U.S. Ex Rel. Barrett v. Columbia/HCA Health Care Corp., Case no. 99cv3304 (RCL), (Part of 01ms50) (RCL) (D. D.C. 2/24/2003)

• Decision Date: 24 February 2003
• Docket Number: Case no. 99cv3304 (RCL), (Part of 01ms50) (RCL).
• Parties: UNITED STATES OF AMERICA ex rel. SCOTT BARRETT, et al., Plaintiffs, v. COLUMBIA/HCA HEALTHCARE CORP., et al., Defendants.
• Court: U.S. District Court — District of Columbia

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UNITED STATES OF AMERICA ex rel. SCOTT BARRETT, et al., Plaintiffs, v. COLUMBIA/HCA HEALTHCARE CORP., et al., Defendants.

Case no. 99cv3304 (RCL), (Part of 01ms50) (RCL).

United States District Court, District of Columbia.

February 24, 2003.

Jeffrey S. Thompson, Thao Ho, Williams Bailey Law Firm, LLP, Houston, TX, R. Gary Stephens, Stephens & Stephens, Houston, TX, for plaintiffs.

Roger S. Goldman, Richard P. Bress, Jennifer & Watkins, Washington, DC, Joseph Wheeler, Katherine Lauer, San Diego, CA, for defendants.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This case comes before the Court on HCA's motion to dismiss [188], Relators' response [242], HCA's reply [275], the United States' statement of interest [203], the United States second statement of interest [597] and HCA's response [617]. Relators attached a proposed second amended complaint to their response [242], which the Court will treat as a deemed motion for leave to file, to which HCA responded [275]. A. Scott Pogue, a relator in another case pending before this Court filed a motion for leave to file a statement [388], to which HCA filed a motion for leave to respond [417]. James M. Thompson, also a relator in another case pending before the Court, filed a statement [427]. Upon consideration of the case, the parties' motions and responses, and the law, HCA's motion to dismiss will be granted in part.

I. Background

This case is part of the multi-district litigation of False Claims Act qui tam suits against HCA and various related entities. This action comprises various claims made against Gramercy, an ambulatory surgery center (ASC) located in Houston, Texas and a subsidiary of HCA.¹ The Relators, two former Gramercy employees, allege various types of wrongdoing at Gramercy, and filed False Claims Act and various other causes of action. HCA moved to dismiss their complaint.

II. False Claims Act Claims

A. Kickbacks and the False Claims Act

HCA argues that kickbacks cannot give rise to an FCA cause of action. This is contrary to existing precedent, including from this Court. See, e.g., United States ex rel. Pogue v. Diabetes Treatment Centers of Am., Inc., ___ F. Supp.2d ___ (D.D.C. 2002) (Lamberth, J.), available in 2002 WL 31856364 (for a more extensive discussion of this issue, the Court refers the parties to this opinion); United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F. Supp.2d 1017, 1047 (S.D.Tex. 1998); United States ex rel. Pogue v. American Healthcorp., Inc., 914 F. Supp. 1507, 1508 (M.D.Tenn. 1996). The cases stating that kickback claims state a cause of action under the FCA rely on precedent stating that FCA liability arises where information is concealed in the submission of a claim that, if known to the government, would affect the government's decision to pay on that claim. Succinctly,

A number of courts in a variety of contexts have found violations of the False Claims Act when a government contract or program required compliance with certain conditions as a prerequisite to a government benefit, payment, or program; the defendant failed to comply with those conditions; and the defendant falsely certified that it had complied with the conditions in order to induce the government benefit.

United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786 (4th Cir. 1999). Courts have found that kickback and Stark Law (self-referral) violations affect the government's decision to pay. See Pogue, Thompson, supra; see also Medicare Health Care Provider/Supplier Application, OMB Approval No. 0938-0685 at ¶ 4² ("I understand that payment of a claim by Medicare or other federal health care programs is conditioned on the claim and the underlying transaction complying with such laws, regulations and program instructions (including the anti-kickback statute and the Stark law). . . ."); 42 U.S.C. § 1395nn(g)(1) (prohibiting payment for health services provided in violation of the Stark law).

B. Implied Certification

HCA argues that mere lack of regulatory compliance does not rise to the level of an FCA violation, but that there must be a false certification of compliance before the FCA is violated. HCA relies on the fact that Gramercy, the facility at which the violations are alleged to have occurred, is an ambulatory surgery center (ASC), and as such is not required to file an annual cost report or other document certifying compliance with Medicare statutes. This ignores the implied certification theory, which does not require an explicit statement of certification of compliance with laws and regulations.

The theory of implied certification, as set out in Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429 (Fed. Cl. 1994), is that where the government pays funds to a party, and would not have paid those funds had it known of a violation of a law or regulation, the claim submitted for those funds contained an implied certification of compliance with the law or regulation and was fraudulent. Ab-Tech, 31 Fed. Cl. at 434. The implied certification theory essentially requires a materiality analysis. Certification of compliance with the statute or regulation alleged to be violated must be so important to the contract that the government would not have honored the claim presented to it if it were aware of the violation. See, e.g., United States v. TDC Mgmt. Corp., Inc., 288 F.3d 421, 426 (D.C. Cir. 2002) (TDC II) (holding the defendant liable for omitting information "indicating that it was acting in a manner that was contrary to the core terms of the Program" (italics added)); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999) (stating that liability under the False Claims Act must meet a judicially-imposed standard of materiality, which depends on "`whether that false statement has a natural tendency to influence agency action or is capable of influencing agency action'" (citations omitted)).

HCA focuses heavily on United States ex rel. Siewick v. Jamieson Science & Engineering, Inc., 214 F.3d 1372 (D.C. Cir. 2000), for the proposition that the implied certification is not a viable FCA theory in this Circuit. This is a misreading of Siewick. Siewick involved an analysis of whether the statute the defendant was alleged to have violated was such a material term of the government contract that payment would have been withheld had the government known of the violation, i.e., whether "payment [was] conditioned on that certification" of compliance with the statute. Id. at 1376. Siewick acknowledges that "[c]ourts have been ready to infer certification from silence," with the caveat that it will be implied "only where certification was a prerequisite to the government action sought." Id. Because Siewick had not proven that certification of compliance with the statute alleged to have been violated was a condition of the contract, his claim of implied certification failed. Id. The Siewick Court in no way foreclosed the validity of the implied certification theory in this Circuit, it merely conducted the proper implied certification analysis and found the Relator's allegations wanting.

Here, by contrast, compliance with the Anti-Kickback and Stark laws would affect the government's decision to pay, as discussed above. See also United States ex rel. Pogue v. Diabetes Treatment Centers of Am., Inc., ___ F. Supp.2d ___, available in 2002 WL 31856364. Siewick does not reject the foundation on which Relator's claims are laid. Furthermore, two years after Siewick the D.C. Circuit again expressed willingness to endorse the implied certification theory in United States v. TDC Management Corp., Inc., 288 F.3d 421, 426 (D.C. Cir. 2002) (TDC II). The Court cited Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429 (1994), one of the leading implied certification cases, with approval: "`The withholding of such information-information critical to the decision to pay-is the essence of a false claim.'" TDC II, 288 F.3d at 426 (quoting Ab-Tech, 31 Fed. Cl. at 434).

C. Pleading Fraud with Particularity

1. Legal Standard

HCA urges that Relators' First Amended Complaint fails to plead fraud with particularity, thus failing to satisfy the heightened pleading requirements of Fed.R.Civ.P. 9(b). Rule 9(b) requires the circumstances constituting fraud to be stated with particularity, and applies to FCA actions. United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1383 (D.C. Cir. 1981). The main purpose of Rule 9(b) is to ensure that defendants have notice of the charges against them adequate to prepare a defense. United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) counsels: "A court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Id. at 784. Furthermore, Rule 9(b) is mitigated by Rule 8's short and plain statement language, and the simplicity and flexibility contemplated by the rules must be taken into account when reviewing a complaint for 9(b) particularity. United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385-86 (D.C. Cir. 1981).

The D.C. Circuit addressed how Rule 9(b) applies to qui tam cases in United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002). The court noted that under 9(b) the circumstances that must be pleaded with specificity include "`time, place, and contents of the false representations.'" Id. at 552 (citations and emphasis omitted). The relator in that case had alleged only that non-conforming goods had been delivered, not that the defendants had made false claims as a result of that delivery. Id. at 551. The court ruled that the relator "must set forth an adequate factual basis for his allegations that the Contractors submitted false...