U.S. ex rel. Lam v. Tenet Healthcare Corp.
| Decision Date | 15 August 2006 |
| Docket Number | No. EP-02-CA-525-KC.,EP-02-CA-525-KC. |
| Citation | 481 F.Supp.2d 673 |
| Parties | UNITED STATES of America, ex. rel. Dr. Man Tai LAM, Dr. William Meshel, Plaintiffs, v. TENET HEALTHCARE CORP., Defendant. |
| Court | U.S. District Court — Western District of Texas |
Mitchell L. Weidenbach, Assistant United States Attorney, San Antonio, TX, Antonio V. Silva, Law Offices of Antonio V. Silva, El Paso, TX, Mark Nagle, Troutman and sanders, LLP, Washington, DC, Phillip Michael, Troutman & Sanders LLP, New York, NY, for Plaintiffs.
Joseph L. Hood, Jr., Scott, Hulse, Marshall, Feuille, Finger & Thurmond, P.C., El Paso; TX, Katherine Lauer, Latham & Watkins, San Diego, CA, for Defendant.
On this day, this Court considered Defendant Tenet Healthcare Corporation's Motion to Dismiss ("Def.'s Motion"). For the reasons set forth herein, Defendant's Motion is DENIED in part and GRANTED in part.
The Government provided the following summary of the outlier program in its Statement of Interest, which this Court now includes for purposes of placing the instant action in context. However, this, Court does not expressly adopt this characterization of the outlier system.
Congress established the Medicare Trust Fund to protect the health of this country's aged and infirm. United Stated Statement of Interest 2. In most cases, Medicare reimburses hospitals a fixed amount of money for each patient stay as a result of the Diagnosis Related Group ("DRG") assigned to the patient, based upon his or her diagnosis and the procedures that the hospital has performed. Id. Generally, the amount that hospitals receive from the Medicare program for treating patients does not vary with the cost of treating the patient. Id.
In certain circumstances, however, the Medicare program supplements DRG payments in light of the hospital's cost of care. Id. In order to ensure that hospitals have an incentive to treat patients whose care requires unusually high costs, the Medicare program will use a portion of the Medicare Trust Fund for certain "cost outlier" cases. Id. at 2-3. Specifically, Congress authorizes the Centers for Medicare and Medicaid Services ("CMS") to make additional payments beyond the usual reimbursement amount ("cost outlier payments") where a hospital's "marginal cost of care" exceeds a particular threshold. Id. at 3 (citing 42 U.S.C. § 1395ww(d)(5)(A)(iii)). By statute, Congress directs CMS to identify cost outlier cases by adjusting a hospital's charges for an inpatient stay to reflect that hospital's costs for the stay. Id. (citing 42 U.S.C. § 1395ww(d)(5)(A)(ii)).
In compliance with the relevant statute, CMS implemented regulations that provided for outlier payments where a hospital's charges, multiplied by its ratio of costs to charges from its most recently settled cost report, exceeded a certain threshold. Id. (citing 42 C.F.R. §§ 412.80, 412.84). Because it takes several years for a hospital's cost report to be settlement, CMS typically multiplied a hospital's current charges by the hospital's cost-to-charge ratio derived from a cost report for a prior year. Id. As a result, if a hospital inflated its charges without a corresponding increase in costs, the inflated charge, when multiplied by the hospital's historical cost-to-charge ratios, would lead to artificially high "costs." Id. Accordingly, one of the key factors in assessing outlier fraud allegations is a hospital's costs.
Doctors William Meshel ("Dr.Meshel") and Man Tai Lam ("Dr.Lam") (collectively "Relators") have practiced medicine in El Paso, Texas since 1979 and 1998, respectively.1 Third Am. Compl. ¶¶ 8-9 ("TAC"). Throughout their careers, Drs. Lam and Meshel have either maintained privileges and/or held appointments at numerous El Paso area hospitals, including Providence Memorial Hospital ("Providence") and Sierra Medical Center ("Sierra"). Id. ¶¶ 8, 10. In fact, between 1989 and 1992, Dr. Lam served on the Medical Executive Committee of Providence, which is the highest governing body for the medical staff there.2 Id. ¶ 10. Defendant Tenet Healthcare Corporation ("Tenet") operates and maintains both Providence and Sierra. Id. ¶ 7.
Dr. Lam alleges that, by virtue of his management positions at Providence and Sierra, he knew that Providence and Sierra were earning substantially higher profits than Southwestern. Id. ¶ 11. He alleges that he knew that Tenet hospitals listed much higher charges on their charge master (the hospital's published list of fees for various services) than Southwestern, even though the Government generally reimburses a fixed amount for DRGs irrespective of the figure stated on the charge master. Id. Though he had been briefed on the outlier component of the Medicare reimbursement system, he did not immediately recognize how increases in charge master prices affected reimbursement for outliers. Id. ¶ 12.
At some point prior to January/February 2002, Dr. Lam met with Dr. Meshel and exchanged information concerning Tenet's practices with respect to medical directorships and high DRG charges. Id. ¶ 15. Thereafter, in January/February 2002, Dr. Meshel met with two Federal Bureau of Investigation ("FBI") agents to discuss his and Dr. Lam's observations of Tenet's charging practices. Id. ¶ 14. He again met with FBI agents on April 16, 2002 to, discuss Tenet's misuse of medical director fees and overcharges associated with certain DRGs. Id. ¶ 16. During this meeting, one FBI agent told Dr. Meshel that "the case might be difficult to prove." Id. Though disappointed, Dr. Meshel continued to gather information and meet with FBI agents from April through September of 2002. Id. ¶¶ 16-19.
In July 2002, David Buchmueller became Administrator of Southwestern and acknowledged that Providence and Sierra were "Holiday Inns" charging "Four Seasons" prices. Id. ¶ 17. He gave Dr. Meshel a book comparing national DRG charges for five common DRGs. Id. ¶ 18. The information in this book affirmed Drs. Meshel's and Lam's suspicions that the charges at Providence and Sierra were extraordinarily high. Id. ¶ 18. Consequently, Dr. Meshel continued to meet with FBI agents to discuss Tenet's outlier practices. Id. ¶ 20.
On November 18, 2002, Drs. Lam and Meshel filed a qui tam action on behalf of the United States. See generally Compl. for Damages and Inj. Relief Under False Claims Act. In July 2005, the Government formally indicated an intention not to intervene in the suit. Accordingly, Relators pursue this case on their own, alleging two causes of action. First, Relators allege that "Tenet improperly manipulated the [o]utlier system by artificially inflating its charges when its real costs remained constant or even declined," thereby improperly manipulating payments from the Medicare/Medicaid system. Id. ¶ 31. Second, Relators allege that Tenet developed a "kickback scheme," whereby it offered remuneration in the form of, medical directorships at Tenet and reimbursement of office expenses to physicians who referred patients to Tenet hospitals. Id. ¶¶ 34, 46.
The False Claims Act, 31 U.S.C. § 3729 et seq., ("FCA") permits private parties to bring certain suits on behalf of the United States against anyone submitting a false claim to the government. Reagan v. E. Tex. Med. Ctr. Reg'l Healthcare Sys., 384 F.3d 168, 173 (5th Cir.2004). However, courts lack jurisdiction to hear these qui tam claims unless the private parties bringing them pass the FCA's "public disclosure bar," set forth in 31 U.S.C. § 3730(e)(4)(A). Id.; see also Qui tam Action, BLACK'S LAW DICTIONARY (8th ed.2004), available at http://www.westlaw. com ("An action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive.") Specifically, the public disclosure bar provides:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
31 U.S.C. § 3730(e)(4)(A).
A challenge under the public disclosure bar is treated as a motion for summary judgment because it is intertwined with the merits of the case. Reagan, 384 F.3d at 173; Laird v. Lockheed Martin Eng'g and Sci. Serv. Co., 336 F.3d 346, 350 (5th Cir.2003). Summary judgment is proper if, viewing the evidence and inferences drawn from the evidence in a light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED.R.Crv.P. 56(c); Reagan, 384 F.3d at 173. A court may not weigh the evidence or evaluate the credibility of witnesses at this stage. Reagan, 384 F.3d at 173. Rather, all inferences should be made in favor of the non-moving party. Id.
In addition, Federal Rule of Civil Procedure 9(b) requires that claims brought under the FCA must be pled with particularity. FED.R.Civ.P. 9(b); United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 328 (5th Cir.2003) (citing United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1998)). At a minimum, Rule 9(b) "requires that a plaintiff set forth the `who, what, when, where, and how' of the alleged fraud.'" Dow Chem. Co., 343 F.3d at 328. As such, motions to dismiss brought under Rule 9(b) are treated as motions to dismiss brought under Rule 12(b)(6). Id.
A motion to dismiss pursuant to Rule 12(b)(6) challenges a complaint on the basis that it fails to state a claim upon which relief may be granted. FED.R.Civ.P. 12(b)(6). In ruling on a Rule...
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