*1 Bеfore: MOORE and CLAY, Circuit Judges; LAWSON, District Judge. [*] _________________
COUNSEL ARGUED: Mike Bothwell, BOTHWELL & SIMPSON, Roswell, Georgia, for Appellant. Michael L. Waldman, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON, Washington, D.C., Steve Frank, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees ON BRIEF: Mike Bothwell, BOTHWELL & SIMPSON, Roswell, Georgia, for Appellant. Michael L. Waldman, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON, Washington, D.C., Steve Frank, Douglas N. Letter, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., John R. Jacobson, BOWEN RILEY WARNOCK & JACOBSON, Nashville, Tennessee, for Appellees. * The Honorable David M. Lawson, United States District Judge for the Eastern District of Michigan, sitting by designation.
_________________
OPINION _________________ CLAY, Circuit Judge. In his second trip before this Court, Relator Sean Bledsoe appeals the district court’s grant of Defendants Community Health Systems, Inc.’s (“CHS”) and Sparta Hospital Corp.’s, d/b/a White County Community Hospital (“White County”) motions to dismiss his second amended complaint. Relator also appeals the district court’s denial of his motion to recognize a settlement agreement (the “Settlement Agreement”) between CHS and the government. Relator brought this action under the False Claims Act, 31 U.S.C. § 3729 et seq. , alleging that Defendants engaged in various types of fraud that increased the reimbursements that they received from Medicare and Medicaid. In the separate Settlement Agreement, CHS paid $30,494,749.51 to the United States government in settlement of claims that arguably overlap with Relator’s complaint; Relator contends that he is entitled to a relator’s share of the proceeds.
On appeal, Relator argues (1) that the district court erred in concluding that portions of his second amended complaint were not pled with particularity as required by Federal Rule of Civil Procedure 9(b); (2) that the district court erred in dismissing portions of his second amended complaint as barred by the statute of limitations; (3) that the district court erred in dismissing his entire second amended complaint with prejudice, and without explanation, after previously upholding portions of the complaint; and (4) that the district court erred in denying his motion to recognize the settlement. For the reasons that follow, we AFFIRM in part, REVERSE in part, and REMAND for proceedings consistent with this opinion.
BACKGROUND
This is the second time that this case has come before this panel. Our prior opinion,
United
States ex rel. Bledsoe v. Community Health Systems
,
From April of 1995 to July of 1999, Relator worked as a respiratory staff therapist in White
County, which is one of several hospitals owned by CHS. While working at White County, Relator
“became aware of a serious problem with upcoding and other billing irregularities.” , 342
F.3d at 637. Relator allegedly started “cross-referencing patient bills, master charge sheets, and
annual department revenues,” and he came across “illegal and fraudulent billing practices.” J.A. at
107. Relator reported these irregularities to the government. Specifically, during 1996 and 1997,
Relator was in weekly communication with Jennifer King, an evaluator with the Office of the
Inspector General of the Department of Health and Human Services (“OIG-HHS”).
United States
ex rel. Bledsoe v. Cmty. Health Servs.
, No 2:00-CV-0083,
[1] upcoding of contract services and disposable equipment, as well as fraudulent
inflation of cost reports, in White County Hospital’s nursing and respiratory
departments; [2] misuse of a doctor’s medical provider number in the emergency
room; [3] double billing and billing for unbillable items; [4] improper changing of
patients’ statuses from an outpatient/observation status to an inpatient status; [5]
billing for fictitious continuous heart monitoring; and [6] improperly premature
discharging of hospital patients when Medicare reimbursement eligibility had been
exhausted.
,
On at least two occasions after Relator filed his complaint, Relator met with Special Agent Derrick Jackson, an investigator with OIG-HHS, to discuss Relator’s allegations. Relator met with Jackson and a number of other government representatives on June 1, 1998. Bledsoe II , 2005 WL 3434378, at *6. Relator met again with a number of government officials, including Jackson, on August 4, 1998. at *7. On the latter occasion, Relator was accompanied by his fiancé Cindy Peck, now Cindy Bledsoe. Relator’s version of the events that took place at the August 4, 1998 meeting differs from Jackson’s recollection. Relator contends that he provided Jackson with information relevant to “DRG upcoding.” Specifically, Relator claims that he provided Jackson with information pertaining to DRG code 079, a DRG code concerning pneumonia, which, as *4 discussed below, is the subject of the government’s Settlement Agreement with CHS. Jаckson claims that Relator “did not describe conduct by anyone associated with White County Hospital whereby they were misrepresenting or miscoding patient diagnos[es].” at *7. Jackson also separately interviewed Cindy Peck on August 4, 1998, outside of Relator’s presence. Peck agreed to meet with Jackson to support Relator’s case. Peck stated that she provided information related to DRG upcoding to Jackson during this interview.
Meanwhile, in the fall of 1997, the government approached CHS about possible upcoding at two of CHS’s hospitals. On December 18, 1997, CHS met with an OIG-HHS inspector and disclosed that it had detected coding irregularities at its hospitals. CHS and OIG-HHS agreed that CHS would undertake a self-conducted audit, the results of which were presented to OIG-HHS in December of 1998. During the same time frame, OIG-HHS also worked with the Department of Justice to investigate the circumstances surrounding the coding irregularities at CHS’s hospitals to determine whether FCA violations had occurred. This investigation concluded in the middle of 1999. Relator was unaware of the investigation during its pendency.
OIG-HHS and CHS eventually entered into the Settlement Agreement. On or about March 28, 2000, a revised version of the Settlement Agreement was executed. The agreement provided that CHS was to pay to the United States $30,494,749.51; in exchange the United States, several participating states, OIG-HHS, and Tricare Management Activity agreed to release CHS from any civil and administrative monetary claims arising out of the “Covered Conduct” for the time period specified for each facility listed in Attachment A of the Settlement Agreement. The Settlement Agreement defined “Covered Conduct” to include the “covered DRGs,” which it defined as “the following DRGs: 014, 079, 087, 132, 138, 296, 416, and 475.” J.A. at 626. Attachment A stated that, for White County Community Hospital, the covered time period extended from October 1, 1994 to December 31, 1997. The Settlement Agreement also provided that Relator’s claims were specifiсally excluded from the Settlement Agreement.
Relator filed his first amended complaint (the “FAC”) on July 3, 2000. The FAC added White County as a defendant, removed some defendants, and contained new allegations of fraud. The FAC alleged (1) that Defendants had committed various types of fraud in the psychiatric unit of White County and other CHS subsidiaries; (2) that Defendants employed a new management company that billed Medicare and Medicaid for professional fees under the provider number of a physician who had not in fact provided the professional services; (3) that White County billed Medicare and Medicaid for continuous monitoring by telemetry that did not in fact meet the applicable criteria to be so billed; and (4) that Defendants had engaged in other fraudulent acts, “including but not limited to paying providers bonuses based on admissions, misrepresenting whether certain physicians recruited for an underserved area were full-time employees of the The Settlement Agreement defined “Covered Conduct” as: The United States contends that it has certain civil claims against CHS under the False Claims Act, 31 U.S.C. §§ 3729-3733, and other federal statutes and/or common law doctrines as more specifically
identified in Paragraph 5 below, for engaging in the following alleged conduct: the CHS hospitals listed on Attachment A, for the time periods described in Attachment A, submitted or caused to be submitted to Medicare, Medicaid, and TRICARE claims for certain ICD-9-CM diagnosis codes for inpatient admissions grouping to the covered DRGs that were not supported by the patients’ medical records and as a consequence received greater reimbursement than that to which the hospitals were otherwise entitled for those admissions (hereinafter referred to as the “Covered Conduct”). The Covered Conduct refers only to those hospitals listed in Attachment A for the time periods described therein. J.A. at 627.
hospital in order to obtain federal funds, . . . unbundling of services . . . , and similar practices.” J.A. at 44-45. The FAC no longer alleged that Defendants had engaged in upcoding or miscoding.
On July 24, 2000, Defendants filed separate answers to the FAC. On November 3, 2000, Defendants filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). On January 16, 2001, Relator moved the district court to recognize the Settlement Agreement, arguing that he was entitled to a percentage of the proceeds under the FCA, 31 U.S.C. §§ 3730(b) and (c). On September 18, 2001, the district court issued a memorandum opinion denying Relator’s motion to recognize settlement, granting Defendants’ 12(c) motion, and dismissing Relator’s suit with prejudice. The district court held that Relator was not entitled to any of the settlement proceeds because the government had declined to intervene in Relator’s suit, but instead had pursued settlement negotiations. The district court also concluded that FCA claims constituted “averments of fraud” for the purpose of Federal Rule of Civil Procedure 9(b), and that Relator’s complaint was deficient because it did not plead fraud with particularity as required by the Rule. The district court determined that Relator’s claims should be dismissed with prejudice because Relator had enjoyed sufficient time in which he could have amended his complaint. On October 16, 2001, Relator filed a timely notice of appeal.
This Court handed down its decision in
Bledsoe I
on September 10, 2003.
Bledsoe I
held that
violations of the FCA must comply with Rule 9(b), and that the allegations in Relator’s FAC failed
to meet this standard.
Relator filed his second amended complaint (“SAC”) on May 18, 2004. 8 The SAC alleged that Defendants engaged in various types of fraudulent conduct. On July 19, 2004, the United 7 Bledsoe I also held that the Court lacked subject matter jurisdiction over certain allegations in Relator’s FAC because the allegations were based on publicly-disclosed information of which Relator was not the original source. 342 F.3d at 646; see 31 U.S.C. § 3730(e)(4)(A). This holding has no bearing upon the instant appeal. 8 On May 28, 2004, Defendants moved to strike Relator’s notice of filing his SAC, claiming that the SAC required the signature of local counsel. On June 22, 2004, Relator refiled his SAC. Relator moved the district court to recognize the filing of the SAC on July 12, 2004, and the district court granted Relator’s motion on July 14, 2004. The actual date on which Relator perfected the filing of his complaint is of no consequence to this appeal. Relator alleged that Defendants had committed the following types of fraud: (1) billing Medicare and Medicaid for professional services under the provider number of a physician who had not provided those services; (2) billing Medicare and Medicaid for continuous monitoring of patients by telemetry that did not in fact occur; (3) billing Medicare and Medicaid for various items that cannot lawfully be separately billed, such syringes, linens, and ice bags or heating pads; (4) improperly billing Medicaid and Medicare for a “universal setup charge” and for vital sign *6 States filed a motion for judgment on Relator’s claim that he was entitled to a portion of the proceeds of the Settlement Agreement. On July 30, 2004, Defendants separately filed renewed motions to dismiss Relator’s SAC. On January 6, 2005, the district court issued a detailed memorandum opinion and order. The district court denied the United States’s motion for judgment on Relator’s share of the Settlement Agreement without prejudice to renew pending the resolution of an evidentiary hearing. The district court also granted in part and denied in part Defendants’ motions to dismiss. The district court closely scrutinized the allegations in Relator’s SAC, and arrived at four holdings: (1) several allegations in Relator’s SAC should be dismissed for failure to comply with Federal Rule of Civil Procedure 9(b); (2) of the allegations that survived Rule 9(b) scrutiny, some allegations should be dismissed as time-barred under the FCA’s statute of limitations, 31 U.S.C. § 3731(b)(1), because they allegedly occurred more than six years before the date that Relator filed his SAC, the allegations did not relate back to Relator’s FAC, and Relator was not entitled to statutory or equitable tolling; (3) Defendants’ motions to dismiss with respect to Relator’s allegations that arguably overlapped with the Settlement Agreement should be dismissed without prejudice to renew pending the outcome of the evidentiary hearing; and (4) Defendants’ motions to dismiss were otherwise denied.
On September 8, 2005, the district court held an evidentiary hearing, having determined that
it was required to do so by
Bledsoe I.
The district court issued a memorandum opinion stating its
findings of fact and conclusions of law on December 13, 2005. After recounting the terms of the
Settlement Agreement and Relator’s interactions with King and Jackson of OIG-HHS, as discussed
above, the district court concluded that Relator could not recover any share of the settlement
proceeds. The district court noted that the investigations of both Jackson and King were eventually
closed. The district court also refused to consider any evidence from Peck’s meeting with the
government on the ground that Relator was not an “original source” of the information Peck
provided.
Bledsoe II
,
ANALYSIS
This appeal presents two essential questions. First, we must determine whether the district court properly dismissed Relator’s SAC. Second, we must decide whether the district court properly denied Relator’s motion to recognize settlement.
I.
monitors; (5) various instances of miscoding and upcoding CPT codes (“CPT” codes are part of a coding system known as the Current Procedural Terminology coding system) and DRG codes, including (i) billing subsequent respiratory procedures at the higher rate of reimbursement intended for initial procedures, (ii) improperly billing certain supplies as procedures under several CPT codes, (iii) unbundling respiratory services, such as “manipulation of the chest wall” and “postural drainage,” with the effect that services that should have been included under a single bill were billed twice, (iv) billing Medicare and Medicaid for equipment that was present in a patient’s room, but not in use, (v) billing Medicare and Medicaid for non-existent procedures, (vi) improperly using a CPT code intended to cover the evaluation or management of a new patient to bill Medicare and Medicaid for supplies, minor procedures, and proсedures billed under a separate CPT code, (vii) unbundling charges for resuscitation, (viii) adding unsupported diagnosis codes to the principal diagnosis code to increase Defendants’ reimbursement, and (ix) using DRG code 79, which is for a more severe form of bacterial pneumonia, when DRG code 89 was appropriate, which is for the more common form of viral pneumonia; (6) billing for unbillable items and procedures, unbundling charges, and double billing for laboratory tests; and (7) submitting cost reports with inflated costs to Medicare, which led to increased reimbursement.
The question of whether we should affirm the district court’s dismissal of Relator’s complaint subdivides into three component questions. First, we must ask whether all or part of Relator’s SAC fails to comply with the pleading requirements of Federal Rules of Civil Procedure 8 and 9(b). Next, we must inquire as to whether the allegations in Relator’s SAC are barred by the statute of limitations. Finally, we must determine whether the district court properly dismissed Relator’s entire SAC in its December 13, 2005 order notwithstanding the fact that it had previously refused to dismiss certain allegations in Relator’s SAC in its order of January 6, 2005. A. Rule 9(b) Compliance
This Court reviews “
de novo
a district court’s dismissal of a complaint for failure to state a
claim, including dismissal for failure to plead with particularity under [Federal Rule of Civil
Procedure] 9(b).”
Sanderson v. HCA-The Healthcare Co.
,
Bledsoe I
sets forth the elements of Relator’s cause of action:
[10]
The FCA, 31 U.S.C. § 3729
et seq
., is an anti-fraud statute that prohibits the knowing
submission of false or fraudulent claims to the federal government. Specifically,
§ 3729 imposes liability when (1) a person presents, or causes to be presented, a
claim for payment or approval; (2) the claim is false or fraudulent; and (3) the
person’s acts are undertaken “knowingly,” i.e., with actual knowledge of the
information, or with deliberate ignorance or reckless disregard for the truth or falsity
of the claim. § 3729(a)(1), (b). . . . Persons who violate the FCA are liable for
civil penalties and double or treble damages, plus the costs incurred in bringing a
FCA lawsuit.
Id.
§ 3729(a).
The district court dismissed several allegations in Relator’s SAC pursuant to Federal Rule
of Civil Procedure 12(c) on the ground that portions of the complaint failed to state FCA violations
with particularity, as required by Federal Rule of Civil Procedure 9(b).
See id
at 641 (citing
Yuhasz
,
Rule 9(b) is not to be read in isolation, but is to be interpreted in conjunction with Federal
Rule of Civil Procedure 8.
Michaels Bldg. Co. v. Ameritrust Co., N.A.
,
In our prior opinion, we addressed the requirements of Rule 9(b):
In complying with Rule 9(b), a plaintiff, at a minimum, must “allege the time, place,
and content of the alleged misrepresentation on which he or she relied; the fraudulent
scheme; the fraudulent intent of the defendants; and the injury resulting from the
fraud.”
Coffey v. Foamex L.P.
, 2 F.3d 157, 161-62 (6th Cir. 1993) (internal
quotation marks and citations omitted);
see also United States ex rel. Branhan v.
Mercy Health Sys. of Southwest Ohio
, No. 98-3127,
Notwithstanding this guidance in , the parties do not agree upon exactly what Rule
9(b) requires in the context of the FCA. The first point of contention is whether Rule 9(b) requires
a relator to identify specific false claims with particularity. Relator argues that it is unnecessary that
Three justifications are commonly proffered for Rule 9(b)’s heightened pleading standard: it ensures that
defendants have the specific notice necessary to prepare a response, it prevents prospective plaintiffs from engaging in
fishing expeditions to uncover moral wrongs, and it protects defendants’ reputations against damage stemming from
accusations of immoral conduct.
Banca Cremi, S.A. v. Alex. Brown & Sons, Inc.
,
A clear and unequivocal requirement that a relator allege specific false claims emerges from
the conjunction of Rule 9(b) and the statutory text of the FCA. Rule 9(b) requires that for all
“averments of fraud,” “the circumstances constituting fraud” must be pled with “particularity,” in
contrast to the
mens rea
of fraud, which may be pled “generally.” Section 3729(a)(1) imposes
liability not for defrauding the government generally; it instead only prohibits a narrow species of
fraudulent activity: “present[ing], or caus[ing] to be presented, . . . a false or fraudulent claim for
payment or approval.”
Bledsoe I
,
Our holding in
Bledsoe I
also demonstrates that particularized allegations of an actual false
claim is an indispensable element of a FCA violation, and must be specifically pled if a complaint
is to survive Rule 9(b) scrutiny. In , we stated that “
at a minimum
,” the complaint must
“allege the
time, place, and content of the alleged misrepresentation
on which he or she relied.”
Bledsoe I
,
Relator argues that
Michaels
requires this Court to take flexible approach to Rule 9(b).
Under Relator’s view, the Court would not look to the information that was “missing” from a
complaint, but would instead “focus on whether the information
contained
in the complaint provides
a reasonable basis to make out a cause of action.” Relator’s Br. at 32 (citing
Michaels Bldg. Co.
,
The parties’ next bone of contention is whether, in addition to alleging specific false claims, the parties must plead the identity of the specific individual employees within the defendant corporation who submitted false claims to the government. We reject Defendants’ contention that such information is an indispensable part of a complaint that passes muster under Rule 9(b). A requirement that a relator identify specific employees is dissimilar from a requirement that a relator identify specific false claims in every material respect. Such a requirement is not required by the FCA itself or the text of Rule 9(b), nor is it required by Bledsoe I or other binding precedents. We therefore hold that while such information is relevant to the inquiry of whether a relator has pled the circumstances constituting fraud with particularity, it is not mandatory.
The identity of the natural person within the corporate defendant who submitted false claims
is not an essential element of a FCA violation. The FCA imposes liability on “[a]ny
person
who”
“knowingly presents, or causes to be presented, . . . a false or fraudulent claim for payment or
approval.” 31 U.S.C. § 3729(a) (emphasis added). For the purpose of the FCA, however, “person”
includes not merely natural persons, but also private corporations.
See Cook County, Ill. v. United
States ex rel. Chandler
,
Nor does
Bledsoe I
include the identity of the natural person who submitted false claims as
part of the minima necessary for a valid
qui tam
action. To reiterate, in order to surmount the hurdle
of Rule 9(b), a relator’s complaint must “allege the time, place, and content of the alleged
misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the
defendants; and the injury resulting from the fraud.”
Bledsoe I
,
Defendants argue that this Court’s opinion in United States ex rel. Branhan v. Mercy Health Systems of Southwest Ohio , 188 F.3d 510 (table), 1999 WL 618018 (6th Cir. Aug. 5, 1999) (unpublished) compels a different result. True, in Branhan the Court stated:
As part of the Rule 9(b) requirements a person alleging fraud must identify the
individuals who participated in the fraudulent scheme. [
Coffey
, 2 F.3d at 161];
[Hoover v. Langston Equip. Assocs., Inc.
],
We refuse, however, to read
Branhan
as establishing a requirement that the identity of
employees within a corporate defendant is a necessary element of a FCA violation. As the
Branhan
court concluded that it lacked subject matter jurisdiction to consider the relator’s allegations, see
id.
,
its conclusion with respect to Rule 9(b) is more properly characterized as dicta than an alternative
holding.
See Moreland v. Fed. Bureau of Prisons
,
The reasoning of
Branhan
is unconvincing.
Branhan
produced no independent reasoning
supporting its Rule 9(b) conclusion, but instead relied solely on two cases,
Coffey
and
Hoover
,
neither of which supports
Branhan
’s conclusion that the identity of corporate employees must be
pled with particularity in order for a relator to comply with Rule 9(b).
Hoover
was a securities fraud
case that named numerous entities and individuals as defendants.
To summarize, we hold that a relator bringing an action under the FCA must allege specific
false claims with particularity in order to comply with Rule 9(b). However, where the corporation
is the defendant in a FCA action, we hold that a relator need not always allege the specific identity
of the natural persons within the defendant corporation that submitted the false claims. Instead, such
information is merely relevant to the inquiry of whether a relator has pled the circumstances
constituting fraud with particularity. A complaint is sufficient under Rule 9(b) if it alleges “the time,
place, and content of the alleged misrepresentation on which he or she relied; the fraudulent schemе;
the fraudulent intent of the defendants; and the injury resulting from the fraud,” and enables
defendants to “prepare an informed pleading responsive to the specific allegations of fraud.”
,
Before applying this standard to Relator’s SAC, however, we must address, as a threshold matter, Relator’s contention that the district court’s “paragraph-by-paragraph application of Rule *13 9(b) represents an unjustified approach” to analyzing a complaint. Relator’s Br. at 35. According to Relator, where a complaint alleges wide-ranging claims of fraud, a court should first ask whether the relator has set forth a “fraudulent scheme;” if a relator has alleged a “fraudulent scheme,” then the court should require, at most, that the relator provide some examples of fraudulent conduct.
We start from the proposition that placing allegations of fraud that are insufficient under Rule 9(b) in a complaint alongside allegations that properly state a claim does not affect the legal consequences afforded to the insufficient allegations. That is, if allegations of fraud are insufficient to survive Rule 9(b) scrutiny, the fact that a relator has placed them in the same complaint with separate and unrelated allegations that plead fraud with particularity is irrelevant as a matter of law. There is, quite simply, no legitimate reason for treating insufficient allegations of fraud that are placed in a complaint containing valid allegations differently from insufficient allegations of fraud that occupy their own complaint. Relator does not even attempt to justify such a distinction. This proposition, of course, means that a “paragraph-by-paragraph” approach is not only permissible, but is required, if the paragraphs of a relator’s complaint allege separate and unrelated fraudulent conduct.
There are, however, valid reasons for not requiring a relаtor to plead every specific instance
of fraud where the relator’s allegations encompass many allegedly false claims over a substantial
period of time.
Cf. Clausen
,
The critical question then becomes how broadly or narrowly a court should construe the
concept of a fraudulent scheme. If a court were to construe a fraudulent scheme at a high level of
generality–for example, if the court concluded that the fraudulent scheme consisted of “the
defendant hospital submitting false claims to Medicare or Medicaid”–then the court would, in effect,
violate the principle that improperly pled allegations of fraud do not become adequate merely by
placing them in the same complaint with allegations that are sufficient under Rule 9(b). Allowing
such a complaint to go forward
in toto
would fail to provide defendants with the protections that
Rule 9(b) was intended to afford them: Defendants would not have notice of the specific conduct
with which they were charged, they would be exposed to fishing expeditions and strike suits, and
they would not be protected from “spurious charges of immoral and fraudulent behavior.”
Sanderson
,
We conclude that the concept of a false or fraudulent scheme should be construed as
narrowly as is necessary to protect the policies promoted by Rule 9(b). Specifically, we hold that
the examples that a relator provides will support more generalized allegations of fraud only to the
extent that the relator’s examples are
representative samples
of the broader class of claims.
See
United States ex rel. Joshi v. St. Luke’s Hosp., Inc.
,
With these principles in mind, we at last turn to Relator’s specific allegations in his SAC. [18] The district court dismissed several allegations of fraud in Relator’s SAC, specifically: allegations that Defendants fraudulently used incorrect provider numbers, allegations that Defendants fraudulently billed for glucometer finger sticks and heel sticks, allegations that Defendants submitted fraudulent cost reports, and certain allegations that Defendants upcoded and miscoded CPT and DRG codes. These allegations are eaсh addressed below.
1. Fraudulent Use of Provider Numbers. In paragraphs 17 and 18 of the SAC, Relator alleges that Defendants changed emergency room management companies, and as a result, every professional service fee charged by White County for emergency room services was billed under the provider number of a physician who had not performed the services. Relator identifies Dr. 17 This does not imply that immaterial differences between the specifically alleged examples and the class of all claims would defeat discovery covering a broader fraudulent scheme. For example, if a relator worked in a defendant hospital’s billing department, and all the examples of false claims were culled from the hours when the relator was working, the relator would still be entitled to discovery on a class of claims that included all hours, provided that the relator produced reasons to believe that at all times the hospital billed claims in a similar manner. The district court concluded many of Relator’s allegations survived Rule 9(b) scrutiny. Defendants dispute this conclusion in a summary fashion, arguing that we should dismiss Relator’s allegations because Relator failed to name specific, natural persons within Defendants. For the reasons discussed above, we reject this contention, and we restrict our analysis of whether Relator’s allegations are pled with particularity to the portions of Relator’s complaint that the district court dismissed. *15 Robert Hoyt as a physician whose provider number was used for this purpose without his consent. Relator also contends that Defendants “submitted numerous bills to Medicare and Medicaid that did not qualify for payment.” J.A. at 260.
This basic allegation existed in Relator’s FAC. In his SAC, Relator has added several
additional details, including the fact that Dr. Hoyt’s provider number was involved in the scheme,
and that Defendants “submitted numerous bills.” In , we dismissed these allegations in
Relator’s FAC, reasoning that the “complaint failed to set forth dates as tо the various FCA
violations or any particulars as to the incidents of improper billing Relator supposedly witnessed
first-hand.”
The district court analyzed this claim in detail, and concluded that it was deficiently pled because “Relator [did] not identify any allegedly false claims or their submission to the Government, which employees of Defendants allegedly misused Dr. Hoyt’s number, or whether such employees worked for CHS, White County, or White County’s ‘new management company.’” J.A. at 392. We affirm the judgment of the district court with respect to these paragraphs of Relator’s complaint. Like Relator’s FAC, the SAC remains devoid of any incidents of improper billing that are pled with particularity. This deficiency is fatal to Relator’s allegations.
2. Fraudulent Billing of Glucometer Finger Sticks and Heel Sticks. In paragraph 91 of Relator’s SAC, he alleges that “the laboratory” was billing Medicare and Medicaid for glucometer finger sticks and heel sticks as venipunctures, and that such billing constituted fraudulent conduct, as glucometer finger sticks and heel sticks cannot properly be billed to Medicare and Medicaid. Relator asserts that on February 25, 1997, Defendants billed Medicare for 19 venipunctures in addition to 19 “Glucometer Glucose” tests for patient EGH between February 18, 1997 and February 22, 1997. Relator states that, “[u]pon information and belief, the venipunctures billed by CHS and White County were actually finger sticks or heel sticks used to draw blood for the Glucometer Glucose test.” J.A. at 297-98.
Relator has failed to state a FCA violation with particularity in paragraph 91 of his SAC.
“While fraud may be pled on information and belief when the facts relating to the alleged fraud are
peculiarly within the perpetrator’s knowledge, the plaintiff must still set forth the factual basis for
his belief.”
United States ex rel. Williams v. Bell Helicopter Textron Inc.
,
3. Fraudulent Cost Reports . Relator’s SAC alleges that Medicare reimburses hospitals for additional costs “such as overhead costs, capital improvement costs, and financing costs, among others.” J.A. at 298. Relator contends that Defendants inflated the cost reports they submitted to Medicare and “thereby obtain[ed] a greater reimbursement than they were entitled to receive.” J.A. at 298. The district court dismissed these allegations because “Relator [did] not mention with any specific information when such cost reports were filed, by whom, and for how much they were inflated.” J.A. at 399.
We likewise conclude that these allegations do not meet the pleading requirements of Rule 9(b). The fundamental flaw with Relator’s allegations is that they do not provide any specific information about the cost reports allegedly submitted. Absent any information as to when the reports were filed, or for how much they were inflated, Relator has failed to set forth a specific FCA violation. We affirm the district court’s dismissal of these paragraphs of the SAC.
4. Upcoding and Miscoding of CPT and DRG Codes. Relator’s allegations of DRG and CPT miscoding and upcoding comprise the bulk of his SAC. Allegations of CPT and DRG upcoding or miscoding potentially involve a wide range of conduct. As Relаtor confirmed in his testimony before the district court, the hospital does not bill for anything that is not covered by a code. We will therefore consider Relator’s allegations of upcoding and miscoding on a more particularized basis.
a. Paragraphs 40-49 of Relator’s SAC. In paragraphs 40-49 of the SAC, Relator alleges a variety of fraudulent activity. Paragraph 40 contends that Defendants submitted false claims under CPT code 94656, which concerns billing for ventilation assist, management and other related activities. Paragraph 41 alleges that the same CPT code was used to bill for the Ven Circuit-7200, which is a disposable piece of plastic tubing which could not properly be billed as a procedure. Paragraph 43 of the SAC states that Defendants billed for “supplies” using CPT code 94640. Paragraph 44 of the SAC alleges that a ventilation procedure was billed under CPT code 94657 on an hourly basis, rather than a daily basis, resulting in overcharges. Paragraphs 45-47 of the SAC allege that Defendants “unbundled”–that is, charged separately for services that should otherwise have been billed jointly–using CPT codes 94667 and 94668. Paragraphs 48-49 of the SAC allege that Defendants billed for equipment that was present in the patient’s room, but not in use.
The district court dismissed all these allegations, reasoning that no employee was named as
a participant, and that there were no allegations of when such fraud allegedly occurred. We affirm
the district court’s dismissal of the allegations in paragraphs 40-49. These allegations do not meet
the minimum standard of “the time, place and content of the alleged misrepresentation on which [the
injured party] relied.” ,
Nor are these allegations saved by the allegations of DRG and CPT upcoding and miscoding in Relator’s SAC that are pled with particularity. Relator’s specific examples of miscoding are: (1) that the CPT code for certain initial respiratory treatments (94664) was used to bill cheaper subsequent treatments (instead of CPT code 94665); (2) that Defendants billed for oxygen and nebulizers, which are supplies, as treatments under CPT code 94664; (3) that Defendants improperly billed for oxygen supplies under CPT code 94779; and (4) that Defendants improperly billed for supplies under CPT code 99201.
These well-pled examples do not notify Defendants as to what specific conduct they are charged with under paragraphs 40-49 of the SAC, because Relator’s specific allegations are not characteristic examples illustrative of a class of claims that would include Relator’s allegations in paragraphs 40-49. The fraudulent conduct that Relator alleges in paragraphs 44 and 45-47 of the SAC is of a different nature than that pled with particularity. The scheme alleged in paragraph 44 of the SAC involves, to the extent discernible by the complaint, exaggerating the length of a properly-billed treatment; the scheme alleged in paragraphs 45-47 of the SAC involves unbundling. These allegations are materially different from those pled with particularity, which allege that Defendants either billed Medicare and Medicaid for items that are not properly billable, or used an incorrect CPT code to inflate their reimbursement for a properly-billable service.
Relator’s allegations in paragraphs 40, 41, and 48-49 of the SAC are closer to the conduct specifically alleged in the complaint insofar as they involves a scheme to bill Medicare and Medicaid for items for which they cannot properly be billed. Nevertheless, we do not consider the allegations to be part of a single, overarching fraudulent scheme. The allegations in paragraphs 40, 41, and 48-49 of the SAC all involve different CPT codes and different items than those at issue in the allegations that Relator pled with particularity. A random sample of claims would not be likely to produce many allegations that Defendants violated the FCA by submitting claims under some CPT codes, i.e. , those at issue in the violations pled with specificity, while simultaneously producing no allegations that Defendants violated the FCA by submitting claims under other CPT codes, i.e. , those CPT codes at issue in paragraphs 40, 41, and 48-49. Therefore, the allegations pled with particularity are not representative samples of a broader scheme that includes the allegations in paragraphs 40, 41, and 48-49, and the latter allegations must survive Rule 9(b) scrutiny independently of the former. As already discussed, Relator’s allegations in paragraphs 40, 41 and 48-49 independently fail to state a claim with particularity as required by Rule 9(b), and must therefore be dismissed.
b. Paragraphs 52-54 of Relator’s SAC. In paragraphs 52-54 of the SAC, Relator describes a non-existent “call back” procedure that Defendants would fraudulently bill under CPT code 94799. Relator alleges that Defendants required him and other therapists to make a notation of when the therapist that was on call was awakened to respond to an emergency. Relator further contends that charges for this “call back” procedure were fraudulently billed to Medicare or Medicaid in addition to any medical services rendered by the on-call therapist. The district court dismissed these allegations because no employee was named, and because the complaint contained no references to the dates when any allegedly fraudulent activity was observed.
We affirm the district court’s dismissal of these allegations. Relator does not identify any specific instance where Medicare or Medicaid was wrongfully billed. Relator’s failure to allege false claims with particularity is fatal to these allegations in his SAC.
c. Paragraphs 65-67 of Relator’s SAC. In paragraphs 65-67 of Relator’s SAC, Relator alleges that Defendants “would add other unsupported diagnosis codes to the principal diagnosis code in order to increase the Case Mix Index and obtain a greater reimbursement from Medicare and Medicaid.” J.A. at 286. Relator provides one example, that of patient “MAL,” who was admitted to White County on December 1, 1997 and received 17 breathing treatments. Relator alleges that MAL was fraudulently given a secondary diagnosis for Tachycardia, an inference Relator draws because MAL was not provided with the expected treatments for a patient suffering from Tachycardia. Relator also notes that MAL’s stay at White County was only two days, despite the fact that the national average length of stay for persons with Tachycardia was 5.1 days. Relator alleges that Medicaid was billed for these services on December 9, 1997.
The district court dismissed these charges because Relator did not name specific employees or the “circumstances [indicating] that this was a ‘fraudulent scheme.’” J.A. at 397. We disagree, and hold that Relator has sufficiently pled a FCA violation with respect to patient MAL. He has alleged “the time, place and content of the alleged misrepresentation on which [the injured party] relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Id. Specifically, the time was December 9, 1997, the date of the false claim; on that date White County submitted a bill that fraudulently contained a charge for Tachycardia under DRG code 96; the scheme involved submitting a fraudulent secondary diagnosis in order to receive greater reimbursements. The fraudulent intent can be inferred from the circumstances, and the injury resulting from the fraud is the greater reimbursement paid to White County. Even though Relator has not pled the name of the natural person at White County who submitted the claim, we conclude *18 that the level of detail contained in the SAC is sufficient to entitle Relator to discovery on his claim that White County submitted false claims with respect to patient MAL.
d. Paragraphs 64, 68-69, 71, and 80-82 of Relator’s SAC. In paragraphs 64 and 68-69, Relator alleges that Defendants would use DRG code 79 when DRG code 89 was appropriate, the effect of which was to bill for a more serious type of pneumonia than was supportable by the patient’s condition. Relator alleges that he reviewed Defendants’ files and discovered “numerous cases [in which] the patients had clear chest X-rays and had no documentation in their medical file supporting the pneumonia diagnosis.” J.A. at 288. In paragraph 71, Relator claims that he informed Jennifer Collins, of OIG-HHS, that Defendants would improperly bill under DRG code 79. In paragraphs 80-82, Relator supplements his allegations with information he received from Cindy Peck, who was also employed by White County. Peck allegedly reviewed numerous files and discovered DRG miscoding and upcoding with respect to DRG codes 79 and 89, and brought this information to Relator’s attention. The district court concluded that these allegations were not pled with adequate specificity because Relator did not allege any specific claims, dates, or employees.
We affirm the district court’s dismissal of these allegations. The fact that Relator’s SAC
lacks specific dates or claims submitted to Medicare or Medicaid compels us to conclude that
Relator has failed to state a FCA violation with particularity. Relator’s complaint states merely that
Relator “reviewed a number of HCFA claims coded with DRG 79, which CHS and White County
submitted to Medicare or Medicaid for payment.” Conclusory allegations of this sort do not
constitute pleading with particularity for the purpose of Rule 9(b).
Sanderson
,
The next issue before us is whether the district court properly concluded that certain allegations in Relator’s SAC were barred by the statute of limitations. The district court dismissed several alleged FCA violations on this ground. The district court reasoned that Relator’s SAC was recognized by the district court in July of 2004. The district court then noted that each specific instance of fraud allegedly оccurred more than six years before Relator filed his SAC, which is the statute of limitations under the FCA. 31 U.S.C. § 3731(b)(1). The district court proceeded to ask whether Relator’s untimely allegations (1) related back to Relator’s FAC pursuant to Federal Rule of Civil Procedure 15(c)(2); (2) were statutorily tolled under 31 U.S.C. § 3731(b)(2); or (3) were equitably tolled during the time that the case was pending before this Court. The district court concluded that allegations concerning “fraudulent telemetry monitoring” and “unbundling of fees and kits” did relate back to Relator’s FAC. J.A. at 405 (upholding paragraphs 19-22 and 26-27 of the SAC). However, the district court dismissed Relator’s claims relating to “non-reimburseable supplies,” “fraudulent billing for blood tests,” and the surviving claims of upcoding and miscoding of CPT and DRG codes. J.A. at 405 (dismissing paragraphs 23-25; 28-29; 31-32; 34-39; 50-63; and 88-90 of the SAC).
1. Relation Back.
We review
de novo
the district court’s conclusion that allegations in an
amended complaint do not relate back to the original complaint.
Miller v. Am. Heavy Lift Shipping
,
(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.
*19
Rule 15(c)(2) is “based on the notion that once litigation involving particular conduct or a
given transaction or occurrence has been instituted, the parties are not entitled to the protection of
the statute of limitations against the later assertion by amendment of defenses or claims that arise
out of the same conduct, transaction, or occurrence.”
Brown v. Shaner
,
Relator’s original complaint alleged that CHS and related defendants “engaged in a scheme of defrauding the United States Government by miscoding and upcoding items billed to Medicare and Medicaid,” J.A. at 31. Relator’s FAC alleged that Defendants “engaged in other acts or practices to defraud the United States, including . . . unbundling of services.” J.A. at 44-45. Relator contends that, even if these allegations by themselves were too vague to provide Defendants with adequate notice of the nature and scope of the allegations in the SAC, Defendants were placed on notice of the charges by the Disclosure Statement of Sean Bledsoe (“Disclosure Statement”), which was filed with the government as part of Relator’s qui tam action.
This Court has never squarely addressed the question of whether extrinsic evidence can be
considered in determining whether a defendant was on notice of the plaintiff’s claims for the purpose
of Rule15(c)(2). Now confronting this issue, we agree with Relator that in this case the Disclosure
Statement is relevant to the Rule 15(c)(2) inquiry. We have previously expressed favorable leanings
towards allowing courts to consider extrinsic evidence in analyzing whether an amendment relates
back to the оriginal complaint. In
Miller
, the Court stated that it was “inclined to believe that notice
may be provided by sources outside the pleadings,” although the Court decided that it need not rest
its holding on that basis.
Moreover, our opinion in countenanced the idea that Relator would amend his complaint to amplify the allegations in his Disclosure Statement. There, we concluded that Relator’s Disclosure Statement was relevant to the related inquiry of whether the district court abused its discretion in denying Relator leave to amend his complaint. We stated that:
[T]here is some indication from the record that Relator possessed additional information that could have allowed his amended complaint to allege the FCA This statement was served on the government when the lawsuit was first filed, and served on Defendants as part of the Government’s Response to Relator’s Motion to Recognize Settlement in February of 2001.
violations and other fraud allegations with sufficient particularity, specifically his
disclosure to the United States government when he filed his
qui tam
suit. For
instance, the district court’s opinion noted that Relator failed to name any individuals
who engaged in the FCA violations, but in the disclosure filed with the government
at the commencement of his
qui tam
suit Relator did provide some names and
asserted his possession of supporting documents and additional information.
,
Finally, restricting the Rule 15(c)(2) analysis strictly to the content of the original pleadings
would exalt the form of notice over its substance, and would therefore run counter to the policies
underpinning Rule 15.
See Miller
,
The district court dismissed paragraphs 31-32, 34-39, and 50-63 of the SAC, which concern DRG and CPT upcoding, on the ground that these allegations did not relate back to the original complaint. These allegations concern: (1) failing to differentiate between initial and subsequent respiratory treatments when billing Medicare and Medicaid; (2) improperly billing Medicare and Medicaid for unbillable equipment and supplies; (3) using CPT code 94799 to fraudulently bill Medicare and Medicaid for “02 equipment daily” charges; (4) improperly billing Medicare and Medicaid under CPT code 94799 for a “call back” charge for which no procedure is associated; (5) improperly billing Medicаre and Medicaid for supplies or minor procedures under CPT code 99201; (6) improperly billing Medicare and Medicaid for observation care; and (7) improperly double-billing Medicare and Medicaid for cardiopulmonary resuscitation under CPT code 99201 and improperly billing for other procedures unbundled and billed under CPT Code 92950. We conclude that the above allegations labeled numbers (1), (2), (3), (5) and (6) relate back to Relator’s prior pleadings. The allegations of CPT upcoding and miscoding in Relator’s original complaint, when read in conjunction with Relator’s Disclosure Statement, were adequate to apprise 20 Rule 15(a) states:
(a) Amendments . A party may amend the party’s pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party’s pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. A party shall plead in response to an amended pleading within the time remaining for response to the original pleading or within 10 days after service of the amended pleading, whichever period may be the longer, unless the court otherwise orders. This corresponds to the allegations in paragraphs 31-32, 34-39, 50-52, and 55-61 of the SAC. *21 Defendants of the fraudulent conduct at issue in this litigation, and we hold that the allegations arise out of the same conduct, transaction, or occurrence attempted to be set forth in Relator’s prior pleadings. For each of these allegations, Relator’s Disclosure Statement provides numerous examples of allegedly upcoded or miscoded charges, and it includes the CPT codes allegedly used to perpetrate the fraud. Defendants should not now be surprised that Relator’s SAC alleges these FCA violations.
The same cannot be said, however, for the items labeled number (4) and (7), that is, Relator’s allegations of improperly billed “call back” procedures and improperly billed cardiopulmonary resuscitation and other procedures. Relator’s original complaint and FAC never mention a “call back” procedure, and the only specific allegations of services billed under CPT code 94799 in Realtor’s Disclosure Statement describe the services as “emergency room” or “02 Equip./Daily,” neither of which would alert Defendants that a “call back” procedure was at issue. Likewise, while there are several allegations of improper billing under CPT code 99201 contained in the Disclosure Statement, nothing in the original complaint or the FAC would alert Defendants to the fact that cardiopulmonary resuscitation procedures were involved in Relator’s prior allegations of fraud. And nothing in Relator’s original complaint, FAC, or Disclosure Statement alludes to the other services allegedly unbundled and billed under CPT code 92950. We conclude that these allegations in the SAC do not relate back to either of Relator’s earlier complaints.
In paragraphs 88-90, Relator’s SAC alleges that the laboratory was unbundling, double billing, and billing for unbillable items. These allegations are also present in Relator’s Disclosure Statement, which alleges that “the lab” was “routinely double billing, billing for unbillable items and procedures, and unbundling.” J.A. at 109. The Disclosure Statement also refers to the specific CPT codes and procedures that form the basis of the allegations in the SAC. This information, when combined with Relator’s general allegations of unbundling, was sufficient to put Defendants on notice as to paragraphs 88-90 of the SAC, and we hold that these paragraphs relate back to the original complaint.
Relator’s allegations in paragraphs 23-25 and 28-29 of the SAC do not concern upcoding and miscoding. Instead, Relator alleges in these paragraphs that Defendants fraudulently billed Medicare and Medicaid for equipment and supplies. Nothing in the original complaint, the FAC, or Relator’s Disclosure Statement addresses the FCA violations that Relator alleges in these paragraphs. We hold that Relator’s allegations in paragraphs 23-25 and 28-29 of the SAC do not arise from the same conduct, transaction or occurrence alleged in the original complaint or the FAC, and therefore do not relate back to Relator’s prior pleadings.
2. Equitable Tolling.
Because we have determined that some of Relator’s claims do not
relate back to his prior pleadings, we must determine whether the otherwise time-barred allegations
are saved by equitable tolling. We conclude that Relator is entitled to equitable tolling of the statute
of limitations for the period while was pending on appeal, and therefore his otherwise
time-barred allegations are timely. We generally review a district court’s decision not to apply
equitable tolling for abuse of discretion, but we review the district court’s decision
de novo
to the
extent that the facts are undisputed.
Dixon v. Gonzales
,
Relator does not contend that he lacked actual notice or constructive knowledge of the filing
requirement, or that he was ignorant of the filing requirement. Relator instead argues that thе time
between our mandate in
Bledsoe I
, which was issued on November 21, 2003, and the time by which
he would have been required to file a timely amended complaint was, as a matter of basic fairness,
insufficient for him to file an amended complaint. We agree. Our prior opinion made clear that
Relator was entitled to file an amended complaint, and that the record did not evince any “undue
delay, bad faith, or dilatory motive on the part of Relator, or any undue prejudice to Defendants by
virtue of allowance of the amendment.”
Bledsoe I
,
Nevertheless, the district court held that Relator was not entitled to equitable tolling. The district court reasoned that “Relator’s final specific allegation of fraud occurred on January 6, 1998,” J.A. at 407 (emphasis added), and therefore even counting from November 3, 2003, the date that rehearing was denied, the approximately “two-month time period would have been sufficient for Relator to file his Second Amended Complaint.” J.A. at 408 n.10. The district court’s analysis is perplexing insofar as it focuses on the latest date on which any of Relator’s allegations of misconduct supposedly occurred. Certainly, the district court could not have expected that Relator would have filed an amended complaint before our decision in Bledsoe I reversed the district court’s dismissal of Relator’s FAC with prejudice, though many of the specific allegations in Relator’s SAC were already time-barred by September 10, 2003, when Bledsoe I was filed. Nevertheless, the district court did not uphold these allegations–instead, it must have reasoned that since some of Relator’s allegations could still have been timely filed, Relator’s failure to rapidly file his SAC meant that all allegations contained therein should not be subject to equitable tolling.
Unlike the district court, we start from the proposition that the instances of misconduct in Relator’s SAC that allegedly occurred more than six years before the date that our mandate in Bledsoe I was issued were entitled to equitable tolling. While many оf the alleged instances of misconduct in Relator’s SAC allegedly occurred between November 22, 1997–exactly six years before the first day after our mandate that Relator could have filed an SAC containing allegations within the statute of limitations–and January 6, 1998, we will not attempt to draw a line between these two dates that separates the claims that are entitled to equitable tolling from the claims that are not so entitled. Instead, we conclude that all of Relator’s claims are entitled to equitable tolling, provided that Relator acted with diligence in pursuing his rights, and that Defendants were not prejudiced by Relator’s delay in filing his SAC. The fact that Relator could have salvaged some of his claims by filing his SAC within approximately a month-and-a-half of our mandate is irrelevant.
In light of the unique circumstances of this case, where many of Relator’s specific allegations were already barred by the statute of limitations at the time when he was granted leave to amend, we conclude that Relator did not act with a lack of diligence by not attempting to file his SAC until May of 2004. Moreover, we can perceive no substantial prejudice to Defendants by Relator’s delay of several months. We conclude that all of Relator’s claims are entitled to equitable tolling for the period that was pending on appeal, and we therefore consider them to be filed within the FCA’s six year statute of limitations.
C. Dismissing the Entire Second Amended Complaint In its opinion of January 6, 2005, the district court granted Defendants’ motion to dismiss in part, but also upheld substantial portions of Relator’s SAC. In Bledsoe II , the district court’s discussion of the procedural history of the case reaffirmed this disposition. Bledsoe II , 2005 WL *23 3434378, at *2 (“Accordingly, Relator’s claims for alleged fraudulent billing for continuous monitoring services, unbundling of setup fees, daily fees and components of kits, and DRG upcoding and miscoding for bronchitis and asthma were allowed to proceed.” (citations omitted)). Nevertheless, at the conclusion of Bledsoe II , the district cоurt dismissed the entire action with prejudice and without further analysis of these claims. at *8.
The district court gave no reason for dismissing Relator’s entire SAC, and we likewise can discern no reason justifying a dismissal of the entire action. We accordingly hold that the district court erred in dismissing Relator’s entire SAC. [22]
II.
The second issue in this appeal is whether the district court correctly concluded that Relator
was not entitled to recover proceeds paid by CHS pursuant to the Settlement Agreement. As a
threshold matter, the government argues that Relator’s complaint cannot, as a matter of law, entitle
him to a share of the settlement proceeds, because it fails to allege a valid
qui tam
action under
Federal Rule of Civil Procedure 9(b) with respect to the miscoding or upcoding of any DRG code
covered by the Settlement Agreement. Whether a valid
qui tam
action is a prerequisite to Relator’s
recovery is a question of law that we review
de novo
.
Cf. Lindstrom v. A-C Prod. Liab. Trust
, 424
F.3d 488, 492 (6th Cir. 2005) (citing
Pressman v. Franklin Nat’l Bank
,
Neither Relator nor the government disputes the fact that DRG code 79 is the only code that
is both included in the “Covered Conduct” defined by the Settlement Agreement and also forms a
part of the allegations of fraud in Relator’s SAC. Because the district court dismissed Relator’s
allegations with respect to DRG code 79 (and we affirm that dismissal), we must determine whether
Relator can nevertheless recover settlement proceeds, even assuming that he could “provide more
concrete evidence that he apprised the government of Defendants’ DRG coding violations.”
Bledsoe
I
,
[T]he government asserts that because Relator failed to state a claim with sufficient
particularity, as required by Rule 9(b), he would not be entitled to a share of the
settlement because his
qui tam
action was invalid.
While it is true that a threshold
requirement for a relator’s ability to share in the proceeds of a FCA lawsuit is to file
22
Defendants arguе that the district court dismissed Relator’s remaining claims for failure to prosecute, in spite
of the fact that the district court gave no indication that it was dismissing the complaint for that reason. According to
Defendants, Relator’s absence of motions or discovery following the January 6, 2005 order until the date of
Bledsoe II
demonstrates that “Relator Bledsoe showed no interest in his surviving allegations.” Defendants’ Br. at 44. Defendants’
argument lacks merit. Since the district court did not exercise its discretion in the first instance, we will not affirm its
dismissal on that basis, particularly on this record, which does not clearly demonstrate a failure to prosecute on the part
of Relator.
Cf. Stallworth v. Greater Cleveland Reg’l Transit Auth.
,
a valid qui tam action , 31 U.S.C. § 3730(b)(1), we already have decided to remand the case to allow Relator to comply with Rule 9(b). Therefore, Relator’s prior failures in this regard do not offer a present basis for denying his motion.
. . .
Relator is entitled to an opportunity to amend his amended complaint in order to state
his FCA claims with sufficient particularity. Fed. R. Civ. P. 9(b).
If the Relator
satisfactorily complies with Rule 9(b)’s particularity requirement
, . . .
the district
court will then determine whether the conduct contemplated in the May 8, 2000
settlement agreement overlaps with the conduct alleged by Relator in bringing his
qui tam
action.
For purposes of making this determination, the district court will
hold an evidentiary hearing at which Relator and the government may present
evidence in support of their positions.
We hold that Relator cannot recover settlement proceeds because he has not alleged a valid qui tam action that overlaps in any way with the conduct covered by the Settlement Agreement. This conclusion is required by our decision in Bledsoe I. Moreover, it is also consistent with Bledsoe I ’s rationale for holding that an “‘alternate remedy’ [for the purpose of 31 U.S.C. § 3730(c)(5)] refers to the government’s pursuit of any alternative to intervening in a relator’s qui tam action.” Id. at 647. This determination rested in part on the premise that, were an “alternate remedy” construed to allow the government to settle a qui tam suit without intervening, then “the government could decline to intervene in a qui tam suit, then settle that suit’s claims separately and deny the relator his or her share of the settlement proceeds simply because the government had not formally intervened in the qui tam action.” at 648-49. This course of action would undermine relators’ incentives to bring qui tam actions, and would thereby frustrate Congress’s intent that “the government and private citizens collaborate in battling fraudulent claims.” Id. This reasoning, however, does not extend to qui tam actions that fail to adequately state a claim upon which relief can be granted. Since there is no prospect for relators to recover on their claims under any circumstances, holding that a relator is not entitled to settlement proceeds that potentially overlap with his inadequately-pled claims does not decrease relators’ incеntives to bring qui tam actions in the first instance.
Moreover, allowing a relator who failed to plead fraud with particularity to recover proceeds
from an alternate remedy pursued by the government with respect to those fraudulent allegations
would make little sense.
Qui tam
proceeds are available not to persons who inform the government
of wrongdoing, but are only available when the government proceeds “with an action.” 31 U.S.C.
§ 3730(d)(1). Absent a valid complaint which affords a relator the possibility of ultimately
recovering damages, there is no compelling reason for allowing a relator to recover for information
provided to the government.
See Walburn v. Lockheed Martin Corp.
,
This Court’s decision in Walburn reinforces our conclusion. In Walburn , the Court considered the analogous issue of whether a complaint that failed to comport with Rule 9(b) could bar another litigant’s subsequent complaint that set forth more specific allegations of fraud. Walburn held that the prior noncompliant complaint was “legally infirm from its inception” because it did not comport with Rule 9(b), “and therefore it cannot preempt Walburn’s action under the *25 first-to-file bar.” at 972. Affording similar treatment to the complaint in this case leads to the conclusion that a legally invalid complaint cannot form the basis for recovery.
Relator argues that he has met
Bledsoe I
’s threshold requirement of a valid
quit tam
action,
because he has filed a complaint that has survived Rule 9(b) scrutiny. We reject this argument,
because in all its iterations it ultimately rests on the faulty premise that general allegations of CPT
and DRG upcoding and miscoding–allegations that do not concern the DRG codes covered in the
Settlement Agreement–are sufficient to permit Relator to recovеr for upcoding and miscoding
violations related to DRG code 79. Relator makes this argument by referring to the general
allegations of DRG and CPT upcoding and miscoding in his SAC, and also by addressing the SAC’s
more specific allegations related to asthma miscoding under DRG code 96. None of these arguments
are persuasive. We implicitly rejected Relator’s argument that general allegations of DRG
miscoding and upcoding sufficed to permit Relator to recover settlement proceeds in ,
when we held that the allegation in Relator’s original complaint that Defendants had “miscod[ed]
and upcod[ed] items billed to Medicare and Medicaid” was too broad to support a finding of overlap.
Relator also claims that the SAC’s allegations regarding DRG code 96 satisfy the threshold requirement of a valid qui tam action. This argument lacks merit. The fact that Relator has stated a valid cause of action with respect to FCA violations that do not overlap with the Settlement Agreement is irrelevant to the question of whether the Settlement Agreement constitutes an alternate remedy to Relator’s qui tam action. There is no persuasive reason for differentiating between Relator, who has filed a qui tam action concerning matters unrelated to the allegations covered by the Settlement Agreement, and an individual who informs the government of FCA violations but never files a qui tam action at all, the latter of whom undisputedly is not entitled to recover proceeds from a settlement agreement that overlaps with the information he provided to the government. Simply put, a valid qui tam action must exist with respect to the FCA violations covered by the Settlement Agreement. Relator cannot meet this standard.
CONCLUSION
To summarize: We affirm the district court’s dismissal of Relator’s allegations in his SAC pursuant to Federal Rules of Civil Procedure 12(c) and 9(b), except insofar as the district court dismissed paragraphs 64-67 of the SAC. We reverse the district court’s dismissal of рaragraphs 64- 67 because Relator’s allegations in those paragraphs survive Rule 9(b) scrutiny. We also reverse the district court’s decision to dismiss any of Relator’s allegations on the ground that they were barred by the statute of limitations. Additionally, we reverse the district court’s decision to dismiss Relator’s entire complaint. On remand, Relator may proceed with all his claims in the SAC, except those dismissed by the district court for failure to comply with Rule 9(b), but Relator may proceed with the allegations in paragraphs 64-67 of the SAC notwithstanding the district court’s dismissal of those claims. We affirm on different grounds the district court’s denial of Relator’s motion to recognize settlement.
For the reasons stated above, we AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this opinion. See 31 U.S.C. § 3730(b)(5) (“When a person brings an action under this subsection, no person other than the
Government may intervene or bring a related action based on the facts underlying the pending action.”)
Notes
[2]
“‘Upcoding,’ a common form of Medicare fraud, is the practice of billing Medicare for medical services or
equipment designated under a code that is more expensive than what a patient actually needed or was provided.”
Bledsoe
I
,
[12]
We do not intend to foreclose the possibility of a court relaxing this rule in circumstances where a relator
demonstrates that he cannot allege the specifics of actual false claims that in all likelihood exist, and the reason that the
relator cannot produce such allegations is not attributable to the conduct of the relator. For example, in
Hill v.
Morehouse Medical Associates, Inc.
, No. 02-14429,
[16]
Defendants contend that “[n]umerous other courts have reached the . . . conclusion that Rule 9(b)
requires
‘the identity and/or role of the individual employee involved in the alleged fraud must be specified in the complaint.’”
Defendants’ Br. at 22-23 (emphasis added) (quoting
United States ex rel. Robinson v. Northrop Corp.
,