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United States ex rel. Rembert v. Bozeman Health Deaconess Hospital

United States District Court, D. Montana, Butte Division

February 7, 2017



          SAM E. HADDON, United States District Judge


         This case is a civil "qui tarn action"[1] brought by Relators Frank M. Rembert and Michael R. Paradise ("Relators") under 31 U.S.C. § 3730 of the False Claims Act ("FCA") for violation of 31 U.S.C. § 3729. The Complaint asserts Bozeman Health Deaconess Hospital d/b/a Bozeman Health ("Bozeman Health") violated 31 U.S.C. § 3729 by unlawfully trading patient referrals for remuneration through the formation and operation of Deaconess-Intercity Imaging, LLC d/b/a Advanced Medical Imaging ("AMI").[2]

         The United States, in earlier proceedings conducted under 31 U.S.C. § 3730(b), declined to take over the action, thereby according to Relators the capacity to proceed.[3] The Complaint was unsealed.[4] Service was perfected.[5]

         Defendants Bozeman Health and AMI appeared in response to the Complaint and moved to dismiss for (1) lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1);[6] (2) failure to state a claim under Fed.R.Civ.P. 12(b)(6); and (3) failure to plead fraud with particularity under Fed.R.Civ.P. 9(b).[7] A hearing on the motions was held on February 2, 2017.

         For the stated reasons which follow, the motions are denied.


         Bozeman Health is the only hospital in Bozeman, Gallatin County, Montana.[8] Intercity Radiology, P.C. ("ICR") is a professional corporation group of radiologists practicing in Bozeman, Montana.[9] In 2005, Bozeman Health and ICR, through a related entity, Intercity Investment Group LLC ("ICIG"), formed AMI as a joint venture.[10]

         AMI functions as an outpatient imaging center.[11] It is located on Bozeman Health's campus and provides radiology services including MRI and CT scans.[12]The membership interests of AMI are divided. Bozeman Health owns 77.5%; ICIG owns 22.5%.[13] Distributions, profits, and losses are allocated according to each owner entity's percentage of membership interests.[14]


         A complaint under the FCA must meet the pleading requirements of both Federal Rules of Civil Procedure 8(a)(2) and 9(b). Both have been met.

         Rule 8(a)(2) requires a pleading to "contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.'"[15] "[A] complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face'" to survive a motion to dismiss.[16] "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[17]

         Rule 9(b) provides, in part, that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake, "[18]"including 'the who, what, when, where, and how of the misconduct charged.'"[19]"A motion to dismiss a complaint or claim 'grounded in fraud' under Rule 9(b) ... is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim."[20]


         False Claims Act and Anti-Kickback Statute

         The FCA[21] is a federal "anti-fraud statute that prohibits the knowing submission of false or fraudulent claims to the federal government" and which authorizes, under appropriate circumstances, for private qui tarn relators to bring a claim on behalf of the United States.[22] The Montana False Claims Act[23] is substantially similar to the federal FCA.

         The FCA by its terms imposes liability on any person who, inter alia:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or]
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.[24]

         The operative interrelationship between the FCA and the separate Anti- Kickback Statute[25] ("AKS") was well-summarized by Judge Lasnik in United States v. Ctr. for Diagnostic Imaging, Inc.:

The AKS makes it a crime to knowingly and willfully offer, pay, solicit or receive any remuneration to induce a person: (1) to refer an individual to a person for the furnishing of any item or service covered under a federal health care program; or (2) to purchase, lease, order, arrange for or recommend any good, facility, service, or item covered under a federal health care program.[26]

         The AKS '"does not criminalize referrals for services paid for by Medicare or Medicaid-it criminalizes knowing and willful acceptance of remuneration in return for such referrals.'"[27] Moreover, the AKS is "broadly interpreted to cover any arrangement where one purpose of the remuneration is to obtain money for the referral of services or to induce future referrals."[28] "[L]iability under the False Claims Act can be predicated on a violation of the Anti-Kickback Statute" because "compliance with the Anti-Kickback Statute is a precondition of Medicare payment."[29]

         Public Disclosure Bar

         The FCA places restrictions upon and establishes procedures to be followed by relators pursuing a qui tarn action under 31 U.S.C. § 3730. In particular, the FCA's public disclosure bar[30] "deprives a district court of jurisdiction over any qui tarn action that is based upon allegations or transactions already disclosed in certain public fora, unless the relator is the original source of the information underlying the action."[31]

         Materials and matters the Court may consider in addressing a public disclosure bar challenge to jurisdiction under 31 U.S.C. § 3730 are not confined to the face of the pleadings.[32] The Court may consider other evidence related to the question presented in deciding whether jurisdiction exists.[33]

         The public disclosure bar was established by Congress "to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits."[34] Amendments to the public disclosure bar enacted in 2010 are not retroactive and do not apply in this case.[35]

         The public disclosure bar prior to amendment provided:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.[36]

         "Original source" was defined by statute as:

[A]n individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.[37]

         The circumstances under which the public disclosure bar to jurisdiction is triggered are set forth in Malhotra v. Steinberg?[38] "The public disclosure bar is triggered if... (1) the disclosure at issue occurred through one of the channels specified in the statute;[39] (2) the disclosure was 'public'; and (3) the relator's action is 'based upon' the allegations or transactions publicly disclosed."[40] The phrase "based upon" as used in section 3730(e)(4)(A) requires substantial similarity between the relator's allegations and the prior public disclosure.[41]

         "[E]xistence of a public disclosure is a threshold condition for application of the bar."[42] All three components of the bar must be present for the bar to apply.[43] The public disclosure component must be found to be present before ...

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