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From Health Law Daily, December 11, 2017

Door to false claims closed by disclosure in different suit

By Harold Berman, J.D.

A therapist who brought a qui tam complaint against two hospitals for violating the False Claims Act and Tennessee Medicaid False Claims Act by committing Medicaid fraud could not proceed because those claims already had been brought in a separate action in a different jurisdiction. The U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal of the case, finding that the therapist’s False Claims Act allegations were barred by the Act’s public disclosure bar, because an action involving substantially similar claims already had been brought in Indiana. The district court did not abuse its discretion by refusing to exercise supplemental jurisdiction over the therapist’s state law claims, because the federal claims already had been dismissed (U.S. ex rel Armes v. Garman, December 8, 2017, Batchelder, A.).

Medicaid fraud allegations. A respiratory therapist worked for a hospital from 2005 to 2012, at which time the hospital fired him. In 2014, the therapist brought a qui tam complaint against the hospital alleging the hospitals and employees violated the False Claims Act and the Tennessee Medicaid False Claims Act by manipulating patient admissions and discharges to achieve and maintain Long-Term Acute Care status for a higher reimbursement rate. In addition, the therapist alleged that the hospital manipulated lengths of stay to maximize profits, billed Medicaid and Tenncare for medical services that were unnecessary and that it did not provide, and paid bonuses to liaisons who ensured that patients remained on ventilators long enough to trigger higher reimbursements.

Motion to dismiss and appeal. The hospital moved to dismiss. The federal district court dismissed all of the therapist’s False Claims Act claims with prejudice because the suit was barred by a pending and similar qui tam action in Indiana that had been filed first (see Fraudulent schemes complaint against LTAC facility fails first-to-file, particularity rules, June 28, 2016). The court also dismissed the remaining claim under Federal Rule of Civil Procedure 9(b) and refused to exercise supplemental jurisdiction over the therapist’s state law claims, dismissing them without prejudice. The therapist appealed. Before the appeal was heard, the Indiana district court dismissed portions of the qui tam action before it, and the therapist then requested that the Tennessee district court vacate its dismissal. The district court refused to vacate, because the Indiana action still was pending both when the therapist brought his action, and when the district court dismissed it.

Previously filed action mandates dismissal. The Court of Appeals held that the therapist’s False Claims Act claims were precluded by the Act’s public-disclosure bar. Before the therapist filed his qui tam action, the Indiana qui tam action had publicly disclosed similar allegations of the hospitals’ Medicare reimbursement fraud, and the information in the Indiana complaint was sufficient to expose the alleged fraud and put the government on notice of the likelihood of related fraudulent activity. The therapist’s action was based on the same Medicare reimbursement fraud that was publicly disclosed in the Indiana action. Although the therapist alleged slightly different details, the primary focus of the two complaints was the same. Nor was the therapist an original source of the information in his complaint, because the therapist disclosed his knowledge to the government over a year after the Indiana complaint was unsealed. The additional details that the therapist alleged were not significant or essential to the alleged fraud already disclosed in the Indiana action.

No abuse of discretion. The Court of Appeals also found that the district court did not abuse its discretion by denying the therapist leave to amend his complaint based on undue delay. The therapist first filed a motion to amend nearly five months after the hospitals’ motion to dismiss, and three days before oral argument was to be held on the motion. Even then, he failed to make any new allegations that were not barred by the False Claims Act’s first-to-file or public disclosure rules. Nor did the district court abuse its discretion by refusing to exercise supplemental jurisdiction over the therapist’s state law claims, because the court already had dismissed all of the federal claims.

The case is No. 16-6212.

Attorneys: Loring Edwin Justice (Loring Edwin Justice, Attorney at Law) for Jason Armes. Raymond A. Cardozo (Reed Smith LLP) for Jan Garman.

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