United States of America v. Sutter Health

Background

Pseudonymous plaintiff Judy Jones, called the “Relator,” brought a private lawsuit in the name of the United States and California under the federal False Claims Act and California False Claims Act. She sued Sutter Health, Sutter Bay Medical Foundation, Palo Alto Medical Foundation, Palo Alto Foundation Medical Group, Dr. Roy Hong, and unknown defendants.

Jones alleged that the defendants fraudulently billed Medicare and received federal and state funds by regularly using incorrect billing codes, separating services that should have been billed together, and repeatedly using codes for first-time immediate mastectomy reconstruction. She said she identified these practices by analyzing Medicare claims data obtained through two Freedom of Information Act requests to the Centers for Medicare and Medicaid Services.

The United States and California declined to intervene in the case. Jones’s remaining claims were under the federal and California False Claims Acts; she had previously voluntarily dismissed a California insurance-fraud claim without prejudice.

Motions and Legal Standards

The Sutter Defendants and Doctor Defendants each moved to dismiss the First Amended Complaint. They argued that the claims were barred by the False Claims Act’s public-disclosure bar, were not pleaded with the required detail for fraud claims, and improperly used a pseudonym.

Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for failure to state a legally sufficient claim. Fraud claims must also satisfy Rule 9(b), which requires the complaint to identify the circumstances of the alleged fraud with particularity, including the who, what, when, where, and how. If a complaint is dismissed, courts generally allow amendment unless the problem cannot be cured, amendment would cause undue prejudice or delay, or amendment would be futile.

The court granted the Doctor Defendants’ requests for judicial notice of public records and a Centers for Medicare and Medicaid Services fee schedule. It also granted Jones’s request for judicial notice of public records, while declining to treat reasonably disputed facts in those materials as established.

Public-Disclosure Bar

The public-disclosure bar requires dismissal of a False Claims Act qui tam action when substantially the same allegations or transactions were publicly disclosed through specified sources, including a federal report. The court held that a federal agency’s written response to a Freedom of Information Act request qualifies as such a report under Supreme Court precedent.

The court concluded that the Medicare claims data Jones obtained through her Freedom of Information Act requests publicly disclosed all material elements of the alleged fraudulent transactions. The First Amended Complaint described Jones’s investigation as obtaining the data, reviewing it, and inferring fraud from the billing information and Centers for Medicare and Medicaid Services guidelines. The court gave examples from the complaint, including allegations about Dr. Hong’s billing and use of a particular procedure code, and Sutter Health’s use of that code.

Because the alleged fraud could be inferred from information already in the government’s possession when the lawsuit was filed, the court held that Jones’s analysis did not provide the government with genuinely new and material information. The court also noted that the United States and California had declined to intervene.

Original-Source Exception

The False Claims Act contains an exception for an “original source”—an individual who either voluntarily disclosed the information to the government before public disclosure or has independent knowledge that materially adds to the publicly disclosed allegations or transactions and provided that information to the government before filing suit.

Jones argued that she was an original source because of her medical and surgical expertise, her claimed insider knowledge, and an alleged inconsistency between Dr. Hong’s deposition testimony and the Medicare data. The court rejected that argument. It held that expertise applied to publicly disclosed information does not itself avoid the public-disclosure bar. It also found that the cited deposition testimony did not establish the alleged inconsistency because the billing code at issue applied to more than one type of procedure. In addition, the court held that one alleged inconsistency involving one billing code did not materially add to the public information.

Disposition

Because the public-disclosure bar was dispositive, the court did not address the defendants’ other arguments concerning fraud pleading, knowledge, or Jones’s use of a pseudonym.

The court granted the Sutter Defendants’ and Doctor Defendants’ motions to dismiss the First Amended Complaint with leave to amend. Jones was allowed 21 days from the date of the order to file a second amended complaint addressing the identified deficiencies. The court stated that failure to meet the deadline or cure the deficiencies would result in dismissal of the deficient claims with prejudice. Jones could not add new causes of action or parties without court permission or the parties’ stipulation.