US v. Oakwood Downriver Medical Center

• Decision Date: 20 May 1988
• Docket Number: No. 87-CV-72500-DT.,87-CV-72500-DT.
• Citation: 687 F. Supp. 302
• Parties: UNITED STATES of America, Plaintiff, v. OAKWOOD DOWNRIVER MEDICAL CENTER, a nonprofit Michigan corporation, West Outer Drive Medical Center, a Michigan co-partnership, Eldon W. Erickson, M.D., Phillip D. Gelbach, M.D., Kent L. Winter, and Zack Fields & Company, P.C., a Michigan corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

687 F. Supp. 302

UNITED STATES of America, Plaintiff, v. OAKWOOD DOWNRIVER MEDICAL CENTER, a nonprofit Michigan corporation, West Outer Drive Medical Center, a Michigan co-partnership, Eldon W. Erickson, M.D., Phillip D. Gelbach, M.D., Kent L. Winter, and Zack Fields & Company, P.C., a Michigan corporation, Defendants.

No. 87-CV-72500-DT.

United States District Court, E.D. Michigan, S.D.

May 20, 1988.

Polly A. Dammann, Michael F. Hertz, Rita S. Geier, U.S. Dept. of Justice, Civil Div., Washington, D.C., L. Michael Wicks, Office of the U.S. Atty., Detroit, Mich., for plaintiff.

Dennis A. Dettmer, Andrew B. Wachler, Mark Kopson, Derek I. Meier, Edward C. Pedersen, Detroit, Mich., Daniel Noveck, Birmingham, Mich., for defendants.

MEMORANDUM OPINION AND ORDER

ZATKOFF, District Judge.

Before the Court are motions to dismiss filed by each of the Defendants.¹ The Plaintiff has responded and this matter is ripe for disposition.

A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of the Plaintiff's Complaint. Davey v. Tomlinson, 627 F.Supp. 1458, 1463 (E.D.Mich.1986); Hudson v. Johnson, 619 F.Supp. 1539, 1542 (E.D.Mich.1985). "In evaluating the propriety of a dismissal under Rule 12(b)(6), the factual allegations in the complaint must be treated as true." Janan v. Trammell, 785 F.2d 557, 558 (6th Cir.1986); Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983), cert. denied 469 U.S. 826, 105 S.Ct. 105, 83 L.Ed.2d 50 (1984). Plaintiff's claims shall not be dismissed unless it is established that the Plaintiff cannot prove beyond doubt any set of facts to support his claim that would entitle him to relief. Janan, 785 F.2d at 558.

Plaintiff bases its claim against the Defendants under the False Claims Act, 31 U.S.C. § 3729, as amended on October 27, 1986. The Plaintiff alleges that the Defendant West Outer Drive Medical Center (WODMC) provided various medical services to the Defendant Oakwood Downriver Medical Center (Oakwood), formerly The Lynn Hospital. Plaintiff claims that Oakwood was a provider of medical services under the Medicare program; WODMC was not.

The remaining Defendants either oversee the business of Oakwood or supply services. Defendant Dr. Erickson is allegedly Oakwood's Chief Executive Officer and a partner in WODMC. Defendant Dr. Gelbach is a member of Oakwood's Board of Trustees and part-owner of WODMC. Defendant Zack Fields and Company, P.C. was allegedly the certified public accounting firm that prepared various medicare forms for Oakwood and WODMC. Defendant Kent Winter is a certified public accountant employed at Zack Fields and who allegedly worked on the Oakwood and WODMC accounts.

Plaintiff alleges that Defendants submitted false claims to the government seeking Medicare reimbursement. Plaintiff asserts the following allegations:

19. Plaintiff, through HHS, administers the Health Insurance for the Aged Act, established by Subchapter XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq. ("Medicare").

20. At all times relevant to this complaint, HHS administered the Medicare program in the State of Michigan through a private contractor ("fiscal intermediary"), Blue Cross Blue Shield of Michigan ("BCBSM"), as authorized by 42 U.S.C. § 1395u. Under this administration, BCBSM reviews and approves claims submitted for reimbursement by Medicare providers, and makes payment on those claims which appear to be eligible for reimbursement under the Medicare program.

21. A hospital seeking reimbursement by Medicare must submit a cost reporting form each year. During the period relevant to this complaint, the cost reporting form was designated as a form 2552. This form includes a Statement of Cost of Services From Related Organizations (worksheet A-8-1), which requires the hospital to answer "yes" or "no" in response to the following question:

Are there any costs included on Worksheet A which resulted from transactions with related organizations ...

If the hospital answers in the affirmative, it must then enumerate each of the related organizations and each of the costs involved.

22. Medicare will only reimburse a provider for certain costs involving related organizations. HCFA Publication 15, Part 1, defines a related organization or party as follows:

1002.1 Related to the provider means that the provider to a significant extent is associated or affiliated with, or has control of, or is controlled by, the organization furnishing the services, facilities, or supplies.

1002.3 Control exists where an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution.

1004.3 The term "control" includes any kind of control, whether or not it is legally enforceable and reality of the control which is decisive ...

23. According to HCFA Publication 15, Part 1, 1000.

Principle

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. However, such cost must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere. The purpose of this principle is two-fold: (1) to avoid the payment of a profit factor to the provider through the related organization (whether related by common ownership or control), and (2) to avoid payment of artificially inflated costs which may be generated from less than arm's-length bargaining ...

24. During the period of time beginning in or before 1980 through in or about 1984, Oakwood received periodic interim payments ("PIP's") under the Medicare program during the year.

25. The PIP payments received by Oakwood during the period of time beginning in or before 1980 through in or about 1984 were based in part upon the information and representations in the cost report form 2552's submitted by Oakwood for the prior year.

26. Oakwood began submitting Medicare cost reports in or about 1966.

Plaintiff's First Amended Complaint, ¶¶ 19-26, pp. 7-9.

Plaintiff alleges that from 1981-1984, the 2552 forms submitted on behalf of Oakwood falsely declared that none of Medicare reimbursement costs sought by Oakwood involved related parties. Specifically, Plaintiff claims that Oakwood knew that WODMC was a related party, but failed to so specify this relationship. Plaintiff accuses the remaining Defendants of knowing the falsehood and participating in the preparation of the false documentation.

On July 3, 1987, Plaintiff filed a complaint against these Defendants. After granting a motion for more definite statement, Plaintiff filed an amended complaint on October 28, 1987. All three (3) of the Counts seeking relief are based on the False Claims Act, 31 U.S.C. §§ 3729(a)(1), (2), (3), and (7) as amended. Defendants have filed motions to dismiss based on various grounds. The Court will address each separately.

I. DEFENDANTS' MOTION TO DISMISS BECAUSE THE ACT'S 1986 AMENDMENTS TAKE PROSPECTIVE EFFECT AND THUS DO NOT APPLY TO PRE-AMENDMENT ACTIVITIES

Plaintiff's claim is based on the 1986 amendments to the False Claims Act. The activities that allegedly violated this Act occurred prior to 1984. Defendants maintain that the amended provisions must apply prospectively since there is no Congressional intent regarding retroactive affect. Plaintiff argues otherwise.

Prior to the 1986 amendments, the False Claims Act provided in pertinent part:

A person not a member of an armed force of the United States is liable to the United States Government for a civil penalty of $2,000, an amount equal to 2 times the amount of damages the Government sustains because of the act of that person, and costs of the civil action, if the person —

(1) knowingly presents, or causes to be presented, to an officer or employee of the Government or a member of an armed force a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

(4) has possession, custody, or control of public property or money used, or to be used, in an armed force and, intending to defraud the government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;

(5) authorized to make or deliver a document certifying receipt of property used, or to be used, in an armed force and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; or

(6) knowingly buys, or receives as a pledge of an obligation or debt, public property from a member of an armed force who lawfully may not sell or pledge the property.

31 U.S.C. § 3729 (Sept. 13, 1982, P.L. 97-258). This language provided conflicting judicial interpretation of the term "knowingly." See United States v. Hughes, 585 F.2d 284 (7th Cir.1978) (the government need not prove "intent" to defraud); United States v. Ekelman & Associates, Inc., 532 F.2d 545 (6th Cir.1976) (government must show actual knowledge); United States v. Cooperative Grain and Supply Co., 476 F.2d 47, 56 (8th Cir.1973) (the knowing submission of a false claim is sufficient); United States v. Aerodex, Inc., 469 F.2d 1003, 1007 (5th Cir.1972) (intent to defraud); United States v. Mead, 426 F.2d 118 (9th Cir.1970) (intent to defraud); Fleming v. United States, 336 F.2d 475 (10th Cir.1964), cert. denied, 380 U.S. 907, 85 S.Ct. 889, 13 L.Ed.2d 795 (1965) (knowingly submit a false claim). See also United States v. Davis, 809 F.2d 1509, 1512 (11th Cir.1987) (the present statute, as its predecessor, requires specific intent).

Further, the courts were...