Joseph v. Brattleboro Retreat, The
Filing
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OPINION AND ORDER granting 21 MOTION to Dismiss for Failure to State a Claim . The complaint is dismissed without prejudice and with leave to amend. Amended Complaint due within 30 days. Signed by Judge William K. Sessions III on 8/8/2014. (law)
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
UNITED STATES OF AMERICA,
Ex rel. THOMAS JOSEPH,
Plaintiff,
v.
THE BRATTLEBORO RETREAT,
Defendant.
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Case No. 2:13-cv-55
Opinion and Order
Qui tam relator Thomas Joseph (“Relator”) filed this action
under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733,
against Defendant The Brattleboro Retreat (“Retreat”), alleging
that the Retreat fraudulently and improperly submitted claims
and retained overpayments of funds that rightly belong to the
government in violation of §§ 3729(a)(1)(A)-(B) and (G) of the
FCA.
After Relator filed this action, the United States
conducted an investigation of the claims and declined to
intervene.
Relator has opted to proceed with his claims despite
the government’s non-intervention.
Presently before the Court
is Defendant’s motion to dismiss the Complaint on the grounds
that several of Relator’s claims are barred by the FCA’s sixyear statute of limitations and that the Complaint fails to
state a claim for relief as a matter of law under the heighted
1
pleading requirements of Fed. R. Civ. P. 9(b).
For the reasons
stated below, the motion to dismiss, ECF No. 21, is granted.
The Complaint is dismissed without prejudice and with leave to
amend.
BACKGROUND1
Relator Joseph brings this action pursuant to the qui tam
provisions of the FCA, 31 U.S.C. §§ 3729-3733, against the
Brattleboro Retreat, alleging that the Retreat has engaged in
fraudulent and improper claims and refund practices and
policies.
The Brattleboro Retreat is a mental health and
substance abuse health care facility organized and operated in
Brattleboro, Vermont.
The Retreat serves many individuals who
are eligible for government health care benefits including
Medicare and various Medicaid programs.
Relator Thomas Joseph
is a Vermont resident who was formerly employed by the Retreat
as a Self-Pay Collections Representative.2
I. Allegations
The Complaint brings claims under §§ 3729(a)(1)(A),(B), and
1
The following facts are taken from Relator’s Complaint, the
allegations of which are assumed true for purposes of a 12(b)(6)
motion to dismiss.
2
Relator’s position focused on collecting amounts owed by individual
patients rather than those covered by government payers. Joseph was
employed by the Retreat as of the initial filing of the Complaint, but
has left the Retreat since the Complaint was unsealed after the
Government declined to intervene.
2
(G) of the FCA.3
Relator’s primary allegation is that the
Retreat improperly retained overpayments from government health
care benefit programs even after it discovered the existence of
such overpayments, whether or not the initial overpayments were
fraudulent.
The Complaint also contends that the Retreat
generates these overpayments by knowingly or recklessly
submitting duplicate claims for payment to health care benefit
programs and that the Retreat maintained deliberately falsified
records concealing these overpayments.
3
Relator bases the
This section of the Act establishes liability as follows:
(a) Liability for certain acts.-(1) In general.--Subject to paragraph (2), any person
who-(A) knowingly presents, or causes to be
presented, a false or fraudulent claim for
payment or approval;
(B) knowingly makes, uses, or causes to be made
or used, a false record or statement material to
a false or fraudulent claim;
(G) knowingly makes, uses, or causes to be made
or used, a false record or statement material to
an obligation to pay or transmit money or
property to the Government, or knowingly conceals
or knowingly and improperly avoids or decreases
an obligation to pay or transmit money or
property to the Government,
is liable to the United States Government for a civil
penalty of not less than $5,000 and not more than
$10,000, as adjusted by the Federal Civil Penalties
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note;
Public Law 104-4101), plus 3 times the amount of
damages which the Government sustains because of the
act of that person.
31 U.S.C.A. § 3729.
3
allegations in the Complaint on evidence obtained directly by
him through his employment at the Retreat.
The crux of Relator’s theory is that the Retreat
established a policy of fraudulently retaining overpayments
using its computer billing system — specifically, by using
posting code 21 (“Code 21”) to eliminate overpayment credits in
its accounting.
¶¶ 68, 78-79.
According to the Complaint, the
Retreat regularly overbills government payers, which results in
a credit balance owed to these payers.
¶¶ 100-101.
The Retreat
then uses Code 21 to enter “an amount calculated to offset the
credit balance owed to [the government payer] due to the
overpayments.”
¶ 102.
This operation “results in the patient
ledger erroneously showing a zero balance when in reality, a
credit remains due and payable to the government health care
benefit program, and thus represents knowingly fraudulent
avoidance or concealment of an obligation due and payable to the
government.”
Id.
Relator refers to this Code 21 practice as an
“allowance reversal.”
¶ 102.
Relator first discovered this practice in November of 2011
when he was asked to assist with the management of commercial
insurance credits.
Through this work, he discovered unrefunded
commercial insurance credits in several patient accounts.
¶ 85.
When he notified his superiors of these unrefunded credits, they
entered allowance reversals using Code 21 to eliminate the
4
credits from any accounts for which there was no request for a
refund from the commercial insurer.
Relator reported this
action to the Retreat’s Controller in an email on November 18,
2011.4
The Complaint states that these commercial credits were
“never refunded in any large amount nor has any legitimate due
diligence process to restore these funds been undertaken.”
¶
90.
Relator then inferred that this lack of due diligence in
the commercial insurance context indicated that the Retreat had
an active policy of overpayment retention that extended to
government programs.
¶ 92.
He thus began “investigating”
whether overpayment credits involving Medicare, Medicaid, and
other government health care benefit programs were being treated
similarly.
¶ 94.
The results of this “investigation” form the
basis of the allegations put forth in the Complaint.
They
regard 32 separate patient accounts spanning from 2005 to 2012.
The descriptions of these accounts do not reference any actual
bills or reimbursements, but are instead based on Relator’s
interpretations of accounting entries and codes in the Retreat’s
billing system.
The allegations in the Complaint implicate
three types of misconduct: (1) fraudulent retention of
4
Relator contends
report in a manner
unaltered schedule
references to this
that his schedule was altered after he made this
“less accommodating of his health condition than his
had been.” ¶ 87. The Complaint makes no other
issue.
5
overpayment from government programs; (2) fraudulent double
billing for services (resulting in the eventual fraudulent
retention); and (3) falsified quarterly/annual reports.
The
details of these allegations as laid out in the Complaint are
summarized below.
a. Fraudulent Retention
Relator’s primary contention is that the Retreat frequently
accepts overpayment for services and conceals these overpayments
by entering an offsetting amount under Code 21 (what the
Complaint calls an “allowance reversal”).
The Complaint
describes several specific examples, discussed below, as
supposed evidence of this practice.
In March 2006, Patient 1, a beneficiary of both Medicare
and Medicaid of Vermont, received inpatient care services for
which the Retreat charges a per diem amount of $1,590.
At the
time, Medicare Part A required patients to pay a deductible of
$952.00 and was willing to pay a $1,512.90 per diem rate for
this service ($77.11 less than Retreat’s nominal charge).
The
Retreat thus submitted a claim to Medicare Part A for the per
diem minus the deductible, or $560.89.
It then submitted a
claim for payment to Medicaid for the $952 deductible, which
Medicaid paid.
On April 20, 2006, the Retreat received
$3,891.66 from Medicare Part A for Patient 1’s inpatient care.
The Complaint alleges that this payment resulted in an
6
overpayment of $3,330.77 that was eliminated using Code 21.
However, because the Complaint does not indicate what Patient
1’s proper bill would be, beyond the per diem rate, there is no
demonstration in the Complaint that this actually was an
overpayment.
The remaining examples provided are similarly deficient.
The Complaint cites patient ledgers for Patient 2, episodes 12
and 14, from October 2005, as an example of the Retreat’s
fraudulent retention of overpayment from Medicare.
¶ 110.
For
this patient, the line items in the billing system indicate that
the Retreat imposed a nominal charge of $1,590 for the service
received but that Medicare Part A paid $3,485.84, and that there
was a Code 21 entry for the difference.
The Complaint
additionally cites Patient 10, who was treated at the Retreat in
2005, and states that the Retreat received an overpayment from
Medicare equaling $6,099.95 that the Retreat failed to disclose
using Code 21.
¶ 154.
The Complaint also describes a
transaction involving Patient 30 that resulted in a $833.47
overpayment by Nebraska Medicaid.
The Complaint does not state
its basis for finding an overpayment occurred, nor whether the
alleged overpayment was ultimately retained, for any of these
patients.
Based on these transactions, the Complaint extrapolates
that all entries involving Code 21 involve improper retention.
7
It then goes on to cite multiple entries using Code 21, with
even less identifying information than those described above, as
additional proof of wrongdoing.
Several of these patient
ledgers, Patients 11-14, are dated July 2005.
The Complaint
also cites several patient ledgers without any identifying
information at all.
¶ 166.
Finally, it states that there were
Code 21 entries for Patients 31 and 32 and concludes that these
were hidden overpayments; however, it again does not demonstrate
why these involved overpayments, what the proper payment rate
would have been, or whether any excess charges were actually
retained.
In fact, the Complaint identifies a Code 21
“allowance reversal” that eliminated $7,000 owed to a Medicaid
program and was later rectified by a manual request, which he
expressly concedes resulted in no overpayment at all.
In addition to documenting the allegedly fraudulent
practice of “allowance reversals,” the Complaint also asserts
that the Retreat conceals the existence of overpayment credits
by shifting undiscovered overpayments from one patient’s ledger
to the ledger of another patient or to an “Unapplied Cash”
ledger.
As evidence, the Complaint cites Patient 3’s billing
information to allege that the Retreat was overpaid by the
government and rather than returning the overpayment, the excess
was diverted to the Retreat’s Unapplied Cash ledger on February
5, 2011.
This allegation suffers from the same deficiencies as
8
the descriptions of Patients 1 and 2.
While the Complaint
states that amounts as high as $80,493.35 were overpaid, it does
not explain how it obtained these estimates or what the proper
charge would have been.
It then states that reimbursement
entries posted in February 2011 amounting to $18,668.05 were
never refunded to the government, but it does not provide a
basis for this assertion.
The Complaint further states that
evidence of this patient ledger juggling is provided by a
handwritten annotation indicating that overpayments made
regarding Patients 4 through 7 were paid for using Patient 3’s
overpayment.
¶ 127.5
It concludes that the retreat had “used
Patient 3’s account as a slush fund.”
¶ 128.
Relator’s final allegation of improper retention does not
actually allege retention at all, but mere delay.
In support,
the Complaint describes Patient 15, for whom the Retreat
overcharged a Medicaid program in Massachusetts.
¶ 159-62.
While the Complaint concedes that the Medicaid program was
reimbursed for the overcharge, it states that the Retreat should
have notified Medicaid program of this overcharge sooner.
The
Patient 15 allegation is somewhat nonsensical, however, as it
seems to argue that the Retreat should have known about the
overpayment over a year before it was received.
5
¶ 161.
The Complaint actually cites language from the note saying amount had
been taken “from Patient 2”; presumably this is a typo and the
Complaint intended to say Patient 3 here.
9
Regardless, there is no dispute that any overpayment was
ultimately refunded with regard to Patient 15.
b. Double Billing
Relator also alleges that the Retreat has fraudulently
double billed government programs, thereby resulting in
overpayments like those referenced above.
Specifically, the
Complaint alleges that the Retreat made fraudulent claims to
Medicaid of Vermont for the patient responsibility portion of
dual-eligible Medicare beneficiaries, i.e., patients eligible
for both Medicare and Medicaid benefits.
It states that the
Retreat “presented straightforward false claims” to obtain
Medicaid sums to which it was not entitled.
¶ 129.
As a
supposed example of this practice, the Complaint cites the
patient ledger for Patient 8, Episode 8, and describes a number
of confusing billing entries.
First, it notes that there were
entries for June 7, 2011, several months before Episode 8 began.
It then states that the Retreat sought payment from a Medicaid
program at a rate of $1,285.72, which is higher than the amount
that Medicare is willing to pay for such services, and thus
infers that this constituted an improper claim.
¶ 133.
Finally, it argues that the Retreat sought $70,829.81 of patient
responsibility from Medicaid in excess of the amount determined
by the Center for Medicare & Medicaid Services (“CMS”),
resulting in an overpayment of $49,321.89.
10
The Complaint does
not indicate what the appropriate charge for the episode
actually was, nor does it indicate whether any alleged
overpayment was repaid or not.
Relator also cites Patient 9, from 2009, as evidence of
additional false claims submitted by the Retreat.
The Complaint
contends that Patient 9’s ledger shows that the Retreat was paid
more for the service than it had agreed to accept as payment;
however, it does not demonstrate what the agreed-upon rate was
or the source of this information.
¶ 145.
Furthermore, the
Complaint’s description of this episode is inconsistent.
It
states that the Retreat had “agreed by contract” with the
government payer to charge a lower rate for room and board to
Patient 9, but two paragraphs earlier states that the episode in
question involves a payment where there was “not a pre-existing
contract for services” between the Retreat and the payer.
(emphasis added).
¶ 143
It then concludes that the patient must have
been overcharged, resulting in false claims.
Finally, Relator contends that such overpayments are
regularly received because when the Retreat receives a partially
paid claim from a government program, it recodes and resubmits
all charges as a full claim, resulting in duplicate payments for
the same services.
¶ 101.
c. Quarterly/Annual Balance Reports
The Complaint also posits that the use of Code 21 renders
11
the quarterly and annual balance reports submitted to Medicare
and Medicaid inaccurate.
It states that all of the quarterly
credit balance reports the Retreat is required to submit to the
government programs have “omitted, with knowledge and intent to
defraud, overpayments due and payable to government health care
benefit plan payers.”
¶ 174.
The Complaint further states that
“on further information and belief,” each of these forms was
signed by representatives of the Retreat “with knowledge of the
falsity and with an intent to conceal the existence of
overpayments due and payable to government health care benefit
plan payers.”
¶ 175.
However, it does not cite any specific
balance reports or any specific inaccuracies contained therein
to support this assertion.
II.
Procedural History
Relator filed this FCA action on April 12, 2013, alleging
that for the years 2003 through 2012, the Retreat has knowingly
or recklessly concealed the existence of overpayments due and
payable to Medicare and State Medicaid programs totaling up to
$11 million.
The FCA Complaint contains three counts: (1) for
presenting false or fraudulent claims under 31 U.S.C. §
3729(a)(1)(A); (2) for making false records or statements for
the purpose of obtaining payment of false claims under 31 U.S.C.
§ 3729(a)(1)(B); (3) for making false records or statements with
the purpose of concealing, avoiding, or decreasing an obligation
12
to pay or transmit money or property under 31 U.S.C. §
3729(a)(1)(G).
As required by the FCA, the Complaint was initially filed
under seal and ex parte, and the U.S. Departments of Justice
(“DOJ”) and Health and Human Services (“HHS”) were provided an
opportunity to investigate Relator’s allegations.
On August 20,
2013, the United States declined to intervene, ECF No. 6, and
this Court subsequently ordered that the Complaint be unsealed,
ECF No. 7.
Relator took no action to serve the Retreat with the
Complaint until 120 days after the Court’s order to unseal.
On
January 8, 2014, Relator filed a notice of intent to appear pro
se, which was opposed by the United States.
Relator obtained
new counsel and on January 23, 2014, after receiving an
extension of time in which to file, filed the Complaint.
On
March 11, 2014, the Retreat filed the instant motion to dismiss.
DISCUSSION
I.
Standard of Review
Presently before the Court is Defendant’s motion to dismiss
the Complaint for failure to state a claim pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure.
To survive a
Rule 12(b)(6) motion to dismiss, the Complaint must articulate a
plausible claim for relief.
678 (2009).
Ashcroft v. Iqbal, 556 U.S. 662,
This plausibility standard is satisfied “when the
plaintiff pleads factual content that allows the court to draw
13
the reasonable inference that the defendant is liable for the
misconduct alleged.”
Id. (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 556 (2007)).
Because the FCA is “an anti-fraud statute,” FCA claims are
subject to a heightened pleading standard pursuant to Rule 9(b).6
Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1476-77 (2d Cir.
1995) (explaining that “claims brought under the FCA fall within
the express scope of Rule 9(b)”); Wood ex rel. U.S. v. Applied
Research Associates, Inc., 328 Fed. Appx. 744, 747 (2d Cir.
2009) (finding that FCA complaint must meet heightened pleading
standards of Rule 9(b)).
Rule 9(b) requires that “[i]n alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.”
9(b).
Fed. R. Civ. P.
Rule 9(b) thus requires that a complaint (1) specify the
actions that the plaintiff contends to be fraudulent; (2)
6
In his opposition to the motion to dismiss, Relator argues that
9(b)’s particularity requirements should be relaxed because the
alleged fraud is complex. See U.S. ex rel. Smith v. Yale University,
415 F. Supp. 2d 58, 84 (D. Conn. 2006) (relaxing 9(b) particularity
requirements where “alleged fraud is extremely complex, involves
thousands of instances, occurred over an extended period and involves
information ‘peculiarly within the adverse parties’ knowledge’”). He
argues that because the fraud alleged here involved numerous
transactions, the Court should relax the 9(b) pleading requirements.
However, this is not an appropriate case for such lenience. This
relaxed standard is generally applied where the Plaintiff/Relator is
not in a position to know specific facts. Here, the Relator worked in
the department responsible for billing and claimed to be an insider.
See Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d
282, 302 n.14 (S.D.N.Y. 2013) (refusing to apply relaxed standard
where plaintiff could not identify a “single specific false claim”
despite having worked for defendant for four years). Thus, the
heightened 9(b) standards properly apply.
14
identify the fraudulent actor; (3) state where and when the
fraudulent activity occurred; and (4) explain why the actions
were fraudulent.
See Wood, 328 Fed. Appx. At 747 (citing
Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.
1994)).
To be fraudulent, a false statement must have been made
with the requisite scienter, and thus the Complaint must “plead
the factual basis which gives rise to a strong inference of
fraudulent intent.”
Id. (quoting O’Brien v. Nat’l Prop.
Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991).
II.
Statute of Limitations
Defendant’s motion to dismiss begins with the assertion
that several of the events identified in the Complaint are timebarred by the FCA’s statute of limitations and cannot form the
basis of Relator’s suit.
The FCA’s statute of limitations
expressly provides that:
(b) A civil action under section 3730 may not be brought-(1) more than 6 years after the date on which the
violation of section 3729 is committed, or
(2) more than 3 years after the date when facts
material to the right of action are known or
reasonably should have been known by the official of
the United States charged with responsibility to act
in the circumstances, but in no event more than
10 years after the date on which the violation is
committed,
whichever occurs last.
31 U.S.C. § 3731(b).
Thus, the FCA applies a six-year statute
of limitations precluding relator claims filed “more than 6
15
years after the date on which the violation of [the FCA] is
committed.”
United States v. Baylor Univ. Med. Ctr., 469 F.3d
263, 267 (2d Cir. 2006) (quoting 31 U.S.C. § 3731(b)(1)).
The
FCA’s six-year statute of limitations begins to run “‘on the
date the claim is made, or, if the claim is paid, on the date of
payment.’”
U.S. ex rel. Kreindler & Kreindler v. United Techs.
Corp., 985 F.2d 1148, 1157 (2d Cir. 1993) (quoting Blusal Meats,
Inc. v. United States, 638 F. Supp. 824, 829 (S.D.N.Y. 1986),
aff’d, 817 F.2d 1007 (2d Cir. 1987)).
This six-year statute of
limitations applies to all civil actions brought under § 3730,
and thus applies to all three of Relator’s theories of relief:
actual submission of a false claim under §§ 3729(a)(1)(A) and
(B) and “reverse” false claims under § 3729(a)(1)(G).
Relator filed the Complaint on April 12, 2013; thus, any
allegations based on false claims that occurred prior to April
12, 2007, are time barred.
The Complaint identifies alleged
overpayments with respect to 32 patient accounts.
Nine of these
alleged misdeeds (regarding Patients Nos. 1, 2, 10, 11-14, and
31-32) occurred more than six years prior to the date Relator
filed the Complaint.
Because they fall outside the statute of
limitations, they cannot form the basis of Relator’s Complaint
and they are dismissed.7
7
The Complaint also contains allegations regarding an additional
thirteen patients (Patients Nos. 17-29) that provide no dates
16
In his Opposition to Defendant’s Motion to Dismiss, Relator
quotes a decision from the Southern District of New York for the
proposition that a qui tam plaintiff must bring suit within
three years after he or the government learned of the material
facts, in essence conflating parts (1) and (2) of § 3731(b).
See Opp’n Mot. Dismiss at 9 (quoting U.S. ex rel. Thistlethwaite
v. Dowty Woodville Polymer, Ltd., 6 F. Supp. 2d 263, 265
(S.D.N.Y. 1998)).
However, the Opposition quotes Thistlethwaite
out of context and is wholly a misstatement of the district
court’s holding in that case.
Relator’s quote comes from a “but
see” parenthetical of a district court decision in the Middle
District of Alabama.
The Thistlethwaite court distinguishes
this position to find that “[b]y the clear statutory language,
the Relator’s time is not extended to three years after the
United States official learns of the violation.
only applies to the government.”
at 265.
That provision
Thistlethwaite, 6 F. Supp. 2d
Thistlethwaite therefore actually stands for the
position that the statute of limitations applicable to Relator’s
claims goes back six years from his April 2013 suit, to April
2007.
All alleged conduct predating April 2007 is time barred
from consideration in this action.
whatsoever. Defendants argue in their motion to dismiss that these
events also fall outside the statute of limitations; however, it is
unnecessary to determine this issue as they plainly fail under the
Rule 9(b) specificity standard as discussed infra.
17
III. Complaint Fails to Plead Fraud with Particularity
Defendant’s motion to dismiss argues that the Complaint
fails to state a claim with the particularity required by Rule
9(b).
As explained above, because the FCA is an anti-fraud
statute, the heightened pleading requirements of Rule 9(b)
apply.
To satisfy this heightened pleading standard, the
Complaint must (1) specify the actions that the plaintiff
contends to be fraudulent; (2) identify the fraudulent actor;
(3) state where and when the fraudulent activity occurred; and
(4) explain why the actions were fraudulent.
Appx. At 747.
See Wood, 328 Fed.
“‘In other words, ‘Rule 9(b) requires that a
plaintiff set forth the “who, what, when, where and how of the
alleged fraud.’”
U.S. ex rel. Polansky v. Pfizer, Inc., No. 04–
cv–0704 (ERK), 2009 WL 1456582, at *4 (E.D.N.Y. May 22, 2009)
(quoting ).
The Second Circuit has explained that “the purpose of Rule
9(b) is threefold — it is designed to provide a defendant with
fair notice of a plaintiff's claim, to safeguard a defendant's
reputation from ‘improvident charges of wrongdoing,’ and to
protect a defendant against the institution of a strike suit.”
O’Brien, 936 F.2d at 676 (quoting Ross v. Bolton, 904 F.2d 819,
823 (2d Cir. 1990)).
These purposes apply with full force to
claims under the FCA, as the Act provides a windfall to the
first person to file, and permits Relator recovery on behalf of
18
the real victim, the Government.
The heightened requirements of
9(b) are thus particularly salient in cases brought under the
FCA by a Relator.
Here, Defendants argue that the Complaint
fails to meet the Rule 9(b) specificity requirements with regard
to any of its claims.
a. Counts I and II fail because the Complaint does not
Specify False Claims
The Complaint brings claims under multiple sections of the
FCA.
Counts I and II assert claims for alleged violations of §
3729(a)(1)(A), which applies where one “knowingly presents, or
causes to be presented, a false or fraudulent claim for payment
or approval,” and (a)(1)(B), which creates liability for making
a “false record or statement material to a false or fraudulent
claim.”
To mount a plausible claim for relief under these
sections, a complaint must plead a (1) claim submitted for
payment by the defendant within the meaning of the FCA; (2) that
the claim itself or a statement material to the claim must have
been false or fraudulent; and (3) that the defendant knew that
the claim or statement was false or fraudulent.
See U.S. ex
rel. Pervez v. Beth Israel Med. Ctr., 736 F. Supp. 2d 804, 811
(S.D.N.Y. 2010).
Courts in the Second Circuit have held that
“allegations of violations of federal regulations are
insufficient to establish a claim under the FCA if plaintiff
cannot identify, with any particularity, the actual false claims
19
submitted by the defendant.”
United States v. Dialysis Clinic,
Inc., 5:09-CV-00710, 2011 WL 167246, at *10 (N.D.N.Y. Jan. 19,
2011); see also Ping Chen, 966 F. Supp. 2d at 301 (same); U.S.
v. Empire Educ. Corp., 959 F. Supp. 2d 248, 254 (N.D.N.Y. 2013)
(“[Plaintiff] must not only allege with particularity ‘the
underlying schemes and other wrongful activities’ but also the
resulting ‘submission of fraudulent claims.’” (quoting U.S. ex
rel. Mooney v. Americare, Inc., No. 06-cv-1806, 2013 WL 1346022,
at *3 (E.D.N.Y. Apr. 3, 2013)).
Defendant thus argues that both Count I and II should be
dismissed because nowhere in the Complaint does Joseph allege
that there was a “claim” submitted for payment with the
specificity required by Rule 9(b) and thus the allegations
concerning claim submissions are all too generalized to meet the
heightened pleading standard.
In fact, the Complaint does not
identify any specific claims submitted within the statute of
limitations, instead making references to billing entries
without identifying if and when these entries corresponded to
actual claims.
The Complaint only refers to alleged false claims at three
instances.
First, it states that “[w]hen the Retreat receives a
partially paid claim from CMS, the Retreat recodes and resubmits
all charges, including those for which payments have previously
been received from CMS, and then resubmits the full claim,
20
causing Medicare or Medicaid to make duplicate payments for the
same services.”
Compl. ¶101.
Relator provides no specific
support for this assertion; indeed, the following paragraphs
(which describe an incident from 2006, outside the statute of
limitations) describe an incident wherein Medicare had a
deductible designated as the patient’s responsibility, and
Defendant submitted a claim for payment of this deductible from
Medicaid (because the patient was also an indigent Medicaid
beneficiary).
Even if this incident was not outside the statute
of limitations, it would not support Relator’s theory because
the Complaint does not explain why this was a false claim.
The
Complaint then goes on to state that Medicare overpaid Defendant
because Defendant billed more than its per diem; however, the
Complaint does not explain how it reached that conclusion.
At
no point does the Complaint identify a false duplicate claim,
and thus the allegations in Paragraph 101 are too unspecific to
meet the Rule 9(b) pleading requirement.
Second, the Complaint alleges that the “Retreat has also
made claims to Medicaid of Vermont for the patient
responsibility portion of dual-eligible Medicare beneficiaries
that greatly and fraudulently exceeded the actual amounts
designated by CMS as patient responsibility” and that it has
“also presented straightforward false claims in an effort to get
paid by Medicaid sums to which it was not entitled and which the
21
United States and the State of Vermont would not otherwise be
required to pay.”
Compl. ¶ 129.
This paragraph fails to
identify any specific instances of either act, and the ensuing
paragraphs provide no additional information.
Instead, the
following paragraphs describe Patient 8, Episode 8.
The
narrative provided is very confusing, but it is clear that it
does not identify any specific claims for payment, instead
speculating about overpayment based on different billing codes
in the Retreat’s accounting system.
These allegations are mere
speculation and thus do not meet the standard for 9(b)
specificity.
See Johnson, 686 F. Supp. 2d at 266 (“[T]he
plaintiffs’ fraud claims do not state a claim, but merely
speculate that a claim might exist.”).
Furthermore, in discussing this episode, the Complaint
asserts that the Retreat submitted claims to Medicaid for a
dual-eligible patient’s patient responsibility amount in an
amount greater than that designated by the government.
However,
the Complaint does not allege when these claims were submitted
or by whom, nor does it specify what the appropriate
reimbursement rate was.
It thus does not provide “‘the time,
place, speaker, and ... even the content of the alleged
misrepresentations’” and “‘lacks the “particulars” required by
Rule 9(b).’”
Wood, 328 F. App'x at 748 (quoting Luce v.
Edelstein, 802 F.2d 49, 54 (2d Cir. 1986)).
22
The Complaint
therefore does not plead sufficiently particular facts to
support its allegations in Paragraph 129.
Finally, the Complaint asserts that the Retreat’s
submission of quarterly and annual reports constituted a false
or fraudulent claim, on the theory that the other allegations in
the Complaint necessarily demonstrate that the Retreat kept
false records.
However, the Complaint does not point to any
specific reports, much less identify any particular statements
in such reports that are false.
Broad references to such
reports are insufficient under Rule 9(b).
See Wood, 328 F.
App’x at 749-50 (citing allegation that “various cost reports .
. . all contained false claims for reimbursement and made false
statements” as example of “allegations [that] are plainly
insufficient under Rule 9(b)”).
Because the Complaint does not “cite to a single
identifiable record or billing submission they claim to be
false, or give a single example of when a purportedly false
claim was presented for payment by a particular defendant at a
specific time,” id. at 750, the allegations in the Complaint are
too speculative and conclusory to support an inference of a
fraudulent claim, and the Counts under § 3729(a)(1)(A) and §
3729(a)(1)(B) are dismissed for failure to state a claim as a
matter of law.
b. Complaint fails to state a claim for reverse False
23
Claims Act liability
In addition to the counts asserting false claims, Relator
also brings a count under § 3729(a)(1)(G), the “reverse false
claims” provision of the FCA, which creates FCA liability for
(1) making a false record or statement material to an obligation
to pay or transmit money or property to the Government or (2)
knowingly concealing, avoiding, or decreasing an “obligation to
pay or transmit money or property to the Government.”
U.S.C.A. § 3729(a)(1)(G).8
31
As above, Defendant contends that the
Complaint fails to allege particularized facts sufficient to
state a claim under this section of the FCA, and that Count III
must also be dismissed for failure to state a claim.
i. False Statements
Defendant first argues that any claim under the first prong
8
Defendants note in their motion to dismiss that this section of the
FCA did not exist prior to a May 20, 2009 amendment of the statute.
Before the amendment, the statute only created liability for the
knowing use of a “false record or statement to conceal, avoid, or
decrease an obligation . . . to transmit money or property to the
Government.” Defendant thus argues that § 3729(a)(1)(G) only applies
to conduct that occurred after this date. See FERA, Pub. L. No. 11121, 123 Stat. 1625 (amendment applies to conduct alleged to have
occurred after enactment). Because the previous version of the
statute created liability for false statements to conceal an
obligation to pay, the non-retroactivity of the amendment does not
impact the first prong of § 3729(a)(1)(G). However, it arguably
affects the second prong. See U.S. ex rel. Yannacopoulos v. Gen.
Dynamics, 636 F. Supp. 2d 739, 752 (N.D. Ill. 2009), aff’d, 652 F.3d
818 (7th Cir. 2011) (finding that prior to FERA’s enactment,
“retention of [an] overpayment did not create an obligation under the
former provisions of the FCA”). The Court need not determine this,
however, because it finds that Relator fails to plead facts with the
requisite particularity regardless of whether pre-2009 conduct is
considered.
24
of § 3729(a)(1)(G) fails because the Complaint does not
adequately identify a knowing and material false record or
statement.
The Complaint does not identify any bills or
reimbursements, but instead draws inferences from accounting
entries and codes in the Retreat’s billing system —
specifically, Code 21.
Much of the Complaint relies on the
theory that all entries involving Code 21 represent improper
retention of overpayments.
However, the Complaint does not
explain how these codes constitute false records or how they
indicate obligations owed to the government.
In fact, the
Complaint expressly mentions occasions when the use of Code 21
resulted in no avoidance of a government obligation — instead,
the overpayment in question was repaid in full.
Compl. ¶¶ 93, 162.
See, e.g.,
This negates the Complaint’s theory that
every Code 21 entry necessarily indicates the presence of
improper retention.
Thus, the Complaint fails to explain how
the accounting codes — whether used inaccurately or not —
actually correspond to nonpayment of obligations.
See
Yannacopoulos, 636 F. Supp. 2d at 748-49 (noting that how
defendant “internally accounted for funds it had received is
immaterial to Relator’s FCA claim” as internal accounting had no
correlation with whether refund occurred).
Relator again raises the quarterly and annual reports as
false statements regarding the Retreat’s obligations.
25
These
statements fail to meet the 9(b) requirements for the same
reasons they did in the § 3729(a)(1)(A)-(B) context: the
Complaint does not identify any specific report, much less any
specific false statement or inaccuracy it contains.
The
Complaint therefore does not plead facts sufficient to state a
claim under the first prong of § 3729(a)(1)(G).
ii. Avoiding Obligation to Pay
The Complaint also fails to plead facts specifically
showing that the Retreat “knowingly and improperly avoid[ed] or
decrease[d] an obligation to pay or transmit money or property
to the Government” under the second prong of § 3729(a)(1)(G).
Again, while the Complaint describes several patient ledgers, in
none of these descriptions does the Complaint describe the
actual amount the Retreat should have been paid, or whether any
alleged overpayment was actually retained by the Retreat.
First, with respect to Patient 3, the Complaint describes a
series of accounting entries and concludes that the Retreat’s
books reflect an overpayment credit due to the State Department
of Health “at least” $25,600.86 less than the true amount
overpaid.
¶ 128.
While the description of accounting codes is
lengthy, the Complaint does not give any explanation for how it
reached the actual overpayment amount (and, indeed, by using the
language “at least,” seems to concede that it does not have this
precise information).
Nor does the Complaint explain whether or
26
how anyone at the Retreat knew about the alleged overpayment,
and thus fails to plead with specificity the requisite intent
for fraud.
The same deficiencies exist with regard to the remaining
patients.
In its discussion of Patient 8, the Complaint alleges
that a Medicaid-funded program overpaid the Retreat by
$49,321.89.
Again, the Complaint does not identify what rate
was agreed upon by Medicaid and the Retreat, or how this
represented an overpayment of that amount.
The allegations
concerning Patient 9 are even more deficient, because not only
do they not identify the contracted amount for services, they
actually concede that there was not one.
Thus, the Complaint
alleges that the Retreat was overpaid based on the fact that “it
is doubtful that the [payer] meant to pay 74% of the Retreat’s
nominal charge” and thus the overpayment should be adjusted
upward by “at least” $569.77.
¶ 148.
This demonstrates that
Relator not only fails to provide an explanation for the alleged
overpayment, but he actually has no idea what the proper payment
would have been.
These allegations are highly speculative and
fail to meet the specificity requirement of Rule 9(b).
The allegations concerning the remaining patients fare no
better.
As previously noted, Patient 15 does not actually
allege retention at all, but mere delay.
Patient 16 involves a
“commercial insurance payer,” ¶ 79-80, and thus provides no
27
support for Relator’s claims under the FCA.
Patients 17 through
29 include no information at all beyond the fact that their
ledgers included Code 21 entries.
For Patient 30, the Complaint
alleges that Nebraska Medicaid was charged more than the $476.10
per diem that it “contemplate[d] paying”; however, the Complaint
does not explain how it reached this per diem amount.
In fact,
the Complaint refers to an “attached contract for services and
remittance advice,” but no such contract is attached or even
described.
Similarly, for Patients 31 and 32, the Complaint
alleges overpayments without any allegation of what the proper
reimbursement rate would have been.
The allegations regarding
all of the patients not time-barred therefore fail to meet the
specificity requirements under Rule 9(b).
Finally, even if the Complaint did plead facts to show that
any of these Patient records demonstrated the improper retention
of an overpayment, it still would fail the particularity
requirements of Rule 9(b) because it does not plead facts
sufficient to show the requisite level of scienter.
Under Rule
9(b), “plaintiffs [must] plead the factual basis which gives
rise to a strong inference of fraudulent intent.”
Fed. Appx. at 747.
Wood, 328
Here, the Complaint provides no facts to
indicate that anyone at the Retreat knew about allegedly
unlawfully retained government funds.
Relator alleges that he
notified his superiors of the Code 21 practices, but the
28
Complaint makes it clear that these discussions always involved
commercial insurance overpayments, which do not implicate the
FCA.
Furthermore, the Complaint frequently states “upon
information and belief” that overpayments were concealed at the
direction of Retreat employees.
See, e.g., ¶¶ 173, etc.
These
allegations are too nonspecific to meet the heightened pleading
requirements of fraud under Rule 9(b).
Thus, the Complaint
pleads no facts to give rise to a strong inference of fraudulent
intent.
Because the Complaint fails to plead any specific facts
showing that the Retreat violated § 3729(a)(1)(G), Count III is
also dismissed.
CONCLUSION
For the reasons stated above, the Court finds that the
Complaint has failed to meet the heightened pleading of
requirements of Rule 9(b) and must be dismissed.
In his
Opposition, Relator has asked the Court to dismiss without
prejudice so that he may amend his Complaint to cure any
pleading deficiencies.
Actions dismissed under Rule 9(b) are
“almost always” dismissed with leave to amend.
at 56.
Luce, 802 F.2d
The Court therefore grants leave to amend and the
Complaint is dismissed without prejudice.
The Amended Complaint
shall be filed within 30 days, and failure to comply with this
deadline will result in dismissal with prejudice.
29
DATED at Burlington, in the District of Vermont, this 8th
day of August, 2014.
/s/ William K. Sessions III
William K. Sessions III
United States District Judge
30
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