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U.S. EX REL. McCREADY v. COLUMBIA/HCA HEALTHCARE CORP.

March 7, 2003

UNITED STATES OF AMERICA ex rel. CLINT McCREADY, M.D., Plaintiff,
v.
COLUMBIA/HCA HEALTHCARE CORP., et al., Defendants.



The opinion of the court was delivered by: LAMBERTH, District Judge.

MEMORANDUM OPINION

This case comes before the Court on defendant Milestone Healthcare's (Milestone) motion to dismiss Relator's First Amended Complaint [239], the United States' statement of interest [273], Relators' response [], and Milestone's reply [299]. Upon consideration of the case, the parties' motions and responses, and the

[251 F. Supp.2d 116]

      law, Milestone's motion to dismiss will be denied.

 I. Background

  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.

 II. Discussion

  A. Pleading Fraud with Particularity

  1. Legal Standard

  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

[251 F. Supp.2d 117]

      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 ...


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