United States v. Corp. Mgmt.

78 F.4th 727

UNITED STATES of America, ex rel, James Aldridge, Plaintiff—Appellee,United States of America, Intervenor—Appellee, v. CORPORATE MANAGEMENT, INCORPORATED, a Mississippi corporation (CMI);Stone County Hospital, Incorporated; H Ted Cain,professionally and in his individual capacity;Julie Cain; Thomas Kuluz, Defendants—Appellants.

No. 21-60568

consolidated with No. 22-60145

United States Court of Appeals, Fifth Circuit

FILED August 21, 2023

Appeals from the United States District Court for the Southern District of Mississippi, USDC No. 1:16-CV-369, Henry T. Wingate, U.S. District Judge John Frederick Hawkins, Hawkins Law, P.C., Jackson, MS, for Plaintiff-Appellee in 21-60568.

Angela Givens Williams, Assistant U.S. Attorney, U.S. Attorney's Office, Southern District of Mississippi, Jackson, MS, Elspeth Alma England, U.S. Department of Justice, Washington, DC, Albert Thomas Morris, U.S. Department of Justice, Civil Fraud Section, Washington, DC, for Intervenor-Appellee.

Michael James Bentley, Esq., W. Wayne Drinkwater, Jr., Esq., James Stephen Fritz, Jr., Bradley Arant Boult Cummings, L.L.P., Jackson, MS, for Defendants-Appellants.

John Frederick Hawkins, Hawkins Law, P.C., Jackson, MS, Joe Bradley Pigott, Pigott, Reeves, Johnson, P.A., Jackson, MS, for Plaintiff-Appellee in 22-60145.

Before Jones, Ho, and Wilson, Circuit Judges.

Cory T. Wilson, Circuit Judge:

This False Claims Act case involves Medicare reimbursements to Stone County Hospital (SCH), a critical access hospital in Wiggins, Mississippi. This appeal follows a nine-week jury trial, which resulted in a $10,855,382 verdict (approximately $32,000,000 trebled) for the Government. At trial, the Government proved that Appellants (a corporate management company, company owner, corporate executives, and SCH)¹ defrauded Medicare out of millions over the span of twelve years by overbilling for the owner's and his wife's compensation despite little or no reimbursable work.

Generally speaking, Appellants' arguments on appeal fail to undercut the jury's verdict. But the Government's dilatory conduct over the protracted procedural history of this case gives pause, even if the Government largely prevails today: The Government sought to extend the seal entered by the district court pursuant to 31 U.S.C. § 3730(b)(3) eighteen times and delayed its intervention in the relator's action for eight years, all while conducting one-sided discovery against Appellants. When Appellants interposed the statute of limitations because of the Government's dawdling, the Government maintained its claims were timely. It does the same on appeal. But the Government's own sealed extension request memoranda, which remain sealed to this day, demonstrate otherwise. As to the district court's final merits judgment, we therefore affirm in large part, reverse in part, and remand.

The district court's judgment in favor of the Government included an order barring Appellants from dissipating their assets. Almost two years later, the district court issued a temporary enforcement order that specifically barred Appellants from selling a piece of real property. Appellants separately appealed the enforcement of this post-judgment injunction. We consolidated the appeals. Because we lack jurisdiction over the district court's enforcement injunction, we dismiss the latter appeal.

I.

A. The FCA

The False Claims Act (FCA) is "the Government's primary litigative tool for combatting fraud" against the Government. S. Rep. No. 99-345, at 2 (1986). The FCA imposes liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or "knowingly makes, or causes to be made, a false statement or record material to a false claim." 31 U.S.C. §§ 3729(a)(1)(A), (B). Violators of the FCA are liable for civil penalties "plus 3 times the amount of damages which the Government sustains because of" their conduct. Id. § 3729(a)(1).

FCA actions may be brought by the Attorney General or by a private party, known as a qui tam relator, in the name of the United States. 31 U.S.C. §§ 3730(a), (b)(1). The Government, if it so chooses, may intervene in a relator's action and "conduct[ ]" the litigation. Id. § 3730(b). If the Government prevails in the litigation, the relator shall be awarded no less than 15 percent but no more than 25 percent of the proceeds of the action or settlement. Id. § 3730(d). When a qui tam relator brings an action under the FCA, "[t]he complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders." Id. § 3730(b)(2). "The Government may, for good cause shown, move the court for an extension of the time during which the complaint remains under seal . . . [and] [t]he defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed[.]" Id. § 3730(b)(3).

B. Critical Access Hospitals and Medicare Reimbursement

"Critical access hospitals" serve rural populations who otherwise lack access to healthcare via other nearby hospitals. To incentivize this access to care, Medicare reimburses these hospitals at 101% of cost. 42 C.F.R. § 413.5 (reimbursement parameters); § 413.64 (reimbursement procedures); § 413.70 (critical access hospital reimbursement). According to the Government, the Centers for Medicare and Medicaid Services (CMS) typically continue to reimburse a critical access hospital's costs even when allegations of fraud surface, in order to ensure access to care for underserved Medicare beneficiaries. CMS later seeks recovery of the wrongful overpayments. This practice is commonly known as "pay and chase."

CMS delegates administration of Medicare's critical access hospital program to Medicare Administrative Contractors (MACs). MACs, also called "Fiscal Intermediaries," are contractors that handle provider reimbursement services. MACs assist providers in interpretation and application of Medicare reimbursement rules. 42 C.F.R. § 413.20(b). They also act as Medicare's oversight agents, auditing cost reports, setting payment amounts, and identifying potential overpayments or fraudulent claims. Aside from the FCA, which is used to combat fraud, CMS also has an administrative process employed by MACs for recovering payments. See CMS Provider Reimbursement Manual (PRM) Chapter 24, available at https://www.cms.gov/Regulations and Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021929.²

Medicare sets reimbursement payments to critical access hospitals using "cost reports," which are statements detailing hospital operating costs for the prior year. 42 C.F.R. § 413.20 (cost reporting principles). Medicare regulations govern reimbursement of owner compensation. 42 C.F.R. § 413.9 (defining what constitutes a reasonable, necessary, and proper cost). Medicare does not use a formula to set hospital owner and administrator compensation. Rather, compensation is subject to a "test of reasonableness" guided by the PRM.

The PRM provides that "[a] reasonable allowance of compensation for services of owners is an allowable cost, provided the services are actually performed in a necessary function." "Necessary" means that "had the owner not furnished the services, the institution would have had to employ another person to perform those services." Such services must be related to patient care and be documented. See 42 C.F.R. § 413.20 (governing necessary documentation for cost reimbursement). Owner compensation must be limited to what is paid for comparable services by comparable institutions and is controlled by the fair market value of the services provided on the open market. The PRM disallows costs related to "managing or improving the owner's financial investments." These compensation rules also apply to an owner's relative.

C. Appellants and Medicare Submissions at Issue

SCH is a 25-bed hospital in Wiggins, Mississippi, with a daily census of less than 12 patients. Ted Cain, the sole owner of SCH, acquired the hospital in 2001 and enrolled it as a critical access hospital with CMS. Ted owned or operated multiple nursing homes over his career. Ted's wife Julie Cain served as SCH's hospital administrator from 2003 to 2012. Julie also held a nursing home administrator's license and a social worker's license.

Corporate Management, Inc. (CMI) served as a management company for SCH and Ted's other businesses. Ted is the owner and chief executive officer of CMI. CMI served as SCH's "home office," providing centralized administrative services, management support, and consulting services for SCH and the other businesses under its management. Tommy Kuluz served as CMI's chief financial officer, and Starann Lamier served as chief operations officer.

Two types of Medicare submissions are at issue in this case: SCH's cost reports and CMI's home office cost reports. CMI annually submitted both types of cost reports on behalf of SCH and itself. Kuluz gathered the information for the cost reports but relied on an outside accounting firm to prepare them. Ted reviewed the cost reports after their preparation.

SCH's cost reports indicated the hospital was a critical access hospital and catalogued hospital-specific costs such as doctors' salaries and supply costs. The reports identified the amounts SCH paid to CMI as a management company but did not separately identify the compensation paid to Ted. CMI's cost reports enumerated its expenses as the management company for numerous entities that Ted owned or controlled. CMI, through Kuluz, allocated Ted's compensation across these entities and, from 2004 to 2009, directly allocated much of Ted's salary to SCH (via the CMI home office report). From 2010 to 2015, CMI included Ted's salary in a "pooled allocation" of home office costs, meaning that his salary was allocated across all businesses in proportion to their revenues.

D. Procedural History

Relator James Aldridge worked...