The DC Circuit affirmed the majority of a district court’s grant of summary judgment in favor of the government in an FCA case alleging healthcare fraud. The appeals panel agreed that the government had adequately shown the defendants failed to maintain required patient plans of care, failed to obtain adequate physician authorization for treatment, and had billed for more treatment than authorized. The defendants argued the government should not be able to prove scienter by piecing together bits of information known by various defendants, without showing that all this information was known to all the defendants. However, the court concluded that even a cursory review of the defendants’ patient records would have shown they were inadequate and noncompliant, and therefore, at a minimum, the government had demonstrated reckless disregard. However, the court vacated and remanded a portion of the judgment related to claims the defendant had forged physicians’ signatures on the documents supporting their claims for reimbursement. While the government presented physician affidavits stating that the doctors had not signed the patient files, the court found the government had not presented evidence of who had signed them. It could not merely assume the files were signed by the defendants.
Defendant Dynamic Visions Inc. appealed a district court’s grant of summary judgment in an FCA case alleging healthcare fraud.
The government’s complaint alleged that Dynamic Visions failed to maintain adequate documentation of the physician authorization for the patient services it provided, and therefore the defendant could not demonstrate the services were supported and medically necessary, rendering its claims to Medicaid false.
During a routine audit, the D.C. Department of Health Care Finance found that none of 25 randomly selected patient files contained sufficient documentation to support Dynamic Visions’s claims for reimbursement. DHCF found the files had no physician signature, an untimely or forged signature, or showed an authorization for fewer hours of care than Dynamic Visions claimed to have provided in seeking reimbursement. DHCF alerted the federal government of its findings, and a federal investigation followed.
The government brought a False Claims Act action, alleging that the defendant submitted claims without the right authorization. During discovery, the defendants repeatedly failed to produce documents or information responsive to the government’s requests—most importantly, valid plans of care for its patients, which are required for payment. Dynamic Visions claimed the FBI had seized these documents, but the district court found the government had given the defendants compact discs with electronic copies of the seized documents. The defendants were eventually held in contempt for failure to comply with the government’s discovery requests. As a sanction, the court precluded the appellants from relying, from that point forward, on any documents they had not yet identified in discovery.
The government moved for summary judgment. The government’s motion identified all the ways the patient files were deficient, identified how many invoices had been submitted for each patient, and stated the amount of reimbursement. In response, the defendants submitted its own statement of facts, ignoring the court’s warning that, unless they specifically denied each numbered statement of material fact, the fact would be deemed admitted.
Because the defendants did not deny the government’s asserted facts, the court deemed them largely admitted. Because there was no dispute of the facts, the court granted the motion for summary judgment. The court also found that because even a cursory review of the files would have revealed the rampant deficiencies, the defendant acted with at least reckless disregard to the legitimacy of its claims. The court temporarily reserved judgment on some claims, including those based on a forged physician signature and those based on the individual liability of the defendant’s owner.
When the government eventually submitted the physician affidavits, the defendants noted that some of the affidavits identified a patient by a different Medicaid patient number than the number listed in the complaint. The government explained that, after the initial pleadings, it noticed that some of the patient numbers in the complaint were incorrect, and it then used correct numbers in its motion for summary judgment and in the affidavits. The court allowed the affidavits, determining that the error had caused no prejudice because the complaint had identified each patient both by name and patient number. The court denied appellants’ motion for leave to file a surreply on the basis that it needed no further briefing on the issue.
The court later granted summary judgment in the government’s favor on these latter claims. While the court found insufficient evidence of the personal liability of the owner, it also reasoned that as the sole owner and president, he should be held jointly and severally liable. As another factor, the court noted the owner had failed to respect corporate formalities when he funneled money out of the corporation and into his private accounts. The court awarded the government’s requested damages and penalties for a total of $1,986,232. The court opted to assess maximum civil penalties because: 1) Dynamic Visions had forged signatures, 2) the scheme had taken money from programs intending to serve needy patients, and 3) the number of claims in the case, which were based on individual invoices, had underrepresented the total false claims because each invoice included multiple sub-invoices.
This appeal followed. First, the court reviewed the defendant’s challenge to the grant of summary judgment. The court affirmed summary judgment on most of the claims, including those based on a lack of a required plan of case, those based on a missing or untimely physician signature, and those based on reimbursement requests that did not match the level of care authorized by a physician.
Dynamic Visions did not dispute that the requirement for a plan of care was material to the government’s decision to pay its claims. Therefore, it knowingly requested reimbursement for home healthcare services that had not been properly authorized. The appeals court found the government had adequately demonstrated that Dynamic Visions failed to maintain valid POCs and had the requisite knowledge that it was submitting claims for reimbursement without them. The court found the government had described the violations in detail and that the defendant failed to rebut the allegations. The court agreed that the defendant’s response to the government’s motion for summary judgment included no supporting facts for its alternate take on the situation and failed to show that any valid POCs existed. For example, the defendant did not produce the “policy and procedure manual” it allegedly relied upon for compliance, leaving the court no way to assess whether or not the defendant actually complied.
The appeals court also agreed that Dynamic Visions submitted the claims with reckless disregard for their falsity. While isolated instance of noncompliance might pass unnoticed, the court noted the audit revealed material deficiencies with regard to the POCs for virtually every patient file in the randomized sample. The court concluded it should have been readily apparent to Dynamic Visions that the POCs were deficient or missing altogether.
The appellants argued that the government should not be able to prove scienter by piecing together scraps of knowledge held by individual corporate officials, even when those officials had no contact and did not know what the others were doing in connection with claims to federal healthcare programs. However, the court found no such theory was needed to demonstrate reckless disregard. Instead, the court concluded that any single person who looked at the patient files should have known that the company sought reimbursements unsupported by adequate POCs. Thus, the court affirmed the district court’s holding on this issue.
However, the court vacated the district court’s grant of summary judgment on a limited set of claims which rested solely on the purported forgery of the physician signatures on POCs. As to those claims, the appeals court found the government failed to show the absence of any genuine dispute of material fact that Dynamic Visions forged the signatures.
As evidence, the government submitted sworn affidavits by the relevant physicians attesting that they had not signed Dynamic Visions’s plans of care, even as the files showed that they had signed. The court found that evidence was not enough to prove forgery by the defendants. Even if the physicians themselves did not sign the forms, the court found the government had not proved that Dynamic Visions’s employees were the ones who did. The court found it possible that someone else in the physicians’ own offices had signed the POCs on the physicians’ behalf, although without authority or permission. The court reasoned that if Dynamic Visions was comfortable submitting POCs without any signature, it would not make sense for the defendant to forge signatures on only some documents. Without additional evidence, the court found the government had not adequately shown the defendant forged these signatures and vacated this portion of summary judgment.
Next, the appeals court considered the challenges to the district court’s decisions to: 1) hold appellants in contempt and order sanctions during discovery, 2) pierce Dynamic Visions’s corporate veil, and 2) consider the complaint to be amended with corrected patient numbers so the government could submit the physician affidavits.
First, the court considered the challenge to the contempt holding, and found the district court displayed considerable patience with Dynamic Visions, giving them multiple discovery-deadline extensions for nearly two years. The court found the contempt order and sanctions reasonable, as the defendant routinely failed to comply without providing any valid explanation.
Next, the court considered the district court’s decision to hold the defendant’s owner personally and severally liable, and found no reason to disturb the holding. The court noted that the owner of a corporation may be held responsible for corporate conduct when there is a unity of interest between the individual and the entity, and when insulating the owner from liability would lead to inequitable results. The court found that, as the sole owner, CEO, and person in control of the defendant, the owner should be held liable for the alleged fraud. The court also noted that the owner himself blurred the lines when he transferred large sums of money from corporate accounts to his personal accounts. The appeals court agreed it would be unjust to allow him to retain those funds.
Third, Dynamic Visions argued the district court erred when in considering the government’s complaint amended with the correct patient numbers contained in the physician affidavits and in allowing the affidavits, as well as in its refusal to allow Dynamic Visions to file a surreply on the issue. The appeals court found these decisions reasonable. Because the complaint listed the patients’ names, the court reasoned the appellants were aware of the patients’ identities from the outset and had ample opportunity to identify any documents or information that may have aided their defense. In fact, the appellants identified no prejudice arising from the decision. Because the decision was reasonable, the court also found the denial of leave to file a surreply was also reasonable.
Finally, the court considered the assessment of $1,986,232 in damages and civil penalties. First, the court set aside the amount attributable to those claims based on the allegedly forged signatures, as it had already vacated summary judgment on those claims. The court also vacated the penalties award, as it was based, in part, on the allegation of forged signatures. The appeals panel left it to the district court’s discretion whether the full penalty was still warranted.
