The district court granted in part and denied in part a motion to dismiss a qui tam case alleging that ambulance transport services companies paid kickbacks to hospitals and nursing facilities to induce them to increase their referrals. The court denied a motion to dismiss the defendants’ parent company as a defendant, finding the relator had adequately put the defendants on notice that he intended to pierce the corporate veil to attach liability. The court also declined to dismiss the claims of improper kickbacks and false statements, finding that both the relator and defendants had put forth reasonable interpretations of the facts, which made dismissal improper. However, the court dismissed the conspiracy claims, first noting that the affiliated defendants could not enter into a conspiracy amongst themselves, and second, finding the relator had not adequately pled the involvement of any third parties.
The defendants in a qui tam case moved to dismiss a complaint alleging the unlawful payment of kickbacks to hospitals and skilled nursing facilities.
Relator David Abrams alleged that his former employer, Procarent Inc., and co-defendants Yellow Enterprise Systems LLC, CARE Ambulance Service LLC, Gateway Ambulance Service LLC, and Michael J. Mackin paid kickbacks to hospitals and skilled nursing facilities to induce them to steer patients to the defendants’ companies anytime ambulance transport was needed.
Abrams was employed by Procarent as an emergency medical services director, and later by Procarent affiliate Yellow Ambulance as director of ambulance services. During his employment with Yellow, the relator allegedly discovered numerous written agreements and arrangements between Procarent and its affiliates in which unlawful kickbacks were provided by Procarent and its affiliates and accepted by hospitals and SNFs. Although the relator warned his employers that this conduct violated Medicare laws and the FCA, the defendants ignored these warnings and engaged in a pattern of harassment against Abrams. Abrams alleged he was constructively discharged from his position because he declined to accede to this continued course of action.
The complaint provided the details of the alleged scheme. According to the relator, the defendants provided kickbacks to hospitals and SNFs in exchange for referrals for wheelchair and ambulance transports. The relator argued this resulted in the submission of false claims for payment to Medicare, as any claim tainted by kickbacks is false by definition.
The complaint explained that the kickbacks were paid as: (a) steep, below-cost money discounts for wheelchair van transports; (b) free mileage for wheelchair transports; (c) steep, below-cost money discounts for Medicare Part A ambulance transports; and (d) free mileage for Medicare Part A ambulance transports. According to the relator, these kickbacks allowed hospitals and SNFs to pay for wheelchair and ambulance transport services at prices that were substantially below market value. In exchange, they referred their Medicare Part A and Part B ambulance transports to the defendants.
To implement this scheme, CARE offered to provide wheelchair transport services—which are not covered by Medicare—for a low flat fee price between $23.00 to $42.00 per one-way transport and as much as five to ten free miles. The relator maintained that these prices were unreasonable relative to the market, and below CARE’s own pricing of $61 plus mileage for one-way transport, as well as the $49 break-even point. In addition to discounting wheelchair transports, CARE and Yellow also discounted Part A ambulance runs to induce hospitals and SNFs to refer Part A and Part B ambulance stretcher runs. The relator alleged these schemes would be discussed at meetings where the business operations of all the companies was planned.
The complaint alleged five separate FCA violations: (1) presenting false and fraudulent claims for payment to the government; (2) knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim to the government; (3) avoiding paying the government and from improperly retaining an overpayment by the government; (4) conspiring to violate the FCA; and (5) retaliating against an employee for reporting or acting to stop FCA violation.
In their motion to dismiss, the defendants argued the court should dismiss the entire complaint against Procarent, because Procarent is only the parent company for the named affiliates and is not independently liable. They also argued the court should dismiss all the anti-kickback allegations and the conspiracy count.
First, the court considered the motion to dismiss the claims against Procarent. According to the defendants, because parent and subsidiary corporations are presumed separate, the relator could not pierce the corporate veil because he could not show that one corporation dominated the other to the extent the subordinate was a mere instrumentality of the parent; that the dominant corporation employed the subordinate to perpetrate fraud; or that the capital placed in the subordinate was illusory or trifling compared to the business to be done or the risk of loss.
In response, the relator argued that he need not, at this stage, prove a corporate veil-piercing theory, but only put the defendants on notice of this theory. Abrams argued his complaint met the minimum standards of notice pleading for corporate veil piercing. He argued that he had showed that (1) Procarent is an ambulance and wheelchair transportation company that previously provided its services through wholly owned affiliates, (2) Procarent is wholly owned and directed by the Mackin family, (3) the affiliate companies are owned and controlled by Procarent and the Mackin family, (4) Procarent and all its affiliates share an address, and (5) meetings discussing the fraudulent schemes were conducted for all Procarent businesses, not any specific affiliates.
In response, the defendants noted that Abrams’ response contained the first inference that Procarent and its affiliates had no separate existence apart from its affiliates. Because Abrams’ complaint conceded that Procarent and its affiliates are separate entities, the defendants argued that he gave no indiciation believed them to be operating as one. Because the complaint referred to “Procarent, Inc. and its affiliates,” the defendants argued Abrams tacitly admitted they are distinct corporate entities.
Absent further fact-finding, the court sided with the relator, finding that he had adequately placed them on notice that he believed all the defendant operated as confederates for Procarent. The court cited to the relator’s allegations about the makeup of the corporate entities, their shared location, and the manner in which business operations were jointly discussed, and concluded they put the defendants on notice that Abrams would attempt to pierce the corporate veil.
Next, the court considered the motion to dismiss the kickback claims, which enveloped the claims regarding the submission of false claims and reliance on false statements. The claims also incorporated counts of reverse false claims, with the relator alleging the defendants avoided their obligation to repay the government for their fraudulently obtained payments.
The defendants argued the relator failed to show they knowingly and willfully paid improperly remuneration to the hospitals and SNFs. Where the relator alleged kickbacks occurred, the defendants asserted there could be no such scheme based on the pled facts. According to the relators, there could be no illegal inducement, because the rates they charged for wheelchair transports were on par, and sometimes significantly more expensive, than the rates of their competitors. In other words, they asserted the hospitals and SNFs would receive no benefit from the transport rates—the alleged kickback—because the rates were above market.
In support, the defendants pointed to the transcripts of company meetings that Abrams secretly recorded. During those meetings, management discussed signing an SNF to a higher-than-average rate for wheelchair transports because of the high quality of their service. Management also noted that two competitors offered lower rates, that it could perhaps make financial sense to decrease wheelchair services, and that the profitability of wheelchair transports was not great. Because they believed they offered rates above market, the defendants also argued the relator could not demonstrate scienter, because they did not know their discounts could be construed as a kickback.
In response, Abrams offered alternative interpretations. First, he suggested that a discussion around the need to raise prices could suggest management knew that pricing was below cost, or that the additional referrals brought in at the discounted price did not cover the losses. The relator also argued that Procarent’s competitors also may have been operating a kickback scheme, and therefore their pricing was irrelevant to the question of whether Procarent offered steep discounts for ambulance transport services, resulting in a rate that was below Procarent’s cost. Finally, the relator argued that wanting to get out of the wheelchair transport business was not inconsistent with a kickback scheme. Instead, it could show that the scheme failed to induce enough referrals to cover the losses. The relator also argued his complaint adequately alleged scienter, and noted that the defendants’ motion did not address the Medicare Part A referral scheme.
The court found both interpretations reasonable, and therefore resolved the motion in favor of the relator. Because Abrams offered plausible alternative explanations for the meeting discussions that could support his claims, because the defendants never addressed the Medicare Part A referral scheme, and because Rule 9(b) permits a party to allege conditions of a person’s mind generally, the court denied the motion to dismiss on these grounds.
Next, the court considered the motion to dismiss the conspiracy claims. The defendants argued that the conspirators are all part of the same corporate entity, and therefore unable to conspire amongst themselves. The court agreed, explaining that the intracorporate conspiracy doctrine bars the charge of FCA conspiracy when the alleged conspirators were employees of the same corporate entity or were wholly-owned subsidiaries of a parent corporation.
The relator argued that the Procarent defendants conspired with third parties, but the defendants noted that a single, conclusory allegation is not a particularized factual allegation, as required by Rule 9. The court agreed, finding that the amended complaint focused solely on facts detailing fraudulent conduct. While the complaint named hospitals and SNFs that allegedly benefited from the kickback scheme, it did not allege the necessary who, what, when, where, and how of the conspiracy claim in connection to these third parties. In fact, the relator had dropped many of the hospitals and SNFs from his initial complaint.
