United States ex rel. Complin v. N.C. Baptist Hosp. & the Charlotte-Mecklenburg Hosp. Auth.

Decision Date28 December 2016
Docket Number1:09cv420
CourtU.S. District Court — Middle District of North Carolina
PartiesUNITED STATES OF AMERICA, ex rel. COMPLIN, Plaintiff, v. NORTH CAROLINA BAPTIST HOSPITAL and THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY, Defendants.
MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

This case comes before the undersigned United States Magistrate Judge for a recommendation on "Defendant North Carolina Baptist Hospital's Motion to Dismiss Plaintiff's Second Amended Complaint" (Docket Entry 64) ("Baptist's Motion") and "Defendant Carolinas Healthcare System's Motion to Dismiss Plaintiff's Second Amended Complaint" (Docket Entry 67) ("CHS's Motion," and collectively with Baptist's Motion, the "Motions to Dismiss"). For the reasons that follow, the Court should grant the Motions to Dismiss and dismiss "Relator's Second Amended Complaint" (Docket Entry 62) with prejudice.

BACKGROUND

In June 2009, Complin1 commenced a qui tam2 action by filing a Complaint asserting claims under the federal False Claims Act, 31 U.S.C. § 3729 et seq. (the "FCA"), against North Carolina Baptist Hospital ("Baptist") and The Charlotte-Mecklenburg Hospital Authority ("CHS") for allegedly obtaining improper "Medicare and/or Medicaid and/or TriCare reimbursement[s]" (Docket Entry 1, ¶ 1). In July 2010, Complin amended the Complaint to add parallel claims under the North Carolina False Claims Act, N.C. Gen. Stat. § 1-605 et seq. (the "NC FCA"). (See Docket Entry 16 (the "First Amended Complaint").) In February 2016, Complin again amended its pleading, this time pursuing a "substantially different" Medicare reimbursement theory under the FCA against Baptist and CHS and adding retaliation claims against Baptist under the FCA and NC FCA (collectively, the "Acts"). (Docket Entry 61 at 2; see also Docket Entry 62 (the "Second Amended Complaint").)

I. Statutory Background

Medicare Part A provides hospital (and other) insurance benefits for the elderly and disabled. See 42 U.S.C. §§ 1395c to 1395i-5. Hospitals participating in Medicare Part A may submit interim bills and must submit an annual cost report (the "Medicare Cost Report") to receive reimbursement for eligible Medicare services. See 42 U.S.C. § 1395g; 42 C.F.R. §§ 405.1801(b)(1), 413.20, 413.60. Hospitals submit these reports to designated fiscal intermediaries, which audit the Medicare Cost Reports and calculate the appropriate reimbursement amounts for each hospital. See 42 U.S.C. §§ 1395h, 1395kk-1; 42 C.F.R. §§ 405.1801(b)(1), 405.1803, 413.24. The hospital's administrator or chief financial officer must sign the Medicare Cost Report, with the following certification immediately preceding such signature:

I hereby certify that I have read the above certification statement and that I have examined the accompanying electronically filed or manually submitted cost report and the Balance Sheet and Statement of Revenue and Expenses prepared by ___ (Provider Name(s) and Number(s)) for the cost reporting period beginning ___ and ending ___ and that to the best of my knowledge and belief, this report and statement are true, correct, complete and prepared from the books and records of the provider in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding the provision of health care services, and that the services identified in this cost report were provided in compliance with such laws and regulations.

42 C.F.R. § 413.24(f)(4)(iv). Hospitals utilize Form CMS-2252-10 for their Medicare Cost Reports. See Medicare Provider Reimbursement Manual, Part II, Chapter 40.3

The Centers for Medicare and Medicaid Services ("CMS") bear responsibility for "administering the Medicare and Medicaid programs" and "interpret[ing] Medicare policies, procedures and rules." (Docket Entry 43 at 4.) CMS provides detailed guidance for completing Medicare Cost Reports. See, e.g., Medicare Provider Reimbursement Manual, Part II, Chapter 40. For instance, CMS specifies that certain fringe benefits qualify for inclusion in the hospital's costs, including the cost of any health insurance premiums that the hospital incurs on behalf of its employees. Id., Part I, § 2144.4.4

The hospital's "unrecovered cost of medical services rendered to employees" likewise qualifies as an includable cost. Id. (citing id. § 332.1). This fringe benefit refers to "[a]llowances, or reduction in charges, granted to employees for medical services as fringe benefits related to their employment," which "are usuallygiven under employee hospitalization and personnel health programs." Id. § 332. Because these discounts "are not considered courtesy allowances," "any costs of the services not recovered by the provider from the charge assessed the employee are allowable costs." Id.; see also id. § 300 (explaining that "courtesy allowances are deductions from revenue and are not to be included in allowable costs"). To facilitate correct calculations, CMS specifically details the appropriate method for including the unrecovered cost of this fringe benefit in the Medicare Cost Report. See id. § 332.1 (providing sample calculations for 30% employee discount).

CMS further specifies how hospitals should account for "health insurance and health-related costs" in their Medicare Cost Reports wage index information. Id., Part II, § 4005.2, at 40-62.5 Hospitals that purchase employee health insurance can include any "[p]remium costs" and any "[c]osts paid to external organizations for plan administration." Id. Hospitals that self-fund their employee health insurance can likewise include "[c]osts paid to external organizations for plan administration." Id. In addition,CMS instructs any hospital with "a Third-Party Administrator (TPA)" for its plan to include the "[a]mount the TPA pays to the hospital or other health care providers for services rendered under the plan." Id. However, a self-funding hospital that lacks a TPA can include only the "[h]ospital's payment to unrelated health care providers for services rendered, under the plan, to [the] hospital's employees" and the "[c]osts the hospital incurs in providing services under the plan to its employees." Id.

Finally, various regulations impact hospitals' Medicare Cost Reports and reimbursements. For instance, subject to certain exceptions, "costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control are includable in the allowable cost of the provider at the cost to the related organization." 42 C.F.R. § 413.17(a). Those costs, however, "must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere." Id.

II. Procedural Background

In the Complaint and First Amended Complaint, Complin challenged the alleged failure of Baptist and CHS (collectively, the "Hospitals") to comply with Medicare "and similarly situated governmental health insurance programs[']" independent fiduciary requirements for their self-funded health insurance plans (Docket Entry 1, ¶ 14). (See Docket Entries 1, 16.) In those complaints,Complin maintained that the Hospitals "co-owned a managed care organization, MedCost, which consisted of a Preferred Provider Organization (or 'PPO') and a Third Party Administrator (or 'TPA')." (Docket Entry 1, ¶ 9; Docket Entry 16, ¶ 9;)6 Complin further explained that,

[f]or several years, both [H]ospitals have been using MedCost's PPO network and its Third Party Administrator ("TPA") for their respective self-funded health plans. . . . As a PPO rental network, MedCost's business model is to secure negotiated (discounted) rates from physicians and hospitals as a condition of participation in exchange for potential increased patient volume or the protection from the loss of existing patient volumes by these participating physicians and hospitals. This network is then 'rented' by self-funded companies and insurance companies seeking discounted health care services.

(Docket Entry 16, ¶ 44; accord Docket Entry 1, ¶ 37.)

According to the Complaint and First Amended Complaint,

[t]he lynchpin of these frauds was the Hospitals' purposeful disregard of the requirement that they each needed to have in place an independent fiduciary with legal control of their respective self-funded employee health benefit Plans ("Plans"). Without an independent fiduciary with the ability to intervene on behalf of the Plans' employees, the Hospitals' scheme — to select, use, and control MedCost as a vendor to Hospitals' Plans — resulted in the victimization of the Plans' members (the "employees") and the Government, Medicare, Medicaid and TriCare.

(Docket Entry 1, ¶ 12; Docket Entry 16, ¶ 12.) The Hospitals primarily committed such fraud, Complin asserted, by offering asmaller discount on healthcare services to MedCost participants than they did to participants in other "managed care contracts" such as "BCBSNC, United Health Care, etc." (Docket Entry 1, ¶ 40; Docket Entry 16, ¶ 47.) This conduct, Complin maintained, inflated the Hospitals' Medicare Cost Report wage data and Medicare and Medicaid reimbursements. (See Docket Entry 1, ¶¶ 9-15, 29-61; Docket Entry 16, ¶¶ 9-15, 35-69.) In addition, Complin alleged, the absence of an independent fiduciary disqualified certain Plan contributions that the Hospitals (improperly) claimed as allowable Medicare expenses. (Docket Entry 1, ¶ 52; Docket Entry 16, ¶ 59.)

For six years, the United States investigated Complin's allegations. (See generally Docket Entries 6-48.)7 In so doing,the United States received guidance from CMS on "both issues in this case," namely (1) whether each of the Hospitals needed "a fiduciary because it was self-insured and (2) [whether] MedCost was a 'related party,' as defined by Medicare, that [the Hospitals] failed to disclose on [their] cost report[s] and that costs of services provided to [their] own employees were inflated...

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