United States of America v. Health Management Associates Inc et al, No. 3:2009cv00130 - Document 163 (M.D. Ga. 2014)
Court Description: ORDER denying 111 Motion to Dismiss for Failure to State a Claim; denying 113 Motion to Dismiss for Failure to State a Claim; denying 155 Motion to Dismiss for Failure to State a Claim; denying 156 Motion to Dismiss for Failure to State a Claim; denying 157 Amended Motion to Dismiss. Ordered by U.S. District Judge CLAY D LAND on 06/24/2014. (CGC)
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IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA ATHENS DIVISION UNITED STATES OF AMERICA ex * rel. RALPH D. WILLIAMS, UNITED STATES OF AMERICA, and STATE OF * GEORGIA, * Plaintiffs, * vs. * HEALTH MANAGEMENT ASSOCIATES, INC., et al., * Defendants. CASE NO. 3:09-cv-130 (CDL) * O R D E R It is estimated that more than 340,000 babies are born each year to undocumented alien mothers in United States hospitals.1 The American taxpayers, through the Medicaid program, pay these hospitals at least $1 billion per year for these deliveries.2 While the wisdom of the public policy related to these issues is for the Legislative and Executive Branches (and not for this 1 Jeffrey S. Passel & Paul Taylor, Unauthorized Immigrants and Their U.S.-Born Children, Pew Hispanic Center (August 11, 2010), available at http://www.pewhispanic.org/2010/08/11/unauthorized-immigrants-andtheir-us-born-children/ (last visited June 23, 2014). 2 Medicaid Financial Management Report 2012, MAP - National Totals tab, line 61 (Sept. 20, 2013), available at http://medicaid.gov/MedicaidCHIP-Program-Information/By-Topics/Data-and-systems/MBES/Downloads/ FMR-for-FY2012.zip (last visited June 23, 2014) (reporting that Medicaid’s Medical Assistance Program paid roughly $2.4 billion for emergency services for undocumented aliens in 2012); U.S. General Accounting Office, UNDOCUMENTED ALIENS: Questions Persist about Their Impact on Hospitals’ Uncompensated Care Costs (May 2004), available at http://www.gao.gov/assets/250/242452.pdf (last visited June 23, 2014) (noting that “at least half of emergency Medicaid expenditures . . . were for labor and delivery services for pregnant women”). Court) to consider, these numbers the reveal financial why the opportunities healthcare presented industry may by be motivated to pursue this slice of the Medicaid pie aggressively. In this case, Plaintiffs maintain that Defendants’ aggressive pursuit violated the law. Plaintiffs allege that five hospitals in Georgia and South Carolina paid clinics that provided prenatal care to undocumented Hispanic mothers to refer those mothers to their hospitals for the delivery of their babies in violation of the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. hospitals submitted Medicaid claims for these When the deliveries, Plaintiffs contend that they violated the federal False Claims Act, 31 U.S.C. § 3729, and its Georgia counterpart, the Georgia Medicaid False Claims Act, O.C.G.A. § 49-4-168.1 to 168.6.3 As explained in the remainder of this Order, the Court finds that the Plaintiffs have alleged sufficient facts to support these claims, and if they are able to prove those facts, they will be entitled to relief. Accordingly, Defendants’ motions to dismiss (ECF Nos. 111, 113, 155, 156 & 157) are denied.4 3 Plaintiffs also assert claims under several other state law theories, which all depend on the alleged pay-for-referrals scheme. 4 This lawsuit was initially filed as a qui tam action by Relator Ralph Williams (ECF No. 47). Pursuant to the applicable law, Williams notified the United States and the State of Georgia to give them an opportunity to intervene and pursue this action directly. The State of Georgia intervened and filed its own Complaint asserting all of the Georgia Medicaid claims asserted by Williams in his Complaint. The United States also intervened and filed its own Complaint. The United 2 MOTION TO DISMISS STANDARD Defendants’ motions to dismiss are based predominately on Federal Rule of Civil Procedure 12(b)(6), which authorizes dismissal for failure to state a claim upon which relief can be granted. When considering a 12(b)(6) motion to dismiss, the Court must accept as true all facts set forth in the plaintiff’s complaint and limit its consideration exhibits attached thereto. to the pleadings and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007); Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). The complaint must include sufficient factual allegations “to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “[A] formulaic recitation of the elements of a cause of action will States asserts all of the claims asserted by Williams based on federal Medicaid payments, but it did not name Health Management Associates, Inc., the parent company of Defendant HMA Monroe, in its Complaint. Defendants seek to dismiss Williams’s complaint now that the United States and Georgia have intervened. Although the United States and Georgia have the “primary responsibility for prosecuting the action,” Williams “ha[s] the right to continue as a party to the action.” 31 U.S.C. § 3730(c); accord O.C.G.A. § 49-4-168.2(d)(1). Moreover, since the United States is not presently pursuing Williams’s claims against Health Management Associates, Inc., Williams may pursue those claims on behalf of the United States. Accordingly, Defendants’ motion to dismiss Williams’s complaint solely because the United States and the State of Georgia have intervened in this action is denied. 3 not do[.]” Id. Although the complaint must contain factual allegations that “raise a reasonable expectation that discovery will reveal evidence of” the plaintiff’s claims, id. at 556, “Rule 12(b)(6) does not permit dismissal of a well-pleaded complaint simply because ‘it strikes a savvy judge that actual proof of those facts is improbable,’” Watts v. Fla. Int’l Univ., 495 F.3d 1289, 1295 (11th Cir. 2007) (quoting Twombly, 550 U.S. at 556). Plaintiffs’ claims allege fraudulent conduct, which must be pled with sufficient specificity. See United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1308-09 (11th Cir. 2002) (holding that Federal Rule of Civil Procedure 9(b) applies to False Claims Act claims). Generally, fraud claims must include allegations of “facts as to time, place, and substance of the defendant’s alleged fraud, specifically the details of the defendants’ allegedly fraudulent acts, when they occurred, and who engaged in them.” omitted). Id. at 1310 (internal quotation marks There must also be “some indicia of reliability . . . to support the allegation of an actual false claim for payment being made to the Government.” Id. at 1311.5 5 Defendants’ motions to dismiss do not present the “plausibility” dilemma that this Court has previously found confounding in other cases. See Barker ex rel. United States v. Columbus Reg’l Healthcare Sys., Inc., 977 F. Supp. 2d 1341, 1345-46 (M.D. Ga. 2013). And remarkably, Defendants’ counsel acknowledged at the hearing on these motions that Plaintiffs’ counsel likely could allege a sufficient claim but did not do so due to sloppy lawyering. Counsel for the 4 FACTUAL ALLEGATIONS Defendants Hispanic Medical Management, Inc., Clinica de la Mama, and Clinica del Bebe (“Clinics”) provide prenatal services to pregnant Hispanic women who are undocumented aliens. These women are not eligible for regular Medicaid coverage, but they are generally eligible for Medicaid emergency medical assistance when they deliver their babies. Plaintiffs allege that the Defendant hospitals paid illegal kickbacks to the Clinics in return for Medicaid patient referrals. hospital Defendants. Management The Associates, Inc. first There are two groups of group (“HMA”) and consists one of of Health its Georgia subsidiary hospitals, HMA Monroe, LLC (“HMA Monroe”). The second group consists of Tenet Healthcare Corporation (“Tenet”) and four of its subsidiary hospitals, three of which are located in Georgia and one in South Carolina. hospitals (collectively, “Tenet These Tenet subsidiary Hospitals”) are Tenet Health System GB, Inc. d/b/a Atlanta Medical Center and Atlanta Medical Center-South Medical Fulton”), Campus Center, Tenet (“Atlanta Inc. Health d/b/a Medical North System Center”), Fulton Spalding, North Hospital Inc. d/b/a Fulton (“North Spalding Regional Medical Center (“Spalding Regional”), and Hilton Head Health System, L.P. d/b/a Hilton Head Hospital (“Hilton Head”). United States, Georgia, and Williams strongly contest this accusation and do not seek leave to perfect their Complaints. 5 I. Health Management Associates and HMA Monroe Allegations A. HMA Monroe’s Services Agreement with the Clinics Relator Ralph Williams is a former chief financial officer of HMA Monroe. When Williams began his employment at HMA Monroe in April 2009, he discovered a copy of an agreement between HMA Monroe and the Clinics, which was allegedly approved by HMA. Under the agreement, the Clinics purportedly provided Spanish translation and eligibility Hispanic patients. services to HMA Monroe for its U.S. Compl. in Intervention ¶¶ 134, 171, ECF No. 153 [hereinafter U.S. Compl.]; Ga. Compl. in Intervention ¶ 78, ECF No. 55 [hereinafter Ga. Compl.]. On its face, the services agreement between HMA Monroe and the Clinics states that the Clinics would provide HMA Monroe with 24/7 translation services, Medicaid eligibility determination services, and other support services. U.S. Compl. Ex. 23, Services Agreement A-1, ECF No. 153-26 at 12. Plaintiffs allege that HMA Monroe paid the Clinics between $15,000 and $20,000 services agreement. per month under the Ga. Compl. ¶ 94; accord U.S. Compl. ¶ 176. Plaintiffs allege that the interpreter services were not the primary reason for the agreement, but the agreement was a sham “designed to conceal the underlying financial motive, which was the purchasing of Clinic[] referrals by . . . HMA Monroe.” Ga. Compl. ¶ 83; accord U.S. Compl. ¶¶ 171, 175. 6 Plaintiffs allege that HMA Monroe and HMA knew when they entered the services agreement with the Clinics that its real purpose was to generate Medicaid referrals. 01; U.S. Compl. ¶¶ 171, 175. Ga. Compl. ¶¶ 100- Plaintiffs assert that HMA Monroe CEO Gary Lang, who came to HMA Monroe from a Tenet Hospital, told Williams that the services agreement had been cloned from an agreement Tenet had with the Clinics and that the Clinics’ “referrals generated large volumes of Medicaid deliveries for Tenet.” Ga. Compl. ¶ 100; U.S. Compl. ¶ 186. Plaintiffs point to a financial feasibility analysis created by HMA Monroe CEO Gary Lang and then-CFO Jeff Grimsley in support of their request for their parent HMA’s approval of the contract. U.S. Compl. ¶ 175; Ga. Compl. ¶¶ 96-97; U.S. Compl. Ex. 24, Fin. Feasibility Analysis, ECF No. 153-25. projects a 56.2% return The financial feasibility analysis on investment and focuses on the expected revenue from the services agreement between HMA Monroe and the Clinics, particularly the number of expected deliveries and the reimbursement Analysis at 1-2. rate per delivery. Fin. Feasibility The financial feasibility analysis contains an expense item for “Outside Services,” which includes “Clinica de la Mama” and “Neo-natology.” Id. at 2. The financial feasibility analysis does not provide any detail on the “Outside Services” expense item. Id. at 1-2. Plaintiffs also point to a memorandum from HMA Monroe personnel to HMA personnel seeking 7 approval for the services agreement. U.S. Compl. Ex. 21, Mem. from G. Lang & J. Grimsley to B. Jones & B. Stiekes (Apr. 2, 2008), ECF No. 153-24. would provide The memorandum states that the Clinics “translation, eligibility services, pre- registration and management of OB patients seen at” HMA Monroe. Id. The memorandum recommends that HMA approve the services agreement “to add new service and grow OB service line volume.” Id. In support of their assertion that the Clinic agreement was a sham, Plaintiffs allege that HMA Monroe tried to hide the agreement by keeping it out of HMA Monroe’s contract monitoring system. U.S. Compl. ¶ 183. Plaintiffs also allege that the Clinic did not actually provide all of the services for which it billed. Id. ¶ 184; Ga. Compl. ¶ 90. agreement to determine providing interpreter whether services ¶¶ 184-85; Ga. Compl. ¶ 90. to Williams investigated the the HMA clinics Monroe. were actually U.S. Compl. HMA Monroe’s director of nursing services told Williams that HMA Monroe used AT&T Interpreter Services, not interpreters from the Clinics. U.S. Compl. ¶ 185; Ga. Compl. ¶ 91; Ga. Compl. Ex. J, Email from S. Queen to B. Williams (Aug. 20, 2009), ECF No. 55-10 (stating that HMA Monroe uses AT&T Interpreter Services). personnel also told HMA Monroe human resources Williams that they “had no knowledge of 8 Clinic[] personnel rendering interpreter services to patients at Defendant HMA Monroe.” Ga. Compl. ¶ 93. HMA Monroe and HMA point out that the services agreement between HMA Monroe and the Clinics was terminated in July 2009. U.S. Compl. Ex. 25, Letter from T. Cota to G. Lang (Aug. 6, 2009), ECF No. 153-28. HMA Monroe and HMA also point out that the emails cited by Plaintiffs regarding interpreter services are dated after the services agreement termination date. from S. Queen to B. Williams (Aug. 20, 2009). Email HMA Monroe and HMA argue that these emails establish as a matter of law that the Clinics actually did provide interpreter services to HMA Monroe before the services agreement was terminated. of the emails does suggest that the Clinics Though one provided some interpreter services prior to July 16, 2009, the emails do not establish the extent or value of the interpreter services. Id. (stating that HMA Monroe had not had any interpreters since July 16 and that schedules). the Clinics These did emails not do not provide directly HMA Monroe contradict with the allegations in the Complaints that key HMA Monroe personnel did not use or were not aware of interpreters provided by the Clinics, so the Court may not discount those allegations at this stage of the proceedings. 9 B. Medicaid Claims Submitted by HMA Monroe Plaintiffs allege that after HMA Monroe executives, including CEO Gary Lang, developed the alleged pay-for-referrals scheme with the Clinics, HMA Monroe submitted claims to Georgia Medicaid for Clinic patients who delivered their babies at HMA Monroe. Ga. Compl. ¶ 110; U.S. Compl. ¶ 193. Plaintiffs provided specific examples of these claims, including patient service dates, Medicaid claim dates, claim amounts, and amounts paid by Medicaid. Ga. Compl. ¶ 110. Plaintiffs also contend that HMA Monroe submitted false cost reports to Medicare and Georgia Medicaid and sought additional reimbursement from the Medicare Disproportionate Share program based on figures that included Clinic patients who had been referred to HMA Monroe under the allegedly illegal kickback scheme. U.S. Compl. ¶¶ 194-95; Ga. Compl. ¶¶ 39-46. C. Claims Against HMA Monroe and HMA The United States asserts claims against HMA Monroe under the following theories: (1) False Claims Act; (2) False Claims Act civil conspiracy; (3) unjust enrichment; and (4) payment under mistake of fact. In addition to these claims, Williams asserts a False Claims Act civil conspiracy claim against HMA on behalf of the United States. Georgia asserts claims against HMA Monroe and HMA under the following theories: (1) Georgia False Medicaid Claims Act (HMA Monroe); (2) Georgia Medical Assistance 10 Act (HMA Monroe); conspiracy (both); (3) (4) Georgia fraud False (HMA Medicaid Monroe); Act (5) civil breach of contract (HMA Monroe); (6) payment by mistake (HMA Monroe); and (7) fraudulent concealment (HMA Monroe). All of these claims are rooted in the allegation that HMA Monroe had an illegal payfor-referrals deal with the Clinics and submitted claims to Georgia Medicaid for services rendered to Clinic patients who were referred to HMA Monroe because of that deal. Plaintiffs also allege that HMA Monroe falsely certified compliance with the Anti-Kickback Statute when it submitted cost reports under the Medicare Disproportionate Share Program. II. Tenet Defendant Allegations A. Tenet’s Services Agreements with the Clinics Plaintiffs allege that each of the Tenet Hospitals also entered sham agreements with the Clinics that were designed to conceal the referrals. true motive, which was payment for U.S. Compl. ¶ 61; Ga. Compl. ¶¶ 10, 118. Medicaid Plaintiffs allege that the Tenet Hospitals paid illegal kickbacks to the Clinics for patient referrals and then submitted false claims to Medicaid for medical services provided to Clinic patients. U.S. Compl. ¶¶94-95, 127-28, 140-41, 156-57; Ga. Compl. ¶¶ 9-10, 118. Plaintiffs also contend additional reimbursement that from the the Tenet Medicare Hospitals sought Disproportionate Share Program based on figures that included Clinic patients who 11 had been referred kickback scheme. to the Tenet Hospitals under the illegal U.S. Compl. ¶¶ 96, 129, 142, 158; Ga. Compl. ¶¶ 10, 118. 1. Atlanta Medical Center’s Clinic Agreements Beginning in 1999, Atlanta Medical Center began negotiating with Clinic representatives for a deal that would Atlanta Medical Center’s obstetric patient volume. ¶¶ 50-51. U.S. Compl. Atlanta Medical Center initially proposed having the Clinics establish and operate a residency clinic. Atlanta increase Medical Center would provide physician Id. ¶ 53. services to Clinic patients, and the Clinics would collect cash payments from the patients for those services and would retain the payments with no obligation to pay Atlanta Medical Center for the services its physicians provided. Id. When Tenet’s legal counsel warned that such a deal would violate the Anti-Kickback Statute, Atlanta Medical Center and the Clinics restructured the deal, and instead of the Clinics retaining the fees from the Clinic patients, Atlanta Medical Center would pay the Clinics roughly the same amount and call it a “management fee.” 55-56. During negotiations, Clinic personnel told Id. ¶¶ Atlanta Medical Center personnel that if they reached an agreement, the Clinics would refer patients from their other locations (not just the residency clinic) delivery of their babies.” to Atlanta Id. ¶ 61. 12 Medical Center “for In 2000, Atlanta Medical Center CEO Bruce Buchanan told a Tenet corporate executive that if Atlanta Medical Center did not reach an agreement with the Clinics, the Clinics “would pursue a relationship with another hospital.” Id. ¶ 65. Shortly after that, the parties reached a deal for Atlanta Medical Center to pay the Clinics a minimum monthly management fee of $42,350 “for the operation and management” of the residency clinic. U.S. Compl. Ex. 5, Affiliation Agreement ¶ 6, ECF No. 153-5; U.S. Compl. ¶ 66. Atlanta Medical Center and the Clinics opened the new residency clinic, which was staffed by faculty and residents of Atlanta Medical Center’s obstetrical residency program and Atlanta Medical Center physicians. Affiliation Agreement ¶ 3(f). When the new residency clinic opened, the Clinics began referring patients from their other locations to Atlanta Medical Center for delivery of their babies. U.S. Compl. ¶ 69. Although Clinic personnel were not doctors, they were “able to direct referrals to particular hospitals,” such as Atlanta Medical Center based on the Clinics’ “control of the patients who sought services and [their] leverage over the physicians who saw those patients.” Id. ¶ 70. Specifically, the Clinics told patients that they would not receive Medicaid benefits unless they went to their assigned hospital. Id. ¶¶ 72-73. And the Clinics, which controlled which physicians were given time slots 13 at their facilities, only gave time slots to physicians who agreed to send patients to Atlanta Medical Center for delivery. Id. ¶¶ 71, 74. The majority of Clinic referrals to Atlanta Medical Center were not from the residency clinic; they were from other Clinic locations. Id. ¶ 77. The residency clinic had a “low volume” of patients, and the physician faculty members expressed concern about the low numbers. Id. ¶ 81. Plaintiffs allege that the monthly management fee paid by Atlanta Medical Center to the Clinics “was excessive in light of the low volume of patients seen at the residency clinic.” Id. ¶ 79. Tenet’s own legal counsel found in June 2000 that “there was no fair market value justification for the compensation rate set by the contract” and that Atlanta Medical Center did not provide any documentation of its expenses to justify the management fee. Id. ¶ 80. In 2001, Bill Moore replaced Buchanan as CEO of Atlanta Medical Center. Moore received reports from Clinic representatives “regarding patient volume and admissions from all of clinic.” [the Clinics’] Id. ¶ 83. facilities, not just the residency The residency program “continued to see few patients,” but Atlanta Medical Center kept paying the management fee to the Clinics, and the Clinics kept referring patients from their other facilities to Atlanta Medical Center for delivery of their babies. Id. ¶ 84. When the initial affiliation agreement 14 expired, Atlanta Medical Center continued to make payments to the Clinics without a written contract in place. Id. ¶ 85. By 2004, the residency clinic only generated $20,000 per month in revenue, though Atlanta Medical Center continued to pay the Clinics more than $40,000 per month. Id. ¶ 86. In 2005, Atlanta Medical Center entered a new agreement with the Clinics under which the Clinics would make “the same amount as under the previous contract, even if the management fee was changed.” ¶¶ 88-89. Id. Under that agreement, Atlanta Medical Center agreed to pay $23.50 per hour for translation services ($7 more per hour than North Fulton paid for translation services) and increased the hourly fee paid for Medicaid eligibility services “to ensure that [the Clinics] would continue to make roughly the same amount of money.” Id. ¶ 89. And the Clinics “began retaining the patient fees at the residency clinic” for services provided by Atlanta Medical Center physicians, residents, and nurses. The Id. ¶ 90. residency relationship continued, program between with was Atlanta Atlanta terminated Medical Medical Center Center translation and eligibility services. in 2008, and ostensibly Id. ¶¶ 92-93. the but the Clinics paying for Plaintiffs allege that the Clinics were “not even required to submit an invoice to receive [the] monthly payment.” Atlanta Medical Center “paid 15 Id. ¶ 93. automatically based Rather, on the contract.” Id. And the Clinics continued to refer patients to Atlanta Medical Center. Tenet corporate Id. ¶ 94. executives monitored the number of deliveries at Tenet hospitals and asked hospital management to report on Clinic volumes. U.S. Compl. Ex. 11, Email Chain between J. Austin, B. Moore & J. Holland (Sept. 25-26, 2008), ECF No. 153-13. When the number of deliveries fell in 2008, Moore investigated whether Clinic patients were being directed to other Tenet hospitals. U.S. Compl. ¶ 116. He noted that if North Fulton had “not seen an increase,” presumably making up for the Atlanta problem.” Medical Center decline, then there was “a Email Chain between J. Austin, B. Moore & J. Holland (Sept. 25-26, 2008). 2. In 2000, North Fulton’s Clinic Agreements Atlanta Medical Center’s CEO introduced North Fulton CEO John Holland to Clinic representatives. U.S. Compl. ¶ the 98. Holland expressed an interest in having Clinics establish a new location in Roswell, Georgia that would send patients to North Fulton. Id. ¶ 99. At the time, North Fulton did not have a large Hispanic patient population and would not need translators unless the Clinic referred Hispanic patients to North Fulton; Holland offered to pay the Clinics for translators and “community outreach.” Id. ¶¶ 99-100. 16 When North Fulton began its negotiations with the Clinics, many of Northside the Clinics’ Hospital in patients North delivered Atlanta, and their the babies Clinics at helped those patients “with Medicaid eligibility paperwork at no charge to Northside.” representatives provided Id. discussed services admissions Northside from to to of 102-05. how to Clinic Northside learned presentation ¶¶ this Northside Holland ensure that patients to North plan, proposing would the that Clinic physicians “shift Fulton.” and and Id. Clinics Northside who their ¶ 103. made pay a the Clinics for services, including Medicaid eligibility services that it was already providing for free to Clinic patients who delivered their babies at Northside. declined to pay. Id. ¶ 105. Northside Id. As negotiations continued and Holland met regularly with Clinic representatives, Holland told Clinic representatives “that he wanted at least 50 deliveries per month from Clinic[] facilities.” Id. ¶ 109. And a business plan prepared by North Fulton employees states that “upon completion of the contract,” the Clinics “will begin directing admissions” to North Fulton and “will shift 100% of their volume from Northside” to North Fulton, and “[a]ll deliveries will be Medicaid.” Id. ¶ 110; U.S. Compl. Ex. 9, Business Plan Proforma Worksheet, ECF No. 153-11. North Fulton expected 17 that the revenue from the Medicaid referrals would far Clinics. exceed the fees paid to the U.S. Compl. ¶ 111. The Clinics and North Fulton entered a services agreement in October 2001; under that agreement, North Fulton ostensibly paid the Clinics to provide translation and other services for a monthly fee of between $42,680 and $53,480. the contract was executed, patients to North Fulton. the Clinics Id. ¶ 113. Id. ¶ 112. began sending After their When two doctors refused because North Fulton was farther from some patients’ homes than Northside, the Clinics barred those doctors from seeing Clinic patients at Clinic facilities. Id. ¶¶ 106, 113. Other doctors understood that to keep their positions with the Clinics, they must deliver the patients’ babies at North Fulton or another Tenet hospital. Id. ¶ 115. North Fulton renewed the contract with the Clinics several times. Fulton During the course of the relationship between North and the Clinics, North Fulton’s executives emphasized “that North Fulton had a quota for admissions that [the Clinics were] expected to meet.” Id. ¶ 121. In 2005, North Fulton’s chief nursing officer questioned the value of the contract and stated that she had “many questions and concerns about what” North Fulton was getting in return for the fees it paid to the Clinics. U.S. Compl. Ex. 14, Email from J. Reeves to P. Allen & L. Sneed (Aug. 22, 2005), ECF No. 153-17. 18 North Fulton renewed the contract even after it learned “that it was being billed for marketing work that was never performed by Clinic[] personnel.” U.S. Compl. ¶ 126. In 2006, Holland was promoted to a senior vice president position at Tenet, and David Anderson was appointed as interim CEO of North Fulton. Id. ¶ 122. Anderson questioned the Clinic contract, but Clinic representatives “met with Anderson and made clear how many patients [the Clinics were] sending to North Fulton, and threatened to cease patient Fulton did not renew the contract.” referrals Id. ¶ 123. if North North Fulton renewed the contract, and the Clinics continued to send Medicaid patients to North Fulton. Id. ¶ 124. At some point, Joe Austin became CEO of North Fulton. Email Chain between J. Austin, B. Moore & J. Holland (Sept. 2526, 2008). Region, As senior vice president of Tenet’s Southern States Holland hospitals and volumes. Id. monitored asked the hospital number of management deliveries to report at on Tenet Clinic When the number of deliveries fell at Atlanta Medical Center in 2008 and Tenet executives determined that the Clinics were not directing the patients to North Fulton or other Tenet hospitals, believed program.” the Austin Clinics Id. told were the other “diverting executives [patients] to that he another Austin noted that the contract between North Fulton and the Clinics was up for renegotiation, and he pledged 19 to contact Clinic representatives about the issue. “volumes were up to previous levels.” Id. Soon, U.S. Compl. Ex. 12, North Fulton EBITDA 1, ECF No. 153-14. 3. Spalding Regional’s Clinic Agreements In 2003, Spalding Regional CEO John Quinn contacted Clinic personnel to discuss a deal between the Clinics and Spalding Regional. U.S. Compl. ¶ 131. relationship Clinics to with open Atlanta a Quinn was aware of the Clinics’ Medical clinic near Center, Spalding and he wanted Regional Hispanic Medicaid patients to Spalding Regional. and Id. the refer At the time, Spalding Regional did not have a large volume of Hispanic labor and delivery patients and did not have an existing need for translation services. Id. ¶¶ 132, 134. Clinic personnel explained their “model” to Quinn and gave him a copy of the North Fulton agreement, “which provided for payments ostensibly for translation and marketing services.” Id. Clinic representatives told Quinn that the Clinics “could send 30-40 deliveries a month to Spalding” Regional if Spalding Regional implemented the Clinic model. Id. ¶ 133. One of Quinn’s personal performance goals was to increase Spalding Regional’s market share and grow the market area. Compl. Ex. 15, Tenet Performance Review 1, ECF No. 153-18. U.S. To reach this goal, Quinn proposed implementing the Clinic model. Id. Spalding Regional entered an agreement with the Clinics 20 under which the Clinics opened a new location near Spalding Regional. U.S. Compl. ¶¶ 136-37. Quinn “was very clear that he expected the contract with [the Clinics] to generate patient referrals to Spalding” Regional. Id. ¶ 138. But the deal “did not generate the expected amount of referrals,” and after a few months Quinn canceled “the contract due to insufficient delivery volume from” the Clinics. 4. Id. ¶ 139. Hilton Head’s Clinic Agreements In 2005, Hilton Head CEO Elizabeth Lamkin contacted Clinic representatives and told them that her area had a large Hispanic population but “was losing patients to a competing hospital.” Id. ¶¶ 144, 146. Lamkin was familiar with the Clinics because she had served as COO of North Fulton. At North Fulton, Lamkin emphasized to the Clinics “that North Fulton had a quota for admissions that ¶¶ 121, 144. arrangement [the Clinics were] expected to meet.” Id. Lamkin asked the Clinics for “the same contractual as at North Fulton, translation, which for Id. ¶ 147. “Lamkin made clear that she wanted 30 deliveries per Id. ¶ 148. and other payments ostensibly month from” the Clinics. marketing involved services.” Hilton Head entered an agreement with the Clinics under which the Clinics established a new location in Hilton Head, South Carolina and began referring patients to Hilton Head. expected significant Id. ¶ 150. referrals from 21 the Hilton Head personnel Clinic agreement and “attributed a dramatic increase agreement. Id. ¶¶ 152-53. in OB cases” to the Clinic Hilton Head renewed the contract several times, even though it was unable to track the hours worked by Clinic employees on certain tasks. 5. Id. ¶¶ 154-55. Involvement of Tenet Corporate Personnel As early as 2003, Tenet executives, including Bill Henning, met with Clinic representatives to discuss opening more Clinic facilities in connection with Tenet hospitals so they could “replicate the profitable program in place at North Fulton.” U.S. Compl. ¶ 159-60. When Henning met with the hospital CEOs in 2004, he asked them how the Clinic program “was impacting admissions at” Atlanta Medical Center “and North Fulton, and how [the Clinics] could increase future business there and at other Tenet Hospitals.” Id. ¶ 161. In response to Henning’s requests, “Moore and Holland explained that they were pleased with the Clinic[] relationship” and hospitals’ delivery numbers. provided Henning with their Id. ¶ 162. Tenet employees emphasized that a “large part of Georgia [Medicaid] inventory” came from the services agreements with the Clinics. K. Id. ¶ 164; Ga. Compl. Ex. A, Email from H. Lanzner to Waters (Feb. ¶ 10;. At program resulted deliveries.” 23, least 2007), ECF No. one Tenet Hospital “in an excellent 55-1; noted accord Ga. Compl. that the Clinic referral source for Ga. Compl. Ex. R, Q2 Summary, ECF No. 55-18 at 2. 22 Again, Tenet corporate Clinic referrals. executives tracked the revenue from Email Chain between J. Austin, B. Moore & J. Holland (Sept. 25-26, 2008). And Tenet corporate executives, including Holland, were aware that when the number of Clinic referrals dipped, representatives Tenet to make representatives sure “diverting to another program.” Compl. ¶ 117. ways to that the met with Clinics Clinic were not Id.; Ga. Compl. ¶¶ 122-23; U.S. Finally, Tenet corporate executives discussed keep the Clinic referrals translation services agreements. without continuing the U.S. Compl. ¶ 166; U.S. Compl. Ex. 20, Email from D. Keel to K. Waters (Nov. 18, 2009), ECF No. 153-23. B. Medicaid Claims Submitted by Tenet Hospitals Plaintiffs claim that after Tenet Hospital executives, including Bruce Buchanan (Atlanta Medical Center), Bill Moore (Atlanta Austin Medical (North Center), Fulton), John John Holland Quinn (North (Spalding Fulton), Joe Regional), and Elizabeth Lamkin (Hilton Head) developed the alleged pay-forreferrals schemes with the Clinics, Tenet Hospitals submitted claims to Clinic patients Hospitals. Georgia Medicaid who and delivered South Carolina their babies Medicaid at the for Tenet U.S. Compl. ¶¶ 83, 94, 98, 127, 131, 140, 144, 156; Ga. Compl. ¶ 123, 130. Plaintiffs provided specific examples of claims submitted by Atlanta Medical Center, North Fulton, and 23 Spalding Regional. Medicaid claim The examples include patient service dates, dates, claim Medicaid. Ga. Compl. ¶ 130. Hospitals submitted Medicaid, and false South amounts, and amounts paid by Plaintiffs also contend that Tenet cost Carolina reports Medicaid to Medicare, and sought Georgia additional reimbursement from the Medicare Disproportionate Share program based on figures that included Clinic patients who had been referred to scheme. the U.S. Tenet Compl. Hospitals ¶¶ 95-96, under the 128-29, illegal 141-42, kickback 157-58; Ga. Compl. ¶¶ 39-46. C. Claims Against Tenet and Tenet Hospitals The United States asserts claims against Tenet and the Tenet Hospitals under the following theories: (1) False Claims Act; (2) False Claims Act civil conspiracy; (3) enrichment; and (4) payment under mistake of fact. unjust Georgia asserts claims against Tenet and the Tenet Hospitals under the following theories: (1) Georgia False Medicaid Claims Act (Tenet Hospitals); Hospitals); (both); (4) (2) (3) Georgia Georgia fraud (Tenet Medical False Assistance Medicaid Hospitals); Act (5) Act civil breach (Tenet conspiracy of contract (Tenet Hospitals); (6) payment by mistake (Tenet Hospitals); and (7) fraudulent concealment (Tenet Hospitals). These claims are all rooted in the allegation that Tenet Hospitals had an illegal pay-for-referrals deal with the Clinics and submitted claims to 24 Georgia Medicaid and South Carolina Medicaid for services rendered to Clinic patients who were referred to Tenet Hospitals because of that deal, as well as cost reports that falsely certified compliance with the Anti-Kickback Statute. DISCUSSION The Hospitals contend that Plaintiffs’ Complaints fail to state a claim upon which relief can be granted for two main reasons. First, the Hospitals assert that the Complaints fail to plead a violation of the Anti-Kickback Statute. Second, the Hospitals argue that the Complaints fail to plead a violation of the False Claims Act. The Court addresses each issue in turn, as well as Defendants’ other arguments for dismissal. I. Do the Complaints Allege that the Hospitals Violated the Anti-Kickback Statute? Plaintiffs’ False Claims Act claims are based on an alleged violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b). Plaintiffs contend that when Defendants submitted their claims for Medicaid complied with payment, the they falsely Anti-Kickback certified Statute. The that they had Anti-Kickback Statute makes it a felony to offer or pay “remuneration” to “any person to induce such person” to refer patients for services that will be paid “in whole or in part under a Federal health care program.” violation of 42 U.S.C. § 1320a-7b(b)(2)(A). the Anti-Kickback 25 Statute, To establish a Plaintiffs must show that the Hospitals “(1) knowingly and willfully, (2) paid money, directly or indirectly, to [the Clinics], (3) to induce [the Clinics] to refer individuals to [the Hospitals] for the furnishing of [medical services], (4) paid for by Medicaid.” See United States v. Vernon, 723 F.3d 1234, 1252 (11th Cir. 2013) (setting forth elements of Anti-Kickback Statute violation). The Hospitals do not dispute that they paid money to the Clinics or that the services the Hospitals rendered to Clinic patients were paid for by Medicaid, which is a federal health program. The Hospitals also do not seriously dispute that the Clinics “referred” patients to the Hospitals within the meaning of the Anti-Kickback Complaints do not Statute.6 allege a Statute for two main reasons. But violation they of contend the that the Anti-Kickback First, the Hospitals contend that 6 In their briefs, the Tenet Hospitals argued that the Clinics did not “refer” patients to the Hospitals because the Clinic owners are not physicians. At the hearing on the motions to dismiss, Defendants abandoned that argument, perhaps because the Eleventh Circuit has rejected it. The plain language of the Anti-Kickback Statute “speaks broadly to whoever knowingly and willfully . . . pays any remuneration to any person to induce such person . . . to refer an individual . . . for an item or service paid by Medicaid.” Vernon, 723 F.3d at 1254 (first two alterations in original) (internal quotation marks omitted). In Vernon, the Eleventh Circuit concluded that a non-physician patient advocate “had the capacity to, and did, refer” her clients to a specialty pharmacy to fill their prescriptions; the fact that the patient advocate “could not actually prescribe the . . . medication [was] irrelevant.” Id. Here, Plaintiffs allege that the Clinics had existing relationships with pregnant, undocumented Hispanic immigrant women and directed them to deliver their babies at the Hospitals. Those allegations sufficiently allege that the Clinics “referred” patients to the Hospitals. 26 the Complaints do not adequately allege that the Hospitals paid “remuneration” to the Clinics to induce them to refer Medicaid patients to the Hospitals. the Complaints and Rather, the Hospitals assert that their exhibits simply allege that the Hospitals contracted with the Clinics to provide interpreters and other services for Hispanic patients and that the Hospitals merely hoped Hospitals. that the Clinics might refer patients to the Second, the Hospitals argue that the Complaints do not adequately allege that the Hospitals acted knowingly and willfully. A. Do the Complaints Allege that the Hospitals Paid the Clinics Remuneration to Induce Medicaid Referrals? The Anti-Kickback Statute forbids the offer or payment of “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person” to refer Medicaid patients for services. 42 U.S.C. § 1320a-7b(b)(2). hospital may not offer or pay any Simply compensation for put, a Medicaid referrals. The business Hospitals argue relationships that with the they entered Clinics and into only legitimate hoped that those legitimate relationships would generate more referrals. Although the mere hope or expectation of future referrals may not make an otherwise legitimate business relationship illegal 27 under the Anti-Kickback Statute, United States v. McClatchey, 217 F.3d 823, 834 Plaintiffs allege supporting their agreements with (10th Cir. here. conclusion the Medicaid referrals. 2000), Plaintiffs that Clinics the for See, e.g., the that is clearly Hospitals purpose not what allege facts entered of the sham generating U.S. Compl. ¶¶ 50-51, 61-66 (alleging that Atlanta Medical Center entered the Clinic deal to increase obstetric patient volume); id. ¶¶ 109-11 (alleging that North Fulton executives sought at least 50 deliveries per month in return for the Clinic management fee); id. ¶ 138 (alleging that Spalding Regional’s CEO made it clear that he expected Medicaid referrals in exchange for the services agreement); id. ¶ 148 (alleging that Hilton Head’s CEO demanded 30 deliveries per month from the Clinics); id. ¶ 171 (alleging that HMA Monroe’s Lang “offered to pay thousands of dollars per month in return for 30 deliveries per month”). The Hospitals do not dispute that a straightforward quid pro quo kickback is unlawful: it is illegal for a hospital to pay a doctor for referrals and conceal the payments by giving the doctor a fake title and having him submit fake timesheets. E.g., United States v. Borrasi, 639 F.3d 774, 777, 781-82 (7th Cir. 2011); McClatchey, 217 F.3d at 827, 834-35. The Hospitals also do not dispute that an overpayment-for-services arrangement may be an illegal kickback: if a hospital pays a doctor for 28 legitimate services but pays more than fair market value to induce referrals, the difference between the amount paid and the actual value of the legitimate service is the illegal kickback. Cf., e.g., United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 30 (1st Cir. 1989) (noting that Medicare fraud statute’s “any remuneration” provision “includes not only sums for which no actual service was performed but also those amounts for which some professional time was expended”); United States v. Lipkis, 770 F.2d 1447, 1449 (9th Cir. 1985) (describing a kickback arrangement where a laboratory paid more than fair market value for services provided by a medical group, so the court inferred that the laboratory was also paying for lab work referrals). The Hospitals argue that Plaintiffs did not adequately allege either type of illegal kickback. Instead, they insist that they paid fair market value, nothing more, for the services provided by the Clinics. This hyper-technical reading of Plaintiffs’ Complaints is disingenuous. Plaintiffs Hospitals paid allege that remuneration under to the the Clinic Clinics model, for the Medicaid referrals under one or both theories: payment for services that the Clinics did not provide and overpayment for services. factual allegations and exhibits viewed in the light The most favorable to Plaintiffs support the conclusion that North Fulton and HMA Monroe paid for services 29 that the Clinics did not actually provide. billed North U.S. Compl. ¶ 126 (alleging that the Clinics Fulton for marketing services that were not provided); id. ¶¶ 184-85, Ga. Compl. ¶¶ 90-93 (alleging that key personnel at HMA Monroe did not actually use Clinic interpreters, which supports Plaintiffs’ claim that the services agreement was a sham to conceal payments made to the Clinics for Medicaid Medical referrals). Center Plaintiffs allowed the further Clinics to allege retain that fees Atlanta paid by patients for services that were actually provided by Atlanta Medical Center personnel. Plaintiffs also U.S. Compl. ¶ 90. allege Clinics for services. that each Hospital overpaid the Plaintiffs allege that Atlanta Medical Center paid the Clinics an excessive management fee for running the residency automatically clinic paid the and that monthly Atlanta management Medical fee Center without even receiving an invoice detailing the services allegedly provided. U.S. Compl. ¶¶ 79-81, 93. did not need Plaintiffs allege that North Fulton interpreter services or Medicaid eligibility services absent Clinic referrals and that North Fulton paid an excessive fee for Clinic services. Id. ¶¶ 100, 125. Plaintiffs allege that although Spalding Regional did not need interpreter services or Medicaid eligibility services, it entered the same Clinic model that had been implemented at North Fulton and Atlanta Medical Center; under that model, the Hospitals paid 30 excessive fees to the Clinics in return for Medicaid referrals. Id. ¶¶ 132, 134. And Plaintiffs allege that Hilton Head’s CEO entered the same Clinic model she had used at North Fulton, where the Hospital paid for some services it did not receive and overpaid for other services. clearly allege Clinics for that the Medicaid Id. ¶¶ 144, 155. Hospitals referrals, paid in The Complaints remuneration violation of to the the Anti- Hospitals Acted Kickback Statute.7 B. Do the Complaints Allege Knowingly and Willfully? that the The Hospitals contend that even if Plaintiffs alleged that Medicaid referrals were the purpose behind the Hospitals’ decisions to enter the Clinic agreements, Plaintiffs did not sufficiently willfully. allege that the Hospitals acted knowingly and To be a violation of the Anti-Kickback Statute, the offer or payment of remuneration for referrals must be done “knowingly and willfully.” 42 U.S.C. § 1320a-7b(b)(2). The Hospitals acknowledge that Plaintiffs allege that the Hospitals acted knowingly—that is, voluntarily and intentionally and not because of a mistake or by accident. 7 The Hospitals contend, Plaintiffs also allege that the Clinics were compensated for their referrals by being given the opportunity to obtain and retain the Tenet Hospitals’ interpreter business. No Court of Appeals has addressed this type of alleged “business opportunity” remuneration. Because the Complaints adequately allege remuneration under two widely accepted theories, the Court need not decide today whether providing a business opportunity in exchange for referrals is remuneration within the meaning of the Anti-Kickback Statute. 31 however, that Plaintiffs failed to allege that the Hospitals acted willfully, at least in part because they failed to use the word “willfully” in their Complaints. Generally, the term “willfully” means that an “act was committed voluntarily and purposely, with the specific intent to do something the law forbids, that is with a bad purpose, either to disobey or disregard the law.” F.3d 833, omitted). 838 (11th Cir. United States v. Starks, 157 1998) (internal quotation marks It is not necessary to prove that a defendant acted with specific intent to violate the Anti-Kickback Statute. at 838-39 & n.8. Id. Rather, it is simply necessary to prove that the defendant acted with the intent to do something the law forbids—even if he is not aware of the specific law his conduct may violate. Id. The Complaints and exhibits sufficiently allege that the Hospitals acted knowingly and willfully. The Hospitals do not dispute that concealed payments may indicate an awareness of illegality. most The allegations and exhibits viewed in the light favorable to Plaintiffs support the conclusion that Hospital executives entered the services agreements that paid the Clinics for Medicaid referrals under the guise of paying for services that were not actually provided or were not worth the amount paid. Based on these allegations, the Court finds that Plaintiffs sufficiently alleged that executives at each Hospital 32 knew they Medicaid were offering referrals and illegal meant to kickbacks do so. in The exchange for Complaints and exhibits also sufficiently allege that Tenet and HMA corporate executives knew about the kickback scheme, approved it, and fostered an environment where kickbacks to achieve quotas was the norm. Plaintiffs have adequately alleged facts to support the conclusion that Defendants acted knowingly and willfully.8 II. Do the Complaints Allege that the Hospitals Violated the False Claims Act? Having determined that the Complaints allege a violation of the Anti-Kickback Statute, the Court turns to the question whether the Complaints allege a violation of the False Claims Act, 31 U.S.C. § 3729(a). The False Claims Act “creates civil liability false for government.” Supplies, making a claim for payment by the McNutt ex rel. United States v. Haleyville Med. Inc., 423 F.3d 1256, 1259 (11th Cir. 2005). To prevail on a False Claims Act claim, the government or a relator must establish that the defendant presented a false claim to the United States for approval knowing that the claim was false. United States ex rel. Walker v. R&F Props. of Lake Cnty., Inc., 8 HMA Monroe argues that it cannot be held liable for Lang’s actions because Lang did not have authority to enter the Clinic agreement. To describe this argument as unpersuasive is charitable. It would not be hyperbole to describe it as frivolous. The focus here is on Plaintiffs’ allegations in their Complaints, not on what Defendants believe Plaintiffs may be unable to ultimately prove. Plaintiffs allege that Lang was HMA Monroe’s CEO who negotiated the deal for HMA Monroe and worked with HMA executives to get it approved. 33 433 F.3d 1349, § 3729(a). 1355 (11th Cir. 2005); accord 31 U.S.C. A violation of the Anti-Kickback Statute can form the basis of a False Claims Act action if compliance with the Anti-Kickback claim and the Statute is claimant “necessary submits for the reimbursement” claim for of a reimbursement knowing that the claimant was ineligible for the payment due to a violation of the Anti-Kickback Statute. McNutt, 423 F.3d at 1259-60; accord 42 U.S.C. § 1320a–7b(g). A. Is Compliance with the Anti-Kickback Statute a Condition of Payment for Georgia and South Carolina Medicaid Claims? The Hospitals do not appear to dispute that compliance with the Anti-Kickback Statute is a requirement for payment of a Georgia or South Carolina Medicaid claim submitted after passage of the Patient Protection and Affordable Care Act on March 23, 2010. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 6402(f)(1), 124 Stat. 119, 759 (2010) (adding 42 U.S.C. § 1320a-7b(g): “In addition to the penalties provided for in this section . . . a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the False Claims Act]”). But the Hospitals argue that for claims submitted before March 23, 2010, compliance with the Anti-Kickback Statute was simply a condition of participation in the Georgia and South Carolina Medicaid programs, not a condition of 34 payment, so any false certification of compliance with the Anti-Kickback Statute in connection with those claims does not violate the False Claims Act. The Court disagrees. 1. Conditions of Georgia Medicaid Claims Plaintiffs allege that the provider agreements between Georgia and the Hospitals prohibit the Hospitals from paying remuneration prohibit for the referrals Hospitals of Medicaid from billing services rendered to those patients. patients Georgia and further Medicaid for Ga. Compl. ¶¶ 47-55. By entering the provider agreements, the Hospitals agree to “comply with all of [Georgia Medicaid’s] requirements” including Georgia’s Policies & Procedures for Medicaid/PeachCare for Kids Manual. Ga. Compl. Ex. B, Statement of Participation, ECF No. 55-2 2. at The Manual states: “Any offer or payment of remuneration, whether direct, indirect, overt, covert, in cash or in kind, in return for the referral of a PeachCare for Kids member is . . . prohibited.” C, Ga. Dep’t of Cmty. Health Div. of Medicaid or Ga. Compl. Ex. Medicaid, Policies & Procedures for Medicaid/PeachCare for Kids § 106(E), ECF No. 553. Also, enrolled providers must not “bill the Division [of Medicaid] for any services not performed accordance with all applicable policies.” The Hospitals emphasize that § or delivered in Id. § 106(J). 106 is titled “General Conditions of Participation,” and they argue that this heading 35 means that compliance with the anti-kickback policy is merely a condition of participation in Georgia Medicaid, not a condition of payment for Georgia Medicaid claims. Therefore, according to the Hospitals, even if they made illegal kickbacks for Medicaid referrals, they cannot be held liable under the False Claims Act. The proper sanction for those violations, according to Defendants, is restricted to penalties affecting their participation in the Georgia Medicaid program, which presumably could include denial of continued participation. not interpret § 106(E) this narrowly. The Court does That section clearly prohibits the kickbacks alleged in Plaintiffs’ Complaints. And § 106(J) prohibits the Hospitals from billing for services that violates the Georgia Medicaid policies, including the kickback prohibition. If a bill, which is prohibited because it is for services tainted by illegal kickbacks, is nevertheless submitted and paid, then the payment is obviously conditioned on the false representation that the bill complied with the Georgia Medicaid policies. The Hospitals also rely on New York v. Amgen, Inc., 652 F.3d 103 (1st Cir. 2011). In Amgen, the First Circuit interpreted § 106(E) of the Georgia Medicaid agreement and found that it was not relevant to the alleged kickbacks in that case, where the defendants were accused of a kickback scheme to induce doctors to prescribe an anemia drug. 36 Id. at 116. The Court is not persuaded that Amgen, which is not binding precedent on this Court, counsels in favor of concluding that § 106(E) is merely a condition of participation (not a condition of payment) for the type of kickback alleged in this case. addresses the type of kickback Section 106(E) directly alleged here: payment of remuneration in return for the referral of a Medicaid patient. And as previously explained, § 106(J) prohibits providers from billing Georgia Medicaid for any services that are not delivered in accordance with all applicable policies. Since it is a violation of the applicable policies to pay a kickback for the referral of a patient, an enrolled provider may not bill Georgia Medicaid for services rendered to patients who were obtained via illegal kickbacks. The Amgen court even noted that § 106(E) “may preconditions identify some of payment under Georgia’s Medicaid program” and suggested that its conclusion would have been different if the alleged kickbacks in that case involved “payments in exchange for referrals of patients.” Id. For all of these reasons, the Court finds the rationale expressed in Amgen to be reconcilable with this Court’s conclusion today and finds the Amgen holding distinguishable based on the difference in the facts presented. The Court also notes that the Eleventh Circuit in McNutt emphasized that “[w]hen a violator of government regulations is ineligible to participate in a 37 government program and that violator persists in presenting claims for payment that the violator knows the government does not owe, that violator is liable, under the [False Claims] Act, for its submission of those false claims.” McNutt, 423 F.3d at 1259. The Eleventh Circuit further noted that “[t]he violation of the regulations and the corresponding submission of claims for which payment is known by the claimant not to be owed make the claims false” under the False Claims Act. For all of these Id. reasons, the Court concludes that Plaintiffs have sufficiently alleged that compliance with antikickback rules was a condition of payment for Georgia Medicaid claims, even for claims that predated the Affordable Care Act. 2. The Conditions of South Carolina Medicaid Claims United States alleges that the provider agreement between South Carolina and Hilton Head prohibits Hilton Head from paying remuneration for referrals of Medicaid patients and further prohibits Hilton Head from billing South Medicaid for services rendered to those patients. ¶¶ 34-36. Carolina U.S. Compl. The Hilton Head provider agreement states that Hilton Head “agrees to comply with all applicable federal and state laws and regulations in effect and as may be promulgated during the term of this Contract in the provision of services performance of it[s] obligations under this Contract.” and U.S. Compl. Ex. 3, Hilton Head Provider Agreement art. IX ¶ N, ECF 38 No. 153-3. The provider agreement further states that Hilton Head “shall not submit for payment any claims, statements, or reports which he knows, or has reason to know, are not properly prepared or payable pursuant to federal and state law, applicable regulations, this Contract, and SCDHHS policy.” art. VI ¶ A. Id. It is a violation of federal law to pay a kickback for the referral of a Medicaid patient, so, under its provider agreement, Hilton Head may not bill South Carolina Medicaid for services rendered kickbacks. to patients who were obtained via illegal The Court thus concludes that the United States sufficiently alleged that compliance with anti-kickback rules was a condition of payment for South Carolina Medicaid claims. B. Do the Complaints Allege a False Claims Act Violation? Plaintiffs allege that the Hospitals submitted claims to Georgia and South Carolina Medicaid in connection with Clinic patients and that Georgia and South Carolina Medicaid paid those claims and government. Complaints, amount sought partial reimbursement from the federal Plaintiffs listed examples of those claims in the including claimed, the and patient’s amount initials, paid. As service discussed date, above, Plaintiffs allege that Hospital executives, including Gary Lang (HMA Monroe), Bruce Buchanan (Atlanta Medical Center), Bill Moore (Atlanta Medical Center), John Holland (North Fulton and Tenet Corporate), Joe Austin 39 (North Fulton), John Quinn (Spalding Regional), and Elizabeth Lamkin (Hilton Head), entered the services agreements knowing that the primary purpose of the agreement was to Plaintiffs further generate allege illegal that Medicaid compliance with referrals. anti-kickback rules is necessary for payment of a Georgia or South Carolina Medicaid claim. And Plaintiffs allege that the Hospitals paid the Clinics to refer Medicaid patients to the Hospitals and that the Hospitals submitted claims for reimbursement to Georgia and South Carolina Medicaid in connection with those patients. These factual allegations support Plaintiffs’ conclusion that when the Hospitals submitted Medicaid claims for Clinic patients who were referred while the services agreements were in effect, the Hospitals Anti-Kickback Statute. falsely See certified Walker, compliance Inc., 433 F.3d with the at 1360 (affirming denial of 12(b)(6) motion as to False Claims Act claim by former employee who observed improper billing practices that led to alleged false claims). Plaintiffs’ allegations address who submitted the false claims: the Hospitals submitted the claims pursuant to a kickback scheme engineered by Hospital executives, including Gary Lang, Bruce Buchanan, Bill Moore, John Holland, Joe Austin, John Quinn, and Elizabeth Lamkin. The allegations address when the Hospitals submitted the claims to Georgia or South Carolina Medicaid. The allegations address how the claims were false: the claims for reimbursement were made 40 even though the Hospitals paid the Clinics to refer the Medicaid patients. And Plaintiffs’ Complaints allege that the primary purpose of the alleged kickback scheme was to generate Medicaid referrals, so Hospital executives who engineered the scheme knew that false claims would be submitted to Georgia or South Carolina Medicaid for services that arose from Clinic referrals bought with illegal kickbacks. Plaintiffs also allege that the Hospitals violated the False Claims Act when they submitted their hospital cost reports to the Centers for Medicare and Medicaid Services. ¶¶ 21-22, 95-96, 128-29, 141-42, 157-58, 194-95. Plaintiffs sought allege that additional in their cost reimbursement reports, from U.S. Compl. Specifically, the Hospitals the Medicare Disproportionate Share Program “based on figures that included Clinic[] patients referred pursuant to the kickback scheme.” Id. ¶¶ 96, 129, 142, 158, 195. Hospitals that serve a “significantly disproportionate number of low-income patients” may receive supplemental payments from Medicare. supplemental 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). payments are based on the The hospital’s “disproportionate patient percentage.” Id. § 1395ww(d)(5)(F)(v). And the “disproportionate patient percentage” is the sum of two fractions: the Medicare fraction 42 U.S.C. § 1395ww(d)(5)(F)(vi); 41 42 and the C.F.R. § Medicaid fraction. 412.106(b). The Medicaid fraction is calculated by dividing the number “patient days” for hospital’s 42 Medicaid patient C.F.R. § patients days. by the total number of the 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II); 412.106(b)(4). The disproportionate share adjustment is reported on a hospital’s annual cost report. Compl. ¶ 22. U.S. In general, more Medicaid patients means a higher disproportionate share adjustment. Id. And Plaintiffs allege that the Hospitals inflated their Medicaid fraction by including Clinic patients kickbacks. whose referrals were bought with illegal Id. ¶¶ 96, 129, 142, 158, 195. To be reimbursed by Medicare, a hospital’s representative “must execute an express certification in the cost report.” ¶ 22. That cost report contains a certification statement followed by a certification: MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINE AND/OR IMPRISONMENT UNDER FEDERAL LAW. FURTHERMORE, IF SERVICES IDENTIFIED IN THIS REPORT WERE PROVIDED OR PROCURED THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF A KICKBACK OR WERE OTHERWISE ILLEGAL, CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINES AND/OR IMPRISONMENT MAY RESULT. I HEREBY CERTIFY that I have read the above statement and that I have examined the accompanying electronically filed or manually submitted cost report and the Balance Sheet and Statement of Revenue and Expenses prepared by [name of facility, ID number of facility] for the cost reporting period beginning [date] and ending [date] and that to the best of my knowledge and belief, it is a true, correct and complete statement prepared from the books and records 42 Id. of the provider in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding the provision of the health care services, and that the services identified in this cost report were provided in compliance with such laws and regulations. Id. The Hospitals contend that even if the disproportionate share adjustments they claimed in their cost reports were false because they inflated their Medicaid fraction by including Clinic patients, that false representation cannot form the basis of a False Claims Act claim because the Hospitals violate the cost report’s express certification. did not The Hospitals argue that the anti-kickback portion of the certification only references “services” disproportionate share identified in adjustment the simply report, counts and how the many patients were eligible for Medicaid and does not identify any services provided to those patients. Plaintiffs allege that submission The Court is unpersuaded. of a cost report is a condition of the disproportionate share supplemental payments. Plaintiffs because the further allege that disproportionate the share cost reports adjustment were false inappropriately included Medicaid patients whose referral was bought with an illegal kickback. It follows that when the hospitals certified that the report was “a true, correct and complete statement,” that was an express false certification. 43 Whether Plaintiffs will produce sufficient evidence on this claim to prevail at trial or to survive summary judgment is not before the Court today. Plaintiffs have sufficiently alleged the claim. Finally, Defendants contend that Plaintiffs did not sufficiently allege a basis for holding the parent corporations, Tenet and HMA, liable under the False Claims Act. allege that Tenet and HMA executives were Plaintiffs involved in the decisions to enter the pay-for-referral Clinic agreements and were responsible for approving the deals. At this stage of the litigation, the Court is satisfied that the Complaints state claims against Tenet and HMA. As explained in the foregoing discussion, Plaintiffs have adequately alleged claims under the False Claims Act against Defendants. Therefore, claims must be denied. Defendants’ motions to dismiss those 9 9 Before the United States intervened in this action, HMA sought dismissal of Williams’s False Claims Act claims under the Act’s “first-to-file” rule, contending that Williams’s Complaint alleges the same essential facts as United States ex rel. Dennis v. Health Management Associates, Inc., an earlier-filed Tennessee action. Under the first-to-file rule, when a person brings a False Claims Act case, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). HMA seems to acknowledge that now that the United States has intervened in this action, the first-to-file rule does not apply. However, even if HMA has not abandoned its first-to-file lack of subject matter jurisdiction defense and pretermitting whether the Government’s intervention moots that defense, the Court finds that the essential facts of Dennis do not sufficiently overlap with the essential facts here to divest this Court of jurisdiction. In Dennis, the plaintiff alleged that HMA offered free or below-market office space leases and equipment rentals, as well as free personnel, to doctors at the University Medical Center in Lebanon Tennessee to 44 III. Are the Remaining Counts Sufficiently Stated? A. Plaintiffs’ Conspiracy Claims In addition to their False Claims Act claims, Plaintiffs allege that the Hospitals and the Clinics conspired to defraud the government. Defendants seek arguing that the Clinics and dismissal of the Hospitals these claims, had a legitimate business agreement, so Plaintiffs cannot prove a conspiracy to defraud the government. As thoroughly discussed above, Plaintiffs have adequately alleged that the services agreements were a sham designed to conceal the underlying purpose of the agreement: a pay-for-referrals scheme. Accepting these allegations as true, as this Court must at this stage of the litigation, the Court denies Defendants’ motion to dismiss Plaintiffs’ conspiracy to defraud claims. B. Georgia’s Medical Assistance Act Claim In addition to its other claims, Georgia asserts a claim under the Georgia Medical Assistance Act, which makes it unlawful for “any person or provider to obtain . . . payments . . . under a managed care program operated, funded, or reimbursed by the Georgia Medicaid program, to which the person induce referrals of Medicare, Medicaid, and Tri-Care patients. Dennis Compl. ¶ 16, ECF No. 1 in M.D. Tenn. Case No. 3:09-cv-00484. Here, Plaintiffs allege that HMA’s Monroe, Georgia facility paid the Clinics to refer Medicaid patients to that facility under a sham services agreement for Spanish interpreter services. Accordingly, the firstto-file rule does not deprive this Court of subject matter jurisdiction. 45 or provider is not entitled.” O.C.G.A. § 49-4-146.1(b)(1). statute provides for criminal and civil penalties. 146.1(c)-(d). The Id. ¶ 49-4- HMA Monroe contends that Georgia may not bring a civil action under the Medical Assistance Act because the Act sets forth two avenues for relief: (1) criminal prosecution or (2) a civil Department penalty, of which Community may Health be recovered pursuant to an by the Georgia administrative procedure. In support of this argument, HMA Monroe cites cases that stand for the general proposition that “the violation of a penal statute does not automatically give rise to a civil cause of action on the part of” a private citizen who was injured by the violation. See Murphy v. Bajjani, 282 Ga. 197, 201, 647 S.E.2d 54, 58 (2007) (finding that statute requiring report of criminal activity by students did not create private right of action for individual injured by students); see also United States ex rel. Dennis v. Health Mgmt. Assocs., Inc., No. 3:09-cv-00484, 2013 WL 146048, at *10 (M.D. Tenn. Jan. 14, 2013) (noting that AntiKickback Statute does not provide a private right of action). HMA Monroe did not cite any cases standing for the proposition that these private right of action cases apply to a state government seeking a civil penalty authorized by law, and the 46 Court declines to extend those holdings to this case at this time.10 C. Remaining State Law Claims Defendants seek dismissal of Plaintiffs’ remaining state law claims, contending that they do not adequately allege that Defendants’ arrangements with the Clinics were anything other than legitimate business ventures. contrary today puts this argument The Court’s ruling to the to rest. Accordingly, Defendants’ motions to dismiss the remaining claims are denied. CONCLUSION For the reasons described in this Order, the Motions to Dismiss (ECF Nos. 111, 113, 155, 156 & 157) are denied.11 IT IS SO ORDERED, this 24th day of June, 2014. S/Clay D. Land CLAY D. LAND UNITED STATES DISTRICT JUDGE 10 Georgia points out that state law gives the Georgia Attorney General authority “to file and prosecute civil recovery actions in the name of the state against any person, firm, or corporation which violates any statute while dealing with the state.” O.C.G.A. § 45-15-12. 11 The parties shall now proceed with discovery expeditiously and provide the Court with a jointly proposed scheduling order as contemplated by the Court’s previously issued order on this subject. See February 7, 2014 Order, ECF No. 142. 47
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