Kane ex rel. United States v. Healthfirst, Inc.

120 F.Supp.3d 370

Robert P. KANE, By and on Behalf of the UNITED STATES of America, Relator,

State of New York, ex rel. Robert P. Kane, Relator,

State of New Jersey, ex rel. Robert P. Kane, Relator,

v.HEALTHFIRST, INC., et al., Defendants.

State of New York and United States of America, Plaintiff–Intervenors,

v.Continuum Health Partners, Inc.; Beth Israel Medical Center d/b/a Mount Sinai Beth Israel; St. Luke's–Roosevelt Hospital Center d/b/a Mount Sinai St. Luke's and Mount Sinai Roosevelt, Defendants.

No. 11 Civ. 2325(ER).

United States District Court, S.D. New York.

Signed Aug. 3, 2015.

Peter John Heck, Niedweske Barber, Morristown, NJ, Christopher E. Chang, Law Offices of Christopher E. Chang, New York, NY, for Relator.

Alee N. Scott, Constantine Cannon, LLP, Jacob Max Bergman, United States Attorney's Office, Rebecca C. Martin, Jean–David Barnea, New York, NY, for Plaintiff–Intervenors.

Bettina Barasch Plevan, Edward S. Kornreich, Harris Michael Mufson, Roger A. Cohen, Proskauer Rose LLP, Scott Roger Landau, Office of the General Counsel, New York, NY, for Defendants.

OPINION AND ORDER

RAMOS, District Judge:

Relator Robert P. Kane ("Kane" or the "Relator") filed this case in 2011 as a qui tam action under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., and related state laws.¹ In 2014, after investigating Kane's allegations, the United States Government (the "United States" or "Government") and the State of New York ("New York") elected to intervene as plaintiffs against three of the defendants named in Kane's Complaint. Presently before the Court are those defendants' motions to dismiss the United States' and New York's Complaints–in–Intervention, Docs. 20, 21, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Docs. 54, 52. For the following reasons, both motions are DENIED.

I. BACKGROUND

A. Factual Background²

This action stems from a software glitch on the part of Healthfirst, Inc. ("Healthfirst"), a private, non-profit insurance program, which caused three New York City hospitals to submit improper claims seeking reimbursement from Medicaid³ for services rendered to beneficiaries of a managed care program administered by Healthfirst. Gov't Compl. (Doc. 20) ¶¶ 3–4, 20, 31–32. The hospitals—Beth Israel Medical Center d/b/a Mount Sinai Beth Israel ("Beth Israel"), St. Luke's–Roosevelt Hospital Center d/b/a Mount Sinai St. Luke's and Mount Sinai Roosevelt ("SLR"), and Long Island College Hospital ("LICH" and, collectively, the "Hospitals")⁴ —all belonged to a network of non-profit hospitals operated and coordinated by Continuum Health Partners, Inc. ("Continuum"). Id. ¶ 3.⁵ All three Hospitals were also members of the Healthfirst hospital network and provided care to numerous patients enrolled in Healthfirst's Medicaid managed-care plan. Id. ¶ 5.

Pursuant to a contract entered into by Healthfirst and the New York State Department of Health ("DOH") on October 1, 2005, Healthfirst provides certain "Covered Services," including hospital and physician services, to its Medicaid-eligible enrollees in exchange for a monthly payment from DOH. Id. ¶ 21.⁶ Healthfirst's reimbursement for the Covered Services is limited to that monthly fee; it may not otherwise bill DOH on a "fee-for service" or other basis. Id. All doctors, hospitals, and providers that participate in the Healthfirst network must agree that the payment they receive from Healthfirst for Covered Services rendered to Healthfirst's Medicaid enrollees will constitute payment in full for those services, except for co-payments that may be collected from enrollees where applicable. Id. Healthfirst contracts with such providers ("Participating Providers") and pays them for the Covered Services they render to Healthfirst's Medicaid-eligible enrollees; in turn, Healthfirst is compensated through DOH's monthly payments. Id.

The error giving rise to the instant controversy relates to electronic remittances, issued by Healthfirst to its Participating Providers, which indicated the amount of any payment due for services rendered by the provider. Id. ¶ 30. These remittance statements also contained "codes" that signaled whether a provider could seek additional payment from secondary payors in addition to Healthfirst, such as Medicaid, other insurance carriers, or patients themselves. Id. The remittances submitted by Healthfirst for Covered Services rendered to its Medicaid-eligible enrollees should have contained codes informing providers that they could not seek secondary payment for such services, with the limited exception of co-payments from certain patients. Id.

Beginning in 2009, however, due to a software glitch, Healthfirst's remittances to Participating Providers erroneously indicated that they could seek additional payment for Covered Services from secondary payors. Id. ¶ 31. Consequently, electronic billing programs used by numerous Participating Providers automatically generated and submitted bills to secondary payors, including Medicaid. Id. Starting in or around January 2009, Continuum submitted claims to DOH on behalf of the Hospitals seeking additional payment for Covered Services rendered to Healthfirst enrollees, and DOH mistakenly paid the Hospitals for many of those improper claims. Id. ¶ 32.

In September 2010, auditors from the New York State Comptroller's office (the "Comptroller") approached Continuum with questions regarding the incorrect billing. Id. ¶ 33. Eventually, discussions among the Comptroller, Continuum, and the software vendor revealed that the problem occurred when the codes used in Healthfirst's billing software were "translated" to codes used in Continuum's billing software. Id. On December 13, 2010, approximately two years after the problem first arose, the vendor provided a corrective software patch designed to prevent Continuum and other providers from improperly billing secondary payors like Medicaid for services provided to Healthfirst enrollees, along with an explanatory memorandum. Id. After the problem was discovered, Continuum tasked its employee, Relator Kane, with ascertaining which claims had been improperly billed to Medicaid. Id. ¶ 34. In late 2010 and early 2011, Kane and other Continuum employees reviewed Continuum's billing data in an effort to comprehensively "identify" all claims potentially affected by the software glitch. Id. In January 2011, the Comptroller alerted Continuum to several additional claims for which Continuum had billed Medicaid as a secondary payor. Id.

On February 4, 2011, approximately five months after the Comptroller first informed Continuum about the glitch, Kane sent an email to several members of Continuum's management, attaching a spreadsheet that contained more than 900 Beth Israel, SLR, and LICH claims—totaling over $1 million—that Kane had identified as containing the erroneous billing code. Id. ¶ 35. His email indicated that further analysis would be needed to confirm his findings and stated that the spreadsheet gave "some insight to the magnitude of the issue." Id., Ex. B. There is no dispute that Kane's spreadsheet was overly inclusive, in that approximately half of the claims listed therein were never actually overpaid; nor is there any dispute that the spreadsheet correctly included "the vast majority of the claims that had been erroneously billed." Id. ¶ 35.⁷ On February 8, 2011, four days after sending his email and spreadsheet, Kane was terminated. Id. ¶ 36.⁸

According to the United States and New York, Continuum "did nothing further" with Kane's analysis or the universe of claims he identified. Id. In February 2011, Continuum reimbursed DOH for only five improperly submitted claims. Id. Meanwhile, the Comptroller conducted further analysis and identified several additional tranches of wrongful claims, which it brought to Continuum's attention starting in March 2011 and continuing through February 2012. Id. ¶ 37. The United States and New York allege that although Continuum began to reimburse DOH for improperly billed claims in April 2011, it did not conclude until March 2013, "fraudulently delaying its repayments for up to two years after Continuum knew of the extent of the overpayments." Id. ¶ 38. In addition, it was not until the Government issued a Civil Investigative Demand ("CID") in June 2012, seeking additional information about the overpayments, that Continuum finally reimbursed DOH for more than 300 of the affected claims. Id. They further allege that "Continuum never brought Kane's analysis to the attention of the Comptroller despite many communications with the Comptroller concerning additional claims to be repaid." Id.

By "intentionally or recklessly" failing to take necessary steps to timely identify claims affected by the Healthfirst software glitch or timely reimburse DOH for the overbilling, the United States and New York allege, Defendants violated the False Claims Act and its New York corollary. Id. at ¶ 39.

B. Procedural Background

Kane filed this action on April 5, 2011, for himself and on behalf of the United States, the State of New York, and the State of New Jersey, asserting claims under the FCA, the New York State False Claims Act ("NYFCA"), State Fin. Law §§ 187 et seq., and the New Jersey False Claims Act ("NJFCA"), N.J. Stat. Ann. § 2A:32C–1 et seq. Compl. (Doc. 22).⁹ He named as defendants numerous hospitals and health care organizations that provide government subsidized health care services in New York and New Jersey and had accidentally billed Medicaid for Covered Services and then failed to timely report and return payments submitted by Medicaid in response to those bills. Id. Kane filed an Amended Complaint on May 15, 2014. Amended Compl. ¶¶ 1–2 (Doc. 26).

Meanwhile, in June 2012, the Government issued a CID to Continuum in connection with its investigation of Kane's allegations, requesting information about the claims submitted for Covered Services rendered to Healthfirst Medicaid enrollees. New York Compl. (Doc. 21) ¶...