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United States ex rel. Davis v. District of Columbia

United States District Court, D. Columbia.

March 31, 2014

THE UNITED STATES OF AMERICA ex rel. MICHAEL L. DAVIS, Plaintiffs,
v.
THE DISTRICT OF COLUMBIA, Defendant

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[Copyrighted Material Omitted]

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For Michael L Davis, ex rel. UNITED STATES OF AMERICA, Plaintiff: Alex Chintella, Curtis Aaron Boykin, Frederick Arnold Douglas, LEAD ATTORNEYS, DOUGLAS & BOYKIN, PLLC, Washington , DC.

For District of Columbia, Defendant: Jane Drummey, LEAD ATTORNEY, OFFICE OF ATTORNEY GENERAL, Washington , DC.

For Maximus, Inc., Interested Party: Beth A. Wilkinson, Katherine Halpin Moor, LEAD ATTORNEYS, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Washington , DC.

For United States of America, Movant: Brian James McCabe, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Commercial Litigation Branch, Washington , DC.

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MEMORANDUM OPINION

JOHN D. BATES, United States District Judge.

Relator Michael L. Davis (" Davis" ), brings this qui tam action on behalf of the United States against defendant the District of Columbia (" the District" ), under the False Claims Act (" FCA" ), 31 U.S.C. § § 3729 et seq. Davis alleges that the District knowingly submitted false claims to the federal government for reimbursement of special education costs incurred by the District of Columbia Public Schools (" DCPS" ), because the District did not maintain legally required documentation to support its reimbursement requests. The parties have filed [101] cross-motions for summary judgment, and Davis has filed [108] a motion seeking leave to file a (lodged) sur-reply. For the reasons set forth below, the Court will grant in part and deny in part the parties' cross-motions for summary judgment, and grant Davis leave to file his sur-reply.

BACKGROUND

" It is common knowledge that Medicaid is a joint federal and state program that funds health care services for certain groups." United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 834, 400 U.S.App.D.C. 351 (D.C. Cir. 2012). " Less well known is the process by which Medicaid funds are disbursed through local government to agencies to care for those in need and the safeguards in place to make sure that the proper amounts of funds are provided for services properly rendered." Id. This case raises concerns about the cavalier process by which the District sought reimbursement for tens of millions of dollars in special education costs incurred by DCPS in the late 1990s.

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A. Regulatory Background

Medicaid funds medical services for low-income and disabled individuals, and is jointly administered and funded by federal and state government agencies. See 42 U.S.C. § § 1396a(a)(30)(A) & 1396d(b). The federal government generally bears a larger burden of the cost; its share is known as the " Federal Financial Participation" or " FFP" amount. 42 C.F.R. § 400.203. In the District, the federal share of Medicaid costs is approximately 70%, with the District picking up the remainder. See Def.'s Stmt. of Undisputed Material Facts (" Def.'s Stmt." ) [ECF No. 101-2] ¶ 2. At the federal level, the United States Department of Health and Human Services (" HHS" ) administers Medicaid. Id. ¶ 4. Internally, HHS has delegated its Medicaid administration responsibilities to another federal agency, called the Centers for Medicare and Medicaid Services (" CMS" ). Id.

Under federal Medicaid regulations, all states (and the District) must implement a " State Health Plan," specifying minimum criteria for coverage and payment of Medicaid claims. See 42 U.S.C. § 1396a(a)(30)(A). The District has implemented such a plan. See generally Ex. C to Def.'s Mot. for Summary J. (" Def.'s MSJ" ) [ECF No. 101]. CMS administers and supervises all state Medicaid programs, including the District's. Def.'s Stmt. ¶ 4. During the relevant time period, the District of Columbia agency responsible for administering the District's Medicaid program was called the Medical Assistance Administration (" MAA" ), which was a component of the District's Department of Health.[1] See 42 C.F.R. § 431.10.

Pursuant to the Medicare Catastrophic Coverage Act of 1998 and the Individuals with Disabilities Education Act (" IDEA" ), 20 U.S.C. § § 1400 et seq., health-related services provided to special-education children under the IDEA are generally reimbursable by Medicaid. Def.'s Stmt. ¶ 3. Every Medicaid-eligible child receiving services under this program must have an Individualized Education Plan (" IEP" ), which documents the specific services that child requires and certifies that each service is medically necessary. Id.

Under the District's Medicaid plan, DCPS is a certified clinical provider of IEP medical services for Medicaid-eligible special-education students. Def.'s Stmt. ¶ 6. DCPS provides both medical services (e.g., medication, counseling, speech therapy, etc.) and transportation services (e.g., busing students between school and a medical clinic). DCPS is considered a " public provider" under the District's Medicaid plan, because it is a local government agency, rather than a private entity. See 42 C.F.R. § 431.10. And DCPS provides what are categorized as " clinic services" to special-education students. See Ex. N to Pl.'s MSJ [ECF No. 99-17] (" District Medicaid Plan" ) § 9(b)(1). Under the terms of the District's Medicaid Plan, " public providers" of " clinic services," like DCPS, are entitled to reimbursement " for 100 percent of their reasonable costs of providing services to Medicaid beneficiaries." Def.'s Stmt. ¶ 8.

The process by which DCPS obtains reimbursement for providing special-education services to Medicaid-eligible children is also complicated. During the fiscal year, MAA reimburses DCPS on an ongoing basis for the estimated costs of special education services. Id. ¶ 9. MAA reimburses for these costs using generic " interim

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rates" on DCPS's " interim claims." Id. ¶ ¶ 9-10. MAA, in turn, submits quarterly expense reports to CMS, for which it obtains federal reimbursement of the amount owed to the District. Id. ¶ 11.

These " interim" Medicaid reimbursements are based on estimated, fixed payments for different categories of services (e.g., $40 for a doctor's visit, $10 for a bus ride), but they often do not reflect the actual cost of such services. See id. ¶ 12. Thus, at the end of each fiscal year, DCPS submits a reimbursement claim to MAA that includes the actual cost of all services provided. Id. " This annual filing of a reimbursement claim is similar to how a tax return reconciles an individual's withholdings throughout the year with proof of the actual tax owed at year end." Davis, 679 F.3d at 834. In other words, the interim payments DCPS has received throughout the year are subtracted from the year's actual costs, and the result is the amount of additional funds owed to--or owed by--DCPS. See Def.'s Stmt. ¶ 12.

Under the District's Medicaid plan, MAA must review these annual filings at least once every two years and determine whether DCPS is owed additional funds or, alternatively, must return any overpayment. See District Medicaid Plan § 9(b)(3). A private, independent auditor generally performs this function, hired by MAA to review DCPS's year-end cost settlement claims. Davis, 679 F.3d at 834. For this reason, federal Medicaid regulations require DCPS to maintain financial data based on audit-quality documentation that allows " proper determination of costs payable." 42 C.F.R. § 413.20(a); see also id. § 413.24(a). " To ensure that the claimed services were actually provided, auditors check for financial documentation and review student files for service-specific medical records or progress notes signed by the actual service provider." Davis, 679 F.3d at 834. Claims lacking the required service-specific documentation are not reimbursed. See, e.g., 42 C.F.R. § § 413.20, 413.24(a), 413.24(c).

B. Factual Background

Davis & Associates is an accounting firm in the business of assisting public entities in obtaining reimbursement for Medicaid-eligible medical services. The District hired Davis & Associates to prepare its year-end Medicaid reimbursement cost-settlement reports in fiscal years 1995, 1996, and 1997. Def.'s Stmt. ¶ 15. During those years, it apparently did so without incident. See id. During 1998, however, after Davis & Associates had begun work on the fiscal year 1998 claim, the District replaced it with another firm called Maximus (for reasons that the parties dispute, but are not relevant to resolving this case). Id. ¶ 17. Despite the District's hiring of Maximus, Davis & Associates completed the fiscal year 1998 work anyway (also for reasons that are not clear from the record). Id. ¶ 18. But DCPS never submitted the Davis & Associates claim to MAA. See id. ¶ 21. Instead, DCPS submitted the claim that had been prepared by Maximus. See id. ¶ 23. The 1998 Maximus claim was submitted in two parts, at two different times: first the medical services cost report (the " Maximus Cost Report" ), and then the transportation cost report (the " Maximus Transportation Report" and, collectively, the " Maximus Reports" ). Id. ¶ 24. The exact dates of submission are in dispute.

When Davis learned that DCPS was submitting the Maximus Reports to MAA, he contacted high-ranking District officials to notify them that only he had the required documentation to support DCPS's claims, meaning that the Maximus Reports could not possibly be documented adequately. See id. ¶ ¶ 27, 29. Davis also

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notified the District that he believed the Maximus Reports did not claim the full amount that was owed to DCPS. Id. ¶ 27. Despite these warnings, and despite the availability of several opportunities during the complicated reimbursement process in which such claims can be amended, DCPS made no adjustments to its claims for fiscal year 1998. In May 2000, MAA paid DCPS $10.3 million as a tentative settlement for fiscal year 1998. Id. ¶ 28.

Pursuant to federal regulations and the District's Medicaid plan, MAA hired an independent auditor, Bert Smith & Company (" Bert Smith" ), to review DCPS's claims for fiscal years 1996 through 1998. See id. ¶ 30. Among other problems, Bert Smith found--just as Davis had warned--that a large portion of DCPS's claims did not have adequate supporting documentation, and that DCPS should not have been reimbursed for at least $7.6 million of the $10.3 million it received as the settlement for fiscal year 1998. Id. ¶ 34. Indeed, the documentation was so sparse that Bert Smith could not even perform a traditional audit, and instead conducted what it described as an " agreed-upon procedures review." See id. ¶ 33. DCPS eventually returned that $7.6 million to the federal government. Id. ¶ 41.

C. Procedural Background

Davis filed this action on April 4, 2006, alleging that the District and DCPS violated the False Claims Act by submitting the fiscal year 1998 reimbursement claims without maintaining adequate supporting documentation. See Compl. [ECF No. 1]. Davis eventually filed an amended complaint, which alleges that the submission of the 1998 reimbursement claims without supporting documentation violated the FCA's prohibitions on knowingly presenting a false claim, Am. Compl. [ECF No. 82] ¶ 30, using a false statement to get a false claim paid, id. ¶ 37, and conspiring to get a false claim paid, id. ¶ 41. " Davis asserts that submitting a claim for Medicaid reimbursement that lacks the supporting documentation called for by regulation defrauds the United States because the government would not knowingly have paid such a claim." Davis, 679 F.3d at 835. Regarding damages, " Davis does not allege, however, that any claimed services were not provided or that any costs were exaggerated." Id. Davis also seeks civil penalties. Am. Compl., Prayer ¶ 2.

On December 23, 2008, this Court granted in part and denied in part the District's motion to dismiss. See United States ex rel. Davis v. District of Columbia, 591 F.Supp.2d 30 (D.D.C. 2008). The Court dismissed DCPS as a defendant, holding that it was " not a suable entity under the D.C. code." Id. at 40. The Court also dismissed Davis's treble damages and conspiracy claims, finding that he had not alleged any actual damage to the federal government. See id. at 39-40. At the motion-to-dismiss stage, however, the Court rejected the District's argument that the Court lacked subject-matter jurisdiction under the FCA, because Davis qualified as an " original source" of the information leading to the alleged fraud. See id. at 36-37.

The parties proceeded with discovery, and Davis filed an amended complaint. The parties ultimately filed cross-motions for summary judgment, in which the District renewed its argument that the Court lacked subject-matter jurisdiction because Davis did not qualify as an " original source." At the summary judgment stage, relying on United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 323 U.S.App.D.C. 61 (D.C. Cir. 1997), this Court agreed, and dismissed Davis's complaint for lack of subject-matter jurisdiction, holding that under Findley, he did not qualify as an

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" original source." See United States ex rel. Davis v. District of Columbia, 773 F.Supp.2d 21 (D.D.C. 2011), overruled and vacated, 679 F.3d 832, 400 U.S.App.D.C. 351 (D.C. Cir. 2012). The Court noted that the Supreme Court's decision in Rockwell International Corp. v. United States, 549 U.S. 457, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007), raised some questions about the continuing vitality of the D.C. Circuit's decision in Findley, but ultimately dismissed the complaint anyway, cautious not to " lightly infer an abrogation of settled precedent." Id. at 33 (internal quotation marks omitted).

The D.C. Circuit affirmed in part and reversed in part. Regarding subject-matter jurisdiction, the D.C. Circuit held that " the policy judgment upon which [Findley] relied contradicts Rockwell's rationale," Davis, 679 F.3d at 838, so in light of the Supreme Court's decision in Rockwell, the D.C. Circuit held that Davis " is an original source and that the district court has jurisdiction over his claims." Id. at 839. On the issue of damages, the D.C. Circuit agreed that, even if the District had submitted claims without proper supporting documentation, " [t]he government got what it paid for and there are no damages." Id. at 840. The D.C. Circuit did note, however, that Davis " still may be eligible to share in the statutory penalties assessed against the District," should he prove that the District made one or more false claims. Id.

Back before this Court, the parties filed renewed cross-motions for summary judgment. The District included an argument that the D.C. Circuit chose not to rule on: that Davis's claims are barred by the FCA's six-year statute of limitations. On the issue of damages, Davis suggested that he was entitled to a civil penalty (in the amount of $5,500 to $11,000) for every interim claim incorporated within the Maximus Reports. See Pl.'s Mot. for Summ. J. (" Pl.'s MSJ" ) [ECF No. 102] at 13. The District contested Davis's damages theory, and also argued--for the first time in its reply brief--that the Maximus Transportation Report is not a part of ...


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