The district court granted the defendants’ motion to certify an interlocutory appeal in a qui tam case alleging fraud on government healthcare programs. The relator alleged the defendants misappropriated Medicaid funds for uses not related to patient care, and thereby violated the FCA. After the district court denied a motion to dismiss, the defendants filed a motion to certify an interlocutory appeal, arguing that no court had previously determined that an alleged misappropriation of Medicare funds is actionable under the FCA. The relator argued that the Second Circuit has consistently held that when the government gives money for a particular purpose, one cannot secretly use it for an alternative agenda. However, the court agreed that the case presented a unique scenario that that not been explicitly addressed, and therefore found the potential for a significant difference of opinion on this issue. The relator argued that an immediate appeal would not materially advance the case, because his retaliation claim would remain, but the court reasoned that an adverse ruling for the relator would eliminate the need for extensive discovery and provide clarity on the issue.
Catholic Health System of Long Island Inc. dba Catholic Health Services of Long Island, St. Catherine of Siena Medical Center, and St. Catherine of Siena Nursing Home moved the court to certify an interlocutory appeal of its decision
Plaintiff-Relator Michael Quartararo, a former nursing home administrator, alleged the defendants violated the False Claims Act by misappropriating funds from a mitigation payment provided by the New York State Department of Health.
In 2011, DOH retroactively changed the base year used to calculate Medicaid reimbursement rates for health care providers from 1983 to 2002 for the reimbursement period covering 2009 through 2011. This caused the daily reimbursement rate for Medicaid patients to drop from $270 per day to below $250 per day. To minimize the impact, DOH provided a one-time mitigation payment that healthcare providers could use to offset any potential losses caused by the retroactive application of the lower reimbursement rate. Under this program, St. Catherine of Siena Nursing Home received a $4.5 million payment.
The relator alleged that the defendants misappropriated approximately $1.7 million of the mitigation payment by charging the Nursing Home for workers’ compensation and excess Medicaid costs.
The relator alleged that during his employment, he discovered that CHS and the Medical Center had been improperly diverting Medicaid funds by charging the nursing home for “medical, administrative, utility and other costs” that the facility had not incurred or which were overinflated. More specifically, the relator alleged CHS charged for a non-existent inhalation therapy department and overcharged for laboratory costs.
In 2008, the relator brought his concerns to a CHS executive, who stated that CHS charged the nursing home a fixed yearly rate, regardless of the actual laboratory costs incurred. The relator also discovered that the Medical Center’s laboratory rates for the Nursing Home’s residents were much greater than the laboratory rates charged for the residents in CHS’s other nursing homes and much greater than the then-current market rate for such services.
The relator also alleged that payments to cover workers’ compensation costs for nursing home employees were unsupported by the compensation cases that originated with the facility. When the relator questioned the deductions, he was told that they were not only for the workers’ compensation costs incurred in 2009 and 2011, but also to cover workers’ compensation costs incurred by the Nursing Home in 2005. The relator later learned that the nursing home workers’ compensation costs were disproportionately higher than those of CHS’s other nursing homes.
The relator alleged that when he raised his concerns, they were ignored or laughed off. The relator then took his concerns to a CHS compliance officer, but no action was taken. Soon after, the relator discovered that the Nursing Home was paying a portion of the salary for various staff members at the Medical Center and other CHS nursing homes who spent little to no time at the Nursing Home and had little to no involvement in the Nursing Home’s operations. CHS executives acknowledged that the salary charges were improper, but no corrective action was taken. One executive asserted that he was free to charge the Nursing Home for the salaries of any CHS staff regardless of how much of their work pertained to the Nursing Home.
This lawsuit followed. In earlier proceedings, the court dismissed with prejudice all claims except for the implied false certification misappropriation claims. When the relator filed his amended complaint, the defendants moved to dismiss and for partial summary judgment. The court denied the motion and the defendants moved for reconsideration.
The court granted the motion for reconsideration and reviewed the original motion to dismiss and for summary judgment on the merits. However, the court again denied the motion, finding that the relator had articulated a viable implied-false-certification argument based on his allegations that the defendants violated various regulations during a time they were submitting false Medicaid and Medicare reimbursement claims. The court concluded that relator was not precluded from alleging a viable theory of conversion based on the defendants’ alleged misappropriation of Medicaid and Medicare funding for inappropriate uses.
This motion to certify an interlocutory appeal followed. The relator opposed.
First, the relator argued that the request was untimely, because the court decided that the relevant regulation could support a viable implied false certification claim under the FCA in March 2017. Therefore, the time to appeal that holding had long passed. The relator also argued the request was inappropriate, because the defendants presented their request for certification of an appeal as being “in the alternative” to the court granting reconsideration of its prior ruling. According to the relator, the defendants arguably waived their right to seek certification of an appeal at this time.
The defendants argued that their request was timely. Because the court agreed to reconsider its earlier decision, it followed that the request for reconsideration was timely. Therefore, according to the defendants, by definition, this request should be considered timely as well. They also argued that the pending motion did not seek different relief from what was previously sought, or make new arguments that were not made before, and because the court did not grant dismissal, the request for certification in the alternative remains animate.
First, the court noted that, contrary to the relator’s assertion, courts routinely address motions for reconsideration and interlocutory appeal in the alternative. Although the defendants alternatively sought interlocutory appeal when they filed the motion for reconsideration, the court failed to address that request in its earlier decision. Therefore, the defendants could properly request a decision now. Because the motion to certify was filed only 11 days after the court denied the request for reconsideration, the court found the motion timely.
Next, the relator argued that the request was inappropriate because the court’s decision presented no issue of controlling law or substantial difference of opinion, and because an immediate appeal would not advance the ultimate termination of the litigation. The defendant argued otherwise.
The court sided with the defendants, finding they satisfied the substantive requirements for certification of an interlocutory appeal.
First, the court held there was a controlling question of law. The defendants argued that whether the misappropriation claims may properly be pursued under the FCA is a controlling question of law that can be decided quickly without having to study the record. In support, the defendants argued that the issue involves the interpretation and application of a criminal statute in a context that no other court, in any reported decision, has considered, and is a “pure” question of law. They also argued that modification or reversal of the Court’s decision in this instance would terminate the relator’s final surviving FCA claim, and thus would significantly advance the litigation.
The relator argued that the question of whether the defendants misappropriated funding is fact-driven and dependent on specific details of the nursing home’s budget, which required extensive development of the record. Further, the relator argued that the claims do not involve a controlling issue of law because the Relator maintains a separate retaliation claim that would continue irrespective of the outcome of an appeal.
The court sided with the defendants. While the issue of whether the defendants misappropriated funds is fact-driven, the court found the question of whether these claims can be pursued under the FCA is a pure question of law. In other words, even if the relator shows facts that support the misappropriation of funds, the claims would be nonviable if the alleged conduct does not violate the FCA. The court concluded that the Second Circuit could review whether section 1320a-7b(a)(4) may support the relator’s misappropriation claims without referring to the record. If the Second Circuit finds it cannot, the claims would be terminated.
The court also found substantial ground for difference of opinion. The relator argued there was no substantive case law supporting the defendants’ assertion that the statute does not apply to his claims. According to the relator, the Second Circuit has consistently held that when the government gives money for a particular purpose, one cannot secretly use it for an alternative agenda.
The defendants argued that no court has specifically addressed whether a facility that receives Medicare or Medicaid funding violates the FCA if it fails to specifically earmark and segregate those government funds for the sole and exclusive benefit of the program beneficiaries. The defendants argued the court’s holding has far-reaching implications beyond the current case.
The court again sided with the defendants, finding no other cases that addressed this specific scenario. The court also agreed that an immediate appeal could materially advance the case. As the court noted above, should the Second Circuit hold that the misappropriation claims do not violate the FCA, the claims would be terminated, without the need for the extensive discovery expected in the case.
The relator argued that his retaliation claim that would be litigated irrespective of an appeal’s outcome, and that a reversal would not materially change the nature of discovery, because he would still need to prove he acted reasonably and in good faith to prevent FCA violations. Because of the substantial overlap in discovery on these matters, the relator argued that the case would not be materially advanced by an immediate appeal.
The court disagreed. While there could be some overlap between the discovery for both the retaliation and FCA claims, the court held that dismissal of the FCA claims would streamline discovery. The court explained that the relator need not prove an FCA violation to succeed on the retaliation claim, because retaliation claims are evaluated under the plausibility standard, not the particularity standard. Therefore, the scope of discovery would be narrower.
