Court Opinion

ID: 172725
Source: CourtListenerOpinion
Date Created: 2010-08-14 18:56:14+00
Date Added: 2024-06-11T17:25:20.942966
License: Public Domain

FILED
                                                          United States Court of Appeals
                                                                  Tenth Circuit

                                                                 October 9, 2009
                     UNITED STATES COURT OF APPEALS
                                                  Elisabeth A. Shumaker
                                                                  Clerk of Court
                            FOR THE TENTH CIRCUIT

    UNITED STATES OF AMERICA,
    ex rel., SARA LACY,

                Plaintiff-Appellant,

    v.                                                 No. 08-6248
                                               (D.C. No. 5:07-CV-00137-HE)
    NEW HORIZONS, INC., d/b/a                          (W.D. Okla.)
    New Frontier ICF/MR, d/b/a
    New Horizons Texarkana TX, d/b/a
    New Frontiers, d/b/a Holly House,
    d/b/a Horizons General Partnership;
    NEW FRONTIERS COMMUNITY
    SERVICES, INC.; DONALD
    MOORE; CATHY MOORE; MARK
    MOORE; CHISOLM COMMUNITY
    SERVICES OF OKLAHOMA, INC.;
    CINDY LASYONE,

                Defendants-Appellees.

                             ORDER AND JUDGMENT *

Before KELLY, McKAY, and BRISCOE, Circuit Judges.

*
       After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
      Defendant New Horizons Inc. (New Horizons) operated nine long-term-care

facilities for mentally retarded adults in Oklahoma, and four in Texas, known as

Intensive Care Facilities for the Mentally Retarded (ICF/MR). 1 It employed Sara

Lacy as a case manager and Qualified Mental Retardation Professional from June

1999 to June 2004. After New Horizons terminated her employment, she brought

this action under the False Claims Act (FCA), 31 U.S.C. § 3729(a), alleging that

the defendant had presented false claims to the government under the Medicare,

Medicaid/SSI, and Social Security programs. She further claimed it terminated

her employment in retaliation for reporting these false claims. The United States

declined to intervene. The district court dismissed her complaint, and she

appeals.

                                 BACKGROUND

      Ms. Lacy’s 112-page Second Amendment Complaint (the “Complaint”)

included allegations that defendant had presented false and fraudulent claims in

violation of § 3729(a)(1); used false or fraudulent records in violation of

§ 3729(a)(2); conspired to get false or fraudulent claims paid in violation of

§ 3729(a)(3), and terminated her employment in violation of 31 U.S.C. § 3730(h)

1
      Throughout her complaint and her briefing, Ms. Lacy refers inconsistently
to “defendant” and “defendants” performing various actions and being liable for
various claims. We refer in this order and judgment to “defendant” in the
singular, primarily meaning New Horizons but incorporating the other defendants
whenever made necessary by the context.

                                         -2-
“because of her lawful acts of initiating, investigating, and reporting the

misconduct of the Defendant to employees of the State Regulatory Agency.”

Aplt. App. at 123 ¶ 135. The district court granted the defendant’s motion to

dismiss the Complaint, concluding that (1) Ms. Lacy failed to plead her forward

billing claims with the particularity required by Fed. R. Civ. P. 9(b); (2) her

claims concerning the submission of annual reports and quarterly wage

enhancement reports failed to plead fraud with particularity and failed to state a

claim under the FCA; (3) her claims concerning substandard care did not present

allegations that could serve as the basis for an FCA claim; (4) she failed to state a

claim that defendant violated the Medicare anti-kickback statute; (5) her

conspiracy claim ran afoul of the intracorporate conspiracy doctrine and failed to

allege the conspiracy with particularity; and (6) the reporting of regulatory

violations to an Oklahoma state agency was not a report submitted to the

government that would support a FCA whistleblower claim.

      The district court further concluded that Ms. Lacy’s allegations concerning

defendant’s per diem billing practices came close to stating a claim. It granted

her leave to amend her Complaint to flesh out this claim. But she declined to

amend and instead requested a final judgment. After final judgment was entered,

she filed this appeal.

                                          -3-
                                    ANALYSIS

       1. FCA Provisions

       The FCA imposes liability, inter alia, on any person who:

       (1) knowingly presents, or causes to be presented, to an officer or
       employee of the United States Government or a member of the
       Armed Forces of the United States a false or fraudulent claim for
       payment or approval;

       (2) knowingly makes, uses, or causes to be made or used, a false record or
       statement to get a false or fraudulent claim paid or approved by the
       Government; [or]

       (3) conspires to defraud the Government by getting a false or
       fraudulent claim allowed or paid[.]

31 U.S.C. § 3729(a) (1994).

       The statute further provides protection to employees who suffer retaliation

from their employers for lawful acts taken in furtherance of an action under the

FCA:

       Any employee who is discharged, demoted, suspended, threatened,
       harassed, or in any other manner discriminated against in the terms
       and conditions of employment by his or her employer because of
       lawful acts done by the employee on behalf of the employee or others
       in furtherance of an action under this section, including investigation
       for, initiation of, testimony for, or assistance in an action filed or to
       be filed under this section, shall be entitled to all relief necessary to
       make the employee whole. . . . An employee may bring an action in
       the appropriate district court of the United States for the relief
       provided in this subsection.

Id. § 3730(h).

                                          -4-
      2. Review Standards

      We review a district court’s dismissal under Fed. R. Civ. P. 12(b)(6)

de novo, Moss v. Kopp, 559 F.3d 1155, 1161 (10th Cir. 2009), asking whether the

plaintiff has stated “enough facts to state a claim for relief that is plausible on its

face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

      While in general, a civil complaint in federal court need only provide “a

short and plain statement of the claim showing that the pleader is entitled to

relief,” Fed. R. Civ. P. 8(a)(2), this rule “does not unlock the doors of discovery

for a plaintiff armed with nothing more than conclusions.” Ashcroft v. Iqbal,

129 S. Ct. 1937, 1950 (2009). “[O]nly a complaint that states a plausible claim

for relief survives a motion to dismiss.” Id.

      FCA claims, which involve averments of fraud, are held to a higher

standard. “[T]he heightened pleading requirements of [Fed. R. Civ. P.] 9(b) apply

to claims brought under the FCA.” United States ex rel. Karvelas v.

Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004). Rule 9(b) requires

that “[i]n alleging fraud . . . a party must state with particularity the

circumstances constituting fraud[.]” 2

2
       In supplemental authority filed with this court, Ms. Lacy argues that the
Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617
(May 20, 2009), has eliminated the requirement that fraud be pleaded with
particularity in qui tam actions. We do not agree. First, only a very few of the
Act’s provisions apply retroactively to her claims. See id. § 4(f), 123 Stat. 1625
                                                                       (continued...)

                                          -5-
      In reviewing a dismissal pursuant to Rule 9(b) for failure to plead fraud

with particularity, we confine our analysis to the text of the Complaint, accepting

as true all well-pleaded facts as distinguished from conclusory allegations.

United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d

702, 726 (10th Cir. 2006). We view those facts in the light most favorable to the

non-moving party. Id. “At a minimum, Rule 9(b) requires that a plaintiff set

forth the ‘who, what, when, where and how’ of the alleged fraud, and [she] must

set forth the time, place, and contents of the false representation, the identity of

the party making the false statements and the consequences thereof.” Id. at

726-27 (quotations omitted).

      3. Forward Billing Allegations

      Paragraphs 33 through 42 of the Complaint describe a scheme whereby

defendant allegedly submitted bills at the beginning of each month to patients and

to the Medicare, Medicaid, and Social Security Administration programs seeking

payment for services to be performed for patients during that month. Ms. Lacy

alleges this was improper because bills are only to be submitted for

reimbursement after services have been provided. See Okla. Admin. Code §

317:30-3-8 (prohibiting pre-billing). She further alleges that “[t]hese bills were

2
 (...continued)
(setting effective dates). Of those provisions expressly made retroactive, none
establishes or changes the pleading requirements for an FCA complaint.

                                          -6-
submitted for every patient, in all of the nine operating houses in Oklahoma each

and every month beginning in June 1999, and continuing at least until April of

2004.” Aplt. App. at 26 ¶ 36.

      Notwithstanding the fact that Ms. Lacy’s allegations concern a fairly

specific time period (June 1999 to at least April 2004) and an identified class of

patients (all patients in the nine operating homes in Oklahoma), she has supplied

no specific details concerning any particular false claim for payment submitted

(or, to the extent her claims rest on FCA subsections (a)(2) or (a)(3), planned to

be submitted) 3 to the government. 4 In Sikkenga, we quoted with approval the

First Circuit’s application of Rule 9(b) to the FCA, which requires that

      a relator must provide details that identify particular false claims for
      payment that were submitted to the government. In a case such as
      this, details concerning the dates of the claims, the content of the
      forms or the bills submitted, their identification numbers, the amount
      of money charged to the government, the particular goods and
      services for which the government was billed, the individuals
      involved in the billing, and the length of time between the alleged
      fraudulent practices and the submission of claims based on those
      practices are the types of information that may help a relator to state
      his or her claims with particularity. These details do not constitute a
      checklist of mandatory requirements that must be satisfied for each

3
      See United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 46 n.7
(1st Cir. 2009) (applying Allison Engine Co. v. United States ex rel. Sanders,
128 S. Ct. 2123 (2008)).
4
      The allegations in ¶ 41, concerning per diem billing, are dealt with
separately, infra.

                                         -7-
      allegation included in a complaint. However, like the Eleventh
      Circuit, we believe that some of this information, for at least some of
      the claims must be pleaded in order to satisfy Rule 9(b).

Sikkenga, 472 F.3d at 727-28 (quoting Karvelas, 360 F.3d at 232-33).

      Ms. Lacy contends that her broad language concerning “every patient, in all

of the nine operating houses in Oklahoma,” Aplt. App. at 26 ¶ 36, during the time

period June 1999 to April 2004, coupled with the other information she supplied

concerning the mechanics of billing and the persons involved in the billing, is

sufficiently particular to satisfy the Rule 9(b) standard and to put the defendant

on notice of the particular instances of fraud she alleges. See Aplt. Opening Br.

at 10-11. We cannot agree. First, no single instance of a particular false claim is

alleged that would be representative of the class described. See United States

ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007)

(stating relator who “pleads a complex and far-reaching fraudulent scheme” must

provide examples of specific false claims that “are representative samples of the

broader class of claims.”). The Complaint merely alleges in general terms a

scheme to bill in advance for patient care, applicable to every patient at

defendant’s facilities during a period of five years.

      Finally, the Complaint provides no details about how the scheme was

implemented. It states that employees were directed “to submit bills to the

patients and government authorities for vendor payments at the beginning of each

month for services to be performed that month,” Aplt. App. at 25 ¶ 35, using

                                          -8-
“UB-92 and 1500 Paper forms,” id. at 26 ¶ 37. Presumably, some feature of the

billing submitted on these forms must have been altered or falsified in order to

avoid its being rejected for reimbursement out of hand as an impermissible

forward billing. 5 To assume otherwise is to conclude that defendant submitted

patently improper bills for years without making any attempt to conceal its fraud

and without attracting even the slightest attention from the agencies assigned to

pay them--an implausible allegation that goes unexplained in the Complaint,

which neither explains nor provides any specific examples to demonstrate what

exactly was altered or misstated on these forms.

      In sum, Ms. Lacy’s broad-ranging allegations about forward billing are

insufficient to meet the requirements of Rule 9(b) with respect to particular false

claims. The district court properly concluded that the forward billing claim was

not pleaded with particularity.

      4. Per Diem Billing Allegations

      Ms. Lacy’s per diem billing allegations allege that defendant billed the

government for reimbursement at the per diem rate for days after patients died;

when patients were absent from the facility and visiting with family; when a

patient was in a hospital; and when a patient was moved out of state. The district

5
      Ms. Lacy provides a blank form used to make adjustments to the UB-92
form, for example, and this form includes a line requiring that the “date of
service” be specified. Aplt. App. at 158.

                                         -9-
court identified three paragraphs of her Complaint that establish the primary basis

for these claims.

      Paragraph 41 alleges that “[o]nce the money was paid, a number of patients

died in the middle of the month (including but not limited to Monica Wiebe, Judy

Henderson and Charley Bryant); New Horizons, under the direction of Don and

Cathy Moore, retained the money for the services for the rest of the month and

failed to pay back the patient’s family, government or the patient trust account.”

Aplt. App. at 26-27 ¶ 41. This description answers the “who and what” of the

alleged fraud, by identifying specific patients for which overbilling occurred,

what was overbilled, and who directed the overbilling. But it omits any details

concerning the dates and amounts involved or even which specific government

programs were not reimbursed after the alleged patient deaths.

      Paragraph 46(a)(ii) alleges that “[a]t the Direction of Defendants Don and

Cathy Moore, patients like John Gentry were encouraged to leave the houses for

family visits and employees Ronaye Classen and Rachel Bevill-Breeding were

instructed to mark the patients as present; on one occasion Charley Bryant was

sent to the hospital ER as a John Doe so that they could mark him as being

present.” Id. at 31 ¶ 46(a)(ii). Notwithstanding the identification of patients for

whom overbilling allegedly was made, no information is provided concerning the

dates or number of times the alleged overbilling occurred and there are no

estimates of the total number of patients involved.

                                        -10-
       Paragraph 79 alleges that when claims were submitted for payment “the

claims were false and the Defendant knew they were false and thereby subject to

the remedies available under the FCA. An example of these bills would be

Monica Weibe. She was billed until the end of the month of her death and her

Christmas holiday visits in 2002. David Scribner was billed through the end of

the month after he was dumped in Denton, Texas by the Defendants.” Id. at 83

¶ 79. Here, again, information about dates and amounts and which programs were

overbilled is missing. We conclude that the overbilling allegations fail to plead

fraud with particularity as required by Rule 9(b).

      5. Allegedly False Records Used to Obtain Payment of Claims

      Ms. Lacy also contends that she satisfied the requirements of

Fed. R. Civ. P. 8 and 9(b) by pleading facts that show a violation of § 3729(a)(2).

She contends that certain records referred to or otherwise relied on in the

defendant’s claims for reimbursement were “false record[s] or statement[s used]

to get a false or fraudulent claim paid or approved by the Government.” 31

U.S.C. § 3729(a)(2). These allegedly false records included

      “[records] falsified . . . to reflect compliance when [defendant was] being

evaluated by the State for certification between 1999 and 2004[, including]

medical charts, doctors[’] orders, and time sheets for each facilit[y];

                                        -11-
           “[records] destroyed . . . which were required by the State, thereby . . .

creating and using false records for a specific named patient who had been abused

by another patient in early 2004;

           “[records not maintained as required] on patients that were abused;

           “false time sheets [created] to reflect compliance with . . . staffing

requirements;

           “falsif[ied] CPR certifications;

           “falsified . . . immunization record[s] for TB and Hepatitis; and

           “falsified . . . individual patient plans.”

Aplt. Opening Br. at 14-15.

           To satisfy the requirements of the FCA, such falsifications would

ultimately have to be tied to a planned or actual false or fraudulent claim for

payment. See United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 46

n.7 (1st Cir. 2009). But Ms. Lacy makes no attempt to demonstrate the required

link. Nor can we discern such a link through examination of the Complaint.

None of the citations she provides to her Complaint support the allegations in her

brief. 6

6
       For example, she cites to the Complaint, page 10, ¶ 28(i), to support her
claim that named employees falsified records such as medical charts, doctors’
orders, and time sheets to reflect compliance when evaluated by the state. Aplt.
Br. at 14. But paragraph 28 is actually found on page 9 of the Complaint, has no
subparagraphs, and has nothing to do with falsification of the records identified in
                                                                       (continued...)

                                               -12-
      Nor do her allegations of false records or statements appear to tally with

any of the claims that the district court recognized and dismissed in its final

order. It is hard to say just where in the jigsaw puzzle these factual allegations

are intended to fit. Ms. Lacy indicates in her statement of issues on appeal, see

Aplt. Opening Br. at 1-2, that she has abandoned her claims regarding quarterly

cost report fraud and fraud resulting from failure to comply with conditions of

participation and conditions of certification, logical places for these allegations.

This leaves her annual cost report claim, which is where appellees have attempted

to pigeonhole these orphan allegations. See Aplee. Br. at 22. Ms. Lacy does not

contest appellees’ characterization of her argument as a cost report claim.

Accordingly, we will treat these allegations as part of her annual cost report

claim. As such, they fail for the same reason that claim fails generally: the

annual cost reports were not claims for payment.

      6. Annual Cost Report Claims

      In her annual cost report claim, Ms. Lacy contends that defendant was

required to file annual cost reports to obtain reimbursement for the cost of

services provided to Medicare or Medicaid patients. Defendant’s employees

allegedly shifted onto these reports nonreimbursable expenses such as personal

6
(...continued)
Ms. Lacy’s brief.

                                         -13-
groceries, gas, automobiles, cell phones, liquor, and “consulting services” paid to

relatives but not performed.

      “A false certification is . . . actionable under the FCA only if it leads the

government to make a payment which it would not otherwise have made.” United

States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1219

(10th Cir. 2008). (Even for a claim under subsections (a)(2) or (a)(3) there would

have to be a connection to a planned claim on the government fisc.) We agree

with the district court that Ms. Lacy has failed to show that the annual cost

reports that defendant submitted had the required relationship to a payment or

reimbursement request necessary to support an FCA claim. While the annual cost

reports are mandatory, as the district court found they merely “[c]ollectively . . .

establish a basis for evaluation of the reasonableness of the rate paid to the

nursing homes and determination of what constitutes an economically and

efficiently operated facility.” Aplt. App. at 166 (quoting “Oklahoma Nursing

Home Cost Report Instructions,” at 1, available at

http://www.okhca.org/WorkArea/showcontent.aspx?id=7267 (visited August 6,

2009)). Thus, the reports would not have led the government to make a payment

not otherwise authorized to defendant. The district court therefore properly

dismissed Ms. Lacy’s annual cost report claims.

                                         -14-
      7. Anti-Kickback/Self-Referral Claims

      In her anti-kickback/self-referral claims, Ms. Lacy charged that defendants

Don and Kathy Moore owned and managed defendant New Horizons and that they

also owned New Frontiers Community Service, Inc. (New Frontiers), a

community-based mental health care service managed by Mark Moore, Don

Moore’s son. Mark Moore allegedly used New Frontiers to refer individuals to

New Horizons, even when such individuals were ineligible for placement in an

ICF/MR. The Complaint charged that such referral between facilities owned by

the defendants violated the anti-kickback provision of 42 U.S.C. § 1320a-7b. It

also charged that defendant engaged in improper self-referral by reporting that

patients had been “discharged” and then transferring them to another of

defendant’s facilities.

      Section 1320a-7b(b) prohibits the knowing and willful receipt, offer, or

payment of “any remuneration (including any kickback, bribe, or rebate) directly

or indirectly, overtly or covertly, in cash or in kind” in return for, among other

things, referring individuals to facilities funded by federal health care programs.

Assuming arguendo that a violation of this statute gives rise to FCA liability,

there is a fundamental problem with Ms. Lacy’s contention that defendant

violated the statute. She did not allege that there was any remuneration made in

exchange for the “referrals.” See Aplt. App. at 81-82.

                                        -15-
      Ms. Lacy argues that defendant’s receipt of payment from the government

under federal health care programs as the result of shuttling patients around

satisfies the remuneration requirement. But reading the statute in this way

removes the “kickback” requirement altogether. The statute already forbids any

payment for referrals to facilities providing services “for which payment may be

made in whole or in part under a Federal health care program.” 42 U.S.C.

§ 1320a-7b(b)(1)(A), (2)(A). In other words, payment or potential payment from

government health care programs is already and always required as an element of

the offense, but a violation of the statute requires an additional requirement:

receipt or disbursement of payment in exchange for the referral. It is this

additional remuneration that Ms. Lacy has failed to allege.

      Although the Complaint mentions only § 1320a-7b, it charges that

defendant engaged in “self-referral,” which may be a reference to the Stark Act,

42 U.S.C. § 1395nn. This statute prohibits referrals by physicians to health care

entities with which they have a financial relationship. The district court found

that none of the defendants was a physician to which the Act would apply. Ms.

Lacy does not challenge this finding on appeal. We therefore uphold the district

court’s dismissal of her kickback claims.

                                         -16-
      8. Improper Discharge Claim

      Ms. Lacy contends that she has stated a claim for retaliatory discharge

under 31 U.S.C. § 3730(h). As noted previously, the applicable version of that

statute provides

      (h) Any employee who is discharged, demoted, suspended,
      threatened, harassed, or in any other manner discriminated against in
      the terms and conditions of employment by his or her employer
      because of lawful acts done by the employee on behalf of the
      employee or others in furtherance of an action under this section,
      including investigation for, initiation of, testimony for, or assistance
      in an action filed or to be filed under this section, shall be entitled to
      all relief necessary to make the employee whole.

31 U.S.C. § 3730(h).

      In the Complaint, Ms. Lacy alleges that she was fired after having reported

“violations of State and Federal rules and regulations with regard to patient care

and safety to the Oklahoma Department of Health.” Aplt. App. at 19, ¶ 19. She

contends that defendant fired her for having made one such report. Id. ¶ 20. But

nowhere does she allege that she was fired for actions taken prior to her

termination “in furtherance of an action” under the FCA. Therefore, she fails to

meet the requirements of § 3730(h).

                                         -17-
                                  CONCLUSION

      The district court properly dismissed this action. The claims raised either

fail to state a claim or fail to plead fraud with particularity, as required. The

district court’s order of dismissal is therefore AFFIRMED.

                                                     Entered for the Court

                                                     Monroe G. McKay
                                                     Circuit Judge

                                         -18-