Osinek v. Kaiser Permanente

Background

The consolidated litigation concerns allegations that Kaiser entities violated the federal False Claims Act by submitting false claims for payment to the federal government. This order addresses only the defendants’ motion to dismiss Dr. Taylor’s second amended complaint.

Dr. Taylor alleged three theories of misconduct involving Medicare risk-adjustment claims: (1) Kaiser’s internal providers used unsupported or inaccurate diagnosis codes and Kaiser failed to correct the problem; (2) Kaiser identified high error rates in diagnosis codes from outside providers but did not correct unsupported codes; and (3) Kaiser’s natural-language-processing program identified supposedly “True Positive” diagnoses that still had high error rates, but Kaiser continued sending them into its claims system without further review or corrective action.

The second amended complaint named Kaiser Foundation Health Plan, Inc.; Kaiser Foundation Health Plan of Colorado; Colorado Permanente Medical Group P.C.; The Permanente Medical Group, Inc.; and Southern California Permanente Medical Group.

Rule 12(b)(6) Standard

The defendants sought dismissal under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The court accepted the complaint’s factual allegations as true for purposes of the motion, but required enough factual detail to make the alleged violation plausible. Because the claims alleged fraud, Federal Rule of Civil Procedure 9(b) also required particularity about the alleged fraudulent conduct.

Defendants

Dr. Taylor did not dispute that The Permanente Medical Group, Inc. and Southern California Permanente Medical Group should be dismissed based on the court’s earlier ruling about the False Claims Act’s first-to-file bar. The court therefore dismissed those two entities.

The court also dismissed Kaiser Foundation Health Plan, Inc. The complaint did not adequately allege that this entity itself participated in a nationwide or Colorado-centered fraudulent scheme. The court explained that a parent corporation is not ordinarily liable for the acts of its subsidiaries merely because it is a parent. The allegations that Kaiser Foundation Health Plan employees participated in audits, submitted certifications, or sought additional revenue were not enough, without more specific allegations connecting the entity to the alleged fraud. The court gave Dr. Taylor leave to amend if he could plead those allegations in good faith and with specificity.

Falsity

The defendants argued that Dr. Taylor had not adequately alleged that the claims submitted to the government were false, particularly under the outside-provider and natural-language-processing theories. The court rejected that argument at this stage. It held that Dr. Taylor had alleged a sufficient reason for treating the claims as false: the defendants allegedly identified diagnosis codes as erroneous but continued submitting them or failed to correct them. The court also found that the allegation that more than 100 supposedly “True Positive” claims from the Colorado region had a 10% error rate was sufficient for purposes of the falsity element.

Materiality

The court agreed with the defendants that Dr. Taylor had not adequately alleged materiality for theories based on coding-guideline violations involving diagnoses that were clinically accurate but allegedly did not comply with coding rules. Materiality asks whether the alleged error could have mattered to the government’s payment decision. The court held that Dr. Taylor needed to provide more detail about the errors underlying the reported error rates so the court could determine whether those errors plausibly would have mattered to the Centers for Medicare and Medicaid Services. The court gave him leave to amend.

Statute of Repose and Relation Back

The defendants argued that claims against the Colorado medical group were time-barred because Dr. Taylor did not add that entity until November 15, 2021. Under the False Claims Act’s statute of repose, the court concluded that claims against the Colorado medical group based on conduct before November 15, 2011, could not proceed.

Dr. Taylor argued that the claims should relate back to his original complaint under Federal Rule of Civil Procedure 15(c). The court explained that relation back can sometimes treat an amended pleading as filed on the date of the original pleading, but that adding a new defendant requires specific notice and a mistake about the proper party’s identity. The court found Dr. Taylor’s argument that the Colorado medical group had notice and would not be prejudiced too conclusory. It therefore held that he had not shown that relation back applied.

Disposition

The order states that the motion to dismiss was granted in part and denied in part. The court dismissed the two California medical groups and Kaiser Foundation Health Plan, Inc., while allowing amendment of the allegations concerning Kaiser Foundation Health Plan, Inc. and the materiality problems. Claims against the Colorado medical group based on conduct before November 15, 2011, were dismissed with prejudice. Dr. Taylor was given leave to file an amended complaint by December 12, 2022. Judge Edward Chen’s order disposed of Docket No. 181.