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United States ex rel. Longo v. Wheeling Hospital, Inc.

United States District Court, N.D. West Virginia, Wheeling

September 18, 2019




         Pending before this Court are three motions to dismiss: Defendant Wheeling Hospital’s Motion to Dismiss the Government’s Complaint in Intervention [Doc. 104]; Defendant R&V Associates, Ltd.’s Motion to Dismiss Government’s Complaint in Intervention [Doc. 106]; and Defendant Ronald L. Violi’s Motion to Dismiss Government’s Complaint in Intervention [Doc. 108]. All three motions have been fully briefed and are ripe for decision.


         On December 22, 2017, Louis Longo (“Longo” or “Relator”), filed t his qui tam act ion under seal in this Court. On March 25, 2019, the United States intervened in this action and filed its Complaint in Intervention (“Complaint”) [Doc. 19].[1]

         In 2006, R&V Associates, Ltd. (“R&V”) was hired to manage the hospital. Violi, one of R&V’s two partners, served as the hospital’s CEO. That arrangement continued until May of this year. The Government alleges that during their tenure, R&V and Violi oversaw the hospital’s hiring of dozens of physicians at inflated salaries to capture revenues from those doctors’ patient referrals. To that end, Wheeling Hospital routinely entered into physician contracts that resulted in violations of two laws that defendants repeatedly promised to comply with: the physician self-referral law (commonly known as the “Stark Law”), 42 U.S.C. § 1395nn, and the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b(b). It is alleged that this scheme led to thousands of false claims to the Medicare program, tens of millions of dollars in profit for the hospital, and millions in management fees for R&V and Violi.

         To recover for this fraud, the United States has asserted claims against defendants under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, and the federal common law.

         Each of the three defendants filed separate motions to dismiss. Each claims that:

1. The Complaint fails to meet the heightened standards of pleading required by Rule 9(b) Fed. R. Civ. P.; and
2. The Complaint does not and cannot satisfy the materiality requirement of the FCA.

         R&V and Violi also claim that the Government has engaged in impermissible “shotgun” pleading and that the Government has failed to sufficiently plead scienter.

         Finally, R&V contends that the Government has failed to allege with sufficient particularity that R&V submitted or caused to be submitted false claims.

         “Originally passed during the Civil War in response to overcharges and other abuses by defense contractors, Congress intended that the False Claims Act, 31 U.S.C.A. §§ 3729–3733 (West Supp.1998), and its qui tam action would help the government uncover fraud and abuse by unleashing a ‘posse of ad hoc deputies to uncover and prosecute frauds against the government.’ United States ex rel. Milam v. Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th Cir. 1992).” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999). See also United States ex rel. Escobar v. Universal Health Services, Inc., 842 F.3d 103, 106 (1st Cir. 2016), quoting United States v. Bornstein, 423 U.S. 303, 309 (1976).

         In United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., 675 F.3d 394 (4th Cir. 2012), Judge Duncan, writing for the majority, described the statutory framework:

The FCA is a statutory scheme designed to discourage fraud against the federal government. 31 U.S.C. § 3729(a)(i) provides, in relevant part, that “any person who ... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval ... is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 ... plus 3 times the amount of damages which the Government sustains because of the act of that person. Section 3729(b)(1) defines the term “knowingly” to “mean that a person, with respect to information ... has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information,” with the additional provision that “no proof of specific intent to defraud” is required. Section 3729(b)(2) further defines, in relevant part, the term “claim” as “any request or demand, whether under a contract or otherwise, for money or property ... that ... is presented to an officer, employee, or agent of the United States.” The Stark Law was enacted to address overutilization of services by physicians who stood to profit from referring patients to facilities or entities in which they had a financial interest. The Stark Law, and regulations promulgated pursuant thereto (“Stark Regulations”) prohibit a physician who has a “financial relationship” with an entity-such as a hospital-from making a “referral” to that hospital for the furnishing of certain “designated health services” for which payment otherwise may be made by the United States under the Medicare program. 42 U.S.C. § 1395nn(a)(1); 42 C.F.R. § 411.353(a). A hospital may not submit for payment a Medicare claim for services rendered pursuant to a prohibited referral. 42 U.S.C. § 1395nn(a)(1)(B); 42 C.F.R. § 411.353(b). The United States may not make payments pursuant to such a claim, and hospitals must reimburse any payments that are mistakenly made by the United States. 42 U.S.C. § 1395nn(g)(1); 42 C.F.R. § 411.353(c), (d). However, when a physician initiates a service and personally performs it, that action does not constitute a referral under the Stark Law. 42 U.S.C. § 1395nn(h)(5); 42 C.F.R. § 411.351.
The Stark Law and Stark Regulations define a “financial relationship” to include “a compensation arrangement” in which “remuneration” is paid by a hospital to a referring physician “directly or indirectly, overtly or covertly, in cash or in kind.” 42 U.S.C. §§ 1395nn(a)(2), (h)(1); 42 C.F.R. § 411.354. An indirect financial relationship exists if, inter alia, there is an indirect compensation arrangement between the referring physician and an entity that furnishes services. An indirect compensation arrangement exists if, inter alia, the referring physician receives aggregate compensation that “varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing” services. 42 C.F.R. § 411.354(c)(2)(ii) (emphasis added).
The Stark Regulations provide that certain enumerated compensation arrangements do not constitute a “financial relationship.” 42 C.F.R. § 411.357. Significantly for our purposes, a subset of indirect compensation arrangements do not constitute a financial relationship if the compensation received by the referring physician is (1) equal to the “fair market value for services and items actually provided”; (2) “not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician” for the hospital; and (3) “commercially reasonable.” 42 C.F.R. § 411.357(p). Subsection 411.357(p) is known as the “indirect compensation arrangements exception.” See, e.g., 72 Fed.Reg. at 51,014.

675 F.3d at 397-98.

         “There are two categories of false claims under the FCA: a factually false claim and a legally false claim. U.S. ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008). A claim is factually false when the claimant misrepresents what goods or services that it provided to the Government and a claim is legally false when the claimant knowingly falsely certifies that it has complied with a statute or regulation the compliance with which is a condition for Government payment. Id. A legally false FCA claim is based on a ‘false certification’ theory of liability. See Rodriguez v. Our Lady of Lourdes Med. Ctr., 552 F.3d 297, 303 (3d Cir. 2008), overruled in part on other grounds by U.S. ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009). On this appeal, we are concerned only with allegedly legally false claims related to appellees' eligibility to receive payment, as appellants do not contend that appellees did not deliver the services for which they sought payment.

         “There is a further division of categories of claims as the courts have recognized that there are two types of false certifications, express and implied. See, e.g., Conner, 543 F.3d at 1217. Under the ‘express false certification’ theory, an entity is liable under the FCA for falsely certifying that it is in compliance with regulations which are prerequisites to Government payment in connection with the claim for payment of federal funds. Rodriguez, 552 F.3d at 303. There is a more expansive version of the express false certification theory called ‘implied false certification’ liability which attaches when a claimant seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment. Id. Thus, an implied false certification theory of liability is premised ‘on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.’ Mikes v. Straus, 274 F.3d 687, 699; see also United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1266 ...

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