United States v. Medco Health Solutions, Inc.

• Decision Date: 22 February 2012
• Docket Number: No. 10–15406.,10–15406.
• Citation: 23 Fla. L. Weekly Fed. C 787,671 F.3d 1217
• Parties: UNITED STATES of America, ex rel., Plaintiff,Lucas MATHENY, Deborah Loveland, Plaintiffs–Appellants, v. MEDCO HEALTH SOLUTIONS, INC., PolyMedica Corporation, Liberty Healthcare Group, Inc., Liberty Medical Supply, Inc., Liberty Commercial Health Services Corp., et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

23 Fla. L. Weekly Fed. C 787

671 F.3d 1217

UNITED STATES of America, ex rel., Plaintiff,Lucas MATHENY, Deborah Loveland, Plaintiffs–Appellants,

v.MEDCO HEALTH SOLUTIONS, INC., PolyMedica Corporation, Liberty Healthcare Group, Inc., Liberty Medical Supply, Inc., Liberty Commercial Health Services Corp., et al., Defendants–Appellees.

No. 10–15406.

United States Court of Appeals, Eleventh Circuit.

Feb. 22, 2012.

Mark Aloysius Cullen, Cullen Law Firm, PA, West Palm Beach, FL, for Plaintiffs–Appellants.

Enu Mainigi, Jennifer G. Wicht, Williams & Connolly, LLP, Washington, DC, Henry D. Fellows, Jr., Fellows LaBriola, LLP, Atlanta, GA, Michael Tarre, Miami, FL, for Defendants–Appellees.

Appeal from the United States District Court for the Southern District of Florida.Before WILSON and FAY, Circuit Judges, and RESTANI,^* Judge.RESTANI, Judge:

Appellants Lucas W. Matheny (“Matheny”) and Deborah Loveland (“Loveland”) (collectively “Relators”) appeal the decision of the United States District Court for the Southern District of Florida dismissing with prejudice Relators' Third Amended Complaint for failure to state a claim upon which relief may be granted. The district court held that Relators failed to allege with particularity, as required by Federal Rule of Civil Procedure 9(b), that the Defendants knowingly made a false statement for the purpose of concealing or avoiding an obligation to pay money to the government. For the following reasons, we reverse and hold Counts I and II of Realtors' Third Amended Complaint are sufficient to survive a motion to dismiss for failure to state a claim.¹

BACKGROUND

Relators Lucas Matheny and Deborah Loveland brought a qui tam action ² against defendant Medco Health Solutions, Inc. (“Medco”) and its subsidiaries, alleging violations of the reverse false claim provision of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(7) (2006) (amended 2009).³ The subsidiary defendants include PolyMedica Corporation (“PolyMedica”), Liberty Healthcare Group, Inc. (“LHG”), and Liberty Medical Supply, Inc. (“LMS”).⁴ Two corporate executives of LMS were also named as defendants, Arlene Parazella, the Executive Vice President of Operations, and Carl Dolan, the Vice President of Special Projects and Compliance.

We account the facts as alleged in the Third Amended Complaint (“Complaint”). Relator Matheny was employed as a Report Analyst, Accounts Receivable Manager, Project Manager, and eventually Cash Management Manager by defendant LMS. Relator Loveland was employed as Accounting Manager, Director, Assistant Controller, and Controller by LMS and LHG. All of the corporate and individual Defendants were subject to a Corporate Integrity Agreement (“CIA”), which the parent company PolyMedica entered into with the Office of the Inspector General of the U.S. Department of Health and Human Services in November 2004.⁵ The CIA required the Defendants to remit payments from the government that lacked sufficient documentation and payments received in duplicate or in error. The CIA defined these excess or unidentified payments as “Overpayments.” The CIA required the Defendants to return to the government all Overpayments within thirty days of identification with the use of an “Overpayment Refund Payment Form.”

During their time as employees, Relators became aware of a scheme by their supervisors to conceal approximately $69 million dollars in Overpayments that, under the CIA, should have been remitted to the government. Relators first learned of Overpayments in an April 2006 meeting attended by Relator Matheny and Defendants Parazella and Dolan. At this meeting, PolyMedica's Compliance Officer Alana Sullivan informed the Defendants that the Overpayments identified at the meeting needed to be refunded to the government. Despite the identification of Overpayments, Parazella and Dolan stated in the April 2006 meeting that the Defendants would not repay the Overpayments because they lacked the manpower to do so.

The Overpayments were never refunded and instead remained in the Defendants' possession through April 2008. By March 2008, Defendants Parazella and Dolan had identified over $62 million in Overpayments resulting from the lack of documentation and $7 million in Overpayments due to duplicate billings, billings in error, or some other error. Under the direction of Parazella and Dolan, Defendants developed a scheme by which the Overpayments were transferred to unrelated patient accounts, fictitious patient accounts, or eliminated from the records through a computer program called a “datafix.” Relator Matheny reported the datafix scheme to PolyMedica's Compliance Officer Kim Ramey and was later told by the Assistant Vice President of Compliance that the datafix scheme was appropriate and had been approved by PolyMedica's Chief Operating Officer. Relator Matheny worked with other employees to perform the datafix.

PolyMedica's Compliance Officer Kim Ramey, despite knowledge of the scheme to retain and conceal the Overpayments in violation of the CIA, certified in a 2008 report to the government that the Defendants had complied with all CIA requirements (the “Certification of Compliance”). Count I alleges that the 2008 Certification of Compliance was false due to the failure to report or remit the millions of dollars in identified Overpayments, and that the Defendants made and used the Certification to conceal and avoid the obligation to remit Overpayments.

Count II involves the same obligation to remit Overpayments within thirty days but is based on a separate scheme and separate false records. In addition to a certification of compliance, the CIA required the Defendants to submit annually a random sample of patient accounts (the “Discovery Sample”) to the Office of Inspector General/Independent Review Organization (“IRO”). The IRO would then review the patient accounts in the Discovery Sample to determine whether all CIA requirements had been satisfied. If the IRO review resulted in an error rate of above 5%, the IRO would initiate an audit of all patient accounts.

Instead of supplying a Discovery Sample of random patient accounts as required, Defendants removed accounts that contained Overpayments, generated multiple samples, and then removed all remaining evidence of the Overpayments from these samples until a perfect sample was created. As a result, the Discovery Sample passed the annual IRO review in 2005 through 2008 with a 0% error rate and the Defendants avoided a full audit, which would have revealed the unresolved Overpayments. Relator Matheny personally participated in the manipulation of the Discovery Sample. Count II alleges the Defendants made and used these false Discovery Samples to conceal the obligation to remit Overpayments within thirty days of identification.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction to review a final order of the district court under 28 U.S.C. § 1291.⁶ We review de novo a dismissal for failure to state a claim upon which relief may be granted. Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir.2005) (per curiam) (citing United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1307 n. 11 (11th Cir.2002)). We accept as true the facts alleged in the complaint and construe the facts in the light most favorable to the plaintiff. Corsello, 428 F.3d at 1012; White v. Lemacks, 183 F.3d 1253, 1255 (11th Cir.1999).

DISCUSSION

The False Claims Act (“FCA”) imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government[.]” 31 U.S.C. § 3729(a)(7).⁷ This is known as the “reverse false claim” provision of the FCA because liability results from avoiding the payment of money due to the government, as opposed to submitting to the government a false claim. See United States v. Pemco Aeroplex, Inc., 195 F.3d 1234, 1235–36 (11th Cir.1999). The purpose of the FCA is to encourage private citizens who are aware of fraud against the government to expose the fraud, while preventing opportunistic suits by individuals who hear of fraud publicly but play no part in exposing it. Cooper, 19 F.3d at 565.

To establish a reverse false claim, a relator must prove: (1) a false record or statement; (2) the defendant's knowledge of the falsity; (3) that the defendant made, used, or causes to be made or used a false statement or record; (4) for the purpose to conceal, avoid, or decrease an obligation to pay money to the government; and (5) the materiality of the misrepresentation. See 31 U.S.C. § 3729(a)(7); see also United States v. Bourseau, 531 F.3d 1159, 1164–70 (9th Cir.2008).

At the pleading stage, a complaint alleging violations of the FCA must satisfy two pleading requirements. First, the complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A complaint cannot merely recite the elements of a cause of action but must contain factual allegations sufficient to raise the right to relief above the speculative level. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Second, a complaint must comply with Rule 9(b)'s heightened pleading standard, which requires a party to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b); Clausen, 290 F.3d at 1308–09 (holding Rule 9(b) applies to FCA claims). The purpose of Rule 9(b) is to “alert[ ] defendants to the precise misconduct with which they are charged and protect[ ] defendants against spurious charges....” Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir.2001) (citation and internal quotation marks omitted).

The particularity requirement of Rule 9(b) is satisfied if the complaint alleges “facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of ...