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Olson v. Fairview Health Services of Minnesota

United States Court of Appeals, Eighth Circuit

August 8, 2016

Paul Allen Olson, Individually, and as Relator for the United States of America, and the State of Minnesota, Plaintiff - Appellant
Fairview Health Services of Minnesota, and its wholly owned subsidiary or affiliate University of Minnesota Medical Center, Fairview, also known as Fairview University Medical Center, Defendant-Appellee

          Submitted: October 21, 2015

         Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before RILEY, Chief Judge, SMITH and SHEPHERD, Circuit Judges.

          SMITH, Circuit Judge.

         Paul Allen Olson brought this qui tam[1]action tamims Act (MFCA), Minnesota Statutes Annotated § 15C.01 etseq., and the federal False Claims Acts (FCA), 31 U.S.C. § 3729 et seq., against the University of Minnesota Medical Center (UMMC), a wholly owned subsidiary of Fairview Health Services of Minnesota. Olson alleged that UMMC fraudulently induced the Minnesota Department of Human Services (MDHS) to overreimburse it for services provided to Medical Assistance (MA) patients. UMMC moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court[2]granted the motion and denied Olson leave to amend his complaint for a third time. Olson appeals both decisions. We affirm.

         I. Background

         For 29 years, Olson worked for MDHS. He has held different positions, but his most recent position was Manager of Payment Policy and Rates Management, where he established payment rates for inpatient hospitals that provide services to MA patients.

         In Minnesota, MA is jointly funded by the state and federal governments and administered by MDHS. MA payment rates are governed by Minnesota Statutes Annotated § 256.969. MA patient claims are submitted by the hospital providing service to MDHS electronically using a uniform claim form. The claim form includes patient information, services provided, and the "sticker price" charged by the hospital. " Sticker price" is the price an uninsured or non-MA patient would be charged. MDHS reimburses the hospital at a rate determined by the payment system of MDHS. The payment system applies various laws, rules, and MDHS price settings to each claim. The resulting reimbursement rate is applied to the sticker price, and the hospital receives the adjusted amount for providing services to an MA patient.

         In July 2011, as part of an effort to decrease government expenditures, Minnesota amended § 256.969 ("the 2011 Amendment"). In his role at MDHS, Olson claims responsibility for drafting the language of the 2011 Amendment. The 2011 Amendment reduced MA reimbursements for hospital inpatient services by ten percent. However, the 2011 Amendment excluded "children's hospitals" from the reimbursement reduction.[3]

         The term "children's hospital" is not defined by Minnesota statute, but, as Olson points out, the language mirrors the federal designation of children's hospital.[4]Minnesota law defines "[h]ospital" as "a facility defined in section 144.696, subdivision 3, and licensed under sections 144.50 to 144.58." Minn. Stat. Ann. § 256.9686, subd. 6. In turn, Minnesota Statutes Annotated § 144.696 defines "[h]ospital" as "any acute care institution licensed pursuant to sections 144.50 to 144.58." A Minnesota hospital obtains its license from the Minnesota Commissioner of Health. Minn. Stat. Ann. §§ 144.51, 144.55.

         As drafter of the relevant language of the 2011 Amendment, Olson explains that MDHS has used the same legal definition of children's hospital, with the age-restriction language, since at least 1989. During the 1993 legislative session, MDHS used identical language to provide a nine-percent increase in MA funds to the three well-known children's hospitals, [5] while UMMC and other Minnesota hospitals were given a three-percent increase. Olson claims that the language was used again exclusively to exempt the three well-recognized Minnesota children's hospitals from the MA reimbursement reduction.

         Fairview Health Services of Minnesota owns and operates hospitals throughout Minnesota, one of which is UMMC, formerly known as Fairview University Medical Center. The University of Minnesota Children's Hospital, previously Amplatz Children's Hospital, is the children's unit at UMMC. UMMC is a licensed hospital, but the children's unit itself is not. Once the 2011 Amendment went into effect, UMMC and its children's unit were subjected to the ten-percent rate reduction. UMMC believed that the exemption for "children's hospitals" could be interpreted to include its children's unit.

         At some point in the fall of 2011, UMMC met with MDHS to discuss, among other things, the 2011 Amendment. The Assistant MDHS Commissioner at the time, Scott Leitz, and Director of Purchasing and Service Delivery, Mark Hudson, considered whether the children's unit at UMMC was exempt under the 2011 Amendment. Either immediately before or after this meeting, Hudson asked Olson whether the children's unit was exempt. According to Olson, he explained to Hudson that under the relevant law and legislative history, the children's unit was not exempt. Olson recounts that Hudson approached him two more times about the same issue, once in January 2012 and again in August 2012. Olson claims that Hudson stated that he was making the inquiry on behalf of Leitz and James Golden, the MDHS Deputy Assistant Commissioner.

         Olson responded to Hudson's August 2012 inquiry by email, explaining that because the children's unit at UMMC is a "hospital within a hospital" and does not have its own hospital license, it is not exempt under the 2011 Amendment. Olson then forwarded the email correspondence to the Deputy Medicaid Director and primary federal compliance attorney, who verbally warned Olson that "he should be careful" because Hudson, Leitz, and Golden are "not a management group that you said no to."

         In October 2012, Scott Masson, an MDHS employee, informed Olson that Leitz and Golden had met with "Amplatz reps" and "decided that Fairview/Amplatz will be removed from the 10% inpatient rate reduction." Masson told Olson that Golden and Hudson had ordered Rachel Cell, an MDHS payment processing director, to implement the exemption. Masson was directed to execute the changes in the payment system, retroactive to September 1, 2011. Masson told Olson that Amplatz reps confirmed that all of the claims that the reimbursement would cover were for inpatients under 18 years of age that were admitted to UMMC's children's unit. Because the exemption was applied retroactively, UMMC received a reimbursement check of approximately $500, 000. Olson claims to have witnessed verification of the reimbursement check on October 23, 2012. Olson also insists that only he, and not Leitz, Golden, or Hudson, had authorization to set MA rates for hospitals.

         Later, in July 2013, Olson expressed his concern over the UMMC exemption to MDHS Commissioner Lucinda Jesson. Olson also met with MDHS Internal Audit Director Gary Johnson and MDHS Office of the Inspector General Chief Legal Counsel Bridgid Dowdal. Johnson and Dowdal investigated Olson's claims by conducting an audit, and on October 1, 2013, Jesson received the completed audit report.

         Although the audit report found a "lack of clarity in the statutory definition of what constitutes a children's hospital, " it concluded that it did not appear that the decision to give UMMC's children's unit the exemption under the 2011 Amendment "was consistent with the law or how other similarly situated children's facilities are treated." The report further found that the decision to exempt UMMC's children's unit "appear[ed] to be contrary to prior internal policy determinations of what constitutes a children's hospital." In the investigation, Golden and Leitz admitted that UMMC approaching MDHS was a "driving factor" in UMMC's children's unit getting the exemption. The report indicated that Leitz almost exclusively handled the exemption decision. Ultimately, the report recommended that MDHS obtain a formal legal opinion on whether UMMC's children's unit should have been exempted under the 2011 Amendment.

         Per the report's recommendation, MDHS obtained a legal opinion. The opinion concluded that UMMC's children's unit likely should not have been excluded from the ten-percent rate reduction. Leitz sent a notice letter to UMMC explaining that MDHS was ending the exemption and would be issuing a notice of recovery once the overpayment was calculated. In May 2014, the Minnesota State Legislature amended § 256.969 to retroactively exempt all inpatients under 18 years of age at both UMMC and its children's unit from the ten-percent rate reduction.

         Olson filed his initial qui tam complaint against UMMC under seal on September 23, 2013. The State of Minnesota and the United States both declined to intervene. Since his initial filing, Olson has twice amended his complaint. His most recent complaint alleges that UMMC violated the MFCA and FCA by falsely claiming that UMMC's children's unit was a "children's hospital" under the 2011 Amendment.

         The district court dismissed Olson's claims pursuant to Federal Rule of Civil Procedure 12(b)(6). The court held that because the precise definition of "children's hospital" is unclear, UMMC's lobbying efforts to exempt its children's unit from the ten-percent MA rate reduction could not be characterized as a false claim under the MFCA or FCA. For similar reasons, the district court held that UMMC's individual claims for MA reimbursement did not give rise to liability under either the MFCA or FCA.

         II. Discussion

         The FCA has its genesis in the Civil War era. S. Rep. No. 99-345, at 8 (1986). President Lincoln signed the bill into law to rein in the "rampant fraud" of Civil War defense contractors. Id. Today, fraud remains a significant concern of the United States government. In 1986, Congress passed the False Claims Reform Act with the stated purpose of "enhanc[ing] the Government's ability to recover losses sustained as a result of fraud against the Government." Id. at 1. Congress noted that "the recent proliferation of cases among some of the largest Government contractors... necessitates modernization of the Government's primary litigative tool for combatting fraud; the False Claims Act (31 U.S.C. 3729, 3730)." Id. at 2. The False Claims Reform Act financially incentivized enforcement by private individuals in hopes that a coordinated effort between government and citizen would stem the defrauding of public funds. Id.

         Olson alleges that UMMC violated the FCA by (1) knowingly presenting or causing to be presented false or fraudulent claims for payment or approval; (2) knowingly making, using, or causing to be made or used, false records or statements material to false or fraudulent claims; (3) knowingly making, using, or causing to be made or used, false records or statements material to an obligation to pay or transmit money or property to the government, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the government; (4) and conspiring to commit a violation of the FCA. See 31 U.S.C.§ 3729(a)(1)(A), (B), (C), (G). Olson reiterates these claims under the MFCA.[6]

         We review de novo a district court's dismissal of an action pursuant to the heightened pleading standard applied to complaints of fraud under Federal Rule of Civil Procedure 9(b). Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir. 2011). In order to satisfy the pleading requirements of Rule 9(b), "the complaint must plead such facts as the time, place, and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result." U.S. ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006) (citations omitted). In other words, "the complaint must identify the who, what, where, when, and how of the alleged fraud." Id. (quotation and citation omitted).

         A. 31 U.S.C. ...

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