United States v. Citizens Med. Ctr.

Decision Date20 September 2013
Docket NumberCivil Action No. 6:10–CV–64.
Citation977 F.Supp.2d 654
PartiesUNITED STATES of America, ex. Rel. Dakshesh PARIKH, et al, Plaintiffs, v. CITIZENS MEDICAL CENTER, et al, Defendants.
CourtU.S. District Court — Southern District of Texas


Joshua A. Romero, Monte F. James, Jackson Walker LLP, Austin, TX, for Plaintiffs.

Kevin Michael Clark, King & Spalding LLP, Houston, TX, for Defendants.


GREGG COSTA, District Judge.

This is a qui tam suit brought against Citizens Medical Center, a county owned hospital in Victoria, alleging multiple violations of the False Claims Act (the FCA). Relators are three cardiologists who formerly practiced at Citizens. Defendants are Citizens and two individuals: David Brown, the hospital's administrator, and Dr. William Campbell, Jr., a cardiologist employed by the hospital. Relators allege that Citizens has been violating the FCA since at least 2007 by, among other things, running a kickback scheme in which it paid bonuses and financial incentives to physicians who referred patients for treatment at the hospital, employing physicians in violation of Texas's ban on the corporate practice of medicine, and providing worthless and unnecessary medical services.

Defendants move to dismiss Relators' claims under Rule 12(b)(6), arguing that Relators have failed to plead legally sufficient claims and that the individual Defendants are entitled to qualified immunity. The Court has considered the parties' briefing, the applicable law, and the pleadings, and now GRANTS IN PART and DENIES IN PART Defendants' motions to dismiss.

I. Background
A. Procedural History

Relators are Drs. Dakshesh Parikh, Harish Chandna, and Ajay Gaalla, three cardiologists practicing in Victoria.1 Until December 2012, when they resigned from the hospital pursuant to a settlement in a case in which they alleged discrimination, see generally Gaalla v. Citizens Med. Ctr., No. 6:10–cv–14 (S.D.Tex.), Relators practiced at Citizens and exercised privileges there. According to Relators, their relationship with the hospital became strained beginning in 2007. Relators allege that at that time, Citizens, acting through Defendant Brown, began implementing bonus and fee-sharing programs for emergency room physicians working at the hospital who referred patients for cardiology treatment at Citizens, employing cardiologists at above-market salaries and providing them discounted office space, and demanding that Relators refer all their surgical patients to the hospital's exclusive cardiac surgeon, Dr. Yusuke Yahagi. Docket Entry No. 49 at 14. Relators allege that they refused to participate in these schemes and, as a result, Citizens subsequently retaliated against them. See id.

In August 2010, after several years of increasing conflict between Relators and Citizens and six months after the filing of the discrimination suit, Relators filed this qui tam suit under seal alleging numerous violations of the False Claims Act, 31 U.S.C. § 3729.2 The suit remained sealed until February 2013, when, after two and a half years and two amended complaints by Relators, the Court denied the United States's latest request to keep the case sealed so it could continue its investigation to determine if intervention was warranted. See Docket Entry No. 28. The United States then provided notice that it was declining to intervene at that time. See Docket Entry No. 29.

In May 2013, after the Second Amended Complaint was unsealed and served, Defendants moved to dismiss Relators' suit. That month, the Court held a status conference at which Relators and Defendants argued the merits of the motions to dismiss, and the Court gave Relators leave to file one more amended complaint. Apparently taking to heart the Court's warning that it would be their last chance to replead, Relators filed a 122–page Third Amended Complaint on May 31, 2013. See Docket Entry No. 49.

Defendants promptly moved to dismiss the Third Amended Complaint with Citizens filing its own motion to dismiss and the individual defendants filing a separate one. See Docket Entry Nos. 53, 54. The main difference between the two motions is that Campbell and Brown assert that in addition to the objections the hospital raises, they are also entitled to a qualified immunity defense. Relators responded, see Docket Entry Nos. 67, 68, and the United States filed a statement of interest on some of the issues raised in the motions. See Docket Entry No. 65.

B. Summary of Relators' Allegations

As discussed in more detail below, the live pleading accuses Defendants of violating the FCA in several ways. First, the bulk of Relators' complaint alleges violations predicated on Defendants' submission of Medicare and Medicaid claims rendered in violation of the anti-kickback statute (the AKS) for federal health care programs, 42 U.S.C. § 1320a–7b, and the Stark Laws (Stark), 42 U.S.C. § 1395nn. Relators contend that Citizens entered into improper financial relationships with and gave kickbacks to physicians in order to induce them to refer patients for medicaltreatment at the hospital. Specifically, Relators make allegations concerning over two dozen individual physicians of at least six different specialties and practice groups: (i) physicians working at the hospital's emergency room; (ii) cardiologists; (iii) hospitalists; (iv) gastroenterologists; (v) urologists working as part of a lithotripsy group; and (vi) other physicians of unstated specialties. With varying levels of detail, Relators allege that each group of physicians entered into agreements with Citizens under which they received additional compensation or other benefits in exchange for referring patients to the hospital.

Second, Relators allege FCA violations predicated on Defendants' submission of Medicare and Medicaid claims rendered in violation of Texas's ban on the corporate practice of medicine. Three of the above groups of physicians—the emergency room physicians, the cardiologists, and the hospitalists—are employees of Citizens, which Relators contend is a violation Tex. Occ.Code Ann. § 165.156. Third, Relators contend that Defendants violated the FCA “directly” by knowingly submitting Medicare and Medicaid claims for unnecessary or worthless medical services. Fourth, Relators allege violations predicated on Defendants' false certification of compliance with one of Medicare's conditions of participation, 42 C.F.R. § 482.12(a)(6), which requires the governing body of a hospital to [e]nsure that the criteria for selection [of medical staff] are individual character, competence, training, experience, and judgment.” Id. Fifth and finally, Relators argue that Defendants are liable under 31 U.S.C. § 3729(a)(1)(C) for conspiring to violate the FCA.

II. Legal Standards
A. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) allows dismissal if a plaintiff fails to state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). In evaluating a Rule 12(b)(6) motion, the court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.’ Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir.2004) (quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir.1999)). The court does not look beyond the face of the pleadings to determine whether the plaintiff has stated a claim. Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir.1999). To survive a motion to dismiss, a claim for relief must be “plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

FCA cases are subject to additional pleading requirements under Rule 9(b). See United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir.2009) (applying Rule 9(b) to the FCA). The rule requires relators to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). To meet this standard, the plaintiff must “at a minimum ... set forth the who, what, when, where, and how of the alleged fraud.” United States ex rel. Steury v. Cardinal Health, Inc. (Steury I), 625 F.3d 262, 266 (5th Cir.2010) (citations and internal punctuation omitted). However, the Fifth Circuit has held that the rule is not a “straitjacket” and that a relator's complaint, “if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Grubbs, 565 F.3d at 190. And Rule 9(b) provides that any state-of-mind requirement for a fraud claim “may be alleged generally.” Fed.R.Civ.P. 9(b); see also City of Clinton v. Pilgrim's Pride Corp., 632 F.3d 148, 154 (5th Cir.2010).

B. Statutory Framework

Before diving into the specifics of the motions to dismiss, it is helpful to briefly review how the FCA works in combination with other laws, particularly the AKS and Stark. The FCA, initially enacted in 1863 at the request of President Lincoln to curb fraud by civilians supplying the Union Army during the Civil War, is “intended to protect the Treasury against the hungry and unscrupulous host that encompasses it on every side.” Grubbs, 565 F.3d at 184 (quoting S.Rep. No. 99–345, at 11, 1986 U.S.C.C.A.N. 5266, 5276 (1986)). An FCA suit may be brought either by the United States or, under the statute's qui tam mechanism, by a private relator with original knowledge of wrongdoing. See31 U.S.C. § 3730(a, b).

Regardless whether suit is brought by the United States or by a relator, the FCA's main substantive provisions subject to civil liability any person who (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [or] (C) conspires to commit a violation of [the FCA].” 31 U.S.C. § 3729(a)(1)...

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