The opinion of the court was delivered by: Garnett Thomas Eisele United States District Judge
Presently before the Court are the Motions for Summary Judgment filed by Separate Defendants RehabCare, Inc. ("RehabCare") and Baxter County Regional Hospital, Inc. ("BCH"), RehabCare Group, Inc's Motion to Exclude Reports and Testimony of Plaintiffs' Expert, and Baxter County Regional Hospital's Motion for Adoption of RehabCare Group, Inc.'s Motion to Exclude Reports and Testimony of Plaintiffs' Expert.
RehabCare manages acute rehabilitation units throughout the country and has managed and staffed the acute rehabilitation unit ("ARU") at BCH since December 1996. Dr. Kersulis, a neurologist, worked as the medical director for RehabCare's rehabilitation unit at Baxter County Regional Hospital from October 1997 until his termination in June of 2000. Mr. Wilson is a licensed physical therapist and worked in that capacity for BCH from January 1994 until his termination in June of 2000. From January 1997 through June 2000, Wilson served as "charge physical therapist" at RehabCare's BCH facility.
Defendants treat patients covered by Medicare and, therefore, receive reimbursement for Medicare claims from the Centers for Medicare and Medicaid Services ("CMS"), formerly known as the Health Care Finance Division ("HCFA"), an agency within the United States Department of Health and Human Services (hereinafter "HCFA/CMS"). CMS and HCFA, in turn, typically contracts with private insurance intermediaries and carriers to administer and pay for claims from the Medicare Trust Fund. In Arkansas, HCFA/CMS contracts with Arkansas Blue Cross and Blue Shield to administer the payment of claims to Medicare providers. Pursuant to RehabCare's contract with BCH, RehabCare manages and staffs the ARU located within BCH's facilities. Under the terms of the contract, BCH submits all claims for medicare reimbursement for patients treated in the ARU.
The part of the Medicare program at issue here is "Part A," which provides basic insurance for the costs of hospitalization and post-hospitalization care. See 42 U.S.C. § 1395(c)-1395(I)-2 (1992). Medicare reimbursement under Part A is typically made under the "prospective payment system" ("PPS"). See 42 C.F.R. § 412.20. Under the PPS, a specific predetermined amount is paid for each inpatient hospital stay, based on each stay's "diagnosis-related group" ("DRG"). See 42 U.S.C. § 1395ww. If acute rehabilitation units meet certain requirements, they may become exempt from the PPS system and obtain reimbursement based on the reasonable cost of services provided to medicare patients. See 42 C.F.R. 412.20(b), 412.22. "Reasonable cost" reimbursement is typically more lucrative than reimbursement through the PPS system.
One of the requirements for exempting out of the PPS system and receiving reasonable cost reimbursement is known as the "75/25 rule." HCFA/CMS gave the fiscal intermediaries ("FIs") responsibility for assuring compliance with the 75/25 Rule. Medicare regulations provide that if a hospital is found to have violated the 75/25 rule, the hospital's payments will be retroactively adjusted to account for the difference in what the hospital was paid under the "reasonable cost" reimbursement and what the hospital should have been paid under the PPS system. 42 C.F.R. § 412.130. Under the 75/25 Rule, a hospital qualifies as a "rehabilitation hospital" if, "during its most recent 12-month cost reporting period, it served an inpatient population of whom at least 75 percent required intensive rehabilitation services for the treatment of one or more" of the following conditions:
(iii) Congenital deformity.
(v) Major multiple trauma.
(vi) Fracture of femur (hip fracture).
(viii) Polyarthritis, including rheumatoid arthritis
(ix) Neurological disorders, including multiple sclerosis, motor neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's disease.
42 C.F.R. § 412.23(b)(2). The regulation also requires that to be exempted out of the PPS system the rehabilitation unit must "[h]ave beds physically separate from (that is, not commingled with) the hospital's other beds." 42 C.F.R. § 412.25(a)(7).
In their Second Amended Complaint, filed July 18, 2005, the Relators (hereinafter "Plaintiffs"), Gregory Kersulis, M.D. and Jimmie Wilson, bring Counts I-III on behalf and in the name of the United States of America under the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733. In Counts I-III, the Plaintiffs assert that RehabCare and BCH violated 31 U.S.C. §§ 3729(a)(1), (a)(2), and (a)(3) by knowingly submitting false claims, submitting false records in support of claims and conspiring to submit claims to the United States Government under the Medicare program for reimbursement for acute rehabilitation services, without complying with certain prerequisites for payment of such claims. Specifically, the Plaintiffs assert that although the Defendants submitted annual certifications and questionnaires, or "self-attestations," that the BCH ARU qualified as a rehabilitation hospital exempt from the PPS system and submitted claims on a "reasonable cost" basis, the Defendants did not in fact qualify for reimbursement under the more lucrative "reasonable cost" basis. Plaintiffs contend BCH ARU did not qualify for an exemption because: (1) it did not comply with the requirement that it have beds physically separate from (that is, not commingled with) the hospital's other beds, and (2) it did not comply with the 75/25 Rule because some patients should have been classified as 25 percent patients, but were improperly classified as 75 percent patients, and "overflow patients" were not included in the 25 percent category. Plaintiff Wilson brings Count IV against BCH on behalf of himself, individually, under the FCA whistle blower provision. Count IV asserts that BCH terminated Wilson's employment because he confronted management about the allegedly illegal Medicare claims and refused to go along with Defendants' allegedly illegal conduct.
II. Summary Judgment Standard
Summary judgment is appropriate only when, in reviewing the evidence in the light most favorable to the non-moving party, there is no genuine issue as to any material fact, so that the dispute may be decided solely on legal grounds. Holloway v. Lockhart, 813 F.2d 874 (8th Cir. 1987); Fed. R. Civ. P. 56. The Supreme Court has established guidelines to assist trial courts in determining whether this standard has been met:
The inquiry performed is the threshold inquiry of determining whether there is a need for trial-- whether, in other words, there are genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The Eighth Circuit set out the burdens of the parties in connection with a summary judgment motion in Counts v. M.K. Ferguson Co., 862 F.2d 1338 (8th Cir. 1988):
[T]he burden on the party moving for summary judgment is only to demonstrate, i.e., '[to] point out to the District Court,' that the record does not disclose a genuine dispute on a material fact. It is enough for the movant to bring up the fact that the record does not contain such an issue and to identify that part of the record which bears out his assertion. Once this is done, his burden is discharged, and, if the record in fact bears out the claim that no genuine dispute exists on any material fact, it is then the respondent's burden to set forth affirmative evidence, specific facts, showing that there is a genuine dispute on that issue. If the respondent fails to carry that burden, summary judgment should be granted.
Id. at 1339 (quoting City of Mt. Pleasant v. Associated Elec. Coop., 838 F.2d 268, 273-74 (8th Cir. 1988) (citations omitted)(brackets in original)).
"A party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] . . . which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). However, the moving party is not required to support its motion with affidavits or other similar materials negating the opponent's claim. Id.
Once the moving party demonstrates that the record does not disclose a genuine dispute on a material fact, the non-moving party may not rest upon the mere allegations or denials of his pleadings, but his response, by affidavits or as otherwise provided in Rule 56, must set forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. Rule 56(e). The plain language of Rule 56(c) mandates the entry of summary judgment against a non-moving party which, after adequate time for discovery, fails to make a showing sufficient to establish the existence of an element essential to its case, and on which that party will bear the burden of proof at trial. Celotex Corp., 477 U.S. at 322.The district court must base its determination regarding the presence or absence of a material issue of fact on evidence that would be admissible at trial. Firemen's Fund Ins. Co. v. Thien, 8 F.3d 1307, 1310 (8th Cir. 1993).
III. Defendant RehabCare's Motion for Summary Judgment and Defendant Baxter County Regional Hospital's Motion for Summary Judgment as to Counts I through III
Defendants*fn1 move for summary judgment on all claims asserted against RehabCare and BCH (Counts I-III) in Plaintiffs' Second Amended Complaint.*fn2 First, Defendants argue that they are entitled to summary judgment on Counts I and II because there is no evidence to show that the Defendants knowingly provided false information or caused false or fraudulent claims to be submitted to the federal government. Defendants argue that they are also entitled to summary judgment on Count III because Plaintiffs cannot establish that Defendants knowingly submitted a false statement or caused BCH to submit a false claim for payment to the federal government, and therefore, Plaintiffs' conspiracy claims fail as a matter of law.
In Counts I through III, Plaintiffs principally rely on the "certification theory" of liability, or "legally false certification," "which is predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term." Mikes v. Straus, 274 F.3d 687, 696-97 (2d. 2001). "Although the False Claims Act is 'not designed to reach every kind of fraud practiced on the Government,' United States v. McNinch, 356 U.S. at 599, 78 S.Ct. 950, it was intended to embrace at least some claims that suffer from legal falsehood." Id. Thus, a false claim may take the form of a claim for goods or services "provided in violation of contract terms, specification, statute, or regulation." Id. (citing S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N. 5266, 5274 (emphasis added)). "Just as clearly, a claim for reimbursement made to the government is not legally false simply because the particular service furnished failed to comply with the mandates of a statute, regulation or contractual term that is only tangential to the service for which reimbursement is sought. Since the Act is restitutionary and aimed at retrieving ill-begotten funds, it would be anomalous to find liability when the alleged noncompliance would not have influenced the government's decision to pay. Accordingly, while the Act is 'intended to reach all types of fraud, without qualification, that might result in financial loss to the Government,' United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968), it does not encompass those instances of regulatory noncompliance that are irrelevant to the government's disbursement decisions." Id. (joining the Fourth, Fifth, Ninth, and District of Columbia Circuits in holding that a claim under the FCA is legally false only where a party certifies compliance with a statute or regulation as a condition to governmental payment).
A. Prima Facie Case - Counts I and II
Count I asserts that Defendants violated section 3729(a)(1) of the False Claims Act ("FCA") by knowingly submitting false or fraudulent claims for payments or causing false or fraudulent claims for payment to be submitted to officials of the United States Government for the cost reporting years 1998 through 2001. Count II alleges that Defendants violated section 3729(a)(2) of the FCA by submitting false statements that BCH ARU was in compliance with the 75/25 Rule, and thus falsely representing that the unit was PPS exempt, to get BCH's claims for the ARU paid at the higher cost reimbursement rate.
31 U.S.C. § 3729(a)(1) and (2) provide:
Any person who--(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States 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 . . . ."
A prima facie case under 31 U.S.C. § 3729(a)(1) requires that "(1) the defendant made a claim against the United States; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent." United States ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 767 (8th Cir. 2002). To establish a claim under 31 U.S.C. § 3729(a)(2), Plaintiffs must demonstrate that Defendants knowingly made a false statement in order to get a false or fraudulent claim paid. See United States ex. rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997). "'Knowingly' is defined by the FCA as meaning that a person, with respect to information: (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information." Quirk, 278 F.3d at 767 (citing 31 U.S.C. § 3729(b)). "No proof of specific intent to defraud the government is required." Id.
"Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law . . . This is consistent with the general rule that those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law." Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 63, 104 S.Ct. 2218, 2225 (1984).*fn3 "As a participant in the Medicare program, respondent had a duty to familiarize itself with the legal requirements for cost reimbursement." Id. at 64, 104 S.Ct. at 2225-26. "A party cannot file a knowingly false claim on the assumption that the fiscal intermediary will correctly calculate the value in the review process. Such a result would shift the burden of cost calculation from the provider to the fiscal intermediary and encourage the filing of false claims, which is directly at odds with the stated goal of the FCA." United States ex rel. A Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 447 (6th Cir. 2005) (citing United States ex rel. Sarasola v. Aetna Life Ins. Co., 319 F.3d 1292, 1301 (11th Cir.2003) (holding that a fiscal intermediary is immune from liability for approving payment for allegedly fraudulent claims)).
However, "innocent mistakes and negligence are not offenses under the Act." Quirk, 278 F.3d at 767(citing United States ex rel. Oliver v. Parsons Co., 195 F.3d 457, 464-65 (9th Cir.1999); Hindo v. University of Health Sciences/The Chicago Med. Sch., 65 F.3d 608, 613 (7th Cir.1995) ("The requisite intent is the knowing presentation of what is known to be false. In short, the claim must be a lie.")). "The statutory definition of 'knowingly' requires at least 'deliberate ignorance' or 'reckless disregard.'" United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). "To take advantage of a disputed legal question . . . is to be neither deliberately ignorant nor recklessly disregardful." Id. "The False Claims Act does not create liability merely for a health care provider's disregard of Government regulations or improper internal policies unless, as a result of such acts, the provider knowingly asks the Government to pay amounts it does not owe." United States ex rel. Clausen v. Lab. Corp. of America, Inc., 290 F.3d 1301, 1311 (11th Cir. 2002).
In United States ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 768-69 (8th Cir. 2002), the Eighth Circuit affirmed the district court's grant of summary judgment because the evidence in the record indicated that the employees of the defendant considered the billing practice at issue "to be the generally accepted practice." The court stated that the only evidence offered by the plaintiff that the defendant knowingly submitted false claims to the government was the deposition testimony by facility officials that they did not seek legal advice concerning the propriety of their billing practices, and the plaintiff submitted no evidence suggesting that the defendant suspected something wrong but deliberately avoided learning more so that a fraudulent scheme could continue. Id. Specifically, the plaintiff submitted the deposition testimony of the administrator and chief financial officer of the defendant, which revealed that those officials did not seek legal advice, or an opinion from Medicare, concerning the billing practice. Id. The court found that such testimony did not demonstrate "'actual knowledge' of fraudulent billing practices, or even 'reckless disregard of the truth or falsity' of the submitted claims." Id. The court stated, "At most, the failure to secure a legal opinion concerning the billing practices might be characterized as acting in 'deliberate ignorance of the truth or falsity' of the submitted claims. However, failing to secure a legal opinion, without more, is not the type of deliberate ignorance that can form the basis for a FCA lawsuit" because the officials had no reason to pursue a legal opinion concerning the billing practices because "both of them considered the practice acceptable standard procedure." Id. (internal citation omitted). The court stated that the officials' understanding may not have been "legally correct," but noted that their decision was limited to whether the defendant knowingly submitted false or fraudulent claims, not whether the submitted claims were in fact false or fraudulent. Id. Furthermore, Plaintiffs did not offer any evidence to refute the declarations of three of Defendants' administrators, the director of finance, the assistant administrator, the chief financial officer, and the nursing care accounts receivable clerk, all of whom declared that they did not have any knowledge that any false or fraudulent claims were submitted to Medicare. Id.
Similarly, in Minnesota Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1053 (8th Cir. 2002), the Eighth Circuit stated:
The False Claims Act prohibits the knowing presentation of false claims for government payment or approval. 31 U.S.C. § 3729(a). The Act defines "knowing" and "knowingly" to mean that the actor had actual knowledge of the pertinent information or acted in deliberate ignorance or in reckless disregard of the truth or falsity of that information. Sec. 3729(b). The question on intent here is whether the defendants knew (or would have known absent deliberate blindness or reckless disregard) that their bills would lead the government to believe that they had provided services that they actually did not provide. If a statement alleged to be false is ambiguous, the government (or here, the relator) must establish the defendant's knowledge of the falsity of the statement, which it can do by introducing evidence of how the statement would have been understood in context. See United States v. Garfinkel, 29 F.3d 1253, 1256 (8th Cir.1994) ("evidence offered at trial could potentially resolve any ambiguity on the face of the document"); United States v. Anderson, 579 F.2d 455, 460 (8th Cir.1978) ("In light of these ambiguities ··· the government must negative any reasonable interpretation that would make the defendant's statement factually correct."); United States v. Mackby, 261 F.3d 821, 827 (9th Cir.2001) (False Claims Act violation consisted of filling in Medicare claim form contrary to instructions received in Medicare bulletins). If the Association shows the defendants certified compliance with the regulation knowing that the HCFA interpreted the regulations in a certain way and that their actions did not satisfy the requirements of the regulation as the HCFA interpreted it, any possible ambiguity of the regulations is water under the bridge. However, it is important to remember that the standard for liability is knowing, not negligent, presentation of a false claim. Oliver, 195 F.3d at 464-65.
B. Prima Facie Case - Count III
31 U.S.C. § 3729(a)(3) provides:
Any person who--(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid . . . is liable to the United States Government . . . ."
To establish a conspiracy under 31 U.S.C. § 3729(a)(3), Plaintiffs must show (1) that the Defendants conspired with one another to get a false claim allowed or paid and (2) one or more conspirators performed any overt act in furtherance of the conspiracy. United States ex rel. Sanders v. Allison Engine Co., 364 F. Supp. 2d 713, 714 (S.D. Ohio 2003) (citing United States v. Murphy, 937 F.2d 1032 (6th Cir.1991)). In discussing the requirements to establish a conspiracy under 31 U.S.C. § 3729(a)(3), the Sixth Circuit stated,
A recent authoritative statement of what is required to prove a civil conspiracy is found in Hooks v. Hooks, 771 F.2d 935, 943-44 (6th Cir.1985):
A civil conspiracy is an agreement between two or more persons to injure another by unlawful action. Express agreement among all the conspirators is not necessary to find the existence of a civil conspiracy. Each conspirator need not have known all of the details of the illegal plan or all of the participants involved. All that must be shown is that there was a single plan, that the alleged coconspirator shared in the general conspiratorial objective, and that an overt act was committed in furtherance of the conspiracy that caused injury to the complainant.
The question of whether a person was a participant in a conspiracy is a question of fact. See United States v. August, 745 F.2d 400, 405 (6th Cir.1984) (criminal case); Cf. Ghandi v. Police Dept. of Detroit, 747 F.2d 338, 345 (6th Cir.1984) (recognizing that cases involving conspiracy allegations are not well suited to summary judgment). . . . resolution of this case requires a determination of Murphy's state of mind, viz., whether he shared the conspiratorial objective.