United States of America ex rel Tali Arik, M.D. v. DVH Hospital Alliance, LLC, Inc., No. 2:2019cv01560 - Document 100 (D. Nev. 2021)
Court Description: ORDER Granting 69 , 70 , 72 Motions to Dismiss and 94 Leave to Amend; Denying 86 Motion to Extend Deadline as moot. Amended Complaint deadline: 5/17/2021. Signed by Judge Jennifer A. Dorsey on 5/4/2021. (Copies have been distributed pursuant to the NEF - MR)
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United States of America ex rel Tali Arik, M.D. v. DVH Hospital Alliance, LLC, Inc. 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 United States of America ex rel. Tali Arik, 4 Doc. 100 Case No.: 2:19-cv-01560-JAD-VCF Plaintiff Order Granting Motions to Dismiss and Leave to Amend; Denying Motion to Extend Deadline 5 v. 6 DVH Hospital Alliance, LLC, et al., [ECF Nos. 69, 70, 72, 86, 94] 7 Defendants 8 Relator Tali Arik brings this qui tam suit under the False Claims Act (FCA) against 9 defendant DVH Hospital Alliance, LLC; Valley Health Systems LLC; Universal Health 10 Services, Inc.; Vista Health Mirza, M.D. P.C.; and hospitalist Irfan Mirza, claiming that they 11 conspired to defraud the federal government by seeking reimbursement for medically 12 unnecessary and improper services, treatments, tests, and hospitalizations. 1 The defendants, led 13 by DVH Hospital, move to dismiss Arik’s amended claims, arguing that Arik fails to plead his 14 allegations with sufficient particularity under Federal Rule of Civil Procedure 9(b); alleges 15 nothing more than his subjective disagreement with the hospital staff’s treatment plans, 16 hospitalization decisions, and diagnoses; asserts claims barred by the FCA; and fails to 17 adequately allege the existence of a conspiracy. 2 Arik seeks to extend his time to respond to the 18 defendants’ motions, 3 maintains that his allegations are sufficient to survive the defendants’ Rule 19 9(b) and 12(b)(6) challenges, and requests leave to file a third amended complaint. 4 20 21 1 22 ECF No. 53 (second amended complaint). 2 ECF Nos. 69, 70, 72 (motions to dismiss). 23 3 ECF No. 86 (motion to extend time). 4 ECF No. 94 (countermotion to amend complaint). Dockets.Justia.com 1 I find that Arik’s claims for violations of the FCA are insufficiently pled because (1) he 2 has failed to clarify whether and how fraudulent claims for reimbursement were submitted to the 3 federal government and (2) some, though not all, of his disagreements with the hospital’s 4 treatments fail to show fraudulent conduct. I also find that he does not and cannot allege a 5 conspiracy, given the unified corporate interests of the defendants. So I grant the defendants’ 6 motions to dismiss, deny as moot Arik’s motion to extend deadlines, and grant Arik’s motion for 7 leave to amend his first and second causes of action. Background 5 8 9 I. 10 Arik’s allegations Arik is an experienced cardiologist who worked at Desert View Hospital in Nye County, 11 Nevada, for roughly three years as a physician, including one year as Medical Chief of Staff. 6 In 12 early 2019, Arik became troubled by certain new practices and policies at the hospital. 7 The 13 hospital’s CEO, Susan Davila, had informed Arik that low patient admissions, high patient 14 transfer rates, and conservative testing and treatment practices had plunged the hospital into 15 financial precarity. 8 To remedy this problem, Davila proposed two solutions: contracting with 16 Vista Health and Mirza, and proactively treating more patients at Desert View, thereby 17 increasing patient admissions and decreasing transfers to other hospitals. 9 Davila’s solution 18 appeared to work—in the late winter and early spring of 2019, inpatient admissions increased 19 20 5 This is merely a summary of facts alleged in the complaint and should not be construed as 21 findings of fact. 6 ECF No. 53 at ¶¶ 11–13. 22 7 Id. at ¶ 106. 23 8 Id. at ¶ 99. 9 Id. at ¶¶ 89, 104. 2 1 between 37.4% to 68.1% in any given month, and revenue at the hospital grew by 50% for 2 patients covered by Humana Medicare Advantage insurance. 10 3 But Arik maintains that the hospital generated this revenue by seeking “cost-based 4 reimbursement” from private and commercial insurers, including Medicare, Medicare 5 Advantage, and Medicaid, for medically unnecessary and improper services and hospital 6 admissions, as well as by altering inpatient-admission times and billing codes and inflating 7 billing for emergency patients. 11 Arik’s complaint details 98 patients 12—identified by number, 8 their medical histories, chief complaints, diagnoses, and, in some cases, their treatments, 9 diagnostic testing, and amount sought in reimbursements from their insurer. Arik claims that 10 each of these patients was mistreated in some way, relying both on his medical experience and 11 the practice standards articulated by medical texts like Braunwald’s Cardiology Practice 12 Standards, the Medicare Program Integrity Manual, and InterQual Level of Care Criteria 2019. 13 13 For each patient, he broadly claims that the defendants “knowingly submitted a false claim” to 14 various insurers for “hospitalist services,” “unreasonable and medically unnecessary testing,” 15 and improper inpatient “admission.” 14 For certain patients, he specifies the amount of the “false 16 claim;” for others, he leaves that information blank. 15 17 18 19 10 Id. at ¶¶ 101–05, 219. 11 Id. at ¶¶ 216–17, 220, 229, 250. 12 20 See id. at ¶¶ 112–214. 13 See, e.g., id. at ¶¶ 60, 112–13, 125, 139–40, 147. 21 14 Id. at ¶¶ 112–214. 15 Compare id. at ¶ 125 (“Desert View Hospital . . . knowingly submitted a false claim to Medicare/Tricare in the amount of $22,145.42 for the admission of the subject patient.”), with ¶ 197 (“Desert View Hospital . . . knowingly submitted a false claim to Medicare in the amount 23 of $__________ for the admission and the unreasonable and medically unnecessary testing performed on the subject patient.”). 22 3 1 Arik’s assessments of these patients’ treatments are not uniform—some describe specific 2 discrepancies between symptom presentation and diagnosis/treatment, 16 others express his 3 disagreement with certain diagnoses, 17 and still others show his frustration with the hospital’s 4 decision to admit patients. 18 Many of these accounts are quite detailed. For example, Arik 5 describes patient 12’s stroke; improper admission to Desert View, which lacks a primary or 6 comprehensive stroke center; and resultant, fraudulent claim to “Medicare/Tricare” for 7 $22,145.42. 19 But other accounts are vague, like that of patient 35(q), who complained of 8 “generalized weakness due to [the] side effects of a new medication” and received a “medically 9 unnecessary,” unspecified “test”—resulting, apparently, in admission to the hospital, hospitalist 10 services, and an unspecified claim to “Medicare” for an uncertain amount. 20 11 II. Desert View Hospital, Medicare, and Medicaid 12 The Department of Health and Human Services, Centers for Medicare & Medicaid 13 Services (CMS) designated Desert View Hospital a “critical access hospital” (CAH), which 14 receives significant federal funding to maintain access to and reduce the financial vulnerability 15 16 16 See, e.g., id. at ¶ 167 (“Patient 35(f) presented . . . dizziness, weakness, and dark stools . . . . 17 [He] underwent . . . a carotid ultrasound, echocardiogram, a T of the brain, and a blood transfusion[, which] were not indicated and were medical unnecessary based on the patient’s 18 complaints, a diagnosis of hemorrhoidal bleeding, and hemoglobin of 9.”). 17 See, e.g., id. at ¶ 214 (“Patient 78 presented . . . pressure-like dull chest discomfort[, but] 19 cardiac enzymes [and] EKG [were] negative[; t]here was no medical indication for an inpatient admission of this patient” for “three [] days with a diagnosis for acute coronary syndrome.”). 20 18 See, e.g., id. at ¶¶ 170, 213 (“Patient 37 presented . . . with symptoms of bronchitis . . . based on the medical chart, there was no medical indication for an impatient admission of Patient 38.”); 21 (Patient 77 presented . . . progressive neurologic issues including left-sided weakness consistent 22 with a stroke . . . [and] was admitted as an inpatient . . . for three [] days . . . . Desert View Hospital was not equipped to treat the patient.”). 23 19 Id. at ¶ 125. 20 Id. at ¶ 167. 4 1 of hospitals serving rural communities. 21 It also receives payments under Medicare and 2 Medicaid for patients that it treats with those programs’ insurance. 22 The Medicare program 3 provides basic health insurance for individuals who are 65 or older, disabled, or have end-stage 4 renal disease. 23 Under Medicare, “no payments may be made . . . for any expenses incurred for 5 items or services . . . [that] are not reasonable and necessary for the diagnosis or treatment of 6 illness or injury to improve the functioning of a malformed body member[.]” 24 Medicare 7 reimburses providers for inpatient hospitalization only if “a physician certifies that such services 8 are required to be given on an inpatient basis for such individual’s medical treatment, or that 9 inpatient diagnostic study is medically required and such services are necessary for such 10 purpose.” 25 11 CMS defines a “reasonable and necessary” service as one that “meets, but does not 12 exceed, the patient’s medical need” and is furnished “in accordance with accepted standards of 13 medical practice for the diagnosis or treatment of the patient’s condition . . . in a setting 14 appropriate to the patient’s medical needs and condition.” 26 Medically necessary services are 15 those “needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that 16 meet accepted standards of medicine.” 27 The Medicare program expects doctors to exercise their 17 clinical judgment based on “complex medical factors” but does not give them unfettered 18 19 21 Id. at ¶¶ 78–81. 22 Id. at ¶¶ 50–53. 23 42 U.SC. § 1395c. 24 22 Id. § 1395y(a)(1)(A). 25 Id. § 1395f(a)(3). 23 26 CMS, Medicare Program Integrity Manual § 13.5.4 (2019). 27 CMS, Medicare & You 2020: The Official U.S. Government Medicare Handbook 114 (2019). 20 21 5 1 discretion to decide whether inpatient admission is medically necessary: “The factors that lead to 2 a particular clinical expectation must be documented in the medical record in order to be granted 3 consideration.” 28 And medical necessity is considered a question of fact: “A physician’s order or 4 certification will be evaluated in the context of the evidence in the medical record.” 29 5 As a CAH, Desert View Hospital is reimbursed for patient treatment through at least two 6 separate Medicare schemes—for those insured under Medicare Advantage, the hospital receives 7 a “capitation” rate and, for Medicare insureds, it receives “cost-based reimbursement.” 30 Under 8 Medicare Advantage’s capitation-rate scheme, a private insurer provides benefits to insureds in 9 exchange for federal capitation revenue and pays for Desert View Hospital’s services. 31 10 Capitation rates fluctuate based on the severity of the insured’s medical diagnoses, adjustments 11 prescribed by statute, and any audits performed by the private insurer. 32 But under Medicare’s 12 cost-based-reimbursement scheme, Desert View Hospital receives an interim per diem rate based 13 on its prior year’s actual, allowable, and reasonable costs. 33 At the end of the year, the hospital 14 submits its actual operating-costs report to Medicare, which is compared to the interim rate, 15 resulting in a credit, debit, or change to next year’s rate. 34 Reimbursements under both schemes 16 appear throughout Arik’s complaint. 35 17 18 28 42 C.F.R.§ 412.3(d)(1)(i); see also id. § 412.3(a)–(c); see generally 42 U.S.C. § 1395f(a)(3). 29 42 C.F.R. § 412.46(b); see also id. §§ 412.3(d)(1)(i), 412.3(d)(3). 30 42 U.S.C. § 1395w-23; 42 C.F.R. §§ 413.1(a)(2)(i), 413.1(b), 413.5, 413.70, 422.300. 31 42 C.F.R. §§ 422.300, 422.304(a). 32 22 Id. § 422.308(c). 33 Id. §§ 413.5, 413.50, 413.60(a)–(c), 413.64(e). 23 34 Id. §§ 413.5, 413.20, 413.60(a)–(c), 413.64(e). 35 See, e.g., ECF No. 53 at ¶¶ 47, 219, 233, 234. 19 20 21 6 1 III. Arik’s suit 2 Arik brings this qui tam suit for violations of the FCA on behalf of the United States, 3 which has declined to intervene in this action. 36 In his first complaint, he alleged that Desert 4 View Hospital falsely certified its compliance with certain federal rules governing CAH-based 5 services. 37 But upon amendment, Arik has abandoned those theories, now theorizing that Desert 6 View Hospital’s staff and an assortment of new defendants conspired to provide medically 7 unnecessary testing and services; improperly admitted patients; and altered their billing codes, 8 billing amounts, and admission times in order to generate ill-gotten federal reimbursements. 38 9 The defendants move to dismiss, arguing that Arik’s allegations are insufficiently pled and 10 barred by the FCA’s public-disclosure rule, and that he lacks personal knowledge of the claims 11 he presents. 39 While Arik disagrees, 40 he seeks leave to amend his complaint 41 and provides a 12 proposed third amended complaint 42 that slightly modifies his current allegations. 13 Discussion 14 I. Motions to dismiss [ECF Nos. 69, 70, 72] 15 District courts employ a two-step approach when evaluating a complaint’s sufficiency on 16 a Rule 12(b)(6) motion to dismiss. The court must first accept as true all well-pled factual 17 allegations in the complaint, recognizing that legal conclusions are not entitled to the assumption 18 19 36 ECF No. 2 at 2. 37 See generally ECF No. 14. 38 ECF No. 53. 39 22 See ECF Nos. 69, 70, 72. 40 ECF No. 91–93. 23 41 ECF No. 94. 42 ECF No. 94–1. 20 21 7 1 of truth. 43 Mere recitals of a claim’s elements, supported by only conclusory statements, are 2 insufficient. 44 The court must then consider whether the well-pled factual allegations state a 3 plausible claim for relief. 45 A claim is facially plausible when the complaint alleges facts that 4 allow the court to draw a reasonable inference that the defendant is liable for the alleged 5 misconduct. 46 Additionally, “as with all fraud allegations, a plaintiff must plead FCA claims 6 ‘with particularity’” under Rule 9(b). 47 To satisfy Rule 9(b), “a pleading must identify ‘the who, 7 what, when, where, and how of the misconduct charged,’” as well as “‘what is false or 8 misleading about [the purportedly fraudulent] statement, and why it is false.’” 48 9 A. 10 The FCA The FCA imposes significant civil liability on any person who “knowingly presents, or 11 causes to be presented, a false or fraudulent claim for payment or approval”; “knowingly makes, 12 uses, or causes to be made or used, a false record or statement material to a false or fraudulent 13 claim”; or “conspires to commit” either of the previous acts. 49 The Act allows a private plaintiff 14 to enforce its provisions by bringing a qui tam suit on behalf of the United States. 50 To state an 15 FCA claim, a plaintiff must allege “(1) a false statement or fraudulent course of conduct, (2) 16 17 18 19 43 Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). 44 Id. 45 Id. at 679. 46 Id. 20 47 21 48 Winter ex rel. United States v. Gardens Reg’l Hosp. and Med. Ctr., Inc., 953 F.3d 1108, 1116 (9th Cir. 2020). Cafasso U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (quoting Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (internal 22 quotation marks and citations omitted)) (alteration in original). 23 49 31 U.S.C. § 3792(a)(1). 50 Id. § 3730(b). 8 1 made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit 2 moneys due.” 51 Courts are advised to interpret the FCA “broadly, in keeping with Congress’s 3 intention ‘to reach all types of fraud, without qualification, that might result in financial loss to 4 the Government.’” 52 5 Arik’s allegations fall under a “false certification” theory of FCA liability, which can be 6 either “express” or “implied.” 53 Express certification occurs when “the entity seeking payment 7 certifies compliance with a law, rule[,] or regulation as part of the process through which the 8 claim for payment is submitted.” 54 Implied certification occurs “when the defendant submits a 9 claim for payment that makes specific representations about the goods or services provided, but 10 knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or 11 contractual requirement.” 55 Arik concedes that his false-medical-necessity certifications are 12 “express,” 56 asserting that the provided medical services were not “reasonable and necessary,” in 13 violation of Medicare’s statutory and regulatory medical-necessity requirements. 57 14 1. 15 Arik’s allegations fail to satisfy Rule 9(b)’s pleading standards. Arik’s professional disagreement with Desert View’s diagnoses and treatments are well- 16 documented. 58 But as before, he has failed to articulate whether and how the described 17 51 18 United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 899 (9th Cir. 2017). 52 Gardens Reg’l Hosp., 953 F.3d at 1116 (quoting United States v. Neifert-White Co., 390 U.S. 19 228, 232 (1968)). 20 21 53 See id. at 1114. 54 Ebeid, 616 F.3d at 998. 55 Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1995 (2016). 56 22 ECF No. 53 at ¶¶ 112–214 (claiming that each patient falls under “False Express Certification of Medical Necessity”). 23 57 See Gardens Reg’l. Hosp., 953 F.3d at 1113, 1118–19. 58 See, e.g., ECF No. 53 at ¶¶ 112–214. 9 1 fraudulent claims—which include both the patient-based-fraud theory 59 and the altered-billing2 codes and admissions-times and artificially enlarged-billing-amounts theory 60—were submitted 3 to the government for reimbursement. The Ninth Circuit does not require a plaintiff to “identify 4 representative examples of false claims to support every allegation,” but he must allege 5 “particular details of a scheme to submit false claims paired with reliable indicia that lead to a 6 strong inference that claims were actually submitted.” 61 A complaint provides the requisite 7 indicia of reliability when “specific allegations of the defendant’s fraudulent conduct necessarily 8 [lead] to the plausible inference that false claims were presented to the government.” 62 The defendants argue, and Arik concedes, 63 that he improperly claims that both private 9 10 and commercial insurers received Desert View Hospital’s false claims 64—calling into question 11 whether an FCA action exists at all, given that the statute does not afford a remedy to private 12 insurers. But Arik also fails to connect (1) the direct “submi[ssion of] a false claim” to 13 Medicare, Medicare Advantage, or Medicaid and (2) the general reimbursement scheme that 14 might result in a fraudulent payment based on that direct submission. Instead, Arik’s complaint 15 16 17 59 Id. at ¶¶ 112–214 60 Id. at ¶¶ 220, 229, 250. 61 Ebeid, 616 F.3d at 998 (quoting United States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)) (internal quotation marks omitted); see also United States v. Ojai 18 Valley Cmty. Hosp., Inc., No. CV 17-6972, 2018 WL 6177257, at *7 (C.D. Cal. Jul. 30, 2018) (“Relator has not ple[d] who submitted the false claims, any specific claims that were submitted 19 to CMS, any actual fraudulent charges Ojai submitted, or why the representations were false.”). 20 62 United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013). 63 ECF No. 91 at 17 (“Nonetheless, to appease DVH’s concerns, Dr. Arik (to the best of his 21 ability) removed from the proposed TAC all insurances he believed to be private commercial insurers . . . and clarified that ‘Medicare/Humana’ was intended to mean Humana Medicare 22 Advantage Plan.”). 64 23 See ECF No. 53 at ¶¶ 112, 114, 117–19, 121, 123–29 (noting that a single claim was provided to two payors, which included private commercial insurers like Humana, Anthem, United, and AARP.). 10 1 seemingly posits at least three methods by which Desert View Hospital receives ill-gotten funds 2 from the government, asserting that it: directly submits claims for individual services to the 3 government, passes along inflated-risk adjustment data” that results in “inaccurate capitation 4 rates,” and submits “inaccurate inpatient service reports.” 65 He also claims that the “fraudulent 5 billing practice[s],” which include altering inpatient-admission times and billing codes, were 6 “commonly used” “for billing Medicare and other government programs for medications, IV 7 solution, and radiology services.” 66 8 These theories are inconsistent and at odds with the law that Arik describes in his 9 complaint. According to his own allegations, a CAH does not directly submit a claim to the 10 government; 67 it either creates a cost report for which it receives an annualized cost-based 11 reimbursement (under Medicare) or works with a private insurer, who passes along hospital12 developed data to the government to develop capitation rates for hospital services (under 13 Medicare Advantage). As I advised Arik in my prior order, clarifying how Desert View Hospital 14 falsified claims under these schemes is essential to satisfying the FCA’s requirement that a 15 fraudulent claim be submitted. 68 After all, under Medicare Advantage, any improper billing may 16 be caught by a third-party audit and thus not result in a fraudulent repayment; 69 under Medicare, 17 any improper-testing claim may never make it into the cost report that affects the interim per 18 19 20 21 22 65 See id. at ¶¶ 47, 48, 112–214. 66 Id. at ¶ 255. 67 See id. at ¶¶ 85–87 (“Desert View Hospital, as a CAH, is not subject to Medicare’s Inpatient Prospective Payment System [] or the Hospital Outpatient Prospective Payment System.”). 68 See United States ex rel. DVH Hosp. Alliance, LLC, No. 2:19-cv-01560, 2020 WL 6173528 at *4 n.59 (“[T]hese details matter.”) (Oct. 21, 2020); see also United States ex rel. Rose v. 23 Stephens Inst., 909 F.3d 1012, 1017 (9th Cir. 2018). 69 42 C.F.R. § 422.308(c). 11 1 diem rate because that rate is calculated by the number of days a patient remains in the hospital 2 and not the tests that patient receives. 70 Thus, it is entirely unclear from the face of Arik’s 3 complaint whether and how these alleged “false claims” were actually passed along to the 4 government, such that they resulted in fraudulent reimbursements or payments. But because 5 Arik might amend his complaint to remedy these pleading deficiencies, I dismiss his claims 6 without prejudice. 7 2. 8 Some of Arik’s medical-necessity claims are insufficiently pled. The defendants also challenge the sufficiency of Arik’s medical-necessity claims, arguing 9 that he fails to satisfy the pleading standard articulated in Winter ex rel. United States v. Gardens 10 Regional Hospital and Medical Center, Inc. 71 In Gardens Regional Hospital, the Ninth Circuit 11 addressed whether the relator’s subjective disagreement with the hospital staff’s certifications 12 regarding the medical necessity of inpatient admissions could form the basis of an FCA claim. 72 13 As a matter of first impression, the court concluded that it could, holding that “false certification 14 of medical necessity can give rise to FCA liability” and that “the FCA does not require a plaintiff 15 to plead an ‘objective falsehood.’” 73 Instead, a physician’s certification that treatment was 16 “medically necessary” “can be false or fraudulent for the same reasons [that] any opinion can be 17 false or fraudulent.” 74 “These reasons include if the opinion is not honestly held, or if it implies 18 the existence of facts—namely, that inpatient hospitalization is needed to diagnose or treat a 19 medical condition, in accordance with accepted standards of medical practice—that do not 20 70 Id. §§ 413.5, 413.20, 413.50, 413.60(a)–(c), 413.64(e), 413.70. 71 22 Gardens Reg’l Hosp., 953 F.3d 1108 (9th Cir. 2020). 72 Id. at 1117. 23 73 Id. at 1118–19. 74 Id. at 1119. 21 12 1 exist.” 75 Thus, the Ninth Circuit determined that the Gardens Regional Hospital relator 2 sufficiently alleged fraudulent conduct: she reviewed inpatient admissions at the defendant 3 hospital, determined that those admissions failed to satisfy the hospital’s own admission criteria, 4 and presented evidence that those admissions were improperly billed to Medicare. 76 5 Most, though not all, of Arik’s improper patient-care accounts satisfy the standard set out 6 in Gardens Regional Hospital. Like the Gardens Regional Hospital relator, Arik properly 7 asserts that certain inpatient admissions “fail[] to satisfy the hospital’s own admissions criteria— 8 the InterQual criteria,” permitting admissions that go “against the medical consensus.” 77 He also 9 claims that many patients were admitted to the hospital for treatments that the hospital could not 10 provide because it lacked the necessary facilities. 78 These allegations are similar to those in 11 Garden Regional Hospital, where the relator described psychiatric admissions to a hospital 12 devoid psychiatric-treatment services or doctors. 79 Many of Arik’s accounts also raise thorny 13 questions of diagnostic accuracy and hospitalization decisions, which largely present questions 14 of fact that cannot and should not be resolved at this stage. 80 15 16 17 18 19 75 Id. 76 Id. at 1120. 77 Compare id. at 1120, with ECF No. 53 at ¶¶ 139–40, 147–48, 171, 176, 179, 180–92, 198–99, 20 201–14. 21 78 See, e.g., ECF No. 53 at ¶¶ 112–37, 149, 170, 178, 193, 194. 79 See Gardens Reg’l Hosp., 953 F.3d at 1120–21 (“[S]he alleges that a number of hospital 22 admissions were for diagnoses that had been disprove by laboratory tests, and that several admissions were for psychiatric treatment, even though Gardens Regional was not a psychiatric 23 hospital—and one of those patients never even saw a psychiatrist.”). 80 See ECF No. 53 at ¶¶ 112–37, 143. 13 1 But some accounts, as before, merely document Arik’s disagreements with Mirza’s and 2 other staff members’ medical decisions, 81 asserting little more than his “reasonable difference of 3 opinion” 82 on medical care. Those accounts lack entirely the indicia of subjective falsity 4 required by the Ninth Circuit and, in fact, often show Mirza’s belief that her medical decisions 5 were reasonable. 83 And still others are either entirely devoid of supporting details needed to 6 meet Rule 9(b)’s requirements or more closely resemble medical-malpractice claims. 84 So I 7 dismiss those insufficiently pled claims related to those patients with leave to amend. 8 3. 9 The FCA’s public-disclosure bar does not apply. The defendants argue that the FCA’s statutory public-disclosure bar limits Arik’s ability 10 to plead the new fraud theories 85 raised in his prior, proposed amended pleading. “The FCA’s 11 public[-]disclosure bar deprives federal courts of subject[-]matter jurisdiction when a relator 12 alleges fraud that has already been publicly disclosed, unless the relator qualifies as an ‘original 13 source.’” 86 Under the statute, information is considered publicly disclosed if it is contained “(i) 14 15 16 81 Id. at ¶¶ 141–42, 144–46, 150, 151, 152, 153, 154–66, 168, 169, 173, 177, 197. 82 Gardens Reg’l Hosp., 953 F.3d at 1120. 83 See, e.g., ECF No. 53 at ¶¶ 141 (“Dr. Mirza stated, ‘because of history of hypertension, will 17 get an echocardiogram.’”); 142 (“Dr. Mirza states, ‘wife reported that he is not breathing well. She would like to have a stress test and an echocardiogram done while he is here . . . . Which I 18 will order.”); 200. 84 Id. at ¶¶ 167 (documenting an unknown “test” given to a patient with weakness that was “medically unnecessary,” resulting in an unspecified claim made to the government on an 20 unknown date); 176 (asserting, without explanation, that there “was no medical indication for an impatient admission” and providing an unspecified claim made to the government on an 21 unknown date); 195 (“[A]fter the discharge from Desert View Hospital, the patient had to be treated at a higher level of care facility as an inpatient.”); 196. 19 22 85 23 86 Id. at ¶¶ 220, 229, 253 (asserting that the defendants altered inpatient admissions times and billing codes and fraudulently billed for services). U.S. ex rel. Mateski v. Raytheon Co., 816 F.3d 565, 569 (9th Cir. 2016) (quoting United States ex rel. Hartpence v. Kinetic Concepts, 792 F.3d 1121, 1123 (9th Cir. 2015)). 14 1 in a [f]ederal criminal, civil, or administrative hearing in which the [g]overnment or its agent is a 2 party; (ii) in a congressional, Government Accountability Office, or other [f]ederal report, 3 hearing, audit, or investigation; or (iii) from the news media.” 87 But this bar does not apply if 4 the government opposes its application or “the person bringing the action is an original source of 5 the information,” meaning that he “has knowledge that is independent of and materially adds to 6 the publicly disclosed allegations or transactions.” 88 Thus, the public-disclosure bar sets up a 7 “two-tiered inquiry,” requiring courts to first “determine whether there has been a prior ‘public 8 disclosure’” of the “allegations or transactions” and, second, to “inquire whether the relator is an 9 ‘original source’” within the meaning of the statute. 89 10 The defendants may be correct that Arik fails to allege that he is the original source of 11 these allegations. But they fail to satisfy the first step of the inquiry because a proposed 12 amended pleading filed in the same litigation, when the government has expressly declined to 13 intervene, does not satisfy the statute’s public-disclosure requirement. Courts have generally 14 held that “information disclosed through civil litigation and on file with the clerk’s office should 15 be considered a public disclosure of allegations.” 90 But that appears to apply to information 16 disclosed in prior litigation and not to successive pleadings in the same action. In United States 17 v. Northrop, for example, the Ninth Circuit remarked that information that had been publicly 18 disclosed in a separate state court suit and brought by a different relator was subject to the 19 public-disclosure bar. So too in U.S. ex rel. Siller v. Becton Dickinson & Co., when the Fourth 20 21 22 23 87 31 U.S.C. § 3730(e)(4)(A). 88 Id. § 3730(e)(4)(A)–(B). 89 A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1243 (9th Cir. 2000). 90 United States v. Northrop Corp., 59 F.3d 953, 966 (9th Cir. 1995) (quoting U.S. ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1350 (4th Cir. 1994)) (internal quotation marks omitted). 15 1 Circuit determined that allegations raised in a prior, state court action should be considered 2 publicly disclosed in a subsequent and separate federal action. 91 The defendants do not cite, nor 3 can I find, any controlling precedent stating that a proposed amended pleading in the same 4 litigation would be considered publicly disclosed. Such a ruling would, in fact, bar amendments 5 to a complaint, which cannot be that statute’s goal. So I decline to dismiss these new fraud 6 claims as jurisdictionally barred. 7 4. 8 Arik’s conspiracy claims are barred as a matter of law. Finally, the defendants encourage me to apply the intracorporate-conspiracy doctrine to 9 Arik’s new conspiracy claims, which would require their dismissal. To state a conspiracy claim 10 under the FCA, a relator must demonstrate that (1) the defendants conspired with one or more 11 persons to induce the United States to allow or pay a false claim; and (2) one or more of the 12 conspirators performed any act to effect the object of the conspiracy; (3) which injured the 13 United States as a result of the false claim. 92 But under the intracorporate-conspiracy doctrine, a 14 “conspiracy requires an agreement among two” or more “distinct business entities;” 93 the claim 15 cannot lie for “the operations of a corporate enterprise,” which “must be judged as the conduct of 16 a single corporation.” 94 While the Ninth Circuit has yet to apply the intracorporate-conspiracy 17 doctrine to an FCA claim, 95 multiple courts have used this principle to bar conspiracy claims 18 19 20 91 Siller, 21 F.3d at 1350. 92 See United States ex rel. Stinson, Lyons, Gerlin & Bastamante v. Provident Life & Accident Ins. Co., 721 F. Supp. 1247, 1258 (S.D. Fla. 1989); United States ex rel. Costa v. Baker & 21 Taylor, Inc., No. C-95-1825, 1998 WL 230979, at *5 (N.D. Cal. Mar. 20, 1998). 22 23 93 United States v. Hughes Aircraft Co., 20 F.3d 974, 979 (9th Cir. 1994). 94 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 770 (1984). 95 See United States ex rel. Lupo v. Quality Assurance Servs., Inc., 242 F. Supp. 3d 1020, 1027 (S.D. Cal. 2017) (collecting cases). 16 1 when the alleged conspirators are a parent corporation and its wholly-owned subsidiary, 96 “sister 2 corporations that are wholly owned subsidiaries of the same parent,” 97 or “agents and employees 3 of a corporation” acting “in their official capacities on behalf of the corporation.” 98 4 I find those courts’ reasoning persuasive and conclude that Arik’s conspiracy claims are 5 barred as a matter of law. In his complaint, he alleges a unity of interest between the 6 defendants, 99 asserting that (1) Universal Health Services is the parent company of Valley 7 Health, which acquired Desert View Hospital, (2) Mirza is an employee of Vista Health Mirza, 8 and (3) the Mirza entities worked as agents and employees of the Desert View Hospital 9 defendants, providing hospitalist services. 100 His amended pleadings fare no better, indicating 10 that Universal Health is the parent company of Valley Health and Desert View Hospital, which 11 are thus sister companies. 101 This relationship renders these defendants subject to the 12 intracorporate-conspiracy doctrine: there can be no meeting of the minds between distinct 13 entities when the entities are not, in reality, distinct. 14 Arik asks me to carve out an unspecified exception to this doctrine, arguing that the 15 defendants’ “gross culpability” means that they should be held to task for conspiracy, while 16 relying on out-of-circuit decisions that have held parent corporations liable for the actions of 17 18 96 See, e.g., United States v. Aerojet Rocketdyne Holdings, Inc., 381 F. Supp. 3d 1240, 1249 19 (E.D. Cal. 2019); United States ex rel. Campie v. Gilead Scis., Inc., No. C-11-0941, 2015 WL 106255, at *15 (N.D. Cal. Jan. 7, 2015). 20 97 Gonzalez-Maldonado v. MMM Healthcare, Inc., 693 F.3d 244, 249 (1st Cir. 2012) (collecting 21 cases). 98 22 Collins v. Union Fed. Sav. & Loan Ass’n, 662 P.2d 610, 622 (Nev. 1983). 99 See, e.g., ECF No. 53 at ¶¶ 21, 27. 23 100 See id. at ¶¶ 16–28. 101 ECF No. 92 at 13. 17 1 their subsidiaries. 102 Those cases are inapposite. In both United States ex rel. Beattie v. Comsat 2 Corp. and United States ex rel. Harris v. Lockheed Martin Corp., the district courts addressed 3 conspiracy allegations approaching a criminal conspiracy under federal law. 103 Arik has not only 4 failed to allege similar claims, but the criminal-conspiracy exception adopted in the Eleventh 5 Circuit has been explicitly rejected by courts in this circuit. 104 And while Arik may find the 6 defendants’ conduct deeply wrong, that does not mean that their wrongdoing amounts to a 7 conspiracy. So I dismiss his conspiracy claim. 8 II. Motion for leave to amend [ECF No. 94] 9 Rule 15(a)(2) of the Federal Rules of Civil Procedure directs that “[t]he courts should 10 freely give leave [to amend] when justice so requires.” 105 In determining whether to grant leave 11 to amend, district courts consider five factors: (1) bad faith, (2) undue delay, (3) prejudice to the 12 opposing party, (4) whether the plaintiff has previously amended the complaint, and (5) futility 13 of amendment. 106 The factors do not weigh equally—“[f]utility alone can justify denial of a 14 motion to amend” 107 and, among the other factors, the Ninth Circuit apportions the greatest 15 weight to potential prejudice. 108 Absent futility, a factually supported showing of prejudice, or a 16 17 102 Id. 103 United States ex rel. Beattie v. Comsat Corp., 8:96-cv-966-T, 2001 WL 35992080, at *3 18 (M.D. Fla. Apr. 18, 2011); United States ex rel. Harris v. Lockheed Martin Corp., 905 F. Supp. 2d 1343, 1354–55 (N.D. Ga. 2012). 19 104 See United States ex rel. Huey v. Summit Healthcare Ass’n, No. CV-10-8003, 2011 WL 20 814898, at *7 (D. Ariz. Mar. 3, 2011) (“The victim of an FCA conspiracy is the United States. It may prosecute corporations and their agents and employees for acting in unison should it find 21 criminal charges warranted.”). 105 22 Carrico v. City and Cnty. of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011). 106 Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004). 23 107 Id. 108 Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). 18 1 heavy influence of the other factors, there is a strong presumption in favor of permitting 2 amendment. 109 3 Mirza and Vista Health claim that any amendment to Arik’s complaint would be futile, 4 stressing that he has had the opportunity to amend his pleadings before. 110 As discussed above, I 5 find that amendment is not futile with respect to Arik’s first and second claim for relief. Arik 6 might bolster his allegations to (1) articulate whether and how the hospital submitted fraudulent 7 claims for federal, and not private, reimbursement; and (2) clarify the fraudulence of the 8 hospital’s treatments, diagnoses, and admissions, in line with the standard articulated in Gardens 9 Regional Hospital. But I find that amendment of Arik’s conspiracy claim would be futile: his 10 own allegations reveal that each defendant is a subsidiary, parent, sister corporation, or agent of 11 the others, and thus cannot conspire to violate the FCA. 111 So I dismiss his conspiracy claims 12 with prejudice. 13 CONCLUSION 14 IT IS THEREFORE ORDERED that the defendants’ motions to dismiss [ECF Nos. 69, 15 70, 72] are GRANTED. Arik’s first and second causes of action are dismissed without 16 prejudice and with leave to amend. Arik’s third cause of action, asserting conspiracy claims, is 17 dismissed with prejudice and without leave to amend. 18 IT IS FURTHER ORDERED that Arik’s motion seeking leave to amend [ECF No. 94] is 19 GRANTED: Arik has until May 17, 2021, to file his third amended complaint consistent with 20 21 22 23 109 Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186–87 (9th Cir. 1987)). 110 ECF No. 95 at 8. 111 Kendall v. Visa USA, Inc., 518 F.3d 1042, 1051 (9th Cir. 2008) (“Dismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendment.”). 19 1 this order. If he fails to do so, Arik’s claims against the defendants will be deemed abandoned 2 and dismissed and this case will be closed without further notice. 3 IT IS FURTHER ORDERED that Arik’s motion to extend time [ECF No. 86] is 4 DENIED as moot. 5 ___________________________________ U.S. District Judge Jennifer A. Dorsey Dated: May 3, 2021 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 20
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