United States ex rel. Monsour v. Performance Accounts Receivable, LLC

640 F.Supp.3d 630

UNITED STATES EX REL. Mitchell D. MONSOUR and Walton Stephen Vaughan, Relators v. PERFORMANCE ACCOUNTS RECEIVABLE, LLC, et al., Defendants

Civil No. 1:16-cv-00038-HSO-BWR

United States District Court, S.D. Mississippi, Southern Division

Signed November 9, 2022

Deidre L. Colson, U.S. Attorney's Office, Gulfport, MS, for Plaintiff United States of America.

J. Brad Pigott, Pigott & Johnson, P.A., Jackson, MS, for Plaintiffs Mitchell D. Monsour, Walton Stephen Vaughan.

Toby J. Gammill, Laken Hanna Ryals, Gammill Law Group, PLLC, Jackson, MS, for Defendant Performance Accounts Receivable, LLC.

Toby J. Gammill, Gammill Law Group, PLLC, Jackson, MS, for Defendant Performance Capital Leasing, LLC.

Dudley Collier Graham, Jr., Crane D. Kipp, Sidney E. Lampton, Wise, Carter, Child & Caraway, PA, Jackson, MS, for Defendant Billy Nerren Marlow, Jr.

Jeffrey Scott Newton, Jean Cooper Bertas, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS, Randall E. Day, Copeland, Cook, Taylor & Bush, PA, Ridgeland, MS, for Defendant Wayne Walters.

Randall E. Day, Copeland, Cook, Taylor & Bush, PA, Ridgeland, MS, for Defendants CAH Management Franklin Services LLC, Revenue Cycle Management Franklin LLC.

Robert Mark Hodges, Charles E. Cowan, Wise, Carter, Child & Caraway, PA, Jackson, MS, for Defendants Donald J. Blackwood, II, Sunflower Management Holding Company LLC.

Wade Walters, Sumterville, FL, Pro Se.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT WATKINS WARD & STAFFORD, PLLC'S MOTION [239] TO DISMISS

HALIL SULEYMAN OZERDEN, UNITED STATES DISTRICT JUDGE

BEFORE THE COURT is Defendant Watkins Ward & Stafford PLLC's Motion [239] to Dismiss. The Motion [239] is fully briefed. Based upon its review of the record and relevant legal authority, the Court finds that Defendant's Motion [239] should be granted, and that Relators' claims against Defendant Watkins Ward & Stafford PLLC should be dismissed with prejudice.

I. BACKGROUND

A. Background facts

In 2016, Mitchell D. Monsour and Walton Stephen Vaughan ("Relators"), acting as Relators on behalf of the United States, filed a Complaint [3] in this Court under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. Relators have since amended their Complaint twice. The Second Amended Complaint [228], the current operative pleading, names as Defendants Performance Accounts Receivable, LLC, Performance Capital Leasing, LLC, Wade Walters, Billy Nerren Marlow, Jr., Wayne Walters, CAH Management - Franklin Services, LLC, Revenue Cycle Management - Franklin, LLC, Donald J. Blackwood II, Sunflower Management Holding Company LLC, and Watkins Ward & Stafford PLLC (collectively "Defendants"). 2d Am. Compl. [228] at 3-5. Relators allege that Defendants violated the FCA by submitting Medicare cost reports that included unallowable costs. See generally id.

Relators' claims arise from Medicare cost reports filed by three Critical Access Hospitals ("CAHs") starting in 2010. Medicare reimbursement for CAHs differs from traditional hospitals: while reimbursement for traditional hospitals is capped for any particular service, Medicare reimburses CAHs for 101 percent of their reasonable and allowable costs. See 42 U.S.C. § 1395f; 42 C.F.R. § 413.70. As a result, CAHs are incentivized to maximize the amount of costs claimed on their cost reports because the more money they claim, the more they receive from Medicare. See United States ex rel. Aldridge v. Cain, 1:16-cv-369-HTW-LRA, 2018 WL 1162252, at *3 n.11 (S.D. Miss. Mar. 4, 2018).

Medicare guidelines place limits on what costs are allowable. Two provisions are relevant to Relators' claims here. 2d Am. Compl. [228] at 11-14. First, "[a]ll payments to providers of services must be based on the reasonable cost of services covered under Medicare and related to the care of beneficiaries." 42 C.F.R. § 413.9(a). Costs "not related to patient care" are not allowable. 42 C.F.R. § 413.9(c)(3). Second, costs derived from services, facilities, and supplies from a "related organization" are only allowable "at the cost to the related organization" so long as it does "not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere." 42 C.F.R. § 413.17(a); United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg'l Healthcare Sys., 384 F.3d 168, 172 n.5 (5th Cir. 2004). An organization is "related" when "the provider to a significant extent is associated or affiliated with or has control of or is controlled by the organization furnishing the services, facilities, or supplies," either through common ownership or control. 42 C.F.R. § 413.17(b). Common ownership requires that an individual possesses "significant ownership or equity in the provider and the institution or organization serving the provider." 42 C.F.R. § 413.17(b)(2). "Control exists if an individual or an organization has the power, directly or indirectly, significantly to influence or direct the action or policies of an organization or institution." 42 C.F.R. § 413.17(b)(3).

To verify compliance, Medicare cost reports require providers to disclose whether any services were provided by a related organization and, if so, the cost of those services so that Medicare can determine whether those costs "reflect the costs to the related party, whether the costs are within the price of comparable services that may be purchased elsewhere, and whether the provider acted as a prudent buyer." United States v. Bourseau, No. 3-CV-907-BEN(WMC), 2006 WL 2961105, at *10 (S.D. Cal. Sept. 29, 2006) (citing 42 C.F.R. § 413.17(a); CMS Provider Reimbursement Manual 1 § 2135.3(A)), judgment amended on other grounds by 2006 WL 3949169 (S.D. Cal. Dec. 1, 2006).

B. The alleged fraud

Relators assert that Defendants Wade Walters, Billy Marlow ("Marlow"), Wayne Walters, and Donald J. Blackwood II ("Blackwood") owned and operated various management companies that claimed to help CAHs maximize their Medicare cost reimbursement. 2d Am. Compl. [228] at 14-43. Under the alleged scheme, these management companies contracted with three CAHs (North Sunflower Medical Center ("NSMC"), Tallahatchie General Hospital ("TGH"), and Franklin County Memorial Hospital ("FCMH")) to provide this service, where the management company would select an administrator who would manage day-to-day tasks for the hospital and advise the hospital regarding its provision of patient services in exchange for a percentage of the hospital's total collections. Id. According to Relators, these contracts gave Wade Walters, Marlow, Wayne Walters, and Blackwood significant control over the relevant CAHs such that they qualified as related parties under 42 C.F.R. § 413.17, and consequently, the payments from the CAHs to the management companies constituted related-organization costs. Id. Relators allege that Medicare cost reports from the three CAHs included the costs paid to the management companies for the provision of their services, and that the inclusion of those costs violated the FCA because the costs were not related to providing patient services and were paid to related organizations in excess of the cost to the related organizations themselves. Id. at 18-25; 29-33; 35-43.

Defendant Watkins Ward & Stafford PLLC ("WWS") is an accounting firm that, according to Relators, "prepared and authored, and submitted to the Administrator of each [CAH] to sign and submit to Medicare," the cost reports for the three hospitals for each of the relevant years, 2010 through 2020. Id. at 43. Relators assert that WWS violated 31 U.S.C. § 3729(a)(1)(A)-(C) by knowingly causing a false claim to be presented, knowingly making a false statement material to a false claim, and conspiring to present a false claim and to make a false statement material to a false claim. Id. at 55-59.

Relators base their allegations against WWS on it answering "no" to a question on the Medicare cost reports, which asked whether there were any related organization costs, and telling the administrators of the hospitals that the cost reports were "suitable" for submission to Medicare. Id. at 41-43, 46, 49. Relators claim that WWS conspired with the other Defendants to submit the cost reports containing fraudulent claims and that WWS knew these costs were not allowable based on (1) copies of the contracts between the management companies and two of the CAHs¹ and (2) WWS's communications with the other Defendants. Id. According to Relators, the contracts reflected that the CAHs' Boards of Trustees shifted powers to the management companies

as are necessary to manage the Facility on a day-to-day basis including, but not limited to, the authority and power "to purchase property and services" in the Administrator's discretion, the power to "employ, discipline and discharge employees" in the Administrator's discretion ("and prescribe the duties of employees"), and the power to "perform all such other acts and have such additional powers as may be necessary for the efficient operation of the Facility on a day-to-day basis."

Id. at 44, 47. Relators maintain that the delegation of authority in the contracts made WWS aware that the management companies were related organizations, and thus that WWS knowingly authored false answers in the cost reports. Id. at 41-43, 46, 49.

C. WWS's Motion [239] to Dismiss

WWS has filed the present Motion [239] to Dismiss, arguing that Relators have failed to properly allege any of the four elements of an FCA claim against it. Mem. [240] at 3-4. WWS further contends that Relators have not alleged sufficient facts to show an agreement between it and the other Defendants to support an FCA conspiracy claim, and that the Second Amended Complaint [228] does not satisfy the requirements for pleading fraud under Federal Rule of Civil Procedure 9(b). Id. at 4.

Relators respond that their Second Amended Complaint [228] plausibly pleads FCA liability for WWS. See generally Mem. [246]. They contend that by authoring the cost reports that "it knew [were]...