Sanderson v. Hca-the Healthcare Co.

• Decision Date: 12 May 2006
• Docket Number: No. 04-6342.,04-6342.
• Parties: Philip H. SANDERSON, Plaintiff-Appellant, v. HCA-THE HEALTHCARE COMPANY; Columbia Health Care Corporation; Hospital Corporation of America; and HealthTrust Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

447 F.3d 873

Philip H. SANDERSON, Plaintiff-Appellant, v. HCA-THE HEALTHCARE COMPANY; Columbia Health Care Corporation; Hospital Corporation of America; and HealthTrust Inc., Defendants-Appellees.

No. 04-6342.

United States Court of Appeals, Sixth Circuit.

Argued: September 19, 2005.

Decided and Filed: May 12, 2006.

ARGUED:

John D. Schwalb, Williams & Schwalb, Franklin, Tennessee, for Appellant. Walter P. Loughlin, Latham & Watkins, New York, New York, for Appellees.

ON BRIEF:

John D. Schwalb, Williams & Schwalb, Franklin, Tennessee, for Appellant. Walter P. Loughlin, Latham & Watkins, New York, New York, John R. Hellow, Hooper, Lundy & Bookman, Los Angeles, California, for Appellees.

Before: DAUGHTREY and MOORE, Circuit Judges; ALDRICH, District Judge.^*

DAUGHTREY, Circuit Judge.

In this False Claims Act suit, Philip Sanderson charged that the defendants, HCA—The Healthcare Company (now HCA, Inc.) and its corporate predecessors, Columbia Health Care Corporation, Hospital Corporation of America, and HealthTrust, Inc. (collectively "HCA"), had violated the Act by filing "hospital cost reports" based on the allocation of corporate debt expense to its individual facilities rather than to the "home office," a practice that Sanderson contends was in violation of Medicare and similar federal programs from which HCA was claiming reimbursement. The district court dismissed the complaint, holding that, as amended, it failed to meet the pleading standards for allegations of fraud under Federal Rule of Civil Procedure 9(b), that it failed to state a cause of action under Rule 12(b)(6), and that it was filed outside the applicable six-year statute of limitations. Because we conclude that the complaint was subject to dismissal for failure to conform to the requirements of Rule 9(b), we affirm the judgment of the district court. Having made that determination, we decline to address the remaining questions raised on appeal.

FACTUAL AND PROCEDURAL BACKGROUND

Sanderson was employed by HCA—one of the country's largest hospital chains— from 1975 to 1989, working as an auditor responsible for, among other things, reviewing cost reports, preparing budgets, and coordinating year-end audits by outside auditing firms. On June 28, 2001, more than 11 years after he left HCA Sanderson filed this qui tam action in the name of the United States, charging that the defendants had overcharged the government for reimbursements under the Medicare, Medicaid, and Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) programs.¹ Specifically, the plaintiff claimed as relator that the defendants had incurred millions of dollars of debt for construction purposes as part of a long-term acquisition and expansion project. Rather than claim this debt as an expense of the home office and submit it as an expense for federal reimbursement based on the weighted-average Medicare use rate of all HCA-owned hospitals, the plaintiff alleged, the defendant allocated this corporate debt among the individual hospitals based on the percentage of Medicare-eligible service the hospitals provided. In this way, the plaintiff claimed, the largest portions of the debt were included in the expenses of those hospitals that had the highest Medicare service rates, and HCA was thereby able to reap the greatest federal reimbursement possible.

The qui tam complaint included a handwritten "analysis of debt allocation" prepared by Sanderson that purported to reflect how several multi-million dollar debt issuances by HCA had been allocated among various hospitals for the years 1981-1986. The latest item on the list was dated August 21, 1986. The plaintiff also attached two internal memoranda written from one HCA official to another in 1981 and a third written in 1983 that discussed the debt allocation. These were the only specific dates and incidents included in the original complaint. However, following both a notice from the government that it was declining to intervene in the action and a motion to dismiss filed by HCA, the plaintiff amended the complaint, purportedly to "plead more particularly." Nevertheless, the amended complaint was virtually unchanged from the original, except that it offered a more detailed explanation of the process by which the defendants allegedly overcharged the United States and claimed that "the defendants and their predecessors, upon information and belief either continued the direct assignment of debt or made a direct `reassignment' of debt and corresponding debt expense to the same facilities or other facilities with greater utilization rates. . . ." The plaintiff's allegation that some of the various notes securing the company's construction debts were not due until 1996 and 1999 and that one set of debentures would come "due in 2016" set out the only dates in the amended complaint that fell within the statute of limitations.

The complaint did not refer to a specific fraudulent cost report or other claim filed with the government, nor did it detail who had filed such a claim or when it had been filed. The plaintiff, in a grammatically awkward allegation, asserted that the defendant's interest expense "is ongoing and continues until such time as the debt was fully retired, thereby resulting in continued overpayment until such time as the debt was fully paid or amortized. Thus, debt assigned in year one would result in an inflated cost report for the facility for as many as 20 or even 30 years into the future and continues to this day." There is, however, no allegation that the debentures are still outstanding, only that if not "fully paid or amortized," they would produce inflated debt expense.

The other component missing from the complaint is any identification of the "applicable laws and regulations" that purportedly required allocation of debt expense to the "home office."

The defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the six-year statute of limitations in the False Claims Act, 31 U.S.C. § 3731(b)(1). The district court granted the motion on all three grounds, finding that the plaintiff had failed "to set forth specific allegations of fraudulent conduct . . . within six years of the filing date of this action." Specifically, the court held that the bare contention in the amended complaint that HCA's allegedly fraudulent conduct continued after 1995, based only upon "information and belief," was too "vague and cursory [to] rise to the heightened level of the requisite specificity under Rule 9(b)." The court also ruled that the complaint failed to state a claim upon which relief could be granted because the complaint "fails to describe. . . any fraudulent claims made during the statutory period" or "identify any applicable rule or regulation that was violated by HCA since 1995." (Emphasis added.) This appeal ensued.

DISCUSSION

We review de novo a district court's dismissal of a complaint for failure to state a claim, including dismissal for failure to plead with particularity under Rule 9(b). Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir.2003). In acting upon a motion to dismiss, a district court must accept as true the plaintiff's well-pleaded facts and draw all reasonable inferences in favor of the complaint. Id. Moreover, a complaint may not be dismissed "`unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim that would entitle him to relief.'" Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir.1988) (citing Conley v. Gibson, 355 U.S. 41, 45-6, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). However, when deciding a motion to dismiss under Rule 9(b) for failure to plead fraud with particularity, a court must also consider the policy favoring simplicity in pleading, codified in the "short and plain statement of the claim" requirement of Federal Rule of Civil Procedure 8. As we have noted, "Rule 9(b)'s particularity requirement does not mute the general principles set out in Rule 8; rather, the two rules must be read in harmony." Michaels Bldg. Co., 848 F.2d at 679. On the other hand, a district court need not accept claims that consist of no more than mere assertions and unsupported or unsupportable conclusions. Kottmyer v. Maas, 436 F.3d 684, 688 (6th Cir.2006).

The False Claims Act, 31 U.S.C. §§ 3729 et seq., makes illegal the submission of false or fraudulent claims to the federal government. The so-called "qui tam" provision in § 3730(b) authorizes private individuals to sue on behalf of the government in order to aid in ferreting out abuses, thereby "unleashing a posse of ad hoc deputies to uncover and prosecute frauds against the government." Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999) (citations and internal quotation marks omitted). Originating during the Civil War in response to widespread fraud in wartime defense contracts, the Act has been repeatedly amended, representing "a long history of repeated congressional efforts to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior." United States ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 225 (1st Cir.2004) (internal citations and quotations omitted). The facts here suggest that opportunism rather than legitimate whistle-blowing motivated the filing of Sanderson's complaint.

Because the basis for a qui tam action is fraud in the filing of claims against the government, we have held, as have other circuit courts in False Claims Act cases that allegations in the complaint must comply with the particularity requirements of Federal Rule of Civil Procedure 9(b). Yuhasz, 341 F.3d at 563; see also Karvelas, 360 F.3d at 228 (collecting cases). We have further interpreted Rule 9(b) to require that a plaintiff "allege the time, place, and content of the alleged misrepresentations on which he or she relied; the fraudulent scheme; the fraudulent...