Source: http://docs.justia.com/cases/federal/district-courts/florida/flndce/1:2009cv00137/54549/125/
Timestamp: 2014-10-31 20:01:45
Document Index: 173182635

Matched Legal Cases: ['ART 99', 'ART 99', '§ 3729', '§\n68', 'arts 2', 'arts 2', 'arts 2', '§ 498', '§\n409', '§ 409']

ORDER GRANTING IN PART AND DENYING PART 99 , 106 MOTION TO DISMISS THE 88 AMENDED COMPLAINT for -AK UNITED STATES OF AMERICA, ET AL v. CYPRESS HEALTH SYSTEMS FLORIDA INC, ET AL :: Justia Dockets & Filings Justia.com
> -AK UNITED STATES OF AMERICA, ET AL v. CYPRESS HEALTH SYSTEMS FLORIDA INC, ET AL
ORDER GRANTING IN PART AND DENYING PART 99 , 106 MOTION TO DISMISS THE 88 AMENDED COMPLAINT. Plaintiff may proceed on claims based on upcoding and false place of service as provided in this order. Signed by SENIOR JUDGE STEPHAN P MICKLE on 2/14/2012. (jws)
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ex. rel., ROBERT WATINE, M.D.,
Case No. 1:09cv137-SPM-GRJ
FLORIDA, INC., and ALAN BIRD,
THIS CAUSE comes before the Court on Defendant Cypress Health
Systems Florida, Inc.’s Motion to Dismiss Amended Complaint (doc. 99).
Defendant Alan Bird adopted the motion (see doc. 106) and Plaintiff filed a
response in opposition (doc. 108). For the following reasons, the motion to
dismiss the amended complaint will be granted in part and denied in part.
Plaintiff Robert Watine, M.D., brings this suit on behalf of the United
States and the State of Florida pursuant to the provisions of the federal False
Claims Act, 31 U.S.C. §§ 3729-32, and the Florida False Claims Act, Fla. Stat. §§
68.081-086. Because the Florida False Claims Act is modeled after the Federal
False Claims Act, the claims will be be analyzed using the same general
standards. See United States ex rel. Heater v. Holy Cross Hosp., Inc., 510
F.Supp.2d 1027, 1034 n.5 (S.D. Fla. 2007).
Defendant Cypress Health Systems Florida, Inc. (“Cypress Florida”) owns
and operates a 40-bed acute care for-profit hospital, known as Nature Coast
Regional Hospital, in Williston, Florida. Plaintiff worked at Cypress Florida for a
two month period from March 2008 until April 2008. He alleges that Cypress
Florida and its administrator, Defendant Alan Bird, engaged in acts, schemes,
and billing practices with the aim and result of defrauding government healthcare
programs of over $25 million in false claims. If successful, Plaintiff is entitled to
receive a percentage of the government’s recovery. Plaintiff’s allegations of fall
into three categories: (1) fraudulent “upcoding,” (2) fraudulent reporting of a
patient’s place of service, and (3) fraudulent “churning” by splitting into multiple
visits a patient’s appearance for diagnosis, testing, treatment, and medication.
B. Medicare Reimbursement
Medicare establishes a system through which hospitals obtain
reimbursement for services they provide to Medicare beneficiaries. To obtain
reimbursement, hospitals submit claims of payment to Medicare. These claims
are based on discharge summaries prepared when the Medicare beneficiary and
hospital patient is discharged from the hospital’s service. Medicare pays the
hospital a pre-determined amount based on the Diagnosis Related Group (DRG)
code assigned to each patient. Some DRG codes pay a significantly higher
amount than others. Further, where the patient was seen (i.e. the patient’s
“place of service”) and the number of visits will also result in different
reimbursement amounts.
Throughout his employment with Cypress Florida, Plaintiff alleges that the
physicians who worked there were instructed to bill the highest paying DRG
codes for the purpose of receiving the highest amount of reimbursement. As an
incentive, the physicians who reported these higher paying but false DRG codes
would receive higher bonuses. Plaintiff alleges that the administrative personnel
of Cypress Florida posted the highest paying DRG codes for the employees to
see and told employees to bill more of these codes. Plaintiff alleges that he was
even directly remonstrated by the hospital administrator Alan Bird for failing to
follow the fraudulent scheme.
Despite the instructions Plaintiff received, Plaintiff was not convinced that
fraudulent billing was actually occurring until the hospital administration asked
him to review twenty-five Explanation of Benefits or Medicare Summary Notices
(EOBs) and then write a letter to the medicare intermediary appealing the denial
of claims. Throughout this process of review, Plaintiff alleges that he was unable
to write a single letter appealing the denial of claims because all of the DRG
codes submitted were incorrect.
Plaintiff, on his own initiative, randomly pulled sixteen patient history
charts, reflecting a seven year period. These charts, which Plaintiff alleged used
DRG codes that were false but higher paying than the code that should have
been used, had been submitted to Medicare, or another government healthcare
program, for reimbursement.
Further, Plaintiff alleges that he was encouraged to see patients at the
Williston Rehabilitation & Nursing Center, LLC several days a week. Plaintiff
made these visits weekly. However, Plaintiff alleges that because
reimbursements for seeing patients at the hospital’s out-patient clinic were higher
than reimbursements for seeing patients at the nursing home, Cypress Florida
billed these nursing home patient visits as if the patient was seen at the outpatient clinic. Plaintiff alleges that of the 125 patients that he and another
physician saw at the nursing home, all 125 were billed as having been seen at
the out-patient clinic. Moreover, when Plaintiff asked the administrator Alan Bird
why his nursing home visits weren’t reflected in his physician compensation
sheet, Bird replied that the visits were incorporated into the out-patient clinic
Finally, Plaintiff alleges that he was constantly berated and admonished
for not adhering to the Cypress Florida business plan of fraudulently churning
patient visits. Because Medicare would pay a higher reimbursement amount for
each office visit a patient made, the business plan was to separate patient
diagnosis, testing, surgery, treatment and medication into separate office visits to
maximize out-patient clinic revenue. Plaintiff alleges that administrator Alan Bird
explained to him the eight step plan for how to conduct this churning.
C. Challenges to Complaint
On July 12, 2011, the Court dismissed Plaintiff’s complaint with leave to
amend based on Plaintiff’s failure to meet the heightened pleading standard for
fraud under Federal Rule of Civil Procedure 9(b). Cypress Florida challenges the
amended complaint based on many of the same deficiencies noted in the prior
complaints. Cypress Florida includes a new challenge, arguing that it should not
be held liable for fraud that occurred before September 15, 2010 when 100% of
the stock of Cypress Florida was sold to new owners.
The Federal Rules of Civil Procedure require that when “alleging fraud or
mistake, a party must state with particularity the circumstances constituting fraud
or mistake.” Fed. R. Civ. P. 9(b). This heightened pleading standard applies to
actions brought pursuant to the False Claims Act. United States ex rel. Clausen
v. Lab. Corp. of Am., 290 F.3d 1301, 1308-09 (11th Cir. 2002). “[A]pplication of
the rule . . . serves an important purpose: it prevents relators from filing suit
based on a mere hunch and using discovery in the hope of finding support for the
claim.” United States of America ex rel. Brodsky v. Capital Group Health
Services of Fla., Inc., 4:02cv389-RH/WCS, 2005 WL 1364619 at *7 (N.D. Fla.
June 7, 2005).
To meet the standard of pleading with particularity, the “plaintiff must
plead facts as to time, place and substance of the defendant’s alleged fraud . . .
.” United States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1357 (11th Cir. 2006)
(internal citations omitted). This means pleading the “details of the defendant’s
allegedly fraudulent acts, when they occurred, and who engaged in them.” Id.
(internal citations omitted); United States ex rel. Cooper v. Blue Cross & Blue
Shield of Fla., 19 F.3d 562, 567 (11th Cir. 1994).
Merely pleading false practices or fraudulent schemes alone is insufficient
to state a claim pursuant to the False Claims Act. United States ex rel. Hopper v.
Solvay Pharm., Inc., 588 F.3d 1318, 1328 (11th Cir. 2009). Rather, a plaintiff
must show that the government paid, or that the defendant submitted to the
government to be paid, a false claim. Id. The submission of a false claim is the
“sine qua non of a False Claims Act violation.” Clausen, 290 F.3d at 1311.
Plaintiff’s claims concerning fraudulent “upcoding” stem from allegations
that he overheard conversations concerning the fraudulent billing practice, he
was exhorted by a superior telling him to bill higher DRG codes, he was asked to
review twenty five EOBs that contained false DRG codes, and he performed his
own random survey of sixteen patient charts which used false DRG codes.
With regard to the twenty-five EOBs that Plaintiff reviewed, Plaintiff makes
general comments concerning their accuracy. As to a select few, he gives
specific reasons for the errors but he does not provide any details about their
allegedly false submission to a government healthcare program. The EOBs were
not attached to Plaintiff’s amended complaint and Plaintiff has failed to allege the
amount of the claims, who submitted the claims, and when the claims were
submitted. Although in Plaintiff’s review of the EOBs he allegedly could find no
support for the use of the higher paying DRG codes, by failing to allege the
details of how these EOB claims were actually submitted, Plaintiff has failed to
meet the heightened pleading standard.
Plaintiff has failed to include the “details of the defendant’s allegedly
fraudulent acts, when they occurred, and who engaged in them.” Atkins, 470
F.3d at 1357 (internal citations omitted). Furthermore, since Plaintiff’s claim in
Count II of his amended complaint is under subsection (a)(2) of Title 31, United
States Code, Section 3729, he must show that the government actually paid the
false claims. Hopper, 588 F.3d at 1327. But the twenty-five EOBs were denied
payment and there is no indication that Plaintiff or anyone else wrote a letter to
the medicare intermediary to successfully appeal the denial. Given the lack of
specifics concerning when these claims were submitted and by whom, and
whether they were paid, Plaintiff’s allegations regarding the twenty-five EOBs are
insufficient to meet the heightened pleading standard.
With regard to the sixteen patient charts, Plaintiff alleges that improper
DRG codes were used when diagnosing the patients. For chart numbers 2, 5, 6,
and 7, Plaintiff provides specific dates and amounts of the claims submitted and
paid. For the other charts, Plaintiff alleges generally that the claims were
presented for payment within seven days of the patients’ discharge by either
Cypress Florida’s Chief Financial Officer (Sue, last name unknown) or Karla
Dass, who was the executive assistant to Alan Bird.
The allegations are sufficient to meet Rule 9(b)’s heightened pleading
standard as to Count I of the amended complaint, which alleges false
presentment of claims under subsection (a)(1) of Title 31, United States Code,
Section 3729. See Hopper, 588 F.3d at 1327 (explaining that the central focus of
a claim under (a)(1) is false presentment). Plaintiff has pleaded false
presentment with particularity by alleging when the false claims were presented
As to Count II, which alleges false payment under subsection (a)(2),
Plaintiff provides allegations about payment only for charts 2, 5, 6, and 7. Since
actual payment of the claim by the government is required for a valid claim under
subsection (a)(2), only charts 2, 5, 6, and 7 are adequately pleaded. Id. The
other charts lack allegations about payment, let alone allegations pleaded with
particularity to meet the requirements of Rule 9(b).
Accordingly, Plaintiff’s false payment claim for fraudulent upcoding under
subsection (a)(2) is pleaded with particularity based on charts 2, 5, 6, and 7. For
his false presentment claim for fraudulent upcoding under subsection (a)(1),
Plaintiff has alleged fraud with particularity based on all sixteen patient charts.
C. Place of Service
Plaintiff’s second allegation of fraud concerns false place of service
claims. Plaintiff provides three specific examples of his visits to the nursing
home being billed under the out-patient clinic. Plaintiff has attached some
records, but they are difficult to read. It is not apparent from the records how
these claims were submitted, when the claims were submitted, and to whom
these claims were submitted.
Plaintiff alleges, however, that Carol (last name not provided) operated the
out-patient clinic and advised Plaintiff that all nursing home visits were billed as
hospital out-patient visits. Plaintiff also attached a compensation sheet to
support his allegations of false place of service claims. Regarding this sheet,
Plaintiff alleges that Alan Bird explained that no nursing home visits were
recorded on the compensation sheet because they were incorporated into outpatient clinic visits. Most importantly, Plaintiff alleges specific billing dates and
payment amounts for all three examples. These details are sufficient to meet the
heightened pleading standard.
Plaintiff’s final allegation of fraudulent churning is supported only by the
allegation that he was berated by Alan Bird for not fraudulently churning patients.
Plaintiff alleges that Bird then explained the “business plan” for why and how
churning should occur. However, although Plaintiff alleges he was told the
particulars of the fraudulent scheme, Plaintiff again fails to include the details of
any falsely submitted claims for payment based on this scheme. Standing alone,
allegations of an improper billing scheme, which may result in the submission of
false claims, is not enough to satisfy Rule 9(b). See United States ex rel. Hopper
v. Solvay Pharm., Inc. 590 F. Supp. 2d 1352, 1359 (M.D. Fla. 2008) (finding that
it is not the law of the Eleventh Circuit that allegations of false or fraudulent
claims “from which it can be inferred that a false claim was submitted to
government” satisfy Rule 9(b)’s pleading with particularity requirement), aff’d 588
F.3d 1318 (2009), cert. denied 130 S. Ct. 3465 (2010). Since Plaintiff has failed
to allege the particulars of any claim falsely submitted or paid under this scheme
of fraudulently churning patients, Plaintiff has failed to adequately plead
fraudulent churning as required by Rule 9(b).
E. Liability of “New Owners”
On September 15, 2010, one hundred percent of Cypress Florida’s stock
was transferred from Kim B. Bird and Tony L. Pfaff to Mid Florida Healthcare
Holdings, Inc. and Jerry E. Gillam, as president. Since all of the specific
incidents of alleged fraud occurred before the September 15, 2010 transfer,
Cypress Florida argues that as a “new owner,” it cannot be held liable for alleged
fraud that occurred by a prior owner.
This argument fails because the “new owner” provisions of the Medicare
Financial Management Manual that Cypress Florida relies on are only applicable
when a facility undergoes a change of ownership. See doc. 99-5, Medicare
Financial Management Manual, Ch. 3, section 130. Under the governing federal
regulations, a transfer of corporate stock does not constitute a change of
ownership. 42 C.F.R. § 498.18(a)(3). Accordingly, the sale of corporate stock
does not affect Cypress Florida’s liability under the Federal False Claims Act
because there was no change in ownership to make Cypress Florida a “new
Cypress Florida cites to the analogous provision of the Florida Statutes, §
409.901(5)(b), Fla. Stat., which defines change of ownership to include any event
in which 51 percent or more of corporate shares are transferred or assigned.
However, the federal law takes precedence, at least as to the federal False
Claims Act claims. See United States v. Vernon Home Health, Inc., 21 F.3d 693,
695 (5th Cir. 1994) (federal regulations regarding medical provider agreement
preempts contrary state corporate law). The Florida Statute cannot apply to
absolve Cypress Florida of its federal liability.
As for the Florida False Claims Act, Cypress Florida does not develop an
argument concerning its liability after a change in ownership under Florida law.
With the exception of § 409.901(5)(b), Fla. Stat., Cypress Florida only cites to
federal regulations and case law regarding “new owners.” Cypress Florida cites
to no Florida law that governs liability for fraud that occurred before a change of
ownership. Cypress Florida makes no attempt to argue that its liability under the
Florida False Claims Act is different from its liability under the Federal False
Claims Act. Accordingly, the Court will not speculate whether the differences
between the change of ownership provisions in the federal regulations and the
Florida law result in a different result for Cypress Florida’s liability under the
Florida False Claims Act.
The allegations in Plaintiff’s amended complaint are sufficient to state
fraud with particularity for false upcoding based on the sixteen patient charts
(which support Count I for false presentment under subsection (a)(1)) and chart
numbers 2, 5, 6, and 7 (which support Count II for false payment under
subsection (a)(2)). For his claims based on false place of service, Plaintiff
alleges specific billing dates and payment amounts for three examples to state
with particularity his claims for false presentment and false payment. For his
claims based on fraudulent churning, Plaintiff’s allegations of a false billing
scheme do not include details about the submission of fraudulent claims or
payment of fraudulent claims so as to plead fraud with particularity. Finally,
Cypress Florida has not demonstrated that it cannot be held liable for fraud that
occurred before the sale of stock. Based on the foregoing, it is
Defendant Cypress Health Systems Florida, Inc.’s Motion to
Dismiss Amended Complaint (doc. 99), as joined by Defendant Alan Bird (doc.
106), is granted in part and denied in part.
Plaintiff may proceed on his claims based on upcoding and false
place of service, as provided in this order.
DONE AND ORDERED this 14th day of February, 2012.
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