Opinion
Civil No. 1:97cv174.
April 17, 1998
ORDER
This matter is before the court on the defendants' motions to dismiss the relators' amended complaint with prejudice for failure to plead fraud with particularity, failure to state a claim upon which relief can be granted, and lack of standing. The defendants filed their motions on January 22, 1998, and the parties completed briefing the motions on March 3, 1998. For the following reasons, the motions to dismiss will be denied.
Discussion
I. General Background
The present action is brought on behalf of the United States, pursuant to the qui tam provisions of 31 U.S.C. § 3730, by Stephanie Roberts ("Roberts") and Laura Leaming ("Leaming"). Roberts and Leaming allege violations of the False Claims Act, 31 U.S.C. 3729, et seq. ("FCA"), by Tai-Min Chen, M.D. ("Chen"), Neonatology Services, P.C., and Lutheran Hospital of Indiana, Inc. ("Lutheran").
Chen is a physician who practices medicine in Lutheran's Neonatal Intensive Care Unit ("NICU"), and has done so since 1987. Roberts and Leaming are registered nurses. Roberts began working for Lutheran's NICU in October, 1988, and Leaming began working there approximately two months later. During the time period relevant to this action, Chen and Lutheran participated as a provider in the Indiana Medicaid program. They provided physician services and hospital services to Medicaid eligible infants at Lutheran within the meaning of IC § 12-15-11-1(a). The United States government pays and/or funds 60% of the State of Indiana's Medicaid claims.
In their amended complaint, Roberts and Leaming allege that Chen (who incorporated in 1993 under the name Neonatology Services, P.C.) engaged in the practice of, inter alia, purposely underfeeding and over ventilating infants, so as to keep them in the NICU for longer periods. Chen allegedly then over billed Medicaid and other third party insurers for greater amounts than he would have billed had he provided the infants with proper care. Roberts and Leaming further allege that Lutheran was informed of Chen's alleged practices and over billing, and failed to take steps to curb Chen's fraudulent practices.
Roberts and Leaming also allege that they have suffered an injury as a result of the defendants' acts as they were in danger of losing their nursing licenses as a result of their participation in the alleged fraud and mistreatment of the infants. Roberts and Leaming additionally allege that they were forced to quit their jobs at Lutheran because of the threat that they would lose their licenses and because they could no longer participate in the alleged mistreatment of the infants. Finally, Roberts and Leaming claim that they suffered emotional harm as a result of their forced participation in the alleged mistreatment of the infants. II. Standing Issue
Lutheran argues that the relators do not have standing under Article III of the United States Constitution to bring an FCA action in which the United States has declined to participate. In an order entered November 6, 1997, this court ordered the parties to comment on the recent decision in United States ex rel. Joyce Riley v. St. Luke's Episcopal Hospital, 982 F. Supp. 1261 (S.D. Tex. 1997), in which the Houston Division of the Texas District Court declared the FCA unconstitutional in cases in which the United States declines to participate.
The FCA authorizes both the United States Attorney General and private persons to bring civil actions to enforce the FCA's prohibitions on fraud against the government. 31 U.S.C. § 3730. A private action under the FCA is termed a "qui tam" action, from the Latin "qui tam pro domino rege quam pro si ipso hac parte sequitur" which means "who sues on behalf of the king as well as himself." In re Schimmels, 1997 U.S. App. LEXIS 28454, *2, n. 1 (9th Cir. 1997). The private plaintiff in a qui tam case is called the "relator". Id. The government may intervene in anyqui tam suit and take over its prosecution from the relator, but if it does not intervene the relator may proceed with the action. 37 U.S.C. § 3730(c). If the government does not intervene in the litigation, it still retains an interest in, and some control over, the relator's suit. The government has the right to dismiss the action notwithstanding the objection of the relator, provided the relator has an opportunity to be heard on the matter. 37 U.S.C. § 3730(c)(2)(A). Additionally, the relator cannot dismiss the case without the written consent of the Attorney General. 37 U.S.C. § 3730(b)(1). Moreover, "the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause." 37 U.S.C. § 3730(c)(3).
As an incentive for prosecuting the case on behalf of the government, a relator receives a certain percentage of any recovery from the defendant. The amount depends on whether the government intervenes. If the government intervenes and assumes responsibility in the case, the relator receives between 15 and 25 percent of the recovery. 31 U.S.C. § 3730(d)(1). If the government declines to intervene, the relator receives between 25 and 30 percent of any recovery.
Riley, supra, held that the qui tam provisions of the FCA are unconstitutional because the private relator has suffered no injury-in-fact, and therefore has no standing. The constitutional elements of standing are derived from the limit on federal court jurisdiction in Article III of the Constitution to the resolution of actual "cases or controversies." U.S. Const. Art. III, § 3. The United States Supreme Court has developed the "irreducible constitutional minimum" requirements necessary for a party to have standing to sue as follows:
First, the plaintiff must have suffered an "injury in fact." This consists of an invasion of a legally-protected interest which is (a) concrete and particularized and (b) actual or imminent. Second, there must be a causal connection between the injury and the conduct serving as the basis for the lawsuit. In other words, the injury has to be traceable to the challenged action of the defendant and not the result of the conduct of a third party not before the Court. Third, it must be likely that the injury will be redressed by a favorable decision.United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 747 (9th Cir. 1993) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).
Thus, generally, to have standing putative plaintiffs must show that they themselves suffered injury from the contested practice, and thus they would benefit from its cessation. However, the Supreme Court has made a distinction for "the unusual case in which Congress has created a concrete private interest in the outcome of a suit against a private party for the government's benefit, by providing a cash bounty for the victorious plaintiff." Lujan, supra, 504 U.S. at 576. InUnited States ex rel. Hall v. Tribal Development Corp., 49 F.3d 1208 (7th Cir. 1994), the Seventh Circuit held that non-Indians who were not parties to certain contracts alleged to be illegal pursuant to federal law had standing to sue to enforce the laws on behalf of the government pursuant to the qui tam provisions of the laws. On the issue of injury-in-fact, the Seventh Circuit stated:
[W]e think that in focusing on whether [the plaintiffs] themselves were personally injured for purposes of Article III, the district court bypassed the real plaintiff in this suit. This is not a garden-variety private suit brought by [the plaintiffs] against the defendants. Rather it is a qui tam action, brought in the name of and on behalf of the United States[.]Id. at 1212.
Lutheran argues that the application of the reasoning in Hall to the case at bar violates the injury-in-fact standard, because the government has investigated relators' claims and expressly declined to participate in the action. Thus, Lutheran claims that it can hardly be said that the relators are suing "on behalf of" the government. The United States has filed a brief addressing this issue, and points out that the government may decline to intervene in a given qui tam action on the basis of factors independent of the merits of the case. The Department of Justice receives many hundreds of FCA cases for review every year. In each case, the government has 60 days to decide whether to intervene and take over the action, plus any additional time the district court may grant for good cause shown. 31 U.S.C. § 3730(c)(2). Because the government has limited resources to devote to FCA investigations, the Department of Justice may not be granted sufficient time to investigate an allegation of fraud, and may therefore reserve the right to intervene at a later date. In addition, the government must weigh the size of the potential recovery against the relative cost required to meet its obligation to prosecute diligently each case in which it intervenes. See United States v. Baker-Lockwood MFG. Co., 138 F.2d 48, 53 (8th Cir. 1943) ("[d]iligence in the enforcement of the false claims statute requires . . . the careful and orderly investigation and preparation of the action to be brought, in order that the government may be able, when the suit is filed, to prosecute it with fairness to the defendants charged as well as to the public").
The United States points out that even though a given case may appear meritorious, the government may reasonably choose to conserve its resources for cases with a greater probability of a higher recovery. The United States further argues that § 3730 of the FCA explicitly contemplates that the government may not intervene in every case the Attorney General finds meritorious. The statute provides: "[i]f the Attorney general finds [a violation of 31 U.S.C. § 3729], the Attorney General may bring a civil action. . . ." 31 U.S.C. § 3730(a) (emphasis added). According to the United States, the qui tam mechanism is precisely intended to permit relators to litigate themselves those valid claims that the Attorney General chooses to forgo. The Ninth Circuit endorsed this reading of § 3730 in United States ex rel. McGough v. Covington Technologies, 967 F.2d 1391, 1397 (9th Cir. 1992), stating that "[t]o hold that the government's initial decision not to take over the qui tam action is the equivalent of its consent to a voluntary dismissal of a defendant with prejudice would require us to ignore the plain language of § 3730(b)(1)."
The district court in Riley is the only court to hold thequi tam provision to be unconstitutional. Every federal circuit court to consider the issue has upheld the qui tam provision. See United States ex rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir. 1993); United States ex rel. Kreindler Kreindler v. United Technologies Corp., 985 F.2d 1148 (2d Cir. 1993); United States ex rel. Madden v. General Dynamics Corp., 4 F.3d 827 (9th Cir. 1993); see also United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 457 (5th Cir. 1977);United States ex rel. Berge v. Board of Trustees of the University of Alabama, 104 F.3d 1453, 1456 (4th Cir. 1997);United States ex rel. Milam v. University of Texas M.D. Anderson Cancer Center, 961 F.2d 46, 49 (4th Cir. 1992).
Likewise, the many district courts to consider the standing issue have also upheld the qui tam provision. See e.g., United States ex rel. Robinson v. Northrop Corp., 824 F. Supp. 830, 836 (N.D. Ill. 1993) (qui tam provisions did not violate Article III; "Like every other court to consider the issue to date, this court rejects Northrop's Article III argument");United States ex rel. Burch v. Puque Engineering, 803 F. Supp. 115 (S.D. Ohio 1992); United States ex rel. Givler v. Smith, 775 F. Supp. 172, 181 (E.D. Pa. 1991); United States ex rel. Truong v. Northrop, 728 F. Supp. 615, 619-20 (C.D. Cal. 1989) ("Where there is evidence of palpable injury to the entity on whose behalf and in whose name the suit is brought, it is superfluous to require that the relator be individually aggrieved"); United States ex rel. Newsham v. Lockheed Missiles Space Corp., 722 F. Supp. 607 (N.D. Cal. 1989) (discussing historical acceptance of qui tam actions by Congress); United States ex rel Stillwell v. Hughes Helicopters, Inc., 714 F. Supp. 1084, 1098 (C.D.Cal. 1989).
In fact, the Galveston Division of the District Court for the Southern District of Texas has explicitly disagreed with theRiley court's decision. In Hopkins v. Actions, Incorporated of Brazoria County, 985 F. Supp. 706 (S.D. Texas 1997), the court held:
Alternatively, this Court finds that the purpose of the FCA supports a finding that Plaintiff has standing in this case to pursue a FCA action. After an exhaustive review of the history of qui tam actions and Article III standing requirements, one District Court has held that in order to have standing under the FCA, the qui tam plaintiff must have suffered an Article III injury in fact. According to that court, injury to the government is insufficient to create standing without direct injury to the plaintiff himself beyond costs of litigation. See United States ex rel. Joyce Riley v. St. Luke's Episcopal Hosp., No. H-94-3996, 1997 WL 679105 (S.D. Tex. Oct. 21, 1997). In light of the congressional purpose underlying the FCA and its plain language, this Court rejects the St. Luke's reasoning. Moreover, a close reading of Robertson reveals that the Fifth Circuit finds the standing question to be a nonissue on these facts. Indeed, in one of the few cases addressing the standing of a qui tam plaintiff, the Fifth Circuit described the FCA as a statute that "grants informers standing to sue and an award for successful action under the statute." United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456, 460 (5th Cir. 1977). Thus, as an alternative basis for denying Defendant's Motion, this Court holds that Plaintiff had standing under the FCA to pursue a qui tam action in the first instance, thereby making applicable the retaliation provision invoked in this case.985 F. Supp. at 709.
After considering the case law on this issue, and the plain language of the FCA and the qui tam provision, this court finds the qui tam provision to be constitutional. Clearly, the relators are suing on behalf of the government, even when the government has declined to participate in the suit. Any other reading of the statute simply makes no sense. The statute specifically provides that the relators may proceed with suit even if the government declines to intervene. If, as the defendants argue, the lack of government participation indicates that the case is meritless, there would be no reason for the suit to go forward. Moreover, as noted earlier, the government retains some control over the suit, and also retains a significant interest in the amount recovered. III. Rule 9(b) Issue
As a general rule, a plaintiff need only set forth a "short and plain statement of the claim" entitling the plaintiff to relief. Fed.R.Civ.P. 8(a). When the allegations involve fraud, however, the circumstances constituting fraud must be stated with "particularity." Fed.R.Civ.P. 9(b). In the Seventh Circuit, Rule 9(b) "particularity" means the "who, what, when, where, and how" of the fraud. DiLeo v. Ernst Young, 901 F.2d 624, 626 (7th Cir. 1990); Arazie v. Mullane, 2 F.3d 1456, 1465 (7th Cir. 1993). Conclusory allegations of fraud without any factual support do not satisfy the requirements of Rule 9(b) and subject the deficient complaint to dismissal. Warkel v. Cummins Engine Co., Inc., No. IP 90-428-C, 1995 WL 405423, *2 (S.D. Ind. Nov. 30, 1992) (citing Veal v. First American Savings Bank, 914 F.2d 909, 913 (7th Cir. 1990)).
Nevertheless, Rule 9(b) must be read in conjunction with the general requirements of Rule 8. Tomera v. Galt, 511 F.2d 504, 508 (7th Cir. 1975). Additionally, the requirements of Rule 9(b) "are not absolute or unbounded; defendants need not be given a 'pretrial memorandum containing all of the evidentiary support for plaintiff's case.'" Uniroyal Goodrich Tire Co. v. Mutual Trading Corp., 749 F. Supp. 869, 872 (N.D. Ill. 1990) quotingPellman v. Cinerama, Inc., 503 F. Supp. 107, 111 (S.D.N.Y. 1980) (citation omitted). "In fact, to satisfy the requirements of Rule 9(b), it is not even necessary to plead each element of fraud in detail so long as the 'circumstances constituting fraud' are stated with particularity." Con-Way Central Express, Inc. v. Fujisawa U.S.A., Inc., 1992 U.S. Dist. LEXIS 13333 at *17 (N.D. Ill. July 1, 1992) (citation omitted). The Seventh Circuit Court of Appeals has held that Rule 9(b) merely requires the complaint to allege "the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated." Banker's Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992).
In support of their motions to dismiss, the defendants argue that the relators' Amended Complaint fails to make specific allegations of fact that either Lutheran or Dr. Chen submitted any particular claims for payment to the government, much less any "false or fraudulent" claims. The defendants object to the fact that the relators have pleaded "upon information and belief" that the defendants knowingly submitted false or fraudulent claims for payment to the government. While acknowledging that courts have created exceptions to the general requirement of Rule 9(b), the defendants argue that the relators do not qualify for the exceptions because they do not have a sound factual basis for pleading fraudulent conduct upon information and belief.
If the facts pled in a complaint are peculiarly within the opposing party's knowledge, fraud pleadings may be based upon information and belief. However, allegations made on information and belief are acceptable only if the complaint adduces "specific facts supporting a strong inference of fraud." United States ex rel. Robinson v. Northrop Corp., 149 F.R.D. 142, 146 (N.D. Ill. 1993) (quoting United States ex re. Stinson, Lyons, Gerlin Bustamante, P.A. v. Blue Cross Blue Shield of Georgia, Inc., 755 F. Supp. 1040, 1052 (S.D. Ga. 1990)). The courts in the Seventh Circuit have set forth the standard as follows:
The courts do allow some relief where [sic] to plaintiffs who are unable to make the necessary allegations because they do not have sufficient information. That solution is not a relaxed pleading standard. Rather, in situations where the necessary information lies within the defendants' control, the plaintiff may plead on information and belief, so long as he meets certain other requirements. While the circuits differ as to what these additional requirements are, the test in the Seventh Circuit appears to be that the plaintiff must include "a statement of the facts upon which the belief is founded."Zimmerman v. Waste Ltd., II, No. 96 C 5048, 1997 WL 159188, *3 (N.D. Ill. March 28, 1997) (quoting Duane v. Altenberg, 297 F.2d 515, 518 (7th Cir. 1962)).
The defendants argue that the Amended Complaint does not allegeany facts supporting an inference of fraud, much less a strong inference, and that the relators' "information and belief" of fraud is wholly conclusory and based upon mere suspicion. In Paragraph 16 of the relators' Amended Complaint, the relators list thirty-two infants that Dr. Chen was responsible for in 1992 and 1993. The relators then allege:
Each of these infants was malnourished for an extended period of time. Each was provided less than optimal calories for an extended period of time. Each received inadequate protein intake for extended periods of time. Many were kept on simple IV fluids with no protein, vitamin, or trace mineral intake for extended periods of time before hyperalimentation or milk feedings were begun. (See Exhibits C and D for documentation of the malnourishment of these thirty-two infants). Upon information and belief, many of these infants were covered by Medicaid, and Chen and Lutheran submitted claims for Medicaid payments with respect to the medical treatment of these infants. The information which would indicate which babies were covered by Medicaid and for which babies Chen and Lutheran submitted claims for Medicaid payments and the exact dates of these submissions are particularly within the knowledge of Chen and Lutheran.Id.
The relators then name two specific instances of alleged fraud:
17. By way of further example of Chen's and Lutheran's violation of 31 U.S.C. § 3729, et seq, on April 6, 1994, Chen became responsible for the medical care of an infant boy, Zaylen McDavid. This infant was covered by Medicaid while he was in Lutheran's Neonatal Intensive Care Unit. This infant received inadequate caloric intake for the greater part of his hospital course and was continued on high ventilator rates and pressures for very extended periods of time even when blood gas results showed it would have been sufficient to reduce the rates and pressures. In addition, the infant was not given surfactant, which was the standard of care for infants with similar respiratory problems. Chen was also very late in diagnosing the infant's patent ductus arteriosus. Chen started the infant on antibiotics without obtaining cultures and, early on, Chen treated him with antibiotics without getting drug levels to assure that the antibiotic doses were appropriate. In general, Chen's care of the infant demonstrates a general pattern of inadequate monitoring and inadequate treatment which led to the infant receiving poor nutrition, poor weight gain, and compromise of his respiratory status. Chen engaged in this mistreatment in order to submit claims for Medicaid payments higher than would have otherwise been presented. As a result of Chen's intentional mistreatment of the infant, the infant was required to stay in Lutheran's Neonatal Intensive Care Unit for a longer period of time than was necessary. Thus, Chen and Lutheran intentionally billed Medicaid for greater amounts than would have been billed had Chen not intentionally mistreated the infants.
18. By way of further example of Chen's and Lutheran's violation of 31 U.S.C. § 3729, et seq, in approximately August, 1995, Chen became responsible for the medical care of an infant boy, Justin Kirkpatrick. This infant was covered by Medicaid and possibly CHAMPUS while he was in Lutheran's Neonatal Intensive Care Unit. This infant did not receive the appropriate caloric intake until he was approximately two months of age. Chen maintained the infant's ventilator setting at high levels for extended periods of time without any attempt to reduce the settings even when satisfactory blood gases were obtained. As a result of Chen's intentional mistreatment of the infant, the infant was required to stay in Lutheran's Neonatal Intensive Care unit for a longer period of time than was necessary. Thus, Chen and Lutheran intentionally billed Medicaid and possibly CHAMPUS for greater amounts than would have been billed had Chen not intentionally mistreated the infant.
The relators contend that their amended complaint sufficiently alleges the who, what, when, where and how of the fraudulent scheme. The relators argue that the allegations are specific enough to put the defendants on notice of their fraudulent activity, over the six year time-frame, and provide enough detail about the underlying facts to illustrate that their actions were fraudulent. See e.g., United States ex rel. Stinson v. Provident Life, 721 F. Supp. 1247 (S.D. Fla. 1989); United States v. Warning, 1994 U.S. Dist. LEXIS 10402 (E.D. Pa. July 26, 1994); United States v. Kesington Hospital, 760 F. Supp. 1120, 1125-26 (E.D. Pa. 1991); United States v. Metzinger, 1996 U.S. Dist LEXIS 10285 (E.D. Pa. July 16, 1996); United States v. IMED Corp., 1997 U.S. Dist LEXIS 19608 (N.D. Ill. Nov. 6, 1997).
In Tomera v. Galt, 511 F.2d 504 (7th Cir. 1975), the Seventh Circuit found that a complaint alleging a fraudulent scheme met the particularity requirements of Rule 9(b). The Court explained: "it alleged the details, a brief sketch of how the fraudulent scheme operated, when and where it occurred, and the participants. This is enough. More information can be gathered through discovery." Id. at 509 (citing Conley v. Gibson, 78 S.Ct. 99 (1957)). The relators argue that their Amended Complaint describes how the fraudulent scheme operates, alleges the time frame during which Chen and Lutheran were engaged in the fraudulent scheme, details the circumstances of the fraud, and identifies the parties involved. The relators acknowledge that they lack information pertaining to the names of many of the infants covered by Medicaid or CHAMPUS, the exact dates Chen and Lutheran submitted claims for those infants, and the amount of the claims. Nevertheless, relators contend that it is proper for them to plead on information and belief as to these matters since they are peculiarly within Lutheran and Chen's knowledge or possession. See e.g., Carroll v. Morrison Hotel Corp., 149 F.2d 404, 406 (7th Cir. 1945); see also Hirshfield v. Briskin, 447 F.2d 694, 697 (7th Cir. 1971). This court agrees with the relators on this issue. The relators' amended complaint is sufficient under Rule 9(b) since it pleads all the circumstances of fraud except those matters which they allege are in the exclusive possession of Chen and Lutheran.
Citing Weiner v. Quaker Oats Co., 129 F.3d 310 (3rd Cir. 1997), Lutheran argues that the Relators must specifically delineate in their complaint the sources of information they have reviewed prior to filing the complaint, to show that they have investigated the allegations of fraudulent conduct before filing the complaint. However, the Seventh Circuit does not impose such a requirement upon the relators.
The defendants also argue that the relators have not made sufficient allegations that they "knowingly" participated in fraud. Rule 9(b) provides that "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b). To establish their claim under the FCA, the relators have to show that Lutheran and Chen acted "knowingly." According to the statute, "knowingly" means that, with respect to information, a person: (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b).
Although Rule 9 allows allegations of mental state to be pleaded generally, the Seventh Circuit has held that the complaint must still allege some factual basis from which scienter could be established. DiLeo v. Ernst Young, 901 F.2d 624, 629 (7th Cir. 1990). The relators contend that they have easily met this pleading requirement. First, the relators point out that they have alleged facts which show that the defendants had motive and opportunity. That is, the defendants' motive was money, and both of the defendants had the opportunity to defraud the government. Chen allegedly was paid by the day or on a "fee for service" basis for the services he provides infants. And until October 1994, Lutheran was also paid on a fee-for-service basis. Thus, by keeping infants on ventilators for prolonged periods and underfeeding the infants, Chen was able to delay the discharge date of the infants. Thus, claim the relators, the infants stayed longer in the NICU, and Chen and Lutheran (for most of the relevant time-frame) obtained more government money. The relators also allege that Chen specifically told Dr. Stevens: "more ventilator, more money". He also allegedly told Stevens not to state that any infants' condition was stable, and to always tell parents of infants that their child was having a difficult time with feedings.
With respect to Lutheran, the relators have alleged that three doctors have complained to Lutheran about Chen's practice of over ventilating infants and keeping infants in the NICU for too long. They have also alleged that two local pediatricians have sent letters to Lutheran requesting that Chen's privileges to practice medicine in the Pediatric Unit and the Pediatric Intensive Care Unit at Lutheran be revoked. In July 1995, Roberts allegedly showed Beth Gardner, the Clinical Manager, the results of a study she conducted on the infants in Lutheran's NICU. The study allegedly showed that the infants' caloric intakes were extremely low and the infants were on ventilators for extended periods of time. According to the relators, Gardner did nothing to stop Chen's practices.
The relators have also alleged that: (1) on July 22, 1996, they spoke to an attorney for Quorum, the corporation which owns Lutheran, and told him about Chen's mistreatment of the infants, yet nothing was done; (2) on July 23, 1996, Roberts, Leaming, and four other nurses told Jan George, Nursing Director, and Dr. Mary Heintz, Medical Director, about Chen's intentional mistreatment of the infants; (3) on or about December 23, 1996, Roberts and Leaming complained to Damita Williams, who became Lutheran's new Clinical Manager replacing Gardner, about Chen's medical practices, and Williams agreed that Chen was committing fraud. The relators argue that, despite all of the above, Lutheran failed to stop Chen's practices.
Clearly, the allegations in the Amended Complaint "afford a basis for believing that plaintiffs could prove scienter." DiLeo v. Ernst Young, 901 F.2d 624, 629 (7th Cir. 1990). As such, the relators have met their Rule 9(b) pleading requirements.
The defendants have also asserted that the relators' allegations concern only medical judgments subject to legitimate scientific dispute, and not with false or fraudulent conduct as required by the FCA. The defendants rely on Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992). Wang involved a claim that the defendant made engineering miscalculations and "lacked engineering insight" during the course of performance under the relevant government contracts. The Ninth Circuit held that:
[i]nnocent mistake is a defense to the criminal charge or civil complaint. So is mere negligence. The statutory definition of "knowingly" requires at least "deliberate ignorance" or "reckless disregard". What constitutes the offense is not intent to deceive but knowing presentation of a claim that is either "fraudulent" or simply "false". The requisite intent is the knowing presentation of what is known to be false.975 F.2d at 1420. See also United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991);United States ex rel. Milam v. Regents of the University of California, 912 F. Supp. 868, 886 (D. Md. 1995). The defendants contend that the present case, like Wang, relies on professional judgments that bring to bear the specialized expertise of the professional involved, and as such is not a proper FCA claim. Clearly, the defendants are giving Wang a much broader interpretation than is necessary. The relators have not merely alleged that Chen "lacked insight" or made miscalculations. Rather, the relators have alleged that Chen knowingly and intentionally underfed and over ventilated numerous infants with the specific intent to keep the infants in the NICU for longer periods, thus permitting him to over bill Medicaid. The relators have clearly and precisely alleged fraud.
IV. Rule 12(b)(6) Issue
The defendants have requested that the relators' amended complaint be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted. When evaluating a Rule 12(b)(6) motion, the court must accept all factual allegations and inferences reasonably drawn from them in a complaint as true. Yeksigian v. Nappi, 900 f.2d 101, 103 (7th Cir. 1990). Additionally, the complaint must be construed in the light most favorable to the plaintiff. Gomez v. Illinois State Bd. of Ed., 811 F.2d 1030, 1039 (7th Cir. 1987). The complaint should be dismissed only if it appears beyond doubt that the plaintiff can prove no set of facts to support his claim. Haines v. Kerner, 92 S.Ct. 594 (1972); Conley v. Gibson, 78 S.Ct. 99 (1957).
The FCA prohibits any person from, inter alia, knowingly presenting or causing to be presented a false or fraudulent claim to the government for payment. 31 U.S.C. § 3721(a)(1). To establish an FCA claim, the relators must prove: (1) the defendants presented a claim to the government, (2) the claim was false or fraudulent, and (3) defendants had knowledge that the claim was false or fraudulent. 31 U.S.C. § 3729(a).
The defendants contend that the amended complaint does not make any specific allegations that they submitted claims for payment to the federal government. The relators, however, point out that they know at least two infants whom Chen cared for in the NICU were covered by Medicaid. The relators have also alleged, on information and belief, that many more infants were covered by Medicaid or CHAMPUS. Their belief is based on the fact that they worked in the NICU with Chen for almost nine years. Since Chen and Lutheran both participated in the Indiana Medicaid program and provided services to infants covered by CHAMPUS, the relators argue that it follows that the defendants submitted claims for reimbursement to Medicaid and CHAMPUS for the services they provided these infants.
Amended Complaint at ¶¶ 17, 18.
Id. at ¶¶ 15, 16, 19.
With respect to the second element, the relators have alleged that because the quality of care was so poor, Chen's and Lutheran's submission of claims for reimbursement for such poor care made the claims false. The relators have further alleged that because of Chen's intentional mistreatment of the infants, the infants were required to stay in the NICU for longer periods of time than would otherwise have been necessary. Finally, the relators have alleged that the claims were fraudulent because Chen and Lutheran deceived the government into believing that the medical conditions of the infants were worse than they actually were and, additionally, the claims were fraudulent because Chen does not have documentation to support the services he allegedly provided. As for the third element, the scienter requirement, the relators incorporate their Rule 9(b) scienter argument, infra.
Lutheran argues that the alleged fraudulent scheme would not have caused the government to pay out any sums of money that would not have been paid out in the absence of the alleged fraud, because of the way payments are made under the Indiana Medicaid program. The methodology for reimbursement for inpatient hospital services employed by the Indiana Medicaid regulations is established by 405 I.A.C. § 1-10.5 (1996). This regulation governs payments under Medicaid for "claims with dates of service on and after its effective date." Rule 10.5(1)(c). The effective date of Rule 10.5 is October 5, 1994.Id. Old Rule 10 (405 I.A.C. § 1-10 (1996)) governs claims with dates of service prior to the effective date of Rule 10.5.
Rule 10.5 establishes two payment methodologies: (1) a Diagnosis Related Grouping ("DRG") reimbursement methodology, or (2) a level-of-care methodology. Rule 10.5(3)(a). Any particular case that is not a "level-of-care case" will qualify for reimbursement according to the DRG method. Rule 10.5(2)(p). Only three types of cases are reimbursed under a level-of-care method: certain psychiatric cases, certain burn cases, and rehabilitation cases. Id. Therefore, newborn infants admitted to Lutheran's NICU fall into the DRG methodology for purposes of Medicaid reimbursement.
The DRG method reimburses hospitals on a per case rate according to diagnoses and procedures performed. Thus, the defendants argue that their right to a specific payment for their treatment of Medicaid-covered infants in the NICU is fixed upon the original diagnoses of the infants admitted to the NICU, and keeping the infants in the NICU longer than necessary does not increase the amount that will be reimbursed to the defendants for a particular infant. Therefore, the defendants conclude that the allegedly fraudulent malnourishment of infants in the NICU occurred after admission to the NICU and after a diagnosis of premature birth. Such a diagnosis fixed the defendants' right to reimbursement under the DRG methodology, unless an infant eventually qualified for a "cost outlier" payment, which relators have not alleged. Therefore the defendants conclude that they could not have committed fraud even if the allegations in the relators' complaint are taken as true.
In response, the relators argue that the defendants committed fraud even after the inception of the DRG system since its DRG reimbursement rate is based on its 1990 allowable costs which it asserts were artificially inflated because of Chen's fraudulent practices. The relators further argue that the effect of this "artificial inflation" can only be determined during discovery. The defendants, however, point out that the relators have not alleged any fraudulent conduct prior to May 14, 1991, because any such conduct would fall outside the applicable six-year statute of limitations. The defendants also contend that absent an allegation of an incorrect diagnosis of a patient upon admission to the NICU, there can be no fraud against the government because no part of their claim for payment was ever "false". That is, upon admission to the NICU, an infant covered by Medicaid is diagnosed and assigned a DRG code; payment by Medicaid is fixed by the DRG code and not by subsequent treatment. Thus, the defendants conclude that as long as the original diagnosis is accurate, the Medicaid is claim governed by DRG methodology and cannot, as a matter of law, be a "false or fraudulent" claim actionable under 31 U.S.C. § 3729(a)(1).
After careful consideration of the matter, this court has determined that the defendants' Rule 12(b)(6) motion should be denied. First, the relators have properly alleged that the defendants submitted claims to the government. With respect to the issue of whether the claims allegedly submitted were "false or fraudulent", the relators have also made sufficient allegations. The relators are not required to prove their case at this early stage of the litigation and this court may dismiss their amended complaint "only if it appears beyond doubt that [they] can prove no set of facts to support [their] claim".Haines v. Kerner, 92 S.Ct. 594 (1972). Obviously, only after discovery has proceeded can it be determined whether any claims submitted were actually "false or fraudulent". Moreover, as the relators point out, they need not show actual damages to the government to prove a violation of the FCA. United States v. Kensington, 760 F. Supp. 1120, 1127 (E.D. Pa. 1991). "'There is no requirement, statutory or judicial, that specific damages be shown' to prove a violation of the False Claims Act." Id. (quotingRex Trailer Co., Inc. v. United States, 350 U.S. 148, 152 (1956)). Thus, the defendants' motions to dismiss pursuant to Rule 12(b)(6) will be denied.
Conclusion
For all of the foregoing reasons, the defendants' motions to dismiss are hereby DENIED.