U.S. ex rel. Schaengold v. Mem’l Health, Inc. (Summary)

FALSE CLAIMS ACT

U.S. ex rel. Schaengold v. Mem’l Health, Inc., No. 4:11-cv-58 (S.D. Ga. Dec. 8, 2014)

fulltextA federal district court in Georgia granted in part and denied in part a motion to dismiss filed by a hospital against part of a lawsuit filed by the federal government. Specifically, the hospital moved to dismiss the government’s claim for recovery under the reverse false claims provision of the False Claims Act.

As a key part of its reverse false claims case against the hospital, the government drew upon certain cost reports submitted by the hospital. It alleged that these cost reports not only falsely certified compliance with the federal Stark law, but also concealed the hospital’s obligations to refund overpayments to the government. In addition, because the hospital worked in tandem with several different subsidiaries, the government argued that liability extended to the entire “unitary health system” rather than solely to the hospital that submitted the cost reports.

The court found this argument unpersuasive. It concluded that the government had not provided sufficient evidence to justify a decision to set aside the hospital’s corporate structure. In addition, it explained that the government had not given any evidence that the other subsidiaries were directly involved in submitting the false claims in dispute.

Although it did not allow the government to hold the entire health system liable, the court did allow the government to continue its lawsuit against the hospital that had submitted the cost reports. It reasoned that the government had provided “sufficient indicia of reliability” to the court, particularly about illegal referrals that were made by physicians, to overcome the hospital’s motion to dismiss. Consequently, it denied the hospital’s motion to dismiss the reverse false claims allegations against itself, but allowed the hospital to dismiss the claims made against its affiliates and subsidiaries.

The court also granted the government’s request for leave to cure any pleading deficiencies in the complaint. The government has 20 days to replead its claims.