Opinion ID: 1467144
Heading Depth: 2
Heading Rank: 2

Heading: Appellants' Cost Reports for 1997, 1998 and 1999

Text: Between 1994 and 2000, Bayview Hospital and Mental Health Systems (Bayview) was a psychiatric hospital that participated in the Medicare program. Bayview was owned and operated by a California limited partnership, known as California Psychiatric Management Services (CPMS). The only general partners in CPMS were RIB and Navatkuda. Bourseau controlled RIB and served as its president and sole employee. Sabaratnam controlled Navatkuda and served as its president and sole full-time employee. Bourseau and Sabaratnam, through RIB and Navatkuda, ran CPMS and Bayview. Bourseau focused on operations management while Sabaratnam focused on medical management. In 1996, CPMS filed for Chapter 11 bankruptcy. In 1998, the United States Bankruptcy Court for the Central District of California approved a reorganization plan for CPMS which, among other things, gave National Century Financial Enterprises, Inc. (NCFE) a 49.9% limited partnership interested in CPMS. This made NCFE and CPMS related parties as that term is defined in the Medicare regulations. Between 1997 and 1999, CPMS retained Paul Fayollat (Fayollat) and Loretta Masi (Masi) of Pacific Hospital Management to prepare and submit Bayview's 1997, 1998 and 1999 cost reports to its intermediary, Mutual of Omaha Insurance Company (Mutual of Omaha). In preparing the 1997 cost report, Bourseau and Sabaratnam met with Fayollat, Masi and CPMS' Director of Finance, Seth Morriss (Morriss). Fayollat advised Bourseau that Medicare would not reimburse Bayview for interest and bankruptcy legal fees unrelated to Bayview's Medicare patient services, and that it would be improper to include such amounts in the cost report. Notwithstanding Fayollat's advice, Bourseau directed Fayollat to include in the 1997 report (1) the total amount of interest charged by NCFE for earlier loans and (2) all of CPMS' bankruptcy legal fees. Only a portion of the interest and bankruptcy legal fees related to the operation of Bayview. CPMS never paid the interest to NCFE. In preparing the 1998 cost report, Bourseau and Sabaratnam again met with Fayollat, Masi and Morriss. Fayollat advised Bourseau that Medicare would not reimburse Bayview for interest and bankruptcy legal fees unrelated to Bayview's Medicare patient services, and that it would be improper to include such amounts in the cost report. Notwithstanding Fayollat's advice, Bourseau directed Fayollat to include in the 1998 cost report (1) the total amount of interest charged by NCFE, (2) all of CPMS' bankruptcy legal fees, (3) a rental expense for a lease that never existed, (4) 16,965 additional square feet of space for a partial hospitalization program, although little of the additional space was actually used for Medicare patient care or operation support and (5) management fees for NCFE. Only a portion of the interest and bankruptcy legal fees related to the operation of Bayview. CPMS never paid the interest to NCFE. In preparing the 1999 cost report, Bourseau again ignored Fayollat's advice and directed that Fayollat include in the 1999 cost report (1) all of CPMS' bankruptcy legal fees, (2) 16,965 additional square feet of space for the partial hospitalization program, although little of the additional space was actually used for patient care, (3) management fees for NCFE and (4) program costs, representing additional interest payable to NCFE. CPMS never paid the interest to NCFE. Mutual of Omaha never made adjustments to Bayview's cost reports, never audited the cost reports and never collected overpayments or paid underpayments. Between July of 1997 and October 2000, Bayview's Medicare reimbursement rates did not change. And in 2000, CPMS filed for bankruptcy again. The government filed suit against Appellants in the United States District Court for the Southern District of California, alleging (1) violations of the FCA, (2) unjust enrichment and (3) common law fraud. After a six day bench trial, the district court held Appellants jointly and severally liable to the government for the FCA claims only. The district court found that Appellants' 1997, 1998 and 1999 cost reports constituted false claims under the FCA, actionable as both affirmative false claims and reverse false claims. The district court found that by including false costs in its cost reports, Bayview had decreased the amount it owed Medicare by $5,219,195. The district court awarded the government $15,657,585 in treble damages and $31,000 in civil penalties. Appellants timely and separately appealed. We consolidated their appeals.