U.S. v. Tenet Healthcare Corp.

• Citation: 343 F.Supp.2d 922
• Decision Date: 05 November 2004
• Docket Number: No. CV04-857 GAF(JTLX).,CV04-857 GAF(JTLX).
• Parties: UNITED STATES of America, Plaintiff, v. TENET HEALTHCARE CORP, et al., Defendants.
• Court: U.S. District Court — Central District of California

343 F.Supp.2d 922

UNITED STATES of America, Plaintiff, v. TENET HEALTHCARE CORP, et al., Defendants.

No. CV04-857 GAF(JTLX).

United States District Court, C.D. California.

November 5, 2004.

Gary Plessman, Chief, Civil Fraud Section, United States Attorney's Office, Central District of California.

David K. Barrett, Assistant United States Attorney, Civil Fraud Section, United States Attorney's Office, Central District of California.

MEMORANDUM AND ORDER REGARDING DEFENDANTS' MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(B)(1)

FEESS, District Judge.

I. INTRODUCTION

The defendants named in this suit, 26 hospitals and their corporate owners, provide healthcare to thousands of patients, including many who are entitled to Medicare coverage for at least a portion of their treatment. To obtain Medicare reimbursement for the treatment of such patients, medical providers, like the defendant hospitals, must submit to the government a claim to which they assign codes that determine the fee the government will pay for the treatment. Treatment for serious illnesses generates a higher reimbursement than treatment for minor, or less serious, conditions.

The variation in fees paid for services rendered creates an opportunity for an unscrupulous healthcare provider to increase its revenue by "upcoding" — assigning codes to a claim that will generate a higher reimbursement to the provider than the patient's condition would warrant if the reimbursement claim were properly coded. Here the government, asserting jurisdiction under 28 U.S.C. § 1345, which creates federal subject matter jurisdiction over suits brought by the United States, accuses Defendants of engaging in that practice, and seeks recovery of overpayments under theories of common law mistake and negligent misrepresentation.

Defendants now move the Court to dismiss this case on the ground that Congress has implicitly divested the Court of its § 1345 jurisdiction in Medicare overcharging cases. According to Defendants, the reimbursement scheme established under the Medicare Act provides the only means by which the government can challenge a claim or seek reimbursement for an overpayment and therefore "preempts" suits by the United States under § 1345. Although the Medicare Act does not expressly bar suits under that statute, Defendants note that § 1345 establishes jurisdiction over suits brought by the United States "[e]xcept as otherwise provided by Act of Congress." Defendants contend that the provisions of the Medicare Act, notably 42 U.S.C. § 405(h), and the regulations issued thereunder, reflect Congressional intent to preclude the United States from seeking recovery for overbilling by medical providers. In opposition, the United States contends that nothing in the Medicare Act, or in any regulation, expressly limits this Court's § 1345 jurisdiction, and that the Court should not infer such a limitation where Congress has not clearly spoken.

Although Defendants present carefully crafted, non-frivolous arguments in support of their position, the Court concludes that the motion should be DENIED. The Court will not lightly infer a congressional intent to limit the United States' remedies when the protection of the public fisc is at stake. Since no clear evidence establishes a congressional intent to limit the government's ability to bring suit to recover overpayments of Medicare funds, the Court declines to infer such an intent.

II. BACKGROUND

Defendants are 26 individual hospitals and their corporate owners, Tenet Healthcare Corp. and Tenet HealthSystems Medical, Inc. (collectively, "Defendants"). (Compl. ¶ 2; Attach. A). During the relevant time period, the 26 hospitals were owned by American Medical International Inc. ("AMI"), which became known as Tenet HealthSystem Medical, Inc. after it was acquired by Tenet Healthcare Corp. ("Tenet"). (Id. ¶¶ 22-24, 28). The individual hospitals are being sued for their alleged conduct before AMI was acquired by Tenet. (Id. ¶ 5). Tenet is being sued for the conduct of AMI and its hospitals during the entire period from September 1992 until March 1995. (Id. ¶ 4-5; Attach. A).

According to the complaint, the AMI hospitals received Medicare payments to which they were not entitled because they submitted more than 2,400 inaccurate claims for reimbursement during the period from September 1992 until March 1995. (Id. ¶¶ 7-12, 114). To obtain Medicare reimbursements, the hospitals submitted claims to the government. (Id. ¶ 7, 44). On the claim forms, the hospitals indicated a patient's diagnosis, procedures performed, age, sex and discharge status by designating codes. (Id. ¶¶ 42-47). On the basis of this coded information, the government classified each patient's claim and assigned it to a Diagnosis Related Group ("DRG"). (Id.). The government then made a payment to the hospital based on the claim's DRG. (Id.).

Plaintiff alleges that the hospitals submitted claims that contained diagnosis and procedure codes that were not supported by the patients' medical records, and which improperly designated secondary diagnoses as primary diagnoses. (Id. ¶ 8). On the basis of these submissions, the government assigned the claims a higher-paying DRG than they would have received if they had been accurately and properly coded by the hospital. (Id. ¶¶ 8-11). Plaintiff further alleges that the hospitals coded the patient claims inaccurately to obtain a higher level of reimbursement than the patients' conditions warranted. (Id. ¶ 8). To recover the alleged overpayments, the government brings this action under 28 U.S.C. § 1345, and seeks recovery under common law causes of action for payment by mistake of fact, and negligent misrepresentation.

III. DISCUSSION

A. Legal Standard for Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(1)

Federal courts "possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree." Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). As a result, a court without jurisdiction over certain claims has no choice but to dismiss them regardless of their gravity or potential validity. Indeed, federal courts are to determine issues of subject matter jurisdiction before even considering the merits of a case. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). In doing so, the Court assumes that the allegations in the complaint are true. Valdez v. United States, 837 F.Supp. 1065, 1067 (E.D.Cal.1993). But, any party seeking to invoke this Court's limited jurisdiction bears the burden of establishing that jurisdiction by a preponderance of the evidence. In re Ford Motor Co./Citibank (S.D.), 264 F.3d 952, 957 (9th Cir.2001) (citing McNutt v. General Motors Acceptance Co., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936)).

B. The Jurisdictional Challenge

Pursuant to Federal Rule of Civil Procedure 12(b)(1). Defendants now move to dismiss the suit on the ground that the common law claims cannot be pursued because they are barred by the Medicare Act and regulations promulgated under authority of that act. In support of their motion, Defendants present two basic arguments: (1) Section 405(h) of the Social Security Act, which has been incorporated into the Medicare Act, expressly precludes judicial review of reimbursement determinations except as provided by the Act, which permits only providers and beneficiaries to appeal a reimbursement or benefits determination via suit in District Court;¹ and (2) the comprehensive nature of the Medicare Act and related regulations preempts any "outside the system" common law recoupment actions. The United States counters that nothing in the statute expressly or impliedly repealed or limited this Court's jurisdiction under § 1345 to hear its claims, and that any limitations set forth in the Medicare Act regarding the jurisdiction of the federal courts impose restrictions only on challenges by recipients of Medicare funds. Because the United States has brought this action, it bears the burden under Rule 12(b)(1) of establishing jurisdiction in this suit. In re Ford Motor Co./Citibank (S.D.), 264 F.3d at 957.

C. The Government's Suit Is Not Barred by the Medicare Act

The Medicare Act, and regulations promulgated under that act, establish a system under which providers, such as the AMI hospitals, seek reimbursement through "fiscal intermediaries," usually private insurance companies. See 42 U.S.C. § 1395h. The intermediary, after receipt of a claim for payment, notifies the provider of the amount allowed. If dissatisfied, the provider may request the intermediary to reopen the initial determination, in which case the matter is submitted to a hearing officer or panel, or initiate proceedings before the Provider Reimbursement Review Board (the "Board") for a redetermination. See 42 C.F.R. § 405.1807. Within three years of the decision, a provider may seek to reopen the administrative determination; likewise, the intermediary, Board or Secretary may, on its own motion, reopen the proceedings. Id., at § 405.1885. A provider may obtain judicial review of decisions by the Board under 42 U.S.C. § 1395oo(f)(1).

This comprehensive regulatory scheme was developed to provide due process protections to providers whose claims for reimbursement were denied by the government. See United States v. Aquavella, 615 F.2d 12, 20 (2d Cir.1979); United States v. Idaho Falls Assocs., 81 F.Supp.2d 1033, 1049-50 (D.Idaho 1999). The objective of the scheme, however, provides no support for the proposition that it therefore precludes the government from seeking relief for overpayments in federal court under the False Claims Act or the common law. With only one exception, courts that have considered the question have unmistakably rejected the notion that the Medicare Act's statutory and administrative scheme limits the government's...