United States ex rel. Hanlon v. Columbine Mgmt. Servs., Inc.

• Decision Date: 23 February 2016
• Docket Number: Civil Action No. 13-cv-00826-REB-KLM
• Parties: UNITED STATES ex rel. ANTHONY HANLON, UNITED STATES ex rel. LINDA DOLLAR, and STATE OF COLORADO ex rel. RELATORS, Plaintiffs, v. COLUMBINE MANAGEMENT SERVICES, INC., a Colorado corporation doing business as COLUMBINE HEALTH SYSTEMS, and POUDRE VALLEY HEALTH CARE, INC., a Colorado nonprofit corporation doing business as POUDRE VALLEY HEALTH SYSTEM, Defendants. UNITED STATES, Interested Party.
• Court: U.S. District Court — District of Colorado

UNITED STATES ex rel. ANTHONY HANLON,UNITED STATES ex rel. LINDA DOLLAR,and STATE OF COLORADO ex rel. RELATORS,Plaintiffs, v. COLUMBINE MANAGEMENT SERVICES, INC.,

a Colorado corporation doing business as COLUMBINE HEALTH SYSTEMS,

and POUDRE VALLEY HEALTH CARE, INC.,

a Colorado nonprofit corporation doing business as POUDRE VALLEY HEALTH SYSTEM, Defendants.

UNITED STATES, Interested Party.

Civil Action No. 13-cv-00826-REB-KLM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 23, 2016

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX

This matter is before the Court on Defendant Poudre Valley Health Care, Inc.'s Motion to Dismiss [#60];¹ on Defendant Columbine Management Services, Inc.'s Motion to Dismiss [#62]; and on Plaintiffs' Motion to Amend Complaint and Join a Party [#82] (the "Motion"). Plaintiffs filed Responses [#65, #66] in opposition to the Motions to Dismiss, and Defendants filed Replies [#70, #71]. Defendants filed Responses [#87, #88] in opposition to the Motion to Amend, and Plaintiffs filed a Reply [#89]. All three Motions havebeen referred to the undersigned for a recommendation.² See [#61, #63, #83]. The Court has reviewed the Motions, Responses, Replies, the case file, and the applicable law, and is fully advised in the premises. For the reasons set forth below, the Court recommends that the Motion to Amend [#82] be DENIED, and that the Motions to Dismiss [#60, #62] be GRANTED.

I. Background

The Court first addresses the Motion to Amend [#82], in which Plaintiffs seek to add one additional defendant to this matter and also to add a variety of new allegations to the current Complaint. See [#82-1]. On October 23, 2015, the Court extended the deadline for joinder of parties and amendment of pleadings to November 6, 2015. [#81] at 6-7. Accordingly, Plaintiffs' Motion to Amend [#82], which was filed on November 6, 2015, was timely filed.

The Court has discretion to grant parties leave to amend their pleadings. Foman v. Davis, 371 U.S. 178, 182 (1962); see Fed. R. Civ. P. 15(a)(2) ("The court should freely give leave when justice so requires."). "In the absence of any apparent or declared reason - such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc. - the leave sought should, as the rules require, be 'freely given.'" Id. (quoting Fed. R. Civ. P. 15(a)(2)).Potential prejudice to a defendant is the most important factor in considering whether a plaintiff should be permitted to amend the complaint. Minter v. Prime Equip. Co., 451 F.3d 1196, 1207 (10th Cir. 2006). "Courts typically find prejudice only when the [proposed] amendment unfairly affects the defendants in terms of preparing their defense to [claims asserted in the] amendment." Id. (quotation omitted).

Defendants argue that the proposed amendments to Plaintiffs' Proposed Amended Complaint are futile. Responses [#87, #88]. A motion for leave to amend may be denied on the basis of futility. Foman, 371 U.S. at 182. An amendment is futile if it would not survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Innovatier, Inc. v. CardXX, Inc., No. 08-cv-00273-PAB-KLM, 2010 WL 148285, at *2 (D. Colo. Jan. 8, 2010) (citing Bradley v. Val-Mejias, 379 F.3d 892, 901 (10th Cir. 2004)). Defendants argue that each of the three claims asserted by Plaintiffs fails under the standards set by Fed. R. Civ. P. 12(b)(1) and (6). See Response [#87, #88]. The Court examines each claim in turn after reciting material facts from the Proposed Amended Complaint.

The following facts are alleged by Plaintiffs in the proposed Amended Complaint [#82-1]. Plaintiffs are individuals employed by Rehabilitation and Nursing Center of the Rockies, which is a business competitor of Defendants. Proposed Am. Compl. [#82-1] ¶ 1. Defendant Columbine Management Services, Inc. ("Columbine") is a Colorado corporation doing business as Columbine Health Systems with its principal place of business located in Fort Collins, Colorado. Id. ¶ 3. Defendant Poudre Valley Health Care, Inc. (the "Hospital") is a Colorado nonprofit corporation doing business as Poudre Valley Health System with its principal place of business also located in Fort Collins, Colorado. Id. ¶ 4. Plaintiffs allege that a contractual joint venture was formed by Defendants Columbine andthe Hospital in 2003 and that this joint venture is named Centre Ave. Health and Rehab Facility, LLC ("Centre Ave."). Id. ¶¶ 5, 9. Centre Ave. is the proposed third Defendant in the Proposed Amended Complaint.

Prior to forming Centre Ave., Defendant Columbine was an owner/operator of three nursing homes and five health care referral businesses. Id. ¶ 10. Defendant Columbine's joint venture with the Hospital was established for the purpose of operating another nursing home facility, i.e., Centre Ave., and at least one purpose of forming Centre Ave. was allegedly to influence referrals from the Hospital for remuneration. Id. ¶ 12. Centre Ave. itself is a collaboration of two entities: Centre Avenue Rehab Real Estate, LLC, which owns the real estate, and Centre Avenue Health & Rehab Facility, LLC, which is the operating entity of Centre Ave. Id. ¶ 13. The Hospital wholly owns Lakota Lake, LLC, which in turn owns fifty percent of Centre Avenue Health & Rehab Facility, LLC.³ Id. ¶ 14.

Throughout the events underlying this lawsuit, the Hospital has been the only hospital in the Fort Collins area. Id. ¶ 15. The Hospital is paid by the federal government for providing care to patients who are insured by Medicare or Medicaid. See, e.g., id. ¶ 19 (stating that the Hospital is compensated by Medicare for its discharge planning services). The Hospital employs people who deliberately steer potential nursing home patients towards the nursing home in which the Hospital has a financial interest, i.e., towards Centre Ave. See id. (stating that the Hospital controls the referral process through physicians and discharge planners). Defendant Columbine and/or Centre Ave. also employ nurses at the Hospital who steer these patients towards Centre Ave. Id. ¶¶ 20-21. However, the Hospital does not permit other nursing homes to try and steer patients their way. Id. ¶ 24 (statingthat the other community nursing homes facilities are prohibited from having marketing staff in the hospital unless invited, which never happens).

The vast majority of hospitalized patients needing nursing home care go to Centre Ave. because of these practices. Id. ¶ 16 (stating that over the last ten years, the Hospital has referred between 7,500 and 8,500 Medicare A patients and private pay patients to Centre Ave), ¶ 17 (stating that the Hospital only refers a few dozen Medicare A patients to the other five nursing home facilities in Fort Collins, and that these are generally patients requiring excessive care for the amount of treatment costs reimbursed by Medicare). Centre Ave. also bills the federal government for the care of these patients. Id. ¶ 19 (stating that Centre Ave. and Defendant Columbine are compensated by Medicare for intake coordination), ¶ 25 (stating that Centre Ave. billed Medicare for 16,704 days of health care under the Medicare A program in 2010). The rates charged to the government by Centre Ave. are significantly higher than the rates charged by the competitor nursing homes. Id. ¶ 26 (stating that Centre Ave. charges an average daily Medicare A reimbursement rate almost $200.00 per day higher than the average of the other five nursing homes in the Fort Collins area). Thus, because of the Hospital's financial interest in Centre Ave., the Hospital receives money from the government both when the patients are in the Hospital's care as well as when the patients are in the care of Centre Ave.

In return for the patient referrals from the Hospital, Centre Ave. then refers patients to other businesses which are financially connected to the Hospital and to Defendant Columbine. Id. ¶ 31 (stating that Centre Ave. refers patients to other health care services co-owned by or otherwise related to the Hospital and Defendant Columbine, including Poudre Columbine Home Health Care, Poudre Columbine Infusion Therapy, ColumbineOxygen, Columbine DME, and Columbine Pharmacy). These other health care businesses pay Centre Ave. for these referrals, which creates a financial benefit to the Hospital and Defendant Columbine as well. Id. (stating that Defendants are giving and receiving further remuneration for these referrals). Defendant Columbine, the Hospital, and Centre Ave. have all been substantially enriched as a result of this referral system. Id. ¶¶ 37, 40, 44.

As a result of these allegations, Plaintiffs assert three claims for relief: (1) violation of the Antikickback Statute and conspiracy to violate the Antikickback Statute, 42 U.S.C. § 1320a-7b; (2) violation of the False Claims Act ("FCA"), 31 U.S.C. § 3729; and (3) violations of the Colorado False Claims and Antikickback Statutes, Colo. Rev. Stat. § 25.5-4-301 through 306, also known as the Colorado Medicaid False Claims Act. Id. ¶¶ 46-67. Plaintiffs seek damages as a result of these alleged violations. Id. at 12.

II. Standard

A. Fed. R. Civ. P. 12(b)(1)

Subject matter jurisdiction may be challenged by a party or raised sua sponte by the court at any point in the proceeding. E.g., Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 16-19, (1951); Harris v. Illinois-California Express, Inc., 687 F.2d 1361, 1366 (10th Cir. 1982); Fed. R. Civ. P. 12(h)(3). A motion to dismiss pursuant to Rule 12(b)(1) may take two forms: a facial attack or a factual attack. When reviewing a facial attack on a complaint pursuant to Rule 12(b)(1), the Court accepts the allegations of the complaint as true. Holt v. United States, 46 F.2d 1000, 1002 (10th Cir. 1995). When reviewing a factual attack on a...