U.S. ex rel. Worthy v. E. Me. Healthcare Sys. — Jan. 2017 (Summary)

FALSE CLAIMS ACT – QUI TAM

U.S. ex rel. Worthy v. E. Me. Healthcare Sys.
2:14-cv-00184-JAW (D. Me. Jan. 18, 2017)

The United States District Court for the District of Maine granted in part and denied in part a hospital’s motion to dismiss claims related to alleged False Claims Act (“FCA”) violations brought by a former hospital employee.

The defendant hospital employed the relator, a certified professional coder and manager of patient accounts, for a period of two years, during which time the relator worked in the billing department with the hospital’s third-party billing contractor.  There, the relator alleged she was instructed to intentionally manipulate claims that were unpaid by Medicare by deleting necessary information, adding incorrect code modifiers to services, and unbundling services in order to bypass edits and increase reimbursement.  The relator then alleged that upon receiving this increased reimbursement, the hospital did not refund the overpayment, as required by law.

It was also alleged that the hospital coders were directed by management to identify high-value, unpaid claims, alter the codes, and resubmit the claims for higher reimbursement.  Examples of this allegation included that the hospital changed discharge status indicators, billed duplicative facility fees by unbundling three-day and same-day claims, created dummy accounts to cover up the fraudulently modified claims, rebilled paid claims, upcoded claims, and bypassed Medicare’s automatic withholding of payment in accident or injury cases by removing the injury information from the claims.

The relator claimed that she reported her concerns regarding the pattern of claim modification to the hospital’s officers, but that the officers did not address the billing practices.  When another third-party billing contractor assumed responsibility for the hospital’s outpatient billing, it was alleged that the billing company had knowledge of the hospital’s allegedly illegal practices and that it also began engaging in the same types of fraudulent billing practices.  The relator again raised concerns, but these, too, allegedly went unheeded.  The relator was terminated and then sued the hospital and independent billing contractors for retaliatory, constructive discharge and FCA violations.

The hospital made a motion to dismiss the relator’s claims on the theory that the relator had failed to provide facts specific enough to raise the inference that the hospital’s conduct rose to the level of an FCA violation.  However, the court refused to dismiss the relator’s FCA claims based on the Supreme Court’s recent Escobar decision and First Circuit Court of Appeals rulings.

With respect to the three-day and same-day claims, the court focused on whether compliance with the required bundling of services was a “condition of payment” under the Medicare statute and whether Medicare would have paid the hospital for the claims if it was aware that it had been unbundled contrary to statutory requirements.  The court held that it was “at least…plausible” that Medicare would not have paid the claims if it were aware of the hospital’s alleged fraudulent billing and active concealment of inappropriately submitted claims.  Because the billing practices were allegedly carried out with the third-party contractors’ actual knowledge that their actions were improper, and because the hospital’s alleged “reckless disregard” or “deliberate ignorance” of the truth allowed the fraud to persist, the court determined that the hospital was sufficiently aware of the violations for FCA liability to attach.

The hospital also argued that the relator failed to meet the FCA’s particularity requirement, that is, the relator did not provide enough specific evidence of wrongdoing to survive the hospital’s motion to dismiss her FCA claim.  The court disagreed.  By naming the specific staff members involved, enumerating the different types of fraudulent billing that took place, discussing how the manipulation of claims occurred, and delineating the period of time during which this all occurred, the court found the relator’s allegations established the “who, what, when, where, and how of the alleged fraud” and, therefore, were sufficient to avoid dismissal.

The court also ruled that the relator produced sufficient evidence that the court could infer collusion among the hospital and its third-party contractors to defraud the government.  The nonexistence of an express agreement was immaterial, the court added.

The court further found that the relator’s retaliation claim was sufficient to deny the hospital’s motion to dismiss.  Having informed management on multiple occasions of the violations of Medicare, the court found that the hospital’s actions toward the relator (i.e., unfounded accusations of poor work ethic and hiring a replacement for the relator without warning) led to the relator’s subsequent forced resignation.  Because there was an “infused management structure” between the hospital and its third-party contractor, the court determined that the contractor qualified as a joint employer for purposes of the retaliation claim.  Accordingly, the court denied the hospital’s and that third-party contractor’s motions to dismiss the retaliation claims under state law and under the FCA.

While the court denied the hospital’s and contractors’ motions to dismiss with respect to the FCA claims, it granted the defendants’ motions to dismiss the relator’s request for attorney’s fees and damages related to the constructive discharge claim.  The court also granted a motion to dismiss the relator’s claim against the other contractor with whom, the court ruled, she did not have a joint employer relationship.