Patrick M. HAYS; United States ex rel. Patrick M. Hays v. Luverne HOFFMAN, et al.
Nos. 01-3888, 01-3891
United States Court of Appeals, Eighth Circuit
Filed: April 9, 2003
325 F.3d 982
Before WOLLMAN, FAGG, and LOKEN, Circuit Judges.
Submitted: November 4, 2002. COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED
Brian E. Wojtalewicz, argued, Appleton, MN, for appellee.
Irene M. Solet, argued, Washington, DC, for intervenor/appellee.
LOKEN, Circuit Judge.
Patrick M. Hays was fired by St. Francis Health Services of Morris, Inc. (SFHS), the day after Luverne Hoffman, the chief executive officer of SFHS, learned that Hays had sent whistleblower letters to the Minnesota Department of Human Services (DHS), the agency that administers the Medicaid program in Minnesota. Prompted by Hays‘s letters, DHS conducted a field audit of the numerous nursing homes and intermediate care facilities operated by SFHS. The audit resulted in several downward adjustments to SFHS‘s payment rates because of noncompliance with the Medicaid reimbursement rules. Hays obtained copies of the audit reports and commenced this action under the federal False Claims Act (FCA),
Defendants moved to dismiss the qui tam claims, arguing the district court lacked subject matter jurisdiction by reason of the FCA‘s public disclosure bar. See
Defendants appeal the qui tam portion of the judgment, raising numerous issues.2 The United States intervened on appeal to oppose defendants’ contention that the total penalty violates the Excessive Fines Clause of the Eighth Amendment and to express its views regarding the public disclosure bar issues. We conclude that the DHS audit reports were relevant public disclosures of the allegations underlying the qui tam claims, and that Hays was an original source of only one of those disclosures. Therefore, the district court lacked jurisdiction over most of the qui tam claims. We also decline to apply the district court‘s method of determining the number of false claims to the remaining claims and substantially reduce the total fine imposed.
First enacted in 1863, the FCA provides cash bounties to private citizens who successfully bring suit against those who defraud the federal government. The public disclosure bar at issue was part of the 1986 FCA amendments. See False Claims Amendments Act of 1986, Pub. L. No. 99-562, 100 Stat. 3153, 3157 (1986). These extensive amendments were intended to encourage private enforcement suits by legitimate whistleblowers while barring suits by opportunistic qui tam plaintiffs who base their claims on matters that have been publicly disclosed by others. See generally Minn. Ass‘n of Nurse Anesthetists, United States ex rel. v. Allina Health Sys. Corp., 276 F.3d 1032, 1040-43 (8th Cir.), cert. denied, 123 S. Ct. 345 (2002); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649-51 (D.C. Cir. 1994); United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1152-54 (3d Cir. 1991); S. REP. No. 99-345, 99th Cong., 2nd Sess., reprinted in 1986 U.S.C.C.A.N. 5266.
The FCA‘s public disclosure bar, which Congress expressly declared to be jurisdictional, is found in
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless ... the person bringing the action is an original source of the information.
The operative words in this statute have prompted extensive litigation and divergent judicial interpretations. “Virtually every court of appeals ... agrees on one thing, however: the language of the statute is not so plain as to clearly describe which cases Congress intended to bar.” United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 681 (D.C. Cir.), cert. denied, 522 U.S. 865 (1997). The circuits also agree that the jurisdictional inquiry turns on four questions:
(1) whether the alleged “public disclosure” [was made by or in] one of the listed sources; (2) whether the alleged disclosure has been made “public” within the meaning of the FCA; (3) whether the relator‘s complaint is “based upon” this “public disclosure“; and if so, (4) whether the relator qualifies as an “original source” under
§ 3730(e)(4)(B) .
United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199, 1203 (10th Cir. 2003) (en banc). Hays, as the party invoking federal jurisdiction, bears the burden of establishing the district court‘s jurisdiction under the FCA. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).
In this case, the second and third questions are beyond dispute. Hays obtained copies of the DHS audit reports through a phone call to the official in charge of the SFHS audit. That was sufficient publication of the reports. See United States ex rel. Fine v. MK-Ferguson Co., 99 F.3d 1538, 1545 (10th Cir. 1996). Hays virtually concedes he drew the factual allegations in his qui tam complaint from the DHS audit reports. Indeed, his complaint restated the findings of the audit and attached copies of the audit reports. A suit is “based upon” a public disclosure if the allegations are “derived from” or “supported by” the disclosure. Nurse Anesthetists, 276 F.3d at 1045, 1047. Thus, the fighting jurisdictional issues in this case are whether the DHS audit reports fall within the enumerated sources of public disclosure, and whether Hays was an original source of some or all of the allegations and transactions disclosed in those audit reports.
A. The DHS Audit Reports Were Public Disclosures.
In the second place, this subpart of
Construing the term “administrative ... report [or] audit” in this fashion, we conclude that the DHS audits here in question, like the private Medicare audits at issue in Schwedt, clearly qualify. Medicaid, codified at
Viewed from this perspective, the Third Circuit‘s decision in Dunleavy is readily distinguishable on the facts. The alleged public disclosure in that case was a county Grantee Performance Report submitted to the Department of Housing and Urban Development by the unit of local government accused of violating the FCA. As the Third Circuit noted, “those reports have been compiled and produced by a party whose principal motivation (assuming the truth of the fraud claim) is the elimination of the paper trail of fraud.” 123 F.3d at 745. Moreover, under the federal grant program at issue in Dunleavy — the Housing and Community Development Act of 1974 — grantee compliance audits are conducted by federal agencies, HUD and the General Accounting Office. See
Though we conclude all of Hays‘s false claim allegations were publicly disclosed in the DHS audit reports, his FCA qui tam claims are not barred by
Hays argues that he was an original source of all the information in the DHS audit reports because his whistleblower letters were the reason DHS conducted its field audit. The district court agreed, commenting:
If a man is able to discern a small amount of fraud and there is in fact a seething snake pit ... and he is the one who tips off the government to it, the fact that it comes out in the investigation ought not to be a penalty against the person who made the [whistleblower] call.
On appeal, defendants and the United States as intervenor argue that this ruling is contrary to the plain language of
Thus, we must resolve the original source issue on a claim-by-claim basis. The jury found that defendants committed eleven types of false claims. On appeal, defendants concede that Hays was the original source of one allegation that was then confirmed by the DHS audit — defendants falsely claimed that apples given as gifts to SFHS employees were a Medicaid-reimbursable food expense. However, Hays has failed to establish that he was an original source as to the other ten claims.
Most of the other claims were not volunteered by Hays in his whistleblower letters to DHS; he cannot be an original source of those claims under
We conclude that Hays was the original source only of the apples allegation. Therefore, applying
In addition to challenging the district court‘s subject matter jurisdiction, SFHS and Hoffman appeal the adverse judgment on the apples claim, raising both liability and penalty issues.
A. Defendants level a three-pronged attack on the jury verdict that SFHS and Hoffman violated the FCA by claiming employee gift apples as a reimbursable Medicaid expense. First, although the DHS audit reports established that improper apple claims were made,4 defendants argue that Hays failed to prove that any person knowingly submitted false claims. A person acts knowingly for purposes of the FCA if he has actual knowledge of the false information, or acts in deliberate ignorance or reckless disregard of the information‘s truth or falsity.
After careful review of the trial record, we conclude there was sufficient evidence on this issue. Viewed most favorably to the jury‘s verdict, the evidence established that (i) Hoffman and the SFHS internal accountants knew employee gifts were not reimbursable under the applicable Medicaid rules; (ii) gift apple invoices for a number of years were entered on SFHS general ledger accounts as “resident food“; and (iii) Hays and at least one other employee asked whether these purchases should instead be entered as employee gifts and were told by Hoffman to continue entering them as food. Defendants countered this showing with evidence that employees who prepared the Medicaid cost reports submitted to DHS were expected to exclude any non-reimbursable items entered in multi-purpose general ledger accounts such as the food account. But there was also evidence this was a haphazard, unsupervised process, permitting the jury to infer that, when Hoffman told employees to enter gift apples in the general ledger as resident food, he knew this would result in Medicaid cost reports that improperly included this item as a reimbursable food expense.5
Second, defendants argue the district court erred in refusing to instruct that materiality is an element of an FCA violation. We recently confirmed that a showing of materiality is implicit in the FCA, though we did not define “the precise contours” of this requirement. United States ex rel. Costner v. United States, 317 F.3d 883, 887 (8th Cir. 2003). In their reply brief, defendants concede that the false claims were material if they “were capable of influencing the government‘s payment decision.” The district court‘s instructions included that concept in a definition of materiality. Moreover, the record is clear that the reporting of employee gift apples as a reimbursable food expense was capable of influencing, and did in fact influence, the government‘s Medicaid reimbursement decisions. Thus, the instructions “taken as a whole and viewed in light of the evidence and the applicable law, fairly and adequately submitted the issues in the case to the jury.” Gray v. Bicknell, 86 F.3d 1472, 1485 (8th Cir. 1996).
Third, defendants argue they were prejudiced by a number of the district court‘s evidentiary rulings. After carefully reviewing the record, we find no clear and prejudicial abuse of discretion. See Anheuser-Busch, Inc. v. John Labatt, Ltd., 89 F.3d 1339, 1345 (8th Cir. 1996), cert. denied, 519 U.S. 1109 (1997). Limited to the apples claim, the evidentiary contentions are without merit.
The FCA provides that any person who knowingly makes a false claim (or causes one to be made) “is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000.”
In this case, though the inquiry is fact-intensive, the district court treated the number of false claims as a question of law, which means we review its conclusion de novo. The court made its determination based upon the trial record, which was focused on other issues and is woefully inadequate for this purpose. Hays relied primarily on the testimony of Robert Rau, a former DHS auditor who had no first-hand knowledge of how SFHS facilities prepared and submitted requests for Medicaid reimbursement. Based upon his review of the DHS audit reports, Rau opined that the treatment of employee gift apples as a reimbursable food expense resulted in two hundred false claims for FCA purposes. He arrived at that number by concluding that the apples expense impacted twenty-seven annual Medicaid cost reports, and by assuming that each SFHS facility submitted monthly requests for payment to DHS using “residential service invoice” (RSI) forms. But the trial record contained no SFHS cost reports or RSI forms. Rau admitted that the RSI form is prepared on a per-resident basis, not a per-facility basis. No witness explained the manner and frequency in which SFHS facilities submitted payment requests to DHS in the years in question. And Hays failed to include in the record on appeal the exhibit showing Rau‘s calculations. On this record, Rau‘s opinion as to the number of false claims was simply an unsubstantiated guess.
In addition, we have a more fundamental problem with the district court‘s decision to accept Rau‘s opinion as to the number of false claims. Bornstein instructs us to focus on “the specific conduct of the person from whom the Government seeks to collect the statutory forfeiture.” Id. at 313. Here, the misconduct was to purchase approximately $6,000 worth of apples, give them to employees during the holiday season, and then falsely claim Medicaid reimbursement for this expense. Medicaid reimbursement is a rate-based regime. A facility‘s historical costs are recorded on an annual cost report. DHS then uses that report to calculate a payment rate or rates which are applied to all covered services over the following year (disregarding necessary time lags in the complex system). See
The judgment of the district court is reversed in part, and the case is remanded with directions to enter a modified final judgment in which (i) the penalty set forth in paragraph 1 of the court‘s order for judgment dated August 20, 2001, is changed from $1,680,000 to $80,000, and (ii) plaintiff‘s claims against defendant Kay Knock are dismissed with prejudice. Appellants’ motion to strike is denied as moot.