United States of America et al v. Kpc Healthcare Inc et al

NOTICE OF MOTION AND MOTION to Dismiss First Amended Complaint

C.D. Cal.April 19, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2089576.2 1 8:15-CV-01521-JLS-DFMx DEFENDANTS’ NOTICE OF MOTION AND MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 PATRIC HOOPER (State Bar No. 57343) E-Mail: phooper@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 1875 Century Park East, Suite 1600 Los Angeles, California 90067-2517 Telephone: (310) 551-8111 Facsimile: (310) 551-8181 JOSEPH R. LAMAGNA (State Bar No. 246850) E-Mail: jlamagna@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 101 W. Broadway, Suite 1200 San Diego, California 92101-3890 Telephone: (619) 744-7300 Facsimile: (619) 230-0987 JORDAN KEARNEY (State Bar No. 305483) E-Mail: jkearney@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 575 Market Street, Suite 2300 San Francisco, California 94105 Telephone: (415) 875-8500 Facsimile: (415) 875-8519 Attorneys for Defendants UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION UNITED STATES OF AMERICA ex rel. LIZA MARTINEZ, Plaintiffs, vs. KPC HEALTHCARE, INC. a Nevada corporation; KPC HEALTHCARE HOLDINGS, INC., a California Corporation; ORANGE COUNTY GLOBAL MEDICAL CENTER, INC., a California Corporation; INTEGRATED HEALTHCARE HOLDING, INC., a Nevada corporation; DOES 1-50, Defendants. Case No. 8:15-cv-01521-JLS-DFMx DEFENDANTS’ NOTICE OF MOTION AND MOTION TO DISMISS (Memorandum in Support of Motion to Dismiss and [Proposed] Order filed concurrently herewith) Date: June 9, 2017 Time: 2:30 p.m. Courtroom 10A Hon. Josephine L. Staton Trial Date: None Set Case 8:15-cv-01521-JLS-DFM Document 33 Filed 04/19/17 Page 1 of 3 Page ID #:167 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2089576.2 2 8:15-CV-01521-JLS-DFMx DEFENDANTS’ NOTICE OF MOTION AND MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 NOTICE OF MOTION AND MOTION TO DISMISS Please take notice that on June 9, 2017 at 2:30 p.m. before the Honorable Josephine L. Staton in Courtroom 10A of the above-entitled Court, located at 411 W. Fourth St., Santa Ana, California, 92701, Defendants KPC Healthcare, Inc., et al. (“Defendants”) will move to dismiss the Complaint filed by Plaintiff United States ex rel Liza Martinez (“Plaintiff”). Defendants’ motion is pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure and respectfully asks this Court: 1. To dismiss all claims because they are based on allegations that improperly “lump together” the multiple defendants in the complaint or, alternatively, to dismiss all claims against the Non-Hospital Defendants, because the allegations do not constitute a plausible claim for relief under the False Claims Act (“FCA”) and/or are not sufficiently specific or particular about the claims at issue; 2. To dismiss all claims for relief because they fail to plead any violation of the FCA with particularity; 3. To dismiss all claims for relief that stem from Plaintiff’s allegations of claims submitted to “Kaiser”1 because Relator has failed to allege a plausible claim as to why Defendants would be liable for these claims; 4. To dismiss Claim III set forth in paragraphs 82-86 because Relator has failed to allege with particularity that Defendants knowingly retained an overpayment by any means whatsoever; 5. To dismiss Claim IV set forth in paragraphs 87-90 on the grounds that Relator has not alleged that Defendants agreed to conspire to violate the FCA or had the requisite intent. 1 As set forth in more detail in the Memorandum in Support of the Motion to Dismiss, filed concurrently herewith, the First Amended Complaint generically asserts allegations regarding “Kaiser” without any attempt to adequately put Defendants on notice of which entity is being referenced. Case 8:15-cv-01521-JLS-DFM Document 33 Filed 04/19/17 Page 2 of 3 Page ID #:168 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2089576.2 3 8:15-CV-01521-JLS-DFMx DEFENDANTS’ NOTICE OF MOTION AND MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 This motion is based on the accompanying Memorandum of Points and Authorities, the files and records in this case, and on such further argument as may be presented at the hearing on the motion. This motion is made following communications pursuant to Local Rule 7-3 by counsel for the moving parties (i.e., Defendants), with counsel for Liza Martinez on April 12, 2017. Dated: April 19, 2017 HOOPER, LUNDY & BOOKMAN, P.C. By: /s/ Jordan Kearney PATRIC HOOPER JOSEPH R. LAMAGNA JORDAN KEARNEY Attorneys for Defendants Case 8:15-cv-01521-JLS-DFM Document 33 Filed 04/19/17 Page 3 of 3 Page ID #:169 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 PATRIC HOOPER (State Bar No. 57343) E-Mail: phooper@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 1875 Century Park East, Suite 1600 Los Angeles, California 90067-2517 Telephone: (310) 551-8111 Facsimile: (310) 551-8181 JOSEPH R. LAMAGNA (State Bar No. 246850) E-Mail: jlamagna@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 101 W. Broadway, Suite 1200 San Diego, California 92101-3890 Telephone: (619) 744-7300 Facsimile: (619) 230-0987 JORDAN KEARNEY (State Bar No. 305483) E-Mail: jkearney@health-law.com HOOPER, LUNDY & BOOKMAN, P.C. 575 Market Street, Suite 2300 San Francisco, California 94105 Telephone: (415) 875-8500 Facsimile: (415) 875-8519 Attorneys for Defendants UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION UNITED STATES OF AMERICA ex rel. LIZA MARTINEZ, Plaintiffs, vs. KPC HEALTHCARE, INC. a Nevada corporation; KPC HEALTHCARE HOLDINGS, INC., a California Corporation; ORANGE COUNTY GLOBAL MEDICAL CENTER, INC., a California Corporation, INTEGRATED HEALTHCARE HOLDING, INC., a Nevada corporation; DOES 1-50, Defendants. Case No. 8:15-cv-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS (Notice of Motion and Motion to Dismiss and [Proposed] Order filed concurrently herewith) Date: June 9, 2017 Time: 2:30 p.m. Courtroom 10A Hon. Josephine L. Staton Trial Date: None Set Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 1 of 24 Page ID #:170 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page 2091250.2 i 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 _Toc480366479I. ................................................................................................. INTRODUCTION 1 II. STATEMENT OF RELEVANT FACTS ......................................................... 4 III. BACKGROUND ............................................................................................... 5 A. The False Claims Act .............................................................................. 5 B. Medicare Part B - Fee-For-Service Medicare ........................................ 6 C. Medicare Advantage (Part C) - Medicare Managed Care ...................... 6 D. The Pleading Standard Under the FCA .................................................. 7 IV. ARGUMENT .................................................................................................... 8 A. Relator Fails To Allege Any Factual Basis For Claims Against The Non-Hospital Defendants And Fails To Satisfy Pleading Requirements Under Rule 9(b). .............................................................. 8 B. Relator Has Not Pleaded The Who, What, When, Where, And How Of The Alleged Misconduct. ........................................................ 10 C. Defendants Cannot Be Liable Under the FCA For Claims Provided Under An Arrangement With Kaiser. .................................... 13 D. Relator Fails To Sufficiently Plead The Third Cause Of Action Because She Does Not Allege When And How An Overpayment Was Improperly Retained. .................................................................... 16 E. The Fourth Cause Of Action Should Be Dismissed Because Relator Fails To Allege Defendants Agreed To Violate The FCA. ..... 17 V. CONCLUSION ............................................................................................... 19 Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 2 of 24 Page ID #:171 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) 2091250.2 ii 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 Cases Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................... 8 Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F. 3d 1047 (9th Cir. 2011) ............................................................................... 7 Durcholz v. FKW Inc., 189 F.3d 542 (7th Cir. 1999) ................................................................................ 17 Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) ......................................................................... passim United States ex rel. Gonzalez v. Planned Parenthood of L.A., 759 F.3d 1112 (9th Cir. 2014) ................................................................................ 8 United States ex rel. Gonzalez v. Planned Parenthood of L.A., No. CV 05-8818 AHM FMOX, 2011 WL 1481398 (C.D. Cal. Apr. 19, 2011) ............................................................................................................. 8, 9 United States ex rel. Johnson v. Shell Oil, 183 F.R.D. 204 (E.D. Tex. 1998) ......................................................................... 20 United States ex rel. Kneepkins v. Gambro Healthcare, Inc., 115 F. Supp. 2d 35 (D. Mass. 2000) ....................................................................... 9 United States ex rel. Lee v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011) .................................................................... 2, 6, 8, 15 United States ex rel. Modglin v. DJO Global, 114 F.Supp.3d. 993 (C.D. Cal. 2015) ..................................................................... 6 United States ex rel. Rizzo v. Horizon Lines, No. CV 10-7409 PA, 2013 WL 12131171 (C.D. Cal. Oct. 28, 2013) ........... 17, 18 United States ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., 972 F. Supp. 2d 1317 (N.D. Ga. 2013) .................................................................. 7 United States ex rel. Silingo v. Mobile Med. Examination Servs., No. SA-CV-13-1348 FMO SHX, 2015 WL 12752552 (C.D. Cal. Sept. 29, 2015) ............................................................................................... passim Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 3 of 24 Page ID #:172 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (cont.) Page(s) 2091250.2 iii 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 United States v. Murphy, 937 F.2d 1032 (6th Cir. 1991) .......................................................................... 3, 18 United States v. Scan Health Plan, No. CV-09-5013 JFW JEMX, 2015 WL 11978677 (C.D. Cal. June 1, 2015) ........................................................................................................... 15, 16 United States v. United Healthcare Ins. Co., 848 F.3d 1161 (9th Cir. 2016) ....................................................................... passim Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).................................................................................. 2, 5, 11 Statutes 31 U.S.C. § 3729(a)(1) ................................................................................................... passim § 3729(b)(1) .......................................................................................................... 18 § 3729(b)(2) .......................................................................................................... 13 § 3730(b)(2) ............................................................................................................ 5 42 U.S.C. § 1395k ................................................................................................................... 6 § 1395l .............................................................................................................. 6, 14 § 1395w-21 ............................................................................................................ 6 § 1395x(eee)(2)(B) ........................................................................................... 2, 11 Fed. R. Civ. P. 8(a) .................................................................................................................... 7, 20 9(b) ................................................................................................................. passim Other Authorities 42 C.F.R. § 401.305 .............................................................................................................. 17 § 422.308(C) ......................................................................................................... 16 Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 4 of 24 Page ID #:173 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 1 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 MEMORANDUM IN SUPPORT OF MOTION TO DISMISS Defendants Orange County Global Medical Center, Inc. (“Hospital”), KPC Healthcare, Inc., and KPC Healthcare Holdings, Inc. (the two KPC entities collectively, “Non-Hospital Defendants”) (all three defendants collectively, “Defendants”) respectfully submit this memorandum in support of the motion to dismiss the First Amended Complaint (“FAC”) of Relator Liza Martinez (“Relator”).1 Defendants contend that Relator’s FAC fails to state with particularity the circumstances constituting fraud under the Federal False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)(A)-(C), (G). I. INTRODUCTION The Hospital is a hospital in Orange County. Among other things, it provides cardiac rehabilitation services to patients after cardiac events, such as myocardial infarctions or heart attacks. Relator is a former employee of Hospital. Relator alleges Hospital did not adequately comply with certain Medicare regulations when providing cardiac rehabilitation services. She alleges two payers are at issue - (1) Medicare itself and (2) “Kaiser.” Relator alleges that regulatory noncompliance caused the claims submitted to either payer to be false. Relator’s allegations are based on her own fundamental misunderstanding of the statutory and regulatory scheme that applies to cardiac rehabilitation services and the payment structure that pays for those services. Relator’s primary complaint about the cardiac rehabilitation program - that it is not adequately supervised by a physician - is undermined by the applicable statute, which Relator does not cite. 1 As Relator acknowledges, Integrated Healthcare Holdings, Inc. is a former name of KPC Healthcare, Inc. (FAC ¶ 21). It is not clear why both names have been listed as defendants. To the extent this brief makes any arguments as to “KPC Healthcare, Inc.,” the arguments are asserted equally on behalf of that entity’s former name, “Integrated Healthcare Holdings, Inc.” Defendants respectfully request that “KPC Healthcare, Inc.” and “Integrated Healthcare Holdings, Inc.” be treated as the same entity in any orders throughout this litigation. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 5 of 24 Page ID #:174 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 2 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 The statute controls and explains that, when cardiac rehabilitation services are provided in a hospital, as they were here, physician supervision is presumed because, of course, physicians are always on hand at a hospital. 42 U.S.C. § 1395x(eee)(2)(B). Relator ignores this presumption. Moreover, Relator seeks to impose liability for claims submitted to Kaiser based on her similarly incorrect assumption that these Kaiser claims are billed to Medicare. As explained below, as a matter of law, bills for services provided to Kaiser patients are never submitted to Medicare (by Defendants or by Kaiser). Kaiser receives capitation payments from Medicare, which do not vary based on what services an enrollee receives. Kaiser does not submit any bills to Medicare for the services rendered by Hospital. Thus, the cardiac rehabilitation claims to Kaiser have no impact on the amount of money Medicare paid to Kaiser. In addition to relying on misinterpretations of the law, Relator’s FAC fails to state with particularity the circumstances constituting fraud and, therefore, should be dismissed pursuant to Rule 9(b). For each of the following reasons, Relator’s FAC does not provide enough detail “to give [the Defendants] notice of the fraud charged so that [they] can defend against the charge and not just deny that [they have] done anything wrong.” Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 999 (9th Cir. 2010) (internal citations omitted). As to all causes of action: (1) The FAC lumps together all Defendants and does not allege which defendant had a role in the wrongful conduct. United States ex rel. Lee v. Corinthian Colleges, 655 F.3d 984, 997 (9th Cir. 2011) (“Rule 9(b) does not allow a complaint to merely lump multiple defendants together…”). (2) Relator lists a slew of alleged regulatory violations - some of which rely on misunderstandings of the law. Relator does not allege which violations would be material, if any. Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2001 (2016) (the FCA “is not a vehicle for punishing garden- Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 6 of 24 Page ID #:175 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 3 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 variety breaches of contract or regulatory violations.”). (3) Relator provides very few facts to support her conclusory allegations, failing to list any (i) examples of documents that did not satisfy regulatory requirements, (ii) particular patients for whom false claims were submitted, or (iii) policies that was inconsistent regulations. She does not even describe when the alleged fraud occurred. Ebeid, 616 F.3d at 998 (a complaint must allege “the who, what, when, where, and how of the misconduct charged.” (internal citations omitted). (4) The FAC fails to propose any theory under which Defendants could be liable under the FCA for claims submitted to Kaiser when these claims had no impact on the federal fisc and no existing case law supports said liability. United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1173 (9th Cir. 2016) (an essential element of the FCA is that the fraud causes “the government to pay out money or forfeit moneys due.”). As to the Third Cause of Action under 31 U.S.C. § 3729(a)(1)(G): (5) Defendants cannot be liable for retaining an overpayment because Relator has alleged only that an overpayment existed. She has not alleged that Defendants knew of the overpayment or attempted to avoid repaying it. United States ex rel. Silingo v. Mobile Med. Examination Servs., No. SA-CV-13-1348 FMO SHX, 2015 WL 12752552, at *10 (C.D. Cal. Sept. 29, 2015) (relator must allege that defendant “acted in any way to avoid paying an obligation it owed to the government.”). As to the Fourth Cause of Action under 31 U.S.C. § 3729(a)(1)(C): (6) Relator has not sufficiently pleaded conspiracy because she has not alleged any agreement or specific intent to conspire. Silingo, 2015 WL 12752552, at *9 (FCA conspiracy claim must plead “the existence of an unlawful agreement”); United States v. Murphy, 937 F.2d 1032, 1038-39 (6th Cir. 1991) (a defendant cannot be held liable under 31 U.S.C. § 3729(a)(1)(C) for “deliberate ignorance” or Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 7 of 24 Page ID #:176 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 4 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 “reckless disregard”). For each of the above reasons, Relator has failed to sufficiently plead that Defendants violated the FCA. As such, the FAC should be dismissed. II. STATEMENT OF RELEVANT FACTS2 Relator is a former per diem nurse who worked in various departments of the Hospital, including the Cardiac Rehabilitation Department. (FAC ¶ 19). Defendants are “the hospital discussed in [the] complaint,” and two additional entities, the Non-Hospital Defendants. (FAC ¶ 21). Relator does not clarify why either of the Non-Hospital Defendants should be liable for any of the conduct described in the complaint, other than to note that one of them, KPC Healthcare, Inc., “owns and controls” the Hospital. (Id.). The Cardiac Rehabilitation Department is an outpatient department of the Hospital that assists patients with regaining their strength by doing aerobic exercise following a cardiac event, such as a myocardial infarction (i.e., heart attack). (FAC ¶¶ 34-35). The Hospital provides these services to patients covered by a variety of insurance providers, including Medicare Part B and Kaiser. (FAC ¶ 23). Some Kaiser patients are “Medicare-enrolled,” which presumably means that Relator is alleging that some Kaiser patients are covered by a Kaiser Medicare Advantage plan (i.e., a Medicare Part C plan). (Id.) Relator contends that, while working at the Hospital, she identified areas of noncompliance with the Medicare regulations. (FAC ¶¶ 52-68.) Specifically, Relator alleges that the Cardiac Rehabilitation Department was not supervised by a physician, that some components of the program did not occur, and that the documentation for the program was inadequate. (Id.) Relator alleges Defendants should be liable under the FCA because they “submitted claims for payment from 2 This Statement of Relevant Facts is based on the allegations in the FAC and is presented solely for the purposes of this Motion to Dismiss. Defendants in no way agrees that the allegations in the FAC are accurate and/or complete. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 8 of 24 Page ID #:177 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 5 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 the Medicare Program and from Kaiser, despite understanding that their Cardiac Rehabilitation Services did not comply with Medicare’s requirements.” (FAC ¶ 69.) Relator presented the information contained in the complaint to the government. (FAC ¶ 20). The government took fourteen months after receiving the complaint and Relator’s material evidence to complete its review (31 U.S.C. § 3730(b)(2)) and filed a notice that it had decided not to intervene in the case on November 28, 2016. (Notice of Election, dated 11/28/2016). Relator proceeds on her own in the place of the government. III. BACKGROUND A. The False Claims Act Relator’s allegations fall under what has become known as the “implied certification theory” for FCA liability. The implied certification theory can be used to establish falsity, which is one element of each of Relator’s claims under the FCA. Under the implied certification theory, a defendant can be liable under the FCA when “defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes [the representations defendant made about the services] misleading half-truths.” Escobar, 136 S. Ct. at 2001. Essentially, Relator contends that the Hospital violated Medicare Part B regulatory requirements for cardiac rehabilitation programs and, as a result, all claims it submitted violated the FCA. However, the FCA “is not an all-purpose antifraud statute…or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” Id. at 2003 (internal citations omitted). Regulatory violations can only be the basis for FCA liability if they meet a “demanding” materiality standard. Id. “A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.” Id. Moreover, the FCA only punishes fraud on the government. Thus, to state an FCA claim, Relator must allege the conduct caused “the government to pay out Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 9 of 24 Page ID #:178 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 6 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 money or forfeit moneys due.” United Healthcare Ins. Co., 848 F.3d at 1173; Lee, 655 F.3d at 992; United States ex rel. Modglin v. DJO Global, 114 F.Supp.3d. 993 (C.D. Cal. 2015); Silingo, 2016 WL 6802485, at *3. To establish any cause of action under the FCA, Relator must establish that Defendant’s conduct caused the government to pay money it would not have otherwise paid. B. Medicare Part B - Fee-For-Service Medicare In the FAC, Relator describes the process by which Medicare reimburses for services and regulates providers. (FAC ¶¶ 25-32). The description applies only to fee-for-service Medicare, including Medicare Part B. Medicare Part B covers physician services, outpatient care, and medical care, including cardiac rehabilitation services. 42 U.S.C. § 1395k. Medicare Part B is a fee-for-service program, which means that it pays for each service provided separately. 42 U.S.C. § 1395l. C. Medicare Advantage (Part C) - Medicare Managed Care In contrast to Medicare Part B, Medicare Advantage (i.e., Medicare Part C) does not pay on a fee-for-service basis. Medicare beneficiaries can choose a private Medicare Advantage Plan instead of a the traditional Medicare fee-for-service program. Under Medicare Advantage, the beneficiary is enrolled in a private health plan. 42 U.S.C. § 1395w-21. Medicare then pays a “capitated (per enrollee) amount” to the private health plan, called a Medicare Advantage organization. United Healthcare Ins. Co., 848 F.3d at 1167. “The capitated amount is a fixed monthly payment regardless of the volume of services an enrollee uses.” Id. Medicare Advantage plans must cover basic Medicare benefits, but they may use additional funds they collect from premiums that the plan beneficiaries pay to cover supplemental services. / / / / / / / / / Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 10 of 24 Page ID #:179 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 7 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 D. The Pleading Standard Under the FCA 1. Rule 9(b): Relator Must State With Particularity The Circumstances Constituting Fraud. The heightened pleading standard of Rule 9(b) applies to FCA claims. In alleging fraud, a party must state with particularity the circumstances constituting fraud, including identifying the particular false claim or statement and explaining what is false or misleading about it in non-conclusory terms. Relator must provide enough detail “to give [the Defendants] notice of the fraud charged so that [they] can defend against the charge and not just deny that [they have] done anything wrong.” Ebeid, 616 F.3d at 999 (internal citations omitted). “[I]n alleging fraud or mistake, Rule 9(b) requires a party to state with particularity the circumstances constituting fraud or mistake,” including “the who, what, when, where, and how of the misconduct charged.” Id. at 998 (internal citations omitted). Relator must allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. at 998-9. 2. Rule 8(a): FCA Claims Must Plead Plausible Allegations. Additionally, FCA claims must meet the plausibility requirement of Rule 8(a). Fed. R. Civ. P. 8(a) (“Rule 8(a)”); Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F. 3d 1047, 1055 (9th Cir. 2011) (to meet the plausibility requirement of Rule 8(a), a “claims of fraud or mistake - including FCA claims - must, in addition to pleading with particularity, also plead plausible allegations.”). This means that FCA claims must state enough facts to raise a reasonable expectation that discovery will reveal evidence of the misconduct alleged for each claim. The plausibility requirement means that courts do not have to accept as true for purposes of a motion to dismiss factual allegations that are internally inconsistent, that run counter to facts about which a court may take judicial notice, that are conclusory, that are based on unwarranted deductions, or that are legal conclusions. See United States ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., 972 F. Supp. 2d 1317, 1329-30 Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 11 of 24 Page ID #:180 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 8 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 (N.D. Ga. 2013) (dismissing certain FCA allegations regarding Medicare billing for “ghost drugs” because they were implausible even though they had “superficial appeal”). The Ninth Circuit has applied the plausibility requirement to dismiss an FCA case against Planned Parenthood because, based on the pleadings, it was not plausible to conclude that Planned Parenthood knowingly made false claims with the requisite statutory scienter. In doing so, the Court emphasized that it did not have to accept conclusory allegations. Factual allegations “that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” United States ex rel. Gonzalez v. Planned Parenthood of L.A., 759 F.3d 1112, 1115 (9th Cir. 2014); see also Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (under the plausibility standard, pleadings that “are no more than conclusions…are not entitled to the assumption of truth.”) IV. ARGUMENT A. Relator Fails To Allege Any Factual Basis For Claims Against The Non-Hospital Defendants And Fails To Satisfy Pleading Requirements Under Rule 9(b). Rule 9(b) does not allow a complaint to lump together multiple defendants but instead requires plaintiffs to differentiate among such defendants when suing more than one defendant. See Lee, 655 F. 3d at 997-98. The complaint must allege which defendant had a role in the wrongful conduct. Id.; Silingo, 2016 WL 6802485, at *3 (“Rule 9(b) undoubtedly requires more than attributing wholesale all of the allegations against defendants without distinguishing one from the other.”) (internal citations omitted); United States ex rel. Gonzalez v. Planned Parenthood of L.A., No. CV 05-8818 AHM FMOX, 2011 WL 1481398, at *8 (C.D. Cal. Apr. 19, 2011) (allegations were deficient when they failed to “sufficiently differentiate allegations between the various defendants,” and “merely alleg[ed] ‘defendants’ as a Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 12 of 24 Page ID #:181 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 9 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 whole engaged in particular behavior”). Here, Relator’s FAC alleges all claims equally against the Hospital and the Non-Hospital Defendants, merely “alleging ‘Defendants’ as a whole engaged in the alleged behavior.” Id. As such, Relator fails to plead with particularity and her claims should be dismissed as to all Defendants. Even to the extent Relator’s claims can be read as pertaining to the Hospital, the FAC contains no allegations sufficient to state any claims against the Non- Hospital Defendants. The FAC is markedly devoid of facts pertaining to the Non- Hospital Defendants. There is not a single allegation specifically against KPC Healthcare Holdings, Inc. The only allegation against KPC Healthcare Inc. is that it “owns and controls the hospital discussed in this complaint.” (FAC ¶ 21). Ownership of an entity is not sufficient to establish liability under the FCA. United States ex rel. Kneepkins v. Gambro Healthcare, Inc., 115 F. Supp. 2d 35, 40 (D. Mass. 2000) (“The only fact alleged is Gambro’s sole ownership of Dialysis Holdings. That alone is plainly not enough.”). To establish liability under the FCA, a relator must allege that a defendant presented or caused to be presented a false claim (Count I); made, used, or caused to be made or used a false statement material to a false claim (Count II); retained an overpayment (Count III); or conspired to violate the FCA (Count VI). 31 U.S.C. § 3729(a)(1)(A) - (C), (G). In light of Relator’s wholesale failure to allege any such conduct, dismissal of all claims against Non-Hospital Defendants is appropriate. Furthermore, Relator does not allege that the Non-Hospital Defendants had any knowledge of any false claims or specific intent to conspire and thus fails to allege a second element required for false claims liability. See 31 U.S.C. § 3729(a)(1)(A), (B), (G) (requiring that conduct be undertaken “knowingly”); 31 U.S.C. § 3729(a)(1)(C) (interpreted to require specific intent to conspire to violate the FCA). Because Relator fails to plead that the Non-Hospital Defendants had any role in the alleged FCA violations with the particularity required by Rule 9(b), all claims Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 13 of 24 Page ID #:182 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 10 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 against the Non-Hospital Defendants should be dismissed. B. Relator Has Not Pleaded The Who, What, When, Where, And How Of The Alleged Misconduct. To satisfy the requirements of Rule 9(b), Relator must allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Ebeid, 616 F.3d at 998-99 (internal citations omitted). As noted above, the FAC fails to meet this standard because it does not differentiate among Defendants. In addition, the FAC does not satisfy this requirement because it (1) does not allege which alleged violations are material; (2) provides very few facts to establish liability; and (3) provides no information as to when the alleged fraud occurred. 1. Based On The FAC, Defendants Are Not Able To Assess What Conduct Relator Alleges Was Material. To establish a claim for FCA liability based on a provider’s regulatory violations, Relator must establish that the non-compliance was material. As the Supreme Court summarized: The materiality standard is demanding. The False Claims Act is not “an all-purpose antifraud statute,” …or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 14 of 24 Page ID #:183 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 11 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 Escobar, 136 S. Ct. at 2003 (internal citations omitted). The FAC lists several alleged regulatory violations. However, even though it was filed after the Supreme Court decision in Escobar, it makes no allegation as to which violations, if any, are material. Defendants are left guessing as to one of the essential elements of FCA liability. Though Defendants cannot adequately respond to a materiality argument not presented, it is clear that direct physician supervision of the cardiac rehabilitation unit is not a material because it is not required in a hospital setting. Relator lists lack of physician supervision as the first and second items on its list of alleged violations (seemingly implying this is the most significant violation). (FAC ¶¶ 52- 54). Relator quotes regulations requiring that a physician provide “direct supervision,” which Relator notes means “that the physician…must be immediately available to furnish assistance and direction throughout the performance of the procedure.” (FAC ¶¶ 42-43). However, Relator ignores the applicable statute, which specifically states that “a physician [must be] immediately available and accessible for medical consultation and medical emergencies at all times items and services are being furnished under the program, except that, in the case of items and services furnished under such a program in a hospital, such availability shall be presumed.” 42 U.S.C.A. § 1395x(eee)(2)(B) (emphasis added). As Relator acknowledges (FAC ¶¶ 5, 7), all cardiac rehabilitation services at issue in this case were provided at a hospital. It is not plausible that no physicians were available in the hospital, but Relator fails to address this central flaw to her theory. Defendants satisfied the requirement for direct physician supervision as a matter of law. Given that the physician supervision requirement is satisfied, what remains of Relator’s FAC is a hodgepodge of allegations which largely relate to whether the Hospital sufficiently documented cardiac rehabilitation services. It is not clear that Relator alleges that any of the remaining allegations are material. The FAC, then, fails to plead its claims with particularity and should be dismissed. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 15 of 24 Page ID #:184 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 12 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 2. Relator Provides Little Factual Support For Her Causes Of Action. Relator offers no factual allegations of affirmative conduct on the part of any of the Defendants that would violate the FCA. Instead of providing specific facts to support her allegations, the Relator lists a series of regulatory requirements and then addresses each in turn by claiming Defendants do not satisfy them. (FAC ¶ 53 (the unit “is not directly supervised”); ¶ 55 (Defendants represent that services “are performed under the supervision of a physician, when they are not”); ¶ 57 (“Defendants utterly fail to deliver any kind of ‘treatment plan’); ¶ 61 (regarding physician signatures of treatment plans, “Defendants do not do this”); ¶ 63 (regarding psychosocial evaluations, “Defendants failed to provide any such staff”); ¶ 64 (regarding nutritional stress reduction, “no such services were offered”). Relator’s FAC does not provide sufficient factual allegations to satisfy the particularity requirement. Relator does not list examples of a documents that did not satisfy regulatory requirements, of a particular patient for whom false claims were submitted, of a policy that was inconsistent regulations, or of any affirmative conduct that was inconsistent with regulatory requirements or violated the FCA. Instead, Relator alleges Defendants did not satisfy a variety of regulatory requirements. Defendants should not be subject to the expense of discovery based on such conclusory allegations. 3. Relator Provides No Information About When She Alleges The Fraud Occurred. The FAC does not contain a single date or reference to a particular time period to identify when the alleged fraud occurred. Ebeid, 616 F.3d at 998 (to survive a motion under Rule 9(b), a complaint must allege “the who, what, when, where, and how of the misconduct charged.” (internal citations omitted) (emphasis added). With no notice of the time periods implicated, Relator is not able to conduct an adequate evaluation of the allegations or to prepare its defense, including an Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 16 of 24 Page ID #:185 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 13 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 assessment of whether any claims are barred by the statute of limitations. For each of the above reasons, the FAC does give enough detail “to give [the Defendants] notice of the fraud charged so that [they] can defend against the charge and not just deny that [they have] done anything wrong.” Ebeid 616 F.3d at 999 (internal citations omitted). As such, Defendants request this Court dismiss the FAC pursuant to Rule 9(b). C. Defendants Cannot Be Liable Under the FCA For Claims Provided Under An Arrangement With Kaiser. Relator has not met the heightened pleading standard of Rule 9(b) as to the claims Relator alleges Provider billed to “Kaiser.”3 As explained below, Relator alleges that Defendants should be liable under the FCA for services provided under an arrangement with Kaiser by citing to standards that do not apply to these services. Relator’s claims should be dismissed to the extent they relate to any services provided to Kaiser beneficiaries. 1. There Can Be No FCA Liability For Services Provided To Kaiser Beneficiaries Under A Non-Medicare Plan. As Relator admits in the FAC, Defendant provides cardiac rehabilitation services to Kaiser beneficiaries, some of whom are “Medicare beneficiaries” and some of whom are not. (FAC ¶¶ 10, 23, 33, 46, 51, 52, 56, 60, 71, 75, 80, 85). Though acknowledging that some of the Kaiser beneficiaries have no ties to the Medicare program, Relator makes no effort to distinguish between Medicare and non-Medicare Kaiser patients, instead seemingly alleging Defendant should be liable for both. The FCA only applies to claims submitted to the US government or its agents. 31 U.S.C. § 3729(b)(2). Relator cannot state a claim for liability under the FCA for claims having nothing to do with the Federal government. To the extent Relator 3 The FAC generically asserts allegations regarding “Kaiser” without any attempt to adequately put Defendants on notice of which entity is being referenced. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 17 of 24 Page ID #:186 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 14 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 alleges any claim stemming from services provided to a non-Medicare beneficiary, such claims should be dismissed without leave to amend. 2. Relator’s Novel Theory Of FCA Liability For Claims Provided Under An Arrangement With Kaiser Is Fatally Flawed Because It Relies On A Fundamental Misunderstanding Of The Medicare Advantage Program. Even considering only the services provided to Kaiser beneficiaries whom Relator alleges were Medicare beneficiaries, Relator has failed to meet her burden to plead a claim for FCA liability with particularity. Relator’s claims for liability for the Kaiser services are based on a fundamental misunderstanding of Medicare Advantage (i.e., Medicare Part C).4 Specifically, Relator alleges that the claims provided under arrangement with Kaiser were subsequently submitted to Medicare for payment. (FAC ¶ 8 (“Kaiser then bills Medicare for these services.”); ¶¶ 10, 33, 46, 51, 56, 60, 71, 75, 80, 85 (“The services Defendants provided to Kaiser’s members and patients were ultimately billed to Medicare. Defendants thus caused Kaiser to submit false claims to Medicare…”); ¶ 27 (“...charging Medicare and Kaiser (who bills Medicare)…”; ¶ 61 (“Defendants continue to bill…Kaiser (who then bills Medicare as though the services were provided in compliance)”). This is not accurate. Claims submitted to Kaiser for Medicare beneficiaries are never 4 Relator fails to allege any specific facts related to “Kaiser,” which is another way Relator fails to put Defendants on notice as to Relator’s allegations. Relator never specifically states that her allegations related to Kaiser patients who are enrolled in Medicare fall under Medicare Advantage. However, as a matter of law, the Kaiser plan at issue must be a Medicare Advantage plan. Medicare has four parts, Part A, Part B, Part C, and Part D. Parts A and D do not cover cardiac rehabilitation services. 42 U.S.C. § 1395d (Part A covers hospital services, skilled nursing facility services, home health, and hospice); §1395w-101 (Part D covers prescription drugs). Part B is administered by Medicare, so Kaiser would not bill Medicare for Part B claims. 42 U.S.C. § 1395l. Part C (i.e., Medicare Advantage) is administered “through private health plans,” such as Kaiser. United Healthcare Ins. Co., 848 F.3d at 1167. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 18 of 24 Page ID #:187 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 15 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 submitted to Medicare and have no impact on the amount of money Medicare pays to Kaiser. Medicare beneficiaries “have the option of receiving benefits through private health plans as an alternative to the traditional fee-for-service Medicare program.” United Healthcare Ins. Co., 848 F.3d at 1167. This option is known as Medicare Advantage or Medicare Part C. When a Medicare beneficiary elects Medicare Advantage, the government does not pay for the health care services that beneficiary receives on a fee-for-service basis.5 Instead, “the government pays Medicare Advantage organizations a capitated (per enrollee) amount to provide medical benefits.” Id. “The capitated amount is a fixed monthly payment regardless of the volume of services an enrollee uses.” Id. (emphasis added); see also United States v. Scan Health Plan, No. CV-09-5013 JFW JEMX, 2015 WL 11978677, at *1 (C.D. Cal. June 1, 2015) (“…the risk of incurring a loss on costs beyond the capitated monthly payments for providing [Medicare Advantage] services is shifted to the [Medicare Advantage organization].”). Defendants cannot be liable under the FCA for claims that were never submitted - by Defendants or by anyone else - to the government and had no impact on the amount of money the government paid. To state an FCA claim, Relator must allege the conduct caused “the government to pay out money or forfeit moneys due.” United Healthcare Ins. Co., 848 F.3d at 1173; Lee, 655 F.3d at 992 (also noting that an essential element of a claim under 31 U.S.C. § 3729(a)(1)(A) is that it the conduct causes “the government to pay out money or forfeit moneys due”); Modglin, 114 F.Supp.3d. 1010 (“A civil action for False Claims Act liability requires…the government to pay out money or forfeit moneys due.”) (internal citations omitted); Silingo, 2016 WL 6802485, at *3 (“[f]or a false statement or course of action to be actionable ..., it is necessary that it involve an actual claim, 5 The FAC considers only that Medicare reimburses for services on a fee-for- service basis. (See, e.g., FAC ¶ 30). This is an incorrect statement of the law. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 19 of 24 Page ID #:188 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 16 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 which is to say, a call on the government fisc.”) (internal citations omitted). Relator, therefore, has not (and cannot) allege any FCA cause of action as to any claims as they relate to services provided to Kaiser beneficiaries because they do not cause the government to pay out any money. Defendants are aware of no case law that has addressed the issue of whether a provider can be liable under the FCA for claims submitted to a Medicare Advantage organization, such as Kaiser.6 Because the FAC fails to articulate how Defendants might be liable for claims submitted to Kaiser, Defendants are not on notice as to the allegations against them, and the FAC fails meet the particularity requirements of Rule 9(b) as to the Kaiser claims. D. Relator Fails To Sufficiently Plead The Third Cause Of Action Because She Does Not Allege When And How An Overpayment Was Improperly Retained. The FAC fails to adequately allege violation of 31 U.S.C. § 3729(a)(1)(G) (the “Reverse FCA”) because it does not allege “the who, what, when, where, and 6 Defendants are aware of cases that hold Medicare Advantage organizations (i.e., health insurance plans) directly liable under the FCA. However, these cases are distinguishable. As addressed in the body, Medicare Advantage plans are paid a per-beneficiary, monthly capitated payment. This monthly payment is subject to a risk adjustment. 42 C.F.R. § 422.308(C). Under this risk adjustment, if a population is sicker (for example) than the average Medicare population, the payment to the health plan increases prospectively. Medicare Advantage organizations can fraudulently increase their payments by providing data related to the diagnoses in the population that makes their population look to be sicker (and higher risk) than average. Courts have found this conduct would violate the FCA. See, e.g., United Healthcare Ins. Co., 848 F.3d at 1173; Scan Health Plan, 2015 WL 11978677, at *1. These actions against Medicare Advantage organizations for submitting false data to directly increase the amount of the payment by the Federal government is distinguishable from this case. Here, Relator asks the Court to hold a provider liable for alleged regulatory violations for services provided under an arrangement with a Medicare Advantage organization when the provision (or absence) of those services had no impact on the Federal fisc. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 20 of 24 Page ID #:189 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 17 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 how of the misconduct charged.” Ebeid, 616 F.3d at 998. A defendant is liable under the Reverse FCA when he “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or improperly avoids or decreases” such an obligation. 31 U.S.C. § 3729(a)(1)(G). As clarified by the implementing regulations, a person who identifies an overpayment and fails to “report and return the overpayment” within 60 days is liable under the Reverse FCA. 42 C.F.R. § 401.305. To state a claim under the Reverse FCA, a relator must allege that the defendant “acted in any way to avoid paying an obligation it owed to the government.” Silingo, 2015 WL 12752552, at *10. Here, Relator has alleged Defendants conduct caused the government to overpay. She has not alleged that Defendants’ identified any resulting overpayment or engaged in any conduct to avoid repaying an overpayment. Defendants are left guessing the who, what, when, where, and how any overpayment could have been improperly retained. As such, Relator’s claim does not put Defendants on notice as to the specific allegations against them and should be dismissed pursuant to Rule 9(b). E. The Fourth Cause Of Action Should Be Dismissed Because Relator Fails To Allege Defendants Agreed To Violate The FCA. The Fourth Cause of Action (Conspiracy to Commit Violations of the FCA) should be dismissed because Relator has not alleged (and cannot allege) with sufficient particularity that Defendants conspired to violate 31 U.S.C. 3729 § (a)(1)(A), (B), or (G). Courts apply general civil conspiracy principles to FCA conspiracy claims. Durcholz v. FKW Inc., 189 F.3d 542, 545 n.3 (7th Cir. 1999); acknowledged by the Central District of California in United States ex rel. Rizzo v. Horizon Lines, No. CV 10-7409 PA (AJWX), 2013 WL 12131171, at *4 (C.D. Cal. Oct. 28, 2013). / / / Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 21 of 24 Page ID #:190 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 18 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 “To prove a civil conspiracy, the plaintiff must show that the conspiring parties reached a unity of purpose or a common design and understanding, or a meeting of the minds in an unlawful arrangement.” Id. (internal citations omitted). A complaint fails to allege an FCA conspiracy with the particularity required under Rule 9(b) when it fails to plead “the existence of an unlawful agreement” between the defendants. Siling, 2015 WL 12752552, at *9. Here, Relator has not alleged that the Defendants made any unlawful agreement to violate the FCA. For that reason alone, the claim fails and should be dismissed. The claim independently fails because it does not allege Defendants specifically intended to conspire. The only allegation in the FAC pertaining to conspiracy is a conclusory statement that “Defendants owned, operated, directed and conspired with Defendant Orange County Medical Center, Inc. to submit false claims through their failure to adequately staff and provide supervision for its provision of Cardiac Rehabilitation Services.” (FAC ¶ 89).7 Failure to staff or supervise is insufficient to establish the specific intent requirement under 31 U.S.C. § 3729(a)(1)(C). Though a Defendant can be held liable for “knowingly” violating any of the other FCA provisions (see 31 U.S.C. § 3729(a)(1)(A), (B), (D), (E), (F), (G)), the conspiracy provision does not adopt the knowing standard. 31 U.S.C. § 3729(a)(1)(C). Therefore, even a claim that alleges “deliberate ignorance” or “reckless disregard”8 (though this one does not)9 would necessarily fail. Murphy, 7 The FAC alleges that KPC Healthcare, Inc. “owns and controls” the Hospital but makes no allegation as to the relationship between KPC Healthcare Holdings, Inc. and the Hospital. It provides no facts as to how, if at all, either Non- Hospital Defendant is involved in the operations of the Hospital or why either entity would have made any of the decisions for which the FAC alleges the Hospital should be liable. 8 The FCA defines “knowingly” as actual knowledge, deliberate ignorance, or reckless disregard. 31 U.S.C. § 3729(b)(1). 9 Here, the FAC alleges that Defendants “failed” to staff or supervise, but Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 22 of 24 Page ID #:191 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 19 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 937 F.2d at 1038-39 (holding that a defendant cannot be held liable under 31 U.S.C. § 3729(a)(1)(C) for “deliberate ignorance” or “reckless disregard”); United States ex rel. Johnson v. Shell Oil, 183 F.R.D. 204, 208 (E.D. Tex. 1998) (“Indeed, the conspiracy provision of the Act seems to require the specific intent to defraud, unlike the other provisions which merely require knowledge.”). Thus, because it does not allege an agreement or a specific intent to conspire, the FAC fails to state a claim under 31 U.S.C. § 3729(a)(1)(C) and should be dismissed. V. CONCLUSION Relator’s FAC demonstrates a fundamental misunderstanding of the regulation and reimbursement for cardiac rehabilitation services. The result is a string of allegations that are not plausible. Rule 8(a). Relator’s primary contention - that the program did not have physicians available - is undermined by a statute that justifiably presumes that physicians are available in a hospital. Her arguments for liability for “Kaiser” patients are equally implausible, given that no services for Kaiser patients were ever billed to Medicare. The remaining allegations leave Defendants with more questions than answers. Which defendant does Relator allege committed the alleged fraud? When did the fraud occur? Which patients were potentially impacted? Which regulatory violations were material to payment? Because none of these questions are answered, Relator has failed to allege her claims with the particularity required by Rule 9(b). Based on the foregoing, Defendants respectfully request this Court: 1. To dismiss all claims because they are based on allegations that improperly “lump together” the multiple defendants in the complaint or, does not allege that said failure was done with deliberate ignorance or reckless disregard. Even if it did, as addressed herein, the claim for conspiracy would still fail. Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 23 of 24 Page ID #:192 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091250.2 20 8:15-CV-01521-JLS-DFMx MEMORANDUM IN SUPPORT OF MOTION TO DISMISS H O O P E R , L U N D Y & B O O K M A N , P .C . 1 87 5 C E N T U R Y P A R K E A S T , S U IT E 1 60 0 L O S A N G E L E S , C A L IF O R N IA 9 0 06 7 -2 51 7 T E L : ( 31 0 ) 5 51 -8 1 11 • F A X : ( 31 0 ) 55 1- 81 81 alternatively, to dismiss all claims against the Non-Hospital Defendants because the allegations do not constitute a plausible claim for relief under the FCA and/or are not sufficiently specific or particular about the claims at issue; 2. To dismiss the claims for relief because they fail to plead any violation of the FCA with particularity; 3. To dismiss all claims for relief that stem from Relator’s allegations related to Kaiser because Relator has failed to allege a plausible claim as to why Defendants would be liable for these claims; 4. To dismiss Claim III set forth in paragraphs 82-86 because Relator has failed to allege with particularity that Defendants knowingly retained an overpayment by any means whatsoever; 5. To dismiss Claim IV set forth in paragraphs 87-90 on the grounds that Relator has not alleged that Defendants agreed to conspire to violate the FCA or had the requisite intent. Dated: April 19, 2017 HOOPER, LUNDY & BOOKMAN, P.C. By: /s/ Jordan Kearney PATRIC HOOPER JOSEPH R. LAMAGNA JORDAN KEARNEY Attorneys for Defendants Case 8:15-cv-01521-JLS-DFM Document 33-1 Filed 04/19/17 Page 24 of 24 Page ID #:193 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091201.1 1 8:15-CV-01521-JLS-DFMx [PROPOSED] ORDER UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION UNITED STATES OF AMERICA ex rel. LIZA MARTINEZ, Plaintiff, vs. KPC HEALTHCARE, INC. a Nevada corporation; KPC HEALTHCARE HOLDINGS, INC., a California Corporation; ORANGE COUNTY GLOBAL MEDICAL CENTER, INC., a California Corporation; INTEGRATED HEALTHCARE HOLDING, INC., a Nevada corporation; DOES 1-50, Defendants. Case No. 8:15-cv-01521-JLS-DFMx [PROPOSED] ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS (Notice of Motion and Motion to Dismiss and Memorandum in Support of Motion to Dismiss filed concurrently herewith) Date: June 9, 2017 Time: 2:30 p.m. Courtroom 10A Hon. Josephine L. Staton Trial Date: None Set Case 8:15-cv-01521-JLS-DFM Document 33-2 Filed 04/19/17 Page 1 of 3 Page ID #:194 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091201.1 2 8:15-CV-01521-JLS-DFMx [PROPOSED] ORDER [PROPOSED] ORDER On June 9, 2017, the motion of Defendants KPC Healthcare, Inc., KPC Healthcare Holdings, Inc., and Orange County Global Medical Center, Inc. (“Defendants”) to dismiss came on regularly to be heard before the Honorable Josephine L. Staton. The Court having found that sufficient cause exists grants the motion as follows: 1. The Court dismisses all claims as to Defendants KPC Healthcare, Inc. and KPC Healthcare Holdings, Inc. with prejudice because the allegations do not constitute a plausible claim for relief under the False Claims Act (“FCA”) and are not sufficiently specific or particular about the claims at issue; 2. The Court dismisses all claims as to all Defendants with prejudice to the extent they stem from any claims submitted to Kaiser because Relator Liza Martinez (“Relator”) has failed to allege a plausible claim as to why Defendants would be liable for these claims; 3. The Court dismisses Counts I - II set forth in paragraphs 77-86 as to all Defendants because the allegations do not constitute a plausible relief under the FCA and are not sufficiently specific or particular about the claims at issue; 4. The Court dismisses Count III set forth in paragraphs 82-86 with prejudice as to all Defendants because Relator has not alleged that Defendants knowingly retained an overpayment by any means whatsoever and, therefore, cannot state a claim under 31 U.S.C. § 3729(a)(1)(G); 5. The Court dismisses Claim IV set forth in paragraphs 87-90 as to all Defendants on the grounds that Relator has not alleged that Defendants agreed to conspire to violate the FCA or had the requisite intent and, therefore, cannot state a claim under 31 U.S.C. § 3729(a)(1)(C). / / / / / / / / / Case 8:15-cv-01521-JLS-DFM Document 33-2 Filed 04/19/17 Page 2 of 3 Page ID #:195 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2091201.1 3 8:15-CV-01521-JLS-DFMx [PROPOSED] ORDER IT IS HEREBY ORDERED: Dated: ________________, 2017 By: HON. JOSEPHINE L. STATON United States District Judge Case 8:15-cv-01521-JLS-DFM Document 33-2 Filed 04/19/17 Page 3 of 3 Page ID #:196