United States ex rel. John Rector, et al. v. Bon Secours Richmond Health Corporation, et al.
Filing
102
MEMORANDUM OPINION. Signed by District Judge James R. Spencer on 4/14/2014. Copies to counsel.(cmcc, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
UNITED STATES ex rel. JOHN RECTOR,
et al.,
Plaintiffs,
v.
Civil Action No. 3:11-CV-38
BON SECOURS RICHMOND HEALTH
CORPORATION, et al.,
Defendants.
MEMORANDUM OPINION
THIS MATTER is before the Court on a Motion to Dismiss Relator John Rector’s
(“Rector” or “Relator”) Second Amended Complaint pursuant to Federal Rule of Civil Procedure
12(b)(6) filed by Defendants Bon Secours Health System, Incorporated, Bon Secours Richmond,
LLC, Bon Secours Hampton Roads Health Systems, Incorporated (“BS Hampton”), Bon Secours
Richmond Health System (“BS Richmond”), Bon Secours Hampton Roads, Bon Secours
Richmond Health Corporation, Bon Secours Virginia, and John Doe Corporations 1-10
(collectively, “Named Defendants” or “Bon Secours”). (ECF No. 75.) For the reasons that follow,
the Court will GRANT Defendants’ Motion and DISMISS Relator’s Second Amended Complaint
WITHOUT PREJUDICE.
I.
BACKGROUND1
A. The “ Concierge Program”
1. Generally
In or about 2006, Bon Secours implemented a program to provide concierge services to
BS Richmond-affiliated and non-affiliated physicians in exchange for obtaining patient referrals
1 For the purposes of this Motion, the Court assumes all of Plaintiffs’ well-pleaded allegations to be true,
and views all facts in the light most favorable to Plaintiffs. T.G. Slater & Son v. Donald P. & Patricia A.
Brennan, LLC, 385 F.3d 836, 841 (4th Cir. 2004) (citing Mylan Labs, Inc. v. Matkari, 7 F.3d 1130, 1134
(4th Cir. 1993)); see Fed. R. Civ. P. 12(b)(6).
1
to Bon Secours facilities (“Concierge Program”). Specifically, since at least 2006, BS Richmond
provided such services to participating physicians through the concierge department of its
shared services division. Since at least 2009, BS Hampton has also provided such services. BS
Richmond is affiliated with St. Mary’s Hospital (Richmond, VA), Memorial Regional Medical
Center (Mechanicsville, VA), Richmond Community Hospital (Richmond, VA), St. Francis
Medical Center (Midlothian, VA), and the Heart Institute at Reynolds Crossing (Richmond, VA).
BS Richmond is also affiliated with several imaging centers—St. Mary’s Hospital, Memorial
Regional Medical Center, St. Francis Medical Center, Richmond Community Hospital, Bon
Secours Imaging Center Reynolds Crossing, Laburnum Diagnostic Imaging Center and St.
Francis Imaging Center—and with the Bon Secours Medical Group, comprising approximately
200 affiliated physicians. BS Hampton is affiliated with DePaul Medical Center (Norfolk, VA),
Harbour View Health Center (Suffolk, VA), Mary Immaculate Hospital (Newport News, VA),
Maryview Medical Center (Portsmouth, VA), Bon Secours Health Center at Virginia Beach
(Virginia Beach, VA), and three assisted living residences, located in Norfolk and Portsmouth,
Virginia and in St. Petersburg, Florida (collectively, “Bon Secours Facilities”).
Through the Concierge Program, patient-physician practice liaisons (“Concierges”) were
hired by Bon Secours to provide a wide array of services to physicians who referred their
patients to Bon Secours for diagnostic tests. Bon Secours’s Concierge Program was designed to
alleviate personnel and financial burdens on referring physicians’ offices by scheduling patients,
obtaining insurance pre-authorizations, communicating with patients and testing facilities,
collecting patient co-payments and deductible payments, and performing additional tasks on
behalf of the referring physicians upon request.
2.
Coding by Concierges
Rector reports that approximately eighty percent of participating physicians failed to
submit complete forms to the Concierge Program. Concierges were instructed to assign
International Statistical Classification of Diseases and Related Health Problems, 9th Revision
2
(“ICD-9”) codes and related Current Procedural Terminology (“CPT”) codes. Concierges were
not licensed medical professionals authorized to diagnose patients or select appropriate
procedures. As such, in determining patient diagnoses, the Concierges were instructed to use
internal manuals and “cheat sheets” created by Bon Secours managers that list only those ICD-9
codes and related CPT codes for those diagnoses and procedures that are covered by Medicare,
Medicaid, or other insurance plans. Managers repeatedly instructed Concierges to never reveal
the existence of these manuals or “cheat sheets” to insurers or physicians’ offices. Concierges
selected from these codes in order to ensure that patient procedures or administered tests were
coverable by relevant third-party payers or insurance programs. Further, Bon Secours’s
concierge computer system “red lighted” any orders with codes not covered by patient insurers.
(Second Am. Compl. ¶ 16). Bon Secours steered patients to testing or procedures based on
revenue determinants by instructing Concierges to change the “red lighted” patient orders into
ones that were covered for payment before they were “green lighted” for submission. (Id.).
Lastly, Concierges were instructed by Bon Secours managers to refer participating physicians’
patients to Bon Secours facilities regardless of whether or not those facilities were in a patient’s
insurance network.
If an affiliated physician failed to sign an order for diagnostic testing or therapeutic
procedures, or if an unauthorized person signed a patient form or ordered a procedure without
submitting an order form and the physician’s signature could not be expeditiously obtained, Bon
Secours directed its Concierges to cut and paste physicians’ signatures from past orders (“Cut
and Paste Practice”). Bon Secours managers were well aware of this practice, and Rector was
trained to engage in this conduct by Bon Secours employees. The practice continued even after
Relator and other Concierges raised questions and concerns about it. Bon Secours also
systematically completed missing portions of physicians’ orders and other documentation that
physicians’ offices are required to complete. If information was missing or unclear in
documentation, Concierges were instructed by Bon Secours’s management not to call
3
physicians’ offices but, instead, to call patients, falsely identify themselves as calling from the
physicians’ offices, and attempt to determine the proper diagnosis and procedure ordered.
Further, Bon Secours’s management directed diagnostic lab personnel to call their Concierges
with questions, including questions about diagnoses, procedures, and medication instead of
calling physicians’ offices. Bon Secours management directed the Concierges not to provide any
services in connection with patients who expressed a preference to have their tests done at a
non-Bon Secours facility. Further, Concierges were instructed to inform physician’s staff that
they would need to handle their own scheduling and paperwork if a patient went to a non-Bon
Secours facility.
3.
“On-Site” Concierges
The Concierge Program included Concierges who sat in a centralized location at Bon
Secours facilities and communicated by phone, fax, and over the computer (“Virtual
Concierges”) and those whom Bon Secours assigned to work in the actual offices of select
medical practices (“On-site Concierges”). Relator represents that BS Richmond employs
approximately thirty Concierges, the majority of whom are located at a central processing center
at 8580 Magellan Parkway in Richmond, Virginia. Relator further represents that approximately
eight to ten of the BS Richmond Concierges are On-site Concierges assigned to work full-time in
“high-volume” referring physicians’ offices and/or those with high potential. (Id. ¶ 19). Relator
estimates that these thirty Concierges process fifteen patients per day for a total of
approximately 450 patients per day throughout the BS Richmond concierge department. Relator
estimates that the average claim processed by Bon Secours Concierges is approximately
$1,000.00. Rector reports that, on multiple occasions, additional Concierges were hired by a
concierge manger, Wade Williams, after being approved by “the Chief Financial Officer and the
Chief Executive Officer.” (Id. ¶ 87). Bon Secours estimated that each additional Concierge would
result in a twenty-three percent increase in referrals and, in one case, even stated that placing an
4
On-site Concierge would enable Bon Secours to control referrals to Memorial Regional Medical
Center, a Bon Secours-owned hospital in Richmond.
On-site Concierges provided numerous services that would otherwise be performed by
paid physicians’ staff. “Bon Secours intended that the On-site Concierges would network and
align themselves as a part of the [physician’s] office team providing direct feedback from
physicians, patients and staff [and providing] immediate results to the physicians.” (Id. ¶ 95)
(internal quotation marks omitted). Relator reports that On-site Concierges had the effect of
decreasing the overhead of physicians’ offices to the point where physicians were able to lay off
employees. Specifically, Grove Family Practice and West End Internal terminated employees for
this reason. Bon Secours provided these free services solely to physicians who referred patients
to facilities owned by, or affiliated with, Bon Secours.
4.
Benefit to Bon Secours
Bon Secours’s management tracks how many physicians and medical practices enroll
with the program, compares how many patients they refer to Bon Secours labs, and calculates
the profitability of the program. Bon Secours’s internal financial records tracked the monetary
value of physician referrals from the Concierge Program for each year and included projections
of revenue associated with the Concierge Program for each year. Williams stated that physician
participation in the Concierge Program has expanded since he started with the program in 2007
and that Bon Secours was able to use the program to “gain market share in the community.” (Id.
¶¶ 100-01). “[A]pproximately 50% of patients referred through the BS Richmond Concierge
department to Bon Secours’s diagnostic and therapeutic facilities are Medicare beneficiaries,
and approximately 25% of those patients are Medicaid beneficiaries.” (Id. ¶ 20). An August
2008 internal presentation prepared by the, then, Vice President for Planning and Marketing for
Bon Secours, Michael A. Spine, reported that Bon Secours increased its referral business an
average of 23% as a direct result of the Concierge Program and touted a 48% return-on-
5
investment, with the Concierge Program generating nearly six million in income over the
previous year.
5.Billing the Federal Government
Relator represents that the BS Richmond Concierge department bills approximately
$120,000,000.00 per year in medical claims, of which 80% are based on unsubstantiated or
unsupported medical diagnoses, and 100% of which are the result of arrangements between
referring physicians and Bon Secours pursuant to the Concierge Program. (Id. ¶ 132). Relator
estimates that “approximately 50% of patients referred through the Bon Secours Concierge
department to Bon Secours diagnostic and therapeutic facilities are Medicare beneficiaries and
approximately 25% of those patients are Medicaid beneficiaries, resulting in damages to the
Government of approximately $90,000,000.00 per year since 2006.” (Id. ¶ 133).
B. Relator’s Role
In August 2007, BS Richmond hired Rector through a temporary employment agency to
work as a part-time Concierge for BS Richmond’s Shared Services Division. (Second Am. Compl.
¶ 32). Rector had no prior health care experience, training, or education. Rector began his fulltime employment at BS Richmond in November of 2007. As a Concierge, Rector completed,
submitted, and obtained authorization for diagnostic testing and therapeutic procedures,
scheduled patient appointments, followed up with patients after their appointments, and
collected co-payments and deductible payments for services being rendered.
Concierges, including Rector, maintained lists of patients referred by participating
physicians that indicated each patient’s insurance coverage, including Medicare and Medicaid
beneficiaries. Rector and other Concierges also kept a log of patients whose diagnostic testing
they handled. These logs indicated the identity of the referring physician or practice group, as
well as the patient’s type of insurance coverage. Relator’s log from January/February 2008
showed that Medicaid and Medicare-covered patients were referred to Bon Secours facilities by
physicians participating in the Concierge Program. (Second Am. Compl. Ex. A). The patient log
6
consists of a spreadsheet including, but not limited to, patient names and social security
numbers, types of procedures scheduled, scheduled dates of procedures, actual dates and times
of procedures, facilities in which procedures were completed, the names of referring physician
and their practices, and the insurance of the patients. (Id.)
In or about May or July of 2008, Williams introduced Relator as a potential On-site
Concierge for Richmond Gastroenterology Associates at St. Mary’s Hospital. During the visit,
Richmond Surgical Group’s office manager told Relator that he might be needed to answer
phones during his lunch hour and to perform office tasks for the medical group. In response,
Williams told Rector that Bon Secours would approve of the practice if he would be willing to
give up his lunch hour. BS Richmond later offered him the position, along with a ninety cent per
hour raise. Relator, however, declined the position.
In late November and December of 2009, Rector documented three orders from a
medical group, Grove Avenue Family Practice in Richmond, Virginia, on which he selected codes
from the BS Richmond manual and cheat sheets because no ICD-9 codes had been provided.
Relator also completed an order from PartnerMD, a medical practice with an office in
Richmond, Virginia. There, Rector “coded” an order for an MRI received by PartnerMD by
contacting a patient, discussing the patient’s diagnosis and, in consultation with other Bon
Secours Concierges in the workspace that day, locating a billable ICD-9 code pursuant to which
Bon Secours could obtain reimbursement. Last, Rector represents that on a number of occasions
he was told by Bon Secours radiologists to “simply use his own discretion in determining
whether or not a particular radiology procedure should be performed with or without contrast.”
(Id. ¶ 114). Relator reports that tests would occasionally need to be repeated as a result of errors
in CPT coding regarding contrast.
C. Retaliation Against Rector
Relator became concerned about multiple practices at BS Richmond including: (1) the
fact that he and other Concierges were hired with little healthcare education, training,
7
credentials, or experience; (2) the use of “cheat sheets;” (3) the improper way in which BS
Richmond treated patient privacy; (4) the Cut and Paste Practice; (5) and patient wellbeing.
Relator repeatedly voiced concerns over these practices but did not press the issue because he
feared for his job.
On or about December 24, 2009, Relator was processing an order for diagnostic testing
because a physician’s office was closed. Relator employed the Cut and Paste Practice. His
supervisor said that he was not allowed to do so and took the order from him. After seven
minutes, she reappeared with a signed order, explained that she was able to obtain the
physician’s signature, and reprimanded him for his suggestion that they use the Cut and Paste
Practice. At one point, Rector confronted Erin Baggett, a new supervisor, on her denial that Bon
Secours trainers had instructed Concierges to use the Cut and Paste Practice. On January 5,
2010, while an investigation into the matter was pending, Defendants terminated Rector for
“insubordination”—speaking to a colleague about the situation—and for falsifying a physician
signature in violation of company policy.
II.
PROCEDURAL HISTORY
On January 18, 2011, Rector filed a qui tam complaint under seal against four
Defendants. On April 19, 2013, the case was unsealed after the United States and the
Commonwealth of Virginia declined to intervene. On August 5, 2013, Rector filed his First
Amended Complaint which, among other things, added information about specific false claims,
including a patient log prepared by Rector in the course of his employment.
On September 17, 2013, Rector filed his Second Amended Complaint, changing three
defendants and adding ten John Doe corporations. In Counts I, II, III, IV, and V of the Second
Amended Complaint, Rector alleges violations of the False Claims Act (“FCA”). In Count VI of
8
the Second Amended Complaint, Rector alleges violations the Anti-Kickback Statute (“AKS”). In
Count VII, Rector alleges violations of the Virginia Fraud Against Taxpayers Act (“VFATA”).2
Regarding the federal claims, Relator demands that Defendants pay: (1) amount equal to
three times the amount of damages the United States has sustained because of Defendants’
actions,3 (2) a civil penalty of not less than $5,500.00 and not more than $11,000.00 or such
other penalty as the law may permit and/or require for each violation of 31 U.S.C. §§ 3729 et
seq.; (3) $50,000.00 for each violation of 42 U.S.C. § 1320a-7a(a)(7) of the Medicare/Medicaid
Anti-Kickback Statute; (4) $15,000.00 for each violation of the Stark Act (and/or $100,000.00
for intentional schemes violative of the Stark Act); (5) the maximum amount allowed pursuant
to 31 U.S.C. § 3730(d) of the False Claims Act and/or any other applicable provision of law to
Relator; (6) all costs and expenses of this action, including attorneys’ fees; (7) and such relief as
is appropriate under the provisions of 31 U.S.C. § 3730(h) of the False Claims Act for retaliatory
discharge, including: (a) two times the amount of back pay with appropriate interest; (b)
compensation for special damages sustained by Relator in an amount to be determined at trial;
(c) litigation costs and reasonable attorneys’ fees; (d) such punitive damages as may be awarded
under applicable law; (8) reasonable attorneys’ fees and litigation costs in connection with
Relator’s Section H claim; and (9) other and further relief as the Court may deem to be just and
proper.
Regarding the state claims, Relator demands: (1) that Relator and Virginia be awarded
statutory damages in an amount equal to three times the amount of actual damages sustained by
Virginia as a result of Defendants’ actions, as well as the maximum statutory civil penalty for
each violation by Defendants, all as provided by VFATA; (2) a relator’s share of any judgment to
the maximum amount provided pursuant VFATA; (3) all costs and expenses associated with the
2 Rector also alleges violations of the Stark Law (Social Security Act § 1877; 42 U.S.C. § 1395nn). While
this cause of action is not enumerated separately, Rector does mention it in his demand for damages.
Relator estimated these damages to be approximately $90,000,000.00 per year since 2006. (See
Second Am. Compl. ¶ 133).
3
9
pendent state claims, plus attorneys’ fees pursuant to VFATA; and (4) other and further relief as
the Court may deem to be just and proper.
Defendants filed their Motion to Dismiss Second Amended Complaint on November 22,
2013. Rector filed his Opposition on December 20, 2013. Defendants’ Reply was filed on Jan 3,
2014. A hearing was held on January 29, 2014 and this matter is ripe for review.
III.
LEGAL STANDARD
A motion to dismiss for failure to state a claim upon which relief can be granted
challenges the legal sufficiency of a claim, rather than the facts supporting it. Fed. R. Civ. P.
12(b)(6); Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007); Republican Party of
N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A court ruling on a Rule 12(b)(6) motion
must therefore accept all of the factual allegations in the complaint as true, see Edwards v. City
of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999); Warner v. Buck Creek Nursery, Inc., 149 F.
Supp. 2d 246, 254-55 (W.D. Va. 2001), in addition to any provable facts consistent with those
allegations, Hishon v. King & Spalding, 467 U.S. 69, 73 (1984), and must view these facts in the
light most favorable to the plaintiff, Christopher v. Harbury, 536 U.S. 403, 406 (2002). The
Court may consider the complaint, its attachments, and documents “attached to the motion to
dismiss, so long as they are integral to the complaint and authentic.” Sec’y of State for Defence
v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007).
To survive a motion to dismiss, a complaint must contain factual allegations sufficient to
provide the defendant with “notice of what the . . . claim is and the grounds upon which it rests.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47
(1957)). Rule 8(a)(2) requires the complaint to allege facts showing that the plaintiff’s claim is
plausible, and these “[f]actual allegations must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555; see id. at 555 n.3. The Court need not accept legal
conclusions that are presented as factual allegations, id. at 555, or “unwarranted inferences,
10
unreasonable conclusions, or arguments,” E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213
F.3d 175, 180 (4th Cir. 2000).
“In addition to meeting the plausibility standard of Iqbal, fraud claims under the Act
must be pleaded with particularity pursuant to Rule 9(b) of the Federal Rules of Civil
Procedure.” United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455 (4th
Cir. 2013) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Under Rule 9(b): “In alleging
fraud or mistake, a party must state with particularity the circumstances constituting fraud or
mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged
generally.” Fed. R. Civ. P. 9(b).
IV.
ANALYSIS
A. False Claims Act
Relator alleges that Defendants violated the FCA under four theories: (1) presentation of
false claims under 31 U.S.C. § 3729(a)(1)(A); (2) making or using false record or statement to
cause a claim to be paid (commonly referred to as a “false certification claim”) under 31 U.S.C. §
3729(a)(1)(B); (3) making or using false record or statement to avoid an obligation to refund
(commonly referred to as a “reverse false claim”) under 31 U.S.C. § 3729(a)(1)(G); and
conspiracy under 31 U.S.C. § 3729(a)(1)(C). “The test for False Claims Act liability . . . is (1)
whether there was a false statement or fraudulent course of conduct; (2) made or carried out
with the requisite scienter; (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’).” Harrison v. Westinghouse
Savannah River Co., 176 F.3d 776, 788 (4th Cir. 1999).
1.Count II: False Certification Claim
a.
Rule 9(b) and Submission of Claims to the Government
Generally, false certification arises where (1) “a government contract or program
required compliance with certain conditions as a prerequisite to a government benefit, payment,
or program;” (2) “the defendant failed to comply with those conditions;” and (3) “the defendant
11
falsely certified that it had complied with the conditions in order to induce the Government
benefit.” United States ex rel. Badr v. Triple Canopy, Inc., No. 1:11-CV-288, 2013 WL 3120204,
at *10 (E.D. Va. June 19, 2013) (quoting United States ex rel. Godfrey v. KBR, Inc., 360 F. App’x
407, 411–12 (4th Cir. 2010)). These requirements must also be met in light of the heightened
pleading standard for fraud under Rule 9(b). Harrison, 176 F.3d at 784.
To satisfy Rule 9(b), a relator “must, at a minimum, 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.” United States ex rel. Wilson v. Kellogg
Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (citation and internal quotation marks
omitted). Moreover, in the Fourth Circuit, a relator asserting FCA claims is required to plead
more than the mere existence of a fraudulent scheme that supports the inference that false
claims were presented to the Government. Nathan, 707 F.3d at 456. Relators must allege with
some indicia of reliability that an actual false claim was submitted to the Government. Id. at
456-57. “[W]ithout such plausible allegations of presentment, a relator not only fails to meet the
particularity requirement of Rule 9(b), but also does not satisfy the general plausibility standard
of Iqbal.” Id. at 457. In reaching its conclusions, the Fourth Circuit acknowledged that relators
face practical challenges in meeting the pleading requirements of Rule 9(b) such as not having
independent access to records evidencing false claims. See id. Nonetheless, the Fourth Circuit
held that “when a defendant’s actions, as alleged and as reasonably inferred from the
allegations, could have led, but need not necessarily have led, to the submission of false claims,
a relator must allege with particularity that specific false claims actually were presented to the
Government for payment.” Id. The Fourth Circuit explained that Rule 9(b) has multiple
purposes including providing notice to defendant of their alleged misconduct, prevention of
frivolous suits, eliminating fraud actions where all of the facts are learned after discovery, and
protecting defendants from harm to their good will and reputation. Id. at 456 (citing Harrison,
12
176 F.3d at 784). Accordingly, Rule 9(b) is to be applied strictly to cases brought under the FCA.
Id. at 456.
The primary evidence that Rector proffers to show that false claims were in fact
submitted to the Government for benefit is a log of patients that he created while he worked as a
Concierge for BS Richmond. The patient log consists of a spreadsheet including, but not limited
to, patient names and social security numbers, types of procedures scheduled, scheduled dates
of procedures, actual dates and times of procedures, facilities in which procedures were
completed, the names of referring physician and their practices, and the insurance of the
patients. (Second Am. Compl. Ex. A). Rector’s argument that Defendants submitted or caused
others to actually submit false claims to the Government rests upon the fact that some of the
patients listed in the patient log were covered by Medicare, Medicaid, or TriCare. (See Second
Am. Compl. ¶¶ 104, 132-33).
Regarding Relator’s claims that the Defendants in this matter submitted false claims to
the Government themselves, Rector’s production and subsequent allegations are not enough to
satisfy the heightened pleading requirements of Rule 9(b). See, e.g., United States ex rel. Ge v.
Takeda Pharm. Co. Ltd., 737 F.3d 116, 124 (1st Cir. 2013). Rector’s pleadings are similar to the
relator’s in United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1306 (11th
Cir. 2002). In Clausen, the relator simply provided a form with certain medical test codes and
asked the court to infer that the charges were actually incurred. See id. There, the relator failed
to meet the requirements of Rule 9(b) where he could not plausibly allege the actual
presentment of false claims to the Government despite being able to identify specific long-term
care facilities, patients, dates of testing, and testing procedures. Id. at 1315. Much like the relator
in Clausen, Rector has been unable to provide any billing information such as copies of a single
actual bill or claim or payment, amounts of any charges, actual dates of claims, policies about
billing or even second hand information about billing practices. See id.
13
While Rule 9(b) does not require Rector to allege his claim by a preponderance of
evidence, “some of [the] information for at least some of the claims must be pleaded in order to
satisfy Rule 9(b).” Id. at 1312 n.21. Nothing in the record indicates that any of the Named
Defendants necessarily submitted false claims to the Government. In fact, the Parties dispute
whether Defendants are even providers of Medicare.4 Additionally, Relator has provided no
accounting documents or actual claims submitted by the Named Defendants indicating when
they submitted false claims. Thus, he cannot plausibly claim that the Named Defendants
themselves actually submitted false claims. Rector cannot cure this deficiency by asserting any
firsthand knowledge of the billing processes of any Defendant, named or unnamed. See United
States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1358-59 (11th Cir. 2006) (“[Relator] fails to
provide the next link in the FCA liability chain: showing that the defendants actually submitted
reimbursement claims for the services he describes. Instead, he portrays the scheme and then
summarily concludes that the Named Defendants submitted false claims to the Government for
reimbursement.”).
The FCA also reaches claims that are rendered false by one party, but submitted to the
Government by another. United States ex rel. DeCesare v. Americare In Home Nursing, 757 F.
Supp. 2d 573, 588 (E.D. Va. 2010). Here, unable to plausibly allege that any Named Defendant
actually submitted claims to the Government, Rector asserts that Bon Secours caused others to
submit false claims; specifically, that Bon Secours caused doctors participating in the Concierge
Program to refer patients to Bon Secours Facilities. Relator does not refer to these facilities by
name; however, he does delineate a medical group, and multiple hospitals, imaging centers,
medical centers, and assisted living residences affiliated with BS Richmond and BS Hampton.
(See Second Am. Compl. ¶¶ 39-40). Relator also alleges, “upon information and belief,” that
specific physician practices have referred patients to Bon Secours facilities as a result of the
Concierge Program. (Id. ¶ 96). Relator goes on to state that the patient log “lists . . . patients who
4 (See Hr’g Tr. 10). Rector argues that Defendants’ contention is suspect, in part, because a Bon Secours
website touts that “Bon Secours is a certified licensed Medicare Provider.” (Relator’s Opp’n 15 n.6).
14
received services for which Bon Secours billed a government health insurance program.” (Id. ¶
104).5 It appears that the initials of the various facilities that patients were referred to in the
patient log correspond to at least some of the listed Bon Secours Facilities. For example, “SMH”
likely refers to Saint Mary’s Hospital. As such, Rector can plausibly allege that certain patients
were referred to Bon Secours Facilities where procedures where scheduled and that these
patients had health insurance through Medicare, Medicaid, or Tricare. Rector then concludes,
without any factual support, that the Bon Secours Facilities actually submitted claims to the
Government. (See Id. ¶¶ 103-104).
Relator’s log is not enough to plausibly allege that the procedures necessarily took place
or that the Government was billed by any Bon Secours Facility or physician. See Nathan, 707
F.3d at 460 (holding that a relator did not identify with particularity any claims that would
trigger liability under the FCA because, in the absence of the required specific allegations, the
court was unable to infer that a Medicare patient who received a prescription for an off-label use
actually filled the prescription and sought reimbursement from the government); Clausen, 290
F.3d at 1315; see also United States ex rel. Palmieri v. Alpharma, Inc., 928 F. Supp. 2d 840, 857
(D. Md. 2013). Relator’s claim does not involve an integrated scheme in which presentment of a
claim for payment was a necessary result because the patients could have paid for the relevant
prescriptions and procedures themselves. See Nathan, 707 F.3d at 460-61. In effect, Relator is
missing the final link in the chain of causation.
In sum, Rector has not pled with sufficient particularity under Rule 9(b) as to the Named
Defendants, related John Doe Defendants,6 Bon Secours Facilities, or relevant physicians.7
5 At times, it seems that Relator seems to intend “Bon Secours” to reference the Named Defendants and at
other times generally to refer to the parent company of Bon Secours. (See Id. ¶ 103) (“On or about January
8, 2008, a patient with the initials J.G. and a social security number ending in 2112 received MRI services
for which Bon Secours billed Medicare.”). These references, at times, frustrate the Court’s ability to
determine whether Relator can plead with particularity.
6
Relator’s claims fail to the extent that he relies on John Doe Defendants for the aforementioned reasons.
15
Because Rector has failed to plead with particularity, the Court declines to address the merits of
the AKS and Stark Law claims at issue.
b. Materiality
Rector states that all Medicare providers must prepare and submit to the Centers for
Medicare and Medicaid Services (“CMS”) a Medicare Enrollment form (“CMS-855 form”) that
includes a certification that the provider is and “will remain in compliance with all Medicare
‘laws, regulations, and program instructions (including, but not limited to, the Federal antikickback statute and the Stark law), and on the [provider]’s compliance with all conditions of
participation in Medicare.’” (Second Am. Compl. ¶ 63). He then alleges that Defendants
submitted such certifications to the Government to become eligible for Medicare reimbursement
and to maintain their eligibility. (Id. at ¶ 64). In his Opposition, Rector avers simply that “when
Defendants submitted claims to Medicare, they were not ‘in compliance with . . . the Federal
anti-kickback statute’ as they had certified.” (Relator’s Opp’n 13).8
Even assuming that Defendants submitted CMS-855 forms and made a false certification
or misrepresentation with the requisite scienter, to be actionable, the certification must also be
material and have caused the government to pay a claim. Harrison, 176 F.3d at 788. CMS-855
forms are required to initiate the process of enrolling providers into the Medicare program.
Multiple courts have held that CMS enrollment applications cannot serve as the basis for an FCA
claims based on AKS allegations. United States ex rel. Grenadyor v. Ukranian Vill. Pharmacy,
7 To the extent that Relator alleges a separate claim that Defendants submitted or caused others to submit
false claims based on the allegation that BS Richmond employees cut and pasted physician signatures
onto scheduling forms and improperly entered diagnostic procedure codes on those forms, these
allegations also fail under Rule 9(b) for the aforementioned reasons.
8 It must be noted that Rector has not plausibly alleged that any of the Named Defendants falsely certified
compliance with the AKS or Stark Laws in CMS-855 forms. As stated above, the Parties dispute whether
the Named Defendants are providers of Medicare. While Rector alleges that Defendants submitted CMS855 forms, he does not provide any actual copies of CMS forms submitted by Defendants nor does he have
any firsthand knowledge that Defendants submitted such forms. Instead, he infers through somewhat
circular reasoning that Defendants must have submitted such forms because all providers of Medicare are
required to do so. Relator has the burden of pleading with particularity under Rule 9(b) and, because he
has no firsthand knowledge of whether Defendants submitted CMS-855 forms, must plead the grounds
for his suspicions. Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 684 (7th Cir. 1992).
16
Inc., No. 09 C 7891, 2013 WL 6009261, at *4 (N.D. Ill. Nov. 7, 2013) (collecting cases that
declined to impose FCA liability where relators based their claim on CMS enrollment application
forms); United States ex rel. Landers v. Baptist Mem’l Health Care Corp., 525 F. Supp. 2d 972,
978-79 (W.D. Tenn. 2007) (collecting cases that declined to impose FCA liability in cases where
false certifications of compliance were not conditions of payment); United States v. Dialysis
Clinic, Inc., No. 5:09-CV-00710, 2011 WL 167246, at *14-15 (N.D.N.Y. Jan. 19, 2011). This is
because the certification in the application is a promise concerning eligibility for enrollment into
the Medicare program and not a false representation regarding a claim for payment. Id. (citing
United States ex rel. Kennedy v. Aventis Pharm., Inc., 610 F. Supp. 2d 938, 946 (N.D. Ill.
2009)). As such, the promises in the CMS-855 forms do not meet the materiality requirement
for liability under the FCA. Landers, 525 F. Supp. 2d at 979. Relator argues that the
certifications in the CMS-855 forms should be sufficient but relies on cases that address
different documentation such as cost reports or provider agreements, which contain different
language conditioning payment of Medicare claims on compliance with Medicare laws and
regulations. See, e.g., United States ex rel. Parikh v. Citizens Med. Ctr., No. 6:10-CV-64, 2013
WL 5304057, at *6 (S.D. Tex. Sept. 20, 2013) (citing to cases where relators based false
certification claims on cost report, claim forms); United States ex rel. Osheroff v. Tenet
Healthcare Corp., No. 09-22253-CIV, 2012 WL 2871264, at *8 (S.D. Fla. July 12, 2012); see
generally United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 392-93 (1st
Cir. 2011) (regarding provider agreements).
In sum, Rector’s Second Amended Complaint fails to meet the requisite element of
materiality because the certification upon which he seeks to base his claims is insufficient.
Specifically, Relator cannot rely solely on a CMS-855 Medicare enrollment application to
establish liability under the FCA because the form fails the materiality requirement of Harrison.
To the extent that Relator relies on Stark Law violations, Rector’s false certification claim fails
17
for the same reasons that his AKS false certification claim fails. Accordingly, Relator’s Second
Amended Complaint fails to state a claim under the express false certification theory of liability.9
c. Implied Certification
To the extent that Relator relies on a theory of implied certification, his claim fails. “No
Fourth Circuit decision has adopted the viability of an implied certification theory, and district
courts have [rejected] claims predicated on the implied certification theory.” Badr, 2013 WL
3120204, at *10; see also United States v. Jurik, 943 F. Supp. 2d 602, 610 (E.D.N.C. 2013);
United States ex rel. McLain v. KBR, Inc., No. 1:08CV499 (GBL/TCB), 2013 WL 710900, at *6
(E.D. Va. Feb. 27, 2013) (“The Fourth Circuit has not adopted this [implied certification]
theory.”).
2.
Count I: Rule 9(b) and the Submission of False Claims
Much like Rector’s false certification claim, his allegation that Defendants submitted
false claims to the Government fails for failure to plead with particularity under Rule 9(b).
Rector has not plausibly alleged that the Named Defendants, Bon Secours Facilities, or
participating physicians “necessarily” submitted false claims to the Government.
3.
Count III: Reverse False Claims
The previous version of the FCA imposed liability on any person who “knowingly makes,
uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7)
(2008). The new provision, as amended by the Fraud Enforcement & Recovery Act (“FERA”),
imposes liability on anyone who “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.” 31 U.S.C. § 3729(a)(1)(G).
9 Because Rector’s false certification claim fails on grounds of materiality and inadequate allegations that
Defendants actually submitted claims to the Government, the Court declines to address the elements of
falsity and scienter.
18
Without any false claims identified as the source of money that should have been repaid
to the Government, Rector has failed to particularize or adequately allege a reverse-false-claims
violation. See United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc., 2013 WL
5340480, at *9 (N.D. Ga. Sept. 17, 2013) (where false-claims counts and reverse-false-claims
counts are “two sides of the same coin,” the same analysis applies to both). Accordingly, the
Court will dismiss Count III.
4.
Count IV: Conspiracy
To prove an FCA conspiracy, a relator must show (1) the existence of an unlawful
agreement between defendants to get a false or fraudulent claim reimbursed by the Government
and (2) at least one overt act performed in furtherance of that agreement. United States ex rel.
Ahumada v. Nat’l Ctr. for Emp’t of the Disabled, No. 1:06-CV-713, 2013 WL 2322836, at *4
(E.D. Va. May 22, 2013) (discussing an FCA conspiracy claim in the context the pre-FERA
amended FCA). Moreover, “a plaintiff asserting a [conspiracy] claim under [the FCA] must show
that the conspirators agreed to make use of the false record or statement to achieve this end.”
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 665 (2008). The conspirators
must have “shared a specific intent to defraud the Government.” DeCesare, 757 F. Supp. 2d at
584.
Defendants claim that Relator’s conspiracy claim fails because Defendants are legally
incapable of conspiring with each other and because Relator does not allege facts showing an
agreement. Relator contends that his conspiracy allegations are not limited to actions taken by
the Defendants. He argues that his conspiracy claim includes “others not named as Defendants”
including other John Doe Corporations, physician practices, and their employees. (Second Am.
Compl. ¶¶ 42, 96, 152). Specifically, Rector alleges that physician referrers understood the
objective of the scheme and steadily referred patients to Bon Secours facilities in exchange for
Concierge Services. Rector represents that a medical practice called Express Med and 18
additional non-Bon Secours affiliated medical practices accepted Bon Secours Concierge
19
services in exchange for referrals. Rector reports that Dr. Ali Mollah of Express Med thanked
Bon Secours for the “fabulous service that you are providing us . . . .” (Second Am. Compl. ¶ 92).
As mentioned above, Rector’s Second Amended Complaint fails to allege sufficient facts
to show even an individual violation of the FCA by Defendants. Further, the Named Defendants
are legally incapable of conspiring with each other because they are related entities or
subsidiaries. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771-72 & n.19
(1984). Accordingly, Relator’s conspiracy claim, which is premised on his underlying FCA
violations, necessarily fails because Relator’s individual FCA claims do not pass muster under
Rule 9(b). See Godfrey, 360 F. App’x at 413.
5.
Count V: Retaliation
Under 31 U.S.C. § 3730(h):
[a]ny employee, contractor, or agent shall be entitled to all relief necessary to
make that employee, contractor, or agent whole, if that employee, contractor, or
agent is discharged, demoted, suspended, threatened, harassed, or in any other
manner discriminated against in the terms and conditions of employment
because of lawful acts done by the employee, contractor, agent or associated
others in furtherance of an action under this section or other efforts to stop 1 or
more violations of this subchapter.
31 U.S.C. § 3730(h) (2008). FERA broadened the scope of conduct protected by § 3730(h) from
“lawful acts . . . in furtherance of an action under this section” to “lawful acts . . . in furtherance
of other efforts to stop 1 or more violations of this subchapter.” Layman v. MET Labs., Inc., No.
CIV.A. RDB-12-2860, 2013 WL 2237689, *6-7 (D. Md. May 20, 2013); compare 31 U.S.C. §
3730(h) (2008), with 31 U.S.C. § 3730(h) (2012). In order to defeat a motion to dismiss on a
FCA retaliation claim, Rector must allege that (1) he engaged in protected conduct such as
taking acts in furtherance of an FCA suit or a related internal report; (2) his employer knew of
those acts; and (3) his employer treated him adversely because of these acts. See United States
ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 735 (4th Cir.
2010); see also Layman, 2013 WL 2237689, at *5-6. “A protected activity need not indicate that
an actual FCA suit was being contemplated, but it must evince some attempt to expose possible
20
fraud. ‘An employer is entitled to treat a suggestion for improvement as what it purports to be
rather than as a precursor to litigation.’” Id. (quoting Luckey v. Baxter Healthcare Corp., 183
F.3d 730, 733 (7th Cir. 1999)). The Fourth Circuit applies the objective “distinct possibility”
standard to determine whether an employee has engaged in protected activity. Glynn v. EDO
Corp., 710 F.3d 209, 214 (4th Cir. 2013). Under this standard, Rector must show that he was
investigating “matters that reasonably could lead to a viable FCA action.” Id. (quoting Eberhardt
v. Integrated Design & Const., Inc., 167 F.3d 861, 868 (4th Cir. 1999)).
Rector sets forth his alleged “protected conduct” in paragraphs 138 through 140 of the
Second Amended Complaint, (see Relator’s Opp’n 37), which refer to generalized concerns
including: BS Richmond’s use of “cheat sheets” and management’s directives to keep them
secret from doctors, insurers, and patients; dangers to patient privacy; BS Richmond’s Cut and
Paste Practice; the shredding of important documents; and his worries about patients’ wellbeing
due to the prospect of duplicative testing. Rector states that he “repeatedly voiced concerns
about these practices to Bon Secours management; however, managers made clear that his
complaints were not welcome, and Relator did not press the issue out of concern for his own
job.” (Second Am. Compl. ¶ 140).
There is little that shows that any Defendant would have reasonably believed that Rector
was acting in furtherance of an FCA action or a related internal report. There is no indication
that Rector approached his employer about concerns related to the alleged fraud against the
federal government or even the AKS and Stark law violations that he now uses to support his
FCA claims. Instead, Rector essentially complained of what he perceived as shoddy or suspicious
business practices and was generally “concerned that Defendants’ activities were possibly
violating Medicare and Medicaid statutes and regulations, including patient privacy laws.” (See
Second Am. Compl. ¶ 138). Further, Relator represents that he “did not press the issue out of
concern for his own job.” (Second Am. Compl. ¶ 140). The only fact that related to fraud or false
certification under the FCA was Rector’s protest of the use of “cheat sheets” to code insurance
21
bills, which does not necessarily relate to improper referrals. As Defendants point out, “[m]erely
grumbling to the employer about . . . regulatory violations does not satisfy the [knowledge]
requirement—just as it does not constitute protected activity in the first place.” Young, 2013 WL
4498680, at *9 (quoting United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 743
(D.C. Cir. 1998)). Rector’s retaliation claim fails because Rector has not alleged the requisite
elements of his FCA claim. See, e.g., United States ex rel. Parks v. Alpharma, Inc., 493 F. App’x
380, 389-90 (4th Cir. 2012) (dismissing a claim in which “[relator’s] complaints were clearly
couched in terms of concerns and suggestions, not threats or warnings of FCA litigation”).
B. Count VI: Violations of the AKS and Stark Law
Relator has voluntarily dismissed the claim related to the violation of the AKS. (Hr’g Tr.
26). To the extent that Relator attempts to assert a separate Stark Law claim, such a claim will
be dismissed because the Stark Law does not have a private right of action. See United States ex
rel. Villafane v. Solinger, 543 F. Supp. 2d 678, 700 (W.D. Ky. 2008).
C. Count VII: VFATA
Because the VFATA and FCA are analogous and Relator incorporates all of his
arguments into both causes of action, Relator’s VFATA claims will be dismissed for the very
same reasons that his FCA claims fail.
V.
ABILITY TO AMEND THE COMPLAINT
Under Rule 15(a)(2), a party may amend its pleading with the opposing party’s written
consent or the court’s leave. Fed. R. Civ. P. 15(a)(2). The rule suggests that courts “should freely
give leave when justice so requires.” Id. This broad rule gives effect to the “federal policy in favor
of resolving cases on their merits instead of disposing of them on technicalities.” Laber v.
Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc) (citing Conley v. Gibson, 355 U.S. 41, 48
(1957)). The Fourth Circuit has interpreted Rule 15(a) to mean that “leave to amend should be
denied only 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,
22
438 F.3d at 426 (citing Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986)).
Courts should only deny leave to amend on the grounds of futility when the proposed
amendment is clearly insufficient or frivolous on its face. See Johnson, 785 F.2d at 10. If,
however, a court determines that the amendment would be futile, leave to amend may be
properly denied. See GE Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 548 (4th
Cir. 2001).
Although unlikely because Rector was a Concierge without apparent access to billing
records in BS Richmond, Bon Secours Facilities, or relevant physician practices, it is still
possible that Relator may be able to plead with the requisite specificity to meet Rule 9(b).
Typically, “[f]ailure to plead fraud with particularity . . . does not support a dismissal with
prejudice. To the contrary, leave to amend is ‘almost always’ allowed to cure deficiencies in
pleading fraud.” Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996)) (quoting Luce v.
Edelstein, 802 F.2d 49, 56 (2d Cir. 1986)). Further, the Court is unable to determine whether
Relator can proffer any additional facts without a proposed amended complaint. Accordingly,
the Court will DISMISS Relator’s Second Amended Complaint WITHOUT PREJUDICE.
VI.
CONCLUSION
For the aforementioned reasons, the Court will GRANT Defendants’ Motion to Dismiss
on all Counts.
Let the Clerk send a copy of this Memorandum Opinion to all counsel of record.
An appropriate Order shall issue.
____________________/s/_________________
James R. Spencer
Senior U. S. District Judge
ENTERED this
14th
day of April 2014.
23
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?