U.S. v. Bourseau

• Citation: 531 F.3d 1159
• Decision Date: 14 July 2008
• Docket Number: No. 06-56743.,No. 06-56741.,06-56741.,06-56743.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Robert I. BOURSEAU; Rib Medical Management Services, Inc., a California corporation, Defendants-Appellants, and Rudra Sabaratnam; Navatkuda, Inc., a California corporation, Defendants. United States of America, Plaintiff-Appellee, v. Robert I. Bourseau; Rib Medical Management Services, Inc., a California corporation, Defendants, and Rudra Sabaratnam; Navatkuda, Inc., a California corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

531 F.3d 1159

UNITED STATES of America, Plaintiff-Appellee, v. Robert I. BOURSEAU; Rib Medical Management Services, Inc., a California corporation, Defendants-Appellants, and Rudra Sabaratnam; Navatkuda, Inc., a California corporation, Defendants.

United States of America, Plaintiff-Appellee, v. Robert I. Bourseau; Rib Medical Management Services, Inc., a California corporation, Defendants, and Rudra Sabaratnam; Navatkuda, Inc., a California corporation, Defendants-Appellants.

No. 06-56741.

No. 06-56743.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 9, 2008.

Filed July 14, 2008.

Patric Hooper, Los Angeles, CA, for appellants Robert I. Bourseau and RIB Medicial Management Services, Inc.

Patric Hooper and Howard S. Levine, Los Angeles, CA, for appellants Rudra Sabaratnam and Navatkuda, Inc.

Peter D. Keisler, Assistant Attorney General, Karen Hewitt, Acting United States Attorney, and Douglas Letter and Robert J. McAuliffe, Assistant United States Attorneys, Washington, D.C., for the appellee.

Appeal from the United States District Court for the Southern District of California; Roger T. Benitez, District Judge, Presiding. D.C. No. CV-03-00907-RTB.

Before: ROBERT R. BEEZER, CYNTHIA HOLCOMB HALL, and BARRY G. SILVERMAN, Circuit Judges.

BEEZER, Circuit Judge:

Robert I. Bourseau ("Bourseau"), RIB Medical Management Services, Inc. ("RIB"), Dr. Rudra Sabaratnam ("Sabaratnam") and Navatkuda, Inc. ("Navatkuda") (collectively, "Appellants"), appeal the district court's judgment holding them jointly and severally liable to the United States ("government") for violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733. We affirm.

I

The parties agree that the underlying facts are not in dispute. The government brought this case on behalf of the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services ("Medicare") against two psychiatric hospital operators, Bourseau and Sabaratnam, and their single-employee corporations, RIB and Navatkuda, for fraud in the context of the Medicare reimbursement process.

A. The Medicare Reimbursement Process

Medicare reimburses hospitals, including psychiatric hospitals, for the reasonable costs of services that the hospitals provide to Medicare beneficiaries. 42 U.S.C. §§ 1395d(c), 1395k, 1395x(v)(1)(A); 42 C.F.R. § 410.27. Medicare reimburses such providers only for the portion of costs that relate to Medicare patients. 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. § 413.50. Medicare contracts with private insurance companies, known as fiscal intermediaries, to facilitate the reimbursement process. 42 U.S.C. § 1395h; 42 C.F.R. § 413.64. Intermediaries pay providers an interim amount periodically throughout the year that is based on estimated treatment costs for Medicare patients. 42 U.S.C. § 1395g(e); 42 C.F.R. §§ 413.60, 413.64. At the end of the year, providers submit a final accounting of their actual costs for the year to their intermediaries in a document called a cost report. 42 C.F.R. § 413.20.

In order to reimburse providers for their Medicare expenses as quickly as possible, intermediaries make an initial retroactive adjustment to the interim payments as soon as they receive the providers' cost reports. 42 C.F.R. § 413.64(f)(2); Provider Reimbursement Manual ("PRM"), Pt. 1 § 2408.2. In making the initial retroactive adjustment, intermediaries accept costs as they are reported on a cost report, except for obvious errors and inconsistencies. 42 C.F.R. § 413.64(f)(2); PRM, Pt. 1 § 2408.2. The cost reports are later subject to an audit. 42 C.F.R. § 413.64(f)(2); PRM, Pt. 1 § 2408.2. After intermediaries audit a cost report, intermediaries determine the providers' and Medicare's final liability to one another. 42 C.F.R. § 413.64(f)(2); PRM, Pt. 1 § 2408.2. In other words, an intermediary will use a cost report to determine whether a provider, or Medicare, is owed money based on the difference between the interim payments already paid to the provider and the actual amount that the intermediary determines was actually due to the provider. 42 C.F.R. §§ 405.1803, 413.9(b)(1), 413.60, 413.64(f). Recoupment of any overpayments made to a provider is made notwithstanding any request for a hearing to review an intermediary's determination. 42 C.F.R. § 405.1803(c).

If an intermediary has a valid basis for believing that proceedings have been or will be instituted in state or federal court to determine the solvency of a provider, the intermediary will adjust any interim payments "notwithstanding any other regulation or program instruction regarding the timing or manner of such adjustments, to a level necessary to insure that no overpayment to the provider is made." 42 C.F.R. § 413.64(i).

B. Appellants' Cost Reports for 1997, 1998 and 1999

Between 1994 and 2000, Bayview Hospital and Mental Health Systems ("Bayview") was a psychiatric hospital that participated in the Medicare program. Bayview was owned and operated by a California limited partnership, known as California Psychiatric Management Services ("CPMS"). The only general partners in CPMS were RIB and Navatkuda. Bourseau controlled RIB and served as its president and sole employee. Sabaratnam controlled Navatkuda and served as its president and sole full-time employee. Bourseau and Sabaratnam, through RIB and Navatkuda, ran CPMS and Bayview. Bourseau focused on operations management while Sabaratnam focused on medical management.

In 1996, CPMS filed for Chapter 11 bankruptcy. In 1998, the United States Bankruptcy Court for the Central District of California approved a reorganization plan for CPMS which, among other things, gave National Century Financial Enterprises, Inc. ("NCFE") a 49.9% limited partnership interested in CPMS. This made NCFE and CPMS "related parties" as that term is defined in the Medicare regulations.

Between 1997 and 1999, CPMS retained Paul Fayollat ("Fayollat") and Loretta Masi ("Masi") of Pacific Hospital Management to prepare and submit Bayview's 1997, 1998 and 1999 cost reports to its intermediary, Mutual of Omaha Insurance Company ("Mutual of Omaha").

In preparing the 1997 cost report, Bourseau and Sabaratnam met with Fayollat, Masi and CPMS' Director of Finance, Seth Morriss ("Morriss"). Fayollat advised Bourseau that Medicare would not reimburse Bayview for interest and bankruptcy legal fees unrelated to Bayview's Medicare patient services, and that it would be improper to include such amounts in the cost report. Notwithstanding Fayollat's advice, Bourseau directed Fayollat to include in the 1997 report (1) the total amount of interest charged by NCFE for earlier loans and (2) all of CPMS' bankruptcy legal fees. Only a portion of the interest and bankruptcy legal fees related to the operation of Bayview. CPMS never paid the interest to NCFE.

In preparing the 1998 cost report, Bourseau and Sabaratnam again met with Fayollat, Masi and Morriss. Fayollat advised Bourseau that Medicare would not reimburse Bayview for interest and bankruptcy legal fees unrelated to Bayview's Medicare patient services, and that it would be improper to include such amounts in the cost report. Notwithstanding Fayollat's advice, Bourseau directed Fayollat to include in the 1998 cost report (1) the total amount of interest charged by NCFE, (2) all of CPMS' bankruptcy legal fees, (3) a rental expense for a lease that never existed, (4) 16,965 additional square feet of space for a partial hospitalization program, although little of the additional space was actually used for Medicare patient care or operation support and (5) management fees for NCFE. Only a portion of the interest and bankruptcy legal fees related to the operation of Bayview. CPMS never paid the interest to NCFE.

In preparing the 1999 cost report, Bourseau again ignored Fayollat's advice and directed that Fayollat include in the 1999 cost report (1) all of CPMS' bankruptcy legal fees, (2) 16,965 additional square feet of space for the partial hospitalization program, although little of the additional space was actually used for patient care, (3) management fees for NCFE and (4) "program costs," representing additional interest payable to NCFE. CPMS never paid the interest to NCFE.

Mutual of Omaha never made adjustments to Bayview's cost reports, never audited the cost reports and never collected overpayments or paid underpayments. Between July of 1997 and October 2000, Bayview's Medicare reimbursement rates did not change. And in 2000, CPMS filed for bankruptcy again.

The government filed suit against Appellants in the United States District Court for the Southern District of California, alleging (1) violations of the FCA, (2) unjust enrichment and (3) common law fraud. After a six day bench trial, the district court held Appellants jointly and severally liable to the government for the FCA claims only. The district court found that Appellants' 1997, 1998 and 1999 cost reports constituted false claims under the FCA, actionable as both affirmative false claims and reverse false claims. The district court found that by including false costs in its cost reports, Bayview had decreased the amount it owed Medicare by $5,219,195. The district court awarded the government $15,657,585 in treble damages and $31,000 in civil penalties.

Appellants timely and separately appealed. We consolidated their appeals.

II

The district court had jurisdiction to enter its judgment despite CPMS' bankruptcy proceedings in 2000. See 11 U.S.C. § 362(b)(4); 28 U.S.C. § 1345; 31 U.S.C. § 3732(a); Universal Life Church v. United States, 128 F.3d 1294, 1298 (9th Cir. 1997). We have jurisdiction over this appeal under 28 U.S.C. § 1291.

We review de novo mixed questions of law and fact, Mathews v. Chevron Corp., 362 F.3d 1172, 1180 (9th Cir.2004), and a district court's interpretation of the FCA, U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1143 (9th Cir.1998). We review for clear...