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State ex rel. Dillion v. St. Elizabeth Medical Center, Inc.

United States District Court, E.D. Kentucky, Northern Division, Covington

July 13, 2017

UNITED STATES OF AMERICA, EX REL. KATHERINE DILLION PLAINTIFF
v.
ST. ELIZABETH MEDIAL CENTER, INC. DEFENDANT

          MEMORANDUM OPINION AND ORDER

          William O. Bertelsman United States District Judge

         This is a qui tam action brought pursuant to the False Claims Act (“FCA”). 31 U.S.C. §§ 3729-3730. On behalf of the United States, Katharine Dillon (“Relator”) alleges that her former employer, St. Elizabeth Medical Center, Inc. (“SEMC”), systematically and willfully submitted thousands of false claims to the United States government, seeking payment for double billed and medically unnecessary hospital laboratory procedures.

         The matter now comes before the Court on SEMC's Motion to Dismiss. (Doc. 21). Having previously heard the parties, the Court now issues this Memorandum Opinion and Order.

         I. Facts

         Relator Katharine Dillon was a Laboratory Systems Director with SEMC from March 2011 through November 2013. (Doc. 33 at 7-8). During that time, she allegedly observed various issues relating to SEMC's billing practices, including systematic double billing for troponin[1] lab testing and fraudulent upcoding of procedures.[2] (Id. at 8). Dillon reported her findings on the double billing for lab testing in a memo to SEMC's upper management and compliance committee and was allegedly met with “resistance and obstruction.” (Id. at 8). She claims SEMC never reported her findings of the double-billing to the government. (Id. at 10). Dillon later discovered the fraudulent upcoding procedures and, because she had previously been met with resistance from management regarding the double billing, she decided to initiate an internal audit-called a “Rapid Improvement Event”-to investigate the nature and scope of the alleged upcoding. (Id. at 12-13). In January 2012, data compiled from the Rapid Improvement Event allegedly confirmed Dillon's suspicions of fraudulent upcoding that had been submitted to Medicare and Medicaid, in violation of SEMC's provider agreements. (Id. at 13-14).

         In November of 2013, Dillon left SEMC. (Id. at 8). Dillon signed a separation agreement which released SEMC from all future legal claims against it arising from Dillon's employment. (Doc. 23-1 at 4). Specifically, the agreement released SEMC “from any and all claims of whatever nature, ” including claims arising “under any federal law.” (Separation Agreement, Doc. 23-1 at 4). It also included language stating Dillon “waives her right to receive any monetary relief from any action brought by her or on her behalf pursuant to the False Claims Act.” (Id.)(emphasis added). At oral argument, Dillon's counsel confirmed that his client received a $29, 000 severance payment upon execution of this agreement.

         A little more than a year after leaving SEMC, on February 3, 2015, Dillon filed this action, seeking damages and a civil penalty on behalf of the Government for SEMC's alleged violations of the FCA, as well as damages for alleged retaliation in response to her internal investigation. (Doc. 1).

         On November 2, 2016, SEMC moved to dismiss. (Doc. 21). On November 23, 2016, the United States filed a response to SEMC's Motion to Dismiss, stating that the government “has not intervened in this qui tam action, [yet] remains the real party in interest and retains a stake in ensuring that this matter does not compromise the claims of the government.” (Doc. 25 at 1). On December 30, 2016, SEMC filed a response to the government's statement of interest, attaching previously undisclosed refund letters that were allegedly sent to various entities administering the Medicare and Medicaid programs regarding the double billing issue. (Doc. 37). Relator filed an objection to the admissibility of the refund letters in consideration of SEMC's Motion to Dismiss. (Doc. 39).

         II. Analysis

         A. The Court will not include Defendant's Refund Letters when considering this Motion.

         Before addressing the merits of SEMC's Motion to Dismiss, the Court must first establish the body of evidence it may consider. In response to the Government's statement of interest, SEMC attached refund letters it allegedly sent to various entities administering the Medicare and Medicaid programs. “In those letters, [SEMC] explained the nature of the overbilling, how it was detected, and included a reimbursement check for the amount of overbilling which occurred during the period investigated.” (Def. Resp. to Government's Statement of Interest, Doc. 37-1). SEMC asserts that these letters are proof that SEMC “placed the Government on notice of the troponin overbilling which is now the subject of Relator's complaint.” (Id. at 2). Dillon objects to these letters, arguing they constitute new evidence outside the pleadings and should not be used in deciding whether to grant SEMC's Motion to Dismiss.

         As will be discussed, whether the government had knowledge of allegedly fraudulent actions before the filing of this qui tam action is crucial to deciding whether Dillon is barred from pursuing this FCA case. SEMC's response to the government's statement of interest is the first instance in which these letters are referenced. More importantly, SEMC made no mention in its Motion to Dismiss that the government was ever put on notice of Dillon's alleged findings.

         The Court is constrained from admitting these letters for the purpose of ruling on SEMC's Motion to Dismiss because when

matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.

Fed. R. Civ. P. 12(d).

         Here, SEMC failed to include these letters and the assertion that the government was put on notice of the alleged fraud in its Motion to Dismiss. This denied Dillon and the government a “reasonable opportunity to present additional material and to request discovery.” Wysocki v. Int'l Bus. Mach. Corp., 607 F.3d 1102, 1109 (6th Cir. 2010). Thus, the Court will not convert SEMC's Motion to Dismiss into a motion for summary judgment, and the letters will be excluded from the Court's present analysis.

         The Court will therefore SUSTAIN Dillon's objection to the admission of SEMC's refund letters in considering this Motion to Dismiss.

         B. The record is not clear on whether the government had enough information to know the substance of Dillon's qui tam action at the time Dillon signed her release of an FCA claim, so a decision on whether this suit is barred is not appropriate at this juncture.

         On November 12, 2013, Relator signed a separation agreement with her erstwhile employer, Defendant SEMC, which included a release “from any and all claims of whatever nature, ” including claims arising “under any federal law.” (Separation Agreement, Doc. 23-1 at 4). The release also includes the following language:

Associate agrees that she cannot waive her right to file a charge with the Equal Employment opportunity Commission or Department of Labor but should a charge be filed, [s]he waives her right to receive any monetary relief from the charge(s). Associate further waives her right to receive any monetary relief from ...

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