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Scott v. Arizona Center for Hematology and Oncology PLC

United States District Court, D. Arizona

March 8, 2018

J. Scott, Plaintiff,
v.
Arizona Center for Hematology and Oncology PLC, et al., Defendants.

          ORDER

          David G. Campbell United States District Judge.

         Relator J. Scott has filed a qui tam action against Defendants Arizona Center for Hematology and Oncology PLC (d/b/a Arizona Center for Cancer Care, “AZCCC”) and Drs. Devinder Singh, Terry Lee, Daniel Reed, and Christopher Biggs, alleging violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. Doc. 47. Defendants have filed motions to dismiss the Second Amended Complaint under Rule 12(b)(6). Docs. 54, 55, 56, 58. The motions are fully briefed and oral argument will not aid the Court's decision. Fed.R.Civ.P. 78(b); LRCiv 7.2(f). For the reasons that follow, the Court will dismiss Counts One, Two, and Three in part, and dismiss Count Four.

         I. Background.

         For purposes of this motion, Relator's factual allegations are accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). AZCCC is a hematology and oncology practice that was formed in 2008 when Drs. Singh, Lee, Reed, and Biggs merged their practices. Doc. 47 ¶ 12. Dr. Singh is a practicing physician who also serves as the owner and president of AZCCC. Id. ¶ 14. He has “final decision making authority at AZCCC and is ultimately responsible for the fraudulent billing within the AZCCC Radiation Oncology Department.” Id. Drs. Lee, Reed, and Biggs are practicing physicians in and owners of AZCCC's radiation oncology department. Id. ¶¶ 16, 18-19.

         Relator is AZCCC's radiation oncology billing manager. Id. ¶ 11. Through his work in this position, Relator discovered five schemes in which Defendants submitted fraudulent claims for payment to Medicare, Medicaid, and Tricare. Id. ¶¶ 2, 11, 20.

         First, all Defendants falsely billed for intense physician involvement in stereotactic body radiation therapy (“SBRT”) (“Scheme One”). Id. ¶¶ 73-83. Medical practices and professionals use Current Procedural Terminology (“CPT”) codes to document their services for billing purposes. CPT code 77014 reflects a single SBRT treatment, which includes a physician's brief guidance to an imaging technician. Id. ¶¶ 76-83. When a physician personally participates in the preparation and administration of the entire SBRT treatment, a provider may simultaneously bill CPT code 77290. Id. ¶¶ 73-77. This typically happens on the first day of SBRT treatments that are administered over multiple days. Id. ¶¶ 82-83. Relator alleges that Defendants consistently failed to do the work necessary to bill CPT code 77290. Id. ¶ 92. Relator offers billing records showing approximately 4, 000 claims for payment in which Defendants coded CPT codes 77014 and 77290 for every SBRT treatment. Id. ¶¶ 99-109. Relator claims that AZCCC fraudulently received about $2 million from this scheme between January 2011 and June 2016. Id. ¶ 115.

         Second, all Defendants improperly billed for special procedures they did not perform (“Scheme Two”). Id. ¶¶ 118-35. CPT code 77470 reflects the additional physician work required for specialized and time-consuming procedures. Id. ¶¶ 119. Billing this code requires extra documentation. Id. ¶ 122. Relator asserts that Defendants used this code for unapproved, routine procedures and did so without the necessary documentation. Id. ¶¶ 121-22. To substantiate the lack of special circumstances justifying CPT code 77470, Relator offers comparative billing data. Id. ¶¶ 129-34. Centers for Medicare and Medicaid Services (“CMS”) data reflect that the average radiation oncologist in Arizona billed this code 47 times in 2014. Id. ¶ 129. But AZCCC's billing data show that three Defendants billed this code with disproportionate frequency in 2014: 133 times for Dr. Lee, 131 times for Dr. Biggs, and 105 times for Dr. Reed. Id. ¶ 130. Relator claims that Defendants have received about $2.43 million from this scheme. Id. ¶ 128.

         Third, all Defendants filed claims for medically unnecessary computerized tomography (“CT”) scans (“Scheme Three”). Id. ¶¶ 136-61. Physicians use CT scans to identify the precise location of a tumor before the first phase of radiation treatment targeting it. Id. ¶ 136. Because a patient's internal anatomy might change during treatment for some cancers, a second CT scan may be required before the second phase of radiation. Id. ¶¶ 137, 140. But another CT scan is rarely required for the second phase of radiation treatment for breast and prostate cancers. Id. ¶¶ 138, 149. Anatomical changes in breast and prostate cancer patients are rare. Id. Relator asserts that an AZCCC office where Defendants practice has nonetheless billed for second CT scans for 90% of their prostate cancer patients and 75% of their breast cancer patients. Id. ¶ 148. Relator also alleges that AZCCC's treatment form automatically requests a second CT scan for all cancer patients. Id. ¶ 150. Relator identifies multiple examples of allegedly unnecessary secondary CT scans ordered by Drs. Lee, Reed, and Biggs. Id. ¶¶ 151-57. Relator claims that Defendants have received about $1.48 million from this scheme. Id. ¶ 159.

         Fourth, all Defendants billed for inappropriate brachytherapy treatments (“Scheme Four”). Id. ¶¶ 162-72. Multiple CPT codes reflect physician management of brachytherapy treatment. Id. ¶ 163. When the brachytherapy is multi-step or includes external beam radiation, the provider can simultaneously bill CPT code 77427. Id. ¶ 164. External beam radiation may occur at most once in every five brachytherapy treatments. Id. ¶ 162. Relator offers approximately 1, 000 billing records reflecting the simultaneous billing of CPT code 77427 for brachytherapy. Id. ¶¶ 165-67. Relator alleges that “all or virtually all” of those claims are fraudulent, which resulted in approximately $135, 000 in false payments. Id. ¶¶ 167, 172.

         Finally, AZCCC improperly sent the same bills to both private and federal insurance programs, creating overpayments that it has not refunded to the United States (“Scheme Five”). Id. ¶¶ 173-89. Relator also alleges that overpayments accrued because insurers mistakenly paid AZCCC twice. Id. ¶ 175. Relator alleges that AZCCC has failed to meet Affordable Care Act deadlines to refund these overpayments. Id. ¶¶ 177-78. Relator offers four examples to substantiate this allegation. Id. ¶¶ 183-88. Relator claims that AZCCC has wrongfully kept about $1.94 million through this scheme. Id. ¶ 189.

         Relator filed a qui tam action against Defendants on October 26, 2016. Doc. 1. The United States declined to intervene (Doc. 8), and the Court unsealed the complaint on February 8, 2017 (Doc. 9). Relator remains employed by AZCCC, but the Second Amended Complaint alleges he has suffered retaliatory treatment because of his complaint. Doc. 47 ¶¶ 241-60.

         II. Legal Standard.

         A successful motion to dismiss under Rule 12(b)(6) must show either that the complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a cognizable legal theory will survive a motion to dismiss as long as it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 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.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

         A pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 8 does not demand detailed factual allegations, but “it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

         Because FCA claims involve allegations of fraud, they must also comply with the heightened pleading requirements of Rule 9(b). Cafasso ex rel. United States v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054-55 (9th Cir. 2011). That rule requires a party alleging fraud to “state with particularity the circumstances constituting fraud[.]” Fed.R.Civ.P. 9(b). A “pleading must identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about the purportedly fraudulent statement, and why it is false.” Cafasso, 637 F.3d at 1055 (internal quotation marks omitted). Rule 9(b) does not require more than general allegations regarding malice, intent, knowledge, and other conditions of a person's mind. Fed.R.Civ.P. 9(b).

         Rule 9(b) serves dual purposes: (1) to give defendants fair notice of the allegations of fraud, so that they have an opportunity to rebut specific accusations; and (2) to deter the harm caused by unsubstantiated fraud complaints. United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016). As a result:

[M]ere conclusory allegations of fraud are insufficient. Broad allegations that include no particularized supporting detail do not suffice, but statements of the time, place and nature of the alleged fraudulent activities are sufficient. Because this standard does not require absolute particularity or a recital of the evidence, a complaint need not allege a precise time frame, describe in detail a single specific transaction or identify the precise method used to carry out the fraud. The complaint also need not identify representative examples of false claims to support every allegation. It is sufficient to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.

Id. (internal quotation marks and citations omitted).

         III. AZCCC and Dr. Singh's Motion to Dismiss.

         A. Count One.

         Count One alleges that all Defendants billed for services they never provided in violation of 31 U.S.C. § 3729(a)(1)(A). Doc. 47 ¶¶ 261-83. To state a claim under § 3729(a)(1)(A), Relator must allege: “(1) a false or fraudulent claim (2) that was material to the decision-making process (3) which defendant presented, or caused to be presented, to the United States for payment or approval (4) with knowledge that the claim was false or fraudulent.” Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1047-48 (9th Cir. 2012). Relator asserts that Schemes One, Two, and Four each establish this violation. See Doc. 47 ¶¶ 269-73. AZCCC and Dr. Singh contend that Count One fails to comply with Rule 9(b)'s heightened pleading standard. Doc. 54.

         1. Scheme One.

         AZCCC and Dr. Singh offer several reasons to dismiss Count One with respect to Scheme One. Defendants first argue that the complaint is irreconcilably inconsistent. Doc. 54 at 5. Counts One and Two each address the services at issue in Scheme One. Doc. 47 ¶¶ 269, 288. Yet Count One alleges that these services were not provided, and Count Two asserts that they were performed but medically unnecessary. Id. Defendants argue that this internal inconsistency renders the complaint implausible. Doc. 54 at 5. But Rule 8 allows pleading in the alternative even if the claims are inconsistent. Fed.R.Civ.P. 8(d)(3). The cases Defendants cite do not require otherwise. Rather, they reveal that courts must evaluate the plausibility of a complaint in light of all the facts and circumstances alleged. Hernandez v. Select Portfolio, Inc., No. CV 15-01896 MMM, 2015 WL 3914741, at *9-10 (C.D. Cal. June 25, 2015) (where plaintiff alleged lender's violation of an obligation that only applied if she had completed a loan application, contradictory facts about whether she completed the application rendered the complaint implausible); Apple, Inc. v. Psystar Corp., 586 F.Supp.2d 1190, 1199-1200 (N.D. Cal. 2008) (considering contradictory market definition with other factors to find a counterclaim implausible). Relator's complaint clearly alleges that the services were not provided. If Defendants can establish that some or all of the services were provided, Relator alleges that they were not necessary. See Doc. 60 at 9-10. This is a plausible alternative claim for relief.

         AZCCC and Dr. Singh argue that the complaint fails to identify the specific fraudulent claims for which they are liable. Doc. 54 at 5-6. Relator counters that he need not identify representative examples for each Defendant. Doc. 60 at 10. The Court agrees with Relator. Rule 9(b) “does not require absolute particularity.” United Healthcare Ins. Co., 848 F.3d at 1180. The complaint need not “describe in detail a single specific transaction” or “identify representative examples of false claims.” Id.

         Dr. Singh contends that the complaint fails to identify any false claim he submitted. Doc. 54 at 5-6. But the complaint alleges that Dr. Singh has “final decision making authority at AZCCC and is ultimately responsible for the fraudulent billing within the AZCCC Radiation Oncology Department.” Doc. 47 ¶ 14. This allegation is sufficient to state a claim against Dr. Singh.

         AZCCC and Dr. Singh argue that Relator lacks the personal knowledge to make these claims. Doc. 54 at 6. Personal knowledge may be required for testimony under Federal Rule of Evidence 602, but the Court is aware of no requirement that a plaintiff have personal knowledge of all facts alleged in a complaint. Plaintiffs can prove their claims through the testimony of others and through evidence procured through discovery. Defendants cite no controlling precedent that requires a plaintiff to have personal knowledge of facts alleged in his complaint. Doc. 54 at 6. What is more, Relator's position as billing manager for the radiation oncology department renders his allegations more than unwarranted speculation.

         AZCCC and Dr. Singh argue that the complaint is inadequate because it fails to cite any “controlling rule, regulation, or standard” that would make it improper to bill CPT code 77290. Doc. 54 at 7. But Relator does not allege some regulatory infraction in the billings - he alleges that Defendants billed for services they did not provide. No rule or regulation is required to show that false billings are fraudulent. The cases Defendants cite are not to the contrary. See United States ex rel. Hanna v. City of Chi., 834 F.3d 775, 779-80 (7th Cir. 2016) (where complaint alleges false certification of compliance with a regulation, failure to identify the regulation at issue requires dismissal); United States ex rel. Polukoff v. St. Mark's Hosp., No. 2:16-cv-00304-JNP-EJF, 2017 WL 237615, at *8 (D. Utah Jan. 19, 2017) (considering complaint that alleged billing of unnecessary services, not “phantom services that were never provided”); United States ex rel. Modglin v. DJO Global Inc., 114 F.Supp.3d 993, 1024 (C.D. Cal. 2015) (dismissing allegations of knowingly failing to meet a disclosure obligation where relator neither made specific allegations of scienter nor identified “any Medicare statute, regulation, NCD, LCD, or claim form” that notified defendants of such an obligation); United States v. Prabhu, 442 F.Supp.2d 1008, 1032 (D. Nev. 2006) (applying summary judgment standard to alleged billing for unnecessary services).

         AZCCC and Dr. Singh contend that the complaint fails to allege facts sufficient to show that they acted with the requisite scienter. Doc. 54 at 8. Defendants emphasize that Relator's generalized allegation that he “counseled” Defendants is insufficient. Id. The complaint also fails, Defendants argue, to allege that any Defendant knowingly instructed him to bill CPT code 77290 improperly. Id. Relator counters that he need not allege knowledge with particularity. Doc. 60 at 13-15. The Court agrees. Rule 9(b) permits general allegations with respect to “[m]alice, intent, knowledge, and other conditions of a person's mind.” Fed.R.Civ.P. 9(b). The complaint's general allegations of scienter meet this standard. See Doc. 47 ¶¶ 24-45, 195-237.

         2. Scheme Two.

         AZCCC and Dr. Singh offer two reasons to dismiss Count One with respect to Scheme Two. Defendants argue that the complaint fails to allege the absence of circumstances justifying the use of CPT code 77470. Doc. 54 at 8-9. Relator counters that the complaint pleads reliable indicia that give rise to an inference of fraud. Doc. 60 at 15. The Court agrees with Relator. The complaint need only “allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” United Healthcare Ins. Co., 848 F.3d at 1180. The complaint satisfies this requirement.

         Defendants also contend that the complaint improperly groups all Defendants together without explaining how each was involved in the fraud. Doc. 54 at 9; see Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007) (“In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, identify the role of each defendant in the alleged fraudulent scheme.” (internal quotation marks omitted)). The Court does not agree. The complaint describes the specialized circumstances in which CPT code 77470 is appropriate. Doc. 47 ¶¶ 119, 122. It uses CMS statistics to allege that the average radiation oncologist in Arizona billed this CPT code just 47 times in 2014, while Drs. Lee, Biggs, and Reed each billed the code more than 100 times that year. Id. ¶¶ 129-30. And it alleges that Dr. Singh is the “final decision making authority at AZCCC and is ultimately responsible for the fraudulent billing within the AZCCC Radiation Oncology Department.” Id. ¶ 14. These allegations describe a fraudulent scheme, identify each Defendant's role, and present sufficient indicia that false claims were actually submitted.

         3. Scheme Four.

         AZCCC and Dr. Singh offer two reasons to dismiss Count One with respect to Scheme Four. Defendants argue that the complaint fails to allege that that they acted with the requisite scienter. Doc. 54 at 10-11. As already noted, however, Rule 9(b) permits general allegations with respect to malice, intent, knowledge, and other conditions of a person's mind. Fed.R.Civ.P. 9(b).

         They also argue that the complaint fails to allege the absence of circumstances justifying the use of CPT code 77427. Doc. 54 at 10. Defendants further assert that the complaint fails to identify specific false claims. Doc. 54 at 10-11. Relator counters that the complaint “identifies hundreds of patients for whom Defendants inappropriately billed under CPT [c]ode 77427.” Doc. 60 at 7.

         The Court agrees with Defendants. The complaint acknowledges that billing CPT code 77427 is appropriate in certain circumstances, such as when the brachytherapy is multi-step or includes external beam radiation. Doc. 47 ¶ 164. Relator alleges that Defendants “have consistently billed for brachytherapy treatment management using CPT code 77427 over the years and have received reimbursement for the same” (id. ¶ 165), and offers billing records reflecting approximately 1, 000 instances in which Defendants billed CPT code 77427 (id. ¶¶ 166-67). But unlike Schemes One and Two, Relator does not put this allegation in context. Relator does not allege that the treatments at issue fell outside the circumstances where use of CPT code 77427 is appropriate, and alleges nothing to show that the billing volume or frequency represents an abnormality. As a result, the Court cannot “infer more than the mere possibility of misconduct.” Iqbal, 556 U.S. at 679. The Court accordingly will dismiss Count One against AZCCC and Dr. Singh insofar as it relies on Scheme Four.

         B. Count Two.

         Count Two alleges that all Defendants filed false claims for medically unnecessary services in violation of § 3729(a)(1)(A). Doc. 47 ¶¶ 284-302. Relator asserts that Schemes One, Two, and Three each establish this violation. See Id. AZCCC and Dr. Singh generally argue that Relator fails to show he has the expertise to assert that certain services were medically unnecessary. Doc. 54 at 11. They also argue that he has no personal knowledge that they rendered unnecessary services. Id. As discussed above, however, there is no requirement that Plaintiff have personal knowledge of allegations in his complaint. Similarly, there is no requirement that he be an expert in the area. The Court must accept his factual allegations as true for purposes of this motion.

         1. Scheme One.

         AZCCC and Dr. Singh offer three reasons to dismiss Count Two with respect to Scheme One. Defendants first argue that the complaint is irreconcilably inconsistent. Doc. 54 at 11. As already noted, the rules of civil procedure permit alternative pleading.

         AZCCC and Dr. Singh next argue that the complaint is inadequate because it fails to cite any controlling regulation that would make these services unnecessary. Doc. 54 at 11-12. Defendants also argue that Relator has failed to show that his opinion on medical necessity controls. Id. The Court does not agree. Relator's description of Scheme One adequately explains the circumstances in which billing CPT code 77290 would be medically unnecessary (Doc. 47 ¶¶ 73-83), and the Court must take these allegations as true. Iqbal, 556 U.S. at 678.

         AZCCC and Dr. Singh also contend that the complaint fails to allege circumstances showing that they billed CPT code 77290 improperly. Doc. 54 at 12. But the complaint explains that billing CPT code 77290 for each SBRT treatment for every patient is unnecessary. Doc. 47 ¶¶ 73-83. And it presents approximately 4, 000 billing records in which Defendants billed CPT code 77290 for each SBRT treatment. Id. ¶¶ 99-109. This is sufficient to allege the absence of medical necessity.

         2. Scheme Two.

         AZCCC and Dr. Singh offer two reasons to dismiss Count Two with respect to Scheme Two. They first argue that Relator fails to identify a single instance of billing CPT code 77470 for medically unnecessary services. Doc. 54 at 12. But as noted above, Rule 9(b) does not require that Relator detail specific transactions or identify precise methods used to carry out the fraud. United Healthcare Ins. Co., 848 F.3d at 1180. The complaint need only “allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. For reasons already explained, the complaint meets this standard.

         AZCCC and Dr. Singh argue that the allegations are irreconcilably inconsistent. Doc. 54 at 12-13. Again, however, alternative pleading is allowed.

         3. Scheme Three.

         AZCCC and Dr. Singh offer several reasons to dismiss Count Two with respect to Scheme Three. Defendants first contend that the complaint fails to identify any controlling authority that would make follow-up CT scans unnecessary. Doc. 54 at 13. To the extent an email from Dr. Tannehill says otherwise, Defendants argue, it does not render an opinion on the medical necessity of any specific procedure. Id. The Court is not aware, however, of any requirement that a complaint identify controlling authority. The complaint describes with particularity the circumstances in which a follow-up CT scan would be medically unnecessary. Doc. 47 ¶¶ 137-40. The Court must credit these allegations as true. Iqbal, 556 U.S. at 678.

         AZCCC and Dr. Singh argue that the complaint fails to specify any particular physician who billed for an unnecessary CT scan. Doc. 54 at 13. Nor does it show the absence of circumstances justifying a second CT scan. Id. at 13-14. But Rule 9(b) only requires a description of the scheme with reliable indicia that false claims were actually submitted. United Healthcare Ins. Co., 848 F.3d at 1180. The complaint meets this standard. It alleges that a second CT scan is rarely required for the second phase of radiation treatment for prostate and breast cancers. Doc. 47 ¶¶ 138, 149. Yet physicians at a particular office within AZCCC's practice, including Defendants, allegedly billed for a second CT scan for 90% of their prostate cancer patients and 75% of their breast cancer patients. Id. ΒΆ 148. Relator further asserts that ...


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