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noting that plaintiffs are "not required to 'plead all of the evidence or facts supporting [the complaint]"
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Civil Action No. 01-10583-DPW
May 21, 2003
MEMORANDUM AND ORDER
Plaintiff John C. Karvelas ("the "Realtor") initiated this qui tam action alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq., and Racketeer Influence and Corrupt Organization (RICO) statute, 18 U.S.C. § 1961, et seq., occurring at Melrose-Wakefield Hospital. The United States declined to join the action. Before me is defendants' 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.
I. BACKGROUND
Karvelas was employed as a Respiratory Therapist at the defendant Melrose-Wakefield Hospital, located in Melrose, Massachusetts, in 1982 and worked there for 15 years until January 27, 1997.
Karvelas also worked at other hospitals owned by defendant Hallmark Health System, Inc. "for five months in 1992," "in 1990," and "between 1982 and 1983."
Karvelas alleges that during his employment at the hospital he "pointed out to his superiors, all the way up to the president, the inadequate staffing, inconsistent administration of treatment orders, the absence of blood gas quality control, and inappropriate documentation in the administration of care and treatment of patients throughout the Hospital, as well as the failure to meet regulatory standards which are required for reimbursement by Medicare and Medicaid. He repeatedly pointed out to Hospital personnel that the Hospital was not in compliance with regulatory standards and that they were providing substandard care." [Complaint at ¶ 106.]
Specifically, Karvelas alleges that, on September 9, 1996, he notified the Vice President of Human Resources, Richard Kenny, that the hospital should take "corrective action" regarding defective "arterial blood gas (ABG) testing machinery, about understaffing and patient neglect." Karvelas also claims he informed Kenny his "supervisors had destroyed incident reports regarding medical errors." [Complaint at ¶ 108, ¶ 110, see ¶ 171.] He complained to Kenny that he had been directed by his supervisor to complete patient evaluations, which were improperly billed to Medicare and Medicaid, and had been threatened with "retaliation" if they "failed to participate in this illegal activity." [Complaint at ¶ 112.]
Karvelas charges that the hospital "falsely certified the satisfactory completion of the ABG tests required under the C.F.R. to gain Medicare and Medicaid funding." [Complaint ¶¶ 164-70.] He does not say that he informed hospital staff that the machinery was falsely certified to be satisfactory.
Karvelas alleges later in the complaint that the hospital filed claims with Medicare "that were based on codes that the defendant knew would result in greater payments than what an appropriate code would have provided." [Complaint ¶ 174.] According to Karvelas, the hospital acknowledged that it knew of this problem "back in September 1996 when the Relator John C. Karvelas reported it internally, but still the Hospital failed to take corrective action." [Complaint ¶ 175.]
Later that month, Karvelas went to speak with Dr. William Lilly, the director of the laboratory, after Karvelas perceived that no corrective actions were taken following his meeting with Kenny. [Complaint ¶ 172.]
In paragraph 113 of the complaint, Karvelas states that he was "directed to go see" Dr. Lilly.
Karvelas alleges that, in October 1996, Brenda Hyland-Miller accused him of improperly dispensing medication and not doing a patient evaluation, "in order to retaliate against Karvelas for reporting to her boss that there was no back up system in place." [Complaint ¶ 114.]
The plaintiff claims that because the hospital failed to take "corrective action" about the conditions he had brought to Kenny's attention, he went to see Dr. Ronald Sen on January 27, 1997, and provided him with Quality Control Logs relating to blood gas testing. [Complaint at ¶ 116.] Dr. Sen asked Karvelas "to immediately speak to Dr. Sen's superior, Dr. Lilly. Upon examining the logs, Dr. Lilly stated that he could not believe that one of the Relator's supervisors 'had been lying to him all that time.'" [Complaint at ¶ 116.]
Later in the complaint, Karvelas states that he Karvelas also went to speak with Dr. Sen on January 27, 1997 "because of an incident that occurred on January 22, 1997. [Complaint ¶¶ 172-73.] Karvelas was concerned because "[n]o controls were run prior to running" an ABG test on "a fetus while in the mother's womb." According to Karvelas, a review of "the other method of determining fetal distress found that in fact the baby was in distress." [Complaint ¶ 173.] Karvelas found this event "disturbing" and "indicative of failure to act" by the hospital, so he went to speak with Dr. Sen and then Dr. Lilly. [Complaint ¶ 173.]
Then, according to Karvelas, he returned to the Respiratory Therapy Department after meeting with Dr. Sen and Dr. Lilly. Upon his return, Hyland-Miller asked where he had been. [Complaint ¶ 119.] Karvelas described his data and his visits with the doctors, "and the failure of the Hospital to meet patient-care standards." According to Karvelas, Hyland-Miller then "pushed the Relator against the wall and said, 'I know everything you're doing. That's it. You are gone. You are out of here. You're terminated. You no longer work here.'" [Complaint ¶ 119.] Hyland-Miller and Kenny signed a letter dated January 28, 1997 that told the Relator "he had been discharged because of 'inappropriate behavior . . . for example, on January 7, 1997, the Hospital learned from a member of a state senator's staff that you had reportedly alleged unsafe conditions at the Hospital.'" [Complaint ¶ 121.]
At some point during Karvelas's employment, the following event also allegedly occurred: "The Relator objected to the directives from his immediate supervisor, Anthony Dichiara, to complete patient evaluations even if the patients had been discharged or had died. These evaluations were billed at $150.00 each, and they included inpatient and outpatient, which were not reimbursable items, but yet were billed. Dichiara threatened the Relator and the other Respiratory Therapists with retaliation if they failed to participate in this illegal activity." [Complaint ¶ 262.]
Karvelas first filed a retaliation, wrongful discharge and defamation action against the defendants in this matter together with Quinlan, Kenny and Hyland-Miller. Karvelas v. Melrose-Wakefield Hospital, Civ. No. 00-10991 (D.Mass. May 5, 2000) ("Karvelas I"). Although the complaint in Karvelas I contained a claim alleging employment termination as retaliation for plaintiff's False Claims Act activities, the case was not itself a False Claim Action qui tam proceeding; as counsel for the plaintiff noted at a scheduling conference on September 20, 2000, none had then been filed. I dismissed Karvelas I by memorandum and Order dated December 19, 2000. I found that "the plaintiff's broadly stated and conclusory allegations concerning False Claims Act retaliation do not adequately present a cognizable claim." Id. at 2. Because the False Claims Act retaliation claim I dismissed was the only claim providing federal jurisdiction and the case was in its beginning stages, I declined to exercise supplemented jurisdiction under 18 U.S.C. § 1367 over the remaining state law claims.
Karvelas then filed the present complaint on April 6, 2001, as a False Claims Act qui tam action repleading as part of the allegations the False Claims Act retaliation I had previously dismissed. On May 3, 2002, the federal government gave notice of its decision not to intervene in the case. Upon the notice of declination from the government, I ordered the Complaint unsealed and authorized service on the defendants. In a "Statement of Interest Regarding Defendants' Motion to Dismiss," the government, while taking no position on the merits of the motion to dismiss, has filed a request that any dismissal of plaintiff's action be made without prejudice to later pursuit of claims by the government should it choose to do so.
II. DISCUSSION
A. Standard
A complaint may be dismissed under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Gorski v. New Hampshire Dep't of Corrections, 290 F.3d 466, 473 (1st Cir. 2002). In ruling on a motion to dismiss, a court must accept as true the factual allegations of the complaint, and all reasonable inferences must be drawn in favor of the plaintiff. Moss v. Camp Pemigewassett, Inc., 312 F.3d 503, 506 (1st Cir. 2003).
Both the defendants in moving to dismiss and the plaintiff in opposition direct my attention to materials beyond the complaint. Along with their motion, the defendants submitted an affidavit of Richard G. Kenny, Senior Vice President of Human Resources for Hallmark Health System, Inc., d/b/a Melrose-Wakefield Hospital. The Kenny affidavit recites the course of the dispute between Karvelas and the defendants and attaches various correspondence and papers filed in proceedings in other fora. In addition, attached to the defendant's memorandum in support of its motion to dismiss are several exhibits relating to Karvelas I and a notice of docket entry in the Supreme Judicial Court for Suffolk County regarding the dissolution of the defendant Melrose-Wakefield Healthcare Corporation on November 22, 2000.
In opposition to defendants' motion to dismiss, the plaintiff seeks to draw support from an affidavit attached to his opposition memorandum, as well as a "Chart Describing the Sixteen Schemes Involving Medicare Fraud," and two exhibits outlining specificity plaintiff's "arguments" in schemes A — P.
On a Rule 12(b)(6) motion to dismiss, a court will generally not consider materials beyond the complaint. See McInnis-Misenor v. Maine Medical Ctr., 319 F.3d 63, 67 (1st Cir. 2003); Gonzalez v. United States, 284 F.3d 281, 288 (1st Cir. 2002). The Federal Rules of Civil Procedure provide that, should "matters outside the pleading" be presented to and not excluded by the court, a 12(b)(6) motion to dismiss "shall be treated as one for summary judgment and disposed of as provided in Rule 56." Fed.R.Civ.P. 12(b)(6). The First Circuit has taken a "functional" rather than "mechanical" approach to Rule 12(b)(6) conversion, holding that a motion to dismiss "is not automatically transformed into a motion for summary judgment simply because matters outside the pleadings are filed with, and not expressly rejected by, the district court," as long as the district court "chooses to ignore the supplementary material and determines the motion under the Rule 12(b)(6) standard." Garita Hotel Ltd. Partnership v. Ponce Federal Bank, 958 F.2d 15, 18 (1st Cir. 1992); see also Stein v. Royal Bank of Canada, 239 F.3d 289, 392 (1st Cir. 2001); Clorox Co. Puerto Rico v. Proctor Gamble Commercial Co., 228 F.3d 24, 31 (1st Cir. 2000); Rodriguez v. Fullerton Tires Corp., 115 F.3d 81, 83 (1st Cir. 1997). Here, in ruling on defendants' motion to dismiss, I will only consider the plaintiff's complaint as further explicated in plaintiff's submissions in connection with his opposition, although I have taken judicial notice of actions reflected in the files of this court regarding Karvelas I.
B. Discussion
1. Counts I-III: False Claims Act Substantive Claims
The defendants contend that the claims brought under the False Claims Act do not satisfy the requirements of Fed.R.Civ.P. 9(b). In support of their motion to dismiss, the defendants point to the fact that Karvelas identifies no specific actual claim that was submitted by the defendants in violation of the False Claims Act.
A complaint alleging violations of the False Claims Act "must fulfill the requirements of Rule 9(b)." United States ex rel. Russell, Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999); United States ex rel. Franklin v. Parke-Davis, 147 F. Supp.2d 39, 46 (D.Mass. 2001); United States Clausen v. Laboratory Corp. of America, Inc., 198 F.R.D. 560, 562 (N.D.Ga. 2000); United States ex rel. Roby v. Boeing Co., 184 F.R.D. 107, 109 (S.D.Ohio 1998).
Rule 9(b) requires that a complaint set forth allegations of fraud with particularity, including the time, place, specific content of the false representations, and the identities of the parties participating in the fraud. See Franklin, 147 F. Supp.2d at 46; Roby, 184 F.R.D. at 109-10; see also Russell, 193 F.3d at 308. See generally Boston Maine Corp. v. Town of Hampton, 987 F.2d 855 (1st Cir. 1993). At a minimum, the complaint must provide the "'who, what, when, where, and how' of the alleged fraud." United States ex rel. Gublo v. Novacare, Inc., 62 F. Supp.2d 347, 354 (D.Mass. 1999) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997). There are three purposes behind the Rule 9(b) particularity requirement: "(1) to place the defendants on notice and enable them to prepare meaningful responses; (2) to preclude the use of a groundless fraud claim as a pretext to discovering a wrong or as a 'strike suit'; and (3) to safeguard defendants from frivolous charges which might damage their reputation." New England Data Services, Inc. v. Becher, 829 F.2d 286, 289 (1st Cir. 1987); see Franklin, 147 F. Supp.2d at 46. Cf. Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999) ("The purpose (the defensible purpose, anyway) of the heightened pleading requirement in fraud cases is to force the plaintiff to do more than the usual investigation before filing his complaint."). Rule 9(b) is to be read in conjunction with Fed.R.Civ.P. 8(a), which requires a "short and plain statement of the claim" for relief, and, as such, the plaintiff is not required to "plead all of the evidence or facts supporting it." Franklin, 147 F. Supp.2d at 46-47. See generally Boston Maine Corp., 987 F.2d at 855.
The Rule 9(b) pleading requirement is relaxed when "the facts underlying the fraud are 'peculiarly within the defendants' control.'" Franklin, 147 F. Supp.2d at 47 (quoting Boston Maine Corp., 987 F.2d at 866); see Russell, 193 F.3d at 308; Roby, 184 F.R.D. at 111; Wilkins ex rel. United States v. States of Ohio, 885 F. Supp. 1055, 1061 (S.D.Ohio 1995); see also Thompson, 125 F.3d 899 at 903; United States ex rel. Mikes v. Straus, 853 F. Supp. 115, 119 (S.D.N.Y. 1994). In such circumstances, fraud may be pled on information and belief. Thompson, 125 F.3d at 903. Even where allegations are based on information and belief, however, "claims of fraud may not be based upon speculation or conclusory allegations," but fact. Thompson, 125 F.3d at 903 (quoted in United States ex rel. Walsh v. Eastman Kodak Co., 98 F. Supp.2d 141, 147 (D.Mass. 2000)).
As noted by the Fifth Circuit, the False Claims Act grants a right of action to private citizens only if they have independently obtained knowledge of fraud. Russell, 193 F.3d at 309 (citing 31 U.S.C. § 3730(e)(4)). "With this requirement the government seeks to purchase information it might not otherwise acquire." Russell, 193 F.3d at 309. Consequently, as held in Russell, where "documents containing the requisite information [are] possessed by other entities, such as the Healthcare Financing Administration," a qui tam plaintiff is not entitled to the relaxed Rule 9(b) standard. Russell, 193 F.3d at 308; see also Clausen, 198 F.R.D. at 563; United States ex rel. Butler v. Magellan Health Services, Inc., 74 F. Supp.2d 1201, 1216 (M.D. Fla. 1999).
Karvelas alleges repeatedly that the defendants submitted false claims to the United States. [See, e.g., Complaint ¶¶ 78-84, 88, 90.] Karvelas asserts that these claims included "cost reports," which the defendants certified falsely were complete, true, and correct. [Complaint ¶¶ 81-84, 86, 174.] He also refers to false "confirming orders of physicians," and "progress notes." [Complaint ¶ 86.] It is not clear whether he is alleging that those documents were false claims. He argues that the defendants would "wrongfully bill Medicare and/or Medicaid," but does not provide specifics about the nature of the "bills." [Complaint ¶ 86.]
Apart from these general references, however, Karvelas does not state with specificity what the precise claims were. He states that he "witnessed the fraudulent conduct alleged herein," but does not provide specifics regarding the documents submitted to HCFA to make the false claims. [Complaint ¶ 91.]
He refers generally to false "patient evaluations," which were "billed to Medicare and Medicaid," [Complaint ¶ 112], and also refers to "CLIA documents" and "HCFA documents," which, he claims, evidence that the Hospital was aware of various "problems" in the blood gas laboratory. But no such documents are identified with particularity in the complaint. [Complaint ¶
As July 1, 2001, the Health Care Financing Administration ("HCFA") is now the Centers for Medicare and Medicaid Services ("CMS").
To be sure, Karvelas outlines several "schemes" in which the defendants participated. But in none of these schemes, labeled "A" through "P," does he allege violations of the False Claims Act sufficiently to meet his Rule 9(b) obligation.
With respect to these schemes, Karvelas alleges that:
Scheme A. The defendants filed "improper claims in that they presented claims for medical items or service that they knew were not provided as claimed." [Complaint ¶ 129.] Karvelas notes that "accurate reporting of financial information on cost reports and credit balancing" is required by "Medicare and Medicaid," but he does not identify even an example of a specific cost report submitted by the defendants. [Complaint ¶ 128.] Karvelas charges that from 1994 to 1997, "the Hospital was certifying 12 respiratory therapists when in reality the hospital had only 7 full time respiratory therapists," but provides no particulars regarding this allegation. [Complaint ¶ 140.] In the complaint, Karvelas states that the "documents signed under the penalty of perjury and false statement submitted to the United States Government certified that there were 11.8 Respiratory Therapists," but does not provide any further detail regarding what type of "document" it was, when it was submitted, or by whom it was submitted. [Complaint ¶ 143.] Karvelas elaborates in his affidavit that the hospital submitted a plan to the government that included "representations and promises relating to staffing requirements," but does not provide details regarding its submission. [Karvelas Affidavit ¶ 66.] Karvelas references "documents from DPH and HCFA" that "show dramatically that these staffing levels were bogus from 1994 to 1997," but provides none of these documents. [Affidavit ¶¶ 76, 82.] Karvelas also states that he is in possession of time sheets that reflect the staffing issues dating from 1996-97 but has not provided this documentation. [Karvelas Affidavit ¶ 69.] Karvelas further states that the "staffing numbers in the Medicare and Medicaid filings were make believe throughout the entire hospital," but provides no further specifics. [Complaint ¶ 144.]
Scheme B. The hospital performed blood tests "with machinery and equipment that was not tested, or up to code, or certified, and did not meet the standards accepted by the medical community," which were not in compliance with the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") nor had certification from the College of American Pathologists ("CAP"), which Karvelas alleges are required to receive payment under Medicaid and Medicare. [Complaint ¶ 148, ¶ 155, ¶ 164.] Karvelas alleges that the hospital falsely certified the completion of the required tests, but does not provide any further detail regarding this certification. [Complaint ¶ 165.] He states in his affidavit that he has copies of these "logs" for the period of June 1994 through April 1997 but does not provide them to the court. [Karvelas Affidavit ¶ 109.]
Scheme C. The hospital "created an unsafe and harmful environment for patients," in contravention of "the statutes and regulations governing Medicaid and Medicare," which "clearly require health care providers to meet quality of care standards." [Complaint ¶¶ 177-78.] Karvelas points to various actions, including those covered in Schemes A and B, as well as the destruction of 250 incident reports. Karvelas alleges that the hospital "submitted claims for reimbursement, and asserted with the claim for reimbursement that it had supplied the requisite standard of care" and, consequently, "the billing for that care was . . . false or fraudulent." [Complaint ¶ 237; see Karvelas Affidavit, Exh. 4, at 16.] He provides no specifics regarding these claims.
Scheme D. In contravention of Medicare and Medicaid provisions, which require that services "be certified as being medically necessary," "the defendants knowingly filed improper claims in that they presented claims for medical items or service that they knew were not medically necessary." [Complaint ¶¶ 238-41.] Karvelas alleged personal knowledge of tests that were administered with no medical necessity, [see Complaint ¶¶ 245-62], and alleges that Medicare was billed for these tests, but does not provide any specifics about those claims. Karvelas instead alleges that the "DPH and HCFA investigations serve as documented examples representative of the type of unnecessary medical services that were not documented, but yet were billed." [Complaint ¶ 263.] Without substantiation or elaboration, he adds in his affidavit that, over two and a half years, "66,000 treatments were billed," 20% of which "were billed without documentation." [Karvelas Affidavit, Exh. 3, at 22.]
Scheme E. The hospital engaged in illegal "upcoding," "the practice of using a billing code that provides a higher payment rate than the billing code that actually reflects the service furnished to the patient." [Complaint ¶ 266.] Karvelas alleges specific "codes" to which the hospital would upcode, [Complaint ¶¶ 285, 287-92], but beyond broad allegations that the hospital would use these codes, Karvelas does not provide specific details such as dates or documentation. Karvelas does state that "death certificates at DPH validated the documentation of upcoding," but it is not clear whether those certificates were claims for payment or merely validated the documentation. [Complaint ¶ 298.] To bolster his upcoding allegations, Karvelas relates the precise numbers of pulmonary disease cases, pneumonia cases, and stroke cases. [Karvelas Affidavit, ¶¶ 218-25.] He does not provide the source of these numbers.
Scheme F. The hospital engaged in various double billing and overcharging practices. [Complaint ¶ 301-05.] Once again, the plaintiff states that the hospital knowingly filed improper claims in violation of the False Claims Act, but does not provide particulars — the who, what, when, and where — about those claims. [Complaint ¶ 303.] In his affidavit, he refers to specific entries of double billing on a "Respiratory Therapy Worksheet." [Karvelas Affidavit ¶ 235.] The Worksheet is not in the record.
Scheme G. The hospital "unbundled tests" and billed for medically unnecessary tests "to gain a higher rate of reimbursement. [Complaint ¶¶ 311-22] Again, he provides no specific instances of these billing practices.
Scheme H. The hospital was using "bogus" numbers in order to gain reimbursement for home oxygen units. [Complaint ¶ 327-28.] The specifics that Karvelas supplies are only that this practice occurred "from 1994 to 1997" and involved "Anthony Dichiara, Melody Rochester and Karen Mahoney." [Complaint ¶ 327-28.] Karvelas does relate one type of fraud regarding the improper reimbursement of home oxygen. He states that, for three years beginning in September 1994, the hospital "falsified the numbers" to "get Medicare to pay for" home oxygen for a trustee of the hospital. [Complaint ¶ 332.] Karvelas states that, on January 26, 1997, the trustee admitted to Karvelas that "the results were falsified." [Complaint ¶ 332.] In his affidavit, Karvelas identifies the trustee as Barbara Cummings. [Karvelas Affidavit ¶¶ 58, 258, 260-63.] Karvelas does not provide any documentation regarding the false claims specifically involved in this fraudulent billing scheme.
Scheme I. The hospital billed all care as if it were direct care when, in fact, it was providing indirect care. [Complaint ¶¶ 338-39.] Karvelas points to "flow sheets," used from 1995 to 2000 that "did not differentiate between direct care versus indirect care." [Complaint ¶ 342.] He states that in September 1998 Hyland-Miller and Dichiara "came up with a $510 dollar charge for an assessment on the flow sheet." [Complaint ¶ 341.] Karvelas does not state whether these flow sheets were submitted directly to the U.S. government as claims or provide documentation of such claims.
Scheme J. The hospital billed the government for non-covered and unnecessary services "by entering the service under an erroneous code," [Complaint ¶¶ 349, 352-53.] Karvelas alleges that the hospital "submitted charges" and "claims," [Complaint ¶¶ 350-53], but does not provide particulars about the submission of these claims.
Scheme K. The hospital fraudulently listed patients as discharged, rather than transferred, "to receive a higher rate of payment." [Complaint ¶¶ 359, 364.] Karvelas does not provide specifics regarding these claims.
Scheme L. The hospital engaged in a "scheme to defraud" the government by "regularly classifying patients as outpatients" to ensure care would be reimbursable. [Complaint ¶¶ 368-70.] Karvelas states that "time and again after July 1994" that he witnessed patients who were admitted, "but yet claims were submitted for the outpatient visit." [Complaint ¶ 378.] He provides no further specifics.
Scheme M. The hospital billed group therapy sessions as individual sessions to increase the number of bills for reimbursement. [Complaint ¶ 381-83, 386.] Karvelas also alleges that the hospital billed sleep studies as being attended when they were not. [Complaint ¶ 384.] No further particularities are provided about these billings.
Scheme N. The hospital was involved in kickbacks, self referrals, and conflicts of interest in violation of the FCA. [Complaint ¶¶ 390, 393-412.] He alleges that the defendant hospital steered and channeled patients to a home health company in which it had an interest. [Complaint ¶¶ 390, 393.] He also alleges that Dr. Sen, Dr. Mohammed Akbarian, Dr. Michael Zak, and other hospital staff engaged in "self-referrals" and "conflicts of interest" because they steered patients to home health care facilities in which they had a financial interest. [Complaint ¶¶ 395-98.] Karvelas alleges further that ambulance companies took supplies free of charge from the hospital, [Complaint ¶ 400-01], that a sales representative for "Medical Home Providers" would provide free nasal masks so that the hospital would refer patients to them, [Complaint ¶ 402], that medical equipment companies were loaning equipment to gain referrals, [Complaint ¶ 407], all of which the hospital would subsequently bill Medicare for. [Complaint ¶ 401, 403, 408-09]. The hospital did not disclose their interest in post-hospital services to patients being discharged. [Complaint ¶ 406]. Karvelas provides no documentation or specifics to substantiate these generalizations.
Scheme O. The hospital changed "the code of the care" to gain reimbursement for all respiratory therapy and pulmonary rehabilitation services, which are not reimbursable under Medicare and Medicaid, according to Karvelas. [Complaint ¶ 415, 417-20; Affidavit Exh. 4 at 40.] Karvelas does not provide information regarding the hospital's use of these codes on specific claims submitted to the U.S. government.
Scheme P. The hospital was engaged in various additional schemes, some already listed above, including "submitting claims for oxygen when the patient didn't use it," [Complaint ¶ 426], charging for oxygen and suction "when all that Medicare allowed was a charge for the initial set up of the Oxygen," [Complaint ¶ 427 (emphasis in original)], and billing for tests and therapy that were not performed, not ordered by a physician, or for which the beneficiary had no legal obligation to pay. [Complaint ¶ 428-31, 445, 447]. Karvelas alleged that the hospital submitted claims for non-reusable and ancillary medical equipment and supplies. [Complaint ¶¶ 433-35.] Karvelas notes specifically that in August 1996, 17 boxes of Albuterol were donated to the hospital and that Dichiara "used the medications" and subsequently billed Medicare for them. [Complaint ¶ 437.] He states that "a claim was made," but does not state any particulars regarding that claim. Karvelas relates that the hospital would bill for administrative costs such as "taking physicians and their wives out for dinner," "alcohol and entertainment," and sporting events. [Complaint ¶ 438.] According to Karvelas, patients admitted to the hospital continued to be charged the full rate by "the Home Care Companies," [Complaint ¶ 440], a hospital employee would "score sleep studies and bill Medicare $70 per patient" and was "double dipping" with the approval of the hospital, [Complaint ¶ 441], and nurses made visits to patients' residences while they were not home and the nurses billed Medicare for the visits, [Complaint ¶ 442]. Karvelas was allegedly not reimbursed for travel expenses he billed to the hospital, but the hospital "was reimbursed by the Government." [Complaint ¶ 443.] Finally, Karvelas alleges that ambulance service was billed when it was not medically necessary, [Complaint ¶ 446]. He provides no specifics regarding any of these billing activities.
The defendants contend that, to the extent that the complaint makes claims based on activity that took place in 1994, those claims are outside the FCA's six-year statute of limitations and are subject to dismissal. See 31 U.S.C. § 3731(b)(1). Given my treatment of defendants' motion to dismiss, I need not separately address this argument.
In his affidavit, Karvelas alleges that the hospital was reporting to the government that it had between 11 to 11.5 respiratory therapists. [Karvelas Affidavit ¶¶ 71-72.]
Karvelas also references a Complaint Investigation Report he states was issued by CLIA, after an investigation into the ABG laboratory instigated as a result of Karvelas' complaints to the Massachusetts Department of Public Health. [Karvelas Affidavit ¶¶ 47, 62, 100, 130.] Karvelas quotes extensively from the report, which finds the issues he raised "valid," but he does not attach the report to the affidavit. Moreover, it is not clear how this report substantiates his False Claims Act case; the report would appear to evidence the government's independent knowledge of any potential regulatory violations at the lab. As far as Karvelas' claim for retaliation is concerned, the report was prepared after Karvelas' termination and he provides no evidence that his superiors were under the impression that he had contacted CLIA with concerns. [See Affidavit ¶ 103.]
Nor does he provide details regarding the private investigator he claims the hospital hired to follow him three weeks before his termination. [Affidavit ¶ 122.]
The present complaint demonstrates the proposition that a "complaint can be long-winded, even prolix, without pleading with particularity. Indeed, such a garrulous style is not an uncommon mask for an absence of detail." Williams v. WMX Technologies, Inc., 112 F.3d 175, 178 (5th Cir. 1997). Karvelas has provided a lengthy False Claims Act complaint, without particulars necessary to meet Rule 9(b) obligations. Nor does he provide reference to actual documentation, which it bears emphasizing is not exclusively in the hands of the defendants, but, having been filed with the government, is in the government's hands as well. Under these circumstances, I will grant defendants' motion to dismiss on Counts I, II, and III for failure to plead fraud adequately.
2. Count IV: False Claims Act Retaliation
Karvelas's fourth cause of action is for "Retaliation" or "Wrongful Termination" pursuant to 31 U.S.C. § 3730(h). As he did in Karvelas I, Karvelas in this action again contends that he was discharged in retaliation for his investigation of "defendants' violations of its government contracts under Medicaid and Medicare and its False Claim Act violations." [Complaint ¶ 461.]
a. Res judicata
I dismissed the similar False Claims Act claim in Karvelas I for failure to state a claim upon which relief could be granted. I noted in my Karvelas I Memorandum and Order dated December 19, 2000 the three elements that courts have found to constitute a False Claims Act retaliation claim: "'(1) the employee must be engaged in conduct protected by the statute, (2) the employer must know the employee was engaging in such protected conduct, and (3) the employer must have discriminated against the employee because of this protected conduct.' Gublo v. Novacare, 62 F. Supp.2d 347, 356 (D.Mass. 1999)." Slip op. at 2. I found there that Karvelas failed to allege facts sufficient to constitute the first two requirements and, as a consequence had failed also adequately to allege the third requirement, which is dependant upon the first two.
Defendants urge that Count IV should be dismissed on res judicata grounds. Under federal law, "a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." In re Colonial Mortgage Bankers Corp., 324 F.3d 12, 16 (1st Cir. 2003) (quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)).
There is some authority in the First Circuit for the proposition that dismissal under rule 12(b)(6) operates as a dismissal on the merits with res judicata effect. See, e.g., Isaac v. Schwartz, 706 F.2d 15, 17 (1st Cir. 1983) (citing Restatement (Second) of Judgments § 19 (comment d)); Andrews-Clarke v. Lucent Technologies, Inc., 257 F. Supp.2d 93, 99 (D. Mass. 2001) (citing 2 James Wm. Moore, Moore's Federal Practice, s 12.34(6)(a) (3d ed. 1997)). However, I am reluctant to ground dismissal on this basis because my order of dismissal in Karvelas I noted that plaintiff's False Claims Act litigation was in its early states. In any event, I find that the plaintiff again fails to state a claim upon which relief can be granted in Count IV.
b. Substance of retaliation claim
Turning to the substance of the allegations in the retaliation claim, I reiterate that there are three elements a plaintiff must prove to state a § 3730(h) claim: "(1) the employee must have been engaging in conduct protected under the Act; (2) the employer must have known that the employee was engaging in such conduct; and (3) the employer must have discriminated against the employee because of her protected conduct." United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996); see Gublo v. Novacare, Inc., 62 F. Supp.2d 347, 356 (D.Mass. 1999); see also S. Rep. No. 345, 99th Cong., 2d Sess. 34-35 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5299-300. On the face of the complaint, the plaintiff has not alleged facts sufficient to sustain a claim of retaliation under the False Claims Act.
Section 3730(h) only protects employees "who have acted 'in furtherance of an action' under the FCA," regardless of their awareness of the precise statute. Hopper, 91 F.3d at 1269. The plaintiff must be "investigating matters which are calculated, or reasonably could lead, to a viable FCA action." Hopper, 91 F.3d at 1269. The plaintiff must demonstrate that his "investigation inquiries and/or testimony were directed at exposing a fraud upon the government." Gublo, 62 F. Supp.2d at 356; see Hopper, 91 F.3d at 1269. Protected activity includes "investigating fraud" with a goal of "trying to recover money for the government," not simply "correcting regulatory problems." Hopper, 91 F.3d at 1269. It is sufficient for the purposes of a False Claims Act retaliation claim that a plaintiff be investigating matters that reasonably could lead to a viable FCA case, even if a private qui tam suit is never initiated. United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 740 (D.C. Cir. 1998), aff'g in part and rev'g in part, 946 F. Supp. 31, 33 (D.D.C. 1996).
Second, the employer must be aware that the employee is investigating fraud. Hopper, 91 F.3d at 1269. The defendant must know that the plaintiff is engaged in an activity "that reasonably could lead to a False Claims case." Yesudian, 153 F.3d at 742. Such activity "includes the investigation of 'false or fraudulent claims' made to federal grantees." Yesudian, 153 F.3d at 742. Like the plaintiff, however, "the defendant need not know, or be advised, that such claims would violate the False Claims Act itself." Yesudian, 153 F.3d at 742. A plaintiff must show that his employer was aware of the protected activity, and "[m]erely grumbling to the employer about job dissatisfaction or regulatory violations does not satisfy the requirement — just as it does not constitute protected activity in the first place." Yesudian, 153 F.3d at 743.
Cf. Gublo v. Novacare, Inc., 62 F. Supp.2d 347, 357 (D.Mass. 1999) (stating that a defendant must have implicit or explicit notice that a "plaintiff was either taking action in furtherance of a private qui tam action or assisting in an FCA action brought by the government") (quoting United States ex rel. Yesudian v. Howard Univ., 946 F. Supp. 31, 33 (D.D.C. 1996), aff'd in part and rev'd in part, 153 F.3d 731, 740 (D.C. Cir. 1998)).
Therefore, where the employee has not given any indication to the employer that he was conducting an investigation of the hospital for defrauding the federal government, a defendant who engages in retaliation for a plaintiff's investigative activities does not violate § 3730(h) of the FCA. Hopper, 91 F.3d at 1270.
For example, in Luckey v. Baxter Healthcare Corp., the plaintiff, Joan Luckey, claimed she had been dismissed for exposing the false claims of her employer, Baxter Healthcare Corporation. Luckey, 183 F.3d 730 (7th Cir. 1999). Luckey argued that Baxter was aware of "an investigation for" suit or at least the possibility that she assisted in a suit to be filed because Baxter "knew her position that every unit of incoming blood plasma should be subject to a total protein test." Luckey, 183 F.3d at 733. The court rejected Lucky's contention, holding that Baxter could not be said to have "knowledge of litigation": "Intra-corporate debates about optimal testing protocols cannot be equated to knowledge of litigation — not unless taking one side of a medical or scientific dispute is 'fraud,' a position we have already rejected. An employer is entitled to treat a suggestion for improvement as what it purports to be rather than a precursor to litigation." Luckey, 183 F.3d at 733.
A similar situation is presented here. In the complaint, Karvelas states:
Throughout John Karvelas' employment at Melrose-Wakefield, he complained to management about deficiencies in the care and about the activities hereinbefore related within his department and throughout the Hospital.
[Complaint ¶ 459.] In his opposition to defendant's motion to dismiss, the plaintiff argues that the language "hereinbefore related" is all the "various fraudulent schemes set forth in the Qui Tam complaint," language which then presumably encompasses all the previous 458 paragraphs. It is not sufficient to plead in this paragraph that "he complained to management about" each activity pled in the previous 458 paragraphs. Instead, I will look to those paragraphs in the complaint that specifically speak to plaintiff's False Claims Act retaliation claim.
The complaint includes a number of allegations regarding his communications with hospital staff, none of which constitute notice that the plaintiff was investigating fraud and, thus, none of which concern conduct protected under the False Claims Act:
(1) "The Relator John Karvelas notified the Hospital's CEO and President, Richard S. Quinlan in 1994 in which he, the Relator, delineated the substandard patient-care practices that he had observed, and he suggested alternative procedures." [sic] [Complaint ¶ 101.]
(2) "In 1995, the Relator went to the Vice-President for Nursing Services, Sharon O'Connor, and reported how dangerous it was at the Hospital with the under-staffing and with no backup system in place." [Complaint ¶ 103.]
(3) According to Karvelas, Hyland-Miller was "specifically aware" of the fact that, because of "increased workload and reduced workforce," "many of the therapists were unable to perform all of their duties, including the quality controls on the ABG test machines." [Complaint ¶¶ 162-63.] These problems were brought to the hospital's attention by Karvelas. [Complaint ¶ 163.]
(4) "The Relator intervened to prevent a patient from going into cardiac arrest and when he reported the neglect, he was told by Karen Miller that he had left a syringe on top of a sharps box with a rubber cap on it." [Complaint ¶ 212.]
(5) "John Karvelas discovered that Physical Therapy was documenting in patients' charts that chest physical therapy was not indicated. The Relator and other Respiratory Therapists got called to the floors when patients were drowning in their own secretions." [Complaint ¶ 214.]
(6) In October 1996, Karvelas gave names to Quality Assurance relating that "practitioners" were filling out incident reports "related to neglect, abuse, medical errors and inferior care" and "verified that Brenda Hyland-Miller had been destroying the incident reports." [Complaint ¶ 220.]
(7) "The Relator on repeated occasions brought the neglect to the attention of Hospital officials and to his superiors, reporting in 1994, 1995, 1996 and 1997 how dangerous it was with the under-staffing and with no backup system in place. No remedial actions were taken." [Complaint ¶ 231.] "In fact, the Relator provided Richard Kenny with documentary evidence of the problems, including the fact that his supervisors had destroyed incident reports regarding medical errors and patient neglect. Mr. Kenny took no actions in response to the reports the Relator had given him." [Complaint ¶ 232.]
In response, according to Karvelas, Quinlan "took no remedial actions" and, instead, "stated at many management meetings in which the Relator's statements were read, that whoever wrote the letters should be terminated." [Complaint ¶ 102.]
Notice of False Claims Act activity cannot be inferred from these statements to hospital staff. These statements could give the hospital no indication that Karvelas was conducting an investigation of the hospital for defrauding the federal government within the meaning of the False Claims Act. Whether or not he was engaged in such an investigation, at most, Karvelas appeared to be raising with his employer problems of job dissatisfaction and regulatory violations.
Karvelas details only the hospital's awareness of his reporting to state authorities. Karvelas alleges in his affidavit that he reported fraud to state authorities in September 1996 and that the hospital "had to have known" about the reporting. [Affidavit ¶¶ 130, 162.] Furthermore, as mentioned above, in his affidavit Karvelas does allege that, after he filed a complaint with the Massachusetts Department of Health in January 1997 before his termination, the hospital hired a private detective to "keep tabs" on him. [Karvelas Affidavit, Exh. 2, ¶ 64.]
Karvelas does state that he reported to his employer problems with improper Medicaid and Medicare billing, but the fact that he reported these problems does not mean that he gave notice to his employer that he was conducting an investigation of the hospital's billing practices as a precursor to a False Claims Act proceeding. [See Complaint ¶¶ 112, 175.]
Finally, in the portion of the complaint that details Karvelas's termination, Karvelas alleges that he was told he was being terminated for reporting, to Dr. Lilly and Dr. Sen, "the failure of the hospital to meet patient care standards" and, for reporting to a state senator, "allegedly unsafe conditions." [Complaint ¶ 119.] Investigations of allegedly unsafe conditions or unsatisfactory patient care standards are, while certainly laudable, are not themselves protected conduct under the False Claims Act.
I, of course, express no view whether termination for such activities, if proved, would establish a state law claim.
Given the plaintiff's continued inability to state a claim for False Claims Act retaliation, I will grant defendants' motion to dismiss on Count IV.
3. Count V: RICO Claim
The defendants seek to dismiss plaintiff's RICO claim arguing that the plaintiff lacks standing to bring a RICO claim because he has not suffered any injury and that he has failed to plead with particularity under Fed.R.Civ.P. 9(b).
In the complaint, Karvelas charges that:
In an effort to defraud the United States of America, the defendants by telephone and through the United States Mail, and in contact with vendors, contractors, subcontractors and agents, servants and or employees of the said defendants and agents, servants, and or employees of the United States Government, made numerous false and fraudulent statements to representatives of the U.S. Government concerning costs, claims, submissions, and pricing data.
[Complaint ¶ 466.]
Putting aside whether Karvelas has satisfied the particularity requirements of Rule 9(b) as applied to RICO pleadings, see Ahmed v. Rosenblatt, 118 F.3d 886, 889 (1st Cir. 1997), or otherwise met RICO pleading requirements, I find that the plaintiff lacks standing to bring a claim under 18 U.S.C. § 1962 because the nexus between the violations asserted by Karvelas and any injuries to him is "insufficiently close to say that one proximately caused the other." See Camelio v. American Federation, 137 F.3d 666, 670 (1st Cir. 1998); see also Miranda v. Ponce Federal Bank, 948 F.2d 41, 47 (1st Cir. 1991); Pujol v. Shearson/American Express, Inc., 829 F.2d 1021, 1025 (1st Cir. 1987).
Karvelas alleges in the Complaint that the defendants "by telephone and through the United States Mail . . . made numerous false and fraudulent statements to representatives of the U.S. Government concerning costs, claims, submissions, and pricing data." [Complaint ¶ 466.] He does not allege any injury he himself suffered as a result of these predicate acts, however. [See Complaint, Count V, ¶¶ 464-68.]
The First Circuit found in Pujol v. Shearson/American Express, Inc. that because the acts that injured the plaintiff were not caused by the "predicate acts" alleged in the complaint, Pujol did not have RICO standing. Pujol, 829 F.2d at 1205. Like Pujol, Karvelas was not a defrauded party and was not a target of any of the acts pleaded as "predicate acts" in the RICO claim. See Pujol, 829 F.2d at 1205. At most, Karvelas alleges that he was fired because of the actions he took to report and to stop the illegal schemes. [See Complaint at ¶¶ 112, 114, 119, 461, 462.] His termination is far too attenuated from the underlying fraud; it did not involve a RICO predicate and moreover I have twice found it inadequately pled as a federal False Claim matter. Consequently, I find Karvelas lacks standing to bring a claim under RICO and I will grant defendants' motion to dismiss on Count V.
III. CONCLUSION
For the reasons set forth more fully above, I hereby GRANT defendants' motion to dismiss (No. 21) and I do so with prejudice.
I make this dismissal with prejudice in recognition that the plaintiff has been engaged in False Claims Act litigation in this court since May 2000. It should be clear to him now that developing the information necessary to meet pleading obligations is a necessary task to overcome sufficiency challenges. It is apparent the plaintiff is content to rest with conclusory pleadings in conducting his federal litigation. I was reluctant, as I indicated in Section II.B.2.a. of this memorandum, to accord res judicata effect to my dismissal of his False Claims Act retaliation claims (let alone, as defendants argued here more broadly, any other claims which could have been made in Karvelas I — including the claims made in this action) when in 2000 the plaintiff was in the beginning stages of his federal litigation. With the instant dismissal of the defendants' partially repetitive litigation in this case, however, that reluctance has disappeared. Plaintiff has had ample opportunity to sharpen his pleadings (and indeed to conduct parallel fact gathering by alternative means, for example, under the Freedom of Information Act) but his allegations continue to be insufficient. Under the circumstances, it is now appropriate to enter final judgment in this litigation with recognition and anticipation that it is on the merits and thereby precludes the plaintiff and his privies from relitigating issues that were or could have been raised in this action.
However, I note that this judgment is not a intended to be with prejudice to any claim that the federal government, which chose not to intervene in plaintiff's qui tam proceeding, could have raised in this action. The government remains free to exercise its discretion and judgment regarding its own litigation posture with respect to matters related to or suggested by claims the plaintiff has unsuccessfully presented to this court.