By David Yucht, J.D.
A federal district court in Texas found that a former employee of a medical provider insufficiently plead causes of action against his prior employer, related entities and physicians for violating the False Claims Act (FCA). The court determined that his allegations, which impermissibly grouped together individual entities and were not based on personal knowledge, were not made with the specificity and particularity required in fraud actions. Moreover the court dismissed with prejudice claims against certain entities that had not yet opened until after the ex-employee’s departure, and a claim against a physician against whom there were no factual allegations in the complaint (U.S. ex rel. Park v. Legacy Heart Care, LLC, October 26, 2018, Scholer, K.).
Background. Legacy Heart Care, LLC (LHC) is a provider of Enhanced External Counterpulsation (EECP), an outpatient treatment for severe angina. According to a former employee, LHC and other related entities and physicians engaged in a scheme to bill Medicare for unnecessary treatments by certifying patients who did not meet Medicare criteria. LHC allegedly asked other providers to certify most patients seeking treatment and paid kickbacks for referrals. The ex-employee also alleged that LHC systematically up-coded services. He sued alleging violations of the FCA involving unnecessary treatment, up-coding and billing for services never performed, and conspiracy and kickbacks. LHC’s motion to dismiss was granted.
No FCA conspiracy found. The court determined that the former employee failed to allege a scheme with particularity. The complaint failed to identify the participants in the alleged scheme and failed to segregate the alleged wrongdoing of each, but rather impermissibly grouped them together. For example, the complaint grouped LHC and the other entities and physicians together in alleging they "implemented a shoddy system for certifying medical necessity whereby medical directors would mechanically certify that EECP treatments [we]re medically necessary for all patients at LHC..." Moreover, the complaint did not allege which person or entity submitted the false claims and failed to identify when and where the alleged scheme occurred.
No indicia of fraud present. The court also found no indicia of actual knowledge by the ex-employee of FCA-violating fraud. He did not allege that any participant revealed a scheme to him or attempted to recruit him to participate in such a scheme. Nor did he allege that he witnessed executives from LHC pressure physicians to make unsupported diagnoses. Rather, the ex-employee simply extrapolated that a widespread, years-long fraud occurred based on his employment as a scribe for seven months. He relied exclusively on his interpretation of the Medicare guidelines and his observations, with no expertise of doctor-patient meetings, to conclude that alleged fraud resulted in medically unnecessary treatments. He did not work in the billing department and offered no basis for his knowledge. As to his kickback allegations that LHS violated the law by paying physicians "inflated" salaries that were "far in excess of the fair market value," he did not identify any amount of compensation paid or in what way it was "inflated," what the fair market value of such services was, or which patients, if any, were referred to any particular LHC entity by any particular physician.
No proof of actual false claims. The court found that the ex-employee did not adequately plead that false claims were actually submitted. The court noted that even without direct proof, allegations under the FCA can survive if they lead to a strong inference that claims were actually submitted. Here, however, the ex-employee provided only conclusions regarding the number of patients treated and the number of claims submitted. He estimated that approximately eighty percent of LI-IC's patients were Medicare beneficiaries and that about 80 percent of patients receiving EECP treatment lacked the required Medicare criteria. Given other deficiencies in his allegations, the court found these "estimates" were not enough to lead to a strong inference that claims were actually submitted.
Certain claims dismissed with prejudice. The court found that the ex-employee’s allegations against certain LHC related entities and physicians were "an unreasonable stretch of deduction" and dismissed them with prejudice. Regarding one particular physician, the ex-employee alleged no specific fraudulent conduct. Beyond the caption of the pleading, this physician was only mentioned in a footnote explaining where individual physicians practiced. Because the ex-employee had already amended his pleadings twice, the court found that further amendment would be futile. Moreover, three of the LHC entities named in the complaint had not even open until after the ex-employee left LHC. Consequently, the court found that the allegations against these LHC entities were baseless.
The case is No. 3:16-cv-00803-S.
Attorneys: Lindsey E. Beran, United States Attorney's Office, for the United States. Joe Kendall (Kendall Law Group PLLC) for Emerson Park. Laura Jane Durfee (Jones Day) for Legacy Heart Care LLC, Legacy Heart Care of Fort Worth LLC and Legacy Heart Care of Austin LLC.
Companies: Legacy Heart Care LLC; Legacy Heart Care of Fort Worth LLC; Legacy Heart Care of Austin LLC
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