U.S. ex rel. Bledsoe v. Community Health Systems

501 F.3d 493

UNITED STATES of America ex rel., Plaintiff-Appellee Sean BLEDSOE, Plaintiff/Relator-Appellant, v. COMMUNITY HEALTH SYSTEMS, INC., Sparta Hospital Corp., d/b/a White County Community Hospital, Defendants-Appellees.

No. 06-5096.

United States Court of Appeals, Sixth Circuit.

Argued: April 10, 2007.

Decided and Filed: September 6, 2007.

ARGUED:

Mike Bothwell, Bothwell & Simpson, Roswell, Georgia, for Appellant. Michael L. Waldman, Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., Steve Frank, United States Department of Justice, Washington, D.C., for Appellees

ON BRIEF:

Mike Bothwell, Bothwell & Simpson, Roswell, Georgia, for Appellant. Michael L. Waldman, Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., Steve Frank, Douglas N. Letter, United States Department of Justice, Washington, D.C., John R. Jacobson, Bowen Riley Warnock & Jacobson, Nashville, Tennessee, for Appellees.

Before MOORE and CLAY, Circuit Judges; LAWSON, District Judge.^*

OPINION

CLAY, Circuit Judge.

In his second trip before this Court, Relator Sean Bledsoe appeals the district court's grant of Defendants Community Health Systems, Inc.'s ("CHS") and Sparta Hospital Corp.'s, d/b/a White County Community Hospital ("White County") motions to dismiss his second amended complaint. Relator also appeals the district court's denial of his motion to recognize a settlement agreement (the "Settlement Agreement") between CHS and the government. Relator brought this action under the False Claims Act, 31 U.S.C. § 3729 et seq., alleging that Defendants engaged in various types of fraud that increased the reimbursements that they received from Medicare and Medicaid. In the separate Settlement Agreement, CHS paid $30,494,749.51 to the United States government in settlement of claims that arguably overlap with Relator's complaint; Relator contends that he is entitled to a relator's share of the proceeds.

On appeal, Relator argues (1) that the district court erred in concluding that portions of his second amended complaint were not pled with particularity as required by Federal Rule of Civil Procedure 9(b); (2) that the district court erred in dismissing portions of his second amended complaint as barred by the statute of limitations; (3) that the district court erred in dismissing his entire second amended complaint with prejudice, and without explanation, after previously upholding portions of the complaint; and (4) that the district court erred in denying his motion to recognize the settlement. For the reasons that follow, we AFFIRM in part, REVERSE in part, and REMAND for proceedings consistent with this opinion.

BACKGROUND

This is the second time that this case has come before this panel. Our prior opinion, United States ex rel. Bledsoe v. Community Health Systems, 342 F.3d 634, 637-40 (6th Cir.2003) ("Bledsoe I"), explicates the factual background of this litigation in detail. Here, we recount only the facts that are salient to the issues raised in this appeal.

From April of 1995 to July of 1999, Relator worked as a respiratory staff therapist in White County, which is one of several hospitals owned by CHS. While working at White County, Relator "became aware of a serious problem with upcoding and other billing irregularities." Bledsoe I, 342 F.3d at 637. Relator allegedly started "cross-referencing patient bills, master charge sheets, and annual department revenues," and he came across "illegal and fraudulent billing practices." J.A. at 107. Relator reported these irregularities to the government. Specifically, during 1996 and 1997, Relator was in weekly communication with Jennifer King, an evaluator with the Office of the Inspector General of the Department of Health and Human Services ("OIG-HHS"). United States ex rel. Bledsoe v. Cmty. Health Servs., No 2:00-CV-0083, 2005 WL 3434378, at *5 (M.D.Tenn. Dec.13, 2005) (unpublished) ("Bledsoe II"). King contacted her supervisor at OIG-HHS, who informed her that OIG-HHS would not take the case without substantial evidence. Id. at *6. King referred Relator to the Tennessee Medicare and Medicaid Fraud Control Unit and considered the matter closed. Id. Relator contacted an investigator with the Tennessee Medicare and Medicaid Fraud Control Unit, who informed Relator about the possibility of filing a qui tam action.

Relator filed his original complaint in this case in February of 1998. The complaint pled two causes of action under the False Claims Act ("FCA"): that Defendants¹ had knowingly presented, or caused to be presented, false or fraudulent claims in violation of 31 U.S.C. § 3729(a)(1), and that Defendants had conspired to defraud the government by submitting false or fraudulent claims in violation of 31 U.S.C. § 3729(a)(3). Relator alleged that CHS had "engaged in a scheme of defrauding the United States Government by miscoding and upcoding items billed to Medicare and Medicaid,"² and that all Defendants had "engaged in other improper and illegal acts causing false claims to be filed with Medicare and Medicaid." J.A. at 31. Relator filed his complaint under seal, and submitted a written disclosure statement, as required by 31 U.S.C. § 3730(b)(2).³ Relator's disclosure statement stated that he had witnessed first-hand, or learned about from others, the following fraudulent practices:

[1] upcoding of contract services and disposable equipment, as well as fraudulent inflation of cost reports, in White County Hospital's nursing and respiratory departments; [2] misuse of a doctor's medical provider number in the emergency room; [3] double billing and billing for unbillable items; [4] improper changing of patients' statuses from an outpatient/observation status to an inpatient status; [5] billing for fictitious continuous heart monitoring; and [6] improperly premature discharging of hospital patients when Medicare reimbursement eligibility had been exhausted.

Bledsoe I, 342 F.3d at 638.⁴ The United States declined to intervene in Relator's action, see 31 U.S.C. § 3730(b)(4)(B), and Relator served the complaint on the named Defendants in May of 1999.

On at least two occasions after Relator filed his complaint, Relator met with Special Agent Derrick Jackson, an investigator with OIG-HHS, to discuss Relator's allegations. Relator met with Jackson and a number of other government representatives on June 1, 1998. Bledsoe II, 2005 WL 3434378, at *6. Relator met again with a number of government officials, including Jackson, on August 4, 1998. Id. at *7. On the latter occasion, Relator was accompanied by his fiancé Cindy Peck, now Cindy Bledsoe. Relator's version of the events that took place at the August 4, 1998 meeting differs from Jackson's recollection. Relator contends that he provided Jackson with information relevant to "DRG upcoding."⁵ Specifically, Relator claims that he provided Jackson with information pertaining to DRG code 079, a DRG code concerning pneumonia, which, as discussed below, is the subject of the government's Settlement Agreement with CHS. Jackson claims that Relator "did not describe conduct by anyone associated with White County Hospital whereby they were misrepresenting or miscoding patient diagnos[es]." Id. at *7. Jackson also separately interviewed Cindy Peck on August 4, 1998, outside of Relator's presence. Peck agreed to meet with Jackson to support Relator's case. Peck stated that she provided information related to DRG upcoding to Jackson during this interview.

Meanwhile, in the fall of 1997, the government approached CHS about possible upcoding at two of CHS's hospitals. On December 18, 1997, CHS met with an OIG-HHS inspector and disclosed that it had detected coding irregularities at its hospitals. CHS and OIG-HHS agreed that CHS would undertake a self-conducted audit, the results of which were presented to OIG-HHS in December of 1998. During the same time frame, OIG-HHS also worked with the Department of Justice to investigate the circumstances surrounding the coding irregularities at CHS's hospitals to determine whether FCA violations had occurred. This investigation concluded in the middle of 1999. Relator was unaware of the investigation during its pendency.

OIG-HHS and CHS eventually entered into the Settlement Agreement. On or about March 28, 2000, a revised version of the Settlement Agreement was executed. The agreement provided that CHS was to pay to the United States $30,494,749.51; in exchange the United States, several participating states, OIG-HHS, and Tricare Management Activity agreed to release CHS from any civil and administrative monetary claims arising out of the "Covered Conduct" for the time period specified for each facility listed in Attachment A of the Settlement Agreement. The Settlement Agreement defined "Covered Conduct" to include the "covered DRGs," which it defined as "the following DRGs: 014, 079, 087, 132, 138, 296, 416, and 475."⁶ J.A. at 626. Attachment A stated that, for White County Community Hospital, the covered time period extended from October 1, 1994 to December 31, 1997. The Settlement Agreement also provided that Relator's claims were specifically excluded from the Settlement Agreement.

Relator filed his first amended complaint (the "FAC") on July 3, 2000. The FAC added White County as a defendant, removed some defendants, and contained new allegations of fraud. The FAC alleged (1) that Defendants had committed various types of fraud in the psychiatric unit of White County and other CHS subsidiaries; (2) that Defendants employed a new management company that billed Medicare and Medicaid for professional fees under the provider number of a physician who had not in fact provided the professional services; (3) that White County billed Medicare and Medicaid for continuous monitoring by telemetry that did not in fact meet the applicable criteria to be so billed; and (4) that Defendants had engaged in other fraudulent acts, "including but not limited to paying providers bonuses based on...