The district court adopted a magistrate judge’s recommendations to deny the defendants’ motions to dismiss various claims alleging they engaged in unlawful retaliation against the plaintiffs for declining to engage in a healthcare fraud scheme. The plaintiffs alleged the defendants unlawfully terminated their contracts for hospital emergency room management services, but the defendants argued the FCA covers retaliation against individuals—whether employees, contractors, and agents—not business entities. However, the court disagreed, finding no authority for that interpretation or any evidence Congress considered differentiating between individuals serving as contractors or agents and entities doing so. Even interpreting the language favorably to the defendants, the court found that the plaintiffs could plead that the defendants retaliated against individual physicians via the wholesale termination of their company’s contract.
Health Management Associates and its co-defendants moved to dismiss a qui tam complaint alleging they defrauded Medicare through their management of hospital emergency room departments.
The case involved the operation of emergency medical departments at two hospitals in Charlotte, North Carolina. Plaintiffs Thomas Mason and Steven Folstad are principals of Mid-Atlantic Emergency Medical Associates PLLC and are board-certified emergency medicine physicians. MEMA provides ER medical services under professional services agreements with hospitals, including two owned and operated by HMA.
The plaintiffs claimed HMA unlawfully terminated their contracts in retaliation, after they refused to participate in a scheme to submit false claims to Medicare, Medicaid, and other federally-funded and private healthcare entities. The plaintiffs originally brought their action as a qui tam case on behalf of the United States and multiple states. In December 2017, EmCare paid $33 million to settle government claims. In September 2018, HMA and Community Health System paid $262 million to settle government claims. The plaintiffs opted to continue with their remaining claims, including unlawful retaliation, slander, tortious interference, and unfair and deceptive trade practices.
In these proceedings, the defendants objected to a recommendation by a magistrate judge to deny their motion to dismiss the claims and a recommendation to dismiss a civil conspiracy claim without prejudice.
First, the court considered the claim of retaliation under the FCA. The defendants argued that the FCA covers employees, contractors, and agents, but not entities such as the plaintiffs’ company. However, the court disagreed, finding that MEMA was a contractor of the defendants and therefore permitted to assert its claim. While the statute does not define contractor as including or precluding companies, the court found no evidence Congress considered but declined to include entities in that definition. Further, even if the defendants were correct, the court found the complaints arose from physicians employed by MEMA and that HMA, by severing ties with MEMA, allegedly retaliated against the physicians. Further, MEMA was a relator in the qui tam action and named as one in the government’s settlements.
In other words, MEMA, the alleged contractor, was in practical effect simply a corporate structure through which the individuals both complained and were retaliated against. Given the remedial nature of the anti-retaliation statute, the court held that the plain language of the statue allows MEMA to bring claims of retaliation in violation of both the federal and state False Claims Acts.
The plaintiffs also plausibly asserted the physicians were agents of HMA. Each served as ER director for their hospitals and Mason served on the Medical Executive Committee and as Chief of Staff at Lake Norman Hospital.
Next, the court considered the motion to dismiss the claims of unfair and deceptive trade practices under North Carolina’s Uniform Deceptive Trade Practices Act. The state’s Court of Appeals held that a business dispute between a hospital and physician did not fall under the learned profession exception of the law. The court explained that the exception does not apply merely because one or both parties are medical professionals. For example, if a physician and property owner had a dispute over a leased office space, it would be treated no differently than a dispute between any other two parties.
The defendants argued the learned profession exception should apply in this case. In response, the plaintiffs argued that the defendants are not members of a learned profession nor were they rendering professional services when they engaged in and conspired to commit healthcare fraud, or when they retaliated against and defamed the plaintiffs. The district court agreed that the exception did not apply, because the dispute arose from a business relationship that did not involve the physicians work rendering medical care.
Next, the defendants argued the plaintiffs failed to show that HMA had no legitimate business interest in terminating their contract. HMA also argued that as the hospitals’ parent company, it was privileged to interfere with the hospitals’ contract relationships. EmCare—the additional defendants—argued they were justified in their actions because they are competitors to the plaintiffs. EmCare also argued the plaintiffs failed to allege EmCare induced HMA to terminate the contract.
The court disagreed, finding the plaintiffs alleged sufficient facts to show that the HMA defendants were motivated to retaliate against them for refusing to participate in their healthcare fraud scheme, which took HMA outside the protection provided by privilege. Additionally, whether either defendant had a legitimate business interest and acted in good faith was a question for a jury.
Further, the plaintiffs alleged EmCare sought to induce hospital administrators to terminate MEMA contracts so that EmCare could bid on them. The court found the plaintiffs met the low standard required to plead tortious interference.
Next, the court considered the motion to dismiss the defamation claims. The plaintiffs alleged that HMA’s Lake Norman Hospital CEO told the board of directors that MEMA was replaced because its ER physicians did not want to practice quality medicine and refused to use HMA’s quality program. They also alleged that HMA told numerous other physicians that MEMA was terminated because of its failure to commit to HMA’s quality program and because of MEMA’s patient satisfaction scores. In its motion to dismiss, HMA argued that the plaintiffs failed to allege third-party publications, that the alleged statements are privileged, non-actionable opinions, are not “of and concerning” the doctors, and that HMA and the hospitals cannot be liable for the intentional torts of their employees.
The court disagreed, finding the statements impeached the plaintiffs by implying they performed unsatisfactory work and were uninterested in giving quality medical treatment. These statements are “of and concerning” MEMA and all of its physicians and are statements of fact, not opinion. The court held the plaintiffs sufficiently alleged that these statements were made by agents of HMA on behalf of HMA and the hospitals.
The court acknowledged there is divided authority on whether a statement by one company’s officer, agent, or employee to another has been published, if the statement is kept within the confines of the company office. Some courts have held they are considered published, while others have rule they are not. North Carolina courts have applied a standard that a statement is actionable if there is an appropriate level of malice on the part of the speaker. The court held the plaintiffs met this standard, as the plaintiffs argued the statements were made with malice and intent to harm and that the speakers knew they were false.
Finally, the court considered the civil conspiracy claim, which is not recognized by North Carolina as an independent cause of action. The magistrate judge recommended that this claim be dismissed without prejudice to the plaintiffs’ right to argue the remedy of joint and several liability should they prevail on one or more of the remaining claims for relief. The plaintiffs argued the claim should be dismissed with prejudice, because the plaintiffs released this claim in a prior settlement agreement and because HMA could not have conspired with the hospitals.
However, the court adopted the recommendation. The court found the allegations could be read as alleging that the defendants agreed to engage in a fraudulent healthcare scheme and to terminate MEMA and the doctors when that scheme was threatened. The court explained that conspiracy as a theory of liability to damages was not covered by the settlement agreement, and allowed the plaintiffs to argue it at the remedy stage.
