U.S. v. The Baylor University Medical Center

• Decision Date: 16 November 2006
• Docket Number: Docket No. 05-2951-cv.
• Citation: 469 F.3d 263
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. THE BAYLOR UNIVERSITY MEDICAL CENTER, Brigham and Women's Hospital, Cedars-Sinai Medical Center, Cleveland Clinic, Crawford Long Hospital of Emory University, Deaconess Medical Center, Duke University Health System, Inc., Emory University Hospital, Florida Hospital Medical Center, Foster G. McGraw Hospital, Good Samaritan Hospital and Medical Center, Harper Hospital, Hospital of the Good Samaritan, Hospital of the University of Pennsylvania, Jewish Hospital of St. Louis, Johns Hopkins Hospital, Lahey Clinic Hospital, Inc., Loma Linda University Medical Center, Massachusetts General Hospital, The Methodist Hospital, Methodist Hospital, Lubbock, Texas, Methodist Hospital of Indiana, Methodist Hospital of Memphis, Montefiore Medical Center of Pennsylvania, Providence Medical Center, Sacred Heart Medical Center, St. Francis Hospital, Roslyn, St. Joseph's Hospital of Atlanta, St. Joseph Mercy Hospital, St. Louis University Hospital, St. Luke's Medical Center, Inc., St. Thomas Hospital, St. Vincent Hospital and Health Care Center, St. Vincent Hospital and Medical Center, Sentara Norfolk General Hospital, Sequoia Hospital District, Seton Medical Center, Stanford University Hospital, University Hospital of Cleveland, Washington Hospital Center, William Beaumont Hospital, Yale-New Haven Hospital, Aurora Sinai Medical Center f/k/a Sinai Samaritan Medical Center, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

469 F.3d 263

UNITED STATES of America, Plaintiff-Appellee, v. THE BAYLOR UNIVERSITY MEDICAL CENTER, Brigham and Women's Hospital, Cedars-Sinai Medical Center, Cleveland Clinic, Crawford Long Hospital of Emory University, Deaconess Medical Center, Duke University Health System, Inc., Emory University Hospital, Florida Hospital Medical Center, Foster G. McGraw Hospital, Good Samaritan Hospital and Medical Center, Harper Hospital, Hospital of the Good Samaritan, Hospital of the University of Pennsylvania, Jewish Hospital of St. Louis, Johns Hopkins Hospital, Lahey Clinic Hospital, Inc., Loma Linda University Medical Center, Massachusetts General Hospital, The Methodist Hospital, Methodist Hospital, Lubbock, Texas, Methodist Hospital of Indiana, Methodist Hospital of Memphis, Montefiore Medical Center of Pennsylvania, Providence Medical Center, Sacred Heart Medical Center, St. Francis Hospital, Roslyn, St. Joseph's Hospital of Atlanta, St. Joseph Mercy Hospital, St. Louis University Hospital, St. Luke's Medical Center, Inc., St. Thomas Hospital, St. Vincent Hospital and Health Care Center, St. Vincent Hospital and Medical Center, Sentara Norfolk General Hospital, Sequoia Hospital District, Seton Medical Center, Stanford University Hospital, University Hospital of Cleveland, Washington Hospital Center, William Beaumont Hospital, Yale-New Haven Hospital, Aurora Sinai Medical Center f/k/a Sinai Samaritan Medical Center, Defendants-Appellants.

Docket No. 05-2951-cv.

United States Court of Appeals, Second Circuit.

Argued: February 6, 2006.

Decided: November 16, 2006.

Ira Feinberg, Stephen J. Immelt, Therese M. Goldsmith, Hogan & Hartson L.L.P., Baltimore, MD; Lorane F. Hebert, Dirk C. Phillips, Hogan & Hartson L.L.P., Washington, DC, for Defendants-Appellants Crawford Long Hospital of Emory University, Emory University Hospital Massachusetts General Hospital, The Brigham and Women's Hospital, Inc., Hospital of the University of Pennsylvania, Presbyterian Medical Center of the University of Pennsylvania Health System, The Johns Hopkins Hospital.

Frederick Robinson, Caroline M. Mew, Fulbright & Jaworski, L.L.P., Washington, DC, for Defendant-Appellant Duke University Health System, Inc.

Gates Garrity-Rokous, Wiggin and Dana L.L.P., New Haven, CT, for Defendant-Appellant Foster G. McGaw Hospital.

Ray M. Shepard, Leonard C. Homer, Ober, Kaler, Grimes & Shriver, Baltimore, MD, for Appellants-Defendants Cedars-Sinai Medical Center, Loma Linda University Medical Center, Northwestern Memorial Hospital, Yale-New Haven Hospital, St. Francis Hospital, Roslyn, St. Joseph's Hospital of Atlanta, Inc., St. Joseph Mercy Hospital, Washington Hospital Center, Florida Hospital Medical Center.

Eric D. Miller, Douglas N. Letter, United States Department of Justice, Civil Division, Washington, DC (Peter D. Keisler, Assistant Attorney General, Kevin J. O'Connor, United States Attorney, on the brief), for Plaintiff-Appellee.

Before JACOBS, Chief Judge, POOLER and GIBSON,^* Circuit Judges.

JACOBS, Chief Judge.

Under the scheme established by the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., a private citizen (a "relator") may commence a qui tam action by filing under seal a complaint in the government's name alleging fraud on the government. See id. § 3730(b). If the government elects to intervene and recovers a judgment, the relator gets a percentage. See id. § 3730(d)(1). If the government declines to intervene, the relator may pursue the action in his own name (and may get a larger percentage). See id. § 3730(d)(2). The appellant hospitals (the "Hospitals") are the defendants in a multi-district litigation in which the United States Government ("Government") filed complaints-in-intervention asserting, inter alia, claims under the FCA. The claims accrued over the period 1986 to 1995; the relator in this case filed his qui tam complaint in 1994; and the Government intervened beginning in 2002. The Hospitals take this interlocutory appeal from a judgment of the United States District Court for the District of Connecticut (Goettel, J.) dismissing all claims except those under the FCA. We reverse the district court's judgment to the extent that we remand to the district court with instructions that the Government's FCA claims be dismissed as well because they are time-barred.

I

In March 1994, Kevin Cosens filed a qui tam complaint (the "original complaint") in the United States District Court for the Western District of Washington against 132 hospitals from thirty states; the complaint also named thirty "John Doe" defendants. As required by the FCA, the original complaint was filed under seal and served on the Government. See 31 U.S.C. § 3730(b)(2). The original complaint alleged, inter alia, that the Hospitals had defrauded Medicare by seeking and obtaining reimbursement for hospital services provided to patients participating in clinical trials involving investigational cardiac devices that had not received Food and Drug Administration ("FDA") pre-market approval.¹ According to the complaint, reimbursement for such services contravened a provision in the manuals that Medicare issued to its fiscal intermediaries (the "Manual Provision").² In December 1995, Cosens filed an amended complaint, also under seal.³ The original and amended pleadings both alleged a single omnibus cause of action; neither pleading linked individual hospitals to specific fraudulent acts or alleged that the individual hospitals had conspired or collaborated in perpetrating the fraud.

Upon receiving service of the original complaint, the Government had an initial sixty days to investigate the allegations and determine whether to intervene while the complaint remained under seal. See 31 U.S.C. §§ 3730(b)(2), (4). Over the next eight years, the Government made sixteen requests, on ex parte motion, see 31 U.S.C. § 3730(b)(3), to extend the sixty-day period during which the complaint remained under seal. The Western District of Washington granted each motion.

Beginning in 1995, a series of external events transpired that had bearing on the course of the litigation: (i) In May 1995, twenty-five of the hospitals filed suit in the Central District of California, seeking to have the Manual Provision declared invalid, see Cedars-Sinai Med. Ctr. v. Shalala, 939 F.Supp. 1457 (C.D.Cal. 1996), aff'd in part and remanded in part, 125 F.3d 765 (9th Cir. 1997), appeal after remand, 177 F.3d 1126 (9th Cir. 1999) (the "Cedars-Sinai litigation");⁴ (ii) In September 1995, the Secretary of the Department of Health and Human Services ("HHS") promulgated new regulations governing the investigational cardiac devices at issue in Cosens's qui tam action, see Medicare Program; Criteria and Procedures for Extending Coverage to Certain Devices and Related Services, 60 Fed. Reg. 48417 (codified at 42 C.F.R. §§ 405 & 411); under the new regulations, Medicare arguably covered treatments involving those devices; (iii) In February 1996, the United States Permanent Subcommittee on Investigations held hearings (at which Cosens testified) to investigate whether hospitals were defrauding Medicare by billing for services involving non-covered devices, see Improper Medicare Billing by Hospitals Nationwide for Investigational Devices and Procedures: Hearing Before the Perm. Subcomm. On Investigations of the Comm. On Gov't Affairs, 104th Cong. 32 (1996), available at 1996 WL 713556-7135563; see also In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 325 (D.Conn. 2004). The Government's motions to extend the seal period cited these developments, as well as the need to evaluate the claims and pursue settlement discussions with the hospitals. See Cardiac Devices Qui Tam Litig., 221 F.R.D. at 325-26. During this period, the Government and Cosens sought and obtained a partial lifting of the seal, with the result that some of the hospitals received limited information about the FCA suits.

Beginning in June 1999, the Government—asserting that it was the real party in interest without formal intervention—filed ex parte motions for severance and transfer of venue as to particular hospitals, in each instance seeking transfer to the district where the hospital was located. These motions were all granted by the Western District of Washington. See id. at 326. At the same time, the Government negotiated settlements with a number of the hospitals, and voluntarily dismissed others.

In late 2002 to early 2003, the Government at last filed complaints-in-intervention against the remaining defendants (i.e., the Hospitals), asserting claims under the FCA and common law. Upon motion by the Government and Cosens, the United States Judicial Panel on Multi-district Litigation assigned the cases to the District of Connecticut for coordinated or consolidated pretrial proceedings.

The Hospitals moved to dismiss the Government's claims pursuant to Fed.R.Civ.P. 12(b)(6), arguing that the Government's complaints (i) failed to plead fraud with particularity as required by Fed.R.Civ.P. 9(b), (ii) failed to state a claim, and (iii) were untimely. The district court dismissed the Government's non-fraud and common-law claims as time-barred, a ruling that the Government has not appealed.

The district court refused, however, to dismiss the FCA claims. The court determined that (i) the Government's complaints satisfied the requirements of Rule 9(b), (ii) the Government's complaints stated claims under the FCA, and (iii) the Government's FCA claims were timely on the ground that the controlling date for statute-of-limitations purposes was the date of the original qui tam complaint, and all claims had accrued within the applicable limitations period of that original complaint. The district court also ruled that the claims should not be dismissed for failure to prosecute and that the decisions of the Western District of Washington granting extensions of the intervention period were entitled to respect under the law-of-the-c...