Chesbrough v. Vpa

Decision Date23 August 2011
Docket NumberNo. 10–1494.,10–1494.
Citation655 F.3d 461
PartiesRichard CHESBROUGH, MD and Kim Chesbrough, Plaintiffs–Appellants,v.VPA, P.C., doing business as Visiting Physicians Association, Defendant–Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED: Danielle C. Schoeny, Sommers Schwartz, P.C., Southfield, Michigan, for Appellants. Sheldon H. Klein, Butzel Long, Bloomfield Hills, Michigan, for Appellee. ON BRIEF: Danielle C. Schoeny, Sommers Schwartz, P.C., Southfield, Michigan, for Appellants. Debra A. Geroux, Butzel Long, Bloomfield Hills, Michigan, Max R. Hoffman, Jr., Butzel Long, Lansing, Michigan, for Appellee.Before: BOGGS, GILMAN, and COOK, Circuit Judges.

OPINION

BOGGS, Circuit Judge.

Dr. Richard and Kim Chesbrough appeal the district court's grant of the motion of Visiting Physicians Association, P.C. (VPA) to dismiss their lawsuit alleging violations of the Federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., and the Michigan Medicaid False Claim Act. The Chesbroughs allege as qui tam relators on behalf of the United States that VPA defrauded the government by submitting Medicare and Medicaid billings for defective radiology studies, and that the billings were also fraudulent because VPA was an invalid corporation. We affirm the district court's dismissal of the Chesbroughs' action because the Chesbroughs failed to identify any specific fraudulent claim submitted to the government, as is required to plead an FCA violation with the particularity mandated by Federal Rule of Civil Procedure 9(b).

I

Dr. Chesbrough runs Radiology Medical Consultants (“RMC”), a radiology service business. On January 27, 2006, RMC entered into an agreement with VPA, which provides in-home medical services for homebound and disabled patients, to interpret images created by VPA's technologists. The contract provided that RMC would serve as an independent contractor and would have “no involvement with billing procedures of Medicare, Medicaid,” or any other provider. VPA would pay RMC for each exam interpreted, per a fee schedule. According to the Chesbroughs, the images VPA provided them for interpretation were often of poor quality or defective, because the films were overexposed, underexposed, improperly positioned, or omitted necessary clinical information. After approximately six months, RMC ended its relationship with VPA.

On December 18, 2006, the Chesbroughs filed this action under seal. They alleged that the diagnostic studies billed by VPA were “false and/or fraudulent,” in violation of 31 U.S.C. § 3729(a)(1)-(2), and the Michigan Medicaid False Claim Act, MCL 400.611(10)(a)(1),1 because the tests “were either not properly documented as to indication, were performed with equipment that did not conform to industry standards[,] or were administered by inadequately trained radiology technologists.” The Chesbroughs alleged that “approximately one-half of the studies reviewed ... were of either no diagnostic value or limited diagnostic value.” More specifically, they alleged that 50% of the x-ray examinations they reviewed were “so limited or non-diagnostic as to represent defective testing,” but that “all were submitted for full reimbursement by VPA.” They alleged that 60% of the ultrasound studies they reviewed “did not have appropriate images to render a diagnostic interpretation.” They further alleged that 50% of the echocardiograms they reviewed were nondiagnostic or of poor quality. They also alleged that the x-ray examinations and ultrasound studies often had no clinical history or identifying information attached.

The Chesbroughs also alleged that VPA was not owned by a physician, in violation of Michigan's Professional Service Corporation Act, MCL 450.221 et seq. , and that it was therefore operating as an unauthorized or illegal corporation, in violation of 31 U.S.C. § 3729(a)(2), (7).

The Chesbroughs attached as exhibits to their complaint twenty-seven examples of x-ray examinations that they alleged were defective because of “light technique,” poor positioning, or limited views. The x-ray studies included the patient and ordering physician's names, the account number, the facility, the technician's name, and the date of the exam. They also attached a review performed by a vascular technologist of ten ultrasound vascular studies. The reviewer indicated the patients' names and the dates of the studies and opined that the studies did not meet professional standards of practice.

On March 23, 2009, the United States declined to intervene in the action, pursuant to 31 U.S.C. § 3730(b)(4)(B), giving the Chesbroughs the right to continue the action themselves. The district court lifted the seal and ordered the complaint served on April 6, 2009.

On October 23, 2009, VPA filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that the complaint failed to meet the particularity requirements of Rule 9(b). The district court dismissed the complaint on March 30, 2010, after a hearing, reasoning as follows:

The plaintiffs here appear to be speculating [that] their fraudulent claims were submitted.... The plaintiffs here are unable to provide dates or particularities for even a single claim that was submitted to the government, much less any false statement made in connection therewith.

The Chesbroughs timely appealed. In their appeal, they raise only the issue of whether their FCA claims meet the requirements of Rule 9(b).

II

The FCA penalizes [a]ny person who ... knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1) (2006). It also punishes any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government,” id. § 3729(a)(2), or “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,” id. § 3729(a)(7).2 The penalties to which the FCA subjects a person who submits a false claim to the federal government can include civil penalties and triple damages. See ibid. If the government declines to intervene in an action, the relator may proceed independently and be awarded a “reasonable amount”—between 25 and 30 percent—of any proceeds or settlement, along with reasonable costs and attorney's fees. Id. § 3730(d)(2).

Complaints alleging FCA violations must comply with Rule 9(b)' s requirement that fraud be pled with particularity because defendants accused of defrauding the federal government have the same protections as defendants sued for fraud in other contexts.” Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir.2003). Rule 9(b) requires that [i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” The Rule's purpose is to alert defendants “as to the particulars of their alleged misconduct” so that they may respond. United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 503 (6th Cir.2007). The heightened pleading standard is also designed to prevent “fishing expeditions,” id. at 503 n. 11, to protect defendants' reputations from allegations of fraud, ibid., and to narrow potentially wide-ranging discovery to relevant matters, United States ex rel. SNAPP, Inc. v. Ford Motor Company, 532 F.3d 496, 504 (6th Cir.2008) (“ SNAPP I ”).

We review de novo a district court's dismissal of a complaint for failure to plead with particularity under Rule 9(b). Bledsoe, 501 F.3d at 502. The Rule “is to be interpreted in conjunction with Federal Rule of Civil Procedure 8,” requiring a “short and plain statement of the claim.” Id. at 503. Construing the complaint in the light most favorable to the plaintiff and accepting all factual allegations as true, we determine whether the complaint contains “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To plead fraud with particularity, the plaintiff must allege (1) “the time, place, and content of the alleged misrepresentation,” (2) “the fraudulent scheme,” (3) the defendant's fraudulent intent, and (4) the resulting injury. Bledsoe, 501 F.3d at 504.

For the purposes of this case, the relevant elements of the claim are the “fraudulent scheme” and the “misrepresentation”—the actual presentment of a false claim to the government.

The Fraudulent Scheme

We first examine whether the Chesbroughs have alleged a scheme that constitutes “fraud” within the meaning of the FCA. They allege that VPA engaged in a pattern of “continuous fraudulent Medicare and Medicaid billing.” The FCA reaches claims submitted by health-care providers to Medicare and Medicaid—indeed, one of its primary uses has been to combat fraud in the health-care field. Mikes v. Straus, 274 F.3d 687, 692 (2d Cir.2001).

As examples of VPA's alleged fraud, the Chesbroughs attached to their complaint twenty-seven x-ray studies and a review of ten vascular ultrasound studies, all of which were allegedly defective or nondiagnostic. Most of the studies are described as “suboptimal” or of “poor quality,” or as failing to meet “standards of care.” The equipment used and the technicians' technique are criticized. The Chesbroughs allege that the studies do not meet industry standards established by the American College of Radiology and the Society for Vascular Ultrasound. Of the thirty-seven appended studies, five are described as nondiagnostic, while the rest were apparently used for diagnosis. See R.20–2 (Ex.D) at 3, 4, 9, 14, 16. The Chesbroughs argue that “Medicare and Medicaid should not reimburse for such poor...

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