United States Ex Rel. Lacy v. New Horizons, Inc. ( 2009 )

FILED
United States Court of Appeals
Tenth Circuit
October 9, 2009
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
UNITED STATES OF AMERICA,
ex rel., SARA LACY,
Plaintiff-Appellant,
v. No. 08-6248
(D.C. No. 5:07-CV-00137-HE)
NEW HORIZONS, INC., d/b/a (W.D. Okla.)
New Frontier ICF/MR, d/b/a
New Horizons Texarkana TX, d/b/a
New Frontiers, d/b/a Holly House,
d/b/a Horizons General Partnership;
NEW FRONTIERS COMMUNITY
SERVICES, INC.; DONALD
MOORE; CATHY MOORE; MARK
MOORE; CHISOLM COMMUNITY
SERVICES OF OKLAHOMA, INC.;
CINDY LASYONE,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before KELLY, McKAY, and BRISCOE, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Defendant New Horizons Inc. (New Horizons) operated nine long-term-care
facilities for mentally retarded adults in Oklahoma, and four in Texas, known as
Intensive Care Facilities for the Mentally Retarded (ICF/MR). 1 It employed Sara
Lacy as a case manager and Qualified Mental Retardation Professional from June
1999 to June 2004. After New Horizons terminated her employment, she brought
this action under the False Claims Act (FCA), 31 U.S.C. § 3729(a), alleging that
the defendant had presented false claims to the government under the Medicare,
Medicaid/SSI, and Social Security programs. She further claimed it terminated
her employment in retaliation for reporting these false claims. The United States
declined to intervene. The district court dismissed her complaint, and she
appeals.
BACKGROUND
Ms. Lacy’s 112-page Second Amendment Complaint (the “Complaint”)
included allegations that defendant had presented false and fraudulent claims in
violation of § 3729(a)(1); used false or fraudulent records in violation of
§ 3729(a)(2); conspired to get false or fraudulent claims paid in violation of
§ 3729(a)(3), and terminated her employment in violation of 31 U.S.C. § 3730(h)
1
Throughout her complaint and her briefing, Ms. Lacy refers inconsistently
to “defendant” and “defendants” performing various actions and being liable for
various claims. We refer in this order and judgment to “defendant” in the
singular, primarily meaning New Horizons but incorporating the other defendants
whenever made necessary by the context.
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“because of her lawful acts of initiating, investigating, and reporting the
misconduct of the Defendant to employees of the State Regulatory Agency.”
Aplt. App. at 123 ¶ 135. The district court granted the defendant’s motion to
dismiss the Complaint, concluding that (1) Ms. Lacy failed to plead her forward
billing claims with the particularity required by Fed. R. Civ. P. 9(b); (2) her
claims concerning the submission of annual reports and quarterly wage
enhancement reports failed to plead fraud with particularity and failed to state a
claim under the FCA; (3) her claims concerning substandard care did not present
allegations that could serve as the basis for an FCA claim; (4) she failed to state a
claim that defendant violated the Medicare anti-kickback statute; (5) her
conspiracy claim ran afoul of the intracorporate conspiracy doctrine and failed to
allege the conspiracy with particularity; and (6) the reporting of regulatory
violations to an Oklahoma state agency was not a report submitted to the
government that would support a FCA whistleblower claim.
The district court further concluded that Ms. Lacy’s allegations concerning
defendant’s per diem billing practices came close to stating a claim. It granted
her leave to amend her Complaint to flesh out this claim. But she declined to
amend and instead requested a final judgment. After final judgment was entered,
she filed this appeal.
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ANALYSIS
1. FCA Provisions
The FCA imposes liability, inter alia, on 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 or 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; [or]
(3) conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid[.]
31 U.S.C. § 3729(a) (1994).
The statute further provides protection to employees who suffer retaliation
from their employers for lawful acts taken in furtherance of an action under the
FCA:
Any employee who is discharged, demoted, suspended, threatened,
harassed, or in any other manner discriminated against in the terms
and conditions of employment by his or her employer because of
lawful acts done by the employee on behalf of the employee or others
in furtherance of an action under this section, including investigation
for, initiation of, testimony for, or assistance in an action filed or to
be filed under this section, shall be entitled to all relief necessary to
make the employee whole. . . . An employee may bring an action in
the appropriate district court of the United States for the relief
provided in this subsection.
Id. § 3730(h).
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2. Review Standards
We review a district court’s dismissal under Fed. R. Civ. P. 12(b)(6)
de novo, Moss v. Kopp, 559 F.3d 1155, 1161 (10th Cir. 2009), asking whether the
plaintiff has stated “enough facts to state a claim for relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
While in general, a civil complaint in federal court need only provide “a
short and plain statement of the claim showing that the pleader is entitled to
relief,” Fed. R. Civ. P. 8(a)(2), this rule “does not unlock the doors of discovery
for a plaintiff armed with nothing more than conclusions.” Ashcroft v. Iqbal,
129 S. Ct. 1937, 1950 (2009). “[O]nly a complaint that states a plausible claim
for relief survives a motion to dismiss.” Id.FCA claims, which involve averments of fraud, are held to a higher
standard. “[T]he heightened pleading requirements of [Fed. R. Civ. P.] 9(b) apply
to claims brought under the FCA.” United States ex rel. Karvelas v.
Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004). Rule 9(b) requires
that “[i]n alleging fraud . . . a party must state with particularity the
circumstances constituting fraud[.]” 2
2
In supplemental authority filed with this court, Ms. Lacy argues that the
Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617(May 20, 2009), has eliminated the requirement that fraud be pleaded with
particularity in qui tam actions. We do not agree. First, only a very few of the
Act’s provisions apply retroactively to her claims. See id. § 4(f), 123 Stat. 1625(continued...)
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In reviewing a dismissal pursuant to Rule 9(b) for failure to plead fraud
with particularity, we confine our analysis to the text of the Complaint, accepting
as true all well-pleaded facts as distinguished from conclusory allegations.
United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d
702, 726 (10th Cir. 2006). We view those facts in the light most favorable to the
non-moving party. Id. “At a minimum, Rule 9(b) requires that a plaintiff set
forth the ‘who, what, when, where and how’ of the alleged fraud, and [she] must
set forth the time, place, and contents of the false representation, the identity of
the party making the false statements and the consequences thereof.” Id. at
726-27 (quotations omitted).
3. Forward Billing Allegations
Paragraphs 33 through 42 of the Complaint describe a scheme whereby
defendant allegedly submitted bills at the beginning of each month to patients and
to the Medicare, Medicaid, and Social Security Administration programs seeking
payment for services to be performed for patients during that month. Ms. Lacy
alleges this was improper because bills are only to be submitted for
reimbursement after services have been provided. See Okla. Admin. Code §
317:30-3-8 (prohibiting pre-billing). She further alleges that “[t]hese bills were
2
(...continued)
(setting effective dates). Of those provisions expressly made retroactive, none
establishes or changes the pleading requirements for an FCA complaint.
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submitted for every patient, in all of the nine operating houses in Oklahoma each
and every month beginning in June 1999, and continuing at least until April of
2004.” Aplt. App. at 26 ¶ 36.
Notwithstanding the fact that Ms. Lacy’s allegations concern a fairly
specific time period (June 1999 to at least April 2004) and an identified class of
patients (all patients in the nine operating homes in Oklahoma), she has supplied
no specific details concerning any particular false claim for payment submitted
(or, to the extent her claims rest on FCA subsections (a)(2) or (a)(3), planned to
be submitted) 3 to the government. 4 In Sikkenga, we quoted with approval the
First Circuit’s application of Rule 9(b) to the FCA, which requires that
a relator must provide details that identify particular false claims for
payment that were submitted to the government. In a case such as
this, details concerning the dates of the claims, the content of the
forms or the bills submitted, their identification numbers, the amount
of money charged to the government, the particular goods and
services for which the government was billed, the individuals
involved in the billing, and the length of time between the alleged
fraudulent practices and the submission of claims based on those
practices are the types of information that may help a relator to state
his or her claims with particularity. These details do not constitute a
checklist of mandatory requirements that must be satisfied for each
3
See United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 46 n.7
(1st Cir. 2009) (applying Allison Engine Co. v. United States ex rel. Sanders,
128 S. Ct. 2123 (2008)).
4
The allegations in ¶ 41, concerning per diem billing, are dealt with
separately, infra.
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allegation included in a complaint. However, like the Eleventh
Circuit, we believe that some of this information, for at least some of
the claims must be pleaded in order to satisfy Rule 9(b).
Sikkenga, 472 F.3d at 727-28 (quoting Karvelas, 360 F.3d at 232-33).
Ms. Lacy contends that her broad language concerning “every patient, in all
of the nine operating houses in Oklahoma,” Aplt. App. at 26 ¶ 36, during the time
period June 1999 to April 2004, coupled with the other information she supplied
concerning the mechanics of billing and the persons involved in the billing, is
sufficiently particular to satisfy the Rule 9(b) standard and to put the defendant
on notice of the particular instances of fraud she alleges. See Aplt. Opening Br.
at 10-11. We cannot agree. First, no single instance of a particular false claim is
alleged that would be representative of the class described. See United States
ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007)
(stating relator who “pleads a complex and far-reaching fraudulent scheme” must
provide examples of specific false claims that “are representative samples of the
broader class of claims.”). The Complaint merely alleges in general terms a
scheme to bill in advance for patient care, applicable to every patient at
defendant’s facilities during a period of five years.
Finally, the Complaint provides no details about how the scheme was
implemented. It states that employees were directed “to submit bills to the
patients and government authorities for vendor payments at the beginning of each
month for services to be performed that month,” Aplt. App. at 25 ¶ 35, using
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“UB-92 and 1500 Paper forms,” id. at 26 ¶ 37. Presumably, some feature of the
billing submitted on these forms must have been altered or falsified in order to
avoid its being rejected for reimbursement out of hand as an impermissible
forward billing. 5 To assume otherwise is to conclude that defendant submitted
patently improper bills for years without making any attempt to conceal its fraud
and without attracting even the slightest attention from the agencies assigned to
pay them--an implausible allegation that goes unexplained in the Complaint,
which neither explains nor provides any specific examples to demonstrate what
exactly was altered or misstated on these forms.
In sum, Ms. Lacy’s broad-ranging allegations about forward billing are
insufficient to meet the requirements of Rule 9(b) with respect to particular false
claims. The district court properly concluded that the forward billing claim was
not pleaded with particularity.
4. Per Diem Billing Allegations
Ms. Lacy’s per diem billing allegations allege that defendant billed the
government for reimbursement at the per diem rate for days after patients died;
when patients were absent from the facility and visiting with family; when a
patient was in a hospital; and when a patient was moved out of state. The district
5
Ms. Lacy provides a blank form used to make adjustments to the UB-92
form, for example, and this form includes a line requiring that the “date of
service” be specified. Aplt. App. at 158.
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court identified three paragraphs of her Complaint that establish the primary basis
for these claims.
Paragraph 41 alleges that “[o]nce the money was paid, a number of patients
died in the middle of the month (including but not limited to Monica Wiebe, Judy
Henderson and Charley Bryant); New Horizons, under the direction of Don and
Cathy Moore, retained the money for the services for the rest of the month and
failed to pay back the patient’s family, government or the patient trust account.”
Aplt. App. at 26-27 ¶ 41. This description answers the “who and what” of the
alleged fraud, by identifying specific patients for which overbilling occurred,
what was overbilled, and who directed the overbilling. But it omits any details
concerning the dates and amounts involved or even which specific government
programs were not reimbursed after the alleged patient deaths.
Paragraph 46(a)(ii) alleges that “[a]t the Direction of Defendants Don and
Cathy Moore, patients like John Gentry were encouraged to leave the houses for
family visits and employees Ronaye Classen and Rachel Bevill-Breeding were
instructed to mark the patients as present; on one occasion Charley Bryant was
sent to the hospital ER as a John Doe so that they could mark him as being
present.” Id. at 31 ¶ 46(a)(ii). Notwithstanding the identification of patients for
whom overbilling allegedly was made, no information is provided concerning the
dates or number of times the alleged overbilling occurred and there are no
estimates of the total number of patients involved.
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Paragraph 79 alleges that when claims were submitted for payment “the
claims were false and the Defendant knew they were false and thereby subject to
the remedies available under the FCA. An example of these bills would be
Monica Weibe. She was billed until the end of the month of her death and her
Christmas holiday visits in 2002. David Scribner was billed through the end of
the month after he was dumped in Denton, Texas by the Defendants.” Id. at 83
¶ 79. Here, again, information about dates and amounts and which programs were
overbilled is missing. We conclude that the overbilling allegations fail to plead
fraud with particularity as required by Rule 9(b).
5. Allegedly False Records Used to Obtain Payment of Claims
Ms. Lacy also contends that she satisfied the requirements of
Fed. R. Civ. P. 8 and 9(b) by pleading facts that show a violation of § 3729(a)(2).
She contends that certain records referred to or otherwise relied on in the
defendant’s claims for reimbursement were “false record[s] or statement[s used]
to get a false or fraudulent claim paid or approved by the Government.” 31
U.S.C. § 3729(a)(2). These allegedly false records included
“[records] falsified . . . to reflect compliance when [defendant was] being
evaluated by the State for certification between 1999 and 2004[, including]
medical charts, doctors[’] orders, and time sheets for each facilit[y];
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“[records] destroyed . . . which were required by the State, thereby . . .
creating and using false records for a specific named patient who had been abused
by another patient in early 2004;
“[records not maintained as required] on patients that were abused;
“false time sheets [created] to reflect compliance with . . . staffing
requirements;
“falsif[ied] CPR certifications;
“falsified . . . immunization record[s] for TB and Hepatitis; and
“falsified . . . individual patient plans.”
Aplt. Opening Br. at 14-15.
To satisfy the requirements of the FCA, such falsifications would
ultimately have to be tied to a planned or actual false or fraudulent claim for
payment. See United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 46
n.7 (1st Cir. 2009). But Ms. Lacy makes no attempt to demonstrate the required
link. Nor can we discern such a link through examination of the Complaint.
None of the citations she provides to her Complaint support the allegations in her
brief. 6
6
For example, she cites to the Complaint, page 10, ¶ 28(i), to support her
claim that named employees falsified records such as medical charts, doctors’
orders, and time sheets to reflect compliance when evaluated by the state. Aplt.
Br. at 14. But paragraph 28 is actually found on page 9 of the Complaint, has no
subparagraphs, and has nothing to do with falsification of the records identified in
(continued...)
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Nor do her allegations of false records or statements appear to tally with
any of the claims that the district court recognized and dismissed in its final
order. It is hard to say just where in the jigsaw puzzle these factual allegations
are intended to fit. Ms. Lacy indicates in her statement of issues on appeal, see
Aplt. Opening Br. at 1-2, that she has abandoned her claims regarding quarterly
cost report fraud and fraud resulting from failure to comply with conditions of
participation and conditions of certification, logical places for these allegations.
This leaves her annual cost report claim, which is where appellees have attempted
to pigeonhole these orphan allegations. See Aplee. Br. at 22. Ms. Lacy does not
contest appellees’ characterization of her argument as a cost report claim.
Accordingly, we will treat these allegations as part of her annual cost report
claim. As such, they fail for the same reason that claim fails generally: the
annual cost reports were not claims for payment.
6. Annual Cost Report Claims
In her annual cost report claim, Ms. Lacy contends that defendant was
required to file annual cost reports to obtain reimbursement for the cost of
services provided to Medicare or Medicaid patients. Defendant’s employees
allegedly shifted onto these reports nonreimbursable expenses such as personal
6
(...continued)
Ms. Lacy’s brief.
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groceries, gas, automobiles, cell phones, liquor, and “consulting services” paid to
relatives but not performed.
“A false certification is . . . actionable under the FCA only if it leads the
government to make a payment which it would not otherwise have made.” United
States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1219
(10th Cir. 2008). (Even for a claim under subsections (a)(2) or (a)(3) there would
have to be a connection to a planned claim on the government fisc.) We agree
with the district court that Ms. Lacy has failed to show that the annual cost
reports that defendant submitted had the required relationship to a payment or
reimbursement request necessary to support an FCA claim. While the annual cost
reports are mandatory, as the district court found they merely “[c]ollectively . . .
establish a basis for evaluation of the reasonableness of the rate paid to the
nursing homes and determination of what constitutes an economically and
efficiently operated facility.” Aplt. App. at 166 (quoting “Oklahoma Nursing
Home Cost Report Instructions,” at 1, available at
http://www.okhca.org/WorkArea/showcontent.aspx?id=7267 (visited August 6,
2009)). Thus, the reports would not have led the government to make a payment
not otherwise authorized to defendant. The district court therefore properly
dismissed Ms. Lacy’s annual cost report claims.
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7. Anti-Kickback/Self-Referral Claims
In her anti-kickback/self-referral claims, Ms. Lacy charged that defendants
Don and Kathy Moore owned and managed defendant New Horizons and that they
also owned New Frontiers Community Service, Inc. (New Frontiers), a
community-based mental health care service managed by Mark Moore, Don
Moore’s son. Mark Moore allegedly used New Frontiers to refer individuals to
New Horizons, even when such individuals were ineligible for placement in an
ICF/MR. The Complaint charged that such referral between facilities owned by
the defendants violated the anti-kickback provision of 42 U.S.C. § 1320a-7b. It
also charged that defendant engaged in improper self-referral by reporting that
patients had been “discharged” and then transferring them to another of
defendant’s facilities.
Section 1320a-7b(b) prohibits the knowing and willful receipt, offer, or
payment of “any remuneration (including any kickback, bribe, or rebate) directly
or indirectly, overtly or covertly, in cash or in kind” in return for, among other
things, referring individuals to facilities funded by federal health care programs.
Assuming arguendo that a violation of this statute gives rise to FCA liability,
there is a fundamental problem with Ms. Lacy’s contention that defendant
violated the statute. She did not allege that there was any remuneration made in
exchange for the “referrals.” See Aplt. App. at 81-82.
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Ms. Lacy argues that defendant’s receipt of payment from the government
under federal health care programs as the result of shuttling patients around
satisfies the remuneration requirement. But reading the statute in this way
removes the “kickback” requirement altogether. The statute already forbids any
payment for referrals to facilities providing services “for which payment may be
made in whole or in part under a Federal health care program.” 42 U.S.C.
§ 1320a-7b(b)(1)(A), (2)(A). In other words, payment or potential payment from
government health care programs is already and always required as an element of
the offense, but a violation of the statute requires an additional requirement:
receipt or disbursement of payment in exchange for the referral. It is this
additional remuneration that Ms. Lacy has failed to allege.
Although the Complaint mentions only § 1320a-7b, it charges that
defendant engaged in “self-referral,” which may be a reference to the Stark Act,
42 U.S.C. § 1395nn. This statute prohibits referrals by physicians to health care
entities with which they have a financial relationship. The district court found
that none of the defendants was a physician to which the Act would apply. Ms.
Lacy does not challenge this finding on appeal. We therefore uphold the district
court’s dismissal of her kickback claims.
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8. Improper Discharge Claim
Ms. Lacy contends that she has stated a claim for retaliatory discharge
under 31 U.S.C. § 3730(h). As noted previously, the applicable version of that
statute provides
(h) Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discriminated against in
the terms and conditions of employment by his or her employer
because of lawful acts done by the employee on behalf of the
employee or others in furtherance of an action under this section,
including investigation for, initiation of, testimony for, or assistance
in an action filed or to be filed under this section, shall be entitled to
all relief necessary to make the employee whole.
31 U.S.C. § 3730(h).
In the Complaint, Ms. Lacy alleges that she was fired after having reported
“violations of State and Federal rules and regulations with regard to patient care
and safety to the Oklahoma Department of Health.” Aplt. App. at 19, ¶ 19. She
contends that defendant fired her for having made one such report. Id. ¶ 20. But
nowhere does she allege that she was fired for actions taken prior to her
termination “in furtherance of an action” under the FCA. Therefore, she fails to
meet the requirements of § 3730(h).
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CONCLUSION
The district court properly dismissed this action. The claims raised either
fail to state a claim or fail to plead fraud with particularity, as required. The
district court’s order of dismissal is therefore AFFIRMED.
Entered for the Court
Monroe G. McKay
Circuit Judge
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