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).
The D.C. Circuit addressed how Rule 9(b) applies to qui tam cases in
United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542,
551-52 (D.C. Cir. 2002). The court noted that under 9(b) the
circumstances that must be pleaded with specificity
include "`time, place, and contents of the false representations.'" Id.
at 552 (citations and emphasis omitted). The relator in that case had
alleged only that non-conforming goods had been delivered, not that the
defendants had made false claims as a result of that delivery. Id. at
551. The court ruled that the relator "must set forth an adequate factual
basis for his allegations that the Contractors submitted false claims
. . ., including a more detailed description of the specific falsehoods
that are the ...