Opinion
CIVIL ACTION NO. 99-1767.
May 28, 2002
ORDER AND REASONS
Before the court are the following motions: (1) Motion to Dismiss Second Amended and Restated Complaint, filed by The Louisiana Clinic, Inc. (the "Clinic"), Dr. Stewart Phillips, Dr. Bernard Manale, Dr. John O'Keefe, Dr. Robert Bernauer, Dr. Ida Fattel, Dr. Stephen Flood, and Dr. John Watermeier; (2) Second Motion to Dismiss filed on behalf of Dr. Susan McSherry; (3) Motion for Reconsideration of Defendant Dr. Stephen Flood's Motion to Dismiss under Rule 12(b)(1); and (4) Motion to Reconsider, filed by Dr. Ida Fattel. For the reasons that follow, the motions to dismiss the Second and Amended and Restated Complaint are GRANTED IN PART and DENIED IN PART. Both motions for reconsideration are DENIED.
I. BACKGROUND
On June 19, 1999, relators Mary Jane Stewart, Jr. and Margaret Catherine McGinty brought this qui tam action seeking damages on behalf of the United States, alleging that the defendants had violated the False Claims Act ("FCA") by making false claims for Medicaid and Medicare reimbursements. See 31 U.S.C. § 3729(a), 3730(b). In previous motion practice, the defendants each moved under Rule 12(b)(6) to dismiss the six-count complaint against them on grounds that the relators had failed to plead with the particularity required by Rule 9(b). In Order and Reasons dated February 22, 2002, the Court found that Count Two passed muster as to Dr. Flood and that Count Three was sufficient as to Dr. Fattel, but granted the Rule 9(b) motions in all other respects, allowing relators twenty days to cure the deficiencies by amendment. In the same Order and Reasons, the Court denied a motion by Dr. Flood to dismiss Count Two for lack of subject matter jurisdiction.
Relators added Dr. Watermeier as a defendant in an amending complaint dated July 7, 1999.
Relators filed a Second Amended and Restated Complaint on March 14, 2002 (the "Second Amended Complaint"). Defendants now argue that the Second Complaint cures none of the deficiencies laid out by the Court in its previous order and, thus, should be dismissed.
II. LAW AND ANALYSIS
A. Rule 9(b) Motions to Dismiss the Second Amended Complaint:
"Claims brought under the FCA must comply with Rule 9(b)," which requires that the circumstances constituting fraud be pled with particularity. See United States ex. rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997). "To plead fraud with particularity a plaintiff must include the `time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what [that person] obtained thereby.'" United States ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (quoting Williams v. WMX Tech., Inc., 112 F.3d 175, 177 (5th Cir. 1997)) (internal quotations omitted). Where the facts are "peculiarly within the perpetrator's knowledge," the Fifth Circuit allows fraud to be "pled on information and belief," but has cautioned that "this exception `must not be mistaken for license to base claims of fraud on speculation and conclusory allegations.'" Thompson, 125 F.3d at 903 (quoting Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir. 1994), cert. denied, 522 U.S. 966 (1997)). "[E]ven where allegations are based on information and belief, the complaint must set forth a factual basis for such belief" Id. at 903. The Fifth Circuit has explicitly declined to relax Rule 9(b) further, finding that such a court-crafted exception would be contrary to both Rule 9(b) and the ECA. See Russell, 193 F.3d at 308-09 (finding no justification to relax Rule 9(b) for FCA qui tam relators, particularly given that the FCA grants a private right of action only to those citizens who "have independently obtained knowledge of fraud").
1. Count One: "Up-Coding"
In the Second Amended Complaint, as in the original Complaint, relators allege in Count One that the defendants violated the FCA by "up-coding" (i.e., submitting a code that receives a higher level of reimbursement than the appropriate code for the level of service actually provided). In chart form, relators have provided examples (including patients, locations and dates) of "up-coding" involving Drs. Phillips, Bernauer, Manale, O'Keefe, and Watermeier. In its previous ruling, this Court found these allegations to be deficient under Rule 9(b) because relators had failed to specify how or why the codes submitted were false. See Williams, 112 F.3d at 175 (articulating fraud with particularity "requires a plaintiff to . . . explain why the statements were fraudulent").
In Count One of their Second Amended Complaint, relators have added to their charts a column entitled "Analysis," in which the relators allege in summary form why the submitted codes were inappropriate. For example, relators allege that on March 12, 1998, Dr. Phillips submitted Code 99213 instead of 99212 even though the services provided entailed "[n]o expanded problem focused history or expanded problem focused examination, and [the] medical decision making [was] straight forward." 2d Am. Compl. at ¶ 44(b). Relators provide similar statements for the examples of alleged "up-coding" by Drs. Manale, O'Keefe, and Watermeier. Defendants argue that these statements are insufficient because they are just "one person's opinion," produced by an individual other than the physician involved. See Defendant's Memo (Rec.Doc. 54) at pp. 11-12. The Court disagrees that this renders the allegations infirm. Under the defendants' reasoning, no one other than the offending physician himself could state a claim for knowingly submitting false CPT codes, certainly not without attaching expert reports to his complaint. Nothing in Rule 9 or the FCA requires such a result. Although the relators' explanations of falsity contain little factual detail, they do explain the basic manner in which the codes submitted by Drs. Phillips, Manale, O'Keefe, and Watermeier are alleged to be false. At the pleading stage, the Court finds this to be sufficient as to these four defendants.
Relators's allegations still fall short with regard to Dr. Bernauer. The alleged "problem" with his bills, according to relators, is that his "[d]ocumentation does not support [the] level charged." However, they do not contend that the code submitted was false or even that a different code should have been used. The alleged shortcomings in Dr. Bernauer's record keeping simply do not state a claim actionable under the FCA.
In so finding, this Court assumes that relators already have evidentiary support for their allegations and that relators' counsel has determined this to be so after a reasonable inquiry. Thus, relators should not view this ruling as carte blanche to conduct a fishing expedition. Although allowing relators to proceed with this "bare minimum" pleading, this Court will remain guided through discovery by the principles behind Rule 9(b).
However, the allegations of Count One are not sufficient with respect to the remaining defendants, One of the purposes of Rule 9(b) is to "guard against guilt by association." United States ex rel. Clausen v. Laboratory Corp. of America, F.3d 2002 WL 939913 (11th Cir. May 9, 2002) (internal quotations omitted). Thus, allegations that "lump all defendants together, failing to segregate the alleged wrongdoing of one from those of another," do not satisfy the rule. In re Urcarco Securities Litigation, 148 F.R.D. 561, 569 (N.D. Tex. 1993), aff'd, 27 F.3d 1097 (5th Cir. 1994); see also Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217 (5th Cir. 1986) ("[G]eneral allegations, which do not state with particularity what representations each defendant made, do not meet [Rule 9(b)'s] requirement."). In its previous ruling, this Court found Count One to be deficient as to the Clinic and Drs. Bernauer, McSherry, Fattel, and Flood because it failed to apprise them of any up-coding in which they are alleged to have participated. In their Second Amended Complaint, relators have added nothing to cure this deficiency. Instead, relators simply allege "[u]pon information and belief," that "each and every defendant knowingly and intentionally conspired to commit each of the acts referenced above." 2d Am. Compl. at ¶ 81. Such a conclusory allegation does not satisfy Rule 9(b) or even Rule 8. "[E]ven where allegations are based on information and belief, the complaint must set forth a factual basis for such belief." Thompson, 125 F.3d at 903. Nothing in relators' complaint provides a factual basis for their supposition of a clinic-wide conspiracy to submit false claims, through "up-coding" or otherwise. Accordingly, the Court finds that the allegations of Count One continue to be deficient as to the Clinic and Drs. McSherry, Fattel, Flood, and Bernauer.
2. Count Two: Geographic "Zoning"
In the Second Amended Complaint, as in the original Complaint, relators allege in Count Two that the defendants violated the FCA by "zoning" ( i.e., submitting bills that described services performed outside New Orleans as having been performed in New Orleans, resulting in a higher level of reimbursement). Relators provide three examples, all involving Dr. Flood. In its previous ruling, this Court found the allegations of Count Two to be sufficient as to Dr. Flood, but deficient as to the Clinic and Drs. Phillips, Manale, O'Keefe, Bernauer, McSherry, Fattel, and Watermeier, for whom no examples of "zoning" were provided. See Urcarco, 148 F.R.D. at 569 (allegations which "lump all defendants together, failing to segregate the alleged wrongdoing of one from those of another," do not satisfy Rule 9(b)); Spurney, 797 F.2d at 217. In their Second Amended Complaint, relators have added no allegations with regard to Count Two, other than the general conspiracy allegation discussed above. Nothing in relators' complaint provides a factual basis for their supposition of a clinic-wide conspiracy to submit false claims, through "zoning" or otherwise. Accordingly, the Court finds that the allegations of Count Two continue to be deficient as to the Clinic and Drs. Phillips, Manale, O'Keefe, Bernauer, McSherry, Fattel, and Watermeier.
3. Count Three: Waiver of Co-Payments
In the Second Amended Complaint, as in the original Complaint, relators allege in Count Three that the defendants violated the FCA through "buying patients" ( i.e., designating patients as "insurance only" and excusing them, without any proof of financial hardship, from making the required $100 co-payment for services). The one example provided involves Dr. Fattel. In its previous ruling, this Court found the allegations of Count Two to be sufficient as to Dr. Fattel, but deficient as to the Clinic and Drs. Philips, Manale, O'Keefe, Bernauer, McSherry, Flood, and Watermeier, for whom no specific conduct is alleged and for whom no examples of "patient buying" were provided. In their Second Amended Complaint, relators have added no allegations with regard to Count Three, other than the general conspiracy allegation discussed above. Nothing in relators' complaint provides a factual basis for their supposition of a clinic-wide conspiracy to submit false claims, through "patient buying" or otherwise. Accordingly, the Court finds that the allegations of Count Three continue to be deficient as to the Clinic and Drs. Philips, Manale, O'Keefe, Bernauer, McSherry, Flood, and Watermeier.
4. Count Four: Billing for Unnecessary Services
In their Second Amended Complaint, as in their original Complaint, relators allege in Count Four that defendants violated the FCA by submitting bills for unnecessary services ( e.g., submitting a bill for evaluation or management services on the same visit that a procedure was performed, when no independent evaluation or management services would have been necessary). They have provided two examples, both in chart form and both involving Dr. Manale. In its previous ruling, this Court found these allegations deficient as to Dr. Manale because they failed to specify why the billed-for service was unnecessary such that billing for it amounted to a false or fraudulent claim actionable under the FCA. In their Second Amended Complaint, relators have added to their chart a column entitled "Analysis," in which the relators state that the office visits on October 28 and 29, 1998 did not amount to separately identifiable evaluation and management services above and beyond the other services provided. See 2d Am. Compl. at ¶ ¶ 63, 67; Orig. Compl. at ¶ 44. As with the charts in Count One, this chart is cryptic and short on detail. Nevertheless, the Court finds that Count Four now satisfies the bare minimum requirements of Rules 8(a) and 9(b) as to Dr. Manale. If discovery proves, as relators allege, that Dr. Manale knew his office visits did not qualify as separately identifiable services and yet billed for them as such, then he may be liable under the FCA.
As to the Clinic and Drs. Philips, O'Keefe, Bernauer, McSherry, Flood, Fattel, and Watermeier, however, for whom no examples of billing for unnecessary services are provided, the Court finds that the allegations of Count Four remain deficient. Relators have added allegations that Dr. Watermeier used a system of canned comments to falsely represent the nature of services rendered and that the defendants, generally, used a particular modifier when their documentation did not establish that a visit was a significant, separately identifiable service. Yet, without alleging a single false claim by any one of these defendants as a result of such methods, such allegations fail to meet "even a bare-bones Rule 9(b) test." United States ex rel. Walsh v. Eastman Kodak Co., 98 F. Supp.2d 141, 147 (D. Mass. 2000) (Rule 9(b) not satisfied by allegations "set[ting] out a methodology by which the vendors might have produced false invoices, . . . [w]ithout citing a single false claim arising from an allegedly false invoice"); see also United States ex rel Schwartz v. Coastal Healthcare Group, Inc., 2000 WL 1595976 (10th Cir. Oct. 26, 2000) (Rule 9(b) not satisfied by allegations of "a general scheme or methodology by which defendants could have violated the False Claims Act," without identifying with particularity any claims for payment that were allegedly fraudulent). Allegations that Dr. Manale submitted such a claim does not suffice to state a claim against the other defendants. See Urcarco, 148 F.R.D. at 569 (allegations that "lump all defendants together" do not satisfy Rule 9(b)); Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217 (5th Cir. 1986) ("[G]eneral allegations, which do not state with particularity what representations each defendant made, do not meet [Rule 9(b)'s] requirement.").
5. Count Five: Billing for Services Performed by Medical Assistants
In their Second Amended Complaint, as in their original Complaint, relators allege in Count Five that defendants violated the FCA by submitting bills under Dr. McSherry's provider number for services actually performed by medical assistants at times when Dr. McSherry was out of the office. in its previous ruling, this Court found these allegations to be insufficient as to Dr. McSherry because they failed to specify Dr. McSherry's role in the alleged fraud. In their Second Amended Complaint, relators have added sentences stating that relators personally observed this practice on other occasions and that Dr. McSherry, on returning to the office, dictated the procedure notes to read as though she herself had performed the procedure. Although relators do not allege that they personally observed such conduct with respect to the four claims specified in the complaint, the Court finds that the new allegation provides a factual basis for relators' assertions that is sufficient to pass scrutiny under Rules 9(b) and 12(b)(6).
With regard to Drs. Philips, Manale, O'Keefe, Bernauer, Fattel, Flood, and Watermeier, however, against whom not a single specific allegation has been made and for whom no examples are provided, the Court finds that the allegations Count Five remain deficient. Relators have added no allegations with respect to these defendants, other than their general conspiracy allegation. Nothing in relators' complaint provides a factual basis for their supposition of a clinic-wide conspiracy to submit false claims, through improperly billing for assistants' services or otherwise. Accordingly, the Court finds that the allegations of Count Two continue to be deficient as to the Clinic and Drs. Phillips, Manale, O'Keefe, Bernauer, McSherry, Fattel, and Watermeier.
6. Count Six: Fabricating ICD-9 Codes
In their Second Amended Complaint, as in their original complaint, relators allege in Count Six that defendants violated the FCA through submitting bills with fabricated ICD-9 (diagnosis codes) for services that Medicaid and/or Medicare already had denied for "lack of medical necessity." In its previous ruling, this Court found the allegations of Count Six to be deficient because they provided no examples of ICD-9 fabrication and failed to specify any of the persons or facts involved in the alleged fraud. In their Second Amended Complaint, relators have added a single sentence, alleging that the defendants, generally, agreed before seeing a patient to allow non-physician staff to insert documentation supporting the medical necessity of certain procedures and maximize reimbursement. See 2d Am. Compl. at ¶ 78. This sentence, however, does nothing more than describe a method by which defendants might have submitted a false claim. Without a single false claim resulting from an ICD-9 fabrication, relators' Count Six allegations remain deficient. See Walsh, 98 F. Supp.2d at 147; Schwartz, 2000 WL 1595976 at *6.
7. Count Seven: Conspiracy
Without describing any aspect of the "conspiracy," relators have attempted to rope in all defendants on every count simply by alleging "[u]pon information and belief' that "each and every defendant knowingly and intentionally conspired to commit each of the acts referenced above." 2d Am. Compl. at ¶ 81. Such "legal conclusions masquerading as factual conclusions" do not suffice to state a claim even under the liberal pleading requirements of Rule 8. Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 387 (5th Cir. 2001) (quoting Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993)). Certainly, they do not satisfy Rule 9(b). Relators' complaint contains no allegations to provide a factual basis for the "umbrella" under which all defendants allegedly stand, according to Count Seven.
8. Further Leave to Amend:
"Federal Rule of Civil Procedure 15(a) provides that leave to amend pleadings "shall be freely given when justice so requires." In re Southmark Corp., 88 F.3d 311, 314 (5th Cir.), cert. denied, 519 U.S. 1057 (1997). However, leave to amend "is not automatic." Id. (internal quotations omitted). "In deciding whether to grant such leave, the court may consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment." Id. at 314-15. This Court finds that the balance of equities in this case weigh against further leave to amend. In its previous ruling, this Court spelled out the deficiencies in relators' allegations. Yet, except as noted above, relators have been unable to assert allegations that would cure them. With the case pending nearly three years, relators have had more than sufficient time to muster their facts. For all of these reasons, the Court finds that the interest of justice do not warrant additional opportunities to satisfy Rule 9(b).
B. Dr. Flood's Motion for Reconsideration:
Dr. Flood moves for reconsideration of this Court's previous ruling, in which the Court rejected Dr. Floods' argument that subject matter jurisdiction is lacking under 31 U.S.C. § 3730(e)(4)(A). As explained in the previous ruling, "the jurisdictional inquiry under 31 U.S.C. § 3730(e)(4)(A) involves four questions: (1) whether the alleged "public disclosure' contains allegations or transactions from one of the listed sources; (2) whether the alleged disclosure has been made `public' within the meaning of the False Claims Act; (3) whether the relator's complaint is `based upon' this `public disclosure'; and, if so, (4) whether the relator qualifies as an "original source' under section 3730(e)(4)(B)." United States ex. rel. Fine v. MK-Ferguson Co., 99 F.3d 1538, 1544 (101h Cir. 1996). If the court "answer[s] `no' to any of the first three questions, its inquiry ends at that point and the qui tam action proceeds." Id. "The last inquiry, whether the relator is an original source, is necessary only if the answers to each of the first three questions is `yes,' indicating the relator's complaint is based upon a specified public disclosure." Id.
Section 3730(e)(4)(A) provides that "[n]o court shall have jurisdiction over an action . . . based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a . . . congressional, administrative, or Governmental Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A). An "original source" is "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information." 31 U.S.C. § 3730(e)(4)(B).
Dr. Flood argues that this Court lacks jurisdiction over Count Two because it is based upon statements by one Sylvia Dogget, a field representative of Blue Cross Blue Shield of Arkansas, who told employees of the Clinic during an informal office visit that they should use separate geographic codes for offices outside New Orleans. In its previous ruling, this Court found no basis for concluding that Ms. Dogget's informal visit constituted an "administrative investigation" or that her instruction to the Clinic staff constituted a "public disclosure" of the allegations in Count Two. Dr. Flood challenges these holdings, arguing that the facts warrant treating Ms. Dogget as an agent of the federal government, treating her informal office visit as an "administrative investigation," and treating her instruction to unnamed employees as a "public disclosure." Perhaps a set of facts exists that would justify treating a visit by a Blue Cross/Blue Shield representative as a governmental "administrative investigation" and her comments to clinic employees as a "public disclosure" of fraud allegations. Perhaps discovery will reveal that this is such a case. However, the facts before the Court at this juncture do not support such a conclusion.
C. Dr. Fattel's Motion for Reconsideration:
As noted earlier, this Court in its previous ruling found the allegations of Count Three (alleging that defendants violated the FCA by improperly waiving co-payments) to be sufficient as to Dr. Fattel. Dr. Fattel moves for reconsideration of this ruling, arguing that relators have failed to show that the patient in the example provided actually was not indigent and that the waiver was routine. The Court finds no basis to alter its earlier ruling. Relators allege that Dr. Fattel waived this patient's co-payment fifteen times without any attempt to determine financial hardship. Accepting these allegations as true, the Court finds that relators have satisfied the minimum requirements of Rule 9(b). Evidence is not required at this stage of the proceeding.
III. CONCLUSION
Accordingly, for the foregoing reasons, IT IS ORDERED that:
(1) the Motion to Dismiss Second Amended and Restated Complaint, filed by The Louisiana Clinic, Inc. (the "Clinic"), Dr. Stewart Phillips, Dr. Bernard Manale, Dr. John O'Keefe, Dr. Robert Bernauer, Dr. Ida Fattel, Dr. Stephen Flood, and Dr. John Watermeier is DENIED IN PART, in that it is denied with respect to Count One as to Drs. Phillips, Manale, O'Keefe, and Watermeier, Count Two as to Dr. Flood, Count Three as to Dr. Fattel, Count Four as to Dr. Manale, and Count Five as to Dr. McSherry, and GRANTED IN PART, in that it is granted in all other respects, without prejudice to the United States;
(2) the Second Motion to Dismiss filed on behalf of Dr. Susan McSherry Pursuant to Rules 12(b)(6) and 9(b) is DENIED IN PART, in that it is denied with respect to Count Five, and GRANTED IN PART, in that it is granted in all other respects, without prejudice to the United States;
(3) the Motion for Reconsideration of Defendant Dr. Stephen Flood's Motion to Dismiss under Rule 12(b)(1) is DENIED; and
(4) the Motion to Reconsider, filed by Dr. Ida Fattel, is DENIED.