United States Ex Rel. Hefner v. Hackensack University Medical Center

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
7-17-2007
USA v. Hackensack Med Ctr
Precedential or Non-Precedential: Precedential
Docket No. 06-2287
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-2287
UNITED STATES OF AMERICA, EX REL;
PHIL HEFNER, UNITED STATES OF AMERICA, EX REL.
v.
HACKENSACK UNIVERSITY MEDICAL CENTER;
CENTER FOR INFECTIOUS DISEASES, P.A.;
NORTH JERSEY PRIMARY CARE ASSOCIATES, P.A.
Phil Hefner,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 01-cv-04078)
District Judge: Hon. Dennis M. Cavanaugh
Argued June 4, 2007
BEFORE: SMITH and COWEN,
and SILER*, Circuit Judges
(Filed July 17, 2007)
*Honorable Eugene E. Siler, Jr., Senior United States Circuit
Judge, U.S. Court of Appeals for the Sixth Circuit, sitting by
designation.
Victor A. Kubli, Esq. (Argued)
Grayson & Kubli
1420 Sprint Hill Road, Suite 230
McLean, VA 22102
Counsel for Appellant
Stuart A. Minkowitz, Esq.
Office of the United States Attorney
970 Broad Street, Rm. 700
Newark, NJ 07102
Michael E. Robinson, Esq.
United States Department of Justice
Civil Division, Appellate Staff
601 D. Street, N.W.
Washington, DC 20530
Eric J. Feigin, Esq. (Argued)
United States Department of Justice
Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
Counsel for Appellee United States of
America, ex rel.
John Z. Jackson, Esq. (Argued)
Kalison, McBride, Jackson & Murphy
25 Independence Boulevard, 4 th Floor
Warren, NJ 07059
Counsel for Appellee Hackensack Medical
Center
2
Joseph M. Gorrell, Esq. (Argued)
Brach, Eichler, Rosenberg, Silver,
Bernstein, Hammer, Gladstone
101 Eisenhower Parkway
Roseland, NJ 07068
Counsel for Appellee Center for Infectious
Diseases, P.A.
John H. Schmidt, Jr., Esq. (Argued)
Lindabury, McCormick, Estabrook
& Cooper
53 Cardinal Drive
P.O. Box 2369
Westfield, NJ 07091
Counsel for Appellee North Jersey Primary
Care Associates, P.A.
OPINION
COWEN, Circuit Judge.
Phil Hefner appeals from an order entered by the United
States District Court for the District of New Jersey, denying
reconsideration of its order granting summary judgment in favor
of defendant-appellees, and denying an alternate remedy
pursuant to 31 U.S.C. § 3730(c)(5). For the reasons stated
below, we will affirm.
I.
Hackensack University Medical Center (“HUMC”)
operates a medical university and hospital. The North Jersey
Primary Care Associates, P.A. (“NJPC”), a professional service
corporation that is effectively controlled by HUMC, manages
HUMC’s physician staffing. HUMC provides treatment to
patients with infectious diseases at the Infectious Diseases Clinic
3
(the “Clinic” or the “HUMC Clinic”), among other clinics.
Dr. Steven Sperber, a board-certified infectious disease
physician, treated patients at the HUMC Clinic. He did so in his
individual capacity through an agreement with NJPC, not as a
member of the Center for Infectious Diseases (“CID”), which is
a private practice of infectious disease physicians, including
Sperber. Incidentally, the CID and HUMC are separate entities,
although CID leased some medical office space from, and used
the support services of, HUMC.
The services which Dr. Sperber provided at the HUMC
Clinic were covered under a grant, specifically, the National
Institute of Health Ryan White Title I Grant (“the Grant”), which
provided federal funding for the treatment of AIDS patients.
Maryann Collins, the AIDS Coordinator for HUMC, applied for
and administered the Grant on behalf of HUMC.
To administer the Grant, Collins submitted to the
government monthly invoices itemizing the allowable services
and requesting reimbursement. In support of the invoices,
Collins signed certifications that included the following:
I certify that none of the above service units have
been previously submitted and paid; all of the
billable units are in compliance with the authorized
budget and contracted for scope of service.
Additionally, all services below have been provided
and/or delivered as specified.
One of the conditions of the Grant was that it could not be
used to replace existing financial support. Thus, the Grant
provided “[f]unds 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 payer, including . . .
Medicare.” HUMC understood this provision to mean that it
was entitled to reimbursement by the Grant for services that
were payable by Medicare, as long as it did not bill Medicare.
This was an incorrect interpretation, as confirmed by a study
conducted by the Grant’s administrator, the Health Resources
4
and Services Administration (“HRSA”), which determined that
Medicare should be the payer of first resort. The HRSA study
also found, however, that 85% of hospitals surveyed had billing
problems arising from third-party payer/grant situations.
Nevertheless, HUMC failed to conform to even its
incorrect interpretation of its responsibilities under the Grant.
While Collins included fees for Dr. Sperber’s services in grant
invoices, HUMC also charged Medicare for the same services.
This was caused by a breakdown in HUMC’s billing system.
According to Thomas Flynn, HUMC’s Director of Compliance,
billing information was generated by physicians and then sent to
the physician billing department. There, billing staff clerks
entered claims into the system. Flynn explained that for claims
that were reimbursable by the Grant, the clerk was supposed to
enter an allowance code that would indicate as much. However,
because there had been some staff turnover, the staff member
who was responsible for entering the allowance code was not
doing so. This left a receivable in the system, which caused bills
to go out to Medicare.
In June 2000, Marilyn Capek, an administrator at CID,
received a form from NJPC asking Dr. Sperber to reassign his
payments from Medicare to NJPC. Capek thought that Dr.
Sperber’s services at HUMC were being paid for by the Grant,
so she called Collins to ask about the discrepancy. Collins
promised to investigate and then passed along this information to
Flynn. Flynn instructed the physician billing staff to run a report
to determine if any claims connected to Dr. Sperber’s work had
been submitted to Medicare. When the report disclosed that
claims had been submitted to Medicare, such billing was
stopped, and Flynn began reviewing the records to determine
how many claims had been submitted in error so that HUMC
could repay Medicare.
Around this time, HUMC engaged the services of Health
Systems Management Network (“HSMN”), a consulting firm, to
help improve its compliance with documentation and billing
regulations. Relator Hefner was hired by HSMN on June 20,
2000, and was assigned to HUMC on July 5, 2000. The next
5
day, Hefner had a meeting with Theodore Tarantini, the senior
managing partner of HSMN, and Mark Clachko, a member and
chairman-elect of the HUMC Medical Board. Hefner arrived at
the meeting two hours late, looking disheveled, and provided a
“totally outrageous” excuse for his tardiness. Tarantini
concluded that Hefner was an alcoholic, a big problem for
HSMN, and was not up to doing his job. Soon after this
meeting, Hefner had a second meeting with Tarantini, and again
arrived looking disheveled.
Clachko was also unhappy with Hefner’s performance.
After a July 11, 2000 meeting with Hefner, Clachko told the co-
chairman of performance improvement and quality assurance at
HUMC that he was “extremely, extremely upset” with Hefner,
and that Hefner “was inappropriate, acted very strange, and did
not offer any advice or suggestions on any corporate compliant
[sic] issues.” Clachko was apparently so upset with Hefner that
he was ranting and raving. After this conversation, HUMC
called HSMN and asked that Hefner be replaced.
After Hefner and Clachko’s meeting, Hefner met with
Capek. During this meeting, Capek told Hefner that she had
come across some paperwork that suggested there might be a
problem with double billing concerning the Grant. Capek also
stated, however, that she had brought it to HUMC’s attention
and the company was working on remedying the problem.
During her deposition, Capek referred to the act of double billing
as a “fraud.” She stated, “Well, you can’t bill Medicare and
receive federal grants at the same time, that’s fraud.”
Immediately after this meeting, HUMC ordered Hefner
off HUMC premises. Hefner was officially terminated by
HSMN six days later.
In September 2000, HUMC informed Medicare that
services reimbursed under the Grant had been wrongly charged
to Medicare. HUMC then returned the payments–totaling
$5258.97–to Medicare.
II.
6
Hefner filed a qui tam action under seal in the United
States District Court for the District of Maryland against HUMC.
Thereafter, the United States filed a Notice of Election to
Decline Intervention, and the complaint was unsealed. The
matter was transferred to the District of New Jersey, and Hefner
filed an amended complaint that added NJPC and CID as
defendants.
Hefner’s amended complaint contained three claims
under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33: (1)
submitting false claims and false invoices; (2) making false
records and false statements; and (3) retaliatory discharge. After
discovery, the District Court granted summary judgment to all
defendants on all counts. Hefner moved for partial
reconsideration. Hefner also requested that, if the District Court
denied his motion for reconsideration, he receive a share of
HUMC’s repayment to the government as an alternate remedy to
his FCA action. The District Court denied Hefner’s motion for
reconsideration and denied his request for a share of the
administrative repayment. Hefner now appeals.
III.
We have jurisdiction over this appeal by virtue of 28
U.S.C. § 1291. The District Court’s order granting appellees’
motions for summary judgment is subject to plenary review.
Carter v. McGrady, 292 F.3d 152, 157 (3d Cir. 2002).1 We
review the District Court’s order denying reconsideration of its
1
Although Hefner did not specify the order granting
summary judgment in his notice of appeal, we will exercise
jurisdiction over the unspecified order because there is a definite
connection between the order denying the motion for
reconsideration of the order granting summary judgment and the
summary judgment order itself. See Williams v. Guzzardi, 875
F.2d 46, 49 (3d Cir. 1989). Moreover, appellees have not been
prejudiced by Hefner’s failure to specify the summary judgment
order in the notice of appeal since they have fully briefed the issue
of whether the grant of summary judgment was appropriate.
7
order granting summary judgment for an abuse of discretion.
Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985).
Finally, we engage in a de novo review of the District Court’s
order denying an alternate remedy pursuant to 31 U.S.C. §
3730(c)(5), because the issue turns on a question of law.
Shuman ex rel. Shertzer v. Penn Manor Sch. Dist., 422 F.3d 141,
146 (3d Cir. 2005).
IV.
Hefner presents four arguments on appeal. First, he
argues that the District Court should not have granted summary
judgment to HUMC and NJPC on his first and second FCA
claims because he presented evidence that their conduct satisfied
the FCA’s scienter requirement. Second, he argues that the
District Court should not have granted summary judgment to
CID on his FCA claims because CID operated as an integrated
enterprise with HUMC and NJPC. Third, he argues that he
presented sufficient evidence to withstand summary judgment on
his retaliatory discharge claim. Finally, he argues that the
District Court erred in ruling that he was not entitled to a share of
HUMC’s repayment to the government. We consider each
argument in turn below.
A.
Hefner argues that the District Court erred in granting
summary judgment to HUMC and NJPC on his FCA claims. He
posits that when HUMC submitted bills to both the Grant and
Medicare, it violated the statute. For the reasons stated below,
we agree with the District Court that Hefner did not present
sufficient evidence for a reasonable jury to conclude that
appellees’ conduct satisfied the FCA’s scienter requirement.
To establish a prima facie case under the FCA, the relator
must prove: “(1) the defendant presented or caused to be
presented to an agent of the United States a claim for payment;
(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, 182 (3d Cir. 2001). Here, it is
8
undisputed that Hefner established the first and second prongs.
However, the District Court ruled that Hefner failed to present
sufficient evidence for a reasonable jury to conclude that
appellees knew the claims were false or fraudulent, which is the
only issue now in dispute.
The False Claims Act defines “knowing” as including a
defendant’s “actual knowledge,” “deliberate ignorance,” or
“reckless disregard” of the truth or falsity of information in the
defendant’s claim to the government. 31 U.S.C. § 3729(b).
Further, “no proof of specific intent to defraud is required.” Id.Congress specifically expressed “‘its intention that the act not
punish honest mistakes or incorrect claims submitted through
mere negligence.’” United States ex rel. Hochman v. Nackman,
145 F.3d 1069, 1073 (9th Cir. 1998) (quoting S. Rep. No.
99-345, at 7 (1986)).
Hefner has presented no evidence that appellees had
actual knowledge that the claims they submitted were false. He
argues that his case is analogous to United States ex rel. Cantekin
v. University of Pittsburgh, 192 F.3d 402 (3d Cir. 1999), where
we did find evidence of actual knowledge of falsity. In
Cantekin, the relator submitted an affidavit stating that he had
told the defendant that he should disclose his industry
funding–which was the subject of the FCA claim–to the
government. Id. at 411. According to the affidavit, the
defendant rejected this suggestion, stated that his other grants
were none of the government’s business, and then continued to
omit reference to the industry funding. Id. This certainly
presents evidence that the defendant knew the disclosure forms
he submitted to the government were false: he was approached
with evidence that he was submitting false claims, expressed no
interest in correcting the falsehood, and continued to submit the
false statements.
Here, on the other hand, Hefner has not presented any
evidence showing that the individuals submitting the claims to
the government knew that they were submitting false claims.
Although Hefner claims that the appellees’ knowledge is
established by virtue of Capek’s statements to him indicating that
9
HUMC was double billing and engaging in “fraud,” 2 Capek was
not the one submitting the claims; she was the one who happened
to catch the error. And when she realized what had happened,
she informed HUMC staff, who rectified the problem. Capek’s
after-the-fact interpretation of the situation does not establish that
the individuals submitting the claims knew that they were
submitting false claims. Indeed, in Capek’s deposition
testimony, she explained how she perceived the situation: “I felt
that something had slipped through the cracks, they weren’t
aware of it.” Hefner has presented no evidence of actual
knowledge except this insufficient statement of Capek’s, and
accordingly, the District Court was correct to reject this
argument.
Moreover, Hefner has failed to present sufficient evidence
for a reasonable jury to conclude that appellees’ billing errors
were made in reckless disregard of their truth. He argues that
because Collins “didn’t do anything” to ensure that the
certifications she submitted to the Grant were correct, she was
reckless. However, Collins explained that she did not do
anything because she “work[ed] in a system whereby different
parts of the system are in place to assure [compliance], and to the
best of my knowledge, they were in place, and what I wrote
down and what I signed off to was what I believe[d] to be true.”
Hefner has presented no evidence that Collins had reason to
believe that the billing system employed by HUMC was not up to
the task of separating Medicare and non-Medicare bills, and
accordingly, her failure to call the billing department about every
claim to ensure that it had not been billed elsewhere was not
reckless.
Hefner also argues that appellees were reckless because
2
Even if Capek did describe the conduct as fraud, her
deposition testimony demonstrates that her use of the word “fraud”
does not say anything about her evaluation of the person’s state of
mind, which is the only issue here. When discussing the double
billing, she stated “Well, you can’t bill Medicare and receive
federal grants at the same time, that’s fraud.”
10
they did not have a compliance system in place. However, this
distorts the record. In 1998, HUMC created a compliance
department, with Flynn as director. Part of the compliance
department’s responsibility was to manage and audit medical
records, coding, and billing–which includes Medicare claims.
This department formalized practices that were already in place.
Although it is true that the compliance department was not
concerned with invoices sent to the Grant, it was actually on the
Medicare side–which the department did monitor–where the
system broke down. The mere failure of a system to catch an
error does not establish recklessness. See Wang v. FMC Corp.,
975 F.2d 1412, 1420-21 (9th Cir. 1992) (poor job performance
and innocent mistakes are not actionable under the False Claims
Act).
HUMC’s lack of recklessness is also demonstrated, at
least indirectly, by its hiring HSMN to help it improve its
compliance. Furthermore, there is no evidence that the
government had any idea about the double billing, and thus
HUMC’s repayment to the government appears entirely
voluntary. As the Seventh Circuit has explained, “[j]udging by
the apparently satisfactory conclusion in the eyes of the Medical
Center and the government’s refusal to take up this action, it
appears that no party to the incident believes any harm was
done.” Hindo v. Univ. of Health Sciences/The Chi. Med. Sch., 65
F.3d 608, 614 (7th Cir. 1995).
Accordingly, we agree with the District Court’s
conclusion that Hefner presented insufficient evidence for a
reasonable jury to find liability against HUMC and NJPC under
the FCA. Moreover, because we conclude that HUMC and
NJPC were not liable, a fortiori, CID cannot be held liable under
an integrated enterprise or agency theory. Hence, we will affirm
the grant of summary judgment to all appellees on the first and
second FCA claims and affirm the denial of the motion for
reconsideration.
B.
Hefner next argues that he was terminated from his
11
position at HSMN in retaliation for his investigation of HUMC’s
fraud, in violation of 31 U.S.C. § 3730(h). In order to establish a
claim under § 3730(h), Hefner must show “(1) he engaged in
protected conduct, (i.e., acts done in furtherance of an action
under § 3730) and (2) that he was discriminated against because
of his protected conduct.” Hutchins, 253 F.3d at 186 (internal
quotation marks omitted). For a plaintiff to demonstrate that he
was discriminated “against ‘because of’ conduct in furtherance
of a False Claims Act suit, a plaintiff must show that (1) his
employer had knowledge he was engaged in ‘protected conduct’;
and (2) that his employer’s retaliation was motivated, at least in
part, by the employee’s engaging in ‘protected conduct.’” Id.Hefner alleges that he was engaging in protected conduct
when he learned about billing irregularities from Capek. Even if
we accept this statement, there is no evidence in the record that
Hefner’s employer–whether construed as HSMN or
HUMC–knew that he was acting in furtherance of an FCA claim
when it fired him. All the evidence in the record shows that
Hefner was removed from the HUMC building almost
immediately after he met with Capek and before he talked to
anyone from HUMC about what he had learned. The record is
entirely bereft of evidence that Hefner’s employer knew that he
was engaged in protected conduct. The District Court was thus
correct to grant summary judgment against Hefner on this claim.
C.
Hefner’s final argument is that the District Court was
wrong to reject his claim to a share of the money repaid by
HUMC to the government. Under the FCA, the United States
may “elect to pursue its claim through any alternate remedy
available to the Government, including any administrative
proceeding to determine a civil money penalty.” 31 U.S.C. §
3730(c)(5). If the government does pursue an alternate remedy,
however, “the person initiating the action shall have the same
rights in such proceeding as such person would have had if the
action had continued under this section.” Id. Hefner argues that
when the government accepted the repayment from HUMC, it
pursued an alternate remedy under § 3730(c)(5), and he is
12
therefore entitled to a share of the proceeds. The government
argues, on the other hand, that it would be perverse to permit
Hefner any recovery because his underlying FCA suit is
meritless.3
This Court has not considered the issue of whether a
relator has a legal right to recover a share of the proceeds of an
alternate remedy when his qui tam action is invalid. In United
States ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d 97,
106 (3d Cir. 2000), we addressed a related issue: whether a qui
tam relator whose claim is subject to dismissal for being based
on publicly disclosed information is entitled to a share of
settlement proceeds attributable to that claim. We ultimately
concluded that such a relator is not entitled to a share of the
government’s proceeds, but our analysis was based upon a close
“examin[ation] [of] both section 3730(e)(4) and section
3730(d).” Id. at 103. Since this case does not implicate §
3730(e)(4), we do not view Merena as controlling authority for
the government’s position in this case. But taking our cue from
Merena, we will engage in a close examination of the applicable
statutory provisions in determining whether a relator, whose qui
tam claims are proven invalid, is entitled to any share of the
proceeds of an alternate remedy attributable to those claims.
In analyzing the issue before us, we are aided by the
opinions of two of our sister courts. In United States ex rel.
Bledsoe v. Community Health Systems, Inc., 342 F.3d 634, 650
(6th Cir. 2003), the Court of Appeals for the Sixth Circuit opined
that “a threshold requirement for a relator’s ability to share in the
proceeds of a FCA lawsuit is to file a valid qui tam action.”
There, the government argued that because the relator had failed
to comply with Rule 9(b)’s heightened pleading requirement, he
was not entitled to share in the government’s settlement with the
3
The government alternatively argues that it never pursued
an “alternate remedy” within the meaning of 31 U.S.C. §
3730(c)(5). Because we conclude that Hefner does not have a right
to share in the repayment because his qui tam claim lacked merit,
we need not reach the government’s alternative argument.
13
defendant health care provider. Id. Citing to § 3730(b)(1),
which permits the relator to bring “a civil action for a violation
of section 3720,” the court agreed that a valid qui tam action is a
“threshold requirement” for a relator’s eligibility to share in an
alternate remedy. Id. Ultimately, however, the court decided to
remand the case to give the relator an opportunity to replead,
thereby allowing the case to proceed. Id.
Like the Sixth Circuit, the Court of Appeals for the Ninth
Circuit has recognized that a valid qui tam action is a prerequisite
to a relator’s right to recover. See Donald v. University of
California Board of Regents, 329 F.3d 1040 (9th Cir. 2003). In
Donald, the relators filed a qui tam suit against the Regents of
the University of California, in which the government intervened
and then negotiated a settlement. The government subsequently
broke off negotiations with the relators, reasoning that under
recent Supreme Court precedent, “a private party may not bring a
qui tam action against a state entity under § 3729(a) of the FCA.”
Id. at 1044. The court agreed that the relators had no statutory
right to a recovery under the FCA because “[a] private party . . .
has a legal right to recovery only from a qui tam action brought
pursuant to § 3730(b)(1), which is in turn dependent on the
private party having a valid cause of action under § 3729(a).” Id.
Thus, the invalidity of the qui tam action foreclosed the relators’
claim to a share of the government’s proceeds from its
settlement. Id.; see also id. at 1044 n.5 (“[A] relator has a right
to recover a share of the proceeds of the alternate remedy to the
same degree that he or she would have been entitled to a share of
the proceeds of an FCA action.” (internal quotation marks
omitted)).
Like our sister courts, we read the relevant statutory
provisions to mean that a relator is not entitled to a share in the
proceeds of an alternate remedy when the relator’s qui tam action
under § 3729 is invalid: As § 3730(c)(5) provides, a relator’s
rights in an alternate remedy proceeding are the “same rights”
that the relator would have had if the action had proceeded under
the FCA. The relator’s rights to a qui tam award in an FCA
action are delineated in § 3730(d), which section applies only in
“an action brought by a person under subsection (b).” Id. §
14
3730(d)(1). Subsection (b), in turn, refers to an action brought
for “a violation of section 3729.” Id. § 3730(b)(1). The statute
evinces no intent to compensate relators who bring unfounded §
3729 claims, whether the claims are legally or factually
unfounded.
Because Hefner’s qui tam action is invalid for failing to
present evidence that the false claims were knowingly submitted,
he is not entitled to a share of the government’s repayment.
Accordingly, we find no error in the District Court’s order
denying him a share of the alleged alternate remedy.
For the foregoing reasons, the judgment of the District
Court entered on March 27, 2006 will be AFFIRMED.
15