United States Ex Rel. Donegan v. Anesthesia Associates of Kansas City, PC

United States Court of Appeals
For the Eighth Circuit
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No. 15-2420
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United States ex rel. Linda Donegan, as Administrator
of the Estate of John Timothy Donegan
lllllllllllllllllllllRelator - Appellant
v.
Anesthesia Associates of Kansas City, PC
lllllllllllllllllllll Defendant - Appellee
United States of America
lllllllllllllllllllllAmicus Curiae
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Appeal from United States District Court
for the Western District of Missouri - Kansas City
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Submitted: February 10, 2016
Filed: August 12, 2016
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Before RILEY, Chief Judge, LOKEN and BENTON, Circuit Judges.
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LOKEN, Circuit Judge.
John Timothy Donegan, a Certified Registered Nurse Anesthetist (“CRNA”),
commenced this qui tam action under the False Claims Act (“FCA”), 31 U.S.C.
§ 3729-33.1 The FCA’s qui tam provisions authorize relators -- private citizens acting
as whistleblowers -- to sue on behalf of the United States to recover damages for the
submission of materially false claims for government payments. See United States ex
rel. Newell v. City of St. Paul, 728 F.3d 791, 794 (8th Cir. 2013), cert. denied, 134 S.
Ct. 1284 (2014). “The FCA attaches liability, not to the underlying fraudulent
activity, but to the claim for payment.” United States ex rel. Onnen v. Sioux Falls
Indep. Sch. Dist. No. 49-5, 688 F.3d 410, 414 (8th Cir. 2012) (quotation omitted).
Donegan alleged that his former employer, Anesthesia Associates of Kansas
City, P.C. (“AAKC”), violated 31 U.S.C. § 3729(a)(1)(A) and (B) by submitting
claims for Medicare reimbursement of anesthesia services at the “Medical Direction”
rate. The claims were knowingly false, Relator alleged, because AAKC
anesthesiologists were not present in the operating room during patients’ “emergence”
from anesthesia, and therefore AAKC did not comply with the Medicare conditions
of payment for submitting such claims. See 42 C.F.R. § 415.110(a)(1). The United
States declined to intervene. The district court2 granted AAKC summary judgment,
concluding that Relator failed to establish that AAKC knowingly submitted false
claims; the court declined to consider a theory of liability not asserted in Relator’s
amended complaint. Relator appeals these rulings. We granted the United States
leave to appear as amicus curiae supporting neither party. Reviewing the grant of
summary judgment de novo, and the failure to consider an unpleaded theory for abuse
of discretion, we affirm.
1
Donegan passed away while the lawsuit was pending in the district court. His
estate was substituted as qui tam Relator. This opinion will use the term Relator when
referring to the qui tam plaintiff-appellant.
2
The Honorable David Gregory Kays, Chief Judge of the United States District
Court for the Western District of Missouri.
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I. The “Emergence” Claim.
The Centers for Medicare and Medicaid Services (“CMS”), part of the
Department of Health and Human Services, administers the Medicare and Medicaid
programs. 42 U.S.C. §§ 1302, 1395hh. In reimbursing anesthesiology services, CMS
regulations distinguish between four levels of services provided by anesthesiologists
and CRNAs: Personally Performed, Medical Direction, Medical Supervision, and Not
Medically Directed. 42 C.F.R. §§ 414.46, 414.60. The Medical Direction category
at issue in this case applies when an anesthesiologist directs a qualified individual
such as a CRNA in up to four concurrent anesthesia cases. 42 C.F.R. § 414.46(d)(ii);
42 C.F.R. § 415.110(a). To obtain reimbursement for Medical Direction, the
Medicare regulations require the anesthesiologist to complete seven steps:
(1) For each patient, the physician --
(i) Performs a pre-anesthetic examination and evaluation;
(ii) Prescribes the anesthesia plan;
(iii) Personally participates in the most demanding aspects of the
anesthesia plan including, if applicable, induction and emergence;
(iv) Ensures that any procedures in the anesthesia plan that he or
she does not perform are performed by a qualified individual as
defined in operating instructions;
(v) Monitors the course of anesthesia administration at frequent
intervals;
(vi) Remains physically present and available for immediate
diagnosis and treatment of emergencies; and
(vii) Provides indicated post-anesthesia care.
42 C.F.R. § 415.110(a)(1). The anesthesiologist must document “in the patient’s
medical record” that each step was completed, “specifically documenting that he or
she performed the pre-anesthetic exam and evaluation, provided the indicated post-
anesthesia care, and was present during the most demanding procedures, including
induction and emergence where applicable.” 42 C.F.R. § 415.110(b).
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AAKC employed CRNA Donegan at Menorah Medical Center (“MMC”) in
Overland Park, Kansas, from 2006 until January 2012. In MMC surgeries, the CRNA
stays in the operating room with the patient throughout the procedure. The
anesthesiologist concurrently directs or supervises anesthesia services in up to four
operating rooms. MMC’s practice is consistent with reimbursement for Medical
Direction, provided its anesthesiologists comply with the required seven steps.
This appeal turns on compliance with “Step Three,” which requires that the
anesthesiologist “[p]ersonally participates in the most demanding aspects of the
anesthesia plan including, if applicable, induction and emergence. 42 C.F.R.
§ 415.110(a)(1)(iii). At MMC, the anesthesiologist is present to insert the
endotracheal tube that will be used to administer general anesthesia (“induction”).
After the surgery, the CRNA removes the tube (“extubation”) and delivers the patient
to the recovery room, called the Post-Anesthesia Care Unit (“PACU”), where the
CRNA transfers patient care to a PACU nurse. The anesthesiologist may visit the
patient after surgery in the operating room or during transfer to the PACU. But the
record reflects that in many if not most cases, the AAKC anesthesiologist’s post-
surgery visit occurred while the patient was recovering in the PACU.
Donegan’s detailed FCA Amended Complaint alleged that AAKC failed to
comply with Step Three of the Medical Direction requirements because its
anesthesiologists were “virtually never present with patients during ‘emergence,’”
alleging that “the broadest definition of ‘emergence’” is that it ends when the patient
is turned over to the PACU staff. Relator claimed that AAKC knowingly violated the
FCA by seeking reimbursement at the Medical Direction rate despite its non-
compliance with this regulatory requirement.
After extensive discovery, the parties filed cross motions for summary
judgment. The district court granted AAKC summary judgment, concluding that
Relator cannot establish that AAKC submitted knowingly false or fraudulent claims
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because (i) the term “emergence” in Step Three of the regulation has not been defined
by CMS and is ambiguous; (ii) AAKC’s definition of “emergence” as a process that
includes the patient’s recovery time in the PACU was objectively reasonable; and (iii)
AAKC’s reasonable interpretation of the ambiguous regulation “belies the scienter
necessary to establish a claim of fraud under the FCA,” quoting United States ex rel.
Ketroser v. Mayo Found., 729 F.3d 825, 832 (8th Cir. 2013). On appeal, Relator
challenges all three components of the district court’s analysis.
We review the grant of summary judgment in FCA cases de novo, evaluating
“whether the record, viewed in a light most favorable to the non-moving party, shows
that there is no genuine issue of material fact and that the moving party is entitled to
judgment as a matter of law.” Schell v. Bluebird Media, LLC, 787 F.3d 1179, 1184
(8th Cir. 2015) (quotation omitted). The issue is whether Relator submitted sufficient
evidence that AAKC’s alleged practice of billing at the Medical Direction rate when
the anesthesiologist did not participate in emergence in the operating room
“constituted the knowing submission of a false or fraudulent claim or statement within
the meaning of 31 U.S.C. § 3729(a)(1)(A) or (B).” Ketroser, 729 F.3d at 829. The
statute defines “knowing” as “actual knowledge” or acting “in deliberate ignorance
[or] reckless disregard of the truth or falsity of the information.” 31 U.S.C.
§ 3729(b)(1)(A).
1. The brief of the United States as amicus curiae confirms what the district
court observed: “CMS has not issued guidance on the meaning of” the term
emergence in Step Three of the Medical Direction regulation, 42 C.F.R.
§ 415.110(a)(1)(iii). Nor has the term been defined by a controlling source, such as
a Department of Health and Human Services national or binding local Coverage
Determination, see 42 U.S.C. § 1395ff(c)(3)(B)(ii), or by the American Society of
Anesthesiologists and the American Association of Nurse Anesthetists, professional
bodies that establish anesthesia standards of care. See 72 Fed. Reg. 66,580, 66,885
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(Nov. 27, 2007). On this record, given the term’s obvious lack of a plain meaning, we
agree with the district court that the regulation is ambiguous on this essential question.
2. Concerned by regulatory silence and the vagueness of the term, AAKC’s
Professional Practice Committee defined emergence in its 2001 Corporate Compliance
Plan “to include the recovery room.” In discovery, medical experts for both parties
agreed that “emergence” is a medical term that refers to a post-surgery recovery
process that can extend into the recovery room. AAKC’s expert Dr. Helgeson wrote,
“It is generally understood by anesthesiologists and CRNAs that emergence from
general anesthesia is a process and has no discrete point in time. . . . Typically, there
is no specific point in time where emergence is complete,” but it continues at least
while the patient is “still recovering from the anesthetic.” Relator’s experts, Dr.
McAlary and Dr. Young, agreed that emergence as understood medically is a process
that can extend into the PACU. On this record, we conclude that AAKC’s
interpretation -- that emergence as referenced in Step Three includes the patient’s
continued recovery in the PACU -- is objectively reasonable. This is an issue of law.
See United States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 288 (D.C. Cir. 2015).
In support of its contrary argument, Relator relies heavily on our decision in
Minn. Ass’n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1056
(8th Cir.), cert. denied, 537 U.S. 944 (2002) (“Allina”). In that case, we reversed the
grant of summary judgment on the relators’ Medical Direction claim because there
was a material fact dispute whether defendant anesthesiologists participated in
emergence. The issue addressed in our Allina opinion was the proper interpretation
of the term emergence in the regulation. Here, the question is whether AAKC’s
reasonable interpretation of the ambiguous regulation precludes a finding that it
knowingly submitted false or fraudulent claims, even if CMS or a reviewing court
would interpret the regulation differently. Relator simply failed to submit evidence
refuting AAKC’s strong showing that its interpretation was objectively reasonable.
Relator’s experts expressed their opinions that emergence as referred to in Step Three
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should end before an AAKC patient is transferred to the PACU. But Relator’s
contention that the Medicare regulations be interpreted in this fashion is “a claim of
regulatory noncompliance,” not “an FCA claim of knowing fraud.” Ketroser, 729
F.3d at 831-32; see United States ex rel. Norbeck v. Basin Elec. Power Coop., 248
F.3d 781, 793 (8th Cir. 2001), cert. denied, 534 U.S. 1115 (2002) (“The audit team’s
deliberate choice of this assumption cannot be fraud if they honestly believed it was
a correct assumption.”).
3. The remaining question is whether the district court correctly concluded that
AAKC’s reasonable interpretation of the ambiguous regulation precludes a
determination that AAKC was guilty of knowingly submitting false claims in violation
of the FCA. The district court accurately noted our prior ruling that an FCA
defendant’s reasonable interpretation of an ambiguous regulation “belies the scienter
necessary to establish a claim of fraud under the FCA.” Ketroser, 729 F.3d at 832.
The United States as amicus protests that the district court “adopted the sweeping rule
that a defendant’s reasonable interpretation of an ambiguous regulation precludes
FCA liability, regardless of the defendant’s state of mind.”
The word “belies” is not so sweeping. It lies in harmony with the principle that
summary judgment is not proper on the issue of FCA scienter if a Relator (or the
United States) produces sufficient evidence of government guidance that “warn[ed]
a regulated defendant away from an otherwise reasonable interpretation” of an
ambiguous regulation. Purcell, 807 F.3d at 290, applying the Supreme Court’s
interpretation of “reckless disregard” in Safeco Ins. Co. v. Burr, 551 U.S. 47, 69-70
(2007). This principle was the basis for our reversal of summary judgment on the
Personally Performed FCA claim in Allina: a Medicare agency memorandum “made
it clear that anesthesiologists were not to leave a patient during a personally performed
procedure.” 276 F.3d at 1054. Here, Relator submitted no relevant evidence that, at
the time AAKC submitted the reimbursement claims at issue, the government had
warned AAKC that the agency interpreted Step Three differently. Accord United
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States v. K & R Ltd. v. Mass. Hous. Fin. Agency, 530 F.3d 980, 982 (D.C. Cir. 2008).
Relator relies on a 1997 report prepared for relators in Allina by a former Section
Chief of CMS’s predecessor. However, a report prepared nearly two decades ago by
a former agency official for use in another case is not the kind of official government
warning that would be sufficient evidence of reckless disregard.
Relator further argues that summary judgment was improper because AAKC
had a duty to ask CMS or its local contractors whether its interpretation of
“emergence” was proper. We disagree. As the agency had not clarified an obvious
ambiguity in its Step Three regulation for decades, AAKC’s “failure to obtain a legal
opinion or prior [CMS] approval cannot support a finding of recklessness.” K & R
Ltd., 530 F.3d at 983-84.
II. The New Theory Issue.
Relator argues the district court erred in refusing to consider a theory first
articulated in Relator’s summary judgment papers -- that AAKC violated Step Three
because its anesthesiologists were not present during extubation, one of the “most
demanding aspects of the anesthesia plan.” Relator argues that its Amended
Complaint alleged that anesthesiologists were not present at extubation, and that
extubation is part of emergence and therefore need not be separately pleaded. But an
FCA claim that an anesthesiologist was not present at extubation, a “demanding
aspect” not specifically referenced in Step Three, is different than an FCA claim that
an anesthesiologist was never present during “emergence,” which is specifically
referred to in Step Three. Whether due to careless pleading or an attempt to “lay in
the weeds,” Relator’s litigation tactic deprived the United States of an opportunity to
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consider this theory before declining to join in the action. The district court did not
abuse its discretion in refusing to consider the theory.3
III. The Documentation Issue.
Relator argues that AAKC violated 42 C.F.R. § 415.110(b), which requires the
anesthesiologist to “document[] in the patient’s medical record that the conditions set
forth in paragraph (a)(1) of this section have been satisfied, specifically documenting
that he or she . . . was present during the most demanding procedures, including
induction and emergence where applicable.”
For each anesthesia procedure, AAKC anesthesiologists and CRNAs complete
a two-page Anesthesia Services Form. The CRNA separates the original top page
when the patient is transferred to the PACU and submits the carbonless copy second
page to AAKC’s billing office. Donegan testified that he and other CRNAs were
always instructed to check the “Medical Direction” box at the top of the forms.
AAKC anesthesiologists were directed to change this designation if they were
supervising more than four cases and thus did not qualify for Medical Direction. The
top page of the form remained in the patient’s medical record at MMC.
The form includes four lines where the anesthesiologist reflects by initialing
that he or she was: (1) “present at induction”; (2) “monitoring at frequent intervals”;
(3) “immediately available”; and (4) “present for emergence.” In discovery, Relator
3
Relator’s further contention that the district court abused its discretion by
granting AAKC’s motion to strike unidentified portions of Relator’s summary
judgment briefs and evidence is without merit. Even if the district court improperly
excluded some evidence, which cannot be determined from the record on appeal, the
alleged evidentiary error did not “affect[] the substantial rights of the appellant.”
Schmidt v. City of Bella Villa, 557 F.3d 564, 569 (8th Cir. 2009) (quotation omitted).
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sought production of Medical Direction reimbursement claims since July 1, 2002, and
the carbonless copies of the Anesthesia Services Form for those claims, but not the
original top pages from patient medical records. Out of approximately 13,000
Medical Direction reimbursement claims for general anesthesia services, 724 had an
unsigned emergence line on the carbonless copy of the Anesthesia Services Form.
Relator moved for partial summary judgment on the 724 claims and appeals the
district court denial of that motion. Relator argues that this is conclusive evidence that
AAKC failed to comply with Step Three and failed to comply with the record-keeping
requirements of 42 C.F.R. § 415.110(b) with respect to those claims.
As the district court recognized, the regulation required AAKC to document
anesthesiologist presence at emergence “in the patient’s medical record,” not in
AAKC’s billing records. When an anesthesiologist visited a patient in the PACU,
after the CRNA had sent the carbonless copy of the form to the billing office, one
would expect the anesthesiologist to initial the emergence line on the top copy of the
form, which became part of the patient’s medical record. Therefore, Relator was not
entitled to partial summary judgment on the 724 claims because it made no effort to
obtain the top copies of the Anesthesia Services Forms from MMC patient records.
AAKC reviewed fifty of those patient files and found that anesthesiologists completed
the emergence line in nineteen of them. The district court concluded that Relator at
most produced evidence that AAKC “may have negligently submitted 31 of 13,000
Medical Direction claims, which is not an FCA violation.” We agree. “[T]he FCA
does not encompass those instances of regulatory noncompliance that are irrelevant
to the government’s disbursement decisions.” Ketroser, 729 F.3d at 829 (quotation
omitted).
The judgment of the district court is affirmed.
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