196 F. Supp. 3d 477
E.D. Pa.2016Background
- Relator Dr. Jesse Polansky, a former EHR advisor, brought a qui tam False Claims Act (FCA) suit alleging EHR ran a nationwide practice of certifying hospital cases as inpatient (higher reimbursement) when CMS rules required outpatient classification; claims alleged on behalf of the United States, 28 states and D.C.
- Defendant EHR is a physician-advisor firm providing second-level inpatient/observation status reviews and appeals; Optum/OptumInsight, UHCS and UHG are the corporate parents/acquirers; Yale-New Haven Hospital (YNHH) and Community Hospital of the Monterey Peninsula (CHOMP) are hospital clients alleged to have used EHR reviews.
- Complaint alleges EHR used secret, formulaic criteria that ignored CMS guidance (e.g., prospective length-of-stay, need for diagnostic testing) to certify many cases as inpatient, causing hospitals to submit false claims and pursue appeals; relator alleges he raised concerns internally and was sidelined.
- Procedurally: United States declined intervention; defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6) and 9(b); the court granted in part and denied in part EHR’s motion, granted motions by YNHH/CHOMP and by UHG/UHCS/Optum/OptumInsight.
- Court held relator adequately alleged (a) causation and legal falsity (implied false certification) against EHR and (b) knowledge/reckless disregard by EHR sufficient to survive dismissal on federal FCA claims; court dismissed relator’s state-law claims against EHR for lack of state-specific falsity pleading and dismissed all claims against the two hospitals for failure to plead fraud with particularity and knowledge; claims against UHG and corporate parents were dismissed for failure to allege direct participation or veil-piercing facts.
Issues
| Issue | Plaintiff's Argument (Polansky) | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of fraud pleadings (Rule 9(b)) as to causation and scheme | Alleged particularized facts showing EHR’s reviews were ‘‘determinative’’ of hospital billing, specific client examples, nationwide scope | EHR: attending physician controls admission decision; relator fails to plead nexus showing EHR caused submission of false claims | Court: Relator alleged sufficient particularized facts as to EHR causation; but allegations against YNHH and CHOMP lacked particularity and were dismissed under Rule 9(b) |
| Falsity theory: factual vs legal falsity | Relator: claims are legally false (implied false certification)—EHR certifications violated CMS inpatient/observation guidance; not a mere difference of medical opinion | Defendants: second-level physician judgments are reasonable medical opinions; not objectively false; manuals not conditions of payment | Court: Rejected factual-falsity theory (services provided were not misrepresented); accepted implied legal-falsity theory against EHR based on Medicare Benefit Policy Manual criteria as conditions of payment; plausible falsity alleged |
| Knowledge (FCA scienter) | Relator: internal documents, emails, training/promotional materials, and his own reporting allege EHR knew or recklessly disregarded CMS rules | EHR/hospitals: differences in interpretation are not proof of knowing misconduct; hospitals lacked notice; use of EHR alone is not willful blindness | Court: Allegations show EHR had actual/reckless knowledge sufficient to plead scienter; YNHH/CHOMP knowledge not adequately pleaded for pre-audit period (post-audit statements supported YNHH knowledge after Jan 2012), but overall hospital claims dismissed for other pleading failures |
| Liability of corporate parents (direct liability / veil piercing) | Polansky: parents performed due diligence, integrated EHR, promoted and benefitted from EHR, had overlapping personnel — enough to show participation or justify piercing veil | UHG/Optum/etc.: mere ownership, shared personnel, marketing and economic benefit insufficient; no facts showing undercapitalization, siphoning, failure of corporate formalities, or direct involvement in claim submissions | Court: Dismissed claims against UHG/UHCS/Optum/OptumInsight for failure to allege direct participation or facts supporting veil-piercing; leave to amend limited |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim; labels and conclusions insufficient)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaint must contain sufficient factual matter to state a plausible claim)
- Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir. 2014) (Rule 9(b) in FCA cases: particularized details of scheme plus reliable indicia that claims were submitted)
- U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011) (distinguishing factual and legal falsity; implied/express false certification doctrines)
- U.S. ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235 (3d Cir. 2004) (causation under FCA: a party may cause false filings if a scheme was a substantial factor in bringing them about)
- In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235 (3d Cir. 2012) (causation/standing discussion in RICO context; cited by defendants)
- United States v. Pisani, 646 F.2d 83 (3d Cir. 1981) (federal common-law test for piercing corporate veil in government-program contexts)
- Pearson v. Component Tech. Corp., 247 F.3d 471 (3d Cir. 2001) (factors and standard for corporate veil piercing)
- United States v. Bestfoods, 524 U.S. 51 (1998) (parent liability for subsidiary acts is not automatic; corporate separateness respected absent domination or misuse)