United States District Court, D. New Jersey
December 21, 2005.
UNITED STATES OF AMERICA, ex rel HEFNER, Plaintiff/Relator
HACKENSACK UNIVERSITY MEDICAL CENTER, CENTER FOR INFECTIOUS DISEASES, P.A. and NORTH JERSEY PRIMARY CARE ASSOCIATES, P.A., Defendants.
The opinion of the court was delivered by: DENNIS CAVANAUGH, District Judge
This matter comes before the Court on Defendant Hackensack
University Medical Center, Defendant New Jersey Primary Care and
Defendant Center for Infectious Diseases individually filed
motions for summary judgment. Also before the Court is
Plaintiff/Relator Phil Hefner's cross-motion for partial summary
judgment on Counts One and Two of the Amended Complaint. No oral
argument was heard pursuant to Fed.R.Civ.P. 78. For the following
reasons Defendants' motions for summary judgment are granted.
Plaintiff's cross-motion for summary judgment is denied.
Plaintiff/Relator Phil Hefner ("Hefner" or "Relator") brought
this qui tam action under the False Claims Act (FCA),
31 U.S.C.A. § 3729-33 (1994, 2001 supp.), against Defendants
Hackensack University Medical Center ("HUMC"), Center for
Infectious Diseases, P.A. ("CID"), and North Jersey Primary Care Associates, P.A. ("NJPC"). The Complaint was
initially filed under seal in the U.S. District Court for the
District of Maryland in or about August/September, 2000. On
August 22, 2001, this case was transferred to the District Court
of New Jersey pursuant to 28 U.S.C. § 1404. Since that time, the
parties have filed amended pleadings and engaged in discovery,
all of which culminated in the filing of the instant motions.
In his First Amended Complaint, Hefner alleges that the
Defendants (1) submitted false claims under the Medicare program
and federal grants, (2) created false medical records in
connection with the presentation of claims to Medicare and
federal grants, and (3) engaged in a retaliatory dismissal of
Relator from his employment.
HUMC is a university-based medical center in Hackensack, New
Jersey. NJPC, also located in Hackensack, is a New Jersey
professional service corporation, organized by a licensed
physician who is employed by HUMC in an administrative capacity.
CID is the private practice of several physicians, including Dr.
Steven Sperber, also located in Hackensack. CID was incorporated
on March 21, 1997 and its Board of Directors include Dr. Steven
Sperber, Dr. Jerome Levine and Dr. Peter Gross. See Gorrell
Affidavit, Ex. D., CID Cert. of Incorporation. Sperber testified
at his deposition that CID performs the billing and pays the
expenses for work performed by Sperber in the CID office.
Payments received for Sperber's services rendered on behalf of
CID are assigned to CID, and CID does not assign those payments
to HUMC. Sperber does not have an office at HUMC. Sperber Dep.,
Pursuant to January 1998 Tenant Space Agreement, CID pays rent
to HUMC for space on the hospital campus to be used for medical
offices and related purposes. Pursuant to a January 1999 Amended
Tenant Space Lease, CID pays rent to HUMC in addition to certain
monthly operating expense charges. Additionally, under a certain licensing and
leasing agreement, CID pays HUMC an agreed annual amount in
consideration for using the support services of certain
administrative hospital personnel for the CID physicians' private
practice of medicine. Gorrell Affidavit, Ex. C.
On March 1, 1998, Dr. Sperber entered into an employment
agreement with NJPC. Through this agreement, Sperber treats
patients at HUMC's Infectious Disease Clinic ("the ID Clinic")
not in excess of 10 hours per week. Sperber is paid a fixed
hourly rate for those services. The Agreement provides that NJPC
shall bill for all services performed by Sperber under the
Agreement, and shall be entitled to all payment received for
those services. Gorrell Affid., Ex. C; Sperber Dep. 20:15-18,
22:1-4, 40:4-9; Capek Dep., 71:15-18.
HUMC operates a variety of programs for persons infected with
HIV, including hospice programs and medical clinics (HUMC Mov.
Brief at 5.) In 1994, HUMC entered into a Grant Agreement with
the City of Paterson, Department of Human Resources in accordance
with the Ryan White Comprehensive Emergency AIDS Resources
Emergency Act of 1990. (CID Mov. Brief at 15). This Grant
Agreement was commonly referred to as the Ryan White Grant ("the
Grant"). Beginning in 1995, HUMC received funding provided under
the Ryan White Grant to provide various health care services to
patients infected with HIV in certain clinics and outpatient
sites operated by HUMC, such as the ID Clinic. (Id.) The grant
was administrated by Nurse Mary Ann Collins ("Nurse Collins"), an
HUMC employee. (Id.) Dr. Sperber performed services in the ID
clinic pursuant to his employment with NJPC. (Def. HUMC Mov.
Brief at 7.) These services were covered under the Ryan White
The Grant Agreement provided for an annual payment which was
not to exceed an agreed upon amount which varied over the years
of its existence and which covered a variety of services (Id.) These services included social work services, home health
aids, housing, transportation and other emergency assistance.
(Id.) With regard to physician services, the Grant provided for
target service figures and estimated costs associated with such
services, as opposed to payment being based on a specific amount
for each clinic visit. (Id.)
One of the conditions of the Grant was that it not be used to
replace existing financial support for HIV-related services.
(Id. at 6.) In the Year 2000 Grant Agreement, section entitled
"Maintenance of Effort and Cost Principles", it provided "[f]unds
may not be used to provide items or services for which payment
has already been made or can reasonably be made a third-party
payer, including Medicaid, Medicare, and/or other State or local
entitlement programs, prepaid health plans, or private
insurance." (Jackson Cert. Ex. 8, 000372).
Nurse Collins was responsible for preparing monthly
reports/invoices of services for which reimbursement was sought
from the Grant. (HUMC Mov. Br. at 7.) Each invoice contained
itemized categories of allowable services, including the ID
Clinic physician services. (Id.) The physician providing
services at the Clinic pursuant to the Grant was Dr. Stephen
Sperber. (Id.) All of the services provided by Dr. Sperber in
the Clinic were covered under the grant. (Id.) Many of the
submissions Nurse Collins prepared included the statement "I
certify that all of the attached invoices have not been paid, and
none of the items have previously [sic] reimbursed or submitted
for payment." (Jackson Cert, Ex. 7, Collins Dep at 37:1-22).
Although the facts are in dispute as to exactly when, it is
clear that at some point on or around July 2000, HUMC became
aware that the services Dr. Sperber provided to patients in the
Clinic were being funded and reimbursed by the Grant, but also
billed and reimbursed by Medicare. At his deposition, Dr. Sperber
testified he was unaware that HUMC was submitting Medicare claims under his name and thought that the services in question were not
being billed. (Jackson Cert., Ex. 9, 60:11-15.) Nurse Collins
testified at her deposition that she became aware that Medicare
was billed for services that were reimbursed under the grant when
she was contacted by Marilyn Capek, the office manager of the CID
practice to check if an error had been made in billing for the
physicians in the clinic. (Id. at 24:23 to 25:22).
At his deposition, HUMC Compliance Officer Thomas Flynn
described the circumstances surrounding the Medicare submissions.
(HUMC Mov. Br. at 9; Flynn Dep. at 58:24 to 60:5). Mr. Flynn
stated that at HUMC, the billing process generally involves data
entry with the use of an allowance code for internal accounting
purposes to create a credit for services that would not be
billed. (Id.) Here, Mr. Flynn surmised, the code was not
entered in for the services in question, thereby generating a
receivable balance and a bill to Medicare. (Id.)
In July 2000, Relator was assigned by Health Systems Management
Network, Inc. ("HSMN"), a consulting firm, to work with the
medical staff of HUMC in complying with documentation and billing
practices required by federal regulations. (Comp. at ¶ 10.) In
the course of his assignment, Hefner met with representatives of
each clinical area in order to "set goals and objectives for each
service, identify clinical leaders, create access to the medical
staff and determine timetables and milestones." (Id. at ¶ 11.)
As such, Hefner was granted direct access to HUMC medical staff.
(Id.) On July 11, 2000, Hefner met with Marilyn Capek, an
employee of CID, to discuss compliance issues. (Id. at ¶ 12.) In
the Complaint, Hefner stated that Ms. Capek advised him "the
Infectious Disease Section received a number of ongoing federal
grants, and that HUMC routinely billed patient services to the
government through one or more HUMC grants, and then rebilled
these same services to the government again through Medicare."
(Id. at ¶ 13.) Also, Relator claims that Ms. Capek stated HUMC billed patient services to a
private insurer, and then re-billed these same services to the
Government through one or more HUMC federal grants. Id.
Furthermore, Plaintiff alleges Ms. Capek stated HUMC's
intentional double-billing was ongoing, and that she felt "at
risk" should the double billing be discovered by state or federal
authorities. (Id. at ¶ 14.) Shortly after this meeting, HSMN
terminated the Plaintiff's involvement with HUMC. (Id. at ¶
16.) On July 17, 2000, Hefner's employment with HSMN was also
By way of letter dated September 11, 2000, NJPC informed Empire
Medicare Services that a number of claims had been submitted to
Medicare in error, as the services were already reimbursed
through a Ryan White Grant. (See Affidvait of Joseph Gorrell,
Ex. G.) NJPC reimbursed Empire Medicare Services in the amount of
$5,258.97, in full repayment of the errant claims. Id.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is granted only if all probative materials of
record, viewed with all inferences in favor of the non-moving
party, demonstrate that there is no genuine issue of material
fact and that the movant is entitled to judgment as a matter of
law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett,
477 U.S. 317, 330 (1986). The moving party bears the burden of showing
that there is no genuine issue of fact and it must prevail as a
matter of law, or that the non-moving party has not shown facts
relating to an essential element of the issue for which he bears
the burden. Celotex, 477 U.S. at 331. If either showing is made
then the burden shifts to the non-moving party, who must
demonstrate facts which support each element for which he bears
the burden and must establish the existence of genuine issues of
material fact. Id. The non-moving party "may not rest upon the
mere allegations or denials of his pleading" to satisfy this
burden, Fed.R.Civ.P. 56(e), but must produce sufficient evidence
to support a jury verdict in his favor. Matsushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574 (1986).
III. HEFNER'S CLAIMS UNDER THE CIVIL FALSE CLAIMS ACT
In the Complaint, Relator alleges violations of Section 3729 of
the Civil False Claims Act ("FCA"), 31 U.S.C. § 3729-33 (1994,
2001 supp.). Specifically, Relator alleges (1) Defendants
violated 31 U.S.C. § 3729(a)(1) by knowingly presenting false or
fraudulent claims for payment to the government and (2)
Defendants violated 31 U.S.C. § 3729(a)(2) by knowingly creating
false medical records to get false or fraudulent claims paid by
Because Hefner bears the burden of proof in establishing the
elements of a prima facie FCA cause of action against Defendants,
in order to survive Defendants' motions for summary judgment,
Hefner must identify evidence that establishes the existence of
all three essential elements of an FCA claim. See Pertucelli v.
Bohringer & Ratzinger, 46 F.3d 1298, 1308 (3d Cir. 1995). As
such, Relator must provide the court with evidence demonstrating
that Defendants acted knowingly, recklessly or with deliberate
ignorance in submitting or causing to be submitted to the
government a false or fraudulent claim for payment that caused
the government economic loss. U.S. ex rel. Watson v. Connecticut
General Life Ins. Co. 2003 WL 303142, *4 (E.D.Pa. 2003). If
Hefner is unable to provide evidence sufficient to establish the
existence of each of these elements, Defendants will be entitled
to summary judgment on Hefner's FCA claim. Id.
The FCA establishes liability for anyone who "knowingly
presents, or causes to be presented, to an officer or employee of
the United States Government . . . a false or fraudulent claim
for payment or approval" or "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
by the Government." 31 U.S.C. § 3729(a)(1),(2)(1994). The qui
tam provision, 31 U.S.C. § 3730(b)(1)(1998), allows for an
individual to sue, on behalf of the government, a person who the
relator knows to have violated Section 3729. The remedial
provisions of the FCA permit recoveries of three times the amount
of damages sustained by the government plus penalties of $5,500
to $11,000 per claim. Under the qui tam provision, the relator
can recover a portion of the damages to which the government is
entitled. 31 U.S.C. § 3730(d).
Defendants argue that Relator has not shown sufficient facts to
meet his burden as to the elements of Section 3729. To establish
a prima facie case under Section 3729(a)(1), a relator must
sufficiently allege: (1) the defendant presented or caused to be
presented a claim to the United States for payment or approval;
(2) the claim was false or fraudulent, and (3) the defendant knew
the claim was false or fraudulent. Hutchins v. Wilentz, Goldman
& Spitzer, 253 F.3d 176 (3d Cir. 2001); 31 U.S.C. 3729(a)(1).
Innocent mistakes or negligence are not actionable under this
section. Hindo v. University of Health Sciences/The Chicago
Medical School 65 F.3d 608, 613 (7th Cir. 1995). As such,
the Court will examine the sufficiency of facts alleged as to
A) First Element
To satisfy the first element of Section 3729(a)(1), Relator
must prove that Defendants presented or caused to be presented to
the Government a claim for payment. A claim under the FCA
includes any "request or demand . . . which is made to a
contractor, grantee or other recipient if the United States
Government provides any portion of the money . . . which is
requested or demanded . . ." 31 U.S.C. § 3729(c). Here, it is
undisputed that the invoices submitted by Defendants pursuant to the Grant Agreement are claims within the
definition of the FCA. Also, a Medicare payment is deemed to be a
claim within the meaning of the FCA. See United States v.
Krizek, 192 F.3d 1024 (D.C. Cir. 1999). Therefore, each Medicare
submission made by Defendants is also a claim within the meaning
of the FCA. With regard to both HUMC and NJPC, Relator has
alleged sufficient facts to show their involvement in the act of
submission of the claims to Medicare and the Ryan White Grant.
Specifically, the Court notes the claim forms submitted for Dr.
Sperber's work in the Clinic identify NJPC as the name of the
biller and HUMC as the name of the facility where services were
rendered. As such, this element has been sufficiently established
as to those two Defendants.
CID disputes that it had any involvement in the submission of
claims for approval or payment. Relator argues that as an agent
or affiliate of HUMC, CID is responsible for the submission of
the claims even though it is a party other than that which
actually submitted the claim. CID avers that as a matter of law
it cannot be considered an agent or representative of HUMC, or to
have acted with HUMC as a single entity, and thereby cannot be
held liable for the actions of the other Defendants. Thus, the
issue presented is whether Relator has presented sufficient proof
that CID could be considered to have acted with HUMC as a single
entity or as the alter-ego of HUMC.
Relator relies upon agency principles to establish liability
against CID. Many courts have applied agency principles to suits
under the FCA. U.S. ex rel. Magid v. Wilderman, 2004 WL 945153
(E.D.Pa. 2004) (internal citations omitted). Under Third Circuit
jurisprudence, a number of factors are to be considered in
determining whether a subsidiary can be considered an alter ego.
Pearson v. Component Techonolgy Corp., 247 F.3d 471, 485 (3d
Cir. 2001). Those factors include: "gross undercapitalization, failure to observe corporate
formalities, nonpayment of dividends, insolvency of debtor
corporation, siphoning of funds from the debtor corporation by
the dominant stockholder, non-functioning of officers and
directors, absence of corporate records, and whether the
corporation is merely a facade for the operations of the dominant
stockholder." Id. at 485 (citations omitted). In addition, "the
situation must show an element of injustice or fundamental
unfairness, but a number of the aforementioned factors can be
sufficient to show unfairness." United States v. Pisani,
646 F.2d 83, 88 (3d Cir. 1981).
Applying the factors set forth in Pisani, CID does not appear
to function as an alter-ego of HUMC. Only the relevant factors
will be addressed by the Court. First, with regard to the
corporate formalities, CID has submitted documentation evidencing
its independent corporate form. In particular, CID is
incorporated under New Jersey law and has its own Employer
Identification Number. It maintains a Board of Directors. The
directors and shareholders of CID adopted corporate resolutions
and bylaws, a corporate seal, and approved the opening of bank
accounts and the payment of corporate expenses. See CID Statement
of Undisputed Material Facts, ¶¶ 3, 4. In addition, the
shareholders of CID entered into a Stock Purchase Agreement
governing the issuance and transfer of all CID stock. The
shareholders executed a detailed Shareholders Agreement
addressing governance and operations of CID. Id. at ¶¶ 5,6. CID
has submitted as exhibits a number of examples of corporate
records. See Gorrell Aff., Ex. D. There is no evidence that CID
was a facade for the operations of HUMC. Rather, detailed
agreements exist governing the relationship between the parties,
and remedies available in case of breach. Finally, no injustice
results from recognizing the separate identity of CID. HUMC and
NJPC are viable entities and well able to sustain liability. In his Complaint, Relator refers to CID as an `agent' or
`affiliate', which CID argues is an attempt by Relator to avoid
the Pisani analysis applied above. In response, Relator argues
that CID is subject to liability under the Pearson standard for
affiliated corporate liability. The Pearson court explained
that "affiliated corporate liability . . . is ultimately an
inquiry into whether the two nominally separate identities
operated at arm's length. Pearson, 247 F.3d at 495. Courts
often apply the "integrated enterprise analysis" in examining
claims of affiliated corporate liability. Id. The integrated
enterprise test looks to four labor-related characteristics of
affiliated corporations: interrelation of operations; common
management; centralized control of labor relations; and common
ownership or financial control. Id. at 485; NLRB v. Browning
Ferris Indus. of Pa., Inc. 691 F.2d 1117, 1122 (3d. Cir 1992).
Here, the integrated enterprise test does not support Hefner's
position. Relator has provided insufficient evidence to indicate
that operations are interrelated between CID and HUMC or that
there is a common management between HUMC and CID. HUMC does not
appear to have "centralized control" of CID's labor relations or
other aspects of its medical practice. Finally, HUMC does not
exercise common ownership or financial control of CID.
The Court recognizes that HUMC and CID do have certain
characteristics in common. However, in order to overcome the
strong presumption against piercing the corporate veil, Relator
would have to allege more than facts that are explained by the
sharing of support services. As such, the Court finds that
Relator has not established liability on behalf of CID for the
submission of false or fraudulent claims. Therefore, CID's motion
for summary judgment is granted in its entirety and CID is
dismissed as a party from this action.
B) Second Element To satisfy the second element of Section 3729(a)(1), plaintiff
must establish that the claims filed were false or fraudulent.
The terms false or fraudulent are not defined in the FCA,
however, "the juxtaposition of the word `fraud' with the word
`false' plus the word `claim' suggests that a false or fraudulent
claim is one aimed at extracting money the government otherwise
would not have paid." U.S. ex rel. Drescher v. Highmark, Inc.,
305 F.Supp.2d 451, 457 (E.D.Pa. 2004) (internal citations
omitted). Furthermore, the Supreme Court has held that the FCA
"reaches beyond `claims' which might be legally enforced, to all
fraudulent attempts to cause the Government to pay out sums of
money" and as such, the term "false or fraudulent claim" should
be construed broadly. Drescher at 457 (quoting United States
v. Neifert-White Co., 390 U.S. 228, 232-33 (1968).
Here, Relator alleges that by improperly billing claims for
medical services at the Clinic, Defendants (collectively)
submitted false or fraudulent claims to the government.
Specifically, Plaintiff alleges that the Medicare claims and the
Grant invoices submitted by the Defendants were false. With
regard to the Grant invoices, Relator argues the claims were
false because language in the invoices stated the claims had not
been previously submitted for reimbursement, when in fact
Defendants had previously submitted Medicare claims for the same
services. With regard to the Medicare claims, Plaintiff argues
they were obviously false because Defendants subsequently repaid
the claims and because Defendants represented in the Medicare
claims that they were entitled to payment for services that the
Government has previously agreed to fund under the Grant.
In its moving papers, HUMC argues that Plaintiff has failed to
sufficiently allege that the claims filed were `false' and that
Relator is misguided in asserting that the duplicative or
double-billing ipso facto renders the claims false. (HUMC Mov Brief at 20.)
To support its argument as to the Medicare claims, HUMC relies
on the language of the Grant. The Grant provided that "Grant
funds may not be used to provide items or services for which
payment has already been made or can reasonably be expected to be
made by a third-party payor, including . . . Medicare." (HUMC
Mov. Brief at 21). Applying the Grant language to the facts at
hand, this appears to means that Grant funds could not be used
for services properly reimbursed by Medicare. HUMC argues that
this provision was ambiguous and that at that time it caused
considerable confusion to many Grant recipients. In 2000, in
apparent response to this confusion, the Health Resources and
Services Administration (HRSA), the federal agency that
administers the Ryan White Grant conducted a comprehensive study
of third-party reimbursement practices, finding that 85% of
hospitals had billing problems arising from third-party
payer/grant situations. (HUMC Reply Br. at 3-4). In its report,
HRSA found that Medicare is to be the payer of first resort for
health care services in programs such as Ryan White. Id. As
such, HUMC avers, here, submission of the claims to Medicare was
certainly permissible and can not be considered false.
HUMC also addresses the falsity element with regard to the
Grant invoices. It argues that the claims are not false because
the submissions were based on true, actually rendered services
and that even if Medicare reimbursed these services, they were
still entitled to reimbursement under the Grant.
The essence of HUMC's argument with regard to falsity appears
to be that services rendered for the ID Clinic patients properly
should have been first billed to Medicare, and then to the Grant,
and because that is exactly what they did, none of the
submissions can be considered false. HUMC cites case law from a variety of circuits addressing
the "falsity" element in a FCA claim, but all can be easily
distinguished from the situation at hand. More common examples of
falsity include the billing of the government for medically
unnecessary care, or billing for more hours than that for which
care was actually rendered. See cf. United States v.
Krizek, 7 F.Supp 2d 56 (D.D.C. 1998). Here, the question of
whether the claims were false turns on whether or not the claims
HUMC submitted were for money it was not in fact entitled, the
premise being that it HUMC falsely certified bills as being due
and owing. HUMC's reimbursement of monies paid out by Medicare
seems to belie its hindsight argument that it was after all
entitled to the Medicare reimbursement.
Here, the Medicare claims do not appear to be false on their
face. They were generated by the billing department at HUMC
because services were rendered by Dr. Sperber in the Clinic. For
an undetermined reason, these same services were also billed in
the form of invoices to the Grant, accompanied by language
attesting to the fact that the amount requested remained
outstanding. At the time, HUMC believed that the services were
rightfully to be paid by Grant.
The Court recognizes HUMC's argument that there was
considerable confusion with regard to the appropriate billing of
Grant services; that confusion is germane to the instant action.
It also recognizes that HUMC now has the benefit of clarification
from the HRSA as to how proper billing procedures were to be
followed. Nevertheless, the simple fact that HUMC filed claims
with both Medicare and the Grant and accepted payments for the
same services creates prima facie evidence that one of the claims
was false. Even assuming arguendo that the Medicare billings
were in fact not false, and rather appropriate, the fact still
remains that the Grant invoices were certified as due and owing.
Specifically, Relator has identified various certifications signed by Nurse Collins attached to the Grant
invoices that stated, for example, "I solemnly declare and
certify . . . that the amount herein stated is justly due and
owing." (See Pl. Opp. to Def. Motion, pg 28). In light of the
above, and keeping in mind that the summary judgment standard is
deferential to the assertions of the non-moving party, the Court
finds that Relator has alleged sufficient evidence to suggest
HUMC filed false claims under the definition of the FCA. As such,
the Court finds that Relator has satisfied its burden of proof as
to the second element.
C) Third Element-Scienter Requirement
It having been determined that the first two elements of
Section 3729(a)(1) are not in dispute with regard to HUMC and
NJPC, this case now turns on whether or not Plaintiff has
sufficiently alleged the third element of Section 3729(a)(1), or
satisfied the scienter requirement. As such, Relator must show
that Defendants "knew the claim was false or fraudulent."
31 U.S.C. 3729(a)(1).
For Section 3729 purposes, the term "knowingly" means that a
person, with respect to information (1) has actual knowledge of
the information; (2) acts in deliberate ignorance of the truth or
falsity of the information; or (3) acts in reckless disregard of
the truth or the falsity of the information. 31 U.S.C. § 3729(b)
(1994). No proof of specific intent is required. Congress
specifically amended the FCA in 1986 to include this definition
of scienter, to make "firm . . . its intention that the [A]ct not
punish honest mistakes or incorrect claims submitted through mere
negligence." S.Rep. No. 99-345, at 7 (1986), reprinted in 1986
U.S.C.C.A.N. 5266, 5272. In a House Report accompanying the
amendments, the Committee stated that its intent was not only "to
confer liability upon those individuals who deliberately ignore
or act in reckless disregard of the falsity of the information contained in the claim . . ." but
also to ensure:
persons who ignore "red flags" that the information
may not be accurate or those persons who deliberately
choose to remain ignorant of the process through
which their company handles a claim should be held
liable under the Act. The definition, therefore,
enables the Government not only to effectively
prosecute those who have actual knowledge, but also
those who play "ostrich".
House Report 99-660, 99th Cong., 2d Sess., to accompany False
Claims Act of 1986 (June 26, 1996).
In the Complaint, Relator alleges that HUMC submitted the
claims at issue to the Government with actual knowledge of their
falsity. In response to Relator's allegations, both HUMC and NJPC
contend they had no knowledge as to the falsity of the claims
being submitted. HUMC admits that "there was a breakdown in the
tracking of physician services and submission of reimbursement
requests in connection with the HUMC Infectious Disease Clinic"
and that "the sloppiness may indeed be negligence, but it is far
short of the `knowing' submission of false claims . . . required
under the FCA." (Def. Mov. Brief at 22). In the same vein, NJPC
states "[i]t may be that NJPC acted negligently in delegating all
of its billing responsibilities to HUMC, but negligent conduct
does not rise to actionable claims under the FCA." (Def NJPC
Reply Brief at 7).
Here, Relator has not presented sufficient evidence that
Defendants had actual intent to defraud the government. Rather,
Defendants' actions in reimbursing Medicare would refute any such
allegation. However, as stated above, specific intent is not
required under Section 3729. Thus, the question for the Court is
whether Defendants were simply negligent in failing to monitor
their compliance with applicable Medicare regulations and Grant
provisions, or whether the failure of Defendants to ensure
compliance amounted to the conduct of an "ostrich" defendant who fails to inquire about facts that would alert him
to the presence of fraudulent or false claims.
Relator argues that Defendants' failure to ensure the veracity
of the certifications attached to the Grant invoices was the
equivalent of actual knowledge of their falsity. In support of
this argument, Relator cites a case from the Southern District of
New York, holding that "failure to conduct a proper investigation
before making a false statement may be sufficiently reckless to
yield False Claims liability. United States v. Raymond &
Whitcomb Co., 53 F.Supp. 2d 436, 447 (S.D.N.Y. 1999). In its
opposition brief, Defendant HUMC rebuts this contention by
relying on, inter alia, a Third Circuit case where a qui tam
action was based upon the carrier's alleged failure to identify
and prevent duplicate claims from being presented to Medicare.
United States ex rel. Watson v. Connecticut General Life
Insurance Co., 2003 WL 303142 (E.D.P.A. February 11, 2003). The
Court commented that the "occasional failure to catch duplicate
claims was not caused by anything more than negligence or
mistake, which are not actionable under the FCA." Id. at *9
(internal citations omitted).
Here, Defendants offer explanation of their conduct by again
relying on the language of the Grant. (Def. Mov Brief at 29).
They maintain that under the language of the Grant, as apparent
from the regulations later issued by the HRSA, submissions were
properly made to Medicare if available, thus negating any
presence of fraudulent intent. However, the contention that
Defendants believed their conduct was permissible is somewhat
belied by the fact that they reimbursed Medicare for payments
Nevertheless, Relator has failed to convince the Court that the
submission of the claims to Medicare and the Grant was done
either with deliberate ignorance or reckless disregard of the truth or falsity of the information. While it is clear that
Defendants were negligent in the monitoring of their billing
practices, the hiring of HSMN to monitor billing compliance and
the return of reimbursed monies to Medicare upon discovery of
their erroneous acceptance is more evidence of mistake than
knowing submission of false claims. As such, the Court finds that
Relator has failed to establish the third element of a prima
facie case for filing of false claims under the FCA.
Therefore, Relator has only succeeded in alleging sufficient
evidence to support two of the three elements required to
maintain a cause of action under Section 3729(a)(1) of the FCA.
As such, Count One of Relator's Complaint must be dismissed as to
Defendant HUMC and Defendant NJPC.
In his Second Claim, Relator alleges that "upon information and
belief, Defendants created medical records of patient services,
created and submitted claims to the U.S. Department of Health and
Human Services and to Medicare, and received payment of these
claims" in violation of Section 3729(a)(2). Comp. at ¶ 23. In
order to prove a claim under Section 3729(a)(2), in addition to
the requirements of Section (a)(1), a plaintiff must also show
that the defendant made or used (or caused someone else to be
used) a false record to cause a false claim to be paid or
approved. See U.S. ex. rel. Schmidt v. Zimmer, Inc.,
386 F.3d 235, 242 (3d Cir. 2004); see also John T. Boese, Civil False
Claims and Qui Tam Actions, § 2.01[B] at 2-27 (2d. ed. 2005
Here, Relator has not provided sufficient evidence that
Defendants created false records of patient services to get false
claims paid or approved. Rather, the evidence presented to the Court indicates the claims submitted by Defendants were not
premised upon false patient records, but rather questionable in
the repetitive nature of billing for actual services rendered. As
such, Count Two of Plaintiff's Complaint must be dismissed as to
all remaining Defendants.
In his Third Claim for relief in the Complaint, Relator alleges
Defendant HUMC*fn1 engaged in a retaliatory dismissal of
Relator from his employment. Comp. at ¶ 27. Specifically, Relator
alleges Defendant "intentionally and maliciously" caused his
discharge, and that Defendant was motivated by Relator's
discovery of the alleged fraud and his actions in pursuing the
instant action. Id.
Section 3730(h), known commonly as the "whistleblower"
provision, protects employees who assist the government in the
investigation and prosecution of violations of the False Claims
Act. See Hutchins v. Wilentz, Goldman & Spitzer,
253 F.3d 176, 185-6 (3d. Cir. 2001) (citing Neal v. Honeywell Inc.,
33 F.3d 860, 861 (7th Cir. 1994)). To state a cause of action under
Section 3730(h) of the FCA, Relator must show that he 1) engaged
in conduct protected under Section 3730; 2) was discharged by
HUMC; and 3) HUMC's discharge of Relator was motivated by
Relator's protected conduct.*fn2 See Id. at 188; see
also Boese at § 4.11[B] at 4-210 (2d. ed. 2005 Supp). As
such, the Court will examine the sufficiency of Relator's
allegations with respect to each of the required elements. The first element Relator must establish is that he engaged in
conduct protected under Section 3730(h). Relator asserts that his
"efforts to investigate the Defendants' fraud and file this
action reporting Defendants' fraud were lawful and in furtherance
of this action under the Act." (Comp. at ¶ 27.) HUMC disputes
that Relator engaged in any protected conduct. To support its
argument, HUMC relies on Hutchins, arguing that under Third
Circuit law: "where an employee's job duties involve
investigating and reporting fraud, the employee's burden of
proving he engaged in "protected conduct" and put his employer on
notice of the "distinct possibility" of False Claims Act
litigation is heightened." Hutchins at 191.
Here, Relator was hired by HSMN as a "compliance consultant in
connection with an audit of HUMC's hospital and physician billing
and documentation activities." Comp. at 10. As such, Relator must
overcome the presumption that he was merely acting in accordance
with his employment obligations when he discovered the billing
discrepancies, as opposed to investigating on his own accord the
possibility of false claims being filed. Yuhasz v. Brush
Wellman, Inc., 341 F.3d 559, 568 (6th Cir. 2003).
What exactly did Relator do that could be seen as protected
conduct or a precursor to FCA litigation? According to his
Complaint, he met with Marilyn Capek in the course of his duties
as a compliance consultant, wherein she informed him of her
concerns about billing procedures. (Comp. at ¶ 12.) After that
meeting, Relator claims he was terminated by HSMN, allegedly at
the prompting of HUMC. (Id. at ¶ 16).
A review of relevant case law sheds light on what constitutes
protected conduct when an employee's job duties include
investigation of billing compliance. In Eberhardt v. Integrated
Design & Constr., Inc., 167 F.3d 861, 868 (4th Cir. 1999), the
Court of Appeals for the Fourth Circuit noted that when "an employee is assigned the task of
investigating fraud within the company, courts have held that the
employee must make it clear that the employee's actions go beyond
the assigned task [in order to allege retaliatory discharge under
§ 3730(h)]." See also Hutchins at 191. In U.S. ex. rel.
Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1523
(10th Cir. 1996), the Tenth Circuit Court of Appeals found
that an employee whose job duties included monitoring compliance
with applicable Medicaid requirements did not engage in
"protected conduct" when she reported to her supervisors that the
facility was not complying with various Medicaid requirements.
Because the reporting was part of plaintiff's job duties, the
reporting to her supervisors, without more, did not sufficiently
put defendants on notice of a potential qui tam suit. Id. at
Here, the evidence presented to the Court by Relator does not
identify any point at which Relator made HUMC aware that he was
intending to pursue a qui tam action. Furthermore, the purpose
of meeting with Marilyn Capek was to discuss compliance concerns.
The fact that Relator engaged in a conversation with Marilyn
Capek regarding potential false claims concerns did not put HUMC
on notice that Relator was contemplating a qui tam action
because it was the very job he was assigned to do. Relator has
failed to provide any evidence that he took sufficient steps to
put HUMC on notice that he was contemplating or acting in
furtherance of an FCA action, and he has not shown that he
suggested to HUMC that he intended to report possible
noncompliance to government officials. cf. Neal,
33 F.3d at 861. As such, the Court finds that Relator did not engage in
conduct sufficient to rise to the level of protected conduct
under Section 3730(h).
In light of the above, Plaintiff's Complaint fails to state a
sufficient claim for retaliatory discharge under Section 3730(h). Therefore, Defendant HUMC's
motion for summary judgment as to Claim Three of Plaintiff's
Complaint must be granted.
In sum, the Court finds that Plaintiff has failed to
sufficiently allege evidence to support a prima facie case under
Section 3729(a)(1) or (a)(2) of the FCA. Also, Plaintiff has not
sufficiently alleged elements required to support a claim for
retaliatory discharge under Section 3730(h). Therefore:
1) Defendant CID's motion for summary judgment is granted on
the grounds that Relator did not establish CID submitted false
claims under Section 3730(a)(1)
2) Defendant NJPC's motion for summary judgment is granted on
the grounds that Relator failed to establish NJPC knowingly
submitted false claims under Section 3729(a)(1) or false records
under Section 3729(a)(2).
3) Defendant HUMC's motion for summary judgment is granted on
the grounds that Relator failed to establish HUMC knowingly
submitted false claims under Section 3729(a)(1) or false records
under Section 3729(a)(2), and failed to sufficiently allege a
claim for retaliatory discharge under Section 3730(h).
4) Plaintiff/Relator Hefner's motion for summary judgment is
denied in its entirety in light of the Court's holdings granting
Defendants' motions for summary judgment.
As such, for the foregoing reasons, Plaintiff/Relator Hefner's
Complaint is dismissed in its entirety with prejudice. An
appropriate Order accompanies this Opinion.
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