Opinion
Case No. C-2-97-1395.
March 29, 2000
OPINION AND ORDER
This matter is before the Court on the motion for partial summary judgment filed by Defendant, Bethesda Hospital ("Bethesda"), pursuant to Federal Rule of Civil Procedure ("Rule") 56. (Doc. # 57.) For the reasons set forth below, the Court DENIES Bethesda's motion.
I. BACKGROUND
The relevant background of this Complaint is set forth in this Court's prior Opinion and Order. (Doc. # 15.) In short, Relator James T. Morris worked at Defendant Bethesda Hospital, an Ohio corporation and a full-service hospital located in Zanesville, Ohio. (Doc. # 15 at 2.) Defendant Kenneth Crist, a licensed pharmacist, also worked at Bethesda. (Doc. # 20 at ¶ 12.) Before a demotion, Crist was the coordinator of clinical pharmacy services. (Id.) Crist allegedly owns Defendant PRA, an Ohio corporation that was formed for the purposes of conducting for-profit drug research. (Id. at ¶ 7.)
The crux of Relator's allegation in this qui tam action is that Defendants presented claims for payment to Medicare, Medicaid and other payors for research costs that, according to Relator, are not recoverable. Relator alleges that Defendants' claims for payment "were illegal because they were for extra expenses over and above those related to the usual patient care and were for costs which should have been reimbursed with the substantial research funds provided by the pharmaceutical companies for whose benefit the research was conducted." (Doc. # 20 at ¶ 2.) In addition, Relator alleges that Bethesda terminated his employment in retaliation for his reporting these allegations to the authorities.
B. Procedural History
Based upon the conduct that Relator claims he observed, Relator brought a six-count Complaint against Crist, PRA and Bethesda. On November 24, 1995, Relator submitted his Complaint under seal. After the government declined to intervene, the Court ordered Relator's Complaint to be unsealed and filed on December 23, 1997.
On April 27, 1998, Bethesda moved for dismissal of Plaintiff's Complaint, or, in the alternative, for a more definite statement. On May 15, 1998, Crist and PRA joined in Bethesda's motion as to Counts I, II and III of Relator's Complaint. Relator opposed both motions.
On October 22, 1998, this Court granted in part and denied in part Defendants' motions. The Court granted both motions to dismiss with respect to Count III. In addition, the Court granted Bethesda's motion to dismiss Counts II and V. The Court also granted both motions for a more definite statement with respect to Count I. Further, the Court granted Crist's and PRA's motion for a more definite statement with respect to Count II. The Court denied the remainder of both motions. The Court, however, granted Relator leave to file an Amended Complaint by November 24, 1998 to address his deficiencies.
On November 23, 1998, Relator filed a First Amended Complaint ("FAC"). The FAC contains six counts, including two claims (Counts I and II) that Defendants violated the False Claims Act ("FCA"), 31 U.S.C. § 3729(a), a third claim against Defendants under the FCA for conspiracy (Count III) and a claim that Bethesda wrongfully terminated Relator in violation of Ohio's public policy tort (Count V). On December 21, 1998, Bethesda filed a new motion to dismiss Counts I, II, III and V of Relator's FAC pursuant to Rules 12(b)(6) and 9(b). On December 30, 1998, Crist and PRA also filed a motion to dismiss Counts I, II and III.
In an Opinion and Order issued on February 24, 1999, the Court granted in part and denied in part both motions to dismiss. Specifically, the Court granted all three Defendants' motions with respect to Count III and dismissed Count III without prejudice. However, the Court granted Relator leave to amend his FAC with respect to Count III within fifteen days of the issuance of the Opinion and Order. Further, the Court denied the remainder of Defendants' motions.
Relator failed to amend his FAC with respect to Count III. Accordingly, on April 22, 1999, the Court sua sponte dismissed Count III of Relator's FAC with prejudice pursuant to the Opinion and Order of February 24, 1999.
On July 6, 1999, Bethesda filed a motion for partial summary judgment with respect to Counts I and II of Relators FAC. On August 10, 1999, Relator filed his memorandum in opposition to Bethesda's motion. That motion is currently before the Court for consideration.
Relator requests that this Court delay ruling on Bethesda's motion pending further discovery pursuant to Federal Rule of Civil Procedure 56(f). (Doc. # 63 at 6.) As Bethesda correctly states in its reply brief, "Relator does not tell the Court what specific discovery must be done which is material" to the resolution of the motion. (Doc. # 70 at 5.) Accordingly, the Court DENIES Relator's request on this basis. See Simmons Oil Corp. v. Tesoro Petroleum Corp., 86 F.3d 1138, 1144 (Fed Cir. 1996).
II. STANDARD OF REVIEW
Summary judgment is appropriate only in a limited number of circumstances. Rule 56(c) of the Federal Rules of Civil Procedure provides, in pertinent part, that summary judgment shall be granted only:
if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(c). The moving party bears the burden of establishing the absence of a genuine issue as to any material fact. See Adickes v. S.H. Kress Company, 398 U.S. 144, 157 (1970). The Supreme Court held that the standard of summary judgment "mirrors the standard for a directed verdict under Federal Rules of Civil Procedure 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict."Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250 (1986). This is true where, for instance, the dispute turns only on a legal question and the moving party must prevail as a matter of law even if the court were to resolve all factual disputes in favor of the non-moving party. See Ross v. Franzen, 777 F.2d 1216, 1222 (7th Cir. 1985).
In addition, a summary judgment motion requires special treatment of the record. The Court "must view the evidence presented through the prism of the substantive evidentiary burden" and determine "whether reasonable jurors could find by a preponderance of the evidence that the Plaintiff is entitled to a verdict. . . ." Anderson, 477 U.S. at 252; see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Nonetheless, in making this determination the Court may not impinge upon the proper function of the jury. Therefore, all of "[t]he evidence of the non-movant party is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255. The nonmoving party does have the burden, however, after completion of sufficient discovery, to submit evidence in support of any material element of a claim or defense on which that party would bear the burden of proof at trial, even if the moving party has not submitted evidence to negate the existence of that material fact. See Celotex Corp., 477 U.S. at 322. It is with these standards in mind that the instant motion must be decided.
III. ANALYSIS
Relator's first two causes of action are brought under the FCA. The FCA provides penalties for one who knowingly presents a false claim to the government; the FCA also offers incentives to whistleblowers who expose the fraud. See 31 U.S.C. §§ 3729(a), 3730. Where, as in the present case, the government elects not to intervene, the qui tam plaintiff may proceed with the action as the government's assignee. Relator alleged in his FAC that Defendants committed acts within the purview of 31 U.S.C. §§ 3729(a)(1) and (2). These provisions read in part as follows:
(a) Liability for certain acts. Any person who —
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false and 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 by the Government;
. . .
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person[.]31 U.S.C. § 3729(a) (1994).
The elements of an action under § 3729(a)(1) are: (1) that the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) that the claim was false or fraudulent; (3) that the defendant knew that the claim was false or fraudulent; and (4) that the United States suffered damages as a result. See Wilkins ex rel. United States v. Ohio, 885 F.Supp. 1055, 1059 (S.D. Ohio 1995).
The elements of an action under § 3729(a)(2) are: (1) that the defendant made, used, or caused to be made or used, a record or statement to get a claim against the United States paid or approved; (2) the record or statement and the claim were false or fraudulent; (3) the defendant knew that the record or statement and the claim were false or fraudulent; and (4) the United States suffered damages as a result. See id.
In its motion for partial summary judgment, Bethesda states that Relator cannot set forth evidence to support his claims under 31 U.S.C. § 3729(a)(1) and (2) (1994). Bethesda bases this argument upon its contention that Relator cannot establish the essential elements under the statute. In particular, Bethesda argues that Relator cannot demonstrate that: (1) the claims that Bethesda submitted for payment were false or fraudulent; (2) Bethesda knew that the claims were false or fraudulent; and (3) the United States suffered damages as a result. The Court addresses these arguments in turn.
A. False or Fraudulent Claims
In its motion for partial summary judgment, Bethesda contends that because it "accurately and faithfully adhered to the government's billing system, none of its claims were `false'." (Doc. # 57 at 2.) In particular, Bethesda claims that it is entitled to summary judgment as to Relator's claims regarding the patients listed in Exhibit A, attached to its motion. (Id. at 1.) In making this argument, Bethesda relies upon Medicare's inpatient prospective payment system ("PPS"). (Id. at 2.)
Under Medicare's PPS, each inpatient is assigned a diagnosis-related group ("DRG") based upon the patient's diagnosis. (Id.) The hospital is reimbursed a flat fee based upon the DRG assigned to the patient. (Id.) Bethesda explains that:
[t]he DRG's are determined based on the International Classification of Diseases, Ninth Edition, Clinical Modification (ICD-9) coding system. A numerical value is assigned to each DRG code based on the amount of resources that are statistically necessary to treat patients falling into each DRG. Upon the patient's discharge, the hospital is reimbursed a flat fee based on the DRG code.
(Id. (citing 42 U.S.C. § 1395ww(d)(4).) Thus, Bethesda claims that because it was reimbursed a flat fee based upon each patient's DRG, the specific services provided to individual patients are irrelevant to Medicare's payment. (Id. at 1.) Stated another way, Bethesda asserts that because every discharge is assigned only one DRG, regardless of the number of services provided, its reliance on the DRG classification "means that none of its submissions for the patients listed in Exhibit A were false within the meaning of the False Claims Act." (Id. at 6.) Bethesda states:
it does not matter how many services are listed on a patient's bill. Medicare pays the hospital for a flat fee based on the DRG. Under the PPS, Bethesda was entitled to the same payment for the patients at issue in this motion, regardless of the individual services reflected on the billing statement and, therefore, regardless [of] their participation in the drug studies.
(Id. at 5.) As such, Bethesda contends that, as to these patients, it did not and could not have submitted any claims that were false and fraudulent. (Id.) Thus, Bethesda argues that it is entitled to summary judgment with respect to these patients. (Id. at 1-3.)
In ruling on Bethesda's motion for partial summary judgment, the Court looks first to Bethesda's reference to a form known as the UB-82 or the UB-92. (Id. at 7.) Bethesda explains that the UB-92 replaced the UB-82. (Id.) Importantly, Bethesda specifically acknowledges that "both documents serve the same function: the form is the bill from Bethesda to Medicare." (Id.) Bethesda explains that it places information concerning the patient on the form and electronically forwards the bill directly to Medicare for reimbursement. (Id.) Thus, Bethesda submits the bill to Medicare to get a claim against the United States paid or approved. (Id.)
In this case, Bethesda does not dispute that it presented claims for payment to Medicare for research costs that were incurred as the result of for-profit drug studies. Rather, Bethesda's position is that, as long as the DRG is true and accurate, its claims concerning participation in for-profit drug studies with respect to the patients at issue cannot be false. (Id. at 11 (stating that "It does not matter which services are or are not included on the bill . . . Medicare pays only the amount required pursuant to the applicable DRG code. . . ."). The Court finds this argument to be without merit.
After a thorough review of Bethesda's argument as set forth in its motion and reply brief, the Court finds that Bethesda fails to take into account the contents of the entire bill sent to Medicare. That is, the entire bill represents a claim against the United States to be paid or approved, regardless of whether or not the payment is for a flat fee. Bethesda argues, in effect, that it can pick and choose what can be false on a bill submitted to Medicare, so long as the DRG code is correct. It states that its "reliance on the DRG classification means that none of its submissions for the patients contained on Exhibit A were false within the meaning of the False Claims Act." (Id. at 6 (quotation and citation omitted).) Thus, Bethesda looks solely to the reimbursement amount and states that none of the itemized services can be false under the FCA provided that the DRG is correct.
However, Bethesda fails to take into account the existence of a relevant regulatory provision concerning Medicare coverage for for-profit drug studies. The relevant regulatory provision is set forth in 42 C.F.R. § 413.90 (1996). It states:
(a) Principle. Costs incurred for research purposes, over and above usual patient care, are not includable as allowable costs.
(b) Application. (1) There are numerous sources of financing for health-related research activities. Funds for this purpose are provided under many Federal programs and by other tax-supported agencies. Also, many foundations, voluntary health agencies, and other private organizations, as well as individuals, sponsor or contribute to the support of medical and related research. Funds available from such sources are generally ample to meet basic medical and hospital research needs. A further consideration is that quality review should be assured as a condition of government support for research. Provisions for such review would introduce special difficulties in the Medicare programs.
(2) If research is conducted in conjunction with, and as a part of, the care of patients, the costs of usual patient care are allowable to the extent that such costs are not met by funds provided for the research. Under this principle, however, studies, analyses, surveys, and related activities to serve the provider's administrative and program needs are not excluded as allowable costs in the determination of reimbursement under Medicare.42 C.F.R. § 413.90 (1996). Accordingly, this regulatory provision states that the costs incurred pursuant to the for-profit drug studies conducted at Bethesda are non-allowable costs for purposes of determining reimbursement under Medicare.
As demonstrated by Exhibit C to Bethesda's motion for summary judgment, the bill sent by Bethesda to Medicare contains separate entries for allowable and non-allowable charges. (Doc. # 57, Ex. C at 1.) In the example used for Exhibit C, the patient incurred expenses for a private room, which is a non-allowable cost under Medicare. (Id.) Accordingly, on the face of the form, Bethesda made an adjustment for the non-allowable amount of the private room. (Id.) That amount is $220.00. (Id.) Therefore, the $220.00 non-allowable fee appears as an offset, separated from the allowable charges, against the patient's total balance. (Id.) Despite this offset for the private room expenses, no such offset was made for the non-allowable for-profit drug studies done at Bethesda on this patient. (Id.)
Another example of Bethesda's failure to report the for-profit drug studies as a non-allowable cost is set forth in Exhibit O to Relator's memorandum in opposition. (Doc. # 63, Ex. O.) In Exhibit O, the UB-92 contains separate columns for "total charges" and "non-covered charges." (Id.) On this form, nothing appears in the "non-covered charges" column, despite the fact that a non-allowable for-profit drug study was conducted on this patient. (Id.) The Court learned that this patient participated in a for-profit drug study by looking to Bethesda's accounts receivable documents kept for this patient. (Id.) These documents reflect that several "medication study adjustments" were made for this patient, despite the fact that no charges appear in the "noncovered charges" column of the bill sent by Bethesda to Medicare. (Id.)
In deciding a motion for summary judgment, "[t]he evidence of the non-movant party is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255. Based upon this pattern of conduct with respect to its Medicare billing, the Court finds that reasonable jurors could find by a preponderance of the evidence that the claims Bethesda submitted for payment were false or fraudulent. Id. at 252;see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986). That is, a reasonable jury could find that the charges for the for-profit drug studies should have been offset on the bill as non-allowable charges and that Bethesda's failure to do so constitutes a false claim, despite the fact that Bethesda may have included the correct DRG code for each patient. As such, the Court DENIES Bethesda's motion for partial summary judgment on this basis.
B. Knowledge
In its motion for partial summary judgment, Bethesda also contends that "since [it] did not submit any false or fraudulent claims for any of the patients listed on Exhibit A, Mr. Morris cannot show the required knowledge element." (Doc. # 57 at 12.) Bethesda argues that:
The Relator does not contend that Bethesda's billings contain incorrect ICD-9 or DRG codes, hence conceding their accuracy. What's more, Bethesda's reliance on the DRG Grouper Software to establish the DRG code, and the DRG requirement methodology itself, completely negates [sic] any conceivable inference of knowledge, as required by 31 U.S.C. § 3729(a)(3). Thus, . . . [Relator] could not establish that Bethesda submitted claims that were a palpable lie, knowingly false, or even submitted with reckless disregard for their truth or falsity.
(Id. at 13 (internal quotations omitted).) Accordingly, Bethesda contends that "no reasonable jury could find that Bethesda intended to corrupt the Medicare prospective payment system." (Doc. # 70 at 10.)
Congress defined the knowledge element of the § 3729(a) claims in 31 U.S.C. § 3729(b). Under that section, the terms "knowing" and "knowingly" mean 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 falsity of the information, and no proof of specific intent to defraud is required. See id. Mere negligence or innocent mistake is insufficient to satisfy the above standards for knowledge. See Wilkins ex rel. United States, 885 F. Supp. at 1059. Instead, in order to satisfy the knowledge requirement, a defendant must act at least with "deliberate ignorance" or "reckless disregard" of the truth or falsity of the information. See id.
Although the plaintiff must prove that the defendant acted with knowledge under § 3729(b), the plaintiff is not required to prove that the defendant acted with the intent to deceive. See id. at 1060. In other words, in proving a violation, the plaintiff need not offer evidence of an intent to deceive but must offer evidence of "the knowing presentation of a claim, record or statement that is either `fraudulent' or `false' and the requisite intent is the knowing presentation of what is `known to be false' or `a lie.'" Id. (quoting Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992)). Thus, "the scienter requirement is something less than the elements of fraud at common law." Id.
In this case, the Court holds that a reasonable jury could find that Bethesda: (1) had actual acknowledge that its Medicare bills failed to reflect that for-profit drug studies were non-allowable charges; (2) acted in deliberate ignorance of the truth or falsity of the information that it provided on its Medicare bills; or (3) acted in reckless disregard of the truth or falsity of the information. The Court bases this finding upon evidence in the record that demonstrates that Bethesda knew that for-profit drug studies were being conducted at the hospital, yet failed to properly account for such studies on its Medicare bills.
In a letter dated August 19, 1996, written by Bethesda's Executive Vice President to Kenneth Crist, the Vice President acknowledges his awareness of nearly ten years of "ongoing debate about [Crist's] personal role in these studies, the way patients are identified, and [his] use of hospital time and documents to further [his] drug research business." (Doc. # 63, Ex. E.) Based upon this apparent knowledge of the for-profit drug studies, a reasonable jury could find that Bethesda acted at least with deliberate indifference or reckless disregard of the truth or falsity of the information that it submitted to Medicare when it failed to differentiate between allowable and non-allowable costs on its bills. Accordingly, the Court finds that a genuine issue of material fact exists with respect to the element of knowledge and, as such, the Court DENIES Bethesda's motion for summary judgment on this basis.
C. Damages
Finally, Bethesda argues that Relator cannot establish that the United States suffered damage as a result of the allegedly false claims. (Doc. # 57 at 13.) Specifically, Bethesda argues that "Medicare paid [it] for the patients based solely on the DRG codes." (Id.) Thus, Bethesda argues that it "only received the payment it was entitled to for any particular patient under that patient's DRG code" regardless of the services listed on any individual patient's bill. (Id.)
In response, Relator argues that proof of actual damages is not required to establish a violation of the FCA. (Doc. # 63 at 22.) Relator contends that proof of actual damages is only relevant to the recovery of compensatory damages under the FCA. (Id.) Furthermore, Relator disputes Bethesda's contention that the United States did not actually suffer damage as a result of Bethesda's submission of allegedly false claims. (Id.) The Court now examines the relevant law with respect to the type of damages necessary to establish a claim under the FCA.
Section 3729(a) of the FCA provides that anyone who knowingly submits a false and fraudulent claim to the government for payment "is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person[.]" 31 U.S.C. § 3729(a) (1994). Thus, this provision provides for two separate recoveries: (1) a civil penalty of not less than $5,000 and not more than $10,000 and (2) an amount not to exceed three times the amount of actual damages sustained by the United States upon proof of those damages by the plaintiff. Id.; Rabushka ex rel. United States v. Crane Co., 122 F.3d 559, 563 (8th Cir. 1997).
Although a plaintiff may recover both the civil penalty and an amount equaling three times its actual damages, "no damages need be proved in order to recover the civil penalty of $5,000 specified in [§ 3729]." Wilkins ex rel. United States, 885 F. Supp. at 1060. Stated differently, a plaintiff could bring an action under the FCA solely to recover the civil penalty without establishing actual damages. See e.g., Rabushka, 122 F.3d at 563 (finding that "proof of causation of damages is relevant only to recovery of compensatory damages [and] [t]he absence of such proof does not preclude the assessment of penalties, attorney's fees, and costs"); United States ex rel. Roberts v. Luthern Hosp., et al., No. 1:97cv174, 1998 U.S. Dist. LEXIS 15791, at *37 (N.D. Ind. Apr. 17, 1998) (finding that relator "need not show actual damages to the government to prove a violation of the FCA" because "[t]here is no requirement, statutory or judicial, that specific damages be shown"). The reason for this distinction is that the government is injured by violations of the FCA, regardless of whether these injuries may be "difficult or impossible to ascertain." Rex Trailer Co., Inc. v. United States, 350 U.S. 148, 153 (1956).
Applying the above standard to this case, the Court concludes that Bethesda is not entitled to partial summary judgment on the basis that Relator cannot establish actual damages. As stated above, actual damages are not an essential element of a successful cause of action under the FCA, and they need not be established to recover the civil penalty outlined in § 3729. Thus, Bethesda's allegation that Relator cannot establish actual damages is not fatal to Relator's claim. Accordingly, the Court DENIES Bethesda's motion in this regard.
In making this decision, the Court recognizes that Relator does not contend that the United States did not suffer actual damage by virtue of Bethesda's allegedly false claims. To the contrary, Relator contends that the United Stated did suffer damage because the inflated cost reports are used to recalibrate the DRGs each year. As stated in Section III.A. of this Opinion and Order, under Medicare's PPS, each inpatient is assigned a DRG based upon the patient's diagnosis. (Doc. # 57 at 2.) The DRG codes represent the government's best estimate of what it should cost a hospital to treat a person with a particular illness. (Doc. # 63 at 4.) The hospital is reimbursed a flat fee based upon the DRG assigned to the patient. (Doc. # 57 at 2.)
Each year, hospitals must account for the total actual costs and charges for providing services to patients. (Doc. # 63 at 6.) Medicare then recalibrates the DRGs by computing the average charges for each DRG based on the information submitted by the hospitals nationwide. (Id.) According to Relator, the submission of false claims inevitably affects the integrity of the PPS. Specifically, Relator contends that "Bethesda's failure to account for charges associated with nonallowable costs falsely inflated the hospital's cost to charge ratio for that year." (Id.) Relator argues that this inflation affects the recalibration process because the inflated cost reports will increase the fixed sum that will be payable to the hospitals for each DRG. Thus, Relator argues that the government suffered actual damage by virtue of the inflated cost reports.
After considering Relator's argument, the Court finds that a reasonable jury could conclude that the government suffered actual damage as a result of Bethesda's alleged submission of false claims. That is, a reasonable jury could find that the cost reports submitted by Bethesda resulted in an increased predetermined payment for each DRG. Therefore, the Court finds this to be an additional reason why Bethesda's motion for partial summary judgment should be denied.
IV. CONCLUSION
Therefore, upon consideration and being duly advised, the Court DENIES Bethesda's motion for partial summary judgment. (Doc. # 57.)