United States ex rel Reagan v. East Texas Medical Center Regional Healthcare System

The plaintiff took disclosures that had already been investigated and reported by Blue Cross and Blue Shield and the Health Care Financing Administration and, based on her own experience, claimed that they were fraudulent; this disagreement with the legal conclusions of BCBS and HCFA does not qualify as"informationunder the original source exception.

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Click here for the full text of this decision FACTS:East Texas Medical Center (ETMC) is a subsidiary of East Texas Hospital Foundation (ETHF) and owns and operates University Park Hospital (UPH). It was built in the early 1980s after the Texas Health Facilities Commission issued a certificate of need. The certificate stated that the cost of building UPH should not exceed $5.3 million, and that only $3.7 million of it could be financed through revenue bonds; the balance was to paid by ETHF. Despite this condition, ETHF financed the whole thing with revenue bonds, and when costs ran over, it had to secure a second certificate of need authorizing the project to cost up to just over $6.2 million, which it was. The facility opened in 1995. Now, UPH leases the facility from ETHF and purchases ancillary service from ETHF. Sally Reagan was hired in 1991 as the executive director of UPH. Reagan became suspicious of certain “financial irregularities,” namely false Medicare reporting. She was terminated in 1992 because, in Reagan’s opinion, she began to investigate these irregularities. Reagan then reported her suspicions to the Health Care Financing Administration (HCFA), which administers Medicare, and to Blue Cross and Blue Shield of Texas (BCBS), the fiscal intermediary between Medicare claimants and the HCFA. Reagan then filed a state lawsuit based on her termination. While her retaliation suit was pending, Reagan then filed a qui tam suit on behalf of the government under the False Claims Act (FCA), which the government did not intervene in. Reagan raised questions in three broad categories: 1. that UPH misrepresented its compliance with the certificate of need requirements in reports filed with BCBS; 2. that UPH falsely certified that it was in compliance with applicable Medicare regulations; and 3. that UPH misstated its status as a “related party” to ETHF and, as a result, received reimbursements to which it was not entitled. The district court granted the defendants’ summary judgment motion, which was based on the FCA’s jurisdictional bar, called the public disclosure bar. That bar says that a suit brought under FCA’s terms cannot be brought on facts that have been publicly disclosed. Alternatively, the district court found that Reagan’s claims failed on their merit. HOLDING:Affirmed, The jurisdictional bar inquiry requires the court to ask three questions: 1. whether there has been a public disclosure of allegations or transactions; 2. whether the qui tam action is based upon such publicly disclosed allegations; and 3. if so, whether the person bringing the suit is the original source of the information. Under the first question, the court agrees that the claims Reagan is asserting have been publicly disclosed in three separate ways. First, Reagan’s state court lawsuit publicly discloses the same allegations. A second public disclosure can be found in BCBS and Health and Human Services audits and investigations. The core of Reagan’s complaint is based on the assertion that the relationship between UPH and the other entities meant that they were not entitled to Medicare reimbursement for anything other than the actual cost of goods and services sold to each other. A BCBS audit in the mid-1980s, before Reagan was hired, addressed this same issue, as did a 1991 audit. In fact, reimbursement for ancillary services and the hospital lease were reduced as a result of the audits. Finally, the information was publicly disclosed by documents Reagan received pursuant to her Freedom of Information Act request. The court notes that the issue of whether a FOIA request constitutes a public disclosure has not been considered by this court, but has been by United States ex rel. Mistick v. Hous. Auth. of the City of Pittsburgh, 186 F.3d 376 (3rd Cir. 1999). That court ruled that a request did constitute public disclosure, at least for purposes of the Consumer Product Safety Act, since the specific purpose of the FOIA was to make certain information available for public scrutiny. The court adopts the Mistick court’s reasoning and holds that the FOIA request constituted a public disclosure under the FCA. The court turns to the second question in the jurisdictional bar analysis. The court finds Reagan’s assertions are “in significant part” based on the BCBS investigation and her FOIA request and response. Furthermore, Reagan attested to the fact that the information she got from her FOIA requests merely substantiated allegations she already made in her state court case. The court then turns to see if Reagan was the original source of the information, which would allow her suit even though there’s been a prior public disclosure. The original source exception is based on two requirements: 1. Reagan must demonstrate that she has direct and independent knowledge of the information on which the allegations are based; and 2. she must demonstrate that she has voluntarily provided the information to the government before filing her qui tam action. The court looks to definitions of the words “direct” and “independent” and concludes that Reagan did not have “independent” knowledge of the qui tam claims she made. Regan’s information is almost entirely from other information that has been publicly disclosed. Reagan’s knowledge of events surrounding the alleged non-compliance with the certificate of need, as well as her knowledge of alleged misrepresentations regarding the amendment of the certificate, are based entirely on public records of testimony by ETHF executives at a hearing on the certificates in the early 1980s. True, Reagan’s own investigative efforts and experience allowed her to develop some of the allegations, but that independent knowledge cannot convert otherwise second-hand information into “direct and independent knowledge.” Instead, the investigation or experience must translate into some additional compelling fact, or must demonstrate a new and undisclosed relationship between disclosed facts, that puts a government agency “on the trail” of fraud, where that fraud might otherwise go unnoticed. OPINION:Jolly, J.; Jolly, Jones and Barksdale, JJ.

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