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United States of America, Ex Rel. v. District of Columbia

March 29, 2011

UNITED STATES OF AMERICA, EX REL.
MICHAEL L. DAVIS, PLAINTIFF,
v.
DISTRICT OF COLUMBIA, DEFENDANT.



The opinion of the court was delivered by: John D. Bates United States District Judge

MEMORANDUM OPINION

Plaintiff Michael L. Davis ("plaintiff" or "relator") brings this qui tam action on behalf of the United States under the False Claims Act, 31 U.S.C. §§ 3729 et seq. ("FCA" or "the Act"), alleging that the District of Columbia ("the District" or "defendant") and the District of Columbia Public Schools ("DCPS") violated the Act by submitting a Medicaid reimbursement claim for fiscal year 1998 without maintaining adequate supporting documentation. Presently before the Court are [87] plaintiff's motion for summary judgment, and [88] the District's motion to dismiss or, in the alternative, for summary judgment. Because plaintiff's claims are based upon a "public disclosure" and plaintiff does not qualify as an "original source" under the language of the FCA in effect at the relevant time, the Court will grant defendant's motion to dismiss for lack of subject matter jurisdiction.

BACKGROUND

In 1995, the District awarded a contract to Health Management Systems ("HMS") to design and implement a Medicaid Reimbursement Recovery Program for the DCPS Special Education Program. Am. Compl. [Docket Entry 82] ¶ 10. Plaintiff's firm, Davis & Associates ("D&A"), worked as a subcontractor to HMS. Id. ¶¶4, 11. As a HMS subcontractor, D&A was responsible for collecting data, maintaining necessary documentation, and preparing Medicaid reimbursement claims ("cost claims") for the services that DCPS provided to special education students. Id. ¶11. At the end of 1998, the District told D&A that the D&A/HMS contract would not be renewed, and that it had hired Maximus Corporation ("Maximus") to prepare future DCPS cost claims. Id. ¶12; see also Personal Disclosure Statement of Michael L. Davis ("Personal Disclosure Statement") at 1. D&A still prepared the cost claim for fiscal year 1998, totaling approximately $67 million, which it submitted to DCPS in June 1999. See Am. Compl. ¶¶13-14; Def.'s Mot. to Dismiss or for Summ. J. ("Def.'s Mot.") [Docket Entry 88], Ex. A. D&A retained all of the documentation needed to substantiate the 1998 cost claim. Am. Compl. ¶ 14.

Shortly after receiving D&A's cost claim, Donald Rickford, the Chief Financial Officer of DCPS, told D&A that he would not be forwarding the cost claim to the Medical Assistance Administration ("MAA") for reimbursement given the "substantial amount of work that remains to be done on the project." Def.'s Mot., Ex. B. According to Rickford, the D&A cost claim did not "effectively capture outstanding moneys due to DCPS because of the lack of documentation provided and the methodology used." Id. Rather than submit the D&A cost claim to MAA, DCPS asked Maximus to prepare another cost claim for fiscal year 1998. Am. Compl. ¶15. In or around January 2000, DCPS submitted the revised Maximus cost claim -- in the amount of approximately $11 million -- to MAA. Id.; see also Pl.'s Opp. to Def.'s Mot. to Dismiss or for Summ. J. ("Pl.'s Opp.") [Docket Entry 90], Ex. A ("Maximus FY 98 Cost Report").*fn1

Medicaid is funded jointly by states and the federal government, and MAA is the state agency that administered the District's Medicaid program at the time relevant to this suit. See Def.'s Mot., Ex. D ("CMS Report") at 3. During this time-period, MAA submitted quarterly reports to the Centers for Medicare and Medicaid Services ("CMS"), the federal agency that oversees all state Medicaid programs. Id. These reports set forth the District's Medicaid expenditures -- including those of DCPS -- as well as the District's claim for the federal portion of Medicaid reimbursement, known as Federal Financial Participation ("FFP"). Id. The services that DCPS provides to special needs children pursuant to Individualized Education Plans fall under the Medicaid coverage category of "clinic services," meaning that DCPS is reimbursed for the cost of these services on an interim basis throughout the year. See id. at 4; see also Def.'s Mot., Ex. C ("District Medicaid State Plan") at 10. However, at the end of each fiscal year, DCPS would submit a cost claim to MAA -- i.e., the Maximus FY 98 Cost Report at issue here --which would "allow MAA to determine what DCPS's actual costs were for providing the services that were already billed and paid on an interim basis." CMS Report at 4; Am. Compl. ¶ 13.1.

MAA would then work with an auditing firm to review and validate the annual DCPS cost claim so that only allowable costs would be included in the final cost settlement. See CMS Report at 4; see also District Medicaid State Plan at 11. Once MAA and its auditors computed DCPS's actual, recoverable costs, MAA would reconcile these costs with the interim payments that had already been made, and refund the federal share of any overpayment to CMS through a credit on the District's quarterly report. See CMS Report at 4-6; 42 C.F.R. § 433.320; Def.'s Mot., Ex. E ("2002 Audit") at 8 (explaining that "MAA will review or audit the cost report no less than once every two years, determine DCPS' final actual and reasonable costs, and complete the settlement by paying the balance due to DCPS or collecting the amount owed by DCPS").

When D&A learned that DCPS had submitted the Maximus FY 98 Cost Report to MAA, it contacted Rickford to inform him that Maximus lacked the requisite documentation to support the cost claim, since the documentation was still in D&A's possession. See Am. Compl. ¶ 16; Personal Disclosure Statement at 2. D&A also told Rickford that the $11 million Maximus cost claim did not reflect the full amount of Medicaid reimbursement owed to DCPS. Am. Compl. ¶ 16. According to plaintiff, Rickford and another District official assured D&A that the Maximus cost claim would be corrected and re-submitted by September 2001. Id. ¶ 17. However, no corrected cost claim was ever submitted. Instead, in May 2000, MAA paid DCPS $10,335,893 in FFP funds as a "tentative settlement determination of program reimbursement" for the 1998 fiscal year, and informed DCPS that the payment would be adjusted after MAA's auditor, Bert Smith and Company ("Bert Smith & Co."), had finished reviewing DCPS's cost information for fiscal years 1996 through 1998. See Pl.'s Opp., Ex. C; see also Pl.'s Mot. for Summ. J. ("Pl.'s Mot.") [Docket Entry 87], Ex. G (same); Am. Compl. ¶ 20.1.

Bert Smith & Co. did not complete its review of DCPS's 1996-1998 Medicaid cost information until 2001. See 2002 Audit at ii; see also Pl.'s Mot., Ex. H ("Bert Smith & Co. Reports") at 2, 16. Because DCPS lacked certain requested information, Bert Smith & Co. was unable to conduct a formal audit, and had to apply somewhat less stringent "agreed-upon review procedures" to evaluate DCPS's cost claims. See CMS Report at 4; see also Bert Smith & Co. Reports at 1-2, 15-16. Ultimately, the Bert Smith & Co. auditors disallowed many of DCPS's costs due to the absence of supporting documentation. See CMS Report at 4; see also Bert Smith & Co. Reports at 7, 10, 13, 19. In 2001, MAA advised the CMS Regional Office of the auditors' finding "that DCPS had included, in their 96-98 cost reports, cost items . . . for which DCPS did not have the required service-specific documentation." CMS Report at 3. The Office of the District of Columbia Auditor also described the District's Medicaid documentation difficulties in an August 2002 report entitled "D.C. Public Schools' Medicaid Revenue Recovery Operations Require Substantial Improvements." See 2002 Audit at ii. As that report explained, "the Medicaid audits for fiscal years 1996 through 1998 . . . revealed that $15 million of costs incurred for services rendered to special education students were disallowed for Medicaid reimbursement due to the absence or unavailability of supporting documentation." Id.

In February 2003, CMS undertook its own onsite financial review of DCPS's cost claims for fiscal years 1996 through 1998. See CMS Report at 1. After conducting that review, CMS determined that in light of DCPS's "incomplete and insufficiently detailed cost information," the auditors had "applied sensible, practical testing and conservative judgments to determine allowable Medicaid costs." Id. at 5. CMS therefore instructed MAA to "finalize the cost settlements proposed by the auditors and refund the Federal share of the overpayments to CMS." Id. at 6. MAA subsequently refunded $7,601,381 in FFP funds to CMS for fiscal year 1998, in accordance with the auditors' recommendation. Id.; see also Am. Compl. ¶ 20.3.

Plaintiff filed this qui tam action against the District and DCPS in April 2006, alleging that DCPS's submission of the Maximus FY 98 Cost Report to MAA without maintaining supporting documentation violates Medicaid cost reimbursement regulations and therefore constitutes a "false claim" under the FCA.*fn2 In 2005, prior to filing suit, plaintiff sent letters notifying both the U.S. Department of Health and Human Services and the U.S. Department of Justice of the District's alleged fraud. See Def.'s Mot., Ex. I. Plaintiff also complied with FCA procedures requiring qui tam actions to be filed under seal to permit the United States to intervene. See 31 U.S.C. § 3730(b)(2). However, in October 2007, the United States declined to intervene and asked that plaintiff be allowed to prosecute the action as a relator. See Government's Notice of Election to Decline Intervention [Docket Entry 16]. The Court subsequently unsealed the complaint and ordered that it be served on the District and DCPS.

The District and DCPS responded with a motion to dismiss, arguing that (1) the Court lacked subject matter jurisdiction because plaintiff's suit was based upon publicly-disclosed allegations or transactions and plaintiff was not an original source under the FCA; (2) plaintiff failed to plead fraud with particularity as required by Fed. R. Civ. P. 9(b); (3) plaintiff failed to state a claim for treble damages; (4) plaintiff failed to state a claim for conspiracy under 31 U.S.C. § 3729(a)(3); (5) the fiscal year 1998 cost claim was not "false"; and (6) DCPS is not a suable entity. See Defs.' Mot. to Dismiss [Docket Entry 23]; Defs.' Reply [Docket Entry 27]. The Court granted in part and denied in part the motion to dismiss. See United States ex rel. Davis v. Dist. of Columbia, 591 F. Supp. 2d 30, 33 (D.D.C. 2008). With respect to subject matter jurisdiction, the Court concluded that plaintiff's claims were based upon a public disclosure (namely, the August 2002 audit report), but that plaintiff was an original source under the FCA, thereby providing the Court with jurisdiction. Id. at 35-37. The Court also concluded that plaintiff had satisfied the heightened pleading requirements for fraud under Fed. R. Civ. P. 9(b), but dismissed plaintiff's conspiracy claim under 31 U.S.C. § 3729(a)(3). Id. at 37-38, 40. The Court dismissed plaintiff's claim for treble damages on the ground that plaintiff had failed to allege that the Government suffered any damages as a result of the District's fraud. Id. at 37-40. Finally, the Court granted plaintiff's request to dismiss DCPS as a defendant. Id. at 40.

Since this Court's 2008 decision, the parties have completed discovery and plaintiff has filed an amended complaint, providing additional details as to DCPS's allegedly fraudulent submission of the Maximus FY 98 Cost Report to MAA. See, e.g., Am. Compl. ¶¶ 20.1-20.3. In his amended complaint, plaintiff asserts that DCPS's submission of the 1998 cost claim without supporting documentation violates 31 U.S.C. § 3729(a)(1) (prohibiting the knowing presentation of a false or fraudulent claim for payment); § 3729(a)(2) (prohibiting the knowing use of a false record or statement material to a false or fraudulent claim); and § 3729(a)(3) (prohibiting conspiracy to violate the FCA).*fn3 Id. ΒΆΒΆ 28-42. Plaintiff also renews his request for treble damages, arguing that CMS's eventual recoupment of FFP funds from the DCPS fiscal year 1998 cost claim shows that the federal government did, in fact, sustain actual damages as a result of the District's fraud. See id., Prayer at p. 9; see also Pl.'s Mot. at 11-13. Now before the Court are plaintiff's motion for summary judgment, and defendant's motion to dismiss for lack of subject matter jurisdiction or, in the alternative, for summary judgment. In its motion, defendant reiterates its prior argument that the Court lacks subject matter jurisdiction because this suit is based upon a public disclosure and plaintiff is not an original source. Defendant also argues that summary judgment is ...


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