The district court dismissed complaints against a subset of defendants in a qui tam case alleging Medicare fraud, finding the plaintiff did not plead any specific evidence tying them to the alleged fraud, other than their employment with the company named in the complaint. The court also dismissed other claims against the remaining defendants, but allowed one count to proceed, finding the relator had sufficiently alleged that he was ordered to submit claims to Medicare with incorrect billing codes that would result in higher payments and had created a strong inference that the healthcare organization, which provided services almost exclusively to Medicare beneficiaries, had submitted false claims for payment.
Emerson Park brought a qui tam action alleging that multiple entities connected to Legacy Heart Care LLC—including Legacy Heart Care of Fort Worth LLC, Legacy Heart Care of Midtown Austin LLC, Legacy Heart Care of Austin LLC, Trinity Heart Care, Legacy Heart Care of San Antonio LLC, Legacy Heart Care of Kansas City LLC, Michael Gratch, Tuan D. Nguyen, Vu D. Nguyen, Vinh D. Nguyen, and Nima Amjadi—defrauded the Medicare program. Several of the defendants moved to dismiss various counts of the third amended complaint and moved for attorneys’ fees.
Previously, the court granted motions by other defendants dismissing the claims against them, finding that they were “an unreasonable stretch of deduction.” However, the court granted the relator leave to replead the remaining claims and he filed his third amended complaint.
In his complaint, Park alleged the defendants engaged in a pattern of fraudulent conduct in relation to the presentation of claims for enhanced external counterpulsation (EECP) services for Medicare patients. Specifically, he argued the claims did not satisfy diagnostic criteria; that claims were upcoded to the highest level billing codes; that some services were not directly supervised by a physician; and that the defendants paid kickbacks to patients in the form of waived co-pays and certain expenses. The defendants moved to dismiss, arguing the amended complaint still fails to satisfy Rule 9(b) and 12(b)(6) standards for particularity and plausibility.
The granted the motions to dismiss as to Count I against Michael Gratch, Vu D. Nguyen, Trinity Heart Care, LHC of San Antonio, and LHC of Kansas City with prejudice. The court found the allegations against these defendants so deficient that they could rise to the level of a Rule 11(b) violation. At a minimum, the court agreed the relator failed to satisfy the heightened pleading standard of Rule 9(b).
The court noted that each of these defendants hardly appeared in the complaint outside the caption and that the complaint lacked any specific allegations against Gratch or Nguyen, other than their employment with LHC. The relator asserted no facts linking either defendant to the alleged scheme, but relied on general accusations lumping all the defendants together.
The court found the allegations regarding LHC of San Antonio and LHC of Kansas City similarly deficient. The complaint referenced each entity only in passing and connected them to the alleged fraud only by dint of the company’s centralized billing and standard polices. Without further evidence, the court found the claims against these two entities appear to be no more than nuisance claims used as a pretext to a fishing expedition, which is prohibited by Rule 9(b). The court noted that it put the relator on notice of the pleading deficiencies and declined to afford him any further opportunity to plead facts related to these defendants. Accordingly, the court granted the motion to dismiss for these defendants, with prejudice.
Next, the court considered the motions to dismiss claims against the remaining defendants. In Count I, the relator alleged the defendants billed for EECP services that did not satisfy diagnostic criteria and were not directly supervised by a physician, as required. The court found the relator alleged a specific false representation, in that the remaining defendants expressly certified that the services performed were medically justified and the claims for payment otherwise complied with applicable rules and regulations. The relator also alleged the defendants expressly certified that their claims complied with Medicare rules and that the services were medically necessary. The court found these allegations sufficiently identified the representations the relator maintained were false or misleading.
The court found the relator alleged only minimal details of the alleged scheme, without information on specific claims submitted to Medicare, but held he pleaded sufficient detail, with reliable indicia, that led to a strong inference that false claims may have been submitted. For example, the relator identified specific patients who had received EECP treatment, despite diagnostic issues that should have precluded the treatment, and who had received EECP treatment for a condition other than that approved for coverage. Additionally, the relator alleged no physician was present at LHC of Austin when this treatment was provided. To submit a claim to Medicare, the defendants would have been required to certify that the EECP treatment of these patients was medically justified and was performed consistent with Medicare laws and regulations. Thus, the court found the relator’s complaint sufficient to show that false claims could have been submitted.
Next, the court considered whether any claims were actually submitted, and found the relator had pleaded sufficient facts to create a reasonable inference that this was the case. First, the relator alleged that the head of LHC’s billing department reprimanded him for not classifying a patient for disabling angina, even though the patients’ medical records allegedly did not support a finding of angina, which is required for EECP treatment under Medicare. The relator was also reprimanded for not automatically applying the angina billing code. The relator alleged that he was told that his failure to apply these codes cost LHC thousands of dollars and that staff needed to bend the descriptions and codes in order to satisfy Medicare requirements. The relator also identified patients who received EECP treatments even though the treatments did not qualify under Medicare’s coverage and pleaded that the vast majority of LHC’s patients are Medicare beneficiaries. The court found this satisfied the need for a reliable indication that false claims were actually submitted.
The court found the alleged false certifications were material, as Medicare could have denied claims for patients and treatment that did not satisfy its criteria, and that they were not minor. The court also held the relator sufficiently alleged the defendants knowingly entered into and continued the scheme. The court also found the relator alleged enough facts showing the defendants used EECP for patients who had conditions for which the treatment had not been approved, rarely reviewed patients’ charts before signing them, and provide treatment without a physician present. The court found this sufficient to allege reckless disregard.
Next, the court considered Count II, in which the relator alleged the defendants “up-coded” services to the highest level billing codes—i.e., charged Medicare for unnecessary services or services that were never actually provided. The court found the relator failed to plead sufficient detail of an actual submitted false claim or details of any scheme to do so. The relator never identified a single claim submitted to Medicare that was billed at a higher rate than appropriate, let alone who submitted it, when, or where, nor provide reliable indicia that the defendants billed Medicare for services at an incorrect rate. Rather, the relator merely alleged the remaining defendants did not spend enough time with their patients to provide them with the level of care indicated by the billing codes submitted to Medicare. The court declined to join the relator in making that inference. The court also found the relator failed to describe any scheme to submit false claims. Even if the relator cleared this bar, the court found he had not sufficiently pleaded the materiality of the alleged violation. Accordingly, the court dismissed Count II.
In Count IV, the relator alleged the defendants billed Medicare while falsely certifying compliance with the Anti-Kickback Statute. The court noted that in such claims, a relator must sufficiently plead violations of both the AKS and FCA. The relator alleged the defendants waived co-insurance payment requirements for patients, or provided transportation expenses to Medicare patients in violation of the AKS. However, the court held the relator did not sufficiently plead that the defendants acted knowingly and willfully, or that the waivers induced—or even were intended to induce—program-related business. Accordingly, the court dismissed Count IV.
The court also dismissed Count III, alleging a conspiracy to violate the FCA, finding the relator failed to plead sufficient facts and failed to respond to the defendants’ arguments, rendering this count abandoned.
The court also found the relator had sufficient opportunity to make his case regarding the dismissed claims, and therefore dismissed them with prejudice. The court also found that amendment of Counts II, III, and IV would be futile.
The court denied the defendants’ motions for attorneys’ fees, but left the door open for them to make their case for sanctions in the future.