Complaint Cites to Regulations Contradicting Its Own Claims; United States District Court for the Central District of California No. 5:18-cv-02667-RGK-KK, U.S. ex rel. David Hong, et al. v. Eisenhower Medical Center, et al.


The district court mostly granted the defendants’ motion to dismiss a qui tam complaint alleging healthcare fraud. Generally, the court found no connection between the relator’s allegations of poor treatment documentation and a physician’s lack of credentials to any rule or certification requirement for payment of claims. In several cases, the court found the relator’s allegations undermined by the very regulatory language he quoted in support of his claims. The court also found the relator’s kickback claims failed to allege who participated in the scheme or how it was carried out. The court declined to dismiss claims the defendants used incorrect billing codes to inflate their invoices, but dismissed all other counts with prejudice.

Defendants Eisenhower Medical Center; Eisenhower Medical Associates Inc.; and Monica Khanna, M.D. moved to dismiss an intervened qui tam complaint alleging they submitted fraudulent billing to federal and state government healthcare programs.

In his complaint, relator David Hong alleged that during his employment at Eisenhower Medical Center, he witnessed a variety of improper billing practices, including: (1) lack of supervision, (2) lack of documentation, (3) improper coding and charges, (4) lack of qualification, and (5) improper kickbacks.

Specifically, the relator alleged that Dr. Khanna was not available to supervise radiation oncology treatments, despite Medicare rules requiring a physician to be present. According to the relator, Eisenhower submitted billings under Dr. Khanna’s name for treatments, even when she was not actually present. The relator added that other employees had questioned this situation, but were told that the presence of a supervising physician was unimportant. The relator alleged this occurred at multiple facilities.

Second, the relator alleged the defendants did not adequately document the services performed, as required by Medicaid for the purpose of supporting their invoices. During his employment, the relator observed that many radiation services had incomplete, inaccurate, or absent orders. Some services were charged for but never provided, and many files had incomplete or missing documentation, such as medical justification statements. According to the relator, his attempts to improve documentation compliance were met with hostility by Dr. Khanna.

Next, the relator alleged Eisenhower used incorrect billing codes that suggested a higher level of care than what was actually provided, which inflated their invoices. The relator maintained he heard Dr. Khanna instruct other doctors to upcode their time for patient visits and certain basic services.

The relator also alleged that Dr. Khanna has not kept up with advancements in her field, has been improperly credentialed, and inappropriately granted privileges, despite Medicaid rules stating that providers must be appropriately credentialed.

Finally, the relator alleged that EMC provided free medical devices to urologists to induce them to make more referrals. The devices were valued at several hundred dollars, and provided urologists with the opportunity to perform and bill for more procedures. The relator alleged he raised concerns about Stark Law violations with Dr. Khanna and others.

According to the complaint, the relator raised his concerns about these practices multiple times with various Eisenhower managers and employees, without success. Further, he claimed he was berated for raising these concerns, and eventually terminated from his employment by Dr. Khanna. After his termination, other Eisenhower managers requested a meeting with the relator. During the meeting, they asked him to share his concerns about Dr. Khanna’s performance and the facility’s billing practices. According to the relator, he made it clear to these managers that his allegations were serious, could directly lead to patient harm, had billing/compliance implications, and required a qualified radiation oncologist to review.

The defendants moved to dismiss, arguing that the relator insufficiently alleged four of his five theories of liability and that he improperly grouped the defendants in his allegations.

First, the defendants moved to dismiss the relator’s lack-of-supervision theory, arguing that the complaint failed to adequately allege (1) materiality, and (2) a distinct fraud scheme involving lack of supervision. The relator argued that Dr. Khanna’s presence was required during certain treatments by Medicare rules, including the Medicare Benefit Policy Manual, regulatory guidance provided under 42 C.F.R. § 410.27, and industry standards.

The court agreed that the relator had not sufficiently alleged materiality. First, the court found any allegation connected to industry guidance immaterial to government payment decisions. Second, the court found the regulation cited by the relator did not support his position. The rule states that “direct supervision means that the physician or nonphysician practitioner must be immediately available to furnish assistance and direction throughout the performance of the procedure. It does not mean that the physician or nonphysician practitioner must be present in the room when the procedure is performed.” In citing to this language, the relator undermined his own argument.

The relator argued that the billing rate for reimbursement is based in part on the level of supervision provided. The court agreed, but noted the relator did not make any related allegation in his complaint. Accordingly, the court dismissed these claims.

Next, the court considered the relator’s lack of documentation theory. In his complaint, the relator argued that the defendants failed to maintain complete and accurate files for radiation oncology treatments. However, in his reply to the motion to dismiss his first amended complaint, he conceded that a failure to create this documentation alone might not violate the FCA, but it was relevant to his allegation the defendants used upcoding to bill the government for services that were not provided. Accordingly, the court previously dismissed these claims.

In his SAC, the relator added new allegations about what CMS guidance requires for documentation. The defendants argued the relator again failed to show the alleged conduct was material. The court agreed, finding the relator cited to various CMS pamphlets and manuals, but no statute, rule, regulation, or contract that conditions payment on adequate documentation. The court found the rules cited by the relator were merely guidelines and suggestions aimed at making post-payment Medicare audits easier. The court therefore dismissed these claims.

Next, the court addressed the relator’s complaint about Dr. Khanna’s qualifications. Previously, the court dismissed this claim because the relator did not show how the alleged lack of qualifications resulted in the submission of false claims or any false statements material to payment. In his SAC, the relator added new allegations, in which he asserted that because all claims must comply with Medicare and Medicaid rules, any reimbursement claims EMC submitted for services rendered by Dr. Khanna constitute false express certifications because she was unqualified to perform radiation oncology treatments.

However, the court found this insufficient. The court noted that relator admitted that Dr. Khanna is exempt from requirements that she maintain her certifications. Therefore, he could not also argue that she was required to do so as a condition of payment for Eisenhower’s claims. The court also found no connection between alleged false statements in Khanna’s application for privileges at EMC and the submission of false claims to Medicare. In short, the relator did not identify any specific qualification the government required Dr. Khanna to have that she did not, but merely asserted she was unqualified, while simultaneously admitting she needn’t follow certain certification requirements. The court dismissed these claims as well.

Next, the court considered the kickback claims. The relator alleged that EMC provided free medical devices to urologists in order to induce them to make more referrals, thereby violating the Anti-Kickback Statute and rendering all claims for payment false by definition. The court previously dismissed these claims because the relator failed to allege who was involved in the scheme or how it was carried out. In their motion to dismiss, the defendants argued the relator still failed to meet the particularity standard.

The court agreed. In the SAC, the relator added new allegations regarding which specific urologists benefitted from this kickback scheme and the monetary value these physicians allegedly received from the fiducial markers. He also described how the scheme violated the Social Security Act and CMS certification requirements. However, the court found he only vaguely stated who participated in the alleged scheme and how it was carried out. Accordingly, the court dismissed these claims as well.

Finally, the court turned to the defendants’ motion to dismiss based on group pleading. The defendants appeared to concede that the relator had sufficiently alleged EMC’s role in the alleged fraud but maintained that he had not done so with respect to EMA. Because the court already dismissed all the fraud theories except for the upcoding theory, the court concluded it need only consider whether the relator had sufficiently alleged EMA’s role in the alleged upcoding scheme.

In the SAC, the relator added several paragraphs detailing the relationship between EMA and EMC. The relator alleged the parties have a contractual relationship by which EMA provides specialty staffing and clinical care for EMC clinics. Under the agreement, EMA retained authority to establish fees relating to physician services, while EMC was responsible for billing and collective fees for medical services. The relator maintained that EMC submitted all false claims referenced in this action. EMA caused all false claims related to physician services to be submitted by EMC, and EMC submitted false claims related to technical and facility services on its own behalf. In his opposition, the relator explained that for physician-related charges, EMA causes the false claim to be submitted by EMC when EMA physicians upcode for a service that was not provided at the rates established by EMA.

The court concluded the relator appeared to allege that EMA physicians are agents of EMA, and thus, when they engage in upcoding, EMA is liable. The court found this adequate to survive a motion to dismiss the claims against EMA.

Because the relator did not request leave to amend and because he already had two opportunities to amend his complaint, the court’s dismissals were with prejudice.