422 F.Supp.3d 916
E.D. Pa.2019Background
- Relator Jesse Polansky filed a qui tam FCA suit in 2012 alleging Executive Health Resources (EHR) caused hospitals to certify inpatient admissions that should have been outpatient to obtain higher Medicare/Medicaid reimbursements.
- The Government declined to intervene in 2014; the case was managed via limited bellwether selection: Phase I (pre‑Oct. 1, 2013, governed by the 24‑hour policy) and the Two‑Midnight phase (post‑Oct. 1, 2013, governed by the Two‑Midnight Rule).
- Discovery was protracted and troubled: Relator belatedly produced a DVD of ~14,000 documents and attempted unilateral changes to bellwether claim selection; the Court found credibility issues and imposed partial sanctions.
- The Government moved to dismiss under 31 U.S.C. § 3730(c)(2)(A) in Aug. 2019, citing litigation burden and other costs; the Court allowed supplemental briefing and considered summary‑judgment issues.
- The Court granted the Government’s dismissal (finding the Government’s rationale permissible under either the Sequoia rational‑relationship test or the Swift unfettered‑discretion approach) and separately granted summary judgment for EHR on Phase I claims based on Allina (notice‑and‑comment deficiency).
- The Court also concluded Relator likely cannot satisfy Escobar materiality for many claims (government’s continued payments, declination to intervene, and dismissal motion weigh against materiality), making summary judgment on Two‑Midnight claims a real possibility though premature on full record.
Issues
| Issue | Plaintiff's Argument | Defendant/Government's Argument | Held |
|---|---|---|---|
| Appropriate standard of judicial review for a gov't §3730(c)(2)(A) dismissal | Sequoia (rational‑relationship) should apply to preserve review and prevent arbitrary executive action | Swift (unfettered discretion) is correct; high deference to executive and prosecutorial discretion | Court applied Sequoia for analysis but said dismissal would be proper under either test; Government satisfied rational‑relationship test and dismissal granted |
| Was the Government’s reversal (after indicating it would not dismiss) arbitrary? | Polansky: reversal is arbitrary because earlier the Government promised not to dismiss if claims were narrowed | Govt/Defendant: material developments (Relator’s failure to narrow, deposition testimony, Special Master recommendations, discovery burdens) changed the calculus | Court found Government’s change rational and not arbitrary; dismissal not fraudulent, arbitrary, or illegal |
| Do Phase I claims survive Allina (i.e., did CMS’s 24‑hour policy require notice‑and‑comment)? | Polansky: 24‑hour guidance merely interpreted earlier “overnight stay” standard and is not a substantive legal standard subject to §1395hh notice‑and‑comment | Govt/Defendant: the 24‑hour policy, as a gap‑filling reimbursement standard, creates entitlement conditions and is a substantive legal standard requiring notice‑and‑comment under Allina | Court held the 24‑hour policy is a substantive legal standard under Allina/D.C. Cir. definition and, because CMS did not use notice‑and‑comment, Phase I FCA claims fail as a matter of law |
| Materiality of alleged misrepresentations for Two‑Midnight claims under Escobar | Polansky: EHR’s false inpatient certifications were material and capable of influencing payment decisions | Govt/Defendant: Government’s declination to intervene, continued payment of claims despite knowledge, and dismissal motion demonstrate lack of materiality | Court found Relator’s ability to meet Escobar materiality doubtful; government conduct is strong evidence of non‑materiality and summary judgment on Two‑Midnight claims may be appropriate (though premature on remaining discovery) |
Key Cases Cited
- Sequoia Orange Co. v. Baird‑Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998) (adopts rational‑relationship test for judicial review of government dismissal under §3730(c)(2)(A))
- Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003) (adopts unfettered‑discretion standard affording near‑complete deference to government dismissal decisions)
- Universal Health Servs., Inc. v. Escobar, 136 S. Ct. 1989 (2016) (articulates demanding FCA materiality standard and that government payment decisions are highly probative)
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019) (holds Medicare Act requires notice‑and‑comment for agency statements that are substantive legal standards affecting payment entitlement)
- Allina Health Servs. v. Price, 863 F.3d 937 (D.C. Cir. 2017) (defines “substantive legal standard” as standards that create, define, or regulate parties’ rights, duties, or powers)