U.S. ex rel. Hixson v. Health Management Systems

• Decision Date: 21 September 2009
• Docket Number: No. 4:07-cv-0465-JAJ.,4:07-cv-0465-JAJ.
• Citation: 657 F.Supp.2d 1039
• Parties: UNITED STATES of America ex rel. J. Russell HIXSON and Terrence D. Brown, Plaintiffs, v. HEALTH MANAGEMENT SYSTEMS, INC., ACS State Healthcare, LLC (f/k/a Consultec, Inc.), Kevin W. Concannon, and Eugene Gessow, Defendants.
• Court: U.S. District Court — Southern District of Iowa

657 F.Supp.2d 1039

UNITED STATES of America ex rel. J. Russell HIXSON and Terrence D. Brown, Plaintiffs, v. HEALTH MANAGEMENT SYSTEMS, INC., ACS State Healthcare, LLC (f/k/a Consultec, Inc.), Kevin W. Concannon, and Eugene Gessow, Defendants.

No. 4:07-cv-0465-JAJ.

United States District Court, S.D. Iowa, Central Division.

September 21, 2009.

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J. Russell Hixson, Hixson & Brown, PC, Clive, IA, pro se.

Terrence D. Brown, Hixson & Brown, PC, Clive, IA, pro se.

David M. Swinton, Belin Lamson McCormick Zumbach Flynn, P.C., Sheila M. Gowan, Diamond McCarthy LLP, New York, NY, for Defendant ACS State Healthcare, LLC.

Debra Lynne Hulett, Nyemaster Foode West Hansell & O'Brien PC, Des Moines, IA, Lorin M. Subar, Steve Sumner, Sumner Schick & Pace, Dallas, TX, David M. Swinton, Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, IA, for Defendant ACS State Healthcare, LLC.

Barbara E B Galloway, State of Iowa, Des Moines, IA, David M. Swinton, Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, IA, for Defendants Kevin W. Concannon and Eugene L. Gessow.

Maureen McGuire, U.S. Attorney's Office, Des Moines, IA, for United States of America.

ORDER

JOHN A. JARVEY, District Judge.

This matter comes before the court pursuant to Defendants' March 27, 2009 Motion to Dismiss [Dkt. 28], as supplemented on June 16, 2009 [Dkt. 48]. Relators resisted Defendants' Motion to Dismiss on July 10, 2009 [Dkt. 54]. Defendants submitted a reply brief on July 28, 2009 [Dkt. 63]. Defendants' Motion to Dismiss is granted.

I. MOTION TO DISMISS—THE LEGAL STANDARD

To survive a motion to dismiss, a complaint must allege facts that, accepted as true, "`state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim for relief is facially plausible where the facts permit "the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Bell Atlantic at 556, 127 S.Ct. 1955). This standard requires that factual allegations "raise a right to relief above the speculative level." Bell Atlantic at 555, 127 S.Ct. 1955 (citing 5 C. WRIGHT & A. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1216, 235-36 (3D ED.2004)). The plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic, 550 U.S. at 563, 127 S.Ct. 1955.

The court "may not consider materials outside the pleadings." Noble Sys. Corp. v. Alorica Cent., L.L.C., 543 F.3d 978, 982 (8th Cir.2008). When analyzing the adequacy of a complaint's allegations under Rule 12(b)(6), the court must accept as true all of the complaint's factual allegations and view them in the light most favorable to the plaintiff. Id.; see also Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) ("when ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint" (citations omitted)). "The issue is not whether plaintiffs will ultimately prevail, but rather whether they are entitled to offer evidence in support of their claims." U.S. v. Aceto Agr. Chemicals Corp., 872 F.2d 1373, 1376 (8th Cir.1989) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984) (quotation marks omitted)).

II. FACTUAL BACKGROUND

Relators J. Russell Hixson and Terrence D. Brown ("Relators") are attorneys who represent plaintiffs in medical malpractice cases in the State of Iowa. They are licensed to practice before this court. They allege that Defendants have violated the False Claims Act, 31 U.S.C. § 3729(a)(1)(A), (B), and (C) ("FCA") by failing to recover medical expenses paid by the Iowa Medicaid program when the expenses were necessitated by medical negligence.

Iowa's Medicaid system was originally operated under the umbrella of the Iowa Department of Human Services ("Iowa DHS"), but in recent years has been operated under the umbrella of the Iowa Medicaid Enterprise ("IME"). Federal Medicaid law requires states operating Medicaid programs to ascertain whether there is third party liability for costs paid for by Medicaid and to seek reimbursement for such costs. 42 U.S.C. § 1396a(a)(25)(A) and (B). These requirements are laid out in more detail in Medicaid's underlying regulations. 42 CFR § 433.137, § 433.139, § 433.140, and § 433.145. In 1987, the Iowa legislature adopted Iowa Code § 249A.6, which implemented federal law regarding a State's obligation to seek recovery of Medicaid benefits from liable third parties.

Iowa receives money from the federal government to assist it with its operation of Medicaid. This money, called Federal Financial Participation dollars ("FFP dollars"), is not available if Iowa fails to operate its State Medicaid plan in accordance with Medicaid regulations. 42 CFR § 433.138-140. Each State must submit certain forms requesting FFP dollars each quarter.

Defendants are various entities responsible for operating Iowa's Medicaid system, including two individuals. In 1989, Defendant Health Management Systems, Inc. ("HMS"), a New York corporation, became Iowa's Medicaid Third Party Liability contractor. In 2001, it issued a press release indicating it had been awarded contracts to perform "Third Party Liability, estate recovery," and other recovery services in Iowa for Iowa's Medicaid program. In 2003, Iowa DHS issued a Request for Proposals ("RFP") for third party liability and lien recovery services. In March of 2004, HMS, in response to the RFP, submitted a proposal to Iowa DHS. This proposal included a footnote indicating HMS's understanding that the current lien recovery contractor did not seek reimbursement in medical negligence cases. In July of 2004, Defendant HMS and Iowa DHS entered into a new contract in which HMS was to provide revenue collection service for the IME.

Defendant ACS State Healthcare, LLC (f/k/a Consultec, Inc.) ("ACS") is a foreign limited liability company. In July of 1996 its predecessor, Consultec, Inc., entered into a contract with Iowa DHS to perform, in part, third party liability and lien recovery work for Iowa Medicaid. In October of 1999, Consultec, Inc. was purchased by ACS.

Defendant Kevin W. Concannon ("Concannon") is the Director of Iowa DHS, and Defendant Eugene I. Gessow ("Gessow") is the Director of IME.

Federal Medicaid law requires Defendants to ascertain third party legal liability for medical expenses paid for by Medicaid and to seek reimbursement for such expenses. However, Defendants do not do so when the third party is a medical provider whose negligence necessitates subsequent medical treatment paid by Medicaid. Relators know that Defendants do not seek such reimbursement because they have experienced it in their clients' medical malpractice cases. In particular, Relators know that Defendants filed and withdrew Medicaid liens in cases brought by Brooke Wilkins and Xander Leonard because Relators made a public records request for such information under Iowa Code § 22.2, Iowa's equivalent of the Freedom of Information Act.

In declining to seek reimbursement for Medicaid payments for expenses necessitated by medical malpractice, Defendants are following Iowa Code § 147.136 ("§ 147.136"), which abrogated the collateral source rule in Iowa in cases of medical negligence. Defendants interpret § 147.136 to prohibit reimbursement of medical malpractice damages.

Relators' legal theory is that when Defendants submit, or cause to be submitted, claims for FFP dollars to the federal government, without deducting overpayments resulting from Defendants' failure to seek reimbursement for treatment expenses necessitated by medical negligence, they are submitting false claims, and thus should incur liability under the FCA.

III. SUBJECT MATTER JURISDICTION

The FCA provides that a court lacks jurisdiction if the action is based on allegations that have already been publicly disclosed. 31 U.S.C. § 3730(e)(4)(A). Here, the Defendants argue that the action is based on publicly disclosed information insofar as it is based on the following items:

1. Information regarding the filing and withdrawal of Medicaid liens in specific cases, obtained pursuant to a request under Iowa Code § 22.2, the state of Iowa's equivalent of the federal Freedom of Information Act

2. Iowa's interpretation of Iowa Code § 147.136, which was in the public domain in Defendant HMS's proposal provided to the state of Iowa in response to the RFP, which stated:

HMS is aware that the current lien recovery contractor does not recover in medical negligence cases. However, when several Medicaid members who were involved in medical negligence cases passed away, these cases rolled over to the HMS/SUMO estate recovery program. Upon further review with the Iowa Medicaid Director and the Attorney General's Office, the Medicaid Director authorized the estate recovery program director to proceed to litigate medical negligence recoveries in estate recovery matters and directed the Attorney General's Office to prepare and submit an amendment to Iowa Code 147.136 to except Medicaid recovery from the provisions of this law. Lien recovery in medical negligence matters will be reviewed further pending the outcome of the proposed legislation and the estate recovery litigation.

3. A publicly filed verdict form in a specific case.

The purpose of this limitation on jurisdiction is to "encourage private enforcement of suits by legitimate whistleblowers while barring suits by opportunistic qui tam plaintiffs who base their claims on matters that...