United States of America and the Commonwealth of Virginia, ex rel, Katherine Hagood, Relator, and Jodi Cotner, Relator v. Riverside Healthcare Association, Inc. et al
Filing
55
OPINION AND ORDER GRANTING IN PART and DENYING IN PART Defendants' 48 Motion to Dismiss. The Court DISMISSES WITHOUT PREJUDICE Relators' First Amended Complaint, ECF No. 12. However, the Court PROVIDES Relators with leave to amend the First Amended Complaint to cure all defects within twenty-one (21) days after the entry of this Opinion and Order. If Relators fail to adequately amend the First Amended Complaint within the period prescribed, the Courtwill dismiss such complaint with prejudice, as outlined. (See Opinion and Order for Specifics) (Signed by District Judge Mark S. Davis on 3/23/15). Copies provided as directed 3/24/15. (ecav)
UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Newport News Division
UNITED STATES OF AMERICA,
and the COMMONWEALTH OF
VIRGINIA ex r e l .
KATHERINE
HAGOOD and JODI COTNER,
Relator-Plaintiffs,
Civil Action No:
4:llcvl09
RIVERSIDE HEALTHCARE
ASSOCIATION,
INC.,
ET AL.#
Defendants.
OPINION AND ORDER
This matter is before the Court on a Motion to Dismiss,
No.
48,
filed
Association,
Inc.
on
Inc.
January
2015
by
Riverside
("Riverside Healthcare"),
("Riverside Hospital"),
("RPS"),
9,
Healthcare
Riverside Hospital,
Riverside Physician Services,
and Riverside Medical
Equipment
ECF
Company,
Inc.
Inc.
("RMEC"
and, collectively with Riverside Healthcare, Riverside Hospital,
and
RPS,
record,
"Defendants").
After
examining
the
briefs
and
the
the Court determines that oral argument is unnecessary
because the facts and legal contentions are adequately presented
and oral argument would not aid in the decisional process.
R. Civ.
P. 78(b); E.D. Va.
Loc. R. 7(J).
Fed.
I. FACTUAL AND PROCEDURAL HISTORY1
A. Factual Background
1.
The Parties
Katherine Hagood ("Hagood") and Jodi Cotner ("Cotner," and
collectively with Hagood,
"Relators"), on behalf of the United
States and Commonwealth of Virginia,
have brought this qui tarn
action
to the
against
("FCA")
Defendants
and Virginia
Defendants
are
pursuant
Fraud
healthcare
Against
False
Taxpayers
providers.
Claims
Act
More
Act
("VFATA").
specifically,
Riverside Hospital is a non-profit hospital located in Newport
News, Virginia, and incorporated under Virginia law.
Compl. 1 10, ECF No. 12.
First Am.
RPS is a non-profit corporation that
engages in the business of providing healthcare.
Like Riverside Hospital,
RMEC
is
a
division
physician services.
Riverside
of
it is located in Newport News.
RPS
that
Id. 1 12.
Hospital,
Id. 1 11.
RPS,
and
is
responsible
for
Id.
billing
Riverside Healthcare operates
RMEC,
which
are
Riverside
1The facts of this case, drawn from the First Amended Complaint,
are assumed true for the purpose of deciding the motion currently
before the Court.
See Burbach Broadcasting Co. of Del, v. Elkins
Radio Corp. , 278 F. 3d 401, 406 (4th Cir. 2002) .
The facts recited
here are not to be considered factual findings for any purpose other
than consideration of the pending motion. See Erickson v. Pardus, 551
U.S. 89, 94 (2007) (observing that, "when ruling on a defendant's
motion to dismiss, a judge must accept as true all of the factual
allegations contained in the complaint"); Nemet Chevrolet,
Consumeraffairs.com,
Inc• , 591 F.3d 250,
255 (4th Cir.
2009)
Ltd. v.
("[I]n
evaluating a Rule 12(b)(6) motion to dismiss, a court accepts all
well-pled facts as true and construes these facts in the light most
favorable to the plaintiff in weighing the legal sufficiency of the
complaint.").
Healthcare's wholly-owned subsidiaries.
Relators,
Defendants
management
"have
structure,"
common
such
that
Id. H 13.
ownership
the
According to
and
managing
a
common
officers
of
Riverside Hospital, RPS, and RMEC "report and answer directly to
executives of RHA."
Id.
Relators are private citizens who have brought this action
on
Id.
behalf
of
f 15.
the
United
States
Commonwealth
of
Virginia.
Hagood is a United States citizen and resident of
Virginia.
Id.
Defendants
formerly
emergency room administrator.
supervised "the
Department."
billing of
Id.
Id.
Id.
employee.
is
H 16.
Id.
a
employed
Hagood
as
In such position,
services
Cotner
resident of Texas.
Defendants'
and
in Riverside's
United
States
Like Hagood,
she
In such capacity,
an
Hagood
Emergency
citizen and
was
formerly
she served as a
registered nurse and Director of the Emergency Department.
Id.
"Areas under her responsibility included treatment and billing
of patients in Riverside's Emergency Department."
Id.
Relators allege that Defendants submitted false claims,
violation
of
the
Medicaid,
CHAMPUS,
healthcare
programs
FCA
and
VFATA,
FAMIS,
and
to
federal
Virginia
the
employee
Medicaid,
programs {collectively "Government Payors").
specifically,
Relators allege
federal
FAMIS,
1)
Medicare,
veteran
and
See id. 1 3.
that Defendants
claims to Government Payors for:
and
in
SANE
More
submitted false
services not rendered;
2)
pharmaceuticals not administered; 3) "upcoded" services;2 and 4)
services
provided by unqualified personnel.
addition,
Relators
retaliation
for
allege
her
that
opposition
fraudulent billing practices.
First,
violated
Counts I
the
FCA
and
terminated Hagood in
Defendants'
purported
Services Not Performed
in Counts I and V, that Defendants
VFATA
by
billing
Government
services that were not actually performed.
65-69.
In
False Claims
and V:
Relators allege,
to
1 19.
Id. 1M 41-44.
2.
a.
Defendants
Id.
Id.
Payors
K1 19;
for
45-49,
According to Relators, Defendants frequently billed the
Government
for
four
types
of
services
that
were
not
actually
performed: intubations; tracheostomies; medication pathways; and
electrocardiograms ("EKGs").
Regarding
intubations,
Relators
allege
that
Defendants'
billing software program, IBEX, contained systemic flaws, id. U
23,
that
"rendered the billing system prone
and/or
inability
double
and,
in
to
some
correct
erroneous
instances,
triple
to
erroneous entry
keystrokes,
such
that
intubation charges
were
levied against" Government Payors, id. 1 24.
In support of such
allegation Relators submitted a table of individuals allegedly
2 "'Upcoding,' a common form of Medicare fraud, is the practice
of billing Medicare for medical services or equipment designated under
a code that is more expensive than what a patient actually needed or
was provided."
United States ex rel. Bledsoe v. Community Health
Sys., Inc•, 342 F.3d 634, 637 n.2 (6th Cir. 2003) (citation omitted).
overcharged
for
intubations.
patient account number,
name,
date
assessed
of
by
intubation
service,
Id.
patient
name,
and alleged
Defendants
with
procedures.
The
service
extent
respect
Id.
The
table
of
to
dates
includes
the
item code
and
improper charges
one-hundred
of
service
five
for
the
procedures listed in the table range from August 11, 2005 to May
8, 2006.
of
See id.
the
patients
Government
Payor
Relators assert that twenty to thirty percent
listed
in
program
such
because
table
were
Government
covered
Payors
by
served
at
least twenty to thirty percent of Riverside's patient base.
id.
at
As
8
a
See
n.3.
to
tracheostomies,
Relators
allege
that
"the
Riverside
Emergency Department sometimes billed for procedures believed to
be
intubation under
an
internal
code
that
resulted
being made" to Government payors for tracheostomies,
more expensive procedure.
coding,
Relators assert
Id.
1 25.
in charges
which are a
Based on such internal
that Government
Payors paid
more for those procedures than should have been paid."
"$809.66
Id.
To
support their allegations, Relators submit a table of instances
in which Defendants allegedly billed for tracheostomies when,
fact,
Defendants'
staff
expensive procedure.
seventeen-month
procedures,
lists
Id.
period,
the
performed
an
intubation
or
in
less
The table includes information from a
and,
patient
for
seventeen
account
number,
tracheostomy
patient
name,
service item code and name,
and date of service.
Id.
The dates
of service range from July 23, 2005 to April 24, 2006.
Relators
assert
that
at
least
twenty
to
See id.
thirty percent
of
the
patients listed in such table were covered by Government Payors.
See id.
at 8 n.3.
Relators also allege that Defendants submitted false claims
to Government Payors while billing for medication pathways.
1 26.
was
In particular, according to Relators,
set
up
'pathway'
delivery
to
automatically
irrespective
of
the
of
medication
bill
whether
for
"[t]he IBEX system
medication
this
involved,"
Id.
was
and
'route'
permitted
this
or
with
"resulted
impermissible double charges being levied for 'routes.'"
in
Id.
Lastly, with respect to false claims for services allegedly
not
rendered,
Relators
allege
that
Defendants
impermissible billing practices for EKGs.
to Relators,
was
performed
physician's order,
allege,
with
Counts
a
second
and
billed
for
EKGs
without
a
and double-billed for EKGs that were properly
II
and VI:
theory
of
in Counts II and VI,
Government
actually
According
Id.
b.
As
^ 27.
in
Defendants charged for EKGs when no such procedure
performed,
ordered.
Id.
engaged
Payors
administer.
for
Id.
Pharmaceuticals Not Administered
FCA
and
VFATA
liability,
Relators
that Defendants filed false claims
pharmaceuticals
flU
50-54,
that
70-74.
they
did
According
not
to
Relators,
flaws
in the IBEX system resulted in improper double
or triple charges for medications.
Id. H 29.
Relators allege
that such billing errors occurred with multiple different types
and classes of medication.
Id.
In support of such allegations,
Relators present a table of charges for one medication,
during one two-month period in 2006.
patient
account
extent
of
number,
alleged
patient
Id.
name,
improper
Versed,
The table details the
transaction
charges
for
administrations of Versed during such period.
date,
and
twenty-two
The
transaction
dates in such table range from January 1,
2006 to February 25,
2006.
Relators allege that
See id.
As with the prior tables,
at least twenty to thirty percent of the patients listed in the
table were covered by Government Payors.
See id. at 8 n.3.
c. Counts III and VIII: Upcoding
Third,
Relators
Defendants
submitted
upcoding
for
services").
bill
for
false
evaluation
Id. 1M 55-59,
Medicare
Centers
allege,
for
E/M
Medicare
&
in
Counts
claims
and
80-84.
to
III
and
VIII,
Government
management
that
Payors
services
by
("E/M
For a healthcare provider to
services
provided
to
a
Medicaid
Services
patient,
("CMS")
require
the
the
provider to use Current Procedural Terminology ("CPT") codes to
identify
such services.
See
generally
CMS,
Medicare
Processing Manual ch. 12, § 30.6 (2014), available at
Claims
http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
Downloads/clml04cl2.pdf.
"Code
sets
used
to
bill
for
E/M
services are organized into various categories and levels [and,]
[i]n general,
code
the
the more complex the visit,
physician
category."
(2014),
CMS,
.
.
.
may
Evaluation
available
and
at
bill
the
higher level of
within
Management
the
appropriate
Services
Guide
8
http://www.cms.gov/Outreach-and-
Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/
eval_mgmt_serv_guide-ICN006764.pdf.
According
to
Relators,
calculate each patient's
Defendants
[E/M]
"relied
acuity level,"
"between 1-5 or 'Critical Care.'"
upon
IBEX
to
assigning levels
First Am. Compl. t 31.
Level
"'1' was the least intensive and least expensive level of caret,
and]
[e]ach level thereafter materially increased in acuity and
expense."
assigned
Id.
point
"[V]arious
values
and
point levels increased as
tasks
as
more
performed
tasks
by
were
providers
performed,
services were consumed ' [a]
as would the patient's acuity level."3
Id. 1 32.
a patient was assigned "Critical Care"
status,
and
la carte'
However, once
Defendants could
not continue to charge the patient for "a la carte"
of services.
were
consumption
Id.
3 According to Relators,
in 2006,
Defendants used the following
allocation of points for each acuity level: 1-25 points; 2-40
points; 3-65 points; 4-90 points; 5 - 155 points; and Critical
Care - 500 points.
First Am. Compl. ^ 32.
8
Relators allege that Defendants submitted false claims to
Government
Payors
through
four methods
of upcoding.
First,
Defendants "erroneously assigned 15 points to the administration
of oral medications when the actual number should have been 5[,]
resulting in a significant increase in charges."
Second, Defendants "continued to charge '[a]
Id.
U 33.
la carte' points to
critical care patients for various tasks and services when no
additional
charges
should
have
been
applied."
Id.
Third,
"[t]he IBEX system would sometimes double charge
[]
for whatever acuity level was administered."
Fourth, "[i]f
a
patient
left
without
Id.
being seen they would
a patient
sometimes
be
charged and receive an acuity level as if they had been seen by
a
physician
or
other
actually seen."
Id.
level
of
provider
that
they had not
To support such allegations, Relators have
included a table of patients whom Defendants allegedly billed
for a higher level of E/M services than they actually provided
in January 2009.
name,
and
See id.
level charged,
patient
account
Relators allege
Such table includes the patient's
alleged actual level of service rendered,
number
for
fifty-seven
that such upcoding
continued well after January, 2009."
occurred
patients.
"well before
Id.
and
Id. at 16 n.4.
d. Counts IV and IX: Unqualified Personnel
Finally, with respect to false claims, Relators allege, in
Counts
IV
and
IX,
that
Defendants
submitted
false
claims
to
Government
Payors
by
unqualified personnel.
billing
W
IcL
for
60-64,
Relators allege that Beverly Atkins,
by
In particular,
a registered nurse and the
of
program,
performed pediatric SANE examinations even though she
did
have
Commonwealth.
submitted
Atkins'
the requisite
IdL M
false
SANE
Sexual
80-84.
provided
director
not
Defendants'
services
to
examinations
Nurse
training
35-36.
claims
Abuse
or
Examiner
("SANE")
certification by
the
According to Relators, Defendants
Government
despite
Payors
her
lack
by
of
billing
for
certification.
Id.
3. Count IX: Wrongful Termination
In Count IX, Relators allege that Defendants violated the
FCA by terminating Hagood because she objected to Defendants'
alleged fraudulent billing practices.
allege
that
Hagood
informed
IcL HH 85-87.
Defendants
certain billing practices to be unlawful.
to Relators,
objective
terminated
even though Hagood was
measures
Hagood
of
employment
"shortly
Defendants' billing practices.
after"
that
Relators
she
considered
Id. H 42.
According
"performing well on all
performance,"
she
IcL H 43.
Defendants
complained
about
Relators allege that
Defendants terminated Hagood to intentionally retaliate against
her for her complaints about Defendants' billing practices.
11 44.
10
Id.
4. Defendants' Knowledge of Fraudulent Practices
Relators broadly allege that Defendants knowingly submitted
the
alleged
false
claims
stated
above.
With
respect
to
Defendants' knowledge, Relators also allege that a 2006 audit of
billing
practices
gave
Defendants'
senior
managers
actual
knowledge of the alleged fraudulent billing practices.
H
20.
According
to
Relators,
the
2006
audit
See id.
uncovered
fraudulent and double billing in excess of $3,500,000.
assert
that
the
following
members
of
Relators
Defendants'
senior
management became aware of such allegedly fraudulent practices:
"Golden
Bethune,
Audits;
Diana
CEO;
Lisa
Lovechio,
Salsberry,
Vice
President & Chief Nursing
Director
President;
Officer;
Gwen
of
Internal
Hartzog,
William Downey,
Vice
CFO[;]
[]
Rene Roundtree, Vice President Emergency Services[;] and Ricelle
Fliescher."
Id.
Relators also allege that "the senior managers
within Riverside responsible for these practices knew about them
prior to the audit results being reported."
Id.
Relators
among
assert
that
they
possess
emails
Additionally,
Defendants'
employees corroborating their allegations regarding: IBEX system
errors causing overbilling for medication pathways,
id.
K 26;
fraudulent billing for EKG services not provided, id. 1 27; and
fraudulent
Finally,
billing
Relators
"computerized
for
medication
allege
reporting
that
system,"
11
not
provided,
Defendants
the
"Midas"
id
U
maintain
system,
30.
a
that
"memorializes
all
According
to
practices
were
patient
Relators,
billing
complaints."
Defendants'
"first made
known
alleged
to
Id.
fraudulent
the Relators
reporting billing errors and complaints."
H
22.
billing
by patients
Id.
B. Procedural History
On July 11,
Defendants.
Relators
2011, Relators filed a sealed Complaint against
Complaint,
filed
Complaint,
their
ECF
No.
ECF
No.
First
12.
1.
On
Amended
After
Complaint remained under seal,
February
Complaint.
lengthy
proceedings
on July 3, 2014,
No.
States
July
28,
intervention.
Notice,
Court
that
ordered
Defendants.
12(b)(6)
to
the
United
ECF No.
33.
Thus,
the
Complaint
Ex Parte Order,
On January
seeking
2014,
9,
dismissal
be
ECF No.
2015, Defendants
Notice,
also
ECF
declined
on August 8, 2014,
unsealed
and
the
served upon
34.
filed the
Mot.
asserted false-claims
48.
Amended
instant motion,
and 9(b) of the Federal Rules of Civil Procedure.
No.
First
the
Rules
ECF
the
while
under
Dismiss,
of
Am.
the Commonwealth
matter.
On
2012,
First
of Virginia declined intervention in this
32.
15,
Defendants
causes of
Complaint
contend
action fail
that
because:
Relators'
1)
Relators
have failed to plead with particularity that the alleged false
claims
were
actually
presented
to
Government
Payors;
and
2)
Relators have not pleaded sufficient allegations of scienter to
state
a
claim
under
the
FCA
or
12
VFATA.
See
Defs.'
Mem.
Supp.
Mot.
to Dismiss at
12-14,
ECF No.
49.
In addition,
Defendants
contest the sufficiency of Relators' allegations with respect to
retaliation and false claims stemming from services provided by
Id. at 14-16.
allegedly unqualified personnel.
On February 6,
Defendants'
Dismiss,
motion
ECF
No.
2015,
to
Relators
dismiss.
52.
filed their opposition to
Relators'
Relators
concede
Opp'n
that
to
they
Mot.
have
to
not
adequately pleaded causes of action for retaliation or false
claims based on billing Government Payors for services provided
by unqualified personnel.
amend such claims.
IdL at 2.
Id.
Relators request leave to
Regarding the sufficiency of their
other claims, Relators argue that they have sufficiently alleged
presentment to Government Payors through the "[d]etailed tables"
included in the First Amended Complaint and the fact that it is
"a
practical
submitted
to
certainty
the
that
some
and
state
federal
First Amended Complaint."
IcL
of
these
payors
at 8.
billings
identified
in
were
the
As to their scienter
allegations, Relators contend that the allegations regarding the
2006 audit are sufficient to allow Relators'
See id. at 7-8.
Defendants' motion to dismiss.
event
the
Court
dismisses
claims to survive
any
of
Relators'
Finally, in the
claims,
request leave to amend the First Amended Complaint.
10.
13
Relators
Id. at 8-
On February 12,
Defs.'
Rebuttal
2015,
Mem.
Defendants filed their reply brief.
Supp.
Mot.
to
Dismiss,
ECF
No.
53.
In
addition to reiterating the points presented in their brief in
support of their motion, Defendants argue that the Court should
deny
Relators
because
any
Defendants.
leave
to
amendment
Id.
at
amend
their
would
be
First
futile
Amended
and
prejudicial
to
5.
II.
STANDARD OF
REVIEW
Federal Rule of Civil Procedure 12(b)(6)
of a complaint,
Complaint
permits dismissal
or a claim within a complaint,
based on
the
plaintiff's "failure to state a claim upon which relief can be
granted."
Fed.
R.
Civ.
P.
12(b)(6).
A
motion to dismiss
pursuant to Rule 12(b)(6) must be read in conjunction with Rule
8(a)(2),
which
requires
"a
short
and
plain
statement
of
the
claim showing that the pleader is entitled to relief," Fed. R.
Civ.
P.
8(a)(2),
what the
. . . claim is and the grounds upon which it rests,'"
Bell Atl.
Conley
so as to "'give the defendant fair notice of
v.
original).
Corp.
v.
Gibson,
Twombly,
355
550 U.S.
U.S.
41,
544,
47
555 (2007)
(1957))
(quoting
(omission
in
The United States Supreme Court has interpreted the
pleading standard set forth in Rule 8(a)
as requiring that a
complaint include enough facts for the claim to be "plausible on
its
face"
and
thereby
"raise
a
right
to
relief
above
the
speculative level on the assumption that all the allegations in
14
the complaint are true (even if doubtful in fact)."
570
is
(internal citations omitted).
"not akin
more
than
Ashcroft
550
v.
U.S.
to a
'probability requirement, ' but
possibility"
Iqbal,
at
556
556).
U.S.
In
plausibility when
the
allows
to
the
The plausibility requirement
sheer
a
Id. at 555,
court
that
662,
other
the
defendant
(2009)
words,
plaintiff
draw
678
a
"[a]
pleads
claim
factual
reasonable
12(b)(6)
motion tests
is
for
liable.
(quoting Twombly,
has
the
complaint without resolving factual disputes,
facial
content
inference
defendant is liable for the misconduct alleged."
Because a Rule
it asks
that
that
the
Id. at 663.
sufficiency of
a
a district court
"'must accept as true all of the factual allegations contained
in the complaint'
of
the
and 'draw all reasonable inferences in favor
plaintiff.'"
Montgomery County,
E.I,
du Pont
435,
440
Kensington
684 F.3d 462,
de Nemours
(4th Cir.
&
Co.
2011)).
v.
Volunteer
467
Fire
(4th Cir.
Kolon
Dep't
2012)
Indus. , Inc.,
Accordingly,
v.
(quoting
637
F.3d
"'Rule 12(b)(6)
does
not countenance . . . dismissals based on a judge's disbelief of
a complaint's factual allegations.'"
(quoting
Neitzke
v.
Williams,
(omission in original).
motion to dismiss
U.S.
550 U.S.
319,
327
at 555
(1989))
A complaint may therefore survive a
"even if it appears
remote and unlikely.'"
232,
490
Twombly,
Id.
'that a recovery is very
(quoting Scheuer v. Rhodes, 416 U.S.
236 (1974)).
15
In addition to the general pleading standard set forth in
Rule
8(a),
Rule
9
of
the
Federal Rules
of
Civil
Procedure
establishes pleading requirements for "special matters."
R.
Civ.
P. 9.
Fed.
Subsection (b) of Rule 9 addresses the pleading
requirements for "fraud or mistake" and "conditions of mind" and
provides that:
(b)
In alleging fraud or mistake,
with
particularity
fraud or mistake.
conditions
of
the
Malice,
a
a party must state
circumstances
intent,
person's
constituting
knowledge,
mind
may
and other
be
alleged
generally.
Fed. R. Civ. P. 9(b).
particularity
A plaintiff's failure to plead fraud with
under
Rule
9(b)'s
pleading
requirements
treated as a failure to state a claim under Rule
Harrison v.
Westinghouse Savanna River Co.,
"is
12(b)(6)."
176 F.3d 776,
783
n.5 (4th Cir. 1999) (citation omitted).
FCA
Appeals
claims
sound
under the Act."
Am.,
omitted),
fraud
and,
therefore,
for the Fourth Circuit has
strictures of Rule 9(b)
N.
in
Inc.,
cert,
the
Court
"adhered firmly to the
in applying its terms to cases brought
United States ex rel. Nathan v. Takeda Pharm.
707 F.3d 451,
denied,
456
134 S.
(4th Cir.
Ct.
1759
2013)
(2014).
(citations
The Fourth
Circuit has underscored that:
The
multiple
providing
of
purposes
notice
to
of
a
Rule
defendant
9(b),
of
namely,
its
of
alleged
misconduct,
of
preventing
frivolous
suits,
of
'eliminat[ing] fraud actions in which all the facts
are learned after discovery,' and of 'protect[ing]
16
defendants
from
harm
to
their
goodwill
and
reputation,' are as applicable in cases brought under
the Act as they are in other fraud cases.
Id.
at 456
(internal citation omitted)
(quoting Harrison,
176
F.3d at 784).
III.
A.
Among
other
DISCUSSION
The FCA and VFATA
things,
the
FCA
prohibits
a
person
from
knowingly submitting false claims for payment to the United
States.
Under the FCA, Congress has established that:
any person who— (A) knowingly presents, or causes to
be presented, a false or fraudulent claim for payment
or approval;
...
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 104-410), plus 3 times
the amount of damages which the Government sustains
because of the act of that person.
31 U.S.C.
§ 3729(a)(1).
In the FCA,
Congress has defined the
terms "knowingly" and "claim" as follows:
(1) the terms "knowing" and "knowingly"(A)
mean
that
a
person,
with
respect
to
information--
(i) has actual knowledge of the information;
(ii) acts in deliberate ignorance of the
truth or falsity of the information; or
(iii) acts in reckless disregard of the
truth or falsity of the information; and
(B)
require
no
proof
of
specific
intent
to
defraud;
(2) the term "claim"-
(A) means any request or demand, whether under a
contract or otherwise,
17
for money or property and
whether or not the United States has title to the
money or property, that—
(i) is presented to an officer, employee, or
agent of the United States; or
(ii) is made to a contractor,
grantee,
or
other recipient, if the money or property is
to
be
spent
or
used
on
the
Government's
behalf or to advance a Government program or
interest,
and
if
the
United
States
Government--
(I)
provides or
has
provided any
portion
of
the money
or
property
requested or demanded; or
(II)
will
grantee,
reimburse
or
other
such
contractor,
recipient
for
any
portion of the money or property which
(B)
does
is requested or demanded; and
not include requests or demands
for
money or property that the Government has paid to
an
individual
employment
as
or
restrictions
as
on
compensation
an
that
income
for
Federal
subsidy
individual's
with
use
no
of
the
money or property ....
Id. § 3729(b).
Thus,
"[a] false statement is actionable under
the Act only if it constitutes a 'false or fraudulent claim. '"
Nathan,
707
F.3d
at
454
Harrison, 176 F.3d at 785).
(emphasis
in
original)
(quoting
This is so because "'[t]he statute
attaches liability, not to the underlying fraudulent activity or
to the government's wrongful payment,
payment.'"
Rivera,
but to the claim for
Harrison, 176 F.3d at 785 (quoting United States v.
55 F.3d 703,
709
(1st Cir.
1995)).
Therefore,
"to
trigger liability under the Act, a claim actually must have been
submitted to the federal government for reimbursement, resulting
in 'a call upon the government fisc.'"
(quoting Harrison, 176 F.3d at 785)
18
Nathan, 707 F.3d at 454
(citing Hopper v. Solvay
Pharm.,
Inc.,
588 F.3d 1318,
1325-26
(11th Cir.
2009)).
In
short, the Fourth Circuit has distilled the elements of an FCA
claim down to the following test:
"To prove a false claim,
a
plaintiff must allege four elements:
(1) a false statement or
fraudulent
made
course
of
conduct;
(2)
with the
requisite
scienter; (3) that is material; and (4) that results in a claim
to the Government."
United States v. Triple Canopy,
Inc.,
775
F.3d 628, 634 (4th Cir. 2015) (citation omitted).
As noted above, an FCA plaintiff must plead his claim with
particularity under Rule 9(b).
"To satisfy Rule 9(b), 'an FCA
plaintiff 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. Ahumada v. NISH, 756 F.3d 268,
280 (4th Cir. 2014)
(quoting United States ex rel. Wilson v.
Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)).
"More precisely, the complaint must allege 'the who, what, when,
where and how of the alleged fraud.'"
F.3d at 379).
IcL_ (quoting Wilson, 525
Furthermore, in considering the interplay between
the FCA and Rule 9(b) , the Fourth Circuit has agreed with the
Eleventh Circuit that:
the particularity requirement of Rule 9(b)
"does not
permit a False Claims Act plaintiff merely to describe
a private scheme in detail but then to allege simply
and without any stated reason for his belief that
claims requesting illegal payments must have been
19
submitted,
were
likely submitted or
should have been
submitted to the Government."
Nathan,
707
Clausen v.
2002)).
F.3d
Lab.
at
Corp.
Instead,
reliability'
allegation
of Am.,
"Rule
9(b)
that
an
Id.
actual
not
claims,
false
290
United
States
F.3d 1301,
requires
that
false
1311
'some
claim was
at 457 (quoting Clausen,
"when
a
defendant's
reasonably inferred from
need
(quoting
must be provided in the complaint
government."
Therefore,
456-57
necessarily
actions,
the allegations,
have
led,
to
the
ex
rel.
(11th Cir.
indicia
of
to support the
presented to the
290 F.3d at 1311).
as
alleged
and
could have
led,
submission
of
as
but
false
a relator must allege with particularity that specific
claims
payment."4
actually
Id.
were
presented
(emphasis in original).
to
the
government
However,
for
the Fourth
4 The Court notes that the courts of appeals have divided on the
level of detail that Rule 9(b) requires for a plaintiff to state an
FCA claim.
Compare, e.g., United States ex rel. Bledsoe v. Community
Health Sys., Inc. 501 F.3d 493, 504 (6th Cir. 2007) (holding that
"pleading an actual false claim with particularity is an indispensable
element of a complaint that alleges a FCA violation in compliance with
Rule 9(b)"), with, e.g., United States ex rel. Lusby v. Rolls-Royce
Corp. , 570 F.3d 849, 854 (holding that a plaintiff need not allege a
specific individual claim to satisfy Rule 9(b)). See generally Br. of
the United States as Amicus Curiae, Nathan, 134 S. Ct. 1759 (2014)
(No. 12-1349).
Indeed, even panels of the same courts of appeals have
inconsistently applied Rule 9(b).
See Br. of the United States,
supra, at 13-14.
Despite this conflict of authority, the Fourth
Circuit has expressly stated that "[t]o the extent that other cases
apply a more relaxed construction of Rule 9(b) [than that construction
set forth in Nathan]
707 F.3d at 457-58.
Court declined to
... we disagree with that approach."
Nathan
Moreover, in Nathan, the United States Supreme
consider
"whether Rule
9 (b)
requires
that a
complaint under the False Claims Act allege with particularity that
specific false claims actually were presented to the government for
payment ... or whether it is instead sufficient to allege the
20
Circuit
has
suggested
that,
even
in
the
absence
of
"particularized allegations of false claims," a plaintiff can
satisfy Rule 9(b)'s strictures where the "specific allegations
of the defendant's fraudulent conduct necessarily le[ad] to the
plausible inference that false claims were presented to the
government."
Similar
Id.
to
the
FCA,
the
VFATA prohibits
a person from
submitting a false or fraudulent claim to the Commonwealth of
Virginia.
More
specifically,
the
General
Assembly
has
established that:
Any person who: 1. Knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval; . . . shall be liable to the Commonwealth
for a civil penalty of not less than $5,500 and not
more than $11,000, plus three times the amount of
damages sustained by the Commonwealth.
Va.
Code Ann.
§ 8.01-216.3 (A) (1) .
In addition,
the General
Assembly has defined the terms "knowing" and "knowingly" to mean
that "a person,
with respect to information,
(i) has actual
knowledge of the information; (ii) acts in deliberate ignorance
of the truth or falsity of the information; or (iii) acts in
reckless disregard of the truth or falsity of the information
and require no proof of specific intent to defraud."
Id^ §
particular details of the scheme together with sufficient indicia that
false claims were submitted." Pet. for Writ of Cert, at i, Nathan,
134 S. Ct. 1759.
Therefore, notwithstanding contrary authority from
other courts of appeals, the Court must apply the law governing the
FCA and Rule 9(b) as established by the Fourth Circuit.
21
8.01-216.3(0.
part,
Furthermore, a "claim" is defined,
in pertinent
as:
any request or demand, whether under a contract or
otherwise,
for money or property,
regardless of
whether
the
Commonwealth
has
title
to
the
money
or
property, that (i) is presented to an officer,
employee, or agent of the Commonwealth or (ii) is made
to a contractor, grantee, or other recipient (a) if
the money or property is to be spent or used on the
Commonwealth's
behalf
or
to
advance
a
governmental
program or interest and (b) if the Commonwealth
provides or has provided any portion of the money or
property requested or demanded or will reimburse such
contractor,
grantee,
or
other
recipient
for
any
portion of the money or property that is requested or
demanded.
Id.
§ 8.01-216.2.
As a claim sounding in fraud,
a plaintiff
must plead a VFATA claim with particularity under Rule 9(b).
See Virginia ex rel.
Hunter Labs.,
Inc. , Civil Action No.
I:13cvll29,
(E.D. Va. May 13, 2014)
(Lee, J.)
LLC v.
Quest Diagnostics,
2014 WL
1928211,
at *7-8
(dismissing a VFATA claim for
failure to plead fraud with particularity under Rule 9(b)).
B. The Sufficiency of Relators' Presentment Allegations
The Court must
sufficient
factual
now consider whether Relators
matter
requirement of Rule 9(b)
claims.
Relators
concede
to
satisfy
the
have pleaded
particularity
with respect to their FCA and VFATA
that
they
have
not
satisfied
such
requirements for their retaliation and billing-for-unqualified-
personnel claims, Relators' Opp'n to Mot. to Dismiss at 2, and,
22
therefore, the Court will GRANT Defendants'
motion as to those
claims.
Regarding the remaining claims, as in Nathan, the "critical
question"
is
Defendants
whether
"caused
Relators
a
false
have
claim
plausibly
to
be
alleged
presented
that
to
the
government" under the theories of liability set forth in the
First
Amended
Complaint.
707
F.3d at 456.
In this
case,
Relators have not alleged with particularity that specific false
claims actually were presented to Government Payors for payment.
To be sure,
the First Amended Complaint includes particularized
allegations that Defendants overbilled specific individuals for
certain
services;
overbilled
Compl.
specific
Relators
have
individuals
H 24, tracheostomies,
alleged
for
id_^ 1 25,
id. H 29, and E/M services, id. H 33.
that
intubations,
Defendants
First
Am.
the medication Versed,
However, Relators have
not specifically alleged that Defendants presented claims for
payment
in connection with any of
the
individual claims enumerated in the First Amended Complaint.
In
fact,
to Government
Payors
Relators have conceded that they "did not identify the
specific type of payor and/or insurance associated with each
specific claim identified."
at 8.
Relators' Opp'n to Mot. to Dismiss
Accordingly, given that Relators have not alleged "with
particularity that specific false claims actually were presented
to the government for payment,"
23
the sufficiency of Relators'
presentment
allegations
le[ad]
to
allegations
of
turns
[Defendants']
the
plausible
whether
fraudulent
inference
presented to the government."
Court will assess,
on
in turn,
the
conduct
that
"specific
necessarily
false
claims
were
Nathan, 707 F.3d at 457-58.
the sufficiency of
Relators'
The
claims
based on their level of detail.
1.
To begin, Relators'
EKGs
FCA claim based on Defendants' billing
practices for EKGs falls well short of Rule 9(b)'s requirement
that Relators plead presentment with particularity.
their conclusory allegations
when none
were
received,"
that Defendants
performed
Other than
"charged for EKGs
and billed
for
EKGs
that
were not ordered by a physician, and "frequently double bill[ed]
for
valid,
Relators
properly
present
reasonably
infer
ordered
no
EKGs,"
allegations
that
such
First
that
Am.
Compl.
the
resulted
practices
allow
in
11
27,
Court
to
Defendants
actually presenting any fraudulent claim to Government
Payors.
Relators broadly assert that " [a]t least 20-30% of [Defendants']
patient base was served by [Government Payors]."
Id. at 8 n.3.
However, the Court cannot reasonably infer, based on such bare-
bones,
conclusory allegations,
that
Defendants
fraudulent scheme to overbill for EKGs,
"necessarily"
Government.
led
to
Nathan,
the
much less a
submission of
707 F.3d at 458.
24
engaged
false
in
a
scheme that
claims
to
the
From the mere fact that
Government
Payors
patient base,
fraudulently
cover
a
certain
percentage
of
Defendants'
it does not necessarily follow that Defendants
billed
Government
respect to such patients.
Payors
for
EKG
services
with
Cf. id. at 459 (finding that it was
an "implausible inference" to infer,
from an allegation of the
"general statistics," that 93 percent of the sales of Kapidex, a
prescription drug, were for dosages of 60 mg, that any of the 98
prescriptions for Kapidex identified in the complaint were for
60 mg dosages) .
to
reasonably
fraudulent
coextensive
None of Relators' allegations permit the Court
infer
billing
with
that
for
the
the
of
Defendants'
services
EKG
extent
is
proportional
percentage
covered by Government Payors.
of
Defendants'
In addition,
alleged
to
patient
or
base
Relators have not
alleged facts to plausibly establish that Defendants'
general
scheme of overcharging patients for EKGs resulted in Defendants'
overbilling Government Payors for EKGs.
reasonably
infer
that
Defendants'
Thus,
the Court cannot
allegedly
fraudulent
EKG-
billing practices caused Defendants
to present any claims to
Government
have
Payors
because
Relators
not
connected
such
practices to the submission of any claims to Government Payors.
Therefore,
the
Relators'
claim
Court
that
will
GRANT
Defendants
Defendants'
presented
motion
false
as
to
claims
to
Government Payors in billing for EKGs.5
5 In their briefing on the
sufficiency of the
25
First Amended
2. Tracheostomies, E/M Services - Oral Medications, E/M Services
- «a la Carte" Points, E/M Services - Patient Not Actually Seen
Relators'
practices
allegations with respect to Defendants'
for
tracheostomies,
oral medications,
E/M
services
E/M services
patients
services
for
administering
for critical care patients,
physicians
provide an added level of detail beyond Relators'
conclusory
allegations
not
because
actually
seen
and
by
EKG-billing
for
E/M
billing
Relators
identify
individuals whom Defendants allegedly overbilled.
such
added
details
do
not
sufficiently
specific
Nevertheless,
establish
that
the
alleged fraudulent scheme "necessarily" led to the submission of
false claims to Government Payors.
Like
Relators'
EKG
claims,
Relators
allege
in
conclusory
fashion that Defendants engaged in fraudulent billing practices
for
tracheostomies,
medications,
E/M
services
for
administering
E/M services for critical care patients,
oral
and E/M
Complaint, the parties did not distinguish between Relators' FCA and
VFATA claims.
Thus,
they appear to agree that such claims rise or
fall together.
At least one court within this District has considered
FCA and VFATA causes of action as analogous.
United States ex rel.
Rector v. Bon Secours Richmond Health Corp., Civil Action No. 3:ll-cv-
38, 2014 WL 1493568, at *14 (E.D. Va. Apr. 14, 2014) (holding that
"[b]ecause 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."); see also Hunter Labs., 2014 WL 1928211, at *7-8 (applying the
Nathan standard to assess the sufficiency of a VFATA claim).
Given
the similarity between the language in the FCA and VFATA and the
parties' failure to distinguish between Relators' asserted causes of
action under each statute, the Court will apply the same standard in
assessing the pleading of Relators' alleged FCA and VFATA causes of
action.
26
services for patients not actually seen by physicians.
specifically, Relators allege that Defendants:
More
sometimes billed
for an intubation using an internal code for a more expensive
procedure, a tracheostomy, First Am. Compl. H 25; overbilled for
E/M services by assigning a point value for the administration
of oral medications in excess of the actual acuity level of such
services, id. H 33; overbilled for E/M services by charging "a
la carte"
should
points
not
to critical
have
been
care patients
applied,
id. ;
and
when such points
overbilled
for
E/M
services by sometimes charging a patient with an acuity level as
if he had been seen by a physician, when no physician actually
had performed E/M services for such patient,
those
conclusory
allegations—like
allegations—are insufficient
to allow
id.
Without more,
Relators'
EKG-billing
the Court
to reasonably
infer that Defendants presented any false claims to Government
Payors
as
a
practices.
result
The
Court
fact
that
Defendants
that
they
did
because
of
so
Government
cannot
with
Complaint
also
fraudulent
charges
in
respect
Payors
unlike
cover
fraudulent
extrapolate
fraudulent
to
billing
Government
twenty
billing
to
from
practices
Payors
thirty
the
simply
percent
of
See supra Part III.B.l.
Relators'
includes
for
allegedly
reasonably
engaged
Defendants' client base.
However,
such
EKG
claims,
allegations
tracheostomies
27
and
the
First
detailing
E/M
Amended
specific
services.
As
noted above,
fraudulent
Relators have alleged seventeen specific allegedly
tracheostomy
charges,
First
Am.
Compl.
H
fifty-seven specific allegedly fraudulent E/M charges,
Admittedly,
fraudulent
Relators'
charges
allegations
are
sufficient
involving
for
the
25,
id.
such
Court
to
and
H 33.
specific
reasonably
infer that Defendants engaged in a scheme of fraudulent billing
practices
state
for
an
claim,
it
is
allegations
present
FCA
tracheostomies
of
a
Defendants defrauded,
certain
persons.
Relators
that
must
Defendants'
Defendants
fraudulent
facts
a
707
However,
Relators
scheme
at
a
fraudulent
false
to
simply
through
to
which
claim
to
456-57.
Rather,
reasonable
inference
scheme
resulted
in
Payors,
not
Government
See id. at 456-58.
for
examples of specific allegedly
tracheostomies,
and E/M services for patients not actually seen
Defendants
permit
engaged
in
"necessarily lead to
the
a
Court
to
fraudulent
the plausible
services
for
for
care patients,
physician,
E/M
services
of
a
medication,
E/M
administration
by
oral
F.3d
permitting
even though Relators'
charges
for
fraudulent
alleged
presenting
services.
enough
Nathan,
merely persons in general.
Here,
not
E/M
or submitted illegal payment requests to,
See
allege
and
reasonably
scheme,
inference"
infer
they
The
court's
decision
in
28
another
case
do
that
not
that false claims
were presented to the Government because of such scheme.
457.
critical
in
this
Id. at
District
subsequent to the Fourth Circuit's decision in Nathan,
States ex rel.
Rector v.
United
Bon Secours Richmond Health Corp.,
is
instructive as to why Relators' specific examples do not satisfy
Rule 9(b).
Civil Action No. 3:llcv38, 2014 WL 1493568 (E.D. Va.
Apr. 14, 2014)
(Spencer, J.).
In Rector, the court found that a very detailed spreadsheet
of
alleged
false
claims
was
not
sufficient
to
satisfy Rule
9(b)'s heightened pleading requirements because such spreadsheet
did not permit the court to reasonably infer that the defendants
necessarily
billed
the Government
Rector relator alleged that
claims to the United
based
Id.
at
on
More
the
defendants
States by billing
"unsubstantiated
*3.
the
for
inter
The
had submitted false
Medicare
or unsupported
specifically,
procedures.
and Medicaid
medical
alia,
diagnoses."
staff
from
the
defendants'
"concierge program," pursuant to instructions in the
defendants'
manuals,
selected codes for procedures
"to ensure
that patient procedures or administered tests were coverable by
relevant third-party payers or insurance programs."
Allegedly,
Id. at *1.
defendants instructed their concierge program staff
to change codes for procedures that third-party payors did not
cover to codes for procedures that such payors would cover.
To support his allegation,
defendants'
procedures
concierge
for
which
the relator—a former employee in the
program—included
the
id.
defendants
29
a
patient
allegedly
log
submitted
of
false
claims.
icL_ at *8.
The log included: "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,
physician[s]
patients."
and
Id^
their
practices,
the names of referring
and
the
insurance
of
the
However, despite the detail in the patient log,
the Rector court concluded that the relator had failed to plead
with particularity the presentment element
of
an
FCA
claim.
Even though the patient log indicated that some of the patients
were covered by Medicare, Medicaid, or TriCare,
that
such
requirements
allegations
of
Rule
were
9(b).
insufficient
See
id^
at
the Court found
to
satisfy
*8-9.
The
the
Court
concluded that it could not necessarily infer from the patient
log that the procedures took place
billed by [the defendants]."
"or that the Government was
Id. at *9.
The Court underscored
that the relator's claim "[did] not involve an integrated scheme
in which presentment of a claim for payment was a necessary
result because the patients could have paid
prescriptions and procedures themselves."
for the relevant
In short,
the Court
found that "Relator [was] missing the final link in the chain of
causation."
Id.
at *9.
In this case,
like
the relator
in Rector,
Relators
have
failed to plead sufficient factual matter to allow the Court to
plausibly infer that Defendants presented to Government Payors
30
any of the claims enumerated in the First Amended Complaint
based on tracheostomies, or E/M Services in connection with oral
medications, "a la carte" points for critical care patients, or
patients not actually seen.
As in Rector,
reasonably infer from Relators'
the Court cannot
listing of alleged fraudulent
claims that Defendants actually submitted any such claim to
Government
Payors
because
the
mere
existence
of
specific
individual fraudulent claims does not necessarily indicate that
Defendants submitted such claims to Government Payors.
at
*8-9;
cf^ Nathan,
707 F.3d at 459
See id.
(finding that general
statistics did not allow the plausible inference that any of the
98 prescriptions identified in the complaint were for off-label
uses).
Indeed, Relators' allegations here are even more tenuous
than those rejected in Rector-a patient
log
that
identified
certain patients as covered by Medicare, Medicaid, and TriCare-
because Relators have not even alleged that Government Payors
covered any of the specific patients
Amended Complaint.
See id^ at *8-9.s
enumerated in the First
To the contrary, Relators
concede that they "did not identify the specific type of payor
and
or
insurance
identified."
associated
Relators'
Opp'n
with
to
each
Mot.
to
specific
Dismiss
claim
at
8.
6 As discussed supra Part III.B.1, Relators' broad allegation
that twenty to thirty percent of Defendants' patients are covered by
Government Payors does not satisfy Rule 9(b)'s requirement that
Defendant plead with particularity that Defendants presented a false
claim to Government Payors.
31
Therefore, in this case, not only is it possible, as in Rector,
that the patients identified could have paid for the specified
procedures themselves, third party private insurers also could
have paid for the specified procedures.
Accordingly, the Court
finds that Relators have failed to allege facts that permit the
Court to reasonably infer that any of the specified claims based
on
tracheostomies,
medications,
the
E/M
services
assignment
of
"a
for
administering
la carte"
points
for
oral
E/M
services for critical care patients, or E/M services billed for
patients not actually seen by physicians, actually resulted in
Defendants
Payors.
presenting
false
claims
for payment
to Government
Therefore, the Court will GRANT Defendants' motion with
respect to such claims.
3. Medication Pathways
Next, the Court will consider the sufficiency of Relators'
allegations with respect to fraudulent billing for medication
pathways.
Defendants'
Regarding medication pathways, Relators allege that
IBEX
billing
system
automatically
billed
for
medication routes or pathways regardless whether CMS regulations
permitted billing for the delivery of the medication involved.
First Am. Compl. H 26.
Thus, Relators allege, "[t]his resulted
in impermissible double charges being levied for 'routes,'" and
such "charges were made routinely and systematically over the
course of several years."
Id.
32
Relators'
medication-pathways
allegations
the heightened pleading standard of Rule 9(b).
provide
an added
allegations
level
discussed
of
detail
above
do not
Such allegations
compared
because
satisfy
with
Relators
Relators'
describe
a
systematic mechanism by which the Defendants allegedly levied
double charges
for medication pathways.
The allegation that
such double charges resulted from the Defendants'
system
"automatically"
billing
for
IBEX billing
medication
routes
or
pathways, if true, suggests that the IBEX program systematically
overcharged for all medication pathways.
Therefore, given the
allegedly automatic nature of the errors in the IBEX system, the
Court arguably might infer from such allegations that Defendants
would have overcharged any patient covered by a Government Payor
for whom Defendants administered a single medication.7
However, such allegations do not satisfy the particularity
requirement of Rule 9(b) because they do not permit the Court to
plausibly infer that the answer to the
"whether the defendant[s]
to
the
government"-is
"critical question"-
caused a false claim to be presented
yes.
See Nathan,
707
F.3d at
456.
7 The Court notes that, even if the Court can infer that the IBEX
system automatically overcharged
Court cannot plausibly infer,
Government
Payors
covered
for
all
from only
medication pathways,
the general
twenty to thirty percent
statistics
the
that
of Defendants'
patients, that Defendants submitted any excessive medication-pathways
charges to Government Payors.
See supra n.6.
It is an implausible
inference to extrapolate from the makeup of Defendants' patient base
that Defendants provided medication-pathways services to patients
covered by Government Payors in proportion to such makeup.
33
Although Relators must
how of the
and
allege the
alleged fraud,"
internal
quotation
"who,
Wilson,
marks
525
what,
when,
F.3d at
omitted),
379
Relators'
where,
and
(citations
medication-
pathways allegations do not allow the Court to plausibly infer
the "when" or the "how" of the alleged false claims.
the
general
"several
allegation
years,"
that
First
Am.
such
alleged
Compl.
U
fraud
26,
the
Other than
occurred
First
over
Amended
Complaint lacks specific allegations of when any false claims
were
submitted
to
Government
Payors.
Furthermore,
while
Relators detail an intricate scheme by which Defendants used the
IBEX system to double-bill for medication pathways, critically,
Defendants
have
failed
to
plead
facts
to
connection between the IBEX system and the
claims
alleged
charge
to
Government
how
Payors.
Defendants
In
other
fraudulently
for medication pathways,
the
submission of false
words,
used
but have
establish
the
Relators
IBEX
have
system
to
not alleged how such
conduct led to the submission of any bills to Government Payors.
Therefore,
under
Nathan,
Relators'
medication-pathways
allegations do not meet Rule 9(b)'s heightened pleading standard
because
they
"fraudulent
do
not
conduct
false
establish
necessarily
inference
that
claims
Payors]."
le[ads]
Defendants'
to
presented
the
Kernan Hosp.,
34
880
to
alleged
plausible
707 F.3d at 456.8
8 See also United States v.
were
that
F.
[Government
Supp.
2d 676,
Importantly, even if the IBEX system errors led Defendants
to automatically overcharge for medication pathways,
finds
that
sufficient
such
automaticity
indicia
of
allegation
reliability
to
does
the Court
not
support
provide
Relators'
conclusory allegation that Defendants submitted false claims to
Government Payors.
In Nathan,
the Fourth Circuit cited United
States ex rel.
Grubbs v. Kanneganti with approval as an example
of
which
a
case
fraudulent
in
conduct
"specific
necessarily
allegations
led
to
of
the
defendant's
the plausible
that false claims were presented to the government."
inference
The Nathan
court summarized Grubbs as follows:
the relator alleged a conspiracy by doctors to seek
reimbursement from governmental health programs for
services
concluded
that
that,
never
were
because the
performed.
The
court
complaint included the
dates of specific services that were recorded by the
physicians but never were provided,
constituted
"more
circumstantial
than
evidence
probable,
that
the
such allegations
nigh
doctors'
likely,
fraudulent
records caused the hospital's billing system in due
course
to
present
fraudulent
claims
to
the
Government." Accordingly, the court further concluded
that
it would "stretch the
imagination"
for the
687 (D.
Md.
2012)
(holding that,
despite allegations of a detailed
scheme of upcoding for malnutrition diagnoses, the Government failed
to plead an FCA claim with particularity because the complaint did not
include the "next step or link in the False Claims Act liability
mechanism-namely, that these fraudulent diagnoses made their way to
cost reports submitted to the [Government] and actually caused the
[Government] to pay [the defendant] for services not rendered."); cf.
Rector, 2014 WL 1493568, at *l-3, *9 (holding, in a case in which the
complaint included detailed allegations of a fraudulent scheme to bill
for claims based on unsubstantiated or unsupported medical diagnoses,
that allegations that certain specific procedures took place were "not
enough to plausibly allege that . . . the government was billed by
[the defendant] ."
35
doctors
to continually record services
provided,
track
but
at
"to
the
deviate
last
moment
from
so
that
were not
the regular billing
that
the
recorded,
but
unprovided, services never get billed."
Nathan,
707
United
States
2009)).
457
ex
(internal
rel.
Grubbs,
In Grubbs,
specific
specific
565
F.3d
omitted)
180,
192
dates
in the operative complaint,
instances
indicated
but
Complaint,
Civil Action No.
31,
had
in
that
services,
Jan.
citations
(quoting
(5th
Cir.
Here, the indicia of reliability present in Grubbs are
lacking.
alleged
F.3d
2007).
defendants
billed
Thus,
documented,
did not perform,
which
medical
physicians
Medicaid
had
anyway.
l:05cv-323,
the relator
records
from
not performed
Second
Amended
ECF No. 131 (E.D. Tex.
given the express allegations that the
in medical
records,
services
and then billed Medicaid therefor,
that
they
it is not
surprising that the Fifth Circuit found that it would "stretch
the imagination" for the defendants "to deviate from the regular
billing
track at the last
unprovided,
192.
moment
so that
services never get billed."
the recorded,
Grubbs,
but
565 F.3d at
In this case, while errors in the IBEX system may have led
such system to automatically overcharge for medication pathways,
the
automaticity
of
the
"circumstantial evidence that
IBEX
program
[such errors]
errors
is
not
caused [Defendants']
billing system in due course to present fraudulent claims to the
Government," because,
unlike Grubbs,
36
Relators have not alleged
that Defendants ever submitted to Government Payors any specific
excessive bills for medication pathways as a result of the IBEX
errors.
with
See Grubbs,
Grubbs,
565
Relators'
F.3d at
192.
allegations
Therefore,
do
not
establish
alleged IBEX system errors "necessarily le[ad]
inference
that
[Defendants]
[Government Payors]."
the
Court
will
submitted
Nathan,
GRANT
in
that
the
to the plausible
false
claims
707 F.3d at 458.
Defendants'
contrast
motion
as
to
Accordingly,
to
Relators'
medication-pathways claims.
4. Intubation, Medication, E/M Services - Double Charging
Finally,
regarding
the
sufficiency
of
Relators'
allegations, the Court will assess whether Relators have pleaded
with particularity the presentment of any false claims based on
double and triple
charges
charges for medications,
E/M
services.
Defendants'
for
IBEX
billing
intubations,
allege
system
Compl.
that
resulted
medications,
See First Am.
double
and
triple
such as Versed, and double charges for
Relators
intubations,
services.
for
systemic
in
excessive
including
1M 24,
29,
such allegations, Relators have alleged,
and 57 specific excessive charges.
flaws
Versed,
33.
charges
and
E/M
In support of
respectively,
See id.
in
Thus,
105,
22,
Relators'
most detailed allegations in the First Amended Complaint concern
charges for intubations,
Relators
have
alleged
medications,
both
the
37
and E/M services because
manner
in
which
Defendants
automatically
errors
in
overcharged
the
conduct.
IBEX
Such
Relators'
system-and
allegations
previously
claims-specific
detail
for procedures-through
combine
discussed
instances
in Relators'
specific
of
systemic
instances
the
level
tracheostomy
of
and
overcharging—with
previously
the
of
such
detail
in
E/M-services
the
level
of
discussed
medication-pathways
allegations-a description of an automatic
mechanism by which
Defendants allegedly overcharged for procedures.
as with Relators' other claims,
Nonetheless,
such allegations fall short of
the heightened pleading standard of Rule 9(b).
Relators
can
have
plausibly
failed
infer
to
that
plead
facts
Defendants
from which
actually
Government Payors false claims for intubations,
E/M services.
the
As discussed above,
mechanism by
intubations,
which
and
Court
presented
to
medications,
or
neither the automaticity of
Defendants
medications,
the
allegedly
services,
E/M
overcharged
see
supra
for
Part
III.B.3 & n.7, nor the specific instances of fraudulent charges,
see
supra
Part
III.B.2,
alone,
allow
the
Court
to
infer that Defendants submitted any false claims
Payors.
Moreover,
allegations
Relators'
widespread
services,
does
combining
such
not
cure
their
allegations
that
errors
overcharging
in
for
conjunction
independently-insufficient
the
intubations,
with
38
to Government
deficiencies.
in
their
reasonably
IBEX
To
be
system
medications,
allegations
of
sure,
led
and
to
E/M
numerous
specific
instances
of
such
fraudulent
charges,
if
true
and
assuming Defendants possessed the requisite knowledge of such
overcharging, easily establish beyond the speculative level that
Defendants
engaged
in
a
fraudulent
scheme.
But,
as
noted
earlier, FCA false-claim liability hinges not on the existence
of
a
fraudulent
scheme,
but
on
false claim to be presented to
707
F.3d at
456.
As
"whether
[Defendants]
caused a
[Government Payors]."
Nathan,
with their earlier claims,
Relators
have
failed to plead facts to establish that the IBEX system errors
necessarily
led
Government.
Although the Court might reasonably infer that IBEX
program
errors
procedures,
to
the
automatically
led
facts linking
procedures
to
false
claims
overcharging
to
for
the
certain
containing excessive charges to Government
See supra Part III.B.3.
to plead
of
Relators have not connected such overcharging to the
submission of bills
Payors.
presentment
listed
in
Likewise,
the excessive
the
First
Relators have failed
charges
Amended
for the specific
Complaint
presentment of any such charges to Government Payors.
to
the
For the
Court to find that Relators adequately had pleaded presentment
of
the
remaining
claims,
the
Court
solely on the general
makeup
Defendants'
fraudulent
alleged
would have
of Defendants'
scheme
to
infer
based
patient base
resulted
both
that
in
Defendants overcharging persons covered by Government Payors and
Defendants then billing Government Payors for such charges.
39
In
light of the heightened pleading standard that Rule 9(b) imposes
and the Fourth Circuit's decision in Nathan,
is not reasonable.9
Therefore, the Court will GRANT Defendants'
motion as to Relators'
claims
such an inference
to Government
claims that Defendants
Payors
by overcharging
submitted false
for intubations,
medication, and E/M services.10
C.
In
light
of
the
Leave to Amend
Court's
conclusion
that
Relators
have
failed to plead with particularity the presentment element of an
FCA or VFATA claim, the Court must now consider whether to grant
9 The
Court
finds
unpersuasive
the
out-of-circuit
authority
relied on by Relators.
As an initial matter, the inter- and,
apparently, intra-circuit split regarding the level of pleading that
Rule 9(b) requires for FCA claims, see supra n.4, lessens the
persuasiveness of out-of-circuit authority on such issue.
Relators
rely on the Eighth Circuit's decision in United States ex rel. Thayer
v. Planned Parenthood of the Heartland, for the proposition that a
relator's personal knowledge of a defendant's billing practices
provides sufficient indicia of reliability to establish a plausible
inference that the defendant actually submitted false claims to the
Government.
See Relators' Opp'n to Mot. to Dismiss at 7 (quoting
Thayer, 765 F.3d 914, 918-19 (8th Cir. 2014)).
However, in Nathan,
the relator, as one of the defendant's sales managers, likely had
detailed knowledge of the fraudulent scheme allegedly perpetrated by
the defendant, yet, the Fourth Circuit concluded that his allegations
failed under Rule 9(b).
this District found that
Moreover, in Rector,
a relator could not
another court within
cure his failure to
plausibly allege that the defendants actually submitted false claims
to the Government "by asserting any firsthand knowledge of the billing
processes of any [defendant] ."
2014 WL 1493568, at *8 (citing United
States ex rel. Atkins v. Mclnteer,
470
F.3d 1350,
1358-59
(11th Cir.
2006).
Therefore, Thayer does not alter this Court's conclusion with
respect to Relators' FCA or VFATA claims.
10 Having concluded that Relators have failed to adequately plead
presentment,
the
Court
need
not
consider
Defendants'
alternative
argument that Relators have failed to plead the scienter element of an
FCA cause
of
action.
40
Relators leave to amend their First Amended Complaint to attempt
to cure the deficiencies therein.
Under Federal Rule of Civil
Procedure 15(a):
(1) A party may amend its pleading once as a matter of
course within: (A) 21 days after serving it, or (B) if
the pleading is one to which a responsive pleading is
required, 21 days after service of a responsive
pleading or 21 days after service of a motion under
Rule 12(b),
(e), or (f), whichever is earlier.
(2) In all other cases, a party may amend its pleading
only with the opposing party's written consent or the
court's leave. The court should freely give leave when
justice so requires. . . .
Fed. R. Civ. P. 15(a) (1) -(2) .
In this case, Relators have not
filed
within
an
amended
pleading
Defendants' Rule 12(b)(6) motion.
twenty-one
days
Thus, Relators may only amend
their First Amended Complaint with the Court's leave.
The
text
of
Federal
requires
that
the
Court
justice so requires."
Rule
of
"freely
Id^
after
Civil
give
See id.
Procedure
leave
[to
15(a)(2)
amend]
when
"This liberal rule gives effect to
the federal policy in favor of resolving cases on their merits
instead of
Harvey,
disposing of
438 F.3d 404, 426
omitted).
After
a
them on
technicalities."
(4th Cir. 2006)
dismissal
under
(en banc)
Federal
Rule
Laber
v.
(citations
of
Civil
Procedure 12(b)(6), a court "normally will give plaintiff leave
to file an amended complaint" because "[t]he federal rule policy
of
deciding
cases
on
the
basis
of
the
substantive
rights
involved rather than on technicalities requires that plaintiff
41
be given every opportunity to cure a formal defect in his
pleading."
Ostrzenski v. Seigel, 177 F.3d 245, 252-53 (4th Cir.
1999) (emphasis omitted).
Likewise, "[t]ypically, '[f]ailureto
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."
Rector, 2014 WL 1493568, at *14 (second alteration in original)
(quoting Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir.
1996)).
However, "a district court may deny leave to amend if
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.'"
(4th Cir.
2013)
(quoting Laber,
Nathan,
707 F.3d at 461
438 F.3d at 426)).
"' [A] n
amendment may be considered futile where [the plaintiff] ha[s]
previously had two full opportunities to plead [his]
Hunter Labs.,
2014 WL 1928211,
at *ll
claim.'"
(quoting Iron Workers
Local 16 Pension Fund v. Hilb Rogal & Hobbs Co., 432 F. Supp. 2d
571,
595
(E.D. Va.
2006)).
insufficient reason to deny
But,
[a]
"[d] elay alone ... is an
plaintiff's motion to amend."
Laber, 438 F.3d at 427 (citation omitted).
The Court will dismiss the First Amended Complaint without
prejudice,
but
complaint.
First, there is no evidence of bad faith on the part
of Relators.
will
grant
Relators
leave
to
amend
such
Second, although Defendants assert that leave to
42
amend would prejudice them because "if this case is permitted to
drag out even longer,
. . . trial will inevitably involve
evidence of events from more than a decade ago," Defs.' Rebuttal
Mem. Supp. Mot. to Dismiss at 5, Defendants have not identified
any evidence in particular that is in danger of being lost if
the Court provides Relators with an additional opportunity to
plead their claims.
to amend,
alone,
Moreover, Relators' delay in seeking leave
is not a sufficient reason for the Court to
deny leave to amend.
stage,
Laber, 438 F.3d at 427.
Third, at this
the Court cannot conclude that an amendment would be
futile.
While the Court recognizes that Relators have had two
opportunities to plead their claims, this is not a case in which
Relators had notice of any deficiencies in the First Amended
Complaint prior to the resolution of the instant motion.
Cf.
Hunter Labs., 2014 WL 1928211, at *li (dismissing a VFATA claim
with prejudice because the court's prior ruling granting a
motion
to
dismiss
provided
the
deficiencies in the complaint).
relator
Thus,
with
notice
of
it is possible that
Relators may be able to allege sufficient additional facts to
satisfy Rule 9(b)'s heightened pleading standard.
the Court will DENY IN PART Defendants'
they
sought
dismissal
of
the
prejudice.
43
First
Accordingly,
motion to the extent
Amended
Complaint
with
IV.
CONCLUSION
For the reasons stated above, the Court GRANTS IN PART and
DENIES IN PART Defendants' motion to dismiss, ECF No. 48.
Court
DISMISSES
WITHOUT
Complaint, ECF No. 12.
PREJUDICE
Relators'
First
The
Amended
However, the Court PROVIDES Relators
with leave to amend the First Amended Complaint to cure all
defects within twenty-one (21) days after the entry of this
Opinion and Order.
If Relators fail to adequately amend the
First Amended Complaint within the period prescribed, the Court
will dismiss such complaint with prejudice.
The Clerk is REQUESTED to send a copy of this Opinion and
Order to all counsel of record.
IT IS SO ORDERED.
/s/3n&£Mark S.
Davis
UNITED STATES DISTRICT JUDGE
Norfolk, Virginia
March 3.3 , 2015
44
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