U.S. ex rel. Bledsoe v. Community Health Systems

• Decision Date: 10 September 2003
• Docket Number: No. 01-6375.,01-6375.
• Citation: 342 F.3d 634
• Parties: UNITED STATES of America, ex rel., Plaintiff-Appellee, Sean BLEDSOE, Plaintiff/Relator-Appellant, v. COMMUNITY HEALTH SYSTEMS, INC.; Sparta Hospital Corporation d/b/a White County Community Hospital, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

342 F.3d 634

UNITED STATES of America, ex rel., Plaintiff-Appellee Sean BLEDSOE, Plaintiff/Relator-Appellant, v. COMMUNITY HEALTH SYSTEMS, INC.; Sparta Hospital Corporation d/b/a White County Community Hospital, Defendants-Appellees.

No. 01-6375.

United States Court of Appeals, Sixth Circuit.

Argued March 12, 2003.

Decided and Filed September 10, 2003.

COPYRIGHT MATERIAL OMITTED

Michael F. Hertz, Jr., U.S. Dept. of Justice Civil Div., Washington, DC, Steve Frank (argued and briefed), Douglas N. Letter (briefed), U.S. Dept. of Justice, Civil Div., Appellate Section, Washington, DC, Charles J. Williams, Williams & Associates, Nashville, TN, H. Wayne Phears, Phears & Moldovan, Norcross, GA, Mike Bothwell (argued and briefed), G. Mark Simpson, Mike Bothwell, P.C., Roswell, GA, for Plaintiffs-Appellants.

Michael L. Waldman (argued and briefed), Richard A. Sauber, Fried, Frank, Harris, Shriver & Jacobson, Washington, DC, Steven A. Riley, John R. Jacobson (briefed), Bowen, Riley, Warnock & Jacobson, Nashville, TN, for Defendants-Appellees.

Before MOORE and CLAY, Circuit Judges; LAWSON, District Judge.^*

OPINION

CLAY, Circuit Judge.

Plaintiff/Relator Sean Bledsoe ("Relator") appeals from an order entered by the district court on September 19, 2001. Relator had brought a qui tam action against Defendants Community Health Systems, Inc. ("CHS") and Sparta Hospital Corporation d/b/a White County Community Hospital ("White County Hospital"), alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. The district court entered an order in which it denied Relator's motion to recognize a settlement agreement reached between the United States government and CHS, granted Defendants' motion for judgment on the pleadings, and dismissed Relator's claims with prejudice.

In this case involving some issues of first impression, we REVERSE the judgment of the district court for the reasons discussed below.

BACKGROUND

Procedural History

On February 17, 1998, Relator filed a qui tam action against CHS, as well as other entities and officers of the various entities, in the United States District Court for the Northern District of Georgia.¹ The complaint alleged that CHS and others violated the FCA, 31 U.S.C. § 3729 et seq., by "unbundling services and billing Medicare and Medicaid" and "miscoding and upcoding items billed to Medicare and Medicaid." (J.A. at 25.) Pursuant to 31 U.S.C. § 3730(b)(2),² the complaint was filed under seal and served upon the United States, but the government declined to intervene in the action. Relator thereafter served the complaint on the named defendants in May of 1999.

On July 3, 2000, Relator filed a First Amended Complaint ("amended complaint"). The amended complaint deleted some defendants, added a defendant, and contained new substantive allegations. CHS and White County Hospital (collectively "Defendants") filed separate answers to the amended complaint.

Relator's case subsequently was transferred to the Middle District of Tennessee. Defendants then filed a motion, pursuant to Federal Rule of Civil Procedure 12(c), for judgment on the pleadings on November 3, 2000. Relator filed a brief in opposition to Defendants' motion. Additionally, Relator filed a motion to recognize a separate settlement agreement entered into between the government and CHS, claiming that he was entitled to a relator's share of the settlement proceeds.

On September 18, 2001, the district court filed a memorandum opinion, which (1) granted Defendants' Rule 12(c) motion, (2) denied Relator's motion to recognize the settlement, and (3) dismissed Relator's lawsuit with prejudice. An order to this effect was entered on the same day. Relator's timely appeal followed.

Substantive Facts

A. Relator's and CHS' Cooperation with the Government

In 1995, Relator began working at White County Hospital, which is one of several hospitals owned by CHS. At some point during his tenure at White County Hospital, Relator became aware of "a serious problem with upcoding and other billing irregularities"³ (J.A. at 167), and he reported these irregularities to the government between 1996 and 1998.

Sometime in the fall of 1997, CHS was approached by the government about possible upcoding at two different CHS hospitals. On December 18, 1997, CHS contacted the Office of Inspector General of the United States Department of Health and Human Services ("OIG-HHS"), and disclosed that it had detected medical coding irregularities at its hospitals during recent internal audit efforts. CHS informed OIG-HHS of its plans to undertake an audit of its hospitals' coding, disclose the results, and repay any overpayments it had received from Medicare. After lengthy negotiations, CHS conducted the self-audit, and it presented preliminary findings to OIG-HHS on December 18, 1998. OIG-HHS simultaneously worked with the Department of Justice ("DOJ") to investigate whether a FCA violation might have occurred. This investigation, of which Relator apparently was unaware at the time, concluded in mid-1999.

B. Relator's Original Complaint and Written Disclosure

In the meantime, Relator filed his qui tam action in February of 1998. The original complaint alleged that the Cookville Regional Medical Center ("Cookville"), one of the original named defendants, "perpetrated a scheme of defrauding the United States Government by unbundling services and billing Medicare and Medicaid," and that CHS and other defendants "engaged in a scheme of defrauding the United States Government by miscoding and upcoding items billed to Medicare and Medicaid." (J.A. at 25.) Count One of the complaint alleged that the defendants "knowingly presented, caused to be presented, or conspired to present" false claims in violation of 31 U.S.C. § 3729(a)(1). (J.A. at 25.) Count Two alleged that the defendants "agreed to undermine [the Medicare and Medicaid] laws, rules, and regulations" and that they "conspired... to defraud the government by acting collectively to submit or cause to be submitted false and fraudulent claims for payment to the United States in violation of 31 U.S.C. § 3729(a)(3)." (J.A. at 26.)

With the sealed complaint, Relator also furnished to the government, as required, a "written disclosure of substantially all material evidence and information [he] possesse[d]." 31 U.S.C. § 3730(b)(2). In the written disclosure, Relator indicated, in pertinent part, that he had witnessed first-hand, or learned from others about, (1) unbundling⁴ of services while working at Cookville; (2) upcoding of contract services and disposable equipment, as well as fraudulent inflation of cost reports, in White County Hospital's nursing and respiratory departments; (3) misuse of a doctor's medical provider number in the emergency room; (4) double billing and billing for unbillable items; (5) improper changing of patients' statuses from an outpatient/observation status to an inpatient status; (6) billing for fictitious continuous heart monitoring; and (7) improperly premature discharging of hospital patients when Medicare reimbursement eligibility had been exhausted. In support of his allegations, Relator also provided a list of hospital employees and asserted his possession of supporting documents.

C. The Government and CHS' Settlement Agreement

The government⁵ and CHS ultimately agreed on a settlement in which CHS would repay to the government Medicare overpayments in the amount of $30,904,625.56. The original version of the settlement agreement also "specifically reserved and excluded from the scope and terms of this Agreement as to any entity or person (including the Released Parties)" claims asserted in a qui tam action brought by another relator in the Middle District of Tennessee. (J.A. at 354-55.) Relator's qui tam suit was not referenced in the original version of the settlement agreement. On or about March 28, 2000, a revised version of the settlement agreement was circulated, including a substituted page 12, which included Relator's claim among the claims specifically excluded from the settlement agreement. All the parties then signed the revised settlement agreement. The settlement agreement's effective date was May 8, 2000.

D. Dr. Adams' Intervening Lawsuit and Relator's Amended Complaint

On January 15, 1999 (after the government declined to intervene in Relator's qui tam action but before Relator's complaint was served on Defendants), Dr. Robert Adams, former medical director of White County Hospital's geropsychiatric treatment program, filed a complaint in Tennessee state court, alleging wrongful termination. Specifically, he contended that he was terminated for refusing to participate in White County Hospital's policies regarding Medicare billings, which included "provid[ing] unneeded medical services, falsify[ing] patient charts, and [performing] other illegal and unethical activities," with the goal of producing longer patient stays and, thus, higher hospital reimbursement amounts.

After the filing of Dr. Adams' Tennessee state court lawsuit, Relator filed an amended complaint on July 3, 2000. The amended complaint, among other things, contained new substantive allegations, including fraud in White County Hospital's psychiatric unit. Specifically, the amended complaint asserted that Defendants had engaged in a scheme to defraud the government by admitting to the psychiatric unit patients who were not Medicare or Medicaid eligible. Additionally, the amended complaint alleged that Defendants "encourag[ed] physicians to maximize the average length of stay [in the psychiatric unit], whether medically necessary or not, ... [and] terminated Dr. Robert Adams as director of the psychiatric unit because he declined to increase the average length of stay of patients unnecessarily." (J.A. at 48, 49.) The amended complaint also alleged a variety of other fraudulent Medicare billing practices, including fraudulent uses of provider numbers, fraudulent billing for...