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United States ex rel. Gacek v. Premier Medical Management Inc.

United States District Court, S.D. Alabama, Southern Division

June 30, 2017

UNITED STATES OF AMERICA, ex rel. MARK R. GACEK, SR., Plaintiff,
v.
PREMIER MEDICAL MANAGEMENT, INC., d/b/a PREMIER MEDICAL GROUP, Defendant.

          ORDER

          WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on defendant's Motion to Dismiss (doc. 31). The Motion has been extensively briefed via two full rounds of briefing (see docs. 31, 37, 41, 44) and is now ripe for disposition.

         I. The First Amended Complaint.

         A. Nature of the Case.

         This is a qui tam action[1] brought by relator, Mark R. Gacek, Sr., M.D., on behalf of the United States and against named defendant, Premier Medical Management, Inc. (“Premier”), alleging multiple violations of the False Claims Act, 31 U.S.C. §§ 3729 et seq. (the “FCA”).[2] According to the well-pleaded allegations of the First Amended Complaint (doc. 21), Gacek is a former physician employee of, and former partner in, Premier, which is characterized as “one of the largest multi-specialty eye, ear, nose, and throat groups in the southeastern United States.” (Doc. 21, ¶¶ 11-14.) Gacek worked for Premier from 1997 until April 2013, at which time his employment was terminated for “repeatedly complaining about healthcare fraud and unethical medical practices” at Premier. (Id., ¶¶ 15-16.)

         The bulk of the 31-page, 133-paragraph First Amended Complaint is devoted to setting forth the details of Premier's alleged fraudulent schemes, Gacek's unsuccessful efforts to stop them, and the termination of his employment. (Doc. 21, ¶¶ 17-122.) On the strength of these factual allegations, Gacek identifies five causes of action, all alleging violations of the FCA. In Count I, Gacek asserts that Premier knowingly presented, or caused to be presented, false or fraudulent claims for payment or approval, in violation of 31 U.S.C. § 3729(a)(1)(A) and/or § 3729(a)(1), thereby damaging the Goverment. (Id., ¶¶ 114-15.) In Count II, Gacek alleges that Premier knowingly made, used or caused to be made or used false records or statements material to false or fraudulent claims, in violation of 31 U.S.C. § 3729(a)(1)(B) and/or § 3729(a)(2), thereby damaging the Government. (Id., ¶¶ 117-20.) Count III is a claim of retaliation pursuant to 31 U.S.C. § 3730(h), alleging that Premier terminated Gacek's employment because of his lawful efforts to stop Premier's violations of the FCA. (Id., ¶¶ 122-23.) In Count IV, Gacek brings a claim of conspiracy, alleging that Premier conspired to violate the FCA “with regard to the performance of RAST procedures, ” in violation of 31 U.S.C. § 3729(a)(1)(C) and/or § 3729(a)(3), thereby damaging the Government. (Id., ¶¶ 125-26.) Finally, Count V is a “reverse false claims” cause of action alleging that Premier failed to reimburse the Government for payments made by the Government for services procured in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b). In particular, Count V alleges that an unlawful internal kickback scheme for patient referrals among certain Premier physicians and staff created an obligation for Premier to reimburse the Government for payments received for services performed pursuant to those referrals. By failing to reimburse those funds, the Complaint alleges, Premier violated the FCA, and specifically 31 U.S.C. § 3729(a)(1)(G) and/or § 3729(a)(1)(7).

         The Amended Complaint describes three specific schemes on which these claims are predicated. The factual allegations concerning each such scheme will be summarized separately.

         B. Medically Unnecessary Allergy Testing.

         Gacek alleges that, beginning in 2000 and continuing through the present, he observed Premier physicians “routinely” subjecting young patients to an allergy blood test known by the acronym RAST. (Doc. 21, ¶ 18.) The Amended Complaint identifies certain shortcomings of RAST as a diagnostic test in the ordinary case (i.e., high cost, long wait times, lack of sensitivity as compared to skin test alternative) and explains why such testing is generally inappropriate for very young children. (Id., ¶¶ 20-25.) Notwithstanding these considerations, Gacek alleges that Premier “regularly and routinely performed RAST because RAST was more profitable than skin testing because Premier Medical could bill and receive payment from the Government on a higher volume.” (Id., ¶ 27.) Thus, one scheme alleged in the Amended Complaint is that Premier routinely presented false claims and made false statements to the Government “by billing and receiving payment for medically unnecessary RAST.” (Id.)

         As evidence of this purportedly false and fraudulent practice, the Amended Complaint attaches an October 2012 internal e-mail that purportedly demonstrates Premier's efforts to determine “which allergy test would yield the biggest economic gain, ” without regard to medical need or patient symptoms. (Id., ¶¶ 28-30.) Gacek alleges that RAST was found to be “more profitable because it could be performed in higher volumes, ” and that after reaching that conclusion, Premier “used/uses RAST in the vast majority of all allergy testing.” (Id., ¶¶ 32-33.) According to the Amended Complaint, Premier double-billed the Government for both RAST and skin tests in connection with the October 2012 trial tests despite awareness “that both forms of allergy testing were not medically necessary, ” and that Gacek's objections to this practice were ignored. (Id., ¶¶ 34-35, 40.) The Amended Complaint further documents the scheme by recounting a 2010 conversation in which Premier physicians indicated they “could also bill the Government for RAST” along with certain surgical procedures in order to increase revenues because Medicare/Medicaid reimbursement on surgeries was lower than that of private insurers. (Id., ¶ 38.) Gacek alleges that Premier routinely performed RAST in surgical procedures from 2010 onward, and presented false claims and made false statements to the Government, but that the allegedly false claims/statements and the specific information contained therein “are in the exclusive control of Premier Medical.” (Id., ¶ 39.) As an example, Gacek provides operative reports dated May 23, 2014 and May 30, 2014, showing instances in which Premier physicians administered RAST in connection with surgeries on very young patients. (Id., ¶¶ 42-43 & Exhs. 1-2.) All told, Gacek estimates that from 2000 through 2013, Premier billed $30, 000-$50, 000 per month for medically unnecessary RAST, and identifies four specific physicians involved in such a scheme. (Id., ¶¶ 46.)

         C. Up-Coding of Medical Procedures.

         The second form of scheme set forth in the Amended Complaint involves Premier's alleged practice of “up-coding medical services for the purpose of fraud.” (Doc. 21, ¶ 48.) Gacek states that Premier “routinely up-coded” facial cosmetic work and selective neck dissections more than 80% of the time “to obtain higher reimbursements per procedure.” (Id., ¶ 49.) As a specific example, the Amended Complaint documents an October 2006 incident in which a private insurer requested immediate reimbursement of $250, 000 for facial cosmetic work (specifically, skin-tightening treatments) that Premier physicians had “up-coded and billed as Rosacea treatments in order for Premier Medical to obtain higher reimbursement.” (Id., ¶¶ 51-58.) Although the specific incident involved a private insurer, Gacek was told by one Premier physician that other Premier physicians were concerned that “Medicare, Medicaid, and other private insurance companies” would likewise discover the up-coding and request repayment. (Id., ¶ 59.) At that time, Premier took no steps to “self-report[] the fraud to Medicare, Medicaid, or other private insurance companies.” (Id., ¶ 60.)

         Another type of up-coding that Gacek alleges relates to selective neck dissections, in which cancerous lymph nodes are removed. (Id., ¶¶ 62-64.) From 2000 through April 2013, the Amended Complaint alleges, Premier physicians fraudulently up-coded certain neck dissection procedures as other, more invasive procedures “on a routine basis in order for Premier Medical to obtain a higher reimbursement.” (Id., ¶¶ 63, 65.) For instance, Gacek points to a patient named F.H., whose post-operative report in December 2004 reflected that a Premier physician had performed an invasive form of neck dissection when in fact a less invasive procedure (subject to lower reimbursement) had been done, and “[u]pon information and belief Premier billed and received payment from Medicare for the more invasive procedure. (Id., ¶¶ 68-77.) Gacek indicates that the fraudulently billed claims or statements, and the specific information contained therein, “are in the exclusive control of Premier Medical.” (Id., ¶ 77.) Gacek also discusses the example of patient R.B., as to whom Premier billed Medicare for an emergency surgery to clear an airway blockage in December 2010 when in fact there was no blockage and no need for emergency surgery. (Id., ¶¶ 78-86.) Gacek characterizes this as fraudulent up-coding, and alleges “[u]pon information and belief” that Premier billed Medicare and received payment from the Government; however, Gacek also states that the fraudulently billed claims or statements, and the specific information therein, “are in the exclusive control of Premier Medical.” (Id., ¶ 86.)

         D. Kickbacks and Retaliation.

         The third type of fraudulent scheme discussed in the Amended Complaint is an alleged “kickback scheme” pursuant to which certain Premier physicians “paid cash gifts” to front desk personnel / appointment clerks “for scheduling more patient appointments on the doctors' respective calendars.” (Doc. 21, ¶¶ 89-90.) This scheme is alleged to have been “going on for several months” as of November 2010. (Id., ¶ 89.) A front desk clerk named Cassandra apprised Gacek of the scheme, so Gacek confronted the supervising doctor. Shortly thereafter, Cassandra and certain non-physician employees involved in the kickbacks were fired. (Id., ¶¶ 92-93.) According to the Amended Complaint, this scheme resulted in Premier “billing Medicare for tainted and illegal procedures, ” and receiving payment “from the Government for services performed pursuant to illegal referrals in violation of the Anti-Kickback Statute.” (Id., ¶ 94.) When Premier learned what had happened, Premier “failed to pay back to the Government money and/or funds it received as reimbursement payments from Medicare” relating to those tainted and illegal procedures. (Id., ¶ 95.) Gacek alleges that fraudulent claims or statements, and the specific information therein, are “in the exclusive control of Premier Medical.” (Id.)

         The Amended Complaint alleges that Premier fired a nurse in January 2013 for complaining about the improper up-coding of medical services. (Id., ¶ 102.) Moreover, Gacek alleges that he had numerous meetings with Premier executives (including both the CEO and the Doctor Manager) in 2011 and 2012 to discuss his concerns about unnecessary tests, up-coded billings, and the kickback scheme. (Id., ¶¶ 97-101.) In January 2013, Premier requested Gacek's resignation. (Id., ¶ 103.) When he declined to resign, Premier terminated his employment via open vote at a special shareholder meeting, effective April 20, 2013. (Id., ¶¶ 104-06.) The Amended Complaint alleges that Gacek's discharge “was a direct result of speaking out about Premier Medical fraudulent billing practices, ” as described above. (Id., ¶ 107.)

         II. Applicable Legal Standards.

         Premier now moves for dismissal of the Amended Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., for failure to state a claim upon which relief can be granted. Premier argues that the Amended Complaint is procedurally improper and should be dismissed for noncompliance with Rule 15(a), Fed.R.Civ.P. It asserts that the retaliation claim set forth at Count III is time-barred. And it contests the sufficiency of Counts I, II, III, IV and V to state actionable claims under the False Claims Act and governing pleading standards.

         Ordinarily, to withstand Rule 12(b)(6) scrutiny and satisfy Rule 8(a), a plaintiff need only plead “enough facts to state a claim to relief that is plausible on its face, ” so as to “nudge[] [its] claims across the line from conceivable to plausible.” Bell Atlantic Co. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). “This necessarily requires that a plaintiff include factual allegations for each essential element of his or her claim.” GeorgiaCarry.Org, Inc. v. Georgia, 687 F.3d 1244, 1254 (11th Cir. 2012). Thus, minimum pleading standards “require[] more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. As the Eleventh Circuit has explained, Twombly / Iqbal principles require that a complaint's allegations be “enough to raise a right to relief above the speculative level.” Speaker v. U.S. Dep't of Health and Human Services Centers for Disease Control and Prevention, 623 F.3d 1371, 1380 (11th Cir. 2010) (citations omitted). “To survive a Rule 12(b)(6) motion to dismiss, the complaint does not need detailed factual allegations … but must give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Randall v. Scott, 610 F.3d 701, 705 (11th Cir. 2010) (citations and internal quotation marks omitted).

         Notwithstanding this general pleading standard, the parties correctly recognize that the heightened standard of Rule 9(b) also applies to Gacek's fraud-based FCA claims. See, e.g., United States ex rel. Matheny v. Medco Health Solutions, Inc., 671 F.3d 1217, 1222 (11th Cir. 2012) (complaint alleging violations of the FCA “must comply with Rule 9(b)'s heightened pleading standard”); United States ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1308-09 (11th Cir. 2002) (“we now make clear that Rule 9(b) does apply to actions under the False Claims Act”). “A False Claims Act complaint satisfies Rule 9(b) if it sets forth facts as to time, place, and substance of defendants' allegedly fraudulent acts, when they occurred, and who engaged in them.” Hopper v. Solvay Pharmaceuticals, Inc., 588 F.3d 1318, 1324 (11th Cir. 2009) (citations and internal quotation marks omitted). “If Rule 9(b) is to carry any water, it must mean that an essential allegation and circumstance of fraudulent conduct cannot be alleged in … conclusory fashion.” Clausen, 290 F.3d at 1313. In the FCA context, the objective of Rule 9(b) is to “alert[] defendants to the precise misconduct with which they are charged and protect[] defendants against spurious charges.” Matheny, 671 F.3d at 1222 (citation omitted).

         Of course, the Rule 9(b) particularity requirement “must be read in conjunction with Federal Rule of Civil Procedure 8's directives that a complaint need only provide a short and plain statement of the claim, ” and courts considering motions to dismiss for failure to plead fraud with particularity “should always be careful to harmonize the directives of [R]ule 9(b) with the broader policy of notice pleading found in Rule 8.” Hill v. Morehouse Medical Associates, Inc., 2003 WL 22019936, *3 (11th Cir. Aug. 15, 2003) (citations and internal quotation marks omitted). In other words, the two pleading standards are considered together, such that “[i]n an action under the False Claims Act, Rule 8's pleading standard is supplemented but not supplanted by Federal Rule of Civil Procedure 9(b).” Urquilla-Diaz v. Kaplan University, 780 F.3d 1039, 1051 (11th Cir. 2015).

         III. Analysis.

         A. Whether the First Amended Complaint Violates Rule 15(a).

         As an initial matter, Premier argues that the Amended Complaint must be dismissed in its entirety as violative of Rule 15(a) of the Federal Rules of Civil Procedure. Gacek filed his Amended Complaint (doc. 21) on November 3, 2016, more than two years after filing his original Complaint (doc. 2) on July 23, 2014. He neither requested nor obtained leave of court to file the Amended Complaint; rather, plaintiff proceeded under Rule 15(a)(1), which provides that “[a] party may amend its pleading once as a matter of course within … 21 days after service of a responsive pleading or … a motion under Rule 12(b), (e), or (f), whichever is earlier.” Rule 15(a)(1)(B), Fed.R.Civ.P. Premier insists that Rule 15(a)(1)(B) is inapplicable and that Gacek could not amend his complaint as a matter of course until after Premier filed a responsive pleading or Rule 12(b) motion, which did not happen until March 27, 2017. Thus, Premier's position is that no right to amend once as a matter of course exists under Rule 15(a)(1)(B) until a motion to dismiss or Rule 12(b) motion is filed. (Doc. 41, at 14 (“the rule allows a plaintiff to amend its complaint as a matter of course within a 21 day window that begins on the date of service of the defendant's answer or motion to dismiss”).)

         Defendant's interpretation lacks supporting case citations. Moreover, it is fundamentally inconsistent with the longstanding practice in this District Court, pursuant to which plaintiffs are routinely permitted to amend their complaints once as a matter of course at any time from the date they are filed until a date 21 days after service of a responsive pleading or motion to dismiss. Under defendant's reading of Rule 15(a)(1)(B), a plaintiff wanting to amend his complaint one day after filing it must wait until a responsive pleading is filed before the Federal Rules of Civil Procedure would allow him to file an amended complaint as a matter of course. That is not what Rule 15(a)(1)(B) says.[3] Premier's construction would be terribly inefficient, because a defendant might go to the trouble of preparing and filing a lengthy Rule 12(b) motion to attack a defect in the complaint that the plaintiff already intended to correct by amendment, but that the plaintiff was prohibited from correcting as a matter of course until a 21-day window opened after said Rule 12(b) motion was filed. Such a prohibition on pre-answer amendments as a matter of course would make no sense. And it ...


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