 (citing “In re Burlington Coat Factory Sec. Litig.,
114 F.3d 1410, 1418 (3d Cir. 1997); In re Time Warner Inc. Sec.
42
Litig., 9 F.3d 259, 269 (2d Cir. 1993).”).) Although facts showing
motive and opportunity can support a “‘strong inference’” of
securities fraud, In re Burlington Coat Factory, 114 F.3d at 1418,
“[t]he presence of a motive cannot substitute for evidence of
knowledge and intent” in the qui tam realm, United States ex rel.
K&R Ltd. P’ship v. Massachusetts Housing Fin. Agency, 456 F. Supp.
2d 46, 62 (D.D.C. 2006), aff’d, 530 F.3d 980 (D.C. Cir. 2008); see
also
Universal
Health,
__
U.S.
at
__,
136
S.
Ct.
at
2002
(emphasizing rigorous nature of FCA scienter requirement).
This
principle holds particular force in the context of this case, where
the relator proffers only conclusory allegations of motive (see
Docket Entry 73 at 6 (relying upon allegations that the Hospitals
“acted ‘with the motive of inflating their Medicare reimbursement
rates’” and that their “‘motive for overstating their costs was to
inflate their Medicare reimbursements’” (emphasis in original)
(quoting Docket Entry 62, ¶¶ 18, 46))).
See Iqbal, 556 U.S. at 678
(explaining that a complaint “offer[ing] labels and conclusions[,]
or a formulaic recitation of the elements of a cause of action,” or
“naked assertion[s] devoid of further factual enhancement” fails to
survive Rule 12(b)(6) (internal quotation marks omitted; final set
of brackets in original)).
As further circumstantial evidence, Vincoli maintains that the
Court must “infer an intention to obscure or hide the fraud” from
“the
complexity
of
the
employee
43
benefit
plan
structures
the
hospitals set up to accomplish the scheme.”
6.)
(Docket Entry 73 at
More specifically, Vincoli asserts that “[t]he Court must
infer” that the Hospitals’ MedCost-related “shell-game structures”
“were intentionally set up to make the [relevant] transactions look
like something
other
than
what
they
were
—
hospitals
paying
themselves to provide domestic care to their own employees — with
the intent and purpose that the hospitals would significantly
enhance their reimbursements and the government would be deceived.”
(Id. at 6-7.)
This argument likewise fails.
First, Vincoli’s allegations regarding the structure of the
Hospitals’ employee benefit plans do not support his argument.
According to the Second Amended Complaint, the Hospitals jointly
own MedCost, which they hired to adjudicate and pay the domestic
care and third-party healthcare service claims of their respective
employees
under their
respective self-funded
(Docket Entry 62, ¶¶ 8, 10-11, 30.)
insurance
plans.
Pursuant to its contracts with
the Hospitals, MedCost functions as a plan supervisor performing
only
ministerial
administrator.
duties
rather
than
a
true
third-party
(Id., ¶ 30; see also id. at 14 n.5.)
Finally,
according to Vincoli’s proposed amendments, MedCost possesses a
“provider network” to which the Hospitals gained access, through
their contracts with MedCost, for their employees’ healthcare
treatment.
functions
(Docket Entry 81 at 9.)
vis-à-vis
the
Hospitals’
44
Given MedCost’s legitimate
employee
benefit
plans,
Vincoli’s
allegations
fail
to
plausibly
establish
that
the
Hospitals engineered their employee benefit plans merely to defraud
the United States.20
Moreover, the Second Amended Complaint contains no allegations
suggesting that the employees who certified the Medicare Cost
Reports — the individuals that Vincoli alleges committed the fraud
— had any involvement in creating MedCost’s relationship with the
Hospitals.
(See generally Docket Entry 62.)
The Second Amended
Complaint likewise lacks any allegations suggesting that these
individuals bore any awareness of the fact that MedCost allegedly
failed to qualify as a third-party administrator to the Hospitals’
employee
benefits
plans.
This
omission
holds
particular
significance given that the North Carolina Department of Insurance
identifies MedCost as a licensed “Third Party Administrator (TPA).”
(See Docket Entry 78-1 at 1, 23 (listing “TPA Status: Licensed” for
MedCost); http://www.ncdoi.com/lh/Documents/TPADirectory.pdf, at 1,
23
(same)
(last
visited
Dec.
28,
2016).)21
Under
these
20 As such, these circumstances differ from those in United
States v. Triple Canopy, Inc., 775 F.3d 628 (4th Cir. 2015), cert.
granted, judgment vacated sub nom., Triple Canopy, Inc. v. United
States ex rel. Badr, __ U.S. __, 136 S. Ct. 2504 (2016), upon which
Vincoli relies (see Docket Entry 73 at 7), wherein a security
contractor falsified the marksmanship scorecards of security guards
at an airbase in an active combat zone to hide the fact “that the
guards could not, for lack of a better term, shoot straight,”
Triple Canopy, Inc., 775 F.3d at 637-38.
21 Vincoli does not dispute MedCost’s status as a licensed
TPA (see Docket Entry 81 at 1 n.1), and the Court may take judicial
notice of MedCost’s status as represented on the North Carolina
45
circumstances, Vincoli’s allegations about the complexity of the
MedCost-administered
employee
health
benefit
plans
fail
to
plausibly establish scienter.
Finally, Vincoli argues that the Court must infer scienter
from his allegation that the Hospitals claimed “fictitious” costs
on
their
Medicare
Cost
Reports.
(Docket
Entry
73
at
6.)
Specifically:
The Court must infer from this allegation that the
Defendant hospitals — sophisticated institutions that are
presumed to know the law — would not claim a billion
dollars in fictitious costs innocently or by mistake. If
[Vincoli] is correct in his allegation that the hospitals
reported a billion dollars in fictitious costs — a
well-pled fact the Court must accept as true — then the
only plausible inference is that they acted “knowingly”
as the term was defined by Congress.
(Id. (emphasis in original).)
Contrary to Vincoli’s contention, whether or not these costs
qualify as “fictitious” constitutes a legal determination subject
to
judicial
resolution.
See
Rostholder,
745
F.3d
at
700-03
(evaluating regulations to determine if the defendant submitted a
“false” claim and affirming Rule 12(b)(6) dismissal for “fail[ure]
to
plead
the
existence
of
a
false
statement
or
fraudulent
conduct”); see also Carlson v. DynCorp Int’l LLC, No. 14-1281,
Department of Insurance TPA Directory. See, e.g., Ademiluyi v.
PennyMac Mortg. Inv. Trust Holdings I, LLC, 929 F. Supp. 2d 502,
510 (D. Md. 2013) (“tak[ing] judicial notice of [the] defendants’
licensing status represented via the Nationwide Mortgage Licensing
System . . . website,” which “records show that [a relevant entity]
holds a license as a mortgage lender under Maryland law”).
46
__ F. App’x __, __, __, 2016 WL 4434415, at *1, *6 (4th Cir. Aug.
22, 2016) (explaining that “we are not bound to accept [the
plaintiff’s] legal conclusion[ ] that [the defendant’s] alleged
under billing violated [federal regulations] and [standards],” and
affirming
Rule
12(b)(6)
dismissal
with
prejudice
(internal
quotation marks omitted; second set of brackets in original)).
Therefore, Vincoli’s characterization of these costs as fictitious
does not bind the Court in resolving the Motions to Dismiss.
See,
e.g., Nathan, 707 F.3d at 455 (explaining that, in reviewing Rule
12(b)(6) motions, courts “will not accept legal conclusions couched
as facts” (internal quotation marks omitted)).22
Even assuming that the costs qualify as “fictitious,” Vincoli
errs in arguing that the Court must infer scienter from the fact
that the Hospitals claimed such costs (see Docket Entry 73 at 6
(asserting that “[t]he Court must infer . . . that the Defendant
hospitals . . . would not claim a billion dollars in fictitious
costs innocently or by mistake” (emphasis omitted))). As discussed
below, the relevant Medicare rules and regulations do not, by
22 Moreover, as the discussion that follows above reflects,
it remains at least questionable whether such costs qualify as
fictitious, which circumstance undermines Vincoli’s FCA claim. See
Wilson, 525 F.3d at 377 (explaining that “imprecise statements or
differences in interpretation growing out of a disputed legal
question are similarly not false under the FCA” (internal quotation
marks omitted)); Kirk, 130 F. Supp. 3d at 877 (“Where there are
legitimate grounds for disagreement over the scope of a . . .
regulatory provision, and the claimant’s actions are in good faith,
the claimant cannot be said to have knowingly presented a false
claim.” (internal quotation marks omitted; ellipsis in original)).
47
themselves, compel an inference that the Hospitals failed to act
“innocently” in claiming the allegedly fictitious costs.
As such,
Vincoli’s contention that “the only plausible inference is that
[the
Hospitals]
acted
‘knowingly’”
if
they
reported
these
fictitious costs lacks merit and thus cannot establish scienter.
See United States ex rel. Orgnon v. Chang, No. 3:13-cv-144, 2016 WL
715746, at *3 (E.D. Va. Feb. 19, 2016) (granting motion to dismiss
where the complaint lacked facts showing that the defendant’s
actions “constituted anything more than mere negligence,” finding
that the failure to allege facts showing actual knowledge, reckless
disregard, or deliberate ignorance meant that the relators’ “claim
does
not
satisfy
the
FCA’s
scienter
requirement”),
appeal
dismissed, No. 16-1557 (4th Cir. Aug. 15, 2016); see also Owens,
612 F.3d at 728 (observing that the FCA does “not punish honest
mistakes or incorrect claims submitted through mere negligence”
(internal quotation marks omitted)); Wilson, 525 F.3d at 379
(explaining that “to adequately plead scienter,” an FCA plaintiff
must plead “specific facts that support an inference of fraud”
(internal quotation marks omitted)).
To begin with, CMS provides instructions for completing the
relevant domestic care cost section of the Medicare Cost Reports.
See Medicare Provider Reimbursement Manual, Part II, § 4005.2, at
40-62 (specifying “the allowable health insurance and healthrelated costs
for
the
wage
index”).
48
Section
4005.2
divides
hospitals into two categories:
those with “Purchased Health
Insurance” and those with “Self (or Self-Funded) Health Insurance.”
Id.
The Hospitals fit the latter category.
¶¶ 10-11.)
(Docket Entry 62,
CMS further divides that category into two groups:
those “Without a Third-Party Administrator (TPA)” and those “With
a TPA.” Medicare Provider Reimbursement Manual, Part II, § 4005.2,
at 40-62. CMS identifies no criteria for qualifying as a TPA under
this provision.
See id.23
CMS specifies that all self-funding hospitals may include any
“[c]osts paid to external organizations for plan administration” in
their allowable costs.
Id.
In addition, CMS instructs those
hospitals possessing a TPA that the “[a]mount the TPA pays to the
hospital or other health care providers for services rendered under
the plan” constitutes allowable costs.
Id.
By contrast, self-
funding hospitals that lack a TPA may claim as allowable costs both
the “[c]osts the hospital incurs in providing services under the
plan to its employees” and the “[h]ospital’s payment to unrelated
health care providers for services rendered, under the plan, to
[the] hospital’s employees.” Id. Finally, CMS provides that selffunding hospitals “are not required to remove from domestic claims
costs, the personnel costs that are associated with hospital staff
who deliver the services to employees.”
Id.
23 Vincoli likewise fails to identify any Medicare rule or
regulation specifying the criteria for qualifying as a TPA. (See
Docket Entries 62, 73, 81.)
49
Vincoli maintains that the Hospitals improperly claimed on
their Medicare Cost Reports the amounts that MedCost paid them for
their domestic care claims.
North Carolina.
MedCost constitutes a licensed TPA in
(See Docket Entry 78-1 at 23.)
Although Vincoli
contends that MedCost does not qualify as a true “‘third party
administrator’ under its agreements with the Hospital[s]” (Docket
Entry 62 at 14 n.5), CMS specifies no criteria regarding the
“degree of independence from oversight, direction and control”
(id.) necessary for qualification as a TPA, see Medicare Provider
Reimbursement Manual, Part II, § 4005.2, at 40-62.
Accordingly,
nothing in the relevant CMS guidance indicates that the Hospitals
lacked authorization to claim as allowable costs the amounts that
MedCost
paid
the
Hospitals
for
their
domestic
care
claims.
Likewise, in light of its instruction regarding personnel costs,
CMS
appears
to
impose
no
obligation
on
the
Hospitals
to
“reclassify” costs associated with the provision of this domestic
care among their various costs centers.24
Vincoli
contends,
though,
that
these
costs
transgressed
Medicare’s related-party rule, 42 C.F.R. § 413.17, and Medicare
24 The apparent adherence of the Hospitals’ Medicare Cost
Reports
to
CMS’s
instructions
in
the
Medicare
Provider
Reimbursement Manual possesses special significance when considered
in light of the fact that, in certifying these reports, the
individuals at the Hospitals who allegedly committed the fraud
averred that, “to the best of [their] knowledge and belief,” the
Medicare Cost Reports “are true, correct, complete and prepared
. . . in accordance with applicable instructions,” 42 C.F.R.
§ 413.24(f)(4)(iv).
50
Provider Reimbursement Manual, Part I, §§ 332.1 and 2144.4.
Docket Entry 62, ¶ 13.)
(See
The related-party rule specifies that,
[e]xcept as provided in paragraph (d) of this section,
costs applicable to services, facilities, and supplies
furnished to the provider by organizations related to the
provider by common ownership or control are includable in
the allowable cost of the provider at the cost to the
related organization. However, such cost must not exceed
the price of comparable services, facilities, or supplies
that could be purchased elsewhere.
42 C.F.R. § 413.17(a).25
provider means
that
Under this regulation, “[r]elated to the
the
provider
to a
significant
extent
is
associated or affiliated with or has control of or is controlled by
the organization furnishing the services, facilities, or supplies.”
42 C.F.R. § 413.17(b)(1).
Per Vincoli’s allegations, MedCost
appears to qualify as a related party to the Hospitals under 42
C.F.R. § 413.17(b).
care
costs
facilities,
at
issue
[or]
[Hospitals].”
(Docket Entry 62, ¶ 8.)
here
supplies”
do
not
that
arise
MedCost
However, the domestic
from
any
“services,
“furnishe[s]
to
the
Accordingly, the plain language of this regulation
suggests its inapplicability to the pertinent transactions.26
Nevertheless, Vincoli maintains that, per Medicare Provider
Reimbursement Manual, Part I, §§ 332.1 and 2144.4, the Hospitals
25 If the transaction meets specified criteria, “the charge
by the supplier to the provider for such services, facilities, or
supplies is allowable as cost.” 42 C.F.R. § 413.17(d).
26 So interpreted, the Hospitals’ failure to identify these
transactions on their Medicare Cost Reports does not qualify as a
false statement, let alone a knowingly false statement. See Kirk,
130 F. Supp. 3d at 877-78.
51
needed to reduce their domestic care costs from the amounts that
MedCost paid them for these services to the Hospitals’ “actual outof-pocket costs.”
medical
providers
benefits.
to
include
in
their
Section 2144 permits
costs
certain
fringe
See, e.g., Medicare Provider Reimbursement Manual, Part
I, § 2144.4.
hospitals
(Docket Entry 62, ¶ 13.)
The unrecovered cost of medical discounts that
provide
to
their
employees
under
Medicare
Provider
Reimbursement Manual, Part I, § 332 represents one such fringe
benefit.
Id. § 2144.4.
The domestic care costs at issue here,
however, do not involve Section 332 discounts. Therefore, Sections
332.1 and 2144.4 lack clear applicability to the determination of
the Hospitals’ allowable domestic care costs.
As a final matter, Vincoli maintains that the Board’s St.
Francis Hospital decision renders invalid the Hospitals’ claimed
domestic care costs.
also id., ¶¶ 42-44.)
(See Docket Entry 62, ¶¶ 12-13, 38; see
However, the St. Francis Hospital decision
carries no precedential weight and cannot trump CMS instructions.
See Medicare Provider Reimbursement Manual, Part I, § 2927; see
also St. Francis Hosp., 2007 WL 1774634, at *4 (explaining that the
Board “holds no authority beyond this specific case”).27 Thus, even
27
Moreover, the relevance of the St. Francis Hospital
decision to the instant circumstances remains unclear.
Here,
Vincoli alleges that MedCost constitutes an “administrative
contractor” that the Hospitals jointly own.
(Docket Entry 62,
¶ 8.)
In St. Francis Hospital, the hospital wholly owned the
subsidiary that processed its claims, preventing the necessary
shifting of risk to qualify the hospital’s medical plan as self52
assuming that the certifying officers knew of the St. Francis
Hospital decision, the foregoing analysis of the Medicare rules and
regulations remains dispositive of the scienter issue.
In sum, the plain language of the pertinent Medicare rules and
regulations does not suggest that the certifying officials acted
with fraudulent intent simply because the Hospitals claimed the
disputed domestic care costs without reclassifying employee benefit
costs or identifying any related-party transaction with MedCost.
The Second Amended Complaint does not allege that the Hospitals, in
general, or the certifying officials, in particular, knew of the
St. Francis Hospital decision (let alone perceived it as binding on
them).
(See Docket Entry 62.)
content from
which
the
Court
It also fails to allege any factual
could
plausibly
infer
that the
Hospitals possessed awareness of any information that disqualified
these costs or otherwise precluded a good-faith interpretation of
the relevant rules under which these costs appeared permissible.
insurance under Medicare Provider Reimbursement Manual, Part I,
§ 2162.7.
See St. Francis Hosp., 2007 WL 1774634, at *2, *4-5
(observing that even if the arrangement had involved some riskshifting, “the transfer would have been among operating components
of the same entity and would have generated no change in the
Provider’s risk acceptance,” id., 2007 WL 1774634, at *5).
Medicare Provider Reimbursement Manual, Part II, § 4005.2 defines
permissible costs according to whether the medical provider
possesses a TPA, not whether it transfers insurance risks to that
TPA. Finally, the alleged fraud at issue here does not involve
attempts by the Hospitals to claim premium payments made to
MedCost. Cf. St. Francis Hosp., 2007 WL 1774634, at *5 (analyzing
permissible health insurance premiums under Medicare Provider
Reimbursement Manual, Part I, § 2144.4).
53
(See id.)
In other words, the Second Amended Complaint fails to
allege “specific facts that support an inference of fraud,” thereby
“fail[ing] to adequately plead scienter,” Wilson, 525 F.3d at 379
(internal quotation marks omitted).
See Kirk, 130 F. Supp. 3d at
877-78; see also Commercial Contractors, Inc. v. United States, 154
F.3d 1357, 1366 (Fed. Cir. 1998) (“If a contractor submits a claim
based on a plausible but erroneous contract interpretation, the
contractor will not be liable, absent some specific evidence of
knowledge that the claim is false or of intent to deceive.”).
B.
Proposed Amendments
Vincoli’s proposed amendments do not change the foregoing
conclusion.
Vincoli contends that Baptist “was placed on notice”
that it “had filed false cost reports” through a November 2007
demand letter that Vincoli’s attorney wrote to Baptist’s attorney.
(Docket Entry 81 at 7.)
that “may
have
been
This letter referenced “overstated costs”
rolled
up
into
[Baptist’s]
Medicare
and
Medicaid cost reports (under the line item ‘Employee Health Care
Costs’).”
(Id. (italicized font and internal quotation marks
omitted).)
Vincoli provides no details from this 2007 letter
regarding
the nature
of
“these
overstated
costs.”
(See id.
(italicized font and internal quotation marks omitted).)
However, the Second Amended Complaint alleges that “[Vincoli]
was fired by [Baptist] on October 2, 2007, as a result of his
complaints about transactions by which [Baptist] paid itself more
54
for domestic care of its employees than commercial insurers were
willing to pay for the same services.”
(Docket Entry 62, ¶ 9.)
Additionally, Vincoli seeks to add a factual allegation regarding
his “mixed annual review,” which occurred “after he had raised the
ERISA issue with [Baptist] CFO Gina Ramsey.”
9 n.7.)
(Docket Entry 81 at
This “ERISA issue” references Vincoli’s “complaint that
[Baptist] violated ERISA by engaging itself through MedCost’s
provider network to provide care to its own employees at abovemarket rates.”
(Id. at 9.)
Vincoli worked for Baptist from July
2006 to October 2007 (Docket Entry 62, ¶ 8), and his pre-ERISA
complaint “six-month review was excellent” (Docket Entry 81 at 9
n.7).
Given these allegations, Vincoli began complaining about
Baptist’s
allegedly
above-market
January 2007 and July 2007.
rates
between
approximately
Under these circumstances, the only
plausible interpretation of Vincoli’s proposed factual allegation
remains that the “overstated costs” in Vincoli’s 2007 demand letter
reference the ERISA-related “above-market rate[]” charges.
See
Nathan, 707 F.3d at 455 (explaining that, in analyzing whether a
complaint survives Rule 12(b)(6), courts “will not accept . . .
unwarranted inferences[ or] unreasonable conclusions” (internal
quotation marks omitted)).28
28 This understanding comports with the allegations in the
Complaint (filed in 2009) and First Amended Complaint (filed in
2010), which challenge the allegedly inadequate discount that
Baptist offered to MedCost plan participants compared to the
discounts it offered participants in other “managed care contracts”
55
Telling Baptist that “it may well have overstated its costs to
Medicare and Medicaid” because it included costs for above-market
rate services does not suffice to establish that Baptist acted with
scienter in failing to reduce its domestic care costs to its actual
out-of-pocket
costs
for
those
services.
These
purported
improprieties constitute “substantially different” allegations of
fraud.
(Docket Entry 61 at 2, 3.)
Therefore, Vincoli’s proposed
factual allegations fail to plausibly establish that Baptist acted
with scienter in submitting Medicare Cost Reports that did not
reduce its domestic care claims from the amount that MedCost paid
Baptist to its actual out-of-pocket costs.
See Rostholder, 745
F.3d at 702 (explaining that the FCA does not constitute “a
sweeping mechanism to promote regulatory compliance”).
The
same
allegations.
conclusion
holds
true
regarding
Vincoli’s
CHS
Vincoli maintains that CHS “was placed on notice” of
its false reports “when the Complaint and First Amended Complaint
in this matter were partially unsealed and served upon CHS on or
about September 14, 2010.”
Entries 17, 19).)
(Docket Entry 81 at 7 (citing Docket
Neither of these pleadings references the St.
Francis Hospital decision upon which the Second Amended Complaint’s
allegations rely; nor do they reference either Medicare Provider
Reimbursement Manual, Part I, §§ 332.1 or 2144.4, or Medicare
(Docket Entry 1, ¶ 40; Docket Entry 16, ¶ 47), thereby allegedly
inflating Medicare Cost Report wage data. (See Docket Entry 1,
¶¶ 9-15, 29-61; Docket Entry 16, ¶¶ 9-15, 35-69.)
56
Provider Reimbursement Manual, Part II, § 4005.2.
Instead, the
Complaint and First Amended Complaint detail a fraudulent scheme
arising from the alleged lack of an independent fiduciary for the
Hospitals’ self-funded health insurance plans and the resulting
comparatively insufficient discount that the Hospitals provided to
MedCost plan participants as versus participants in other managed
care contracts (such as BlueCross/BlueShield of North Carolina).
(See Docket Entry 1, ¶¶ 9-15, 29-61; Docket Entry 16, ¶¶ 9-15, 3569.)
That CHS received notice of Vincoli’s allegations regarding
this “substantially different” scheme fails to satisfy the FCA’s
rigorous scienter requirement.
Simply put, both the Second Amended Complaint and Vincoli’s
proposed amendments fail to plausibly allege that the Hospitals
“knowingly” submitted false claims to the United States. Vincoli’s
failure
to
satisfy
the
FCA’s
rigorous
scienter
requirement
necessitates dismissal of the Second Amended Complaint. See Vitol,
S.A. v. Primerose Shipping Co., 708 F.3d 527, 547-49 (4th Cir.
2013)
(evaluating
12(b)(6)
dismissal
complaint
where
the
and
affirming
“allegations
propriety
are
of
conclusory
Rule
and
contain legal conclusions couched as factual allegations,” and,
“[t]o the extent that the Amended Verified Complaint does properly
allege facts, those facts do not show more than a sheer possibility
that a defendant has acted unlawfully” (internal quotation marks
omitted)); Francis, 588 F.3d at 197 (affirming Rule 12(b)(6)
57
dismissal because, “[t]aking the facts alleged in the complaint in
context and as true, [the court] conclude[s] that the complaint
does not state any claim for relief that is plausible on its
face”); see also Orgnon, 2016 WL 715746, at *3 (granting motion to
dismiss for failure to allege scienter).
Furthermore, because
Vincoli’s proposed amendments fail to cure this deficiency, the
Court should dismiss the Second Amended Complaint’s qui tam claim
with prejudice.
See Rostholder,
745 F.3d
at
703
(affirming
dismissal with prejudice of FCA claim for “fail[ure] to plead the
existence of a false statement and scienter as required by the
FCA,” noting that “any amendment would have been futile”).
VII.
Retaliation Claims
As pertinent to this action, each of the Acts prohibits
retaliation “in the terms and conditions of employment” against an
individual “because of lawful acts done by” the individual “in
furtherance of an action under” that Act.
N.C. Gen. Stat. § 1-613.
31 U.S.C. § 3730(h);
To establish such retaliation claim, a
plaintiff must satisfy three elements.
Mann v. Heckler & Koch
Def., Inc., 630 F.3d 338, 343 (4th Cir. 2010).
Specifically, the
“‘employee must prove that (1) he took acts in furtherance of a qui
tam suit; (2) his employer knew of these acts; and (3) his employer
[took adverse action against] him as a result of these acts.’” Id.
(brackets in original) (quoting Zahodnick v. International Bus.
58
Machs. Corp., 135 F.3d 911, 914 (4th Cir. 1997)).29
Baptist
maintains that Vincoli “fails to establish the third element, as
§ 3730(h) does not extend to post-employment acts of retaliation
and the Complaint fails to establish a plausible nexus between
[Baptist’s] alleged knowledge of this litigation and the alleged
adverse actions.”
(Docket Entry 66 at 15-16.)
“The vast majority of courts to have considered the issue have
found, most even at the motion to dismiss stage, that § 3730(h)
provides
no
remedy
for
retaliation
alleged
to
have
occurred
following a plaintiff’s termination of employment.” Fitzsimmons v.
Cardiology Assocs. of Fredericksburg, Ltd., No. 3:15cv72, 2015 WL
4937461, at *7 & n.15 (E.D. Va. Aug. 18, 2015) (collecting cases).
In reaching this conclusion, courts emphasize that the FCA provides
relief when an employer takes adverse action regarding “the terms
and
conditions
of
employment”
furtherance of the FCA.
of
an
individual
who
acts
in
See, e.g., Bechtel v. St. Joseph Med.
Ctr., Inc., Civil Action No. MJG-10-3381, 2012 WL 1476079, at *9
(D. Md. Apr. 26, 2012) (“[Section] 3730(h) expressly provide[s]
relief
when
an
employee
‘is
discharged,
demoted,
suspended,
29 Neither the parties nor the undersigned has located any
North Carolina decisions construing the NC FCA’s retaliation
provision.
However, the NC FCA provides that it “shall be
interpreted and construed so as to be consistent with the federal
False Claims Act, 31 U.S.C. § 3729, et seq., and any subsequent
amendments to that act.” N.C. Gen. Stat. § 1-616(c). Accordingly,
both the parties and the undersigned rely on decisions interpreting
the FCA in analyzing Vincoli’s NC FCA retaliation claim.
59
threatened, harassed, or in any other manner discriminated against
in the terms and conditions of employment.’
This language is not
reasonably interpreted to include post-termination retaliatory
actions.”).
Court
to
Vincoli concedes this “general rule,” but urges the
follow
“a
developing
line
of
cases
recognizing
an
exception to this rule for blacklisting, blackballing or other
post-termination interference with subsequent employment.” (Docket
Entry 73 at 22.)
The Court need not resolve whether the Acts’ retaliation
provisions cover the post-termination employment situation at issue
in this case.
Even assuming the Acts’ application, Vincoli fails
to
allege
plausibly
that
Baptist
caused
the
North
Carolina
“Governor’s office” to take adverse employment actions against him
(Docket Entry 62, ¶ 99).
A.
FCA Retaliation
The following allegations in the Second Amended Complaint
relate to Vincoli’s FCA retaliation claim:
In November 2010, Vincoli began working for the NC DPS. (Id.,
¶ 87.) “In June 2011, on information and belief, [Baptist] learned
of the filing of this qui tam action through the issuance of
subpoenas” and communications with the United States Attorney’s
Office.
(Id., ¶ 91.)
In October 2011, “perhaps . . . to protect
itself against allegations that it was retaliating against Vincoli
on account of his filing of this action” (id., ¶ 92), Baptist
60
dismissed a lawsuit that it had filed in January 2011 against
Vincoli for violating the Release (id., ¶ 88).
In
July
2013,
Vincoli
copied
his
state
representative,
Lambeth, “a former [Baptist] executive, on two emails, one of which
concerned
[Vincoli’s]
efforts
to
report
the
$1.34
overpayment [that North Carolina made to Baptist].”
million
(Id., ¶ 94.)
In October 2013, even though Vincoli did not qualify for such
status, “Governor McCrory’s administration reclassified Vincoli as
‘managerial
exempt’
and
stripped
him
of
his
North
Carolina
Personnel Act protections . . . . In December 2013, Governor
McCrory’s administration fired Vincoli without notice, severance,
or even a full day’s pay for his last day at work.”
Vincoli’s
supervisor
did
not
participate
in
this
(Id., ¶ 97.)
termination
decision, and “[t]he state’s explanation” for his firing “was that
they bought a computer program that could do his job.”
¶ 98.)
(Id.,
“All in all, the termination process had such a punitive
nature and overtones to it that it was clear that someone or some
organization of importance or influence wanted Vincoli fired for
reasons unrelated to his job performance.”
(Id.)
“On information
and belief, the Governor’s office took these” adverse employment
actions the behest of Baptist (assisted by Lambeth), “whose motive
was to crush Vincoli financially and thereby silence his complaints
in this qui tam action and his complaints about the $1.34 million
owed by [Baptist] to the State of North Carolina.”
61
(Id., ¶ 99.)
Lambeth refuses to answer questions regarding this matter or to
produce “e-mails from his legislative e-mail account that refer to
Vincoli.”
(Id.)
Baptist asserts that the Second Amended Complaint fails to
allege any non-conclusory factual content “linking Vincoli’s firing
to [Baptist], much less any facts linking his firing to [Baptist’s]
knowledge of this lawsuit.”
(Docket Entry 66 at 20.)
This
argument possesses merit.
In the retaliation context, a plaintiff can establish a “prima
facie case of causa[tion]” through temporal proximity between the
employer
learning
of
the
protected
activity
and
the
adverse
employment action. Dowe v. Total Action Against Poverty in Roanoke
Valley, 145 F.3d 653, 657 (4th Cir. 1998) (internal quotation marks
omitted;
brackets
in
original);
see
also
Shenoy
v.
Charlotte-Mecklenburg Hosp. Auth., 521 F. App’x 168, 174-75 (4th
Cir. 2013)
(evaluating
whether
temporal
proximity
established
causation for § 3730(h) claim); Harrington v. Aggregate Indus.-Ne.
Region, Inc., 668 F.3d 25, 32 (1st Cir. 2012) (analyzing § 3730(h)
claim, explaining that, “in the context of temporal proximity,
courts typically look to the time between protected activity and
retaliation”).
For temporal proximity to establish causation, it
“must be ‘very close.’”
Clark Cty. Sch. Dist. v. Breeden, 532 U.S.
268, 273 (2001) (citing cases holding that three-month and fourmonth periods fail to establish causation).
62
Accordingly, “[a]
lengthy time lapse between the employer becoming aware of the
protected
activity
and
the
alleged
adverse
employment
action
. . . negates any inference that a causal connection exists between
the two.”
Dowe, 145 F.3d at 657.
Accepting Vincoli’s contentions, Baptist became aware of his
protected activity in filing a qui tam suit in June 2011.
time, Vincoli worked for the state of North Carolina.
At that
More than
two years later, in October 2013, Governor McCrory’s administration
reclassified Vincoli’s employment status and, in December 2013,
fired him.
The period between Baptist’s discovery of Vincoli’s
pursuit of this qui tam suit and North Carolina’s firing of Vincoli
“is several years, which is simply not ‘very close’ in time.”
Shenoy, 521 F. App’x at 175 (holding that the plaintiff “cannot
show causation” where the employer “knew of [his] actions . . . at
the latest[] more than three years before his termination”); see
also Clark, 532 U.S. at 274 (“Action taken (as here) 20 months
later suggests, by itself, no causality at all.”); Causey v. Balog,
162 F.3d 795, 803 (4th Cir. 1998) (“A thirteen month interval
between the
charge
and
termination
is
too
long
to
establish
causation absent other evidence of retaliation.”). Simply put, the
Second Amended Complaint does not allege factual matter sufficient
to support an inference that the employment-related actions by
North Carolina officials in late 2013 resulted from retaliation by
63
Baptist for Vincoli’s filing of a qui tam action revealed to
Baptist in June 2011.
The Second Amended Complaint’s allegations regarding Lambeth
likewise fail to satisfy the causation element.
As a preliminary
matter, the Second Amended Complaint contains no factual content
indicating that Lambeth played any role in Vincoli’s firing.
generally Docket Entry 62.)
(See
Even if such allegations existed, the
Second Amended Complaint lacks any basis for imputing Lambeth’s
actions to Baptist.
To the contrary, the only factual allegation
connecting Lambeth to Baptist concerns Lambeth’s status as a
“former [Baptist] executive.”
(Id., ¶ 94 (emphasis added).)
Moreover, even accepting Vincoli’s “belief” that Lambeth forwarded
certain of Vincoli’s emails to Baptist, none of those emails
involve this qui tam suit.
(See id.)
Accordingly, Vincoli’s
allegations fail to plausibly establish that Baptist (motivated by
the filing of this action) carried out any retaliation involving
Vincoli’s state employment, “at least partly, via Representative
Lambeth’s communications” (id., ¶ 99).
Vincoli’s proposed amendments do not change the foregoing
causation analysis. Vincoli asserts that Baptist’s lawyer informed
his former lawyer, Robert Zaytoun, that the North Carolina hospital
community “is very tight and” Baptist “would do ‘everything in its
power to make sure he never worked for another hospital in the
State again’” if Vincoli sued Baptist.
64
(Docket Entry 73 at 24
n.44.) Vincoli maintains that he included “these comments in a May
17, 2012 e-mail to Representative Donny Lambeth 19 months before he
was fired by the state in December, 2013.”
original).)
(Id. (emphasis in
Finally, Vincoli alleges that Lambeth served as
Baptist’s president from 2007 to 2011 (id. at 24 n.43), and that
Vincoli’s job with the NC DPS qualifies as a hospital job (Docket
Entry 81 at 9-10).
Aside from implicitly conceding that they occurred before May
17, 2012, Vincoli does not specify when Baptist’s lawyer made his
comments to Vincoli’s lawyer.
(See Docket Entry 73 at 24 n.44.)
Given the date that Zaytoun ceased serving as Vincoli’s lawyer,
these comments apparently occurred on or before November 2009 (see
Docket Entry 11 at 1 (granting Zaytoun’s motion “to withdraw as
counsel for Plaintiff/Relator”)).
In November 2010, Vincoli began
working in a hospital job for North Carolina, a position he
continued to occupy for three years.
Vincoli relayed Baptist’s
lawyer’s statement to Lambeth in May 2012, 19 months before North
Carolina fired him.
Under these circumstances, even assuming that
they implicated the qui tam lawsuit, Baptist’s lawyer’s comments as
conveyed to Lambeth do not establish causation.30
The period
30 Vincoli provides no factual allegations indicating that
Baptist’s lawyer’s comments involved his pursuit of a federal qui
tam claim.
It remains at least equally conceivable that those
comments involved Vincoli’s termination from Baptist (see Docket
Entry 65-1 at 6 (Zaytoun’s signature, dated May 19, 2008, on
Release)) or related to Vincoli’s ERISA complaint (see Docket Entry
81 at 9 & n.7 (alleging that Baptist’s CFO gave Vincoli a “mixed
65
between when Baptist’s lawyer made these comments, when Vincoli
sent them to Lambeth, and when North Carolina fired Vincoli remains
too long to establish causation.
75; Causey, 162 F.3d at 803.
See Shenoy, 521 F. App’x at 174-
This deficiency becomes even more
apparent when considered in light of the fact that Vincoli occupied
the relevant hospital job in June 2011, when Baptist learned of the
qui tam suit; in other words, the more than two-year delay between
Baptist’s discovery of this action and Vincoli’s firing negates the
suggestion that Baptist acted in conformance with comments made in
or before 2009.
In sum, the Second Amended Complaint and Vincoli’s proposed
amendments fail to plausibly establish that Baptist caused North
Carolina to reclassify and fire Vincoli as a result of his pursuit
of this qui tam action.
As such, the Court should grant Baptist’s
request to dismiss the FCA retaliation claim with prejudice.
See
Vitol, 708 F.3d at 548-49 (affirming Rule 12(b)(6) dismissal,
concluding that “[b]ecause the well-pleaded facts do not permit
[this]
[C]ourt
to
infer
more
than
the
mere
possibility
of
misconduct, the complaint has alleged — but it has not shown — that
the pleader is entitled to relief” (internal quotation marks
omitted; final two sets of brackets in original)).
annual review” in retaliation “for his criticism of [her] actions
concerning the ERISA issue”)).
66
B.
NC FCA Retaliation
The following allegations in the Second Amended Complaint
relate to Vincoli’s NC FCA retaliation claim:
In December 2008 and January 2009, Vincoli informed the NC
Plan of Baptist’s failure to provide it with notices under the
(expired) SHP contract.
(Docket Entry 62, ¶ 80.)
“In late 2010 or
early 2011,” Baptist learned that Vincoli reported its alleged
wrongdoing regarding the SHP contract to North Carolina officials.
(Id., ¶ 88.)
the
In January 2011, Baptist sued Vincoli for violating
Release’s
litigation,
non-disparagement
Vincoli
Baptist’s wrongdoing.
obtained
clause.
Discovery
(Id., ¶ 89.)
(Id.)
During
Documents
that
regarding
In September 2011, the North
Carolina Auditor determined that Baptist’s actions resulted in an
estimated $1.34 million overpayment, but concluded that North
Carolina lacked “grounds for legal recourse against [Baptist]”
regarding
this
alleged
overpayment
because
the
SHP
contract
contained no “express notice requirement.” (Id., ¶ 81.) The North
Carolina
Attorney
General
adopted
that
conclusion
(id.),
and
Baptist withdrew its lawsuit against Vincoli in October 2011 (id.,
¶ 92).
In July 2013, Vincoli copied Lambeth “on two emails, one of
which concerned his efforts to report the $1.34 million overpayment
. . . and the other of which concerned a Department of Labor
investigation of CHS’ status as a governmental entity.”
67
(Id.,
¶ 94.)
Lambeth forwarded those emails to a MedCost executive,
along with “a note stating:
JV.
‘Here is this weeks (sic) email from
Pass along to your attorney until I get him set up.’”
(Id.)
Vincoli believes that “Lambeth sent similar e-mails to [Baptist],”
but Lambeth refuses to produce those emails.
(Id.)
In January 2013, Vincoli submitted his Form containing the
Discovery Documents related to Baptist’s NC Claim wrongdoings, but
the NC DPS “leadership, in violation of state law,” failed to
forward the Form to the SBI.
(Id., ¶¶ 93, 95.)
After discovering
this failure, in August 2013, Vincoli sent an email to the Director
of Prisons that stated, in part, that the NC DPS “executive who
made the decision not to forward the documents to the [SBI]”
previously worked at the law firm representing Baptist in this qui
tam action.
(Id., ¶¶ 95-96.)
Governor McCrory’s administration
reclassified Vincoli’s position in October 2013, and fired him in
December 2013.
(Id., ¶ 97.)
As with the FCA retaliation claim, Vincoli fails to plausibly
establish that Baptist caused North Carolina to reclassify and fire
Vincoli for his efforts regarding the NC Claim.
According to
Vincoli, Baptist became aware of his actions regarding the NC Claim
by early 2011, but North Carolina did not take adverse employment
actions against Vincoli until late 2013.
negates any inference of causation.
174-75; Dowe, 145 F.3d at 657.
68
This lengthy period
See Shenoy, 521 F. App’x at
Vincoli’s allegations about his 2013 email regarding “his
efforts to report the $1.34 million overpayment” (Docket Entry 62,
¶ 94) likewise fail to establish causation.
Most fundamentally,
North Carolina officials determined in 2011 that, under the SHP
contract’s terms, North Carolina lacked legal recourse against
Baptist regarding the NC Claim.
(See id., ¶ 81 (detailing North
Carolina’s conclusion that it lacked “grounds for legal recourse
against [Baptist] because there was no express notice requirement
in the [SHP] contract”).)
Against this backdrop, the fact that
Lambeth received Vincoli’s email detailing “his efforts to report
the $1.34 million overpayment” and, Vincoli speculates, forwarded
that email to Baptist, does not plausibly establish that Baptist
caused North Carolina to fire Vincoli because of Vincoli’s lawful
acts in furtherance of an NC FCA action.
See, e.g., Glynn v. EDO
Corp., 710 F.3d 209, 214 (4th Cir. 2013) (explaining that, to
satisfy the protected activity element of an FCA retaliation claim,
an “employee’s investigation must concern ‘false or fraudulent
claims’” and must involve “matters that reasonably could lead to a
viable FCA action” (quoting Eberhardt v. Integrated Design &
Const., Inc., 167 F.3d 861, 869 (4th Cir. 1999))).31
Nor do the
31
Because the SHP contract expired in June 2008 (Docket
Entry 62, ¶ 76), before Vincoli took any action regarding the NC
Claim (id., ¶ 80), his retaliation claim arises under the Acts’
first prong (i.e., acts done in furtherance of a qualifying qui tam
action).
Even evaluated under the “broadened” second prong,
however, his actions fail to suffice. See, e.g., Carlson, 2016 WL
4434415, at *3, *6 (“assum[ing] without deciding, that [the
69
allegations regarding the NC DPS official who declined to forward
Vincoli’s Form suffice.
The mere fact that this official formerly
served as an attorney at the firm representing Baptist in the
instant action provides an insufficient basis for inferring that
Baptist possessed any knowledge of Vincoli’s Form, let alone that
Baptist caused North Carolina to fire Vincoli in retaliation for
his submission of this Form.32
Simply put, the Second Amended Complaint fails to plausibly
allege that Baptist retaliated against Vincoli in contravention of
the NC FCA. In addition, notwithstanding the opportunity to do so,
Vincoli failed to present any proposed amendments in support of his
NC FCA claim.
dated
July
12,
(See Docket Entries 73, 81; see also Text Order
2016.)
Accordingly,
the
Court
should
grant
Baptist’s request to dismiss the NC FCA retaliation claim with
prejudice.
See Francis, 588 F.3d at 197 (affirming denial of
amendment request on Rule 12(b)(6) dismissal where party failed to
plaintiff] is correct in arguing that the second prong of § 3730(h)
makes ‘efforts to stop 1 or more violations’ protected activity
where those efforts are motivated by an objectively reasonable
belief that the employee’s employer is violating, or soon will
violate, the FCA,” and affirming Rule 12(b)(6) dismissal “[b]ecause
[the plaintiff] has failed to plausibly allege facts sufficient to
show he reasonably believed that [the defendant] was engaged in a
fraud on the government”).
32 At the time these events occurred (in 2013), Vincoli’s qui
tam pleadings failed to mention the NC Claim. (See Docket Entries
1, 16.) This absence further undermines any attempt to link the NC
DPS’s actions and/or knowledge of Vincoli’s activities to Baptist
through an NC DPS official’s former employment at the firm
representing Baptist in this action.
70
provide proposed amendments, concluding that the court bore no
obligation “to give the plaintiffs a blank authorization to ‘do
over’ their complaint”).
VIII. Amendment Requests
In opposing the Motions to Dismiss, Vincoli repeatedly asks
for leave to amend the Second Amended Complaint. (See Docket Entry
73 at 24 n.44, 30; Docket Entry 81 at 10.)
A court may deny a
request for leave to amend a pleading “when the amendment would be
prejudicial to the opposing party, there has been bad faith on the
part of the moving party, or the amendment would have been futile.”
Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc)
(internal quotation marks omitted); see also Foman v. Davis, 371
U.S. 178, 182 (1962) (explaining that, although courts generally
should freely give leave to amend, they may deny such leave for
“undue delay, bad faith or dilatory motive on the part of the
movant,
repeated
failure
to
cure
deficiencies
by
amendments
previously allowed, undue prejudice to the opposing party by virtue
of allowance of the amendment, [and] futility of amendment”).
In
addition, a court may deny a request for leave to amend that fails
to comply with the court’s local rules.
See Francis, 588 F.3d at
197; see also M.D.N.C. LR 83.4.
To begin with, futility warrants denial of Vincoli’s request
for leave to amend.
See Wilson, 525 F.3d at 376 (affirming denial
of “motion for leave to file a third amended complaint” on futility
71
grounds “[b]ecause [the r]elators’ proposed amended complaint does
not properly state a claim under Rule 12(b)(6) and lacks sufficient
particularity under Rule 9(b)”).
In response to his requests for
leave to amend and to file a surreply, the Court ordered Vincoli to
provide in his Surreply any additional factual allegations he
intended to include in any Third Amended Complaint.
Order dated July 12, 2016.)
(See Text
In analyzing the Motions to Dismiss,
this Memorandum Opinion addressed each proposed factual allegation,
but found them insufficient to save his claims.
Vincoli’s proposed amendments qualify as futile.
Penn
Nat’l
Gaming,
Inc.,
637
F.3d
462,
471
Accordingly,
See Katyle v.
(4th
Cir.
2011)
(recognizing that “[f]utility is apparent if the proposed amended
complaint fails to state a claim under the applicable rules and
accompanying standards”); Smith v. Bank of the Carolinas, No.
1:11cv1139,
2012
WL
4848993,
at
*3
(M.D.N.C.
Oct.
11,
2012)
(observing that a proposed amendment fails for futility if it could
not survive a Rule 12(b)(6) motion to dismiss (citing Wilson, 525
F.3d at 376)).
Further, to the extent Vincoli seeks leave to amend to add asyet undisclosed factual allegations to his pleadings, such request
fails.
First, Vincoli’s requests for leave to amend do not comply
with this Court’s Local Rules regarding amendments.
A footnote in
the Response requests “leave to amend to explicitly describe the
retaliation here as ‘blacklisting’ and to state related state-law
72
causes of action.”
(Docket Entry 73 at 24 n.44.)
In addition, the
final sentence of the Response and Surreply state that, “if the
Court believes that further development of the particulars of the
fraud
and
retaliation
claims
are
[sic]
required,
Vincoli
respectfully requests leave to file a Third Amended Complaint.”
(Docket Entry 73 at 30; Docket Entry 81 at 10.)
Court’s Local
Rules,
parties
must
request
Pursuant to this
leave
to
amend by
separate motion to which the party attaches the proposed amended
pleading.
M.D.N.C.
LR
7.3(a),
15.1.
Despite
his
repeated
expressions of desire to amend, Vincoli failed to comply with this
Court’s local rules regarding amendment requests.
Entries dated Apr. 8, 2016, to present.)
denial of his request.
(See Docket
That failure justifies
See Francis, 588 F.3d at 197 (affirming
denial of leave to amend where the plaintiffs failed to “provide a
copy of the proposed amendment,” concluding that the court bore no
obligation “to give the plaintiffs a blank authorization to ‘do
over’ their complaint”); M.D.N.C. LR 83.4.
Moreover, Vincoli’s latest request for leave to amend fails to
satisfy the requirements for obtaining such leave.
See Foman, 371
U.S. at 182 (recognizing that “bad faith or dilatory motive on the
part
of
the
movant,
[as
well
as]
repeated
failure
to
cure
deficiencies by amendments previously allowed” justify denial of
amendment request); Laber, 438 F.3d at 426.
As an initial matter,
the Complaint, First Amended Complaint, Second Amended Complaint,
73
Response, and Surreply provided Vincoli five separate opportunities
to present viable allegations in support of his claims.
need not allow him a sixth chance to restate claims.
The Court
See, e.g.,
United States ex rel. Black v. Health & Hosp. Corp. of Marion Cty.,
494 F. App’x 285, 297 (4th Cir. 2012) (affirming denial of motion
to amend in qui tam action where, “after ‘four[ ] iteration[s]’ of
his complaint, [the relator] still failed to provide allegations
sufficient to survive a motion to dismiss”) (first two sets of
brackets in original)); Glaser v. Enzo Biochem, Inc., 126 F. App’x
593, 602 (4th Cir. 2005) (affirming district court’s “ruling that
the plaintiffs’ ‘many opportunities . . . to present their claim’
warranted denial of the motion to amend” (ellipsis in original)
(citing Foman, 371 U.S. at 182)); Jensen v. Western Carolina Univ.,
No. 2:11cv33, 2012 WL 5439144, at *4 (W.D.N.C. Nov. 7, 2012)
(rejecting amendment request where “[t]he [p]laintiff has thus on
three previous occasions amended the complaint without curing th[e
relevant] defect”).
In addition, Vincoli’s amendment request suggests bad faith.
For the first six and a half years of this litigation, Vincoli
pursued a qui tam theory founded upon his assertion that the
Hospitals needed an independent fiduciary for their self-funded
employee benefit plans.
16, ¶ 12.)
(See Docket Entry 1, ¶ 12; Docket Entry
In pursuing this theory, Vincoli maintained that the
Hospitals “co-owned a managed care organization, MedCost, which
74
consisted of a Preferred Provider Organization (or ‘PPO’) and a
Third Party Administrator (or ‘TPA’).”
Docket Entry 16, ¶ 9.)
(Docket Entry 1, ¶ 9;
He asserted that the Hospitals utilized
“MedCost’s PPO network and its Third Party Administrator (‘TPA’)
for their respective self-funded health plans,” and explained that
“[a]s a PPO rental network, MedCost’s business model is to secure
negotiated (discounted) rates from physicians and hospitals as a
condition of participation” in MedCost’s PPO network.
Entry 16, ¶ 44; accord Docket Entry 1, ¶ 37.)
(Docket
In those pleadings,
Vincoli further contended that the Hospitals’ failure “to have in
place
an
independent
fiduciary
with
legal
control
of
their
respective self-funded employee health benefit Plans” victimized
the
Hospitals’
employees
and
the
United
States
because
the
Hospitals offered a smaller discount on healthcare services to
MedCost participants than to participants in other “managed care
contracts.”
(Docket Entry 1, ¶¶ 12, 40; Docket Entry 16, ¶¶ 12,
47.)33
After
determined
Vincoli
that
the
filed
his
Hospitals
First
were
Amended
“not
Complaint,
required
to
CMS
have
a
fiduciary for [their] self-insurance plan[s].” (Docket Entry 43 at
4.)
Following this determination, Vincoli presented a “Second
33 Vincoli’s initial pleadings also insisted that the lack of
an independent fiduciary disqualified the $30 million and estimated
$45 million plan contributions that Baptist and CHS, respectively,
made to their self-funded insurance plans each year. (Docket Entry
1, ¶ 52; Docket Entry 16, ¶ 59.)
75
Amended Complaint [that] differs substantially from” his previous
complaints.
(Docket Entry 61 at 4.)
In this “substantially
different” Second Amended Complaint (id. at 2), Vincoli describes
MedCost as “a sham entity” that lacks sufficient independence from
the Hospitals to qualify as “a ‘third party,’” such that MedCost
constitutes not a third-party administrator but solely “a ‘plan
supervisor’ with ministerial duties only” (Docket Entry 62, ¶ 29 &
14 n.5).
Vincoli’s new “theor[y] of liability” (id., ¶ 6), namely
that the Hospitals defrauded Medicare by failing to reduce their
domestic claim costs from the amounts that MedCost paid them to
their actual out-of-pocket costs for such services (see generally
Docket Entry 62), depends upon this recharacterization of MedCost
as
a
sham
entity
rather
than
a
TPA,
see
Medicare
Provider
Reimbursement Manual, Part II, § 4005.2, at 40-62.
However, in opposing Baptist’s challenge to his retaliation
claims,
Vincoli
proffers
additional
factual
allegations
contradicting his assertion that MedCost constitutes merely a “sham
entity” employed by the Hospitals solely to defraud the United
States.
(See Docket Entry 81 at 9 (alleging the existence of
“MedCost’s provider network”).)
This proposed factual allegation
mirrors Vincoli’s initial assertions that MedCost constitutes both
a PPO network and a TPA, a status that North Carolina recognizes
(see Docket Entry 78-1 at 23 (identifying MedCost as a licensed
TPA)) and Vincoli does not dispute (see Docket Entry 81 at 1 n.1).
76
Vincoli’s evolving, contradictory allegations regarding MedCost
suggest bad faith.
See Standard Pac. of the Carolinas, LLC v.
Nationwide Mut. Ins. Co., No. 0:11-cv-598, 2011 WL 2681880, at *4
(D.S.C. July 11, 2011) (denying motion to amend where the proposed
amendment represents “a complete about-face with respect to the
factual basis for the claim(s) . . . . [and] effectively concedes
that the policy issued did not contain the critical provision” upon
which the original complaint depended); see also Trans Video
Elecs., Ltd. v. Sony Elecs., Inc., 278 F.R.D. 505, 510 (N.D. Cal.
2011) (concluding “that the motion to amend was taken in bad faith
. . . as a last-ditch attempt to avoid the case being dismissed in
its
entirety,”
and
explaining
that
the
plaintiff’s
“tactical
shifting of positions” regarding “inconsistent” assertions “smacks
of gaming the [c]ourt and opposing party”), aff’d, 475 F. App’x 334
(Fed. Cir. 2012).
Under these circumstances, the Court should deny Vincoli leave
to file a third amended complaint.
CONCLUSION
The Release bars Vincoli’s claims against Baptist arising on
or before May 30, 2008, and the statute of limitations bars
Vincoli’s retaliation claim as to the 2011 lawsuit.
The Second
Amended Complaint sufficiently alleges “who” committed the fraud,
and Rule 9(b) does not mandate that Vincoli possess personal
knowledge of the alleged fraud.
77
However, the Second Amended
Complaint and Vincoli’s proposed amendments fail to plausibly
allege the requisite scienter for an FCA claim. Additionally, even
assuming
that
the
Acts
covered
the
type
of
post-termination
retaliation alleged here, the Second Amended Complaint fails to
plausibly
allege
that,
as
a
result
of
Vincoli’s
pursuit
of
qualifying qui tam actions, Baptist caused North Carolina to take
adverse
employment
actions
against
Vincoli.
The
proposed
amendments likewise fail to plausibly allege such retaliation.
Finally, Vincoli’s request for leave to amend fails to satisfy the
rules and standards regarding amendment requests, particularly as
to futility, repeated failures to correct deficiencies, and bad
faith.
IT IS THEREFORE RECOMMENDED that Baptist’s Motion (Docket
Entry 64) and CHS’s Motion (Docket Entry 67) be granted and
Plaintiff’s Second Amended Complaint be dismissed with prejudice.
This 28th day of December, 2016.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
78
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