U.S. ex rel. Mccready v. Columbia/Hca Healthcare, 00CV1846(RCL).

• Decision Date: 07 March 2003
• Docket Number: No. 00CV1846(RCL).,No. 01MS50(RCL).,00CV1846(RCL).,01MS50(RCL).
• Citation: 251 F.Supp.2d 114
• Parties: UNITED STATES of America ex rel. Clint MCCREADY, M.D., Plaintiff, v. COLUMBIA/HCA HEALTHCARE CORP., et al., Defendants.
• Court: U.S. District Court — District of Columbia

251 F.Supp.2d 114

UNITED STATES of America ex rel. Clint MCCREADY, M.D., Plaintiff, v. COLUMBIA/HCA HEALTHCARE CORP., et al., Defendants.

No. 00CV1846(RCL).

No. 01MS50(RCL).

United States District Court, District of Columbia.

March 7, 2003.

Jamie Ann Yavelberg, U.S. Department of Justice Civil Division, Washington, DC, for U.S.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This case comes before the Court on defendant Milestone Healthcare's (Milestone) motion to dismiss Relator's First Amended Complaint [239], the United States' statement of interest [273], Relators' response [ ], and Milestone's reply [299]. Upon consideration of the case, the parties' motions and responses, and the law, Milestone's motion to dismiss will be denied.

I. Background

This case is part of the multi-district litigation of False Claims Act qui tam suits against HCA and various related entities. Relator alleges that the defendants-Columbia North Monroe Hospital (owned and operated by HCA), Milestone Healthcare (a management company), and unknown Does-manipulated patient stays to maximize reimbursement. Most hospital services are reimbursed on the basis of diagnostic codes. A patient's illness is assigned a diagnostic code (DRG), and the hospital receives a predetermined Medicare payment for treating the patient based on the average cost of treating that illness, regardless of the patient's length of stay or actual treatment cost. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1999 Rates, 63 Fed.Reg. 40,954, 40,955 (July 31, 1998) (codified at C.F.R. parts 405, 412, and 413). However, for about 10 DRGs, the reimbursement is made on a per diem basis, up to a maximum for that DRG. Id. at 40,974-75; 42 C.F.R. § 412.4(c),(f)(1). The per diem amount is based on a geometric mean length of stay, derived from the average patient stay for that DRG. If the patient remains in the hospital for the entire geometric mean length of stay, the hospital receives the maximum reimbursement. Relator alleges that defendants acted to keep patients in hospital care at North Monroe until they had reached the geometric mean length of stay, regardless of the medical suitability of that course of treatment. Milestone manages a rehabilitation center, to which Relator alleges patients were transferred after they had reached their length of stay, and Relator alleges that Milestone employees participated in the scheme to retain patients at the hospital. Milestone is exempt from the DRG system, and is reimbursed on a cost-basis for the rehabilitation services it provides. 63 Fed.Reg. at 40,954. Its reimbursement is not affected by the hospital's reimbursement. Id. at 40,983.

II. Discussion

A. Pleading Fraud with Particularity

1. Legal Standard

Milestone urges that Relator's 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 adequate notice of the charges against them to prepare a defense. Harrison, U.S. 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 claims ..., including a more detailed description of the specific falsehoods that are the basis for his suit." Id. at 552. Thus, Relator's complaint must describe in detail the specific falsehoods on which he is basing this action.

2. Relator's Complaint

Relators' complaint describes a scheme of retaining patients in hospital care beyond the time in which they should have been transferred to rehabilitative care. Patients received acute medical care at North Monroe, and were transferred to the rehab unit for physical therapy. Milestone was paid a management fee by HCA for services provided in the rehab unit. First Amend. Compl. 1124. Relator alleges that "[b]y failing or refusing to transfer a patient ... until after the patient had reached the geometric mean (Average Length of Stay), regardless of the patient's ability to be transferred to such a unit, a hospital would receive more reimbursement than it is actually entitled to receive." Id. 1117. The complaint alleges that Relator, who was employed as the medical director of the Milestone rehab unit, was instructed by hospital personnel not to transfer patients to the rehab unit until the geometric mean average length of stay had been reached, and names specific patients to whom this scheme was applied. Id. 11119-21. This system was practiced and enforced by both North Monroe and Milestone employees. Id. 122. As a result of these extended hospital stays, cost reports and reimbursement claims to Medicare contained inflated costs. Id. Ill 25-26. Relator indicates that this practice was widespread in the HCA system. Id. n 22, 28.

These allegations meet the standard of pleading fraud with particularity. The complaint amply prepares defendants to meet the allegations contained in them. 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). Relators are required to set out the details of the specific scheme and its falsehoods, as well as supply the time, place, and content of false representations, and link that scheme to claims for payment made to the United States. United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C.Cir.2002). This has been fulfilled. The complaint describes the time period during which the allegedly fraudulent acts were perpetrated, the identities of various parties involved, the specific schemes employed, and the inflated reimbursement claims and cost reports that resulted.

B. Milestone's Liability for False Claims

1. Milestone's Benefit

Milestone argues that it cannot be held liable for North Monroe's fraud because it did not benefit from the fraud. In fact, it argues, it had an incentive to seek the transfer of patients before they were ready for transfer, because it is reimbursed on a cost basis, i.e., for the actual cost of treating the patient. Therefore, the earlier a patient is transferred, the greater Milestone's reimbursement.

Milestone seizes on a misunderstanding of the Medicare system cited in the complaint to argue for its dismissal from the suit. Relator's complaint restates a theory of an HCA case manager that Milestone stood to benefit from increasing the length of a patient's hospital stay because if the patient reached the geometric mean length of stay both the transferring and the receiving hospital would receive full DRG reimbursement. First Amend. Compl. 1119(d). This statement was probably derived from the speaker's understanding of the rule regarding transfer between facilities reimbursed under the DRG system. In the case of transfer between hospitals, the discharging hospital receives the entire DRG reimbursement, and the transferring hospital is reimbursed on a per diem basis (not to exceed the entire DRG). 63 Fed. Reg. at 40,974. Under this system, if a patient stays at the transferring hospital long enough, the per diem will reach the full DRG amount, and both hospitals will receive full payment. However, Milestone is not a DRG provider, and the patient's previous length of stay does not affect its reimbursement. Id. at 40,983. Thus, the case manager's statement supplying Milestone's motivation for participating in the scheme is incorrect.

That Milestone did not gain from the scheme in this way does not negate Milestone's alleged participation in and responsibility for the fraud, however. The complaint adequately implicates Milestone by naming specific Milestone employees who facilitated and participated in the scheme to retain patients in the hospital past their recommended discharge date. That Milestone did not benefit from the scheme in the manner theorized by the quoted North Monroe employee is irrelevant.¹

First, Milestone's argument fails because a plaintiff need not plead his legal theory of fraud in the complaint; the complaint must plead only the facts that form the basis for the fraud. See Midwest Commerce Banking Co. v. Elkhart City Centre, 4 F.3d 521, 523 (7th Cir.1993) ("Rule 9(b) does not require that the complaint explain the plaintiffs theory of the case, but only that it state the misrepresentation, omission, or other action or inaction that the plaintiff...