Polansky v. Exec. Health Res., Inc.

422 F.Supp.3d 916

Jesse POLANSKY M.D., M.P.H., et al.

v.EXECUTIVE HEALTH RESOURCES, INC., et al.

CIVIL ACTION NO. 12-CV-4239

United States District Court, E.D. Pennsylvania.

Signed November 5, 2019

Andrew T. Gorham, Michael R. Ellis, Fish & Richardson P.C., Chad Brian Walker, Geoffrey S. Harper, Lane M. Webster, Thomas M. Melsheimer, John Michael Gaddis, Winston & Strawn LLP, Dallas, TX, John E. Riley, J. Riley & Associates, LLC, Philadelphia, PA, Gregory R. Booker, Fish & Richardson PC, Wilmington, DE, John W.H. Harding, Winston & Strawn LLP, John A. Kolar, Governement Accountability Project Inc., Washington, DC, Jonathan J. Ross, Susman Godfrey LLP, Houston, TX, Nicholas Carullo, Seth Ard, Stephen L. Shackelford, Jr., Susman Godfrey LLP, New York, NY, William T. Jacks, Fish & Richardson PC, Austin, TX, for Jesse Polansky, M.D., M.P.H.

Christopher Michael Denig, Krysten Rosen Moller, Michael M. Maya, Noam Kutler, Ronald G. Dove, Jr., Ethan M. Posner, Matthew F. Dunn, Covington & Burling LLP, Washington, DC, Abigail A. Hazlett, Kaitlin M. Gurney, Michael A. Schwartz, Robin P. Sumner, Tracy Rhodes, Thomas M. Gallagher, Pepper Hamilton & Scheetz, Philadelphia, PA, for Executive Health Resources Inc.

FINAL MEMORANDUM

Baylson, District Judge

I. INTRODUCTION

Jesse Polansky ("Relator") brings this False Claims Act qui tam ¹ action on behalf of the United States alleging that Executive Health Resources, Inc. ("Defendant") caused its client hospitals to fraudulently bill Medicare and Medicaid by falsely designating patient admissions as inpatient when they should have been marked as outpatient.

This case, which was filed over seven years ago, has an extensive procedural history. Presently before the Court is the Government's Motion to Dismiss, as well as the briefs submitted by the parties following the Court's Order of September 26, 2019, (ECF 550), invoking FED. R. CIV. P. 56(f) and giving notice of possible entry of summary judgment on other grounds.

II. BACKGROUND

A. Case History²

Relator filed his Complaint under seal on July 26, 2012 in accordance with the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. (ECF 1.) Relator twice amended his Complaint, (ECF 9; ECF 12) before the Government declined to intervene on June 27, 2014, (ECF 19.) Thereafter, pursuant to the FCA, Relator served the then-operative Complaint on Defendant and proceedings commenced before the Honorable Thomas O'Neill, who issued an extensive Memorandum and Order denying the Defendant's Motion to Dismiss on July 26, 2016. (ECF 103.) The following year, after Judge O'Neill's death, the case was transferred to the undersigned. (ECF 141.)

The core of Relator's theory of liability is that Defendant exploited the difference in reimbursement rates for inpatient and outpatient services,³ causing hundreds of thousands of claims for medical services to be billed as inpatient when they should have been billed as outpatient.⁴ It became obvious to the Court, and was not seriously contested by Relator or Defendant, that the best way to adjudicate this case was to hold a bellwether trial on a limited number of claims.⁵ Following multiple submissions and conferences, the Court entered an order requiring the parties to select a limited number of claims for discovery, following which a smaller number of claims would be selected for a bellwether trial. (ECF 240.) The Court eventually held that each party would select specified claims for itself and other claims would be chosen randomly for discovery. This procedure was designed to result in a jury trial where the jury would answer interrogatories as to whether Relator had proven Defendant violated the FCA by seeking and accepting improper reimbursements, and the Court would enter judgment on all other claims encompassed by the jury verdict after the bellwether trial.

For pretrial management, the case was divided into two segments. The first segment, "Phase I," was designed to adjudicate reimbursement claims certified by Defendant from January 1, 2009 to October 1, 2013.⁶ The second segment, the "Two Midnight" phase, was designed to address Relator's reimbursement claims for events that occurred after October 1, 2013, on which date the Centers for Medicare and Medicaid Services ("CMS") implemented a new reimbursement regime—the Two Midnight Rule.⁷ In short, the Two Midnight Rule requires that, to admit an individual as an inpatient, the admitting physician expects that the patient's stay will cross two midnights.⁸

Extensive discovery proceeded with several motions filed by both parties, which the Court attempted to resolve fairly and promptly.⁹ During the course of this discovery, Relator's conduct interrupted the intended discovery; his behavior was material and plays a role in the final disposition of this case.

First, Relator belatedly revealed that he located a DVD disk in his personal possession containing approximately 14,000 documents. Relator testified about this discovery and the surrounding circumstances on January 15, 2019, (ECF 357), but the Court found that he was not completely credible. Relator's counsel admitted that a large number of the documents contained on the disk were relevant to Phase I. The unearthing of the disk caused a disruption in the proceedings. The Court allowed for discovery on the circumstances under which the DVD was found and why the documents on it, at least those relevant to this case, had not been turned over. Defendant subsequently moved for sanctions, which the Court granted in part. (ECF 400.)

Second, Relator unilaterally purported to change the settled method for selection of claims that had been painstakingly arrived at after several pretrial conferences without offering any explanation as to why he failed to seek court approval. This attempted change was never satisfactorily explained by Relator. See ECF 460, June 26, 2019 Memorandum at 2 (warning that Relator's actions "may have significance in future Court rulings in this case").¹⁰

These two events—the revelation of Relator's DVD disk and Relator's attempt to change the selection of cases for the bellwether trial—caused serious prejudice to Defendant and unnecessary delays in pretrial proceedings.

B. Government's Notification of Intent to Seek Dismissal

On February 21, 2019—while the parties were litigating Defendant's sanctions motion—the Government notified Relator and Defendant via email that it intended to dismiss the case. (ECF 403, Ex. A.) The parties and the Government entered into negotiations directly, and without any involvement by the Court. On May 9, 2019, the Government notified the Court that it did not intend to exercise its dismissal authority, provided that Relator would proceed on claims under a significantly narrowed framework, and that it did not anticipate pursuing dismissal before the Court ruled on summary judgment motions. (ECF 430.) According to the Government, Relator's offer to narrow his claims "substantively and materially changed the ... cost/benefit analysis concerning the exercise of ... Section 3730(c)(2)(A) dismissal authority." (Id. at 4.) However, the Government noted that it intended to "reserve[ ] the right to evaluate whether dismissal is warranted in the future based on further developments, including arguments raised by the parties, further factual and evidentiary developments, and associated discovery burdens." (ECF 454 at 4.)

C. Third Amended Complaint

On May 2, 2019, Relator moved for leave to file a Third Amended Complaint, (ECF 429), that purported to adhere to the narrowing criteria the Government had agreed to. The Court ordered that the Third Amended Complaint, attached as Exhibit A to the Motion, be deemed filed as of May 10, 2019. (ECF 433.) The Third Amended Complaint is the operative complaint in this litigation.

Despite the previous indications that the Government and Relator concurred in the narrowing of Relator's claims, further events revealed that disagreements remained as to exactly what, if any, narrowing of the claims had taken place. This issue was never finally resolved. See ECF 543, Government Reply Memorandum at 7 ("[R]elator has dismissed no bellwether claims and does not appear to have narrowed how he is pursuing this case."); ECF 460 at 3 (identifying "at least one contradiction between Relator's interpretation of the narrow[ing] criteria and the Government's"); ECF 456, June 24, 2019 Hr'g Tr. at 11:22–23 (acknowledging that Polansky's counsel's view of the claims that would proceed was different from "the scope that the government is envisioning"). The divergence between the views of the Government and those of Relator regarding the extent to which Relator's claims were narrowed suggests that the concerns underlying the Government's intent to support dismissal in February are still present.

Several developments related to the merits of Relator's claims and the parties' respective discovery obligations occurring during the summer months leading up to the Government's filing. The Special Master recommended that the Government produce, as confidential discovery material, "all documents withheld on the basis of the deliberate process privilege that are dated 2015 or earlier." (ECF 510 at 6.) The Special Master also recommended the Government be required to produce responsive documents for additional custodians. (Id. at 9.) Finally, on August 7–8, 2019, Relator was deposed by Defendant. (ECF 540, Def. Memorandum in Supp. of Government Mot. to Dismiss at 8.) The Government participated in Relator's deposition telephonically. (Government Reply Memorandum at 8.)

D. Government's Renewed Motion to Dismiss

On August 20, 2019, the Government filed a Motion to Dismiss Relator's Third Amended Complaint pursuant to its authority under 31 U.S.C. § 3730(c)(2)(A). (ECF 526.) Because the Court had previously set a dispositive motion deadline for August 30, 2019 (shortly after the Government's filing), all discovery and other dates were stayed pending the Court's resolution of...