U.S. ex rel. Boothe v. Sun Healthcare Group, Inc.

• Decision Date: 07 August 2007
• Docket Number: No. 06-2156.,06-2156.
• Citation: 496 F.3d 1169
• Parties: UNITED STATES of America ex rel. Louanne BOOTHE, Plaintiff-Appellant, v. SUN HEALTHCARE GROUP, INC. Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

496 F.3d 1169

UNITED STATES of America ex rel. Louanne BOOTHE, Plaintiff-Appellant, v. SUN HEALTHCARE GROUP, INC. Defendant-Appellee.

No. 06-2156.

United States Court of Appeals, Tenth Circuit.

August 7, 2007.

Maureen A. Sanders, Sanders & Westbrook, P.C., Albuquerque, NM (Duff Westbrook, Sanders & Westbrook, P.C. and Daniel M. Faber, Albuquerque, NM, with her on the briefs), for Plaintiff-Appellant.

Paul E. Kalb, Sidley Austin LLP, Washington, D.C. (John W. Boyd and Zachary A. Ives, Freedman Boyd Daniels Hollander & Goldberg, Albuquerque, NM, with him on the brief) for Defendant-Appellee.

Before LUCERO, MURPHY, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Louanne Boothe, a former finance and accounting employee of Sun Healthcare Group, Inc., a Medicare and Medicaid provider, filed a qui tam complaint, alleging that Sun overbilled the United States in ten distinct ways. Finding that three of these allegations were "based upon" information already in the public domain and that she was not an "original source" of that information, the district court held that it lacked subject matter jurisdiction under 31 U.S.C. § 3730(e)(4) of the False Claims Act, 31 U.S.C. §§ 3729-33, to hear the case.

We agree jurisdiction is lacking with respect to the three claims the district court analyzed. While we have not yet had occasion to address whether, as the district court's holding suggests, a deficiency in one claim precludes jurisdiction over all claims joined in the same lawsuit, today we clarify that it does not. Just as finding three bad apples does not necessarily warrant discarding the barrel, we hold that an independent jurisdictional analysis of each of Ms. Boothe's remaining seven claims of fraud is necessary, and accordingly remand for further proceedings.

I

During the period covered by this lawsuit, Sun, through its network of approximately 185 direct and indirect subsidiaries, operated medical facilities across the country that, among other things, provided services to Medicare- and Medicaid-eligible patients. Construing the facts in the light most favorable to Ms. Boothe as the party opposing summary judgment in this case, Sun defrauded Medicare in ten different ways.

First, and foremost in monetary terms, Ms. Boothe alleges that Sun over-billed the government by abusing the so-called Section 1010 exception in the years 2000-2002. Section 1000 of the Medicare Provider Reimbursement Manual prohibits providers like Sun from seeking reimbursement of any profit margins (as opposed to costs actually incurred) charged by related parties assisting it in providing services to the federal government. Meanwhile, Section 1010 provides a narrow exception to this rule if the related party meets certain requirements that, among other things, seek to ensure its profit margin is based on market forces rather than a purely arbitrary internal decision; thus, Section 1010 requires that a substantial portion of the related party's business must be done with third parties before its profit margin will qualify for reimbursement by the government. Sun's bills apparently included related party profits of $10.7 million that did not come close to meeting Section 1010's strictures.

Abusing Section 1010 was, however, but the tip of the iceberg, according to Ms. Boothe. Though perhaps individually less significant in monetary terms, Ms. Boothe contends that Sun also (2) defrauded Medicare by disregarding Medicare's prudent-buyer guidelines and overcharging for therapy management services to the tune of $2.6 million; (3) overstated its temporary nursing staff's labor hours in 2001 and 2002 at Denver Mediplex Specialty Hospital ("Denver Mediplex") by $500,000; (4) overcharged Medicare by $240,000 in 2002 for pharmacy charges at the North-view Psychiatric Hospital in Boise, Idaho; (5) improperly billed Medicare in 2001 for $200,000 worth of stolen medical supplies at Denver Mediplex; (6) overcharged Medicare by $540,000 in 2000-02 by funneling costs between Denver Mediplex and an affiliated outpatient clinic; (7) filed Medicare reimbursements for $3.6 million worth of mortgage interests payments in 2001 and 2002 associated with Denver Mediplex even though the mortgage was discharged in Sun's October 1999 bankruptcy; (8) released patients earlier than its prior practice from Ballard Rehabilitation Hospital in San Bernardino, California in order to inflate its Medicare revenue by $2 million; (9) manipulated patient discharges at Continental Rehabilitation Hospital in San Diego, California to impose improper costs on Medicare of $500,000; and (10) signed without the knowledge or consent of its patients admission forms for three years ending January 2003 in order to receive from Medicare $9 million in reimbursements for accident and injury treatments when liability potentially rested with third parties.

Ms. Boothe filed a sealed complaint in November 2003. She was, however, hardly the first qui tam relator to finger Sun for fraud; between October 1996 and June 1999 alone — as many as seven years before Ms. Boothe brought her suit — other relators filed no fewer than eleven other qui tam complaints against Sun. The allegations contained in these complaints bear striking resemblances to at least the first three aspects of Ms. Boothe's pleading, as they, too, charge Sun with (1) fraudulently invoking the Section 1010 exception to recoup improper related-party profits; (2) violating the prudent-buyer guidelines; and (3) overstating labor hours. In response to these earlier indications of fraud at Sun, the government conducted a nationwide investigation, culminating in a settlement agreement between Sun, the government, and various qui tam relators in 2002, the year before Ms. Boothe even filed suit.

After Ms. Boothe filed her qui tam complaint and the government indicated that it would not intervene, the district court unsealed the action. Shortly thereafter, Sun filed a motion to dismiss asserting, among other things, that the district court lacked subject matter jurisdiction to consider the case. After construing Sun's motion to dismiss as a motion for summary judgment — a decision not challenged before us — the district court held that it lacked subject matter jurisdiction over Ms. Boothe's suit because three of her claims were "based upon" publicly disclosed qui tam complaints and Ms. Boothe was not the "original source for the public disclosures in the prior [qui tam] suits."¹ Ms. Boothe timely filed her notice of appeal. We assess de novo the issues raised in this summary judgment disposition. See United States ex rel. Precision Co. v. Koch Indus., 971 F.2d 548, 551 (10th Cir.1992).

II

Originally passed by Congress in 1863 "to combat rampant fraud in Civil War defense contracts," the False Claims Act, as amended, see 31 U.S.C. §§ 3729-33, "covers all fraudulent attempts to cause the government to pay out sums of money." United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1194 (10th Cir.2006). Section 3730(a) authorizes the Attorney General of the United States to bring civil actions to remedy this fraud, while Section 3730(b)(1) authorizes private individuals, or relators, to bring qui tam civil suits on behalf of the government against those suspected of fraud — but only under certain heavily specified and well-familiar circumstances. As a bounty for identifying and prosecuting fraud on behalf of the government, not to mention complying with a gamut of procedural prerequisites, relators may receive up to 30 percent of any recovery they obtain. See 31 U.S.C. § 3730(d). Thus, the Act proceeds on a theory "as old as modern civilization, that one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain. Prosecutions conducted by such means compare with the ordinary methods as the enterprising privateer does to the slow-going public vessel." United States v. Griswold, 24 F. 361, 366 (D.Or.1885).²

Compliance with Section 3730(e)(4)(A) of Title 31, known as the public disclosure bar, is one of the prerequisites to suit faced by relators and the focus of our attention in this dispute. It provides that

[n]o 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 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) (emphases added). Essentially, then, Congress has directed us to follow a two-step inquiry when a relator files a qui tam action. We must first ask whether the relator's action is "based upon" a preexisting public disclosure of the defendant's wrongdoing. If it is, we must then ask whether the relator was the "original source of the information." If the relator did not serve as the "original source," we must dismiss the action for lack of subject matter jurisdiction. In other words, if the fraud upon the government has already come to light, Congress has conferred upon us the power to hear only qui tam actions from the relator who originally exposed the deception, not those from subsequent relators who may try to copycat and capitalize on the original source's efforts.

A

We begin our analysis under Section 3730(e)(4)(A) by focusing on three claims the district court discussed: (1) the Section 1010 fraud, (2) the violation of the prudent-buyer guidelines, and (3) the overstatement of labor hours, discussing the public disclosure bar's twin tests in turn.

1. Ms. Boothe readily concedes that each of these three allegations of fraud appear in prior qui tam suits. Sti...