The opinion of the court was delivered by: Lamberth, District Judge.
This case comes before the Court on defendant Milestone Healthcare's (Milestone) motion to dismiss Relator's First Amended Complaint , the United States' statement of interest , Relators' response , and Milestone's reply . Upon consideration of the case, the parties' motions and responses, and the law, Milestone's motion to dismiss will be denied.
This case is part of the multi-district litigation of False Claims Act qui tam suits against HCA and various related entities. Relator alleges that the defendants — Columbia North Monroe Hospital (owned and operated by HCA), Milestone Healthcare (a management company), and unknown Does — manipulated patient stays to maximize reimbursement. Most hospital services are reimbursed on the basis of diagnostic codes. A patient's illness is assigned a diagnostic code (DRG), and the hospital receives a predetermined Medicare payment for treating the patient based on the average cost of treating that illness, regardless of the patient's length of stay or actual treatment cost. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1999 Rates, 63 Fed. Reg. 40,954, 40,955 (July 31, 1998) (codified at C.F.R. parts 405, 412, and 413). However, for about 10 DRGs, the reimbursement is made on a per diem basis, up to a maximum for that DRG. Id. at 40,974-75; 42 C.F.R. § 412.4(c),(f)(1). The per diem amount is based on a geometric mean length of stay, derived from the average patient stay for that DRG. If the patient remains in the hospital for the entire geometric mean length of stay, the hospital receives the maximum reimbursement. Relator alleges that defendants acted to keep patients in hospital care at North Monroe until they had reached the geometric mean length of stay, regardless of the medical suitability of that course of treatment. Milestone manages a rehabilitation center, to which Relator alleges patients were transferred after they had reached their length of stay, and Relator alleges that Milestone employees participated in the scheme to retain patients at the hospital. Milestone is exempt from the DRG system, and is reimbursed on a cost-basis for the rehabilitation services it provides. 63 Fed. Reg. at 40,954. Its reimbursement is not affected by the hospital's reimbursement. Id. at 40,983.
A. Pleading Fraud with Particularity
Milestone urges that Relator's First Amended Complaint fails to plead fraud with particularity, thus failing to satisfy the heightened pleading requirements of Fed.R.Civ.P. 9(b). Rule 9(b) requires the circumstances constituting fraud to be stated with particularity, and applies to FCA actions. United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1383 (D.C. Cir. 1981). The main purpose of Rule 9(b) is to ensure that defendants have adequate notice of the charges against them to prepare a defense. United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) counsels: "A court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Id. at 784. Furthermore, Rule 9(b) is mitigated by Rule 8's short and plain statement language, and the simplicity and flexibility contemplated by the rules must be taken into account when reviewing a complaint for 9(b) particularity. United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385-86 (D.C. Cir. 1981).
Relators' complaint describes a scheme of retaining patients in hospital care beyond the time in which they should have been transferred to rehabilitative care. Patients received acute medical care at North Monroe, and were transferred to the rehab unit for physical therapy. Milestone was paid a management fee by HCA for services provided in the rehab unit. First Amend. Compl. ¶ 24. Relator alleges that "[b]y failing or refusing to transfer a patient . . . until after the patient had reached the geometric mean (Average Length of Stay), regardless of the patient's ability to be transferred to such a unit, a hospital would receive more reimbursement than it is actually entitled to receive." Id. ¶ 17. The complaint alleges that Relator, who was employed as the medical director of the Milestone rehab unit, was instructed by hospital personnel not to transfer patients to the rehab unit until the geometric mean average length of stay had been reached, and names specific patients to whom this scheme was applied. Id. ¶¶ 19-21. This system was practiced and enforced by both North Monroe and Milestone employees. Id. ¶ 22. As a result of these extended hospital stays, cost reports and reimbursement claims to Medicare contained inflated costs. Id. ¶¶ 25-26. Relator indicates that this practice was widespread in the HCA system. Id. ¶¶ 22, 28.
These allegations meet the standard of pleading fraud with particularity. The complaint amply prepares defendants to meet the allegations contained in them. Rule 9(b) is mitigated by Rule 8's short and plain statement language, and the simplicity and flexibility contemplated by the rules must be taken into account when reviewing a complaint for 9(b) particularity. United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385-86 (D.C. Cir. 1981). Relators are required to set out the details of the specific scheme and its falsehoods, as well as supply the time, place, and content of false representations, and link that scheme to claims for payment made to the United States. United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002). This has been fulfilled. The complaint describes the time period during which the allegedly fraudulent acts were perpetrated, the identities of various parties involved, the specific schemes employed, and the inflated reimbursement claims and cost reports that resulted.
B. Milestone's Liability for ...