Pending before the Court are three motions to dismiss filed on behalf of the forty hospital-defendants
Before delving into the substantive merits of these motions, a review of the procedural background of this litigation is warranted.
I. Procedural Background
On March 31, 1994, Relator Kevin Cosens (hereinafter “Cosens” or “Relator”), a private citizen who served as a sales representative and clinical support person for cardiovascular device manufacturers, filed under seal a qui tam action under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., in the United States District Court for the Western District of Washington against 132 clinical trial hospitals from thirty states as well as thirty “John Doe” defendants. United States ex rel. Cosens v. University of Alabama, et al., Case No. C94-474D (W.D.Wash.). Cosens alleged that these hospitals had defrauded Medicare and other federal health care programs by submitting claims and receiving payments for hospital services provided to patients who elected to participate in clinical trials involving nearly sixty different investigational cardiac devices that had not been approved for marketing by the Food and Drug Administration (“FDA”).
As required by the FCA, Cosens’ qui tam action was filed under seal, 31 U.S.C. § 3730(b)(2), and was served on the United States Government so that it could investigate the allegations of the complaint and
On December 28, 1995, Cosens filed his first amended complaint, which added two hospitals as defendants. (First Am. Compl. dtd. 12/28/95.)
On May 1, 1995, twenty-five of the hospitals, including thirteen of the current defendants,
On August 4, 1995, Cosens moved to partially lift the seal in the qui tam action so that he could provide a redacted copy of the complaint to the court and the plaintiff-hospitals in the Cedars-Sinai litigation. (Pl.’s Ex Parte Appl. dtd. 8/4/95 to Partially Unseal Compl.) That motion was granted and the qui tam complaint was unsealed except for
On September 19, 1995, after completing a formal notice-and-comment rule-making process regarding coverage for investigational devices under the statutory “reasonable and necessary” standard, the Secretary of HHS published final regulations addressing the coverage of medical devices categorized by the FDA as “investigational.” The new regulations provided Medicare coverage for those “non-experimental/investigational” devices as to which the initial questions about the devices’ safety and effectiveness had been resolved. See 42 C.F.R. §§ 405.201(b), 405.203, 405.211(b). In contrast to the total exclusion from coverage of such devices under the Manual provision, the new regulations classified such devices as either experimental/investigational (“Category A”) for which there continued to be no coverage, or non-experimental/investigational (“Category B”) which were eligible for Medicare coverage. See 42 C.F.R. §§ 405.201, 405.203(a), 405.205, 405.209, 405.211.
In February 1996, the United States Senate Permanent Subcommittee on Investigations held hearings on the alleged Medicare fraud involving hospitals’ billing for non-FDA-approved medical devices. Relator Co-sens, cloaked in a black hood, testified anonymously at this hearing, as well as John E. Hartwig, Deputy Inspector General for Investigations, Office of the Inspector General of HHS; Thomas Ault, Director of Policy Development for the Health Care Financing Administration; and several witnesses for the hospitals. See Improper Billing by Hospitals, 2/14/96 Cong. Testimony, available at
On April 8, 1996, the California district court in Cedars-Sinai ruled that the 1986 Manual provision was a substantive rule subject to the notice-and-comment rule-making provisions of the APA, with which the Secretary had not complied. Accordingly, the court declared the provision void ab initio. Cedars-Sinai,
In the meantime, while the Cedars-Sinai litigation was pending, the Government requested and was granted numerous extensions of time by the district court in Washington to pursue its investigation of the Cosens’ qui tam matter, to evaluate the evidence, and to determine whether to intervene. See 31 U.S.C. § 3730(b)(3).
Beginning in June of 1999, the Government filed motions for transfer of venue as to particular defendants. In each instance, the Government sought transfer to the judicial district where the hospital was located and where the action originally could have been brought. The Government argued that it was the real party in interest and, as such, its choice of forum should be given substantial weight. (E.g., United States’ Ex Parte Application for Partial Transfer of Venue dtd. 8/17/99.) The Government represented that counsel for the Relator had been apprised of the application and fully concurred. (Id.) Each application for transfer of venue was granted by the court.
Additionally, as the Government successfully negotiated settlements with various defendants, it sought partial intervention and then sought dismissal of the qui tam proceedings as to those defendants. (E.g., United States’ Notice of Election to Intervene dtd. 9/15/99; United States’ Notice of Partial Intervention dtd. 5/25/01.) Ultimately, the Government entered into settlement agreements with all of the hospital-defendants except the forty hospitals that are now defendants in this MDL litigation and those hospitals that were voluntarily dismissed from the Washington litigation.
In late 2001, nine of the hospital-defendants that had not yet been served with the qui tam complaint filed with the district court in Washington a motion to dismiss for failure to prosecute with due diligence and to preclude Government intervention; a motion to dismiss for misjoinder, improper venue, and lack of personal jurisdiction in the Western District of Washington; and a motion to dismiss for lack of subject matter jurisdiction. The latter two motions were stricken as premature, and Judge Lasnik denied the motion to dismiss for failure to prosecute with due diligence and to preclude government intervention.
Each of the complaints asserts six counts against the defendant-hospitals, including three counts under the FCA and three common-law counts: (1) violation of the FCA, 31 U.S.C. § 3729(a)(1), submission of false claims (Count I); (2) violation of the FCA, 31 U.S.C. § 3729(a)(2), making or using a false record or statement to get a claim paid (Count II); (3) violation of the FCA, 31 U.S.C. § 3729(a)(7), making a false record or statement to conceal an obligation to pay a debt owed to the United States (Count III); (4) payment by mistake of fact (Count IV); (5) unjust enrichment (Count V); and (6) recoupment (Count VI). Additionally, complaints against five of the defendants contain a seventh count alleging common-law fraud.
On September 30, 2002, the United States and Relator Cosens filed with the United States Judicial Panel on Multidistrict Litigation a joint motion to transfer the thirty-five eases to the Western District of Washington for coordinated or consolidated pretrial proceedings, pursuant to 28 U.S.C. § 1407. The motion to transfer was granted and, with the consent of this Court, the cases were assigned to the District of Connecticut. Following an initial pretrial conference, this Court then entered a Case Management Order, which addressed the filing of motions to dismiss and stayed all discovery until resolution of the motions to dismiss.
II. Motion to Dismiss Standard
The function of a motion to dismiss for failure to state a claim upon which relief may be granted, Rule 12(b)(6), Fed.R.Civ.P., “is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.” Ryder Energy Distrib. Corp. v. Merrill Lynch Commodities Inc.,
A motion to dismiss should not be granted for failure to state a claim unless the movant proves beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief. Conley v. Gibson,
For purposes of ruling on a Rule 12(b)(6) motion, the Court must accept all factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer,
Because the Federal Rules of Civil Procedure require only “notice” pleading, the Court will construe a plaintiffs allegations liberally. See Rule 8(a), Fed.R.Civ.P.; Swierkiewicz v. Sorema N.A.,
III. Allegations of the Complaints
At all times relevant to the complaints, each hospital was a participating provider in the Medicare program. (Harper-Hutzel Compl. 117.) Part A of the Medicare Program, set forth in Title XVIII of the Social Security Act, authorizes payment for institutional care, including inpatient hospital care and related services. See 42 U.S.C. §§ 1395c-1395i-5. (Harper-Hutzel Compl. 119.) HHS is generally responsible for the administration and supervision of the Medicare Program. The Centers for Medicare and Medicaid Services (“CMS”), formerly known as the Health Care Financing Administration (“HCFA”), a component of HHS, is directly responsible for administration of the Medicare Program. To assist in the administration of Medicare Part A, CMS contracts with “fiscal intermediaries,” typically insurance companies, who are responsible for processing and paying claims and auditing cost reports. See 42 U.S.C. § 1395h. (Harper-Hutzel Compl. 1110.)
Under the Social Security Act, 42 U.S.C. § 1395y(a)(l), the Medicare Program is authorized to pay only for items and services that are medically “reasonable and necessary.” The Secretary of HHS is authorized to define what services meet that criteria. 42 U.S.C. § 1395ff(a). (Harper-Hutzel Compl. H11.) HHS issues a Hospital Manual, which is distributed to all Medicare providers, to inform them of its reimbursement policies and procedures. Similar manuals are provided to the fiscal intermediaries (the “Intermediary Manual”). These manuals are an essential source of information to Medicare providers and intermediaries regarding Medicare coverage policies. (Harper-Hutzel Compl. 1112.) The Medicare providers have a legal duty to familiarize themselves with Medicare’s reimbursement rules, including those stated in the Manuals. (Harper-Hut-zel Compl. 1113.) The Medicare regulations require the providers to furnish to the fiscal intermediaries sufficient information to determine if payment was due and the amount of payment see 42 C.F.R. § 424.5(a)(6).
Under the Medicare Program, CMS enters into provider agreements with the hospitals in order to establish their eligibility to participate in the Medicare Program. Upon discharge of a Medicare beneficiary from the hospital, the hospital submits an interim reimbursement claim for items and services provided to that patient. These claims are submitted on a standard form, Form HCFA-1450 (UB-82). (After 1994, a modified version called a Form HCFA-1450 (UB-92) was used.) (Harper-Hutzel Compl. H15.) In addition to claims for inpatient services, Medicare providers are required to submit annually a Hospital Cost Report, Form HCFA-2552, which summarizes the amount of interim payments received and the amount to which they claim entitlement from Medicare.
Between July 1986 and November 1995, payment by Medicare for any medical procedure in which a medical device was used was expressly conditioned upon the FDA’s approval of the medical device for marketing, which signifies that the FDA had determined that the device was safe and effective for general medical use and could be commercially distributed. (Harper-Hutzel Compl. HH 24, 25.) All of the devices discussed in the complaints were cardiac devices that had not been approved for marketing by the FDA. Rather they were provided by the manufacturers to the defendant-hospitals pursuant to an “Investigational Device Exemption,” which restricted their use to carefully monitored clinical trials, the purpose of which was to gather evidence of the safety and effectiveness of the devices. (Harper-Hutzel Compl. 1125.) Prior to 1986, in order for a provider to bill Medicare for procedures involving investigational devices, it had to provide the fiscal intermediary with “authoritative evidence” of the safety and effectiveness of the devices at issue when it submitted its claims. (Harper-Hutzel Compl. H 26.)
Provider hospitals participating in the Medicaid program are required to file annual cost reports with the state agencies administering that particular state’s Medicaid program and are required to submit claims forms identical to those used in the Medicare program. (Harper-Hutzel Compl. H 28.) These forms contained the following certification:
This is to certify that the foregoing information is true, accurate and complete.
I understand that payment and satisfaction of this claim will be from Federal and State funds, and that any false claims, statements, or documents, or concealment of a material fact, may be prosecuted under applicable Federal or State laws.
(Harper-Hutzel Compl. H 28.) When a provider submits a Medicaid cost report that contains the same false or incorrect information contained in the provider’s Medicare cost report, false statements and false claims have been made for reimbursement from Medicaid. (Harper-Hutzel Compl. II29.)
The Government alleges that between 1986 and 1995, defendants billed Medicare and Medicaid for numerous procedures involving cardiac devices that had not been approved for marketing by the FDA, and for services related to those procedures. (Harper-Hut-zel Compl. H 30.) Defendants received mil
The Government alleges that defendants had access to current copies of the Hospital Manual at all times relevant to the complaint and, thus, were on notice of the fact that Medicare considered medical procedures involving cardiac devices that had not been approved for marketing by the FDA, and any services related to such procedures, to be non-covered and non-reimbursable. (Harper-Hutzel Compl. 1144.) If the defendant-hospitals did not regularly review the Hospital Manual to keep informed of the Medicare policies, then they acted with reckless disregard. Any express or implied representations that they made that they were complying with Medicare rules or instructions were knowingly false within the meaning of the FCA, 31 U.S.C. § 3729. Alternatively, if they did review the Hospital Manual properly, then they had actual knowledge of the provisions at issue. (Harper-Hutzel Compl. 1145. ) Similar allegations are set forth with respect to defendants’ alleged violations of Medicaid policies. (Harper-Hutzel Compl. 1146. )
The complaint further alleges that the defendant-hospitals did not inform their fiscal intermediaries that the claims identified were for procedures involving investigational cardiac devices. Instead, they filled out the claims forms as if the services being billed were covered by Medicare. Prior to April, 1994, when the defendants submitted their claims using HCFA Form UB-82, which had a box for “remarks,” they did not explain on the form that the patient had received an investigational cardiac device. After April, 1994, when they submitted their claims using HCFA Form UB-92, which had a column to indicate that the services were “non-covered charges,” they listed their charges in the column for “covered charges,” rather than in the column for “non-covered charges.” The complaint alleges that defendants did not submit any supplemental documents with their claim forms explaining that the procedures involved investigational cardiac devices. (Harper-Hutzel Compl. 1147.) By failing to disclose to the fiscal intermediaries that their initial claims for payment were for non-covered services, defendants violated the False Claims Act. (Harper-Hutzel Compl. It 48.)
“Upon information and belief,” between 1987 and 1995, defendants regularly submitted Hospital Cost Reports to Medicare that
The Government then asserts as a First Cause of Action, a violation of the FCA, 31 U.S.C. § 3729(a)(1), “Presentation of False Claims,” which alleges that defendants “knowingly presented or caused to be presented false or fraudulent claims for payment or approval to the United States.” (Harper-Hutzel Compl. U 53.) For a Second Cause of Action, the Government alleges a violation of the FCA, 31 U.S.C. § 3729(a)(2), “Making or Using False Record or Statement to Cause False Claim to be Presented,” and alleges that defendants “knowingly made, used, or caused to be made or used, false records or statements to get false or fraudulent claims paid or approved by the United States.” (Harper-Hutzel Compl. IT 56.) The Third Cause of Action alleges a violation of § 3729(a)(7) of the FCA, “Making or Using False Record or Statement to Avoid an Obligation to Refund,” which claims that defendants “knowingly made, used or caused to be made or used false records or false statements to conceal, avoid or decrease an obligation to pay or transmit money or property to the United States.” (Harper-Hutzel Compl. H 59.) The Fourth Cause of Action is for payment by mistake of fact in which the Government states that it acted in reasonable reliance on the truthfulness of the claims and defendants’ certifications in paying defendants sums of money to which they were not entitled, and, therefore, defendants are liable to account and pay for such amounts to the United States. (Harper-Hutzel Compl. 1Í 62.) For a Fifth Cause of Action, the complaint asserts a claim for unjust enriehment, seeking to recover monies to which defendants were not entitled and by which they have been unjustly enriched. (Harper-Hutzel Compl. 1166.) Lastly, for a Sixth Cause of Action, the Government seeks re-coupment of monies unlawfully paid by the United States to defendants contrary to statute or regulation. (Harper-Hutzel Compl. IT 68.)
Additionally, in the complaints against five defendants,
IV. Discussion
A. Motion to Dismiss for Failure to Plead Fraud with Particularity, Rule 9(b), Fed. R.Civ.P.
1. The Parties’ Contentions
Invoking the pleading requirements of Rule 9(b), the hospital-defendants
(1) The complaints merely allege a “per se” fraud theory, equating fraud with an alleged violation of the Medicare Hospital Manual and do not allege particular fraudulent misconduct.
(2) The complaints do not identify specific claims submitted to the Government and do not allege the “who, what, when, where, and why” of the defendants’ allegedly fraudulent misconduct.
(3) The complaints do not allege facts giving rise to a strong inference of fraudulent intent.
(Defs.’ 9(b) Mem. at 2.)
The Government responds that its complaints provide sufficient detail about the
As to defendants’ argument that the complaints fail to provide evidence of “fraudulent intent,” the Government responds that the FCA expressly states that no proof of a specific intent to defraud is required to prove an FCA violation. Proof of reckless disregard or deliberate indifference will suffice. Further, under Rule 9(b), “intent, knowledge, and other condition of mind” may be averred generally. In any event, the Government asserts that its complaints do in fact plead fraud with the requisite particularity. (Id.)
2. Principles Governing The Pleading Requirements of Rule 9(b)
Rule 9(b), Fed.R.Civ.P., requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” “Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” (Id.) It is well-settled, and the Government concedes, that Rule 9(b), Fed.R.Civ.P., applies to FCA claims.
The Second Circuit has held that in order to satisfy the requirements of Rule 9(b), a plaintiff’s complaint must (1) specify the statements that the plaintiff contends were fraudulent; (2) identify the speaker; (3) state where and when the statements were made; and (4) explain why the statements were fraudulent. Shields v. Citytrust Bancorp, Inc.,
Frequently, however, in cases involving complex or extensive schemes of fraud, the courts have relaxed the pleading requirements of Rule 9(b). See United States ex rel. Hill v. Morehouse Med. Assocs.,
It is only common sense that the sufficiency of pleadings under Rule 9(b) may depend “upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.” Payne v. United States,247 F.2d 481 , 486 (8th Cir.1957), [cert. denied,355 U.S. 923 ,78 S.Ct. 367 ,2 L.Ed.2d 354 (1958) ]. Similarly, it has been widely held that where the fraud allegedly was complex and occurred over a period of time, the requirements of Rule 9(b) are less stringently applied. Anthony Distributors, Inc. v. Miller Brewing Co.,904 F.Supp. 1363 , 1366 (M.D.Fla. 1995); Fujisawa Pharmaceutical Co., Ltd. v. Kapoor,814 F.Supp. 720 , 726 (N.D.Ill. 1993); In re Sunrise Litig.,793 F.Supp. 1306 , 1312 (E.D.Pa.1992); P & P Mktg., Inc. v. Ditton,746 F.Supp. 1354 , 1362-63 (N.D.Ill.1990); In re Olympia Brewing Co. Sec. Litig.,674 F.Supp. 597 , 620 (N.D.Ill. 1987); Hirt v. UM Leasing Corp.,614 F.Supp. 1066 , 1072 (D.Neb.1985) (quoting 2A J. Moore’s Federal Practice 9.093 at 9-28 (1979)); In re Catanella and E.F. Hutton Co. Sec. Litig.,583 F.Supp. 1388 , 1397 (E.D.Pa.1984). To approach the issue otherwise would allow the more sophisticated to escape liability under a False Claims case due to the complexity of their scheme and their deviousness in escaping detection.
In other instances, where the alleged fraudulent scheme involved numerous transactions that occurred over a long period of time, courts have found it impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent conduct. See United States ex rel. Franklin v. Parke-Davis,
For example, in In re Pharmaceutical Industry, an MDL case, the plaintiffs alleged that forty-two pharmaceutical companies had fraudulently overstated the published wholesale prices of many of their prescription drugs, resulting in inflated payments by consumers, Medicare beneficiaries, insurers, and other end-payors. The complaint identified 321 specific prescription drugs. The defendants challenged the sufficiency of the complaint under Rule 9(b) on numerous bases, including its failure to identify the who, when, where, and specifics of the alleged fraud. The court, quoting United States ex rel. Franklin v. Parke-Davis,
Likewise, in United States ex rel. Harris, the court held that a complaint, alleging that
In United States ex rel. Pogue, another FCA case, the plaintiff alleged that the defendant had violated the anti-kickback laws in numerous hospitals around the United States over a twelve-year period.
Furthermore, courts have held that Rule 9(b)’s heightened pleading standard may be applied less stringently when the specific factual information is peculiarly within the defendant’s knowledge or control. See United States ex rel. Hill,
Thus, the courts have tempered the heightened pleading requirements of Rule 9(b) when the underlying purposes of Rule 9(b) have been met or when pleading each instance of the allegedly fraudulent conduct would be impractical.
We now turn to defendants’ specific arguments in support of their motion to dismiss.
3. Whether the Complaints Allege Merely a “Per Se” Fraud Theory
Citing Mikes v. Straus,
Mikes involved a qui tarn plaintiffs challenge to Medicare claims submitted for medical services that were not performed in accordance with the relevant standard of medical care. The plaintiff, a pulmonologist, brought suit under the FCA against her former employer, a partnership of physicians, alleging that they had submitted fraudulent Medicare claims for spirometry procedures that were performed by medical assistants who were not properly trained, and who had used a spirometer that had not been properly calibrated. The Second Circuit held that defendants’ claims for reimbursement from the Government were not legally false simply because the particular services furnished failed to comply with the mandates of a statute, regulation or contractual term that was only tangential to the service for which reimbursement is sought. Mikes,
In United States ex rel. Clausen, the relator generally alleged that the defendant laboratory had violated the FCA over a ten-year period by knowingly submitting false claims for unauthorized, unnecessary or excessive medical tests and for over-charging for other tests, but he failed to identify any specific claims submitted by the defendant to the Government. The Eleventh Circuit noted that the FCA does not “create liability merely for a health care provider’s disregard of
Likewise, in Southland Management, the Fifth Circuit held that “[tjhere is no liability under [the FCA] for a false statement unless it is used to get a false claim paid.” South-land Management,
As this Court held in United States ex rel. Capella, “a violation of a statute or regulation does not, by itself, trigger FCA liability because it is the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit.”
In the instant case, the Government has challenged defendant-hospitals’ billing Medicare for procedures using non-FDA-approved devices, which it contends were not “reasonable and necessary” based on the Manual provision, which stated that “[m]edical devices which have not been approved for marketing by the FDA are considered investigational by Medicare and are not considered reasonable and necessary.” The Government does not challenge the manner in which the devices were used, whether the procedures were performed in accordance with applicable medical standards, or whether the persons performing the procedures were properly trained, as did the plaintiff in Mikes. Nor, does the Government contend that the procedures were not performed in a safe manner or under proper conditions, which would be somewhat analogous to the claims in Southland Management. Nor, is this a case in which the Government has failed to identify specific claims,
Thus, contrary to defendants’ assertion, the Government’s complaints assert more than a mere regulatory violation. They assert that defendants filed claims for services
4. Whether the Complaints Adequately Identify a False Claim or Adequately Allege the “Who, What, Where, When and How” of the Fraud
Citing Acito v. IMCERA Group, Inc.,
As defendants argue, the sine qua non of FCA liability is the presentation of a claim that is false. United States ex rel. Clausen,
Unlike the complaint in Clausen which “failed to provide any ... information linking the testing schemes to the submission of any actual claims,”
The patient lists that accompanied the complaints and were served on each defendant were prepared by the Government from information supplied by the defendants, providing information on the specific patients and procedures. The spreadsheets varied, but generally listed the patient, some identifying number regarding the patient’s account or medical record, the make and model of the medical device, and the date of service or the admission and discharge dates for the hospital stay.
In this case, when the complaints are read in conjunction with the patient lists provided to the hospitals, the Court finds that the complaints sufficiently identified the submission of specific false claims. This is not a situation where only a general scheme of fraud was alleged that might have resulted in the submission of false claims. Here, the fraudulent scheme was the submission of the claims themselves. This stands in sharp contrast to the complaints in Clausen, which “[a]t most, ... raise[d] questions about [the defendant’s] internal testing policies. But nowhere in the blur of facts and documents assembled by Clausen regarding six alleged testing schemes can one find any allegation, stated with particularity, of a false claim actually being submitted to the Government.”
Additionally, we find that the complaints satisfy the “who, what, where, when, and why” requirements of Second Circuit case law. The “who” in the complaints is the hospitals. Given the specificity of the remaining information that is provided in the complaints and patient lists, it was not necessary for the Government to identify by name the individuals filling out each claim form.
Defendants cite a number of cases in which the courts have held that the complaints were too vague to satisfy Rule 9(b). However, each case must be considered on its own facts to determine whether the facts, as alleged, satisfy the underlying purposes of Rule 9(b). Rule 9(b) does not impose a “one
Here, the defendants have been provided with fair notice of the substance of the claims against them. The complaints, read in conjunction with the patient lists provided to the hospitals, contain sufficient detail to accomplish the basic purposes of Rule 9(b). To require the Government to provide the specifics relating to each of the 9,848 claims in the complaints against these forty hospitals would be cumbersome, unwieldy, and would accomplish no purpose. As the court noted in United States ex rel. Johnson v. Shell Oil,
5. Whether the Complaints Allege Facts Giving Rise to a Strong Inference of Fraudulent Intent
Lastly, defendants ask this Court to dismiss the complaints under Rule 9(b) because the complaints do not allege facts giving rise to a strong inference of fraudulent intent. Defendants, citing Acito and Shields, argue that the complaints must either allege motive and opportunity to commit fraud or facts constituting strong circumstantial evidence of conscious misbehavior or recklessness. More specifically, they argue that motive entails a “concrete benefit” that could be realized by the false statements.
The Government, relying on Gold v. Morrison-Knudsen Co.,
In reply, defendants stress the fact the Government has made the “stunning admission that thirty-five of the forty Complaints
Although the courts have applied the heightened pleading requirements of Rule 9(b) to FCA cases, those pleading requirements do not change the substantive burden of proof in an FCA case. A plaintiff is not required to plead fraud in a False Claims action, rather, only that the conduct by the defendants was done knowingly. “Liability under the Civil False Claims Act is statutory — that is liability arises from performance of one of the acts set forth in 31 U.S.C. § 3729(a). This statutory liability underscores that the False Claims Act (‘F.C.A.’) is not a fraud statute; instead it is a false claim/false statement statute in which common law principles do not necessarily apply.” United States ex rel. Johnson v. Shell Oil,
The FCA establishes liability, inter alia, for anyone who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1), or “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government,” 31 U.S.C. § 3729(a)(2), or “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7) (emphasis added). The FCA defines “knowing” and “knowingly” as having actual knowledge of the information, or acting in either deliberate ignorance of or in reckless disregard of the information’s truth or falsity. 31 U.S.C. § 3729(b). As the Government argues, the Act expressly provides that “no .proof of specific intent to defraud is required.” Id. (emphasis added). Additionally, Rule 9(b) allows conditions of the mind, in this case, to “knowingly” file a false claim, to be pled generally. Fraudulent intent needs neither to be pled nor proven in order for a plaintiff to state a claim under the FCA.
The Second Circuit has adopted the Ninth Circuit’s standard that the “requisite intent is the knowing presentation of what is known to be false” as opposed to negligence or innocent mistake. Mikes,
In the three counts under the FCA, the Government has pled that the defendants “knowingly” presented or caused to presented false or fraudulent claims for payment or approval to the United States (Count I), 31 U.S.C. § 3729(a)(1); “knowingly” made, used
We find that the Government has met its burden of pleading scienter under the FCA. Whether the facts will bare out these claims or whether the facts will show only an innocent mistake or mere negligence on the part of the defendant-hospitals are issues that cannot be resolved on a motion to dismiss. At this juncture, we are required to accept as true all factual allegations of the complaint and draw all reasonable inferences in favor of the plaintiff. Scheuer,
As to Counts Four and Five, alleging payment by mistake and unjust enrichment, fraudulent intent is not an element of either of these claims.
As to the Government’s seventh count for fraud, which is contained in five of the complaints, these complaints have alleged
The complaint against Loyola quotes a December 1988 memo from the Chairman of Loyola’s Institutional Review Board to one of the hospital’s physicians warning that patients in one of the clinical trials should be advised that they might be financially responsible for the procedures. “Since this device is an investigational device, third party carriers such as Medicare may not reimburse for this implantation.” (Loyola Compl. II 46(A).) The physician dismissed the warning as “a somewhat ridiculous issue since Medicare never asks what type or brand of pacemaker is implanted.” (Loyola Compl. 1146(B).) According to the complaint, the hospital charged Medicare for these procedures anyway. The complaint also quotes a 1993 memo from one of the manufacturers instructing the hospital to warn patients participating in the trial of one of their devices that “[i]nsurance companies or government health care programs may limit their obligation to pay for investigational or experimental treatment and its consequences.” (Loyola Compl. 1146(E).)
The complaint against St. Joseph’s Hospital of Atlanta quotes a 1990 memo from the hospital’s Director for Patient Financial Services to the Assistant Vice President for Surgical Services, relating that HHS’s position had been reiterated to him, just as they had heard it before: “If the product is not FDA and Medicare approved, it is not covered by the Medicare program.” The memo stated that all vendors were aware of this and were prepared to inform the hospital of a product’s covered or non-covered status. He states that it is their responsibility not to bill Medicare for non-covered charges, which can be submitted on the UB-82 form in the “non-covered area.” (St. Joseph’s Compl. 1163.)
The complaint against Northwestern Memorial Hospital quotes a July 1988 internal memo projecting revenues for one of the clinical trials at issue based on the assumption that the procedures were not reimbursable and stating that “it would be unlikely that insurance carriers or Medicare will pay for an investigational procedure.” (Northwestern Compl. 1130.) It also cites a 1989 memo involving another investigational procedure and noting that it may not be reimbursed. Nevertheless, the Government alleges that Northwestern billed Medicare for at least fifty-two procedures involving this particular device. (Northwestern Compl. U 29.)
The complaint against Yale-New Haven Hospital states that the hospital continued billing Medicare for investigational devices even after receiving a subpoena about the practice in 1994. (Yale-New Haven Compl. 1140.)
The original complaint against the Cleveland Clinic states that it was reminded by one of the manufacturers in April 1992 that insurance companies and Government health care programs often limited coverage of in-vestigational or experimental treatments. Moreover, it was specifically directed by that manufacturer to warn patients in its clinical trials of Wiktor stents that the patients would be financially responsible for the costs of the procedures at issue. (Cleveland Clinic Compl. If 48.)
Accordingly, the Court denies defendants’ Rule 9(b) motion to dismiss the complaints for failure to plead fraud with particularity.
B. Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted, Rule 12(b)(6), Fed.R.Civ.P.
1. The Parties’ Contentions
The hospital-defendants’
Second, defendants argue that the FCA counts rely on a Manual provision that was (1) either an invalid legislative rule adopted in violation of the notice-and-comment requirements of the APA or a non-binding interpretive rule; (2) arbitrary and capricious and therefore invalid; and (3) ambiguous on its face and the subject of a disputed legal question. Because the Manual provision was invalid, it cannot form the basis of a claim under the FCA. Defendants assert that the common-law claims also fail because they rely on the same Manual provision and because the hospitals have a statutory right to administrative adjudication of overpayments by HHS. See 42 U.S.C. §§ 1395ff(a), (b), 1395pp(d); 42 C.F.R. §§ 405.701 et seq. (setting forth the administrative appeals process); United States ex rel. Rahman v. Oncology Assocs., P.C.,
The Government responds that to adopt the defendants’ position would be to allow Medicare providers to bill Medicare for millions of dollars for services that are not covered under Medicare rules, without revealing that the services are not covered, and without challenging or seeking clarification of the coverage rule. Then, if the provider is caught, it can escape liability by arguing that the rule was never valid in the first place. (Gov’t 12(b)(6) Mem. at 1.) Instead, when a recipient of federal funds submits claims to Medicare that disguise non-covered services as covered services, it has violated the FCA. (Id.) In fact, the Government contends, these are classic false claims — a provider’s concealing a material fact in order to receive a payment that is not due.
The Government relies on both express and implied certification theories in arguing that the defendants’ claims were legally false. The hospitals made false certifications on each of their annual Cost Reports that the reports were true, correct, and accurate and prepared in accordance with applicable instructions, which included the Manual provision, when in fact the provisions of the Manual had not been followed. The hospitals also implicitly certified that the services billed for were “reasonable and necessary,” when in fact they were not, according to the Manual provision that was binding on the hospitals.
The Government, citing the Supreme Court’s decision in Shalala v. Guernsey Memorial Hospital,
2. Whether the Complaints Have Alleged a False or Fraudulent Claim
In Mikes, the Second Circuit held that to impose liability under the FCA, the Government must show that defendants (1) made a claim, (2) to the United States government, (3) that is false or fraudulent, (4) knowing of its falsity, and (5) seeking payment from the federal treasury.
a. What Constitutes a Claim Under the FCA?
With respect to the first element, the Second Circuit held that the FCA “expansively defines the term ‘claim’ to cover ‘any request or demand, whether under a contract or otherwise, for money or property ... if the United States Government provides any portion of the money or property which is requested or demanded.’ ” Id. (quoting 31 U.S.C. § 3729(c)). In the instant case, defendants’ submission of Form HCFA-1450 (UB-82 and UB-92) clearly constituted the submission of a “claim” to the United States government. See Id. (holding
Additionally, based on the allegations of the complaints, we find that the submission of the annual Cost Report forms with their accompanying certifications that the reports were true, correct, and complete and prepared in accordance with applicable instructions, constituted the submission of a claim. See Gublo v. Novacare, Inc.,
Defendants argue that under the prospective payment system, the Cost Reports merely accounted for DRG payments actually received, although they did reconcile interim payments for other items or services that were paid on a reasonable cost basis, as opposed to being paid on a prospective payment system, none of which is in question here.
Although the Cost Reports were not requests for payment with respect to the specific services provided to the Medicare beneficiaries, those charges were included in the Cost Reports and were subject to the certification that they were true and correct. Given the Second Circuit’s expansive interpretation of the term “claim,” we find that the annual Cost Reports constituted “claims” within the meaning of the FCA.
b. Has The Government Sufficiently Alleged That The Claims Were False or Fraudulent?
Regarding the third element of an FCA cause of action, the FCA does not define “false or fraudulent.” Mikes, however, instructs that these terms must be considered in the context of the statute and that a claim cannot be determined to be false or fraudulent unless the Government would not have paid the claim if the actual facts had been known.
The Second Circuit in Mikes held that a claim may satisfy the falsity element of the FCA in one of three ways. It may be factually false if it “incorrectly describes the goods or services provided or a request for goods or services never provided,” id. at 697, or it may be legally false because of an express false certification or an implied false certification. Id. at 697-98. In Mikes, the Second Circuit held an “expressly false claim is ... a claim that falsely certifies compliance with a particular statute, regulation or contractual terms, where compliance is a prerequisite to payment.” Id. at 698 (emphasis added). Under an implied false certification theory, the act of submitting a claim for reimbursement itself implies compliance with the governing federal rules that are a precondition to payment. Id. at 699 (emphasis added).
i. Were The Claims Factually False?
The Government asserts that the claims were factually false because they failed to identify the services provided as non-covered because they involved an investigational device. The regulations, 42 C.F.R. § 424.5(a)(6), required the hospitals to furnish the intermediaries with sufficient information to determine whether payment was due and the amount of payment. Additionally, the hospitals had an obligation to submit their claims on forms approved by Medicare and in accordance with Medicare instructions. 42 C.F.R. § 424.32. The UB-82 claim forms, used until 1994, contained a “Remarks” box on the form where the hospitals were instructed to enter any remarks not shown elsewhere on the bill but which were necessary for proper payment. See Gov’t Ex. 2 to 12(b)(6) Mem. at 119.27E (Item 94). There was also a blank column that could have been used for non-covered charges. See Gov’t Ex. 2 to 12(b)(6) Mem. at 119.21A (Items 54, 55, and 56). On the UB-92 forms, in use after April 1994, in addition to the box for “Remarks,” there was a column bearing the heading “Non-Covered Charges” in which the hospitals should have listed charges that were not covered.
The Court is not convinced that defendants’ failure to interpret the instructions on the UB-82 form as requiring the disclosure of non-covered items in the “Remarks” section or in the blank column on that form renders the claim factually false. A stronger argument can be made that defendants’ failure to disclose this information on the UB-92 form, which contained a column for “non-covered” charges, was factually false.
Both sides rely on the case of United States ex rel. Berge v. Board of Trustees of University of Alabama,
To adopt defendants’ position would allow providers to ignore the Manuals in their entirety, which is an untenable result. At the same time, we have difficulty with the Government’s position that the forms were factually false because this information was not set forth in the “Remarks” box or in an unlabeled column. We need not reach the issue of whether the claim forms themselves were factually false, however, because we find that they were legally false under the implied certification theory discussed in Mikes.
ii. Were The Claims Legally False?
As Second Circuit held, because the Medicare Act, 42 U.S.C. § 1395y(a)(l)(A), contains an express condition of payment— “no payment may be made [under the Medicare statute] for any expenses incurred for items or services which ... are not reasonable and necessary for the diagnosis or treatment of illness or injury,” it “explicitly links each Medicare payment to the requirement that the particular item or service be ‘reasonable and necessary.’” Mikes,
Based on the holdings in Mikes and Heckler, we find that in submitting the claims forms, defendants implicitly certified compliance with the Medicare Act § 1395y(a)(l)(A), that they were only seeking payment for services that were reasonable and necessary. To the extent that the forms included requests for payment for services that were not reasonable and necessary, the claims were legally false under an implied certification theory.
On the annual Cost Reports, defendants expressly certified that they were “true, correct, and complete” and “prepared ... in accordance with applicable instructions, except as noted.”
The Medicare regulations imposed on defendants the obligation to provide the intermediaries with all information necessary to determine whether payment was due. Critical to this determination would be information concerning whether services were provided for a non-covered item. As the Eleventh Circuit stated in United States v. Calhoon,
While it is true that a provider may submit claims for costs it knows to be presumptively nonreimbursable, it must do so openly and honestly, describing them accurately while challenging the presumption and seeking reimbursement. Nothing less is required if the Medicare reimbursement system is not to be turned into a cat and mouse game in which clever providers could, with impunity, practice fraud on the government.
Thus, in submitting their claims, defendants were obligated to seek payment only for those services that were covered. To the extent that they sought payment for services that were not covered, the claims were legally false. The Government has alleged in its complaints that defendants knowingly submitted claims for payment of non-covered services provided in connection with investi-gational devices that were not reasonable and necessary. These FCA causes of action, as pled, set forth sufficient facts to satisfy the third element, that the claims were false or fraudulent.
Regarding the fourth element of a cause of action under the FCA, as discussed above, the Government has pled that the defendants “knowingly” presented false claims; “knowingly” made or used false records to cause false claims to be paid; and “knowingly” made or used false records to avoid the obligation to refund money to the United States, as that term is defined by the FCA. As discussed above, whether the Government will ultimately be able to prove that these claims were submitted “knowingly” is an issue for another day. It is not one that can be resolved on a motion to dismiss.
Finally, the fifth element of a cause of action under the FCA, that the claims sought payment from the federal treasury, is not disputed.
Therefore, we find that the Government has adequately alleged that defendants submitted false or fraudulent claims for purposes of stating a claim under the FCA.
3. The Validity of the Manual Provision
The second ground urged by defendants in support of their Rule 12(b)(6) motion is the invalidity of the Manual provision. They assert that “the Government relies exclusively upon the Manual Provision to support its allegations that inpatient hospital services involving the use of an IDE device were per se non-covered, and that submitting claims to Medicare for such services automatically violated the FCA.... The Government’s reliance is misplaced.” (Defs.’ 12(b)(6) Mem. at 16.) Defendants contend that, if they were bound by the Manual provision, then it must be considered a legislative rule subject to the notice-and-comment rule-making requirements of the APA, with which the Government unquestionably did not comply. If it is considered merely interpretive, then it was not binding and cannot form the basis of the Government’s FCA claims or the common-law claims, which rely exclusively on the Manual provision. Additionally, they argue that it is arbitrary, capricious, and ambiguous.
The Government maintains that the Manual provision is the “quintessential” interpretive rule and, thus, is not subject to the rule-making requirements of the APA. More importantly, however, it argues, that even if it were invalid, defendants were not at liberty to simply ignore it by submitting claims for
As discussed above, all of the cardiac devices at issue were IDE devices being used in clinical trials at the various hospitals. The complaints allege that none of the devices had been approved for marketing by the FDA. (Harper-Hutzel Compl. H 31.) The approval of medical devices for marketing is governed by the Medical Devices Amendments to the Federal Food, Drug, and Cosmetic Act, enacted in 1976. As discussed in Note 3, swpra, all of the devices in these cases were classified by the FDA as “Class III” devices as to which insufficient information existed to “provide reasonable assurance of the safety and effectiveness of the device.” 21 U.S.C. § 360c(a)(l)(C)(i). Because of the lack of information about the safety and effectiveness of a Class III device, before it can be marketed, it must have “premarket approval” from the FDA.
That issue is governed by the Medicare Act, which, as discussed above, provides that “no payment may be made ... for items or services ... which ... are not reasonable and necessary for the diagnosis and treatment of illness or injury.....” 42 U.S.C. § 1395y(a)(l)(A). The Act does not define what services are “reasonable and necessary.” Rather, pursuant to 42 U.S.C. § 1395ff(a), the Secretary is authorized to define what services meet that criteria. See also Heckler,
In a 1977 letter to fiscal intermediaries regarding coverage of investigational medical devices, HCFA stated:
Denial of payment for a medical item or service because it is considered experimental or investigational is required by the law excluding unreasonable or unnecessary services from payment (section 1862(a)(1)). Such decisions are based on qualified professional medical community; they are not judgments that a physician’s choice is inappropriate or that a patient does not need treatment.
(Defs.’ Ex. 3 to 12(b)(6) Mot., Part A Intermediary Letters Nos. 77-4, retrieved from CCH 1976 MED-GUIDE-TB If 28152). Then in a sample letter provided to intermediaries, which was suggested for use in responding to inquiries concerning the coverage of experimental or investigational items and services, “where the inquirer expresses the belief that Medicare dictates what treatment the physician should use,” the Guide explains that in making the decision whether a service can be covered under a general provision of the Medicare law, “a basic consideration is whether the service has come to be generally accepted by the professional and medical community as an effective and proven treatment for the condition for which it is being used.” Id. at 3. A service would not be covered if it were “rarely used, novel, or
As defendants point out, CMS (formerly HCFA) contracts with private fiscal intermediaries, generally insurance companies, to process and pay claims and audit cost reports. This includes, among other things, making Medicare Part A “reasonable and necessary” coverage determinations as to whether the claims submitted are for covered services and the appropriate amount of reimbursement to the provider. 42 U.S.C. § 1395h(a); 42 C.F.R. § 421.100(a). In making these determinations, the fiscal intermediaries are bound to follow the instructions promulgated by the Secretary. 42 C.F.R. § 405.806. Generally these determinations are made on a ease-by-case basis.
The hospitals interpret the 1977 intermediary letters as stating that coverage decisions involving investigational medical devices would likewise be made on a case-by-case basis, and depended on whether the particular service was generally accepted by the professional medical community as an effective and proven treatment.
However, as of 1986, when HCFA inserted the provision at issue into the Hospital Manual, Carriers’ Manual, and Intermediaries’ Manual, a per se rule was established that no coverage would be provided for medical procedures or services performed using “medical devices which have not been approved for marketing by the FDA,” because they were considered not reasonable and necessary for the treatment and diagnosis of illness or injury. (E.g., Hospital Manual § 260.1B.) This was identified as a “new policy,” with a prospective effective date of July 15, 1986. It is undisputed that this provision was added to the Manuals without notice-or-eomment.
As discussed above, on September 19, 1995, HHS for the first time published regulations concerning the coverage for IDE devices. In contrast to the total exclusion from coverage of such devices under the Manual provision, the new regulations classified such devices as either experimental/investigational (“Category A”) for which there continued to be no coverage, or non-experimental/investi-gational (“Category B”) which were eligible for Medicare coverage. See 42 U.S.C. §§ 405.201, 405.203(a), 405.205, 405.209, 405.211. Over 90% of the medical devices sold for use in FDA-approved clinical trials are Category B devices and are eligible for Medicare coverage. 61 Fed.Reg. 15491, 15501-04 (Apr. 8,1996).
a. Was The Manual Provision A Legislative Rule?
Section 553 of the APA requires that when an agency engages in rule-making, it must provide notice of the proposed agency rules, followed by a period for public consideration and comment. 5 U.S.C. § 553(b), (c); see Sweet v. Sheahan,
In White v. Shalala,
We agree with the Government that, in the instant cases, the Manual provision was an interpretation of the statutory phrase “reasonable and necessary” rather than an “extra-statutory imposition of rights, duties or obligations.”
In the instant case, the fact that the Manual provision may have been a departure from the prior position of the Secretary is not determinative. See White,
b. Were The Hospitals Bound By This Interpretive Rule?
Defendants argue in the alternative that if the Court finds that the Manual provision was an interpretive rule, then the provision must be treated as non-binding. If the Manual provision is non-binding, then the hospitals argue that they cannot be liable for falsely claiming payment for services that would not have been covered based on the Manual provision.
The Government responds that it has never been the law that defendants were at liberty to violate an interpretive Manual provision. Indeed, there have been numerous eases imposing FCA liability, and even criminal false claims liability, based on violations of Medicare manual provisions. See, e.g., United States v. Weiss,
None of the cases cited by defendants stands for the proposition that the hospitals were at liberty to ignore the Manual provision simply because it was an interpretive rule, as opposed to a legislative rule promulgated after notice and comment. Indeed, in United States v. Yuzary,
Drake v. Honeywell, Inc.,
Likewise, the case of United States ex rel. Swafford v. Borgess Medical Center,
In United States v. Weiss, the defendants were convicted of making false statements on Medicare claims in violation of the instructions in the Medicare Carriers Manual. The Second Circuit held that even if the provision was invalid under the Paperwork Reduction Act, that would not be a defense to defendants’ conviction for knowingly providing false information to Medicare.
Defendants seek to distinguish Weiss on the ground that it involved a defendant’s intentional misstatement on a Medicare claim form. “In contrast to Weiss and like cases, there are no allegations here that the hospitals mischaracterized the services provided or likewise lied on the claims.” (Defs.’ 12(b)(6) Reply Br. at 2.) “The Government has alleged no such false statements here, nor could it. Instead, the Government argues that the Defendants’ claims were false because the Defendants should have somehow alerted HHS that they were for hospital care involving the use of an ‘investigational device’ or that such care was automatically ‘non-covered’ solely by virtue of the Manual Provision.” (Defs.’ 12(b)(6) Reply Br. at 4) (footnotes omitted, emphasis in original).
We fail to appreciate the difference between the instant case, where defendants are accused of putting non-covered services on Medicare claims forms without disclosing that the services were not covered, and the defendant’s failure in Calhoon to properly identify advertising costs in accordance with the Providers’ ’ Reimbursement Manual, or the defendant’s putting the wrong address on a Medicare form in Weiss in violation of a Medicare manual provision, or the defendant’s putting the wrong provider number on a Medicare form in Mackby, also in violation of a Medicare manual provision, or the defendant’s using the wrong billing code in Larrn in violation of a state Medicaid code book. Here, the Government is seeking to hold defendants liable for violations of the FCA based upon defendants’ submitting claims for non-covered services based on a Hospital Manual provision applicable to the hospitals.
To adopt defendants’ position that interpretive rules are not binding would effectively nullify the Medicare manuals in their entirety and would allow defendants to submit claims for any and all types of non-covered services that clearly were not reasonable or necessary. As the Court held in Mikes,
Thus, we disagree with defendants’ position that an interpretive rule cannot form the basis of a claim under the FCA. However, that is not to say that a violation of a Manual provision is per se a violation of the FCA. As discussed above, the FCA requires the submission of a false claim to have been done “knowingly,” as that term is defined by the Act. Although this has been alleged by the Government, it has not been proven and is a matter that cannot be resolved on a motion to dismiss.
c. Whether The Manual Provision Was Invalid Because It Was Arbitrary And Capricious Or Ambiguous?
Defendants next claim that the Manual provision was “arbitrary and capricious” because it arbitrarily reversed its pri- or position, without explanation, and took the implausible position that no IDE device, including refinements in technology already approved for general commercial marketing, could ever be reasonable and necessary. Additionally, defendants argue that the provision was “ambiguous” since it is not clear whether or not IDE devices were considered devices that were approved for marketing or devices that were “reasonable and necessary,” particularly in light of the 1995 regulations.
The difficulty we have with defendants’ argument is two-fold. First, courts are required to give substantial deference to an agency’s interpretation of its own regulations. Thomas Jefferson Univ. v. Shalala,
Second, based on the information before the Court on this motion to dismiss, including the 1977 Intermediary Letters, we cannot say that the Manual provision was arbitrary and capricious. The fact that the devices at issue were investigational and were provided to defendants pursuant to an IDE is not disputed. The 1977 Intermediary Letter, provided to the Court by defendants, states that “[d]enial of payment for a medical item or service because it is considered experimental or investigational is required by the law excluding unreasonable or unnecessary services from payment (section 1862(a)(1)).” While the decision as to whether a device was investigational may have been left to the intermediaries to be made on a case-by-case basis, it cannot be said that there was no precedent for the exclusion of coverage for investigational devices.
Additionally, this issue comes before the Court on a motion to dismiss where we are limited to considering the complaint and matters of which the Court can take judicial notice. We have little information (other than general statements by defendants’ coun
We likewise reject defendants’ argument that the provision was ambiguous. There is nothing in the statute or regulations governing IDE devices, discussed above, that would indicate that they were approved for marketing.
Therefore, for the reasons stated above, we deny defendants’ motion to dismiss for failure to state a claim upon which relief may be granted.
C. Motion to Dismiss on Statute of Limitations Grounds
1. The Parties’ Contentions
The third motion to dismiss filed by the defendants collectively
Both the Government and Relator Cosens have filed memoranda in opposition to this motion.
The Government responds that under the FCA, the critical date for purposes of the statute of limitations is when the Relator filed his complaint, 1994, not the date on which the Government filed its complaints-in-intervention. The Government asserts that under Rule 15(c)(2), Fed.R.Civ.P., its complaints relate back to the filing of the original qui tarn complaint for statute of limitations purposes, since they are based on the same transactions and occurrences as the original complaint. Additionally, defendants have overlooked the second part of the statute of limitations for FCA claims, 31 U.S.C. § 3731(b)(2), which provides that an action must be brought within three years of when the Government learns of its right of action, but in no event not more than ten years after the date on which the violation is committed. Defendants do not contend that the Government was aware of the Relator’s claims more than three years before the qui tarn complaint was filed. Therefore, the Government maintains that it can recover for any claims that arose within ten years of the date the Relator filed his complaint on March 31, 1994. Since all of the Medicare claims were filed within ten years of the date the Relator filed his complaint, none of the claims is
The Relator responds to defendants’ argument that his complaint, as originally filed, should have been dismissed for improper venue. He states that in filing a single action in the Western District of Washington against 132 hospitals, he relied in good faith on the 1986 amendments to the FCA, 31 U.S.C. § 3732(a),
2. The FCA Statute of Limitations
The FCA provides that “[a] civil action under section 3730 may not be brought—
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,
whichever occurs last”
31 U.S.C. § 3731(b)(2) (emphasis added). 'Thus, section 3731(b) establishes two alternative limitations periods for FCA actions. Whichever occurs last is the period that will govern.
a. Does the Government’s Complaint Relate Back to the Relator’s Complaint?
The initial issue that must be addressed is whether the controlling date for statute of limitations purposes is when the Government filed its complaints-in-intervention or when the Relator filed his original qui tarn complaint. The Government contends that a plain reading of section 3731(b) compels a finding that .the date the Relator filed his complaint controls and that Government’s complaints relate back to the filing of the Relator’s complaint under Rule 15(c)(2), Fed. R.Civ.P.
One of the difficulties we encounter in ruling on this motion to dismiss is attempting to reconcile traditional procedural rules with the unique nature of qui tam proceedings. At the outset, we hold that the title given the Government’s complaint is not determinative of the relation back issue. See United States ex rel. Purcell v. MWI Corp.,
Rather, the critical issue, as set forth in Rule 15(c)(2) is whether “the claim or defense asserted in [the Government’s pleading] arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.” In this case, the Government’s complaints clearly arose out of the same conduct as the Relator’s complaint, and the substance of the Government’s complaints and the Relator’s complaint is the same — that the defendants improperly billed Medicare for procedures involving investigational cardiac devices in violation of the FCA. Although the Government’s complaints break down the FCA allegations into three counts and include common-law counts that were not set forth in the qui torn complaint, nevertheless, as defendants have frequently pointed out, all of the counts are premised on the same factual allegations as the Relator’s original eom-plaint. “The Second Circuit has repeatedly made clear that where a revised pleading contains alternative theories based on the same core facts as presented in a prior pleading, the alternative pleadings relate back to the original. Provided the amended pleading is based on the same series of transactions and occurrences alleged in the original pleading, the revised pleading will relate back to the original pleading, even where the revised pleading contains legal theories not included in the original.” Wells v. Harris,
In United States ex rel. Downy v. Corning, Inc.,
Thus, we hold that Rule 15(c)(2) applies to allow the Government’s FCA claims asserted in its complaints-in-intervention to relate back to the filing of the Relator’s original complaint.
b. What Is The Applicable Limitations Period?
The next issue is which limitations period to apply. Defendants, citing United States ex rel. Thistlethwaite v. Dowty Woodville Polymer, Ltd.,
In United States ex rel. Drake, also relied upon by defendants, the United States had declined to intervene and the relator’s ease was unsealed and served on the defendants. The Court held that subsection (b)(2) applied only to qui tarn actions in which the Government intervened and, thus, the Court considered only the six-year statute of limitations of subsection (b)(1) with respect to the relator’s action.
Under this section, so long as the Government was not aware of the Relator’s claims more than three years prior to when he filed the original qui tarn action (and there is nothing in the complaint that would indicate that the Government knew of these claims prior to March 31, 1991), the Government’s action reaches all Medicare claims filed by defendants ten years prior thereto, that is, all claims filed on or after March 31, 1984. Based on the allegations of the complaints, which challenge claims between 1986 and 1995, the Government’s complaint-in-intervention was timely filed as to all of the challenged claims.
3. Statute of Limitations Applicable to Common-Law Claims for Unjust Enrichment, Restitution, and Payment by Mistake
Defendants also argue that the Government’s common-law claims for unjust enrichment, restitution, and payment by mistake are barred by the six-year statute of limitations set forth in 28 U.S.C. § 2415(a), which provides that “every action for money damages brought by the United States ... which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years of when the cause of action accrues.” The Government has not addressed this issue in its opposition papers. We agree with defen
We have already held that the Government’s claims under the FCA relate back to the filing of the Relator’s original qui tam complaint on March 31, 1994. Defendants urge us not to apply this relation back doctrine to the common-law claims based on the holdings from several other district courts. As they note, the Second Circuit has not addressed this issue and there is sparse authority from other courts. Indeed, what authority there is has reached conflicting results.
In United States ex rel. Wilkins v. North American Construction Corp., No. Civ. A. H-95-5614,
On the other hand, in United States ex rel. Purcell, the court applied the relation back doctrine to the entire complaint brought by the Government. The Government’s common-law claims arose out of the same nucleus of operative facts set forth in the relator’s complaint and the relator’s complaint provided the defendants with adequate notice of the Government’s claims.
The Second Circuit has held repeatedly that an amended pleading, which is based on the same series of transactions and occurrences alleged in the original pleading, will relate back to the original pleading, even where the revised pleading contains legal theories not included in the original. See, e.g., White v. White Rose Food,
Therefore, based on what we believe to be the better-reasoned line of authority and in keeping with overall principles governing the relation back of pleadings in the Second Circuit, we hold that the Government’s common-law claims in this case relate back to the filing of the Relator’s complaint on March 31, 1994, and, thus, any claims accruing prior to March 31, 1988, are barred by the six-year statute of limitations unless tolled.
Section § 2416(c), Title 28, provides that the statute of limitations for government common-law claims are tolled during any period in which “facts material to the right of action are not known and reasonably could not be known by an official of the United States charged with the responsibility to act in the circumstances.” The Government does not address the tolling of these claims. There is no question that the Government knew of the material facts no later than April 1994, when it received a copy of the Relator’s complaint and supporting materials, but whether it knew or reasonably should have known of these claims at an earlier date is a matter that cannot be determined on a motion to dismiss.
Accordingly, all common-law causes of action for restitution, unjust enrichment, and payment by mistake, arising out of claims filed prior to March 31, 1988, are dismissed without prejudice to the Government’s establishing that a different accrual date should be applied in a specific case or that the limitations period should be tolled under 28 U.S.C. § 2416(c).
4. Statute of Limitations Applicable to Common-Law Fraud Claims
Defendants likewise argue that the Government’s common-law fraud claims asserted against five defendants are barred by a three-year statute of limitation. Section 2415(b), Title 28, provides that “[s]ubject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon a tort shall be barred unless the complaint is filed within three years after the right of action first accrues____” The Government’s fraud claims are actions for money damages founded upon a tort and, thus, governed by this three-year limitations period. The courts have generally held that a cause of action for fraud accrues when the claim could have been sued. upon. See Erie County Medical Ctr.,
5. Whether The Government’s Claims Should Be Dismissed Based on the Government’s Failure to Prosecute
Although we reach this question last, this is the issue which defendants argued most vehemently to the Court at oral argument. Defendants charge that the Government litigated this case under seal and ex parte for eight years so that no court, until now, has been in a position to determine in an adversary proceeding whether the Government’s
The Government responds that the extension requests were explicitly authorized by statute, 31 U.S.C. § 3730(b)(3), and were sanctioned by ten district judges,
As the Government notes, during oral argument on a motion to dismiss in the case of Cosens ex rel. United States v. Yale New Haven Hospital, 3:02CV688(GLG), and Yale New Haven Hospital v. Shalala, 3:99CV2546(GLG), this Court previously expressed its opinion that the prior decisions of Judge Lasnik and Judge Dimmick, granting the Government’s requested extensions, are law of the case, and denied Yale-New Haven Hospital’s motion to dismiss for failure to prosecute based upon these prior decisions. (9/5/02 Hr’g Tr. at 102-110,119.)
“The law of the case doctrine ‘posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.’ ” DiLaura v. Power Authority of State of New York,
Defendants emphasize that these rulings were made ex parte, but that is the nature of a qui tam proceeding until such time as the complaint is unsealed and the defendants are served. Furthermore, this is not a ease in which defendants were kept in the dark about the qui tam proceedings, as is often the case. As discussed above, in 1994 defendants received subpoenas requesting relevant records, they initiated litigation involving the Manual provision, they were involved in Congressional hearings, many received a copy of the actual qui tam complaint, and a number of defendants filed motions in the qui tam litigation.
The extensions of time received by the Government were requested pursuant to statute, 31 U.S.C. § 3730(b)(3), and were granted by the court based upon a finding of good cause. We decline to nullify these orders retroactively. To the extent that defendants claim that they were prejudiced by these extensions, we decline to presume prejudice. Whether defendants were actually prejudiced by the delay is not a matter that can be resolved on a motion to dismiss based on the papers now before the Court. We therefore deny defendants’ motion to dismiss for failure to prosecute with due diligence.
V. Conclusion
For the reasons discussed above, Defendants’ Motion to Dismiss for Failure to Plead Fraud with Particularity is DENIED; Defendants’ Motion to Dismiss for Failure to State a Claim Upon Which Relief May be Granted is DENIED; Defendants’ Motion to Dismiss on Statute of Limitations Grounds is GRANTED without prejudice as to all common-law causes of action for unjust enrichment, restitution, and payment by mistake relating to Medicare claims and Cost Reports filed prior to March 31, 1988, and as to all common-law causes of action for fraud relating to Medicare claims paid by the Government prior to March 31, 1991; in all other respects, the Motion to Dismiss on Statute of Limitations Grounds is DENIED.
SO ORDERED.
Notes
. Cedars-Sinai Medical Center, Hospital of the Good Samaritan, Loma Linda University Medical Center, Stanford University, Yale-New Haven Hospital, Washington Hospital Center, Florida Hospital Medical Center, Crawford Long Hospital of Emory University, St. Joseph's Hospital of Atlanta, Northwestern Memorial Hospital, Foster G. McGaw Hospital, Methodist Hospital of Indiana, St. Vincent Hospital and Health Care Center, Johns Hopkins Hospital, Massachusetts General Hospital, Lahey Clinic Hospital, William Beaumont Hospital, St. Joseph Mercy Hospital, Harper-Hutzel Hospital, St. Louis University, Jewish Hospital of St. Louis, St. Francis Hospital of Roslyn, New York, Montefiore Medical Center, Duke University Medical Center, Cleveland Clinic, University Hospitals of Cleveland, St. Vincent Hospital and Medical Center, Hospital of the University of Pennsylvania, St. Thomas Hospital, Methodist Hospitals of Memphis, Baylor University Medical Center, Methodist Hospital of Lubbock, Texas, Sentara Norfolk General Hospital, Sacred Heart Medical Center, Providence Medical Center, St. Luke’s Medical Center, Inc., Sinai Samaritan Medical Center, Presbyterian University of Pennsylvania Medical Center of Philadelphia, Emory University Hospital, and Brigham & Women's Hospital.
. Supplemental briefs and/or motions have been filed by the following hospitals: (1) Motions to Dismiss for Failure to Plead Fraud With Particularity: Yale-New Haven Hospital, St. Joseph Mercy Hospital, St. Thomas Hospital and St. Vincent Hospital and Health Care Center, Brigham & Women's Hospital, Johns Hopkins Hospital, St. Francis Hospital of Roslyn, New York, St. Louis University, Harper-Hutzel Hospital, and Northwestern Memorial Hospital; (2) Motions to Dismiss for Failure to State a Cause of Action: Johns Hopkins Hospital, St. Francis Hospital of Roslyn, New York, St. Louis University, St. Joseph Mercy Hospital, and Harper-Hutzel Hospital; (3) Motion to Dismiss Based on Statute of Limitations: Good Samaritan Hospital, Providence Medical Center, St. Louis University, St. Francis Hospital of Roslyn, New York, St. Joseph Mercy Hospital, and Harper-Hutzel Hospital.
. As discussed in more detail infra, the FDA is charged with the responsibility for ensuring that medical devices are safe and effective before they can be marketed. Under the Medical Devices Amendments Act of 1976, 21 U.S.C. §§ 360(k), 360c, 360e, 360j, before a medical device may be commercially distributed or marketed, notification must be given to the FDA so that the device can be classified according to the degree of regulatory control necessary to insure its safety and effectiveness. See 21 U.S.C. §§ 360(k), 360c(a)(l), (b)(1). Devices are divided into three classes. All of the cardiac devices at issue in these cases are Class III devices, those for which there is insufficient information to determine that the regulatory controls available to the FDA will provide a reasonable assurance of the device's safety and effectiveness. See 21 U.S.C. §§ 360c(a)(l)(C), 360e. Class III devices require "premarket approval” from the FDA before they may be commercially distributed. In 1980, the Secretary promulgated new regulations that provided an exemption to the premarket approval requirement for certain Class III investigational devices used in clinical trials. Under this investi-gational device exemption ("IDE"), a Class III device may be lawfully shipped for the purpose of conducting investigations of that device. See 21 C.F.R. § 812.1(a); 21 U.S.C. § 360j(g). These devices must be labeled as such, and a consent form must be obtained from all patients participating in clinical trials involving IDE devices. See 21 C.F.R. Pt. 812.
All of the devices in this case were cardiac devices that had received an IDE from the FDA for purposes of clinical trials, and thus had not received final approval for marketing from the FDA.
. Between July 1986 and November 1995, § 260.1 of the Hospital Manual provided:
Medical devices which have not been approved for marketing by the FDA are considered in-vestigational by Medicare and are not reasonable and necessary for the diagnosis and treatment of illness or injury, or to improve the functioning of a malformed body member. Program payment, therefore, may not be made for medical procedures or services performed using devices which have not been approved for marketing by the FDA.
The Intermediary Manual § 3151.1 and the Medicare Carriers Manual § 2303.1 contained identical provisions.
. Section 1395y, entitled "Exclusions from coverage and medicare as secondary payer," provides;
(a) Items or services specifically excluded. Notwithstanding any other provision of this subchapter, no payment may be made under part A or part B of this subchapter for any expenses incurred for items or services—
(1)(A) which, except for items and services described in a succeeding paragraph, are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member, ...
. The FCA permits private citizens, called "rela-tors," to initiate lawsuits alleging that the United States has been defrauded in connection with federal procurement activities and/or federal programs. See 31 U.S.C. § 3730(b)(1). Under the FCA, a relator files an action ex parte and under seal, and the lawsuit remains sealed and unknown to the named defendants for an initial period of sixty days. 31 U.S.C. § 3730(b)(2). During the sixty-day period, the United States is to commence and, if possible, complete an investigation of the allegations in order to make a decision whether to intervene and assume prosecution of the action or, alternatively, whether to decline to intervene and allow the relator to proceed with prosecution of the matter. 31 U.S.C. § 3730(c)(3). The United States may move the court for extensions of time for good cause shown. 31 U.S.C. § 3730(b)(3). During these extensions, the complaint continues to remain under seal. Id.
. The three motions will be referred to as the "9(b) Mot.”, "12(b)(6) Mot.”, and "S/L Mot."
. In 1997, some of the hospitals received similar subpoenas from the Department of Defense regarding CHAMPUS patients.
. The thirteen defendants in the instant case, which were also plaintiffs in the Cedars-Sinai litigation, are Cedars-Sinai Medical Center, Johns Hopkins Hospital, Loma Linda University Medical Center, Northwestern Memorial Hospital, St. Francis Hospital, St. Joseph’s Hospital of Atlanta, St. Luke’s Medical Center, Sinai Samaritan Medical Center, Montefiore Medical Center, St. Thomas Hospital, Yale-New Haven Hospital, Florida Hospital Medical Center, and Washington Hospital Center.
. In ruling on a motion to dismiss and to preclude Government intervention in the qui tam action, the Honorable Robert S. Lasnik of the Western District of Washington, found that the hospitals in the Cedars-Sinai litigation were aware of the qui tam action, despite the fact that they had not been served with the qui tam complaint. (Order dtd. 3/6/02 on Mot. to Dismiss and to Preclude Gov't Intervention at 2.)
. The longest extension was for three years, during which the parties waited for the Ninth Circuit's decision in the Cedars-Sinai litigation. The Government represented to the district court in Washington that the decision in Cedars-Sinai, although not binding on the Washington litigation, was "likely to directly and significantly impact the Medicare claims in the Relator's lawsuit.” (Gov't Mem. dtd. 7/22/96 in Support of Mot. for Ext. of Time at 4-5.) Thus, to avoid the
. On April 3, 2002, the Government and Relator filed a notice of their intent to voluntarily dismiss thirty-nine defendants and of the Government’s intent not to intervene against these defendants. (Notice dtd. 4/3/02.)
. Judge Lasnik stated that the movant hospitals could file a motion to dismiss once they were served with the complaint, showing the extent to which their ability to defend was actually frustrated due to the time lag between filing and service. (Order dtd. 3/6/02 re. Mot. to Dismiss and to Preclude Gov’t Intervention at 3 n.l.) He reiterated that extensions of time had been granted based upon a finding of good cause, as contemplated by the FCA. He noted that, according to the Government, the hospitals that had filed the Cedars-Sinai lawsuit were largely responsible for the delay, since this litigation created uncertainty as to the validity of the Medicare provision that was at the heart of the qui tam action. Id. at 4. Thus, he declined to order dismissal under Rule 4(m), Fed.R.Civ.P. He further declined to dismiss the case under Rule 41(b), Fed.R.Civ.P., based on the strong public interest in disposing of a case such as this on the merits and the availability of less drastic sanctions, particularly where there had been no showing of misconduct. (Id. at 4-5.)
. For ease of reference, throughout this opinion, these will be referred to simply as "claims” or "Medicare claims.”
. The defendants against which fraud claims have been asserted are Loyola University of Chicago, Northwestern Memorial Hospital, St. Joseph’s Hospital of Atlanta, Yale-New Haven Hospital, and the Cleveland Clinic.
. All motions to dismiss pending in the transfer- or districts on March 5, 2003, were denied as moot without prejudice to refiling in this district.
. The following allegations are taken from a typical complaint, United States v. Harper-Hutzel Hospital, Case No. 3:03CV689(GLG)(D.Conn). To the extent that material differences exist in complaints against specific hospitals, those differences are discussed infra.
. This regulation went into effect on March 2, 1988. Prior to that time, the regulation required the provider to furnish such information to the intermediary as may be necessary to assure proper payment by the program. See 42 C.F.R. § 405.406(d).
. The hospitals disagree with the Government’s characterization of the payments received for patient billings as "interim” payments. They
. The certification provides in relevant part:
[T]o the best of my knowledge and belief, it [the Hospital Cost Report] is a true, correct and complete statement prepared from the books and records of the provider in accordance with applicable instructions, except as noted.
(Harper-Hutzel Compl. V 17.)
. See Note 4, supra.
. Between July 1986 and November 1994, § 210.12 of the Hospital Manual stated in part that "[s]ervices related to non-covered services during the hospital stay” were not covered under Medicare. The Intermediary Manual § 3101.14 and the Carriers Manual § 2300.1 contained identical provisions. (Harper-Hutzel Compl. 1123.)
. When the Government served its complaints on the hospitals, it provided them with a chart, which in the case of Sentara Hospital was an abbreviated version of the spreadsheet that Sen-tara had provided to the Government. (See Gov't Ex. 5 to 9(b) Mot.) The spreadsheet included the patient's name, account number and medical records number, the admission and discharge dates, and information on the device that was used. This information was reportedly taken from information provided by Sentara Hospital to the Government a spreadsheet {see Gov't Ex. 4 to 9(b) Mot.), which included, inter alia, the account number, patient name, medical records number [these three items have been redacted from the Court’s copy for reasons of patient privacy], the admission and discharge dates, the total charges and whether the device was the primary procedure, the 1ptal reimbursement the hospital received, the M¿R/MCD reimbursement [the amount the (hospital receive^ from the Government], the device riame, manufacturer and model number, a colujlnn entitled "Approved” that indicated whether the FDA had approved this device at the time' of the procedure, and a column entitled "Financial Class” that identified each patient as a Medicare or Medicaid patient.
. See Note 15, supra.
. These complaints are discussed in greater detail at 40-43, infra. See, Loyola Compl. ¶¶ 46(A)-(E); St. Joseph’s Aid. Compl. 1163; Northwestern Compl. HH 30, 32, 35, 37, 39; Yale-New Haven Compl. 1140; Cleveland Clinic Compl. 1148.
. All forty hospitals have joined in this motion.
. As defendants correctly argue, despite the fact that these cases have been consolidated for certain purposes under the multidistrict litigation rules, each of the complaints stands alone. Each alleges a different number of procedures involving different investigational cardiac devices. The Wisconsin complaint, for example, covers over 1,100 procedures; the Massachusetts complaint against Massachusetts General and Brigham & Women’s Hospital covers over 700 procedures; the Ohio complaint against Cleveland Clinic and University Hospitals of Cleveland involves nearly 500 procedures.
. At oral argument, both sides agreed that the law of the Second Circuit applied to this case. (Hr'g Tr. at 70.)
. The plaintiff alleged that the defendants had submitted claims with reimbursement codes representing a higher level of care than was actually provided.
. See Discussion at 31-34, infra.
. According to defendants St. Thomas Hospital and St. Vincent Hospital and Health Care Center, the lists they received from the Government indicated "device not specified.” (Consol. Snpp. Mem. in Support of 9(b) Mot. at 2-3.) They state that a cursory review of the list indicates that many of the patients did not even receive a cardiac device. These specific lists, however, have not been produced for the Court.
. To the extent that the defendant-hospitals contend that the specific individuals who actually filled out the forms should have been named, several courts have upheld complaints filed under the FCA where they did not identify specific individuals by name. See, e.g., United States ex rel. Johnson v. Shell Oil,
Additionally, the Court notes that the defendants in the Cleveland-Clinic case moved to strike from the Government’s complaint the names of physicians who were personally informed that the Government might not pay for some of the procedures at issue because they were experimental. The defendants argued that the names of the physicians were immaterial. The Court granted the motion to strike. These defendants, in particular, should not now be heard to complain that the complaints against them fail to identify individuals by name.
. Each complaint identifies by year which cost reports the Government contends were false. See, e.g., Harper-Hutzel Compl. H 49 (1987 to 1995); Yale^ew Haven Compl. 1143 (1986 to 1995); Cleveland Clinic Compl. 1151 (Cleveland Clinic: 1990 to 1995), H 60 (University Hospital 1990-1994).
. The defendants’ reliance on cases alleging securities fraud is misguided. Those cases are governed by 15 U.S.C. § 78u-4(b)(2), which explicitly requires that such complaints "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”
. As explained by the Court in Huntington Hospital v. Thompson,
. That is not to say that none of the complaints contain allegations from which conscious misbehavior or recklessness could be inferred. For example, the Johns Hopkins complaint quotes a number of internal memoranda that express concern about whether the procedures at issue were reimbursable and a 1991 letter from the Chairman of the Joint Committee on Clinical Investigations to the Director of Interventional Cardiology questioning "[w]hat patient in their right mind would risk the financial responsibilities involved in using an unproven experimental device for the treatment of coronary disease, when there is a proven device which would be covered by their health/care system?” (Johns-Hopkins Compl. 1144.) Six other complaints quote patient consent forms that warned patients that the procedures might not be covered by Medicare because of their experimental nature. (E.g., Methodist Hosp. of Indiana Compl. V 41.) Four other complaints contain evidence that the hospitals had knowledge that Medicare and others did not cover the procedures at issue. (E.g., Mass. Gen. Hosp. Compl. H 53, quoting a 1994 memo from the General Counsel to hospital physicians reminding them that "Medicare and Medicaid do not pay for services ... using devices which have not received premarket approval from the FDA;” Montefiore Med. Ctr. Compl. 111136-36, stating that the hospital submitted a claim for an investi-gational device even after receiving a bulletin from its fiscal intermediary warning against the practice.)
. As discussed supra, the defendants have not addressed their 9(b) motion to Count VI, which is a common-law claim for recoupment.
. Defendant Northwestern has filed a Supplemental Memorandum disputing the inferences that the Government has drawn from these memos. It states that it never billed Medicare for any procedures involving the particular device referenced in the first memo. This matter is not properly before the Court in deciding a motion to dismiss. As to the second memo, Northwestern states that the quoted portion is taken out of context and that the document had no relevance to the Spectranetics laser trials. Again, this is an evidentiary matter not properly before the Court at this time. (Supp. Mem. in Support of 9(b) Mot.)
. Again, all forty defendant-hospitals join in this motion.
. Count I, which is brought under § 3729(a)(1) of the FCA, applies to false "claims.” Count II, brought under § 3729(a)(2) of the FCA, applies to an "affirmative or express false record or statement to get the false or fraudulent claim paid or approved.” Shaw v. AAA Engineering & Drafting, Inc.,
. At oral argument, defendants argued that the forms that were allegedly fraudulently submitted do not have a space that inquires as to whether the device was approved by the FDA for marketing. They conceded that if the forms had asked this question and they had knowingly and incorrectly answered "no,” the Government would have a claim against them under the FCA. But, this is not what the forms required and this is not what is alleged.
Defendants attempted to introduce a 1994 memorandum from the Director of the Bureau of Policy Development of HCFA, reportedly acknowledging that the then-current forms did not require the information necessary to identify whether a medical device was investigational. This Court ruled that the memorandum would not be considered in ruling on a motion to dismiss. (Hr'gTr. 108, 131, 151.)
. Under the Medicare program, a provider files annual cost reports setting forth information and calculations identifying the Medicare costs that the hospital claims should be reimbursed by Medicare for that year. In addition to reporting the DRG payments received for services provided to Medicare beneficiaries, the cost reports allocate portions of overhead costs, such as employee salaries and benefits, supplies, and utilities to each of the reimbursable costs as administrative and general costs. Medicare factors these costs into the PPS/DRG reimbursement and administers the reimbursement throughout the fiscal year in periodic interim payments. Other costs which secure real property or other capital assets, such as depreciation, interest on certain long-term debt, and lease expenses, are capital-related costs. The providers file the cost reports with the fiscal intermediaries, who distribute Medicare funds based upon the claims included in their cost reports. The fiscal intermediaries are responsible for reviewing the cost reports and processing payment of claims. After an audit process, the fiscal intermediary’s cost report review culminates in a notice of program review or final settlement. Both the fiscal intermediary and the provider have a three-year period in which to reopen a cost report in order to make changes. In the event of a claims dispute between the fiscal intermediary and the provider, the provider can either appeal an audit adjustment, or claim the disputed cost. If the provider claims the disputed cost, it must disclose this in the cost report itself on the protest line or the settlement page or in the transmittal letter that accompanies the filed cost report. United States v. Whiteside, 285 F.3d 1345, 1346-47 (11th Cir. 2002).
. Defendants contend otherwise and point to the fact that the intermediaries had been paying for procedures involving these devices for years and that HHS did not enforce the Manual provision until 1994. That may well be true, but that is not what is alleged in the complaints. Our decision today is on a motion to dismiss, which is limited to the facts alleged, which the Court must assume to be true for purposes of this ruling.
. Other courts have embraced an implied false certification theory as well. See United States ex rel. Augustine v. Century Health Servs., Inc.,
. For example, in Ab-Tech Construction,
. The Hospital Manual dated September 1994 contained detailed instructions for completion of this form and provided "[t]he total non-covered charges pertaining to the related revenue code in FL 42 are entered here.” (Gov’t Ex. 4 to 12(b)(6) Mem. at 4-552.5.)
. The Government does not rely on an express certification theory in connection with defen
. Class I devices are those for which "general controls” are sufficient to provide a reasonable assurance of safety and effectiveness. See 21 U.S.C. § 360c(a)(l)(A). Class II devices are those devices for which general controls in and of themselves are insufficient to provide a reasonable assurance of safety and effectiveness but such assurances can be provided with special controls, such as through performance standards, patient registries, post-market surveillance, or the development of guidelines by the Secretary. See 21 U.S.C. § 360c(a)(l)(B). Class I and Class II devices can be commercially distributed after notification to the FDA without pre-market approval. See 21 U.S.C. § 360c(a)(l)(C).
. The hospitals point to the fact that the fiscal intermediaries regularly reimbursed hospitals for services involving investigational devices. This is not properly before the Court on this motion to dismiss. Additionally, it is not clear whether, in so doing, the fiscal intermediaries were aware of the fact that investigational devices were involved.
. The Second Circuit had previously held that the proper approach was to focus on whether the rule is interpretive or substantive. A substantive rule " 'grants rights, imposes obligations, or produces other significant effects on private interests,' while an interpretive rule is an agency's 'intended course of action, its tentative view of the meaning of a particular statutory term, or internal house-keeping measures organizing agency activities.' ” White v. Shalala,
. Our holding is contrary to that of the Central District of California, which on summary judgment, held that the Manual provisions were substantive rules, subject to the notice-and-comment rule-making provisions of the APA. Cedars-Sinai,
. The Court further noted that the Manual provisions at issue were adopted in 1968 and Medicare regulations became subject to the APA only in 1971, and, thus, the APA does not apply to actions taken by the agency pursuant to those regulations before that time. St. Mary's Hospital,
. In 1987, as part of the Omnibus Budget Reconciliation Act, Pub.L. 100-203 § 4035, 101 Stat. 1330-78 (1987), the Medicare Act was amended to add a rule-making requirement, which provides:
No rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals [or others] to furnish or receive services or benefits under this subchapter shall take effect unless it is promulgated by the Secretary by regulation under paragraph (1).
42 U.S.C. § 1395hh(a)(2). In Cedars-Sinai,
. In United States v. Mackby, the Ninth Circuit affirmed the judgment against the owner of a physical therapy clinic for violating the FCA when he submitted Medicare claims using the personal identification number ["PIN”] for his father, who was a physician, thus giving the impression that the physical therapy services had been performed by a physician. Under Part B of Medicare, physical therapy services are covered only when rendered by a physician or a qualified employee of a physician or physician-directed clinic or by a physical therapist in an independent practice.
. In United States v. Larm, a doctor and his wife were convicted of Medicaid fraud. They were accused of using the wrong billing codes for medical services that were performed. They challenged their conviction in part based on the fact that the code book was never adopted as a rule in conformance with the state's APA. The Ninth Circuit held that their argument was "without merit. The Larms were prosecuted under 42 U.S.C. § 1396h(a)(l), not the billing codes."
. In United States v. Calhoon, the defendant was convicted of submitting Medicare cost reports to fiscal intermediaries, claiming amounts that he knew not to be reimbursable. The defendant challenged his conviction on the ground that the administrative guidelines in the Provider Reimbursement Manual gave only presumptive guidance, that the intermediaries’ decisions were only presumptive, and that the denial of reimbursement could be challenged.
. The Second Circuit also rejected as "frivolous” the defendant's claim that the form was ambiguous because, while requiring him to disclose the "amount” of transported currency, it did not specify that the total or exact amount had to be disclosed. Yuzary,
. The Court in Weiss cited the Supreme Court's decision in Dennis v. United States,
. Again, this motion is joined in by all forty defendants.
. The Government’s complaints were filed between August 15, 2002, and May 29, 2003.
. Section 3732(a), "Actions under section 3730,” added by Pub.L. 99-562, § 6(a), Oct. 27, 1986, 100 Stat. 3158, provides in relevant part:
Any action under section 3730 may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred.
. Rule 15(c), Fed.R.Civ.P., provides in relevant part:
(c) Relation Back of Amendments. An amendment of a pleading relates back to the date of the original pleading when
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading....
. Defendants have provided the Court with a chart showing the dates on which the forty defendants in this MDL case received copies of the qui tam complaint from the Government. The Government disagrees with the information provided. According to defendants, ten defendants, which were also involved in the Cedars-Sinai litigation received the complaint in August of 1995; another hospital in the Cedars-Sinai litigation received it in 1996; two defendants received it in the fall of 1999, two in 2000, five in 2001, eight in 2002, and ten claim to have never received a copy from the Government. (Defs.’ Ex. 45 to Reply to S/L Mot.) In particular, Good Samaritan Hospital argues in a separately filed memorandum that, although it received a government subpoena in 1994, it never heard from the Government or Relator again until 2002.
. Having found that the Government's complaints relate back to the Relator's original filing, we need not address the tolling arguments raised by defendants.
. Defendants suggest that the Government "undoubtedly 'knew' of its cause of action much earlier than April 1994, however, for purpose of this motion to dismiss, defendants will measure the government's knowledge from the time of the relator’s filing.” (Defs.' S/L Mem. at 23 n.27.)
. Defendants argue that joinder of 132 defendants in one action, where no claims of conspiracy were pled, was improper under Rule 20, Fed. R.Civ.P. The Relator contends that at the time his qui tam action was filed, joinder of all defendants in one action filed in one district where one of the defendants was located was proper in light of the 1986 amendments to the FCA, which added 31 U.S.C. § 3732(a), providing that "[a]ny action under section 3730 may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred.” Based on the “legal landscape” in 1994, he avers that his filing was made in good faith and contrasts this case to the situation in Biby v. Kansas City Life Insurance Co.,
. In particular, defendants point to the inconsistent representations made by the Government to the court in Seattle regarding the progress of its investigation.
. In Shannon v. General Electric Company,
. Rule 41(b), Fed.R.Civ.P., provides in relevant part:
(b) Involuntary Dismissal: Effect Thereof. For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant....
. As defendants recognize, this is not something that the Court can properly consider in ruling on a motion to dismiss. Thus, they request that, if the Court does not presume prejudice to the defendants in this case, we make no findings on the issue of prejudice at this time and defendants reserve their right to renew this part of their motion following discovery. (Defs.’ S/L Mem. at 22.)
. For example, defendant St. Joseph Mercy Hospital states in its Supplemental Memorandum that, after it completed the production of documents in 1994, it heard nothing further from the Government until 2002. In the intervening eight years, it underwent a substantial change in organizational structure and no one was assigned continuing responsibility for the investigation. It does not believe that any claims forms were even submitted to the Government. Thus, it argues that it has no access to witnesses and documentary evidence. Again, this is not properly before the Court in ruling on a motion to dismiss.
. In addition to Judges Dimmick and Lasnik in Seattle, who presided over the original qui tam action, eight other judges ruled on requests for extension of time after some of the cases were transferred in 1999, including Chief Judge Mag-nusen and Judge Rosenbaum in Minnesota,
. Nine defendants filed a motion to dismiss for misjoinder and improper venue. At that time, the Government had not intervened, the complaint had not been unsealed, and these defendants had not been served with the complaint.
. Defendants note that Judge Lasnik did not indicate the basis for his transfer decision. They argue that the Government did not seek a transfer under § 1406(a), which they assert can be granted only if venue was improper in the original district, which the Government has been unwilling to concede. In Goldlawr, Inc. v. Heiman,