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United States ex rel Doe v. Lincare Holdings, Inc.

United States District Court, S.D. Mississippi, Western Division

February 27, 2017

UNITED STATES OF AMERICA, ex rel . JOHN DOE PLAINTIFF
v.
LINCARE HOLDINGS, INC. DEFENDANT

          MEMORANDUM OPINION AND ORDER

          David Bramlette UNITED STATES DISTRICT JUDGE

         This cause is before the Court on defendant Lincare Holdings, Inc.'s Motion to Dismiss (docket entry 15). Having carefully considered the motion, response, and applicable law, and being otherwise fully informed in the premises, the Court finds as follows:

         I. Facts and Procedural History

         Relator John Doe (“Relator”), on behalf of the United States, filed this qui tam suit against defendant Lincare Holdings, Inc. (“Lincare”) under the federal False Claims Act (“FCA"), 31 U.S.C. §§ 3729, et. seq. Lincare is a national respiratory care provider with over 1, 100 locations across the country. Compl., ¶ 4. Relator was employed as a salesperson for Lincare, Inc., a wholly-owned subsidiary of the defendant, from April to September of 2014 in its Natchez, Mississippi office. Id. at ¶ 2.

         Over 80 percent of Lincare's customers are covered by Medicare or Medicaid. Id. at ¶ 4. Medicare includes a voluntary supplemental insurance benefit under “Part B, ” which covers the rental of durable medical equipment and other medical supplies. Id. at 11. To qualify for Medicare funding, the durable medical equipment must be medically necessary. Id. at 14. For a patient to be medically qualified, the patient must suffer from a severe lung disease or hypoxia-related symptoms which might be expected to improve with oxygen therapy, and (among other factors) the patient must have an arterial oxygen saturation level at or below 88% for at least five minutes. Id. at 19. Virtuox machines are generally used to measure patients' arterial oxygen saturation level by performing an overnight pulse oximetry test. Id. Lincare provides Virtuox machines to potential customers, the customers use the machine to perform an overnight oximetry test, and Lincare records the test results and retrieves the Virtuox machine the following day. Id. If a patient is otherwise medically qualified and the Virtuox machine generates a qualifying arterial oxygen saturation level, the patient's physician then submits a certificate of medical necessity and an order for oxygen supplies. Id. Once these steps are completed, providers, like Lincare, may sell the patient Medicare-covered oxygen supplies. Id.

         According to Relator, “Lincare implemented a scheme through which it falsifie[d] and manipulate[d] its Virtuox testing to ensure that the results of its tests indicate[d] an arterial oxygen saturation level at or below 88%.” Id. at 21. Relator claims that Lincare used a “host of tricks” to generate false reports that enabled the company to sell oxygen and other services to customers who were unqualified to receive them. Id. at ¶¶ 22, 25.

         Relator alleges that each morning Lincare's office manager, Kay DeWeese, and licensed practical nurse, Dee Mason, would hold a staff meeting in the Natchez office. Id. at ¶ 23. During these meetings, Lincare's delivery employees were allegedly told to instruct any potential customers receiving Virtuox machines to utilize the machines in a manner that would generate a low arterial oxygen saturation level. Id. Specifically, employees were taught to direct patients:

(i) to ensure any pain medications or antihistamines are taken before going to sleep; (ii) not to remove any fake nails before going to sleep; (iii) to raise the arm to which the sensor is attached while conducting the test; and (iv) to de-elevate his or her head before going to sleep.

Id. at ¶ 24. Relator alleges that for customers who had already been provided a positive airway pressure machine for sleep apnea or other conditions, Lincare used a software system called Profox to test the patient's arterial oxygen saturation. Id. at ¶ 26. These Profox tests were administered without physician approval, and, as with the Virtuox machine, customers were instructed to take the test in such a manner as to lower the arterial oxygen saturation number. Id. Lincare allegedly used these techniques to improperly “qualify” patients for Medicare-covered oxygen services. Id. After reporting this conduct to Lincare's Compliance office on two occasions, Relator claims he was terminated for “insubordination” and “causing discord.” Id. at ¶ 27.

         This oximetry testing scheme allegedly extended beyond Lincare's Natchez office. Relator claims that two employees stationed in other locations reported that Lincare improperly coached patients to “use the Virtuox machine right after walking up stairs . . . walk around the room while the Virtuox machine [is] connected, [] hold their breath while using the machine. . . or [] have a family member with a known low oxygen saturation to wear the machine instead.” Id. at 29. And another employee allegedly reported that Lincare would deliver oxygen and equipment to patients before obtaining physician approval. Id. at 32.

         On February 25, 2015, Relator filed his original Complaint against the defendant under seal, alleging that Lincare violated Sections 3729(a)(1)(A), (B), and (G) of the FCA by submitting fraudulent bills to the government after deliberately manipulating and falsifying pulse oximetry tests to generate the appearance of low oxygen saturation levels. Id. at ¶ 37. Relator also asserted a claim for retaliatory discharge under Section 3730(h). The Complaint was unsealed on August 24, 2015 after the government declined to intervene. Defendant Lincare moved to dismiss Relator's complaint for lack of subject matter jurisdiction and failure to state a claim under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).

         II. Discussion

         A. False Claims under 31 U.S.C. § 3729

         Lincare urges the Court to dismiss the complaint under Rule 12(b)(1) for lack of subject matter jurisdiction because the FCA's first-to-file bar precludes Relator's claims. Additionally, Lincare submits that dismissal for failure to state a claim under Rule 12(b)(6) is warranted because Relator's claims are insufficiently pled and also precluded by the FCA's public disclosure bar. When a Rule 12(b)(1) motion is filed in conjunction with a motion under Rule 12(b)(6), the Court considers the jurisdictional challenge first. Roop v. Melton, 2013 WL 5349153, *3 (N.D. Miss. 2013). Thus, the Court shall address the jurisdictional challenge to Relator's FCA claims under the first-to-file bar before considering Lincare's arguments for dismissal under Rule 12(b)(6).

         1. Subject Matter Jurisdiction

         When considering a motion to dismiss under Rule 12(b)(1), the Court may look to: “(1) the complaint alone, (2) the complaint supplemented by undisputed facts in the record, or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” U.S. ex rel. Colquitt v. Abbot Laboratories, 864 F.Supp.2d 499, 516 (N.D. Tex. 2012). The Court considers all well-pled allegations as true, viewing them in the light most favorable to the plaintiff. Id. The party asserting jurisdiction bears the burden of proving that jurisdiction does in fact exist. Ramming v. U.S., 281 F.3d 158, 161 (5th Cir. 2001).

         The FCA's first-to-file bar prohibits plaintiffs from bringing “a related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5). This jurisdictional bar was enacted “to discourage opportunistic plaintiffs from filing parasitic lawsuits that merely feed off previous disclosures of fraud.” U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir. 2009). In determining whether the Relator's claim is barred by the first-to-file provision, the court must compare the relator's complaint with the allegedly first-filed complaint. U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009). Though the allegations of fraud need not be identical across the lawsuits, Section 3730(b)(5)'s jurisdictional bar will apply “so long as the later-filed complaint alleges the same material or essential elements of fraud described in a pending qui tam action.” Id. at 378. The first-to-file bar enjoys relatively broad application, and the essential focus is on “whether an investigation into the first claim would uncover the same fraudulent activity alleged in the second claim.” U.S. v. Planned Parenthood of Houston, 570 Fed.Appx. 386, 389 (5th Cir. 2014). See also U.S. ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1189 (9th Cir. 2001) (“once the government knows the essential facts of a fraudulent scheme, it has enough information to discover related frauds”). Thus, a relator cannot avoid the first-to-file bar by “simply adding factual details or geographic locations to the essential or material elements of a fraud claim brought against the same defendant” in a prior suit. Branch, 560 F.3d at 378.

         In its motion, Lincare argues that Relator's fraud claims are precluded by the FCA's first-to-file bar because they are duplicative of allegations previously asserted in a case pending before the United States District Court for the District of Massachusetts. See U.S. ex rel. Robins et al. v. Lincare, Inc. et al., 1:10-cv-12256-DPW (D. Mass. 2014). Lincare contends that because Relator alleges the same general conduct and theory of fraud contained in the Robins complaint, Relator's claims must be dismissed. In response, ...


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