Court Denies Move to Dismiss FCA Action Charging Medicaid Funding Fraud
July 15, 2008
BNA's Heath Care Fraud Report
Volume 11 Number 18
A federal district court in Texas Aug. 14 refused to dismiss a False Claims Act qui tam action filed by a whistleblower who alleged a Texas hospital conglomerate was involved in a Medicaid fraud scheme that illegally abused intergovernmental transfers (United States ex rel. Rose v. East Texas Medical Center Regional Healthcare System, E.D. Tex., 2:05-cv-00216-TJW, motion denied 8/14/07).
The U.S. District Court for the Eastern District of Texas rejected the contention by East Texas Medical Center Regional Healthcare System, the owner and operator of private hospitals in East Texas, including East Texas Medical Center Athens, that the transactions described by whistleblower Linnea Rose were based on public proceedings of the Henderson County Hospital Authority (HCHA). The district court found no evidence that the HCHA meetings were extensive proceedings, that the subject matter discussed was part of other ongoing proceedings conducted by HCHA, that public comment was invited or received, or that relevant documents were openly distributed.
"The Court, therefore, cannot find as a matter of law that the HCHA Board meetings fall under the category of 'administrative hearings' as listed in the public disclosure bar of the FCA," Judge T. John Ward wrote. "Accordingly, [East Texas Medical Center has] not shown a 'public disclosure' under the FCA such that this Court is divested of subject matter jurisdiction."
Federal Funds
Whistleblower Rose filed the FCA qui tam action in June 2005, alleging that HCHA opened a bank account with money provided by East Texas Medical Center and, once the bank account was opened and funded, there was an intergovernmental transfer from the bank account to the state. The federal government then matched the funds and transferred the money back to the bank account, Rose said.
According to Rose, the money was then transferred to East Texas. Rose argued that this scheme allowed East Texas to receive matching funds as if they were public hospitals. The United States declined to intervene and the court ordered the complaint unsealed in February 2007.
East Texas relied on the public disclosure bar to support its motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of jurisdiction. Rose also brought a motion to convert East Texas's motion to dismiss into a summary judgment motion and the district court exercised its discretion, converting East Texas's motion to dismiss for lack of jurisdiction into a motion for summary judgment.
Having ruled that there was no "public disclosure" under the FCA and that the parties did not appear to dispute that Rose's FCA qui tam action was based, in part, on the HCHA board meeting minutes, the district court found no need to address whether Rose was an "original source."
J. Kevin McClendon, assistant U.S. attorney, Eastern District of Texas, Plano, Texas, represents the United States. Joel M. Fineberg, Dallas, and J. Kevin McClendon and Ronald Dean Gresham Jr., Dallas, represent Rose. C. Dean Davis, A. Craig Carter, and Mark Alan Keene, with Davis & Davis, Austin, Texas, represent East Texas Medical Center.