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United States v. North East Med. Services

United States District Court, N.D. California

December 17, 2014

UNITED STATES OF AMERICA, et al., Plaintiffs,
v.
NORTH EAST MEDICAL SERVICES, Defendant

For United States of America, ex rel. Loi Trinh and Ed Ta-Chiang Hsu, Plaintiff, Counter-defendant: Ila Casy Deiss, LEAD ATTORNEY, United States Attorney's Office, Northern District of California, San Francisco, CA; Edward C. Crooke, United States Department of Justice, Civil Division, Washington, DC; Melanie Lea Proctor, United States Attorney's Office, Civil Division, San Francisco, CA.

For State of California, ex rel. Loi Trinh and Ed Ta-Chiang Hsu, Plaintiff: Ila Casy Deiss, United States Attorney's Office, Northern District of California, San Francisco, CA; Lora Fox Martin, CAAG Office of Attorney General of California, Criminal, San Diego, CA; Melanie Lea Proctor, United States Attorney's Office, Civil Division, San Francisco, CA.

For North East Medical Services, Defendant: James L. Feldesman, LEAD ATTORNEY, PRO HAC VICE, Feldesman Tucker Leifer Fidell LLP, Washington, DC; Matthew Sidney Freedus, LEAD ATTORNEY, PRO HAC VICE, Washington, DC; Marisa Beth Guevara, Nicole M. Bacon, PRO HAC VICE, Feldesman Tucker Leifer Fidell LLP, Washington, DC; Robert F. Kane, Law Offices of Robet F. Kane, San Francisco, CA.

For Loi Trinh, Relator, Ta-Chiang Hsu, Relator, Miscellaneous: James T. Diamond, Jr., LEAD ATTORNEY, Goldfarb & Lipman, Oakland, CA.

For North East Medical Services, Counter-claimant: James L. Feldesman, LEAD ATTORNEY, PRO HAC VICE, Feldesman Tucker Leifer Fidell LLP, Washington, DC; Matthew Sidney Freedus, LEAD ATTORNEY, PRO HAC VICE, Washington, DC; Marisa Beth Guevara, Nicole M. Bacon, PRO HAC VICE, Feldesman Tucker Leifer Fidell LLP, Washington, DC; Nicole M. Bacon, PRO HAC VICE, Feldesman Tucker Leifer Fidell LLP, Washington, DC; Robert F. Kane, Law Offices of Robet F. Kane, San Francisco, CA.

For State of California, ex rel. Loi Trinh and Ed Ta-Chiang Hsu, Counter-defendant: David Becker Songco, Attorney General Ofc, San Diego, CA; Lora Fox Martin, CAAG Office of Attorney General of California, Criminal, San Diego, CA.

ORDER GRANTING MOTION TO STRIKE SUPPLEMENTAL DOCUMENT PRODUCTION AND EXPERT REPORT Re: Dkt. No. 176

JOSEPH C. SPERO, United States Magistrate Judge.

I. INTRODUCTION

This case originated as a qui tam action against Defendant North East Medical Services (" NEMS") under the federal False Claims Act (" FCA") and the California False Claims Act (" CFCA"). Plaintiffs, the United States of America and the State of California (the " Governments"), allege that NEMS failed to report properly all reimbursements that it received for providing healthcare services, thus allowing NEMS to claim reconciliation payments from the Governments that it was not entitled to recover. Although fact discovery closed on December 3, 2013, NEMS first disclosed tens of thousands of documents in September of 2014. NEMS claims that these documents show that it was justified in not reporting certain reimbursements. The Governments move to strike as untimely NEMS's supplemental production and a supplemental expert report that relies on the documents at issue.

The Motion was taken under submission on November 3, 2014. Dkt. 182. It has since been referred for decision (dkt. 194), and the undersigned agrees that the Motion is appropriate for decision without oral argument. See Civ. L.R. 7-1(b). For the reasons stated below, the Governments' Motion to Strike is GRANTED.

II. BACKGROUND

The factual and procedural background of this case and related cases is summarized in greater detail in Chief Judge Wilken's May 13, 2014 order regarding the parties' cross motions for summary judgment (" SJ Order, " dkt. 147).[1] The following summary briefly addresses the background relevant to the present motion.

A. Case Overview and Substantive Arguments

Relators Loi Trinh and Ed Ta-Chiang Hsu filed a qui tam action against NEMS in May of 2010 under the FCA and CFCA. The Governments elected to intervene in 2012, and filed their operative Amended Complaint-in-Intervention in January of 2013 (" Compl., " dkt. 26). The allegations at issue in the present motion relate to Medicaid reimbursement.

The Medicaid program offers federal funding to states that provide healthcare to the poor within a framework set by federal statute and regulation.[2] SJ Order at 3-4. Organizations like NEMS that receive Medicaid funding are known as " federally-qualified health centers, " or FQHCs. Id. at 3. California distributes Medicaid funds through a program overseen by the California Department of Healthcare Services (" DHCS") working in conjunction with regional managed care organizations (" MCOs"). Id. at 4. MCOs receive governmental funding, and contract with FQHCs to distribute funds as reimbursement for the services that FQHCs provide to qualifying patients. Id. at 4-5. To the extent that MCOs fail to fully reimburse FQHCs for the cost of services provided, FQHCs may submit requests to DHCS for so-called " wraparound payments" based on the estimated difference between the FQHCs' actual costs and the payment they initially received. Id. at 5. DHCS also provides a " reconciliation" process each fiscal year, through which FQHCs may receive additional reimbursement if they demonstrate that the wraparound payments underestimated what they were owed. Id. at 5-6. The reconciliation process employs a " facility-specific per-visit reimbursement rate" to determine the facility's actual costs. Id. at 6. The Governments' expert states, and NEMS does not appear to dispute, that this reimbursement rate is based on the facility's cost data reported from either the average of 1999 and 2000 or from 2000 standing alone. Rosenstein Report (dkts. 158-1, 158-2) at 5-6.

The Governments' theory of this case is that NEMS improperly failed to report large portions of the payment it received from the San Francisco Health Plan (" SFHP"), an MCO, and therefore improperly claimed and received approximately twenty million dollars through reconciliation from 2001 through 2010. SJ Order at 7. According to the Government, NEMS recorded its full reimbursements on an accounting ledger for a division it called " NEMS Medical Group/Management Services Organization" (" NEMS MSO"), transferred a portion of those reimbursements to the " NEMS Clinic" ledger, and failed to report the portion that remained on the NEMS MSO ledger in its annual reconciliation reports. See Compl. ¶ ¶ 27-29. NEMS does not dispute that it did not report all of the payments it received, but argues that it was not required to do so because the unreported payments were for " specialty" services outside the scope of Medicaid, and because payment for such services was distributed to third-party providers through NEMS MSO and thus not retained by NEMS. SJ Order at 16-17; NEMS's Opp'n to SJ (dkt. 114) at 17-18.[3]

At summary judgment, the Governments argued that even if NEMS was excluding only " specialty" services from its reported receipts, its reconciliation claims would still be inflated because the costs used to calculate its reimbursement rates excluded a far more limited set of services. See Gov'ts' SJ Opp'n (dkt. 115) at 4 (" When NEMS was reporting its costs for purposes of setting its reimbursement rate, it narrowly defined 'non-FQHC services' to include only orthodontic and outside laboratory services."). NEMS objected to this argument, particularly as presented in the Governments' supplemental filing in response to the Court's request for unrelated citations to the record. See dkt. 142 (Governments' supplemental filing). NEMS moved to strike the Governments' response or, in the alternative, supplement the record. Dkt. 142.

Based on the parties' cross motions and the record collected through fact discovery, Chief Judge Wilken held that neither party was entitled to summary judgment on the Governments' FCA and CFCA claims. SJ Order at 17. She disregarded the portion of the Governments' supplemental filing that did not address the requested citations, but denied NEMS's motion to strike because a portion of the Governments' filing properly addressed the Court's request. Id. at 26-27. Chief Judge Wilken did not address NEMS's request to supplement the record--because the Court did not rely on the Governments' arguments to which NEMS sought to respond, the request was moot. See id.

B. Fact and Expert Discovery

The Governments served NEMS with requests for production on May 8, 2013, including a number of broad requests for financial documents and a request for " any and all documents that identify inter-agency transactions between NEMS and NEMS MSO, including checks and financial transfers." [4] Proctor Decl. (dkt. 177) Ex. C; see Mot. (dkt. 176) at 2. NEMS responded on June 24, 2013. Proctor Decl. Ex. C. It asserted boilerplate objections as to the breadth, burden, and relevance of each request at issue, but also identified Bates ranges of responsive documents and stated that discovery was ongoing and that ...


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