Waldmann v. Fulp

• Decision Date: 12 October 2016
• Docket Number: CIVIL ACTION NO. 7:13–CV–495
• Parties: Keith WALDMANN, et al, Plaintiffs, v. Dr. Ray R. FULP, III, et al, Defendants.
• Court: U.S. District Court — Southern District of Texas

259 F.Supp.3d 579

Keith WALDMANN, et al, Plaintiffs,

v.Dr. Ray R. FULP, III, et al, Defendants.

CIVIL ACTION NO. 7:13–CV–495

United States District Court, S.D. Texas, McAllen Division.

Signed October 12, 2016

Entered October 13, 2016

Mitchell Craig Chaney, Victor Rodriguez, Jr, Nicondra Seane Chargois–Allen, Colvin, Chaney, Saenz & Rodriguez, LLP, Brownsville, TX, Johnny W. Carter, Richard Wolf Hess, Susman Godfrey LLP, Houston, TX, Omar A. Ochoa, Susman Godfrey LLP, Dallas, TX, for Plaintiffs.

Jordan Matthew Parker, Jeff Frank Kinsel, Jr., Timothy Derek Carson, Cantey Hanger LLP, Fort Worth, TX, Daniel Gordon Gurwitz, Atlas Hall Rodriguez LLP, David George Oliveira, Roerig Oliveira and Fisher, Raymond L. Thomas, Jr, Kittleman Thomas et al, Gerald Edward Castillo, Attorney at Law, McAllen, TX, Brian G. Flood, Afton Dee Sands, Lorinda Holloway, Afton Dee Sands, Husch Blackwell LLP, Austin, TX, Alexander Edelson, Gary A. Orseck, Michael L. Waldman, Robbins Russell Englert Orseck Untereiner & Sauber LLP, Washington, DC, for Defendants.

ORDER DENYING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

Randy Crane, United States District Judge

Now before the Court are Defendants McAllen Medical Center's ("MMC"), South Texas Health System's, and McAllen Hospitals, L.P.'s (collectively, the "MMC Defendants") Motion to Dismiss, or, in the Alternative, for Summary Judgment, (Dkt. No. 172); Defendants RedMed, Inc.'s ("RedMed"), Jeffrey L. Hannes's, and Northern Services LLC d/b/a Advanced Orthopedic Solutions' ("AOS") (collectively, the "RedMed Defendants") Motion for Summary Judgment, (Dkt. No. 173); Defendant Dr. Ray Fulp, III's Motion for Summary Judgment, (Dkt. No. 175); and Defendant Alex Santos's Motion for Summary Judgment, (Dkt. No. 176). Having considered the Motions for Summary Judgment of the various Defendants and the MMC Defendants' Motion to Dismiss, as well as the responsive briefing, (Dkt. Nos. 182, 183, 186, 187, 190, 191, 192, 193, 194), the Court finds that the Motions should be denied for the following reasons.

I. Factual and Procedural Background

Plaintiffs and qui tam Relators Keith Waldmann and Adan Ponce (collectively, "Relators") brought suit against Defendants Dr. Ray Fulp, III, Alex Santos, MMC,¹ RedMed, and Jeff Hannes on September 9, 2013. (Dkt. No. 1). Relators subsequently amended their complaint to add Defendant Northern Services, LLC d/b/a Advanced Orthopedic Solutions "AOS." (Dkt. No. 165). Defendant Fulp is a Doctor of Osteopathy who practices at MMC and other hospitals in the Rio Grande Valley, and Defendant Santos is a Surgical Technologist First Assistant ("scrub technician" or "surgical assistant") who also works at MMC. Id. , ¶¶ 27, 28. Defendants RedMed, Inc. and AOS are Texas corporations that specialize in providing medical devices to doctors in the Rio Grande Valley, and Defendant Hannes is the sole owner of both RedMed and AOS. Id. , ¶¶ 30, 32; (Dkt. No. 173–2, ¶¶ 2, 3).

Relators' Second Amended Complaint, their live pleading, generally alleges that Defendants have submitted or caused to be submitted hundreds of false claims to federal and state agencies in conjunction with requests for payment by Medicare, Medicaid, and TriCare for surgical and other medical procedures performed at MMC. Specifically, Relators allege that since at least 2009 Defendants have engaged in a pattern and practice of submitting claims that falsely certify that Dr. Fulp performed medical procedures on patients, while in reality they were performed in whole or in part by Mr. Santos and/or one another individual, Eberardo Martinez, neither of whom are licensed to practice medicine in any state. (Dkt. No. 1, ¶¶ 1, 4). In addition, Relators allege that Santos was receiving illegal kickback payments from RedMed, AOS, and Hannes in exchange for Fulp's and Santos's use of RedMed devices in violation of the Federal Fraud and Abuse Anti–Kickback Statute, 42 U.S.C. §§ 1320a–7b, ("AKS") and the Prohibited Referral Provisions, 42 U.S.C. § 1394nn, ("the Stark Law"). Id. , at ¶ 2. In addition to the false claims that Fulp performed surgeries when in fact Santos or Martinez did, Relators allege that these AKS and Stark Law violations also resulted in fraudulent claims. Id. Relators allege that, through this scheme, the Defendants have caused hundreds of false certifications and claims to be made to federal and state agencies, resulting in millions of dollars in damages. Id. , ¶ 4. They bring claims for violation of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729(a)(1)(A), (a)(1)(B), FCA Conspiracy under 31 U.S.C. § 3729(a)(1)(C), and the Texas Medicaid Fraud Prevention Act ("TMFPA"), Tex. Human Res. Code Ann. §§ 36.002(1), (4)(B). Id. , ¶¶ 92–109.

After Relators filed their First Amended Complaint, Defendants filed motions to dismiss for failure to state a claim, (Dkt. Nos. 24, 25, 26, 31), which the Court denied without prejudice to refiling as motions for summary judgment in order to allow for a brief period of discovery, (Dkt. No. 44). Defendants subsequently moved for summary judgment. (Dkt. Nos. 55, 56, 59). After concluding that Relators had not had the opportunity to conduct adequate discovery regarding specific aspects of their claims, the Court denied the motions without prejudice to allow for an additional ninety day period of discovery. (Dkt. No. 140). After the additional discovery period ended, and with leave of the Court, Relators filed their Second Amended Complaint, to which the present Motions for Summary Judgment and Motion to Dismiss are now directed. See (Dkt. Nos. 164, 165).

II. Relators' Second Amended Complaint

The Court considers that the case can be divided generally into two theories which, if supported, may give rise to liability for one or more of the Defendants under the FCA and TMFPA: hereinafter the "Surgery Delegation Scheme" and the "Device Scheme." In discussing the Relators' Second Amended Complaint and the pending motions, the Court will address each of these theories of liability separately.

A. The Surgery Delegation Scheme

The Relators' Second Amended Complaint alleges that Relators, who worked as medical device sales representatives in the Rio Grande Valley, personally witnessed Santos and Martinez—who are both scrub techs not licensed to practice medicine—perform "numerous procedures, without Fulp's supervision, including epidural steroid injections, pulling infected pins from patients who had previously undergone surgery, a cervical fusion, inserting scoliosis

pins, a total knee replacement, and a total hip replacement," and that such incidences occurred "almost every time they were in the operating room with Fulp." (Dkt. No. 165, ¶¶ 39, 41, 43). They allege that, "[o]n numerous occasions, Waldmann and Ponce independently witnessed Fulp attend the start of a surgery and perform initial incisions, only to leave the room entirely and turn the remainder of the surgery over to Santos." Id. at ¶ 42. Without direction or supervision from Fulp, Santos would cut through tissue and bone, install artificial joints, and close the incision site." Id. While Relators acknowledge that they did not attend every one of Fulp's procedures, they claim that nearly every one they witnessed involved Santos performing "key and critical portions" of the surgeries. Id. at ¶ 66. This delegation of surgical duties to Santos, Relators allege, was part of a scheme which "allowed Fulp to leave the operating room to perform, or begin, other surgeries and procedures at MMC," thereby allowing Fulp and MMC to bill for and collect more funds from government health-insurance programs. Id. at ¶¶ 1, 42. They allege that MMC knew about the scheme and received complaints from hospital employees, but did nothing to stop it, and that MMC continued to submit its own claims, each time falsely certifying that Fulp had performed the procedures. Id. at ¶ 1.

To illustrate what they assert is a pattern and practice, Relators list illustrative examples of the Surgery Delegation Scheme. They point specifically to four separate occasions between August 2010 and March 2012 in which either Santos or Martinez performed all or substantially all of the surgeries on patients without Fulp's supervision or presence in the operating room. Id. ¶¶ 46–53. Relators allege that each of these surgeries were billed to government payors as if Fulp or someone under his direct supervision had performed them. Id. On two such incidences, they allege MMC was made aware that the scrub technician had acted outside of the scope of what the scrub technician is permitted to do under state and federal laws. Id. In response to complaints, MMC conducted a "cursory" investigation wherein MMC administrators determined that it was "clear" that Fulp should have been directly supervising the scrub technician, but that MMC took no action other than "counseling" of Santos, who continued to conduct surgeries unsupervised in violation of state and federal laws. Id. , ¶ 53.

Relators' complaint also incorporates by reference a video taken on a cell phone camera in an MMC operating room, which Relators allege depicts Santos performing a total knee arthroplasty

while Fulp was not present in the operating room. Id. , ¶¶ 56–64. They also allege that a nurse at MMC made reports to MMC administrators that she witnessed Santos complete surgical procedures without Fulp being present and that, on September 30, 2010, several nurses sent a signed petition to MMC administrators expressing "concern for our patients" because scrub technicians were performing surgical tasks. Id. , ¶¶ 50, 55. They allege that, upon hearing of these complaints, Fulp became angry and attempted to intimidate hospital staff by posting signs in MMC's OR suite calling those who reported the incidents to MMC "rats" and "bottomdwellers." Id. , ¶ 54. As other indicia of the willful scheme, Relators allege that, in May or June of 2013, Santos served a three-day suspension for violating a HIPAA regulation, during which time Fulp...