United States ex rel. Drummond v. Bestcare Lab. Servs., L.L.C.

• Decision Date: 17 February 2020
• Docket Number: No. 18-20501,18-20501
• Citation: 950 F.3d 277
• Parties: UNITED STATES of America, EX REL., Richard DRUMMOND, Plaintiff-Appellee, United States of America, Intervenor-Appellee, v. BESTCARE LABORATORY SERVICES, L.L.C. ; Karim A. Maghareh, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

950 F.3d 277

UNITED STATES of America, EX REL., Richard DRUMMOND, Plaintiff-Appellee,United States of America, Intervenor-Appellee,

v.BESTCARE LABORATORY SERVICES, L.L.C. ; Karim A. Maghareh, Defendants-Appellants.

No. 18-20501

United States Court of Appeals, Fifth Circuit.

FILED February 17, 2020

Samantha Lee Chaifetz, Attorney, Charles Wylie Scarborough, U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, Andrea E. Belgau, Assistant U.S. Attorney, Daniel David Hu, Assistant U.S. Attorney, Mary Michelle Zingaro, U.S. Attorney's Office, Southern District of Texas, Houston, TX, for Plaintiff-Appellee United States of America.

Mitchell Reed Kreindler, Kreindler & Associates, Houston, TX, Melissa Neiman, Melissa Neiman, P.L.L.C., Houston, TX, for Plaintiff-Appellee Richard Drummond.

George William Vie, III, Feldman & Feldman, P.C., Houston, TX, for Defendant-Appellant BestCare Laboratory Services, L.L.C.

Jane Langdell Robinson, Weining Bai, Esq., Kyle Andrew Poelker, Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, P.C., Houston, TX, for Defendant-Appellant Karim A. Maghareh.

Before ELROD, WILLETT, and OLDHAM, Circuit Judges.

ANDREW S. OLDHAM, Circuit Judge:

BestCare Laboratory Services, L.L.C., obtained millions of dollars in reimbursements from Medicare for miles that its technicians never traveled. In this False Claims Act suit against BestCare and its CEO, the district court granted summary judgment to the United States. We affirm.

I.

Karim A. Maghareh founded BestCare in 2002 and served as its CEO. BestCare provided clinical testing services for nursing-home residents, many of whom were Medicare beneficiaries. Its main laboratory was in Webster, Texas, a suburb of Houston. BestCare grew its business; it opened labs in Dallas and San Antonio and specimen-processing centers in Waco, Austin, and El Paso. Maghareh owned 51% of the company, and his wife owned the other 49%.

Richard Drummond was one of Maghareh’s competitors. Drummond was suspicious of Maghareh’s success in expanding BestCare. After all, diagnostic testing for Medicare patients isn’t high-margin work. Cf. 42 U.S.C. § 1395l (h)(3)(A) (providing only a "nominal fee" for specimen collection). In 2008, Martha Shirali left her job as BestCare’s billing manager, and Drummond subsequently hired her. When Shirali described BestCare’s billing practices for travel reimbursements to Drummond, he realized that BestCare had been improperly billing Medicare.

In 2008, Drummond brought a qui tam whistleblower suit under the False Claims Act against BestCare and Maghareh on behalf of the United States. Three years passed with no activity in the district court. In 2011, the United States exercised its right to intervene, see 31 U.S.C. § 3730(b)(4)(A), and brought claims for fraud, unjust enrichment, payment by mistake, and violations of the False Claims Act.

The Government alleged that BestCare submitted false claims for travel reimbursements to Medicare. Specifically, BestCare sought reimbursements for miles purportedly driven by technicians to collect specimens from patients—when the samples were actually shipped one-way via airplane without any technician onboard. In addition, BestCare often failed to prorate mileage, treating a single shipment of multiple samples as though each sample had been shipped separately.

The Government filed two partial motions for summary judgment. The first sought to hold BestCare and Maghareh liable for fraud, unjust enrichment, and payment by mistake. The Government limited its damages calculation to a modest subset of BestCare’s fraudulent billings: those purporting to involve trips of 400 miles or more between August 4, 2005, and January 26, 2010. The Government did so because it is undisputed that no technician traveled 400 miles or more to collect samples. The Government’s expert calculated damages by estimating the non-reimbursable portion of what Medicare paid using a sampling methodology developed by the Office of the Inspector General. He estimated that the total excess payment to BestCare during the time period in question was $10,600,000 (+/– 1.34%). The Government sought a judgment in that amount.

The second partial motion for summary judgment sought to hold BestCare and Maghareh liable for violating the False Claims Act. In this motion, the Government limited its damages calculation to an even smaller subset of fraudulent billings: those purporting to involve trips of more than 400 miles between August 4, 2005, and June 30, 2008. The Government’s expert found that the total amount paid by Medicare during this time period for trips involving more than 400 miles was $10,190,545. Unlike the previous damages calculation, no sampling was used to disaggregate the reimbursable and non-reimbursable portions of what Medicare paid. Because the False Claims Act permits treble damages, see 31 U.S.C. § 3729(a)(1), the Government sought damages of $30,571,635.

In 2014, the district court granted partial summary judgment to the Government. It ruled only on the Government’s first summary-judgment motion and held Maghareh liable for unjust enrichment and payment by mistake. The court adopted the Government’s damages calculation of $10,600,000 and held BestCare and Maghareh jointly and severally liable. BestCare and Maghareh sought reconsideration. The district court refused.

The Government’s second partial summary-judgment motion, involving the False Claims Act, sat undecided in the district court for four years. We issued a writ of mandamus and ordered the court to rule on the motion. See In re United States ex rel. Drummond , 886 F.3d 448, 450 (5th Cir. 2018) (per curiam). The court granted summary judgment to the Government, adopting its damages calculation of $30,571,635. It entered a final judgment in that amount on the same day.

BestCare and Maghareh timely appealed. We review de novo a district court’s grant of summary judgment. See Morrow v. Meachum , 917 F.3d 870, 874 (5th Cir. 2019). We ask whether the movant has shown "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a).

II.

The defendants do not dispute that BestCare sought and obtained round-trip, driving mileage reimbursements for the one-way shipment of samples via airplane with no technician onboard. Instead, they argue that their billing practices were lawful. Alternatively, they argue that they didn’t have the requisite mens rea because they thought it was lawful to bill the Government for technicians’ road trips—when in fact there were no road trips, and the technicians stayed at home. We review and reject both arguments in turn.

A.

The byzantine laws governing Medicare reimbursement have been aptly described as a "labyrinth." Biloxi Reg’l Med. Ctr. v. Bowen , 835 F.2d 345, 349 (D.C. Cir. 1987). Even the most complicated labyrinth has an outer boundary, however. And BestCare’s machinations fell well outside of it.

Medicare allows laboratories to collect "a nominal fee to cover the appropriate costs in collecting the sample on which a clinical diagnostic laboratory test was performed," "except that not more than one such fee may be provided under this paragraph with respect to samples collected in the same encounter." 42 U.S.C. § 1395l (h)(3)(A). In addition, labs may collect:

a fee to cover the transportation and personnel expenses for trained personnel to travel to the location of an individual to collect the sample, except that such a fee may be provided only with respect to an individual who is homebound or an inpatient in an inpatient facility (other than a hospital).

Id. § 1395l (h)(3)(B).

The statutory text clearly forbids BestCare’s billing practices. It is undisputed that BestCare billed for the shipment of samples via airplane when no technician was traveling. That violates the statute’s limitation of travel reimbursements to "expenses for trained personnel to travel." Ibid. BestCare’s indisputable violation of the statute makes this an open-and-shut case.

Defendants cannot avoid that result by pointing to the "sub-regulatory guidance" of the Medicare Claims Processing Manual ("CMS Manual"). Defendants insist that they complied with that manual, which they characterize as the "principal repository of sub-regulatory guidance on specific billing issues." Blue Br. 21. But the guidance the Defendants point to in the CMS Manual is a "policy statement" that has "no binding legal effect." Clarian Health West, LLC v. Hargan , 878 F.3d 346, 357 (D.C. Cir. 2017). Its instructions cannot legally justify a clear violation of a statute. The statutory text is what matters, and BestCare violated the statute’s limitations on travel reimbursements.

B.

In the alternative, the defendants argue that their good-faith reliance on the CMS Manual creates a genuine fact dispute about whether they had the requisite mental state to violate the False Claims Act. See 31 U.S.C. § 3729(a) – (b) (requiring a defendant to act "knowingly," which includes not only "actual knowledge" of information, but also "deliberate ignorance" or "reckless disregard" of the truth or falsity of information, even when there is no "proof of specific intent to defraud"). This argument also fails because there is no plausible reading of the CMS Manual that could support the defendants’ billing practices.

We have said that when "state of mind is an essential element," "it is less fashionable to grant summary judgment." Int’l Shortstop, Inc. v. Rally’s, Inc. , 939 F.2d 1257, 1265 (5th Cir. 1991). But we have also recognized that the "presence of an intent issue does not automatically preclude summary judgment; the case must be evaluated like any other to determine whether a genuine issue of material fact exists." Guillory v. Domtar Indus., Inc. , 95 F.3d 1320, 1326 (5th Cir. 1996). In United States ex rel. Longhi v. Lithium Power Techs., Inc. , 575 F.3d 458 (5th Cir. 2009), we affirmed a grant of summary judgment to the...