Opinion
File No. 1:00-CV-143
February 23, 2004
ORDER
In accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Defendant's motion for summary judgment (Docket # 88) is GRANTED. IT IS FURTHER ORDERED that JUDGMENT is entered in favor of Defendant and this action is DISMISSED in its entirety.
OPINION
In this qui tam action, Relator Thomas M. Schell ("Schell") alleges that Defendant Battle Creek Health System has violated the False Claims Act, 31 U.S.C. § 3729-33. Specifically, Schell, who previously worked as a certified registered nurse anesthetist for Defendant, contends that Defendant charged Medicare for a full multi-dose vial of anesthetic medication when only a single dose of anesthetic medication was administered to a patient. Before this Court is Defendant's motion for summary judgment arguing that even if Schell's allegations are true, Defendant is entitled to judgment as a matter of law because Defendant's billing practice did not increase expense to the Medicare program.I.
Defendant is a Michigan non-profit corporation. From 1991 through 1999, Schell was a certified registered nurse anesthetist ("CRNA") with Defendant. As a CRNA, he was responsible for administering anesthetic medications to patients before and during surgical procedures. In May 1999, Defendant terminated its CRNAs including Schell and replaced them with independent contractors.
Schell filed this action in November 1999 in the Eastern District of Michigan against Defendant and Defendant's owner, Mercy Health Services. After being served with the complaint, the United States moved for a change of venue and additional time to decide whether to intervene. During this time, the government subpoenaed medical records from Defendant. After reviewing these medical records, the government decided not to intervene on October 23, 2000. After a series of motions to dismiss, this Court dismissed Mercy Health Services and some of the allegations against Defendant. The remaining allegations involve improperly charging Medicare for a full multi-dose vial of anesthetic medication when a single dose of medication was administered to a patient. At the Rule 16 scheduling conference, discovery was limited to whether charging for a full multi-dose vial of anesthetic medication when a single dose was administered results in increased costs to Medicare.
The determination of this motion depends on an understanding of Medicare billing and payment systems. Medicare uses two distinct billing and payment systems: the inpatient prospective payment system for inpatient hospital care and the outpatient prospective payment system for outpatient hospital services.
The inpatient prospective payment system for inpatient hospital care provides reimbursement to hospitals by using essentially a flat-fee payment schedule based on a patient's diagnosis. According to the Centers for Medicare and Medicaid Services, Medicare patients receiving inpatient hospital care are categorized into a diagnosis-related group ("DRG"). Each DRG is assigned a relative weight. The hospital's payment is roughly the DRG's relative weight multiplied by the base payment rate, although there are minor adjustments for the location of the facility, whether the hospital serves a disproportionate share of low-income patients, and whether the hospital is a teaching hospital. The result of the DRG is that Medicare pays a flat fee based on the patient's diagnosis.
The Centers for Medicare and Medicaid Services provide an overview of their payment systems on the internet. See http://cms.hhs.gov/providers/hipps/background.asp (background information), http://cms.hhs.gov/providers/hipps/ippsover.asp (overview), and http://cms.hhs.gov/providers/hipps/ippsotlr.asp (outlier payments) for information on the Inpatient Prospective Payment system.
After computing a hospital's payment for treatment based on the patient's diagnosis, the case is evaluated to determine whether the hospital's costs in the particular case are unusually high. The hospital will receive an additional "outlier" payment for those cases with unusually high costs. An outlier payment attempts to approximate the cost of care for the individual patient by multiplying the actual charges for the individual outlier patient by the hospital's cost-to-charge ratio. The cost-to-charge ratio is determined annually from the hospital's most recently settled cost report. A case may only qualify for an outlier payment if its charges multiplied by the hospital's cost to charge ratio exceed a minimum threshold. In fiscal year 2003, this threshold was $33,560.
During the time period at issue, Medicare reimbursed hospitals for outpatient services on the basis of their actual costs. Medicare provided estimated payments, "interim payments," for outpatient services based on the hospital's previous year's cost-to-charge ratio. The interim payment was later adjusted into a final payment when Medicare auditors reconciled the estimated payments with the hospital's actual annual costs. If after reconciliation, the interim payments received by the hospital exceeded the final settled amount, the hospital was required to repay the difference.
II.
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. In evaluating a motion for summary judgment, the Court must look beyond the pleadings and assess the proof to determine whether there is a genuine need for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). If the movant carries its burden of showing there is an absence of evidence to support a claim, then the non-moving party must demonstrate by affidavits, depositions, answers to interrogatories, and admissions on file, that there is a genuine issue of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986).
"On summary judgment, all reasonable inferences drawn from the evidence must be viewed in the light most favorable to the parties opposing the motion." Hanover Ins. Co. v. American Engineering Co., 33 F.3d 727, 730 (6th Cir. 1994) (citing Matsushita, 475 U.S. at 586-88). Nevertheless, the mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient to create a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The proper inquiry is whether the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. See generally, Street v. J.C. Bradford Co., 886 F.2d 1472, 1476-80 (6th Cir. 1989).
While nonmovants may rely on the affidavits of experts in order to defeat a motion for summary judgment, such evidence must still meet the standards of Rule 56 requiring the nonmoving party to set forth specific facts showing that there is a genuine issue for trial. Williams v. Ford Motor Co., 187 F.3d 533, 543-544 (6th Cir. 1999). In order to defeat a motion for summary judgment, the nonmovant must offer more than an expert's conclusory opinion on the ultimate legal issue. Id. While an expert's opinion need not include details about all the raw data used to arrive at his or her conclusion, an expert's opinion must provide its process of reasoning and its factual basis. Id. An expert's opinion must be more than mere conclusions. Id.
III.
The False Claims Act, 31 U.S.C. § 3729 et seq., is an anti-fraud statute that provides penalties for one who knowingly presents a false claim to the government and provides incentives for whistleblowers to expose the fraud. The purpose of the False Claims Act is to provide for restitution to the United States for money taken by fraud. United States ex rel. Marcus v. Hess, 317 U.S. 537, 551 (1943). Schell has alleged claims within the purview of 31 U.S.C. § 3729(a)(1) and (2).The relevant portion of the False Claims Act provides that:
a. Liability for certain Acts.-Any person who
(1) knowingly presents, or causes to be presented, to . . . the United States Government . . . a false or fraudulent claim for payment or approval; [or]
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
. . .
is liable to the United States Government for a civil penalty. . . .31 U.S.C. § 3729(a).
Under the False Claims Act, a "claim" is "any request or demand, whether under a contract or otherwise, for money or property." 31 U.S.C. § 3729(c). A claim is false when the defendant makes a request or demand for money or property to which the defendant is not entitled and which causes or would cause the United States to pay money it is not obligated to pay. See United States v. Southland Mgmt. Corp., 326 F.3d 669, 674-675 (5th Cir. 2003) (stating that false claims are those claims for money or property to which a defendant is not entitled), Hutchins v. Wilentz, Goldman, Spitzer, 253 F.3d 176, 184 (3rd Cir. 2001) cert. denied at 536 U.S. 906 (2002) ("we hold the submission of false claims to the United States government for approval which do not or would not cause financial loss to the government are not in the purview of the False Claims Act"), Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir. 1998) ("Only those actions by the claimant . . . [calculated to] cause the United States to pay out money it is not obligated to pay . . . are properly considered claims' within the meaning of the FCA.").
Liability under the False Claims Act attaches to the false claim for payment, not the underlying fraudulent activity. See United States ex rel. Hopper v. Anton, 91 F.3d 1262, 1266 (9th Cir. 1996). A false record or statement does not automatically create liability, rather it is the tendering of the false claim that gives rise to liability. However, while a claim must be false for liability to attach, the False Claims Act does not require actual damages to have resulted. See Varljen v. Cleveland Gear Co., Inc., 250 F.3d 426, 429 (6th Cir. 2000).
Applying this statutory authority, Defendant contends that the False Claims Act implicitly requires that the false or fraudulent record or statement have an impact on the government's payment, that it must be material. Although the Sixth Circuit has not analyzed this issue, several circuits have held that materiality is an element of a False Claims Act violation. United States v. Southland Mgmt. Corp., 326 F.3d 669, 679 n. 3 (5th Cir. 2003) (en banc) (Jones, J., concurring) (collecting cases); United States ex rel. Costner v. United States, 317 F.3d 883, 887 (8th Cir. 2003) (noting that materiality is an element and suggesting that "outcome materiality is the proper standard"); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999) (holding that materiality is a requirement under the False Claims Act); contra U.S. ex rel. Roby v. Boeing Co., 184 F.R.D. 107,112 (S.D. Ohio, 1998) ("we do not believe that materiality is a required element of proof in actions under the FCA."). The more persuasive authority holds that reliance on the false statement or record by the government is a required element of a claim alleging submission of a false record or statement to the government.
In addition, although the Sixth Circuit has not addressed materiality in connection with the False Claims Act, it has implied materiality as a judicially-imposed limitation in criminal cases involving false claims. See United States v. Keefer, 799 F.3d 1115 (6th Cir. 1986). In Keefer, the Court of Appeals stated that the test for materiality was whether the false statements had a natural tendency to influence the decision of the agency. Id at 1126. This test of materiality is consistent with other Circuits requiring materiality under the False Claims Act. See Harrison v. Westinghouse River Co., 176 F.3d 776, 785 (4th Cir. 1999). Though the materiality of a statement rests upon a factual evidentiary showing, ultimately materiality is a legal issue for the court to determine. Keefer, 799 F.2d at 1126.
Schell, however, urges this Court to adopt a reading of the statute that greatly expands the scope of liability under the False Claims Act. Citing United States v. Crist, 2000 WL 432781, *5 (S.D. Ohio 2000), Schell argues that the entire bill to Medicare represents a claim against the United States regardless of whether the defendant is requesting payment under a flat fee structure. Under Schell's reading of the statute, any false statement on the billing forms submitted to Medicare would give rise to liability under the False Claims Act. This expansive reading, however, is contrary to the False Claims Act's purpose to provide restitution for claims on the United States taken by fraud. See United States ex rel. Marcus v. Hess, 317 U.S. 537, 551 (1943). This Court rejects Schell's broad reading of the False Claims Act in light of the authority to the contrary.
IV.
While Defendant Battle Creek Health Systems denies Plaintiff Schell's allegations, discovery was limited to whether Defendant's billing practices created claims for governmental payments to which it was not entitled. In this motion, Defendant argues that even if the factual allegations raised by Plaintiff were true, the billing practices alleged would not have resulted in Defendant receiving any greater reimbursement than it was entitled. This Court now turns to the Medicare billing systems and the evidence before this Court in defense of this motion.
A. Inpatient Billing
As to inpatient services, Defendant argues that because the hospital is reimbursed on a flat fee basis defined by the patient's DRG, Defendant's billing practices never claimed more than it was entitled to receive. Schell's expert, Mr. Ahren, agrees with Defendant, stating that the "DRG payment is a lump sum payment paid per admission that is not meant to fluctuate with charges." (Pl. Br. In O'ppn Ex. 4 p. 2). Furthermore, no additional payment would be received by the hospital as a result of increasing charges for services covered under the DRG. (Pl. Br. In O'ppn Ex. 4 p. 2). Schell has failed to come forward with any evidence that Defendant's billing practices affected its Medicare DRG-based inpatient compensation.
Even if Schell's allegations were true, Medicare's flat fee payment would not be affected by an overcharge of medication.
B. Inpatient Billing-Outlier Payments
As to inpatient outlier payments, Defendant argues that any increase in medication charges would be negated by the same overcharge acting to reduce the cost-to-charge ratio. In the event of an outlier payment, the formula for determining an outlier payment uses the actual charges multiplied by the cost-to-charge ratio. Although the alleged inflated charges would be part of the total charges used to determine an outlier payment, those same overcharges also would be reflected in the cost-to charge ratio.
Schell's expert agrees that increased charges would ultimately lower the imputed costs. (Pl. Br. In O'ppn Ex. 4 p. 8). Schell's expert, however, states that there is a time lag between when the increased charge is incurred and when it is incorporated into the cost-to-charge ratio. (Pl. Br. In O'ppn Ex. 4 p. 8). As a result, Schell's expert concludes that Defendant probably gained a financial benefit, but cannot conclude any further without additional detailed research. (Pl. Br. In O'ppn Ex. 4 p. 8-9).
Schell's expert's conclusion, however, is admittedly preliminary. (Ahern Dep. at 38). The expert's opinion neither provides any analysis of the facts, nor any examples of actual overpayment as alleged. Rather, the opinion, after explaining the Medicare billing system, appears to analyze whether a hypothetical overcharge could result in an increase in expense to Medicare. Moreover, Schell's expert specifically requests information of billing and medical records, which were made available to Schell through discovery. In fact, Schell's expert's opinion is reached without a review of the records relating to patients whose care generated outlier payments. (Pl. Br. In O'ppn Ex. 4 p. 18). Though Schell has had access to records of the outlier payments received by Defendant, Schell has failed to submit to this Court any evidence regarding outlier payments, much less evidence that the alleged overcharges impacted the outlier payments.
3. Outpatient Billing
Regarding outpatient billing, Defendant argues that because the outpatient system uses a cost-to-charge ratio similar to the outlier billing system, Medicare reimbursement is not affected unless the charges are increased disproportionately from costs. In addition, Defendant argues that because the outpatient payment system is settled annually, ultimately Defendant is only reimbursed for its actual costs.
Schell contends that the alleged overcharges were paid by the government and that no reimbursement was made when the cost reports were settled because the cost-to-charge ratio changed only nominally during the relevant time period. Schell appears to rely on the testimony of Defendant's expert, Mr. Zielesch, that, on the basis of the interim cost-to-charge ratios and actual cost-to-charge ratios, the hospital was underpaid in the interim for the years at issue. (PL Br. Opp'n at 20). Because Defendant was required to reimburse Medicare during the years at issue in spite of fairly consistent cost-to-charge ratios, Schell infers that Defendant overcharged for medication and failed to reimburse Medicare.
Although Schell concludes that Defendant's alleged overcharges were paid, but not reimbursed by Defendant, Schell has failed to present any evidence supporting this claim. Schell has failed to demonstrate how this conclusion could reasonably be inferred. Moreover, Schell's own expert states that Medicare may have been repaid. (Pl. Br. In O'ppn Ex. 4 p. 15). To the extent that Schell relies on his expert's opinion, the expert's conclusion appears to be reached without any analysis of the facts or any examples drawn from the billing records made available through discovery. Again, Schell's expert's opinion appears to examine whether a hypothetical overcharge would result in an increase expense to Medicare. Moreover, Schell's expert specifically identifies records required to allow a more definitive opinion. (PL Br. In O'ppn Ex. 4 p. 18). Schell, however, does not dispute that this information was made available to him through discovery. Though he has had access to records of the outpatient payments received by Defendant, Schell has failed to identify any evidence relating to outpatient payments that demonstrates a genuine issue of material fact.
V.
In defense of this motion, Schell has also raised a number of arguments, which did not directly address the issue of liability. First, Schell claims that Defendant has waived the argument that materiality is an element of a False Claims Act violation by failing to raise it as an affirmative defense in the answer. (Pl.'s Br. Opp'n at 13-15,35). Although Schell cites cases that failure to raise an affirmative defense constitutes a waiver of the affirmative defense, nothing in Schell's brief suggests that Defendant's argument is an affirmative defense. In fact, because Defendant's argument is directed at whether Schell can satisfy his burden of proving a False Claims Act violation, it is not an affirmative defense. Consequently, Defendant was only required to deny liability and did not have to affirmatively plead this argument in its answer. FED. R. CIV. P. 8(b), 8(c).
Next, Schell argues that the alleged overcharges resulted in Defendant receiving inappropriate Medicare bad debt payments. Schell's expert's opinion does not address the issue of bad debt payment and Schell has failed to identify any facts which create a genuine issue of material fact as to this issue.
Finally, Schell argues that any alleged overcharge must be trebled before taking into account any reimbursement made by Defendant to Medicare when the cost reports are settled. Schell's argument, however, ignores that damages are calculated and trebled under the False Claims Act only after actual damages have been determined. United States v. Bornstein, 423 U.S. 303, 316-317 (1976).
VI.
Schell has failed to bring forth evidence that Defendant's billing practices resulted in increased expense to Medicare. Further, even assuming that Defendant had overstated anesthetic medication charges on its Medicare billing, Schell has failed to bring forth evidence that the alleged overstatements had a tendency to influence Medicare reimbursement to Defendant. Because Defendant has carried its burden of showing there is an absence of evidence to support a claim and because Schell has failed to demonstrate by affidavits, depositions, answers to interrogatories, and admissions on file, that there is a genuine issue of material fact for trial, Defendant is entitled to judgment as a matter of law. Accordingly, Defendant's motion for summary judgment will be granted. An order consistent with this opinion will be entered.