Medicaid: United States ex. rel. Blundell v. Dialysis Clinic Inc.

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U.S. District Court, Northern District of New York

Medicaid

Fraud — Overpayments — Qui Tam Actions

United States ex. rel. Blundell v. Dialysis Clinic Inc.
09-CV-710
Judge Mordue

Background: On June 22, 2009, plaintiff Paul Blundell filed this qui tam action under seal in accordance with the provisions of the False Claims Act as a relator on behalf of the United States of America, the State of New York and the County of Onondaga. On July 10, 2009, the plaintiff filed an amended complaint under seal. The plaintiff asserted claims based upon the federal FCA and the New York State False Claims Act, §§188-194 of the New York State Finance Law. On Feb. 24, 2010, the United States filed its Notice of Election to Decline Intervention and on the same day, the complaint was unsealed. On April 21, 2010, the plaintiff served the defendant. Presently before the court is a motion by the plaintiff for leave to file a second amended complaint and motions by defendant for dismissal.
The plaintiff made the following factual and legal averments: Dialysis Clinic Inc. is a dialysis treatment center with over 200 outpatient dialysis facilities in the United States. The plaintiff, a resident of Liverpool, N.Y., was employed at DCI’s University Dialysis Center from August 2007 until October 2008 as a staff nurse, team leader and charge nurse. Dialysis is a method of treating End Stage Renal Disease.
The federal Medicare program provides coverage for most individuals who are diagnosed with ESRD and organizations that provide these services are eligible for Medicare. During the plaintiff’s employment with defendant, he questioned DCI’s documentation of dialysis treatment, which implicated billing issues for Medicare, Medicaid and Veterans’ Administration patients. The plaintiff was not directly involved in the billing procedures and did not have access to the bills that were submitted for government reimbursement. In 2008, the New York State Office of the Medicaid Inspector General conducted an audit and reviewed payments made from the New York State Medicaid Program to defendant from Jan. 1, 2004 through Dec. 31, 2005. The audit revealed sample overpayments in the amount of $4,171 resulting in a “mean per unit point” estimate of $160,508 and provided for repayment options. 
The plaintiff’s employment with DCI ended two weeks before the audit report was issued and the plaintiff was not aware of the audit report until after the report was posted on the Internet. In the amended complaint, the plaintiff alleges that DCI failed to comply with the New York State Public Health Law Regulations governing the operation of dialysis facilities and Title 42 of the Code of Federal Regulations, Public Health, Part 405, Subpart U-Conditions of Coverage of Suppliers of End-State Renal Disease Services.

Ruling: The issue examined under the FCA is whether the defendant presented a “false” or “fraudulent claim” to the government. The court states that it will accept the second amended complaint and deem it filed as there is no prejudice to the defendant. As to the defendant’s contention that the relator is simply bringing a lawsuit based on an audit and other information that was already brought into public view, and thus not a proper subject for a private suit under the False Claims Act, the court finds that the plaintiff’s allegations are distinct and separate theories of liability that are not set forth, “based upon”, or even referenced, in the audit report. “While the Audit Report and the plaintiff’s second amended complaint may overlap with respect to the “general subject matter”, i.e. Medicare/Medicaid billing, the allegations in the second amended complaint are not “substantially similar” to the publicly disclosed material. The defendant’s motion for dismissal on this ground is thus denied.
The court then notes that it must address the issue of whether the plaintiff’s allegations merit a fourth opportunity to plead fraud with particularity. “Here, the plaintiff has already filed three complaints and failed to comply with the 12(b)(6) pleading standards and the stricter requirements of 9(b).  An analysis of the second amended complaint and the legal theories upon which it is based establishes that the shortcomings could not be cured by amendment,” concludes the court. The plaintiff’s employment with the defendant ended over two years ago. Thus, it is “highly unlikely that he would be able to plead fraud with any particularity” even if he was given another opportunity to amend. The complaint is therefore dismissed.

Charles E. Roberts of the U.S. Attorney’s Office and Peter Henner for relator Blundell; Michael J. Murphy for the defendant