Arizona Court denies motion to dismiss (mostly) in health care qui tam, retaliation suit

by Ben Vernia | March 23rd, 2011

On March 3, Arizona District Judge Frederick J. Martone issued an order denying most of the relief sought by the defendants – a hospital, an operating company and its CEO – in a qui tam and wrongful retaliation suit brought by a whistleblower, the hospital’s former CFO. In the suit, the relator alleged that the hospital and its management company submitted false claims for observation patients improperly converted to inpatient status, violated the Antikickback Statute (AKS), conspired to submit false claims, and retaliated against him by firing him, in violation of the False Claims Act.

The defendants moved to dismiss the case on several grounds, including lack of particularity, the corporate conspiracy doctrine, a lack of standing to raise AKS claims (after the government declined to intervene in the case), and the existence of an alternative basis for his termination.

Judge Martone’s decision:

  • Denied the defendants’ argument that the complaint lacked particularity, reasoning that he was only required to allege particular details of a scheme paired with reliable indicia that lead to a strong inference that claims were actually submitted. He met this standard, the court concluded, by offering details from internal and external investigations which identified pervasive problems with the hospital’s practices.
  • Granted the defendants’ particularity argument with respect to the hospital’s compliance with Medicare’s conditions of participation (regarding the hospital’s nurse supervision practices) and the AKS (concerning its relationship with a heart center in the area).
  • Granted (without the relator’s apparent concurrence) a motion to dismiss direct AKS allegations for lack of standing.
  • Granted a motion to dismiss a False Claims Act conspiracy count on the grounds of the intracorporate conspiracy doctrine, refusing to apply an exception for criminal conspiracies to the False Claims Act. Even though the CEO was employed by the management company, and was just an agent of the hospital, the court reasoned, this was a formalistic distinction without a difference.
  • Denied the motion to dismiss a wrongful retaliation count, even though a dispute between the relator and his superiors over an IRS form was a factor in his firing. This would complicate his proof, the court acknowledged, but was not grounds for dismissing the count.

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