AETNA INC. et al v. THE PEOPLE' CHOICE HOSPITAL, LLC et al

Filing 88

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE BERLE M. SCHILLER ON 3/13/18. 3/13/18 ENTERED AND COPIES E-MAILED.(ti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
AETNA INC. and AETNA LIFE
INSURANCE COMPANY,
Plaintiffs,
v.
THE PEOPLE’S CHOICE
HOSPITAL, LLC, et al.,
Defendants.

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CIVIL ACTION

No. 17-4354

MEMORANDUM
Schiller, J.

March 13, 2018

Aetna Inc. and Aetna Life Insurance Company (collectively, “Aetna”) allege that Defendants
engaged in a widespread $21 million health care billing fraud scheme. Specifically, Aetna claims that
Defendants were part of a scheme that wrested control of Newman Memorial Hospital (“Newman”),
a small hospital in rural Oklahoma. Defendants allegedly paid off doctors around the country to refer
specimens for testing to various labs that were part of the scheme. Defendants would then submit
false claims to Aetna, claiming that the tests were performed at Newman. According to Aetna,
Defendants misrepresented the location where medical tests and services were performed because
Aetna paid a higher contract rate for services performed at Newman than at the various locations
where the tests and services were actually performed. Defendants than diverted the funds paid by
Aetna.
Defendants have filed a number of motions to dismiss. Mission Toxicology, LLC, Mission
Toxicology II, LLC, Mission Toxicology Management Company, LLC, Sun Clinical Laboratory,
LLC, Sun Ancillary Management, LLC, Integrity Ancillary Management, LLC, Michael Murphy,
and Jesse Saucedo, Jr. have filed a motion to dismiss, or in the alternative, to transfer venue under

28 U.S.C. § 1404(a). The People’s Choice Hospital, LLC, PCH Management Newman, LLC, and
PCH Lab Services, LLC filed a motion to dismiss or to transfer venue. Dr. Seth Guterman and David
Wanger filed a motion to dismiss for lack of personal jurisdiction, or in the alternative, for failure
to state a claim.1
Aetna has raised serious allegations of significant and far-reaching fraud. However, upon
reviewing the record, the Court is convinced that this case should not be litigated in this District.
Accordingly, the Court will transfer this matter to the Western District of Texas.

I.

FACTUAL BACKGROUND
A.

The Entities and Individuals in the Litigation

Plaintiffs are Aetna, Inc., and Aetna Life Insurance Company. Aetna, Inc., through its
affiliated companies, provides health insurance and administrative services throughout the United
States. (Compl. ¶ 5.) Aetna Life Insurance Company is one of Aetna Inc.’s affiliates; it provides
health insurance and administrative services throughout the United States. (Id. ¶ 6.) The People’s
Choice Hospital, LLC is located in Illinois. (Id. ¶ 7.) Seth Guterman is the sole member and manager
of The People’s Choice Hospital, LLC. (Id.) PCH Management Newman is an Oklahoma limited
liability company. (Id. ¶ 8.) PCH Lab Services, LLC is an Illinois limited liability company. (Id. ¶
9.) PCH Labs, Inc. is a Delaware corporation. (Id. ¶ 10.) Mission Toxicology, LLC, Mission
Toxicology II, LLC, and Mission Technology Management Company, LLC, are all Texas limited

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The People’s Choice Hospital, LLC, PCH Management Newman, LLC, PCH Lab
Services, LLC, Dr. Guterman, and Wanger have also filed a motion to compel arbitration and to
stay proceedings. The Court will address that motion in a separate Memorandum.
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liability companies.2 (Id. ¶¶ 11–13.) Sun Clinical Laboratory, LLC and Sun Ancillary Management,
LLC, are also Texas limited liability companies.3 (Id. ¶¶ 15–16.) Integrity Ancillary Management,
LLC (“Integrity”) is also a Texas limited liability company. (Id. ¶ 18.)
The individual Defendants are: (1) Dr. Seth Guterman, a citizen of Illinois; (2) David
Wagner, an Arizona citizen and the interim CEO of Newman; (3) Dr. Michael Murphy, a Texas
citizen and a principal for the Sun Defendants; and (4) Jesse Saucedo, Jr., a Texas student and the
founding partner of Integrity and a principal of the Mission Defendants. (Id. ¶¶ 20–23.)
Newman is located in Shattuck, Oklahoma, a town with fewer than 2,000 residents. (Id. ¶
60.) In 2000, Aetna U.S. Healthcare, Inc. contracted with Newman, making Newman a participating
provider with Aetna. (Id. ¶ 55.) “Aetna remits payment to Newman when Aetna receives a claim
form bearing Newman’s name and billing information, which is only to be used for medical services
provided by and at Newman for Aetna members who were Newman patients.” (Id. ¶ 56.) Between
2013 and 2015, Aetna paid Newman Memorial Hospital an average of $91,000 annually. (Id. ¶ 60.)
After Defendants entered the picture, Newman submitted approximately 834 lab claims per
month—up from an average of six claims per month—totaling over $21 million in claims. (Id. ¶ 61.)
B.

Aetna’s Network

Newman is an in-network provider, which means that it provides services to Aetna members
pursuant to an agreement. (Id. ¶ 49.) Aetna agrees to issue payment, and the provider must accept
the contracted rate negotiated between Aetna and the provider. (Id. ¶ 50.) Aetna is not necessarily
contractually obligated to pay claims by out-of-network providers. (Id. ¶ 51.) Moreover, even if a

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The Court will refer to these three Defendants collectively as the “Mission Defendants.”

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These two Defendants will be referred to collectively as the “Sun Defendants.”
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member’s plan provides out-of-network benefits, such benefits are often limited, with the member
required to pay for a larger share of the costs. (Id.) Non-participating providers are also subject to
additional administrative reviews and scrutiny for appropriateness of the services and amounts they
are charging members. (Id. ¶ 52.)
Aetna typically reimburses rural hospitals like Newman Memorial Hospital at a higher rate
to ensure that Aetna members in rural America who may have minimal access to medical facilities
are able to get care from professionals whose quality and credentials were vetted by Aetna. (Id. ¶ 59.)
C.

The Allegations

Aetna sums up the scheme as follows: In 2016, The People’s Choice Hospital, PCH
Management Newman, PCH Lab Services, and PCH Labs gained control of Newman with promises
to help the financially struggling hospital. (Id. ¶¶ 31, 62.) Subsequently, these Defendants acquired
complete control over the management, operations, and finances of Newman Memorial Hospital. (Id.
¶ 63.) Once they gained control, The People’s Choice Hospital and PCH Management Newman
entered into agreements with PCH Lab Services, PCH Labs, and the Lab Defendants4 that defrauded
Aetna. (Id. ¶¶ 32, 65.) According to the Complaint, certain Defendants paid and induced doctors
throughout the country to send urine and blood specimens to the Lab Defendants. (Id. ¶ 33.) Under
one such agreement, the Sun Defendants and the Mission Defendants received 70% of the monthly
revenues not exceeding $4 million that Newman got from Aetna for lab-related services, and 60%
of such revenues exceeding $4 million. (Id. ¶ 66.) The PCH Defendants also entered into a revenuesharing agreement with Integrity. (Id. ¶ 67.) Dr. Murphy and Saucedo are the principals of and the

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“Lab Defendants” refers collectively to the Mission Defendants, the Sun Defendants,
and Integrity.
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Lab Defendants. (Id. ¶ 68.)
Defendants had these doctors inform the patients that their specimens would be sent to,
tested, and processed by the Lab Defendants. (Id.) The specimens were sent to the Lab Defendants,
but Defendants lied to Aetna by claiming that the specimens were sent to Newman, which had high
reimbursement rates for lab services performed by and at Newman. (Id. ¶ 34.) Defendants took
advantage of these higher rates by paying doctors to send specimens of Aetna members to the Lab
Defendants, but misrepresenting that the specimens were sent to Newman Memorial Hospital in
Oklahoma. (Id. ¶ 39.) PCH’s President and Newman Memorial Hospital’s interim CEO also lied to
Aetna in letters and emails that insisted that Newman Memorial Hospital played a role in processing
the specimens. (Id. ¶¶ 41–42, 130–37.) Defendants split up and distributed their ill-gotten gains. (Id.
¶ 36.) Indeed, “Defendants reaped millions of dollars in ill-gotten gains by repeating this process
thousands of times at Newman and at other Aetna-affiliated facilities throughout the country.” (Id.
¶ 37.)
Aetna has raised a number of claims against Defendants, alleging violations of RICO, fraud,
negligent misrepresentation, unjust enrichment, civil conspiracy, and tortious interference.

II.

STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 1404(a), “[f]or the convenience of parties and witnesses, in the

interest of justice, a district court may transfer any civil action to any other district or division where
it might have been brought.” The moving party bears the burden of proving that venue is proper in
the transferee district and that transfer is appropriate. Lindley v. Caterpillar, Inc., 93 F. Supp. 2d 615,
617 (E.D. Pa. 2000); see also Shutte v. ARMCO Steel Corp., 431 F.2d 22, 25 (3d Cir. 1970). District
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courts possess broad discretion in deciding motions to transfer venue, and they evaluate such
motions on a case-by-case basis. See Solomon v. Cont’l Am. Life Ins. Co., 472 F.2d 1043, 1045 (3d
Cir. 1973); see also Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988).

III.

DISCUSSION
Courts in the Third Circuit apply a multi-factor test to determine whether transfer is

appropriate, weighing private and public interests. Jumara v. State Farm Ins. Co., 55 F.3d 873,
879–80 (3d Cir. 1995). The private interests include: (1) the plaintiff’s choice of forum; (2) the
defendant’s choice of forum; (3) where the claims arose; (4) the convenience of the parties given
their relative physical and financial condition; (5) the convenience of the witnesses to the extent they
may be unavailable for trial in a given forum; and (6) the location of books and records to the extent
they could not be produced in the alternative forum. Id. at 879. The public interests include: (1) the
enforceability of the judgment; (2) practical considerations of trial logistics; (3) the relative court
congestion of the two fora; (4) the local interests of each forum in deciding local controversies; (5)
the public policies of the fora; and (6) the judges’ relative familiarity with the applicable law. Id. at
879–80. The public factors focus on “practical considerations that could make the trial easy,
expeditious, or inexpensive.” Id. at 879.
A.

Private Factors

While “the plaintiff’s choice of venue should not be lightly disturbed,” Jumara, 55 F.3d at
879, it is entitled to less deference when the events giving rise to the lawsuit took place outside of
the chosen forum. See Cameli v. WNEP–16 The News Station, 134 F. Supp. 2d 403, 405 (E.D. Pa.
2001). The most important factor for this Court’s decision is where the claims arose. “When the vast
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majority of the acts giving rise to plaintiff’s claims take place in another forum, that weighs heavily
in favor of transfer.” Hamilton v. Nochmison, Civ. A. No. 09-2196, 2009 WL 2195138, at *3 (E.D.
Pa. July 21, 2009). Although Aetna alleges a nationwide scheme, its allegations make clear that a
small amount of the alleged scheme occurred in this District. The central scheme underlying Aetna’s
claims has a relatively small connection to this District. Newman, which Defendants allegedly used
as a conduit for fraud, is located in Oklahoma. The Lab Defendants, major players in this scheme,
performed their work in the Western District of Texas. Moreover, individual Defendants Murphy
and Saucedo are both citizens of Texas. None of the remaining individual Defendants are
Pennsylvania citizens. The only reason that Aetna posits for litigating this case in the Eastern District
of Pennsylvania is that certain patients were seen by doctors in this District before their specimens
were sent to the Lab Defendants. But this is a billing scheme, in which Aetna alleges that work
Defendants stated was performed in Oklahoma was actually performed in Texas so that Defendants
with little connection to this District could line their pockets by claiming higher reimbursement rates
from Aetna. The central focus on the scheme is not where some doctors took specimens from
patients, and it is far from the Eastern District of Pennsylvania.
The remaining factors appear neutral from the record before the Court. At this early stage of
the litigation, the Court does not have concrete evidence that there will be witnesses unavailable for
trial in this District. The record does not contain any information about the financial status of the
parties—notwithstanding the possibility that Defendants have swindled millions of dollars from
Aetna—but there is no evidence that Aetna will be disadvantaged proceeding in the Western District
of Texas.

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B.

Public Factors

The public factors in this case are neutral. A judgment in either venue will be enforceable.
Court congestion and public policy are not at issue. Furthermore, Aetna brings its claims under a
federal statute, and therefore judges in both districts should be familiar with the applicable law. Of
course, Aetna has also raised a number of state law claims. The parties have yet to address any
choice of law issues, but it is not clear why Pennsylvania law should apply to the merits of those
state law claims. Accordingly, the Court cannot say that there is a local interest in the Eastern District
of Pennsylvania deciding this controversy.

IV.

CONCLUSION
Plaintiffs raise serious and disturbing allegations. The Court believes, however, that they are

best adjudicated in the Western District of Texas. Accordingly, the motion to transfer venue
pursuant to 28 U.S.C. § 1404(a) is granted. An Order consisted with this Memorandum will be
docketed separately.

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