U.S.A v. Cmty. Health Sys. Inc

• Citation: 709 F.Supp.2d 1084
• Decision Date: 19 March 2010
• Docket Number: Civil No. 05-279 WJ/WDS.
• Parties: UNITED STATES of America, ex. rel. Robert C. BAKER, Plaintiff,v.COMMUNITY HEALTH SYSTEMS, INC., Eastern New Mexico Medical Center; Mimbres Memorial Hospital; Northeastern Regional Hospital; and Helena Regional Medical Center, Defendants.
• Court: U.S. District Court — District of New Mexico

709 F.Supp.2d 1084

UNITED STATES of America, ex. rel. Robert C. BAKER, Plaintiff,v.COMMUNITY HEALTH SYSTEMS, INC., Eastern New Mexico Medical Center; Mimbres Memorial Hospital; Northeastern Regional Hospital; and Helena Regional Medical Center, Defendants.

Civil No. 05-279 WJ/WDS.

United States District Court D. New Mexico.

March 19, 2010.

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Howard R. Thomas, U.S. Attorney's Office, James P. Lyle, Law Offices of James P. Lyle P.C., Albuquerque, NM, Matthew B. Smith, Michael P. Brown, Peter W. Chatfield, Phillips & Cohen LLP, Washington, DC, for Plaintiff.

Bruce D. Hall, Edward Ricco, Henry M. Bohnhoff, Scott D. Gordon, Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, NM, Christopher Oprison, Gregory M. Luce, James Buck, Maya Florence, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT OF QUI TAM PLAINTIFF ROBERT C. BAKER (“RELATOR”)

WILLIAM P. JOHNSON, District Judge.

THIS MATTER comes before the Court upon Defendants' Motion to Dismiss Second Amended Complaint of Qui Tam Plaintiff Robert C. Baker (“Relator”), filed August 28, 2009 (Doc. 55).¹ Having considered the parties' briefs and the applicable law, I find that Defendants' motion has merit on some of the issues raised, and will be granted on those issues; the motion is otherwise denied, as set forth below.

BACKGROUND

This is a qui tam case ² alleging Medicaid fraud based on violations of the False Claims Act, 31 U.S.C. § 3729(a) (“FCA”). Defendants are alleged to have manipulated the Medicaid funding program by a scheme which resulted in the illegal receipt of federally funded Medicaid payments. The Relator seeks the maximum amount allowed to a qui tam plaintiff under § 3730(d).³ The United States seeks to recover damages and civil penalties from Defendants, in an amount exceeding tens of millions of dollars, arising from false and/or fraudulent statements, records, and claims of FCA violations. In this motion, Defendants seek dismissal of all allegations in the Second Amended Complaint (“SAC”) on the basis of insufficient pleading. The motion also required the Court's attention to several initial matters, namely: whether jurisdiction over the additional claims in the SAC is barred under 31 U.S.C. § 3730(e)(4)(A), and whether an amended provision of the FCA, which is relevant to this case, should apply to the claims in this case. ⁴

BACKGROUND ⁵

Defendant Community Health Systems, Inc. (“CHSI”) is a publicly-traded company incorporated under the laws of the State of Delaware and headquartered in Tennessee. Defendants (collectively “the Hospitals,” or “hospital providers”), are indirect subsidiaries of CHSI, and are licensed acute care hospitals in New Mexico that provide a full range of emergency, inpatient, and outpatient medical services. Each is qualified as a “sole community provider hospital” under New Mexico's Medicaid program, providing millions of dollars in health care annually to the indigent citizens of the counties they serve.

I. Background on Medicaid Funding

In order to better understand the parties' positions and the legal arguments made in this case, it is helpful to gain some understanding of the way Medicaid funding works. Medicaid programs are administered by the States in accordance with Federal regulations, but they are jointly financed by the Federal and State governments. The Federal Government pays its share of medical assistance expenditures to the State on a quarterly basis according to statements of expenditures submitted by the State and a formula used to calculate how much of the total reported expenditures the Federal Government will reimburse the State.⁶ In turn, the State pays its share of medical assistance expenditures from state and local government funds in accordance with certain provisions of the Medicaid Act. See 42 U.S.C. § 1396a(a)(2).

In New Mexico, two sources of Medicaid funding to hospitals are the Sole Community Provider (“SCP”) fund and the Sole Community Provider Supplemental Payment (“SCP supplemental payment”) program. The State share of SCP funds and SCP supplemental payments to hospitals must be funded by county and local governments.⁷ These funds were created by the New Mexico State Legislature in order to provide greater care to the indigent population in counties that are willing to contribute state-share dollars for sole community hospitals servicing their region. The SCP fund is administered by the Human Services Department/Medical Assistance Division and is funded by county and local governments in order to fulfill the State's obligation to share in Medicaid expenditures with the Federal Government. These locally-generated funds are then used by the State to draw down matching federal funds, which are sent directly to participating hospitals. Through “Sole Community Provider Payments,” New Mexico hospitals serving counties and local communities that contribute to the SCP fund (for the benefit of hospitals serving those communities) receive a federal match of approximately $3 for every $1 the county or local government contributes.

In 1991, in order to curb extraordinary increases in federal Medicaid expenditures resulting from states trying to shift portions of their funding obligations to the federal government, Congress prohibited the use of health-care provider donations to fund state Medicaid spending, because such donations caused disbursement of federal matching funds with no true state contribution. According to the SAC, “donations” were made where counties could not meet the State's funding requirements to be able to pledge contributions on Defendants' behalf, in order for the State to be eligible for federal matching funds. Sec.Am.Compl., ¶ 57.

The Medicaid Act's implementing regulations require a reduction in Federal Financial Participation (“FFP”) in Medicaid expenditures if a state receives donations from health care providers unless the donations are “ bona fide.” 42 C.F.R. §§ 433.66, 433.74(d). The FFP is calculated based on the state's qualifying Medicaid expenditures, which themselves are funded in part by transfers of funds from counties within the state (“Inter-Governmental Transfers” or “IGT's”). A provider-related donation is “ bona fide ” only if it has no direct or indirect relationship to Medicaid payments to the health care provider, which means that the donations cannot be returned to the provider under a “hold harmless provision or practice.” 42 C.F.R. §§ 433.54(a), (b).⁸ Plaintiff alleges that Defendants' donations had a direct or indirect relationship to the Medicaid payments they received under the Sole Community, and consequently were non-bona fide donations. This qui tam case is based on Defendants' alleged pursuit of Medicaid payments from the Federal Government through improper manipulation of the New Mexico's Sole Community Provider Fund and Sole Community Provider Supplemental Payments programs, in violation of the FCA, 31 U.S.C. § 3729(a).

II. Defendants' Alleged Conduct

Plaintiff asserts violations of the FCA against Defendants. Under 31 U.S.C. § 3729(a)(1)(A) [formerly § 3729(a)(1) ], liability is imposed for any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” Under § 3729(a)(1)(B) [formerly § 3729(a)(2) ], liability is imposed for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”

The SAC alleges that Defendants provided New Mexico counties with purported “donations” that in fact were “pass-through” payments to fund the counties' contributions to the SCP fund, which is used to fund the State's share of the SCP program (“donation” claims). Defendants purportedly had no charitable intent in making the “donations.” Rather, the payments simply enabled the counties to pledge funds to the SCP fund, and in turn to cause New Mexico's Medical Assistance Division to return to Defendants the purported donation, along with the federal matching funds that the donations fetched (three times the value of the donations themselves), to maximize payments Defendants received for providing care to Medicaid-eligible patients. Because Defendants knew that their contributions to the SCP fund were ineligible for federal matching, they falsely characterized those payments as “unrestricted donations” in an effort to make them appear bona fide. The “donation” claims are asserted as violations of both § 3729(a)(1)(A) and § 3729(a)(1)(B) in Counts I and II of the SAC.

Defendants are also alleged to have fraudulently overstated their costs of providing uncompensated indigent care to obtain federally subsidized Medicaid funds (“inflation” claims). As a result of the alleged conduct, New Mexico claimed and obtained tens of millions of dollars in federal funds in reimbursement for the Medicaid payments to Defendants, in violation of the federal prohibition on federal funding where states or counties receive non-bona fide donations from providers. Defendants characterize these “inflation” claims as the “new allegations” which were added to the SAC.

Defendants also note that the SAC refers to three additional New Mexico hospital corporation affiliates which were acquired up by Defendant CHSI since the filing of the First Amended Complaint, but which are not named Defendants (“former Triad Hospitals”).⁹

III. Standard of Review

The instant motion challenges the viability of all of Relator's claims in the SAC, but moves to dismiss the “inflation” claims-the allegations added in the SAC-on jurisdictional grounds. The parties disagree on whether the Court should address the jurisdictional issues under Rule 12(b)(1) or Rule 56 of the Federal Rules...