United States District Court, E.D. Virginia, Newport News Division
UNITED STATES OF AMERICA, and the COMMONWEALTH OF VIRGINIA ex rel. KATHERINE HAGOOD and JODI COTNER, Relator-Plaintiffs,
RIVERSIDE HEALTHCARE ASSOCIATION, INC., ET AL., Defendants.
OPINION AND ORDER
MARK S. DAVIS, District Judge.
This matter is before the Court on a Motion to Dismiss, ECF No. 48, filed on January 9, 2015 by Riverside Healthcare Association, Inc. ("Riverside Healthcare"), Riverside Hospital, Inc. ("Riverside Hospital"), Riverside Physician Services, Inc. ("RPS"), and Riverside Medical Equipment Company, Inc. ("RMEC" and, collectively with Riverside Healthcare, Riverside Hospital, and RPS, "Defendants"). After examining the briefs and the record, the Court determines that oral argument is unnecessary because the facts and legal contentions are adequately presented and oral argument would not aid in the decisional process. Fed.R.Civ.P. 78(b); E.D. Va. Loc. R. 7(J).
I. FACTUAL AND PROCEDURAL HISTORY
A. Factual Background
1. The Parties
Katherine Hagood ("Hagood") and Jodi Cotner ("Cotner, " and collectively with Hagood, "Relators"), on behalf of the United States and Commonwealth of Virginia, have brought this qui tarn action against Defendants pursuant to the False Claims Act ("FCA") and Virginia Fraud Against Taxpayers Act ("VFATA"). Defendants are healthcare providers. More specifically, Riverside Hospital is a non-profit hospital located in Newport News, Virginia, and incorporated under Virginia law. First Am. Compl. ¶ 10, ECF No. 12. RPS is a non-profit corporation that engages in the business of providing healthcare. Id . ¶ 11. Like Riverside Hospital, it is located in Newport News. Id . RMEC is a division of RPS that is responsible for billing physician services. Id . ¶ 12. Riverside Healthcare operates Riverside Hospital, RPS, and RMEC, which are Riverside Healthcare's wholly-owned subsidiaries. Id . ¶ 13. According to Relators, Defendants "have common ownership and a common management structure, " such that the managing officers of Riverside Hospital, RPS, and RMEC "report and answer directly to executives of RHA." Id.
Relators are private citizens who have brought this action on behalf of the United States and Commonwealth of Virginia. Id . ¶ 15. Hagood is a United States citizen and resident of Virginia. Id . Defendants formerly employed Hagood as an emergency room administrator. Id . In such position, Hagood supervised "the billing of services in Riverside's Emergency Department." Id . Cotner is a United States citizen and resident of Texas. Id . ¶ 16. Like Hagood, she was formerly Defendants' employee. Id . In such capacity, she served as a registered nurse and Director of the Emergency Department. Id . "Areas under her responsibility included treatment and billing of patients in Riverside's Emergency Department." Id.
Relators allege that Defendants submitted false claims, in violation of the FCA and VFATA, to the federal Medicare, Medicaid, CHAMPUS, FAMIS, federal employee and veteran healthcare programs and Virginia Medicaid, FAMIS, and SANE programs (collectively "Government Payors"). See id. ¶ 3. More specifically, Relators allege that Defendants submitted false claims to Government Payors for: 1) services not rendered; 2) pharmaceuticals not administered; 3) "upcoded" services; and 4) services provided by unqualified personnel. Id . ¶ 19. In addition, Relators allege that Defendants terminated Hagood in retaliation for her opposition to Defendants' purported fraudulent billing practices. Id . ¶¶ 41-44.
2. False Claims
a. Counts I and V: Services Not Performed
First, Relators allege, in Counts I and V, that Defendants violated the FCA and VFATA by billing Government Payors for services that were not actually performed. Id . ¶¶ 19, 45-49, 65-69. According to Relators, Defendants frequently billed the Government for four types of services that were not actually performed: intubations; tracheostomies; medication pathways; and electrocardiograms ("EKGs").
Regarding intubations, Relators allege that Defendants' billing software program, IBEX, contained systemic flaws, id. ¶ 23, that "rendered the billing system prone to erroneous entry and/or inability to correct erroneous keystrokes, such that double and, in some instances, triple intubation charges were levied against" Government Payors, id. ¶ 24. In support of such allegation Relators submitted a table of individuals allegedly overcharged for intubations. Id . The table includes the patient account number, patient name, service item code and name, date of service, and alleged extent of improper charges assessed by Defendants with respect to one-hundred five intubation procedures. Id . The dates of service for the procedures listed in the table range from August 11, 2005 to May 8, 2006. See id. Relators assert that twenty to thirty percent of the patients listed in such table were covered by a Government Payor program because Government Payors served at least twenty to thirty percent of Riverside's patient base. See id. at 8 n.3.
As to tracheostomies, Relators allege that "the Riverside Emergency Department sometimes billed for procedures believed to be intubation under an internal code that resulted in charges being made" to Government payors for tracheostomies, which are a more expensive procedure. Id . ¶ 25. Based on such internal coding, Relators assert that Government Payors paid "$809.66 more for those procedures than should have been paid." Id . To support their allegations, Relators submit a table of instances in which Defendants allegedly billed for tracheostomies when, in fact, Defendants' staff performed an intubation or less expensive procedure. Id . The table includes information from a seventeen-month period, and, for seventeen tracheostomy procedures, lists the patient account number, patient name, service item code and name, and date of service. Id . The dates of service range from July 23, 2005 to April 24, 2006. See id. Relators assert that at least twenty to thirty percent of the patients listed in such table were covered by Government Payors. See id. at 8 n.3.
Relators also allege that Defendants submitted false claims to Government Payors while billing for medication pathways. Id . ¶ 26. In particular, according to Relators, "[t]he IBEX system was set up to automatically bill for medication route' or pathway' irrespective of whether this was permitted with delivery of the medication involved, " and this "resulted in impermissible double charges being levied for routes.'" Id.
Lastly, with respect to false claims for services allegedly not rendered, Relators allege that Defendants engaged in impermissible billing practices for EKGs. Id . ¶ 27. According to Relators, Defendants charged for EKGs when no such procedure was performed, performed and billed for EKGs without a physician's order, and double-billed for EKGs that were properly ordered. Id.
b. Counts II and VI: Pharmaceuticals Not Administered
As a second theory of FCA and VFATA liability, Relators allege, in Counts II and VI, that Defendants filed false claims with Government Payors for pharmaceuticals that they did not actually administer. Id . ¶¶ 50-54, 70-74. According to Relators, flaws in the IBEX system resulted in improper double or triple charges for medications. Id . ¶ 29. Relators allege that such billing errors occurred with multiple different types and classes of medication. Id . In support of such allegations, Relators present a table of charges for one medication, Versed, during one two-month period in 2006. Id . The table details the patient account number, patient name, transaction date, and extent of alleged improper charges for twenty-two administrations of Versed during such period. The transaction dates in such table range from January 1, 2006 to February 25, 2006. See id. As with the prior tables, Relators allege that at least twenty to thirty percent of the patients listed in the table were covered by Government Payors. See id. at 8 n.3.
c. Counts III and VIII: Upcoding
Third, Relators allege, in Counts III and VIII, that Defendants submitted false claims to Government Payors by upcoding for evaluation and management services ("E/M services"). Id . ¶¶ 55-59, 80-84. For a healthcare provider to bill Medicare for E/M services provided to a patient, the Centers for Medicare & Medicaid Services ("CMS") require the provider to use Current Procedural Terminology ("CPT") codes to identify such services. See generally CMS, Medicare Claims Processing Manual ch. 12, § 30.6 (2014), available at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c12.pdf. "Code sets used to bill for E/M services are organized into various categories and levels [and, ] [i]n general, the more complex the visit, the higher level of code the physician... may bill within the appropriate category." CMS, Evaluation and Management Services Guide 8 (2014), available at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/eval_mgmt_serv_guide-ICN006764.pdf.
According to Relators, Defendants "relied upon IBEX to calculate each patient's [E/M] acuity level, " assigning levels "between 1-5 or Critical Care.'" First Am. Compl. ¶ 31. Level "1' was the least intensive and least expensive level of caret, and] [e]ach level thereafter materially increased in acuity and expense." Id . "[V]arious tasks performed by providers were assigned point values and as more tasks were performed, and point levels increased as services were consumed [a] la carte' as would the patient's acuity level." Id . ¶ 32. However, once a patient was assigned "Critical Care" status, Defendants could not continue to charge the patient for "a la carte" consumption of services. Id.
Relators allege that Defendants submitted false claims to Government Payors through four methods of upcoding. First, Defendants "erroneously assigned 15 points to the administration of oral medications when the actual number should have been 5[, ] resulting in a significant increase in charges." Id . ¶ 33. Second, Defendants "continued to charge [a] la carte' points to critical care patients for various tasks and services when no additional charges should have been applied." Id . Third, "[t]he IBEX system would sometimes double charge  a patient for whatever acuity level was administered." Id . Fourth, "[i]f a patient left without being seen they would sometimes be charged and receive an acuity level as if they had been seen by a physician or other level of provider that they had not actually seen." Id . To support such allegations, Relators have included a table of patients whom Defendants allegedly billed for a higher level of E/M services than they actually provided in January 2009. See id. Such table includes the patient's name, level charged, alleged actual level of service rendered, and patient account number for fifty-seven patients. Id . Relators allege that such upcoding occurred "well before and continued well after January, 2009." Id. at 16 n.4.
d. Counts IV and IX: Unqualified Personnel
Finally, with respect to false claims, Relators allege, in Counts IV and IX, that Defendants submitted false claims to Government Payors by billing for services provided by unqualified personnel. Id . ¶¶ 60-64, 80-84. In particular, Relators allege that Beverly Atkins, a registered nurse and the director of Defendants' Sexual Abuse Nurse Examiner ("SANE") program, performed pediatric SANE examinations even though she did not have the requisite training or certification by the Commonwealth. Id . ¶¶ 35-36. According to Relators, Defendants submitted false claims to Government Payors by billing for Atkins' SANE examinations despite her lack of certification. Id.
3. Count IX: Wrongful Termination
In Count IX, Relators allege that Defendants violated the FCA by terminating Hagood because she objected to Defendants' alleged fraudulent billing practices. Id . ¶¶ 85-87. Relators allege that Hagood informed Defendants that she considered certain billing practices to be unlawful. Id . ¶ 42. According to Relators, even though Hagood was "performing well on all objective measures of employment performance, " Defendants terminated Hagood "shortly after" she complained about Defendants' billing practices. Id . ¶ 43. Relators allege that Defendants terminated Hagood to intentionally retaliate against her for her complaints about Defendants' billing practices. Id . ¶ 44.
4. Defendants' Knowledge of Fraudulent Practices
Relators broadly allege that Defendants knowingly submitted the alleged false claims stated above. With respect to Defendants' knowledge, Relators also allege that a 2006 audit of billing practices gave Defendants' senior managers actual knowledge of the alleged fraudulent billing practices. See id. ¶ 20. According to Relators, the 2006 audit uncovered fraudulent and double billing in excess of $3, 500, 000. Relators assert that the following members of Defendants' senior management became aware of such allegedly fraudulent practices: "Golden Bethune, CEO; Lisa Salsberry, Director of Internal Audits; Diana Lovechio, Vice President; Gwen Hartzog, Vice President & Chief Nursing Officer; William Downey, CFO[;]  Rene Roundtree, Vice President Emergency Services[;] and Ricelle Fliescher." Id . Relators also allege that "the senior managers within Riverside responsible for these practices knew about them prior to the audit results being reported." Id . Additionally, Relators assert that they possess emails among Defendants' employees corroborating their allegations regarding: IBEX system errors causing overbilling for medication pathways, id. ¶ 26; fraudulent billing for EKG services not provided, id. ¶ 27; and fraudulent billing for medication not provided, id ¶ 30. Finally, Relators allege that Defendants maintain a "computerized reporting system, " the "Midas" system, that "memorializes all patient billing complaints." Id . ¶ 22. According to Relators, Defendants' alleged fraudulent billing practices were "first made known to the Relators by patients reporting billing errors and complaints." Id.
B. Procedural History
On July 11, 2011, Relators filed a sealed Complaint against Defendants. Complaint, ECF No. 1. On February 15, 2012, Relators filed their First Amended Complaint. First Am. Complaint, ECF No. 12. After lengthy proceedings while the Complaint remained under seal, on July 3, 2014, the Commonwealth of Virginia declined intervention in this matter. Notice, ECF No. 32. On July 28, 2014, the United States also declined intervention. Notice, ECF No. 33. Thus, on August 8, 2014, the Court ordered that the Complaint be unsealed and served upon Defendants. Ex Parte Order, ECF No. 34.
On January 9, 2015, Defendants filed the instant motion, seeking dismissal of the First Amended Complaint under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. Mot. to Dismiss, ECF No. 48. Defendants contend that Relators' asserted false-claims causes of action fail because: 1) Relators have failed to plead with particularity that the alleged false claims were actually presented to Government Payors; and 2) Relators have not pleaded sufficient allegations of scienter to state a claim under the FCA or VFATA. See Defs.' Mem. Supp. Mot. to Dismiss at 12-14, ECF No. 49. In addition, Defendants contest the ...