Opinion
Case No. 03CV907 BEN (WMc).
October 28, 2005
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT [doc. 44]
I. INTRODUCTION
Plaintiff United States of America ("Plaintiff" or "the United States") alleges that Defendants Robert I. Bourseau ("Bourseau") and Rudra Sabaratnam ("Sabaratnam," collectively "Defendants") submitted false claims to the government. Plaintiff now moves for partial summary judgment on the first cause of action under the False Claims Act ("the FCA"). Plaintiff argues that Defendants caused false claims to be presented to the Government in the 1997 and 1998 cost reports of Bayview Hospital and Mental Health Systems ("Bayview") which they operated. Defendants oppose the motion. For the reasons that follow, this Court grants the motion in part and denies it in part.
II. FACTS
Bayview was a psychiatric hospital located in Chula Vista, California. Bayview is owned and operated by California Psychiatric Management Services ("CPMS"). (Complaint, ¶ 3; Answer, ¶ 3). CPMS is a California Limited Partnership. (Complaint, ¶ 4; Answer, ¶ 4; Declaration of Robert I. Bourseau in Opposition to Plaintiff's Motion for Partial Summary Judgment ("Bourseau Decl."), ¶ 2). Bourseau served as Chairman of Bayview's Board of Directors and President of RIB Medical Management Services, Inc. ("RIB"). RIB was the managing or general partner of CPMS. (Complaint, ¶ 9; Answer, ¶ 9; Bourseau Decl., ¶¶ 1-2; Plaintiff's Separate Statement of Material Facts in Support of Motion for Partial Summary Judgment ("SSMF"), Exs. 1, 10). Sabaratnam, a licensed physician, was the Chief Executive Officer of Bayview and President of Navatkuda, a general partner of CPMS. (Bourseau Decl., ¶ 2; SSMF, Ex. 1; Ex. 11, 9-10, 20, 29-30, 81). Sabaratnam controlled Navatkuda. (SSMF, Ex. 10).
Between 1991 and 1995, CPMS entered into contracts to manage psychiatric units in five hospitals located in the Los Angeles area ("the psychiatric units"). In 1994, CPMS acquired Bayview. (Complaint, ¶ 29; Answer, ¶ 29). Also in 1994, Bayview began to participate in the Medicare program as a provider. (Complaint, ¶ 30; Answer, ¶ 30). By 1995, all of the management agreements regarding the psychiatric units were terminated by the hospitals. (SSMF, Ex. 3, 140-41; Ex. 4, Bourseau Decl., ¶ 9).
As a provider, Bayview submitted annual cost reports to Medicare. A Medicare provider receives interim reimbursement amounts based on estimated costs for its Medicare patients periodically throughout the year. See 42 U.S.C. § 1395g(e). At the end of the year, the provider submits a final accounting of its costs for the year in a cost report. 42 C.F.R. § 413.20(b). Then the total reimbursement actually due the provider for Medicare services for that year is calculated. The periodic interim payments are reconciled against the total amount allowable to determine whether the provider must return overpaid funds or receive additional payment.
Bayview retained Pacific Hospital Management ("PHM") to prepare and submit is costs to Medicare. The Bayview account at PHM was handled by Paul Fayollat ("Fayollat") and Loretta Masi ("Masi"). (Complaint, ¶ 38; Answer, ¶ 38). PHM prepared and submitted Bayview's 1997-1999 cost reports. (Complaint, ¶ 39; Answer, ¶ 39).
Beginning in 1994, CPMS received financing from National Century Financial Enterprises ("NCFE"). (SSMF, Ex. 10). In 1996, CPMS filed for bankruptcy. (Complaint, ¶ 33; Answer, ¶ 33). In 1998, the bankruptcy court approved a reorganization plan for CPMS. (Complaint, ¶ 37; Answer, ¶ 37). In 2000, CPMS filed for bankruptcy for the second time. (SSMF, Ex. 9, Fayollat Tr., 112).
The 1997 Medicare cost report filed by Bayview included $2,550,722 in interest charged to CPMS by NCFE. (SSMF, Ex. 1). Of this amount, no more than $405,000 related to debt incurred by Bayview. (SSMF, Ex. 5; Ex. 9 to Ex. 6; Ex. 10 to Ex. 7; Ex. 9, 135, 137-38). The balance related to debt incurred for the psychiatric units in the five Los Angeles area hospitals. The 1998 Medicare cost report filed by Bayview included $2,761,803 in interest. (SSMF, Ex. 1). Of this amount, no more than $547,756 related to debt incurred by Bayview. (SSMF, Ex. 3, Bourseau Tr., 233-38; Ex. 5, Clingo Tr., 63-5, 69-70; Ex. 19 to Ex. 8). The rest related to debt incurred for the psychiatric units.
In 2003, Plaintiff filed the present action for violations of the FCA, unjust enrichment and common law fraud. Plaintiff alleges that Defendants knowingly misrepresented Bayview's costs in the reports to obtain greater Medicare reimbursement then Defendants were entitled to. (Complaint, ¶ 44).
III. LEGAL STANDARD
A. Summary Judgment Standard
Summary judgment is appropriate "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 a judgment as a matter of law." Fed.R.Civ.Proc. 56(c). The moving party has the burden of demonstrating the absence of a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). If the moving party is a plaintiff, it "[bears] the burden of providing sufficient evidence to establish a prima facie case." Washington Physicians Service Ass'n v. Gregoire, 147 F.3d 1039, 1047-1048 (9th Cir. 1998).
If the moving party satisfies its burden, the opponent must set forth specific facts showing that there remains a genuine issue for trial. Fed.R.Civ.Proc. 56(e). Such an issue of fact is only a genuine issue if it can reasonably be resolved in favor of either party. Anderson, 477 U.S. at 250-251. The "mere existence of a scintilla of evidence" in support of the non-moving party is insufficient. Id.
"At the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence." Porter v. California Dept. of Corrections, 419 F.3d 885, 891 (9th Cir. 2005). "[A]ll reasonable inferences [are] drawn in favor of the non-moving party." Yellow Cab Co. of Sacramento v. Yellow Cab of Elk Grove, Inc., 419 F.3d 925, 927 (9th Cir. 2005).
B. The FCA
The FCA imposes liability on any person "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 on any person "who 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). The FCA also contains a "reverse false claims" provision, which makes it illegal to "make, use, or cause to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government." 31 U.S.C. § 3729(a)(7); see also U.S. v. Universal Fruits and Vegetables Corp., 370 F.3d 829, 832 (9th Cir. 2004). The FCA "was intended to reach all types of fraud, without qualification, that might result in a financial loss to the Government." United States v. Neifert-White Co., 390 U.S. 228, 232 (1968).
IV. DISCUSSION
Plaintiff moves for partial summary judgment on two elements of its FCA cause of action with regard to the interest costs included in Bayview's 1997 and 1998 cost reports ("the cost reports") but related to the debt incurred for the psychiatric units. Plaintiff argues that (1) Defendants caused the presentment of claims for payments from, or decreasing an obligation owed to, the government, and (2) the claims were false. The movant does not seek to prove the requisite knowledge in submission of the alleged false claims.
A. Presentment of Costs by Defendants
There is no genuine issue of material fact as to the claims being submitted by Defendants. The FCA "reaches `any person who knowingly assisted in causing the government to pay claims which were grounded in fraud without regard to whether that person had direct contractual relations with the government.'" United States v. Mackby, 261 F.3d 821, 827 (9th Cir. 2001) (emphasis in the original; internal citations omitted). Bourseau served as Chairman of Bayview's Board of Directors and President of RIB. RIB was the managing partner of CPMS. (Complaint, ¶ 9; Answer, ¶ 9; SSMF, Exs. 1, 10). Sabaratnam was the Chief Executive Officer of Bayview and President of Navatkuda, a general partner of CPMS. (SSMF, Ex. 1; Ex. 11, 9-10, 20, 29-30, 81). Sabaratnam controlled Navatkuda. (SSMF, Ex. 10).
Bourseau directed the inclusion of the interest claims on the 1997 and 1998 cost reports with Sabaratnam's agreement. (SSMF, Ex. 3, 120-22, 206-09; Ex. 9, 296-98, 304-08, 362-63). Bourseau signed the cost reports certifying that the reports were true, correct, and complete statements prepared from Bayview's books and records in accordance with applicable instructions. He also certified that he was familiar with the laws and regulations regarding the provision of health care services, and that the services in the report were provided in accordance with those laws and regulations. (Complaint, ¶¶ 51, 58, 67; Answer, ¶¶ 51, 58, 57 (admitting the allegations in the Complaint)). Defendants have provided no evidence to raise a genuine issue of material fact on this issue. Therefore Plaintiff has established that Defendants caused the presentment of the alleged claims. Mackby, 261 F.3d at 827.
Although Defendants do not dispute that Bourseau signed Bayview's 1997-1999 Medicare cost reports, they assert that he did so in reliance on the belief that Fayollat and PHM had prepared the reports in compliance with the applicable law. (Bourseau Decl., ¶ 7). This belief goes to Bourseau's knowledge in submitting false claims, which is not rasied in this motion.
B. Claims to Payment from, or to Decrease an Obligation to, the Government
The amounts claimed in Bayview's cost reports, if exaggerated, were claims for payment from Medicare or decreasing Defendants' financial obligations to Medicare.
Under the Medicare regulatory regime, service providers are paid for "the reasonable cost of services furnished to beneficiaries" through "interim payments approximating the actual costs of the provider." 42 C.F.R. § 413.64(a). The cost report filed at the end of the year allows for retroactive adjustment based on the actual costs incurred. 42 C.F.R. § 413.64(f). The regulations require that within a reasonable time after receipt of the cost report, the fiscal intermediary must issue the provider "a written notice reflecting the intermediary's determination of the total amount of reimbursement due the provider," which is known as the NPR. 42 C.F.R. § 405.1803(a).U.S. ex rel. A + Homecare, Inc. v. Medshares Management Group, Inc., 400 F.3d 428, 456 (6th Cir. 2005). Non-reimbursable costs included in Medicare reports decrease the amount owed by the provider to Medicare and are considered false claims. See id. at 455-57.
Bayview received the interim payments and submitted its cost reports to Medicare. The majority of costs in the cost reports at issue appear to relate to debt incurred for the psychiatric units. Bayview's 1997 Medicare cost report included $2,550,722 in interest charged to CPMS by NCFE. (SSMF, Ex. 1). Of this amount, no more than $405,000 related to debt incurred by Bayview itself. The balance was for the debt incurred for the psychiatric units managed between 1993 and 1995. (SSMF, Ex. 9 to Ex. 6; Ex. 10 to Ex. 7; Ex. 5; Ex. 9, 135, 137-38). Bayview's 1998 report included $2,761,803 in interest charged to CPMS by NCFE. (SSMF, Ex. 1). Of this amount, no more than $547,756 related to Bayview's debt. The rest related to debt incurred for the psychiatric units managed between 1993 and 1995. (SSMF, Ex. 19 to Ex. 8; Ex. 5, 63-5, 69-70; Ex. 3, 233-238). Defendants have offered no evidence to contradict the above numbers.
Plaintiff argues that the interest costs related to the psychiatric units were included in Bayview's reports improperly. If Plaintiff is correct, reimbursement received and retained for such claims would significantly decrease Defendants' obligations to the government and constitute false claims. U.S. ex rel. A + Homecare, Inc., 400 F.3d at 455-57; Universal Fruits and Vegetables Corp., 370 F.3d at 832.
C. Falsity of the Claims
There is a genuine issue of material fact as to whether the interest costs claimed in Bayview's cost reports but related to the psychiatric units constituted false claims. Plaintiff argues that the interest costs related to the psychiatric units should not have been included in the reports filed by Bayview as a Medicare provider. Plaintiff asserts that Defendants should have sought reimbursement through the hospitals where the psychiatric units were located and which were separate providers. The United States seeks to prevent cost-shifting between Bayview and the psychiatric units.
Plaintiff does not argue that the interest costs incurred for the benefit of the psychiatric units were not incurred for Medicare-related services or patient care.
"The Medicare statute prohibits "cross-subsidization.'" Providence Hosp. v. Shalala, 843 F.Supp. 650, 654 (W.D.Wash. 1993). To qualify for Medicare reimbursement, a cost of service must be reasonable. 42 U.S.C. § 1395f(b). A reasonable cost is one actually incurred by the provider. 42 U.S.C. § 1395x(v)(1)(A). Costs unrelated to patient care are not reimbursable. Id. In addition, Medicare only pays for the costs of Medicare beneficiaries. Id.
The Medicare regulations similarly require that "payment is to be made on the basis of current costs of the individual provider." 42 C.F.R. § 413.5(a). Reimbursement under the Medicare program involves a determination of "[e]ach provider's allowable costs." 42 C.F.R. § 413.50(a)(1). The basis for interim payments is established as to "each provider." 42 C.F.R. § 413.60(a). "At the end of the period, the actual apportionment, based upon the cost finding and apportionment methods selected by the provider, determines the Medicare reimbursement for the actual services provided to beneficiaries during the period." 42 C.F.R. § 413.60(b).
These principles are applied to interest. Interest costs are reimbursable when they are "necessary and proper." 42 C.F.R. § 413.153(a)(1). Interest is necessary when it is "incurred on a loan made to satisfy a financial need of the provider." 42 C.F.R. § 413.153(b)(2)(i).
Courts have interpreted the Medicare statutory and regulatory framework to require the reimbursement to be provider-specific where one organization manages several separate provider hospitals. See Providence Hospital of Toppenish v. Shalala, 52 F.3d 213 (9th Cir. 1995). The Ninth Circuit has disallowed interest claims where several provider hospitals managed by the same organization used a blended interest rate for their debt instead of the different specifically applicable rates. Id. The appellate court stated that "[t]he overall interest rate cannot precisely reflect the specific costs incurred to satisfy the needs of the individual provider to render services to its Medicare patients." Id. at 217. A similar result was reached by at least one other court. See Fairview Hosp. and Healthcare Services v. Bowen, 1988 WL 235563 (D. Minn. 1988) (disallowing the use of a "weighted average interest rate" where the plaintiff non-profit corporation operated several hospitals, which, although not separately incorporated, were considered separate Medicare providers and filed for reimbursement under their own provider numbers.).
The hospitals were located in different states. The central management office "accounted for the interest costs of the various providers by averaging all the interest rates together to create a `blended rate.'" Id. at 215. Each hospital claimed interest costs on its Medicare report based on the blended rate and not on the actual rate accrued at this hospital.
The plaintiff non-profit corporation centrally issued bonds on behalf of its hospitals, allocating the proceeds to specific projects at those hospitals. Id. at 3. The debt was secured by the total assets of the non-profit corporation rather than by the assets of each individual hospital. Id. Although the hospitals were not separately incorporated, they were each considered to be separate providers for the purposes of Medicare and filed for reimbursements under their own provider numbers. Id. at 1.
There remains, however, a genuine issue of material fact as to whether the costs related to the psychiatric units were included in Bayview's reports improperly because it is not clear whether the psychiatric units were part of the hospitals where they were located or whether CPMS, Bayview and the psychiatric units were the same entity. CPMS entered into contracts for managing the psychiatric units in five hospitals in the Los Angeles area between 1991 and 1995. (SSMF, Ex. 10). CPMS started operating Bayview in 1994. (Bourseau Decl., ¶ 3). By 1995, all of the management agreements were terminated by the hospitals. (SSMF, Ex. 3, 140-41; Ex. 4, Bourseau Decl., ¶ 9). Plaintiff argues that the termination of the management agreements by the hospitals shows that the hospitals controlled the psychiatric units. With the opposition to this motion, however, Bourseau submitted a declaration stating that from 1991 to 1995, CPMS merely leased space in the five hospitals to provide treatment to patients. (Bourseau Decl., ¶ 4).
The Psychiatric Units did not operate or own hospital facilities. Through management contracts with each hospital, CPMS paid fees for the opportunity to provide treatment to Medicare patients seeking mental health care. . . . While I am unaware of what expenses may have been included in the cost reports submitted by the hospitals which housed the Psychiatric Units, such expenses could not have included those identified in Bayview's 1997-1999 cost reports. I am certain of this because information relating to the expense of providing care to patients in the Psychiatric Units was never requested by, or provided to, these other hospitals.
( Id., ¶ 5). Bourseau further declared that Bayview and psychiatric units were merely fictitious business names under which CPMS conducted business and never existed as separate legal entities. ( Id., ¶ 6). Defendants characterize Bayview as a "D.B.A." for CPMS. (Declaration of Michael D. Stein in Opposition to Plaintiff's Motion for Partial Summary Judgment ("Stein Decl."), ¶ 5, Ex. C). Only CPMS filed tax returns or maintained a taxpayer identification number. (Bourseau Decl., ¶ 6). There is no evidence of Medicare reports filed by the psychiatric units under their own provider numbers.
Based on the evidence submitted, it is not clear whether, at least as of 1994, the psychiatric units were part of separate providers or the same entity as Bayview. If the units were, in fact, part of the hospitals where they were located, then their interest costs may have been more properly allocated to those hospitals. See Providence Hospital of Toppenish, 52 F.3d at 217. If, on the other hand, Bayview and the units were the same entity, it may have been permissible for Bayview to seek reimbursement for all of the interest costs. 42 C.F.R. § 413.153(b)(2)(i). Because the Court cannot weigh conflicting evidence or make credibility determinations in ruling on a motion for summary judgment, there is a genuine issue of material fact as to whether Bayview could properly claim the interest costs on its Medicare reports as reimbursable. Porter, 419 F.3d at 891.
Plaintiff also argues that even if Bayview and the psychiatric units were not separately incorporated and constituted a chain organization, it was improper to shift the costs amount the different components of the chain. A chain organization is defined in the Medicare Provider Reimbursement Manual ("the PRM"). The PRM was "never intended to establish Medicare policy" and is merely a "guide [without] the binding effect of law or regulation." Providence Hospital of Toppenish, 52 F.3d at 218 (internal citations omitted). The PRM can be helpful to courts, however, when it "provides further clarification" of, and is consistent with, the Medicare regulations. Id.
A chain organization is "a group of two or more health care facilities which are owned, leased, or through any other device, controlled by one organization." PRM § 2150. "The home office of a chain is not a provider in itself; therefore its costs may not be directly reimbursed by the program. . . . To the extent the home office furnishes services related to patient care to a provider, the reasonable costs of such services are includable in the provider's cost report and are reimbursable as part of the provider's costs." Id. "Allowable costs incurred for the benefit of, or directly attributable to, a specific provider or nonprovider activity must be allocated directly to the chain entity for which they were incurred. For example, where such costs are paid by the home office, interest expense is allocated to the facility for which the loan was made." PRM § 2150.3(B).
As stated above, Defendants have provided evidence of CPMS, Bayview and the psychiatric units possibly being the same entity. Because a chain organization requires the presence of distinguishable components, the same evidence raises factual issues as to the existence of a chain organization.
Because CPMS, Bayview and the psychiatric units may have been the same entity, there is a genuine issue of material fact as to whether the interest costs included in Bayview's reports, but relating to the psychiatric units, constitute false claims. See U.S. ex rel. A + Homecare, Inc., 400 F.3d at 455-57.
V. CONCLUSION
Plaintiff has established that Defendants caused the allegedly false claims to be presented to the government. Plaintiff has also shown that these claims were for payment from, or to decrease an obligation to, the government. There remains a genuine issue of material fact as to whether the interest costs relating to the psychiatric units were improperly included in the Medicare reports filed by Bayview, rendering the claims false. Accordingly, Plaintiff United States' Motion for Partial Summary Judgment is GRANTED in part and DENIED in part.
IT IS SO ORDERED.