U.S. ex rel. a+ Homecare v. Medshares Management

• Decision Date: 10 March 2005
• Docket Number: No. 02-6545.,02-6545.
• Citation: 400 F.3d 428
• Parties: UNITED STATES of America, ex rel. A+ HOMECARE, INC., Plaintiffs-Appellees, v. MEDSHARES MANAGEMENT GROUP, INC.; Trevecca Home Health Services, Inc., Defendants, Stephen H. WINTERS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

400 F.3d 428

UNITED STATES of America, ex rel. A+ HOMECARE, INC., Plaintiffs-Appellees, v. MEDSHARES MANAGEMENT GROUP, INC.; Trevecca Home Health Services, Inc., Defendants Stephen H. WINTERS, Defendant-Appellant.

No. 02-6545.

United States Court of Appeals, Sixth Circuit.

Argued: April 23, 2004.

Decided and Filed: March 10, 2005.

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ARGUED:

Matthew H. Kirtland, Fulbright & Jaworski, Washington, D.C., for Appellant. Van S. Vincent, Assistant United States Attorney, Nashville, Tennessee, for Appellees.

ON BRIEF:

Matthew H. Kirtland, Fulbright & Jaworski, Washington, D.C., for Appellant. Van S. Vincent, Assistant United States Attorney, Nashville, Tennessee, Charles W. McElroy, White & Reasor, Nashville, Tennessee, for Appellees.

Before: MERRITT and MOORE, Circuit Judges; DUGGAN, District Judge.^*

OPINION

MOORE, Circuit Judge.

Defendant-Appellant Stephen H. Winters ("Winters") appeals the jury verdict and award of damages in favor of the Plaintiffs-Appellees, the United States ("the Government") and A+ Homecare, Inc. ("A+ Homecare") (collectively "the Appellees"). The jury found Winters liable under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, for including fraudulent pension expenses on two Medicare cost reporting forms and awarded damages of $1,061,138.80. The district court remitted the award of damages to $602,565.43 to reflect the actual damages incurred by the Government, then trebled the amount to $1,807,696.29, pursuant to 31 U.S.C. § 3729(a). On appeal, Winters argues that the district court erred by: (1) excluding evidence regarding Medicare reimbursement of similar pension expenses at other home health agencies Winters owned; (2) denying Winters's motion for summary judgment on Count II of the complaint on the grounds that the deferred compensation accrual on the final cost report was immaterial; (3) failing to consider the merits of Winters's renewed motion for judgment as a matter of law; (4) denying Winters's motion for a new trial on the grounds that (a) the jury verdict was against the clear weight of the evidence; (b) there was no evidence the Government sustained any harm; and (c) the jury was confused in calculating damages. We conclude that the district court did not err on any of these issues, and thus, the jury verdict and remitted award of damages is AFFIRMED.

I. BACKGROUND

A. Factual Background

In June 1993, Winters purchased Trevecca Home Health Services, Inc. ("THHS"), a home health agency participating in the Medicare program, from A+ Homecare. Winters owned several other home health agencies in addition to THHS, all of which were managed through Medshares Management Group, Inc. ("MMGI"). Winters served as the President, Chief Executive Officer ("CEO"), and sole member of the board of directors for both MMGI and THHS. At the time Winters purchased THHS, MMGI had an employees' retirement plan (the "Plan"), which was in place at all of the other home health agencies owned by Winters and managed by MMGI. The Plan was a deferred profit sharing and stock bonus plan. It was Winters's policy that after buying a home health agency, he would "immediately implement the complete MMGI package of benefits, including the Plan." Appellant's Br. at 7. Upon purchasing THHS in June 1993, Winters claims that the company adopted the Plan¹ retroactively for the entire 1993 fiscal year.²

The MMGI Plan in effect for 1993 permitted THHS to make a yearly pension contribution on behalf of its employees. Winters, as CEO of THHS, had sole discretion not only over whether to make a contribution, but also over the amount and method of calculating such contribution subject to certain maximum limitations. Most importantly, nothing in the Plan required THHS to make a contribution in any fiscal year. See J.A. at 1037 (Winters Trial Tr. Vol. I at 132) ("Q: Were you required under the plan to even make that contribution for Trevecca Home Health Services for FY '93? A: No."). Once a contribution had been made to the Plan, it was allocated to THHS employees who participated in the Plan. Employees could participate in the Plan and receive an allocation if they "completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year." J.A. at 1208 (MMGI Plan at 26, § 4.3(b)).³

Under the Medicare program, qualified home health agencies such as THHS are entitled to reimbursement for the reasonable costs associated with providing medical treatment to those qualified for Medicare benefits. 42 U.S.C. §§ 1395f(a)(2)(C) & (b)(1); 1395x(m) & (o); 1395bbb. The home health agency is reimbursed for its reasonable costs from the Medicare Trust Fund through a fiscal intermediary, which acts as an agent of the Secretary of Health and Human Services ("the Secretary"). The fiscal intermediary reviews claims and makes payments. 42 U.S.C. § 1395u(a). Reasonable costs are defined as "costs actually incurred" and determined in accordance with regulations promulgated by the Secretary. 42 U.S.C. § 1395x(v)(1)(A). The Secretary's regulations provide for "all necessary and proper costs incurred in furnishing [Medicare] services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans." 42 C.F.R. § 413.9(c)(3). To receive a reimbursement from the Medicare program, a service provider "must provide adequate cost data" to the fiscal intermediary based on "the accrual basis of accounting." 42 C.F.R. § 413.24(a). The fiscal intermediary evaluates the submitted cost reports, verifies the costs incurred in providing Medicare services, and pays out the reimbursement. The claims in this case arise from THHS's claimed pension expense for its employees in the Medicare cost reports submitted to the fiscal intermediary.

1. The Interim Rate Report

An Interim Rate Report ("IRR") is a quarterly report filed with the Medicare fiscal intermediary for the reimbursement of real and estimated costs associated with the provision of home health services to Medicare beneficiaries. In August 1993, THHS was required to submit an IRR for the fourth quarter of fiscal year 1993 ("FY93"). In the IRR, THHS was required to report all reimbursable expenses incurred for the entire fiscal year, from July 1, 1992 to June 30, 1993. Because Winters only owned THHS for the last month of FY93, Bertha Holloway ("Holloway"), a cost report consultant working with A+ Homecare, the previous owner, prepared a draft IRR, combining the expenses incurred in the eleven months in which THHS was owned by A+ Homecare with the one month in which Winters owned the company. Holloway's draft IRR did not include any pension contribution to the MMGI Plan.⁴ Based on her calculations, Holloway concluded that Medicare had overpaid THHS for its services throughout the year, and thus, THHS was required to repay Medicare $205,466.00. Holloway testified that she informed Allen Ruffin ("Ruffin"), the Chief Financial Officer of MMGI, that based on her calculations THHS had been overpaid. Holloway sent the draft IRR along with the supporting documentation to Ruffin for his review.

On August 27, 1993, Ruffin filed the IRR with Palmetto Government Benefits Administrators ("Palmetto"), a wholly-owned subsidiary of Blue Cross/Blue Shield of South Carolina, and the fiscal intermediary overseeing THHS's Medicare claims. The IRR filed with Palmetto claimed substantially more reimbursable expenses than the draft IRR Holloway had prepared. Specifically, the filed IRR included a pension contribution of $527,019.30 for the THHS employees to the MMGI Plan, of which $520,051.00 was attributable to Medicare.⁵ The effect of this additional reimbursable expense was that instead of having to repay Medicare $205,466.00, THHS was to receive approximately $314,585.00. On September 20, 1993, as a result of the filing of the IRR, Palmetto paid THHS $314,585.00 from the Medicare Trust Fund. Within a month, the money was transferred out of the THHS account and into the MMGI general account and used to pay for MMGI's operating expenses, including payroll and accounts payable.

The pension expense which was accrued on the IRR was calculated by taking 15% of the total salary expense of the THHS employees for FY93. In her draft IRR, Holloway calculated the total salary expense for THHS for FY93 as $3,513,462.00. Winters testified that he directed Ruffin to include a pension contribution in the IRR by calculating 15% of Holloway's total salary expense, or $527,019.30. J.A. at 974 (Winters Trial Tr. Vol. I at 69). Fifteen percent of total compensation paid or accrued during the taxable year was the maximum deductible contribution to a profit-sharing plan under the Internal Revenue Code at that time. See Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.L. No. 107-16, § 616, 115 Stat. 38, 102 (2001) (amending I.R.C. § 404(a)(3)(A)(i)(I) to increase the deduction limit from 15% to 25%). Winters testified that the 15% figure was the standard amount he used at all of his home health agencies. J.A. at 974 (Winters Trial Tr. Vol. I at 69). The salary expense upon which Winters based his calculation, however, did not reflect THHS's employment level at the time of purchase.

Holloway testified at trial that for most of 1992 A+ Homecare owned only THHS. In December 1992 and spring of 1993, A+ Homecare purchased two more home health agencies. Holloway explained that prior to the purchase of these two additional agencies, all of the expenses incurred by A+ Homecare were reported as part of THHS because A+ Homecare did not meet the definition of a home office under the Medicare guidelines. After the purchase of additional agencies, however, A+ Homecare met the definition of a home office and reported its costs as a separate entity. Moreover, Holloway testified that after the acquisitions, several branches in the Nashville area that were a part of THHS...