The opinion of the court was delivered by: Mark Filip United States District Judge Northern District of Illinois
MEMORANDUM OPINION AND ORDER
On October 4, 1996, Relators, John Klaczak ("Klaczak") and Jeff Sharp ("Sharp") (collectively, "Relators"), filed under seal this qui tam action pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq. (D.E. 1.) After investigating Relators' allegations, the United States intervened in a portion of the case that ultimately settled, but it declined to intervene in the portion of the case that is still ongoing and that is the subject of this opinion.
The Second Amended Complaint-the operative pleading-alleges that Consolidated Medical Transport, Inc. ("CoMed"), Tower Ambulance Service, Inc. ("Tower"), and Daley's Ambulance Service, Ltd. ("Daley's") (also, collectively, the "Ambulance Defendants"); John W. Daley, III, Brian T. Witek, Richard S. Witek, Tom Wappel, and the Estate of John W. Daley, Jr. (also, collectively the "Individual Defendants"); and Advocate Bethany Hospital, Advocate South Suburban, Advocate Trinity Hospital, Holy Cross Hospital, Jackson Park Hospital, Loretto Hospital, Mt. Sinai Hospital, St. Bernard Hospital, and St. James Hospital (also, collectively, the "Hospital Defendants"), violated the Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), by knowingly and willfully receiving remuneration (as to the Hospital Defendants) from the Ambulance Defendants (and the Individual Defendants, their owners) in exchange for referrals of Medicare and Medicaid business. (D.E. 85.) Relators further maintain that the Hospital Defendants violated the FCA because, by certifying on their Medicare cost reports that they had complied with the AKS when they actually knew they allegedly had engaged in a kickback scheme, the Hospital Defendants knowingly caused false or fraudulent claims to be presented to the United States for payment or approval. (See, e.g.,D.E. 281.)
The Hospital Defendants-who are largely hospitals located in the economically poorest areas of Chicago and its suburbs-are the only remaining defendants in this case.*fn1 The case is before the Court on the Hospital Defendants' motions for summary judgment (D.E. 234, 235, 236, 240, 252, 259, 265) and the parties' cross-motions to exclude putative expert testimony. (D.E. 230; D.E. 292.) As explained below, the Court grants the Hospital Defendants' joint and individual motions for summary judgment.
Although the basis for the Court's ruling is set out at length below, in summary, the Courts grants summary judgment to the Hospital Defendants for a number of reasons. There are, generally speaking, three "global" defects in Relators' case that warrant summary judgment. There are also numerous failures of proof at the "local" level, in that Relators have failed to develop a meaningful record for a number of specific hospitals, relying not on specific facts but rather generalizations and innuendo. Accordingly, there are concomitant gaps in the record as to those hospitals that further warrant summary judgment in their favor.
The first global defect in Relators' case is their failure to create a triable case with respect to the illicit remuneration element. In order to prove that the Hospital Defendants violated the AKS, Relators must prove that the Hospital Defendants accepted illegal remuneration, meaning something of value, in return for referrals. Relators have failed to identify a reliable benchmark against which the Court could determine whether the contracts satisfy the statutory definition of remuneration. Relators' initial theory that the contracts themselves are proof of remuneration is not plausible for a number of reasons, as explained below. Relators have also failed to prove that, as a matter of law, discounts below the amount the Ambulance Defendants charged Medicare constitutes remuneration, and have not shown that the Medicare rate is a reasonable proxy for "fair market value." Relators have not built a record as to fair market value for ambulance services during the relevant time period and Relators cannot otherwise offer competent proof with respect to fair market value at trial. In sum, Relators have failed to assemble a properly-developed record supporting their assertions on this element of their case.
The second global defect in Relators' case is their failure to create a triable case with respect to the Anti-Kickback Statute's heightened scienter requirements-i.e., "knowingly" and "willfully" engaging in criminal misconduct. Relators have no direct evidence with respect to the Hospital Defendants' supposed knowing and willful acts of criminal misconduct. Furthermore, Relators have not shown that any of the Hospital Defendants knew what CoMed charged Medicare or what CoMed charged other contractual customers. Relators' attempts to draw illicit inferences from the Hospital Defendants' conduct is consistently frustrated by legitimate, uncontradicted explanations for their acts. In sum, Relators' purported proof with respect to scienter in the assembled record is so deficient that no rational jury could find an AKS violation.
The final global defect is that Relators' case, at a conceptual level, is fundamentally implausible. Relators maintain, in so many words, that the agents of the Hospital Defendants were so intent on lowering Medicare Part A costs that they knowingly and willfully risked harsh administrative sanctions and civil and/or criminal liability for the respective hospitals, as well as potential criminal liability for themselves, with no allegation that any agent ever even sought any personal kickback or bribe or supposed personal enrichment of any kind for themselves. Put somewhat differently, to believe Relators' theory, the jury would have to believe that employees of the Hospital Defendants were willing to go to jail to help their respective non-profit organization fulfill its mission, which largely involved the provision of low-cost or free health care to the needy in and around Chicago. Even if the initial premise of Relators' theory were not so implausible, the Hospital Defendants took actions fundamentally inconsistent with their alleged motive, such that, based on the record evidence, no rational jury could infer that the Hospital Defendants knowingly and willfully accepted illicit remuneration in violation of federal law. For example, many hospitals were permitted to take "quick-pay" discounts of up to 45% even if they paid bills years later, yet Relators have failed to prove that any of the Hospital Defendants took advantage of these discounts. Relators maintain that the Hospital Defendants were not contractually obligated to act as a guaranty for unpaid bills, yet the Hospital Defendants, in practice, accepted responsibility for patients that had no coverage and no means to pay, and many Hospital Defendants negotiated "no hassle" provisions in the contracts that protected patients at the expense of the hospitals' respective bottom lines. No rational jury could believe that the Hospital Defendants were willing to risk criminal sanctions to cut costs while voluntarily assuming substantial costs associated with patient care.
In addition to Relators' global failures of proof, Relators have also failed to address other defects in their case against respective individual Hospital Defendants that further (and sometimes independently) warrant summary judgment. In addition to the joint memorandum in support of the summary judgment motions, the Hospital Defendants filed supplemental memoranda highlighting Relators' failure of proof with respect to each individual hospital. Relators did not even file responses to these supplemental briefs and motions, and their general brief in opposition to summary judgment is fatally deficient with respect to individual factual circumstances. For example, Relators fail to develop any meaningful argument with respect to St. James, which never had a written contract and never had an explicit referral agreement-supposed cornerstones of Relators' otherwise defective theories. To take another example, with respect to South Suburban, Relators' theory fails because South Suburban's contracted rates were above the Medicare allowable rate in each contract year-another supposed cornerstone of Relators' case. The individual failures of proof are discussed in the final section of the opinion, and those failures further support the propriety of summary judgment as to various individual defendants.
To provide essential context for Relators' allegations, the Court sets forth background information concerning Medicare and Medicaid prior to discussing the specific factual issues presented. This background section concludes with a discussion of this case's procedural history.
The Supplementary Medical Insurance Program for the Aged and Disabled, commonly known as Medicare, is a federal health insurance program for people who are either 65 years of age or older or qualify because they have certain disabilities. (D.E. 80 at 3.) The Department of Health and Human Services ("HHS") administers the Medicare program; however, HHS uses private insurance contractors ("carriers") to administer claims. (Id.)
Medicare has four parts: Part A (Hospital), Part B (Medical), Part C (HMO and PPO Plans), and Part D (Prescription Drug Coverage). See Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services, Medicare at a Glance 1 (July 2006) (available at http://www.medicare.gov/Publications/Pubs/ pdf/11082.pdf) (last visited September 20, 2006). Relators' allegations concern Medicare Parts A and B only.
a. Medicare Coverage of Ambulance Services
Ambulance services are a covered benefit under both Part A and Part B of the Medicare program. See Office of the Inspector General, U.S. Department of Health and Human Services, OEI-12-99-00280, Medicare Ambulance Payments: A Framework for Change 1 (April 1999) (hereinafter cited as "OEI-12-99-00280"). Parts A and B cover substantially similar services. (D.E. 294, Ex. 13A (Isley Report) at 6-7.) While the basic element of the service provided under Part A and Part B is similar, the identities of the payors differ, the trip distances often differ, the costs of providing the respective services differ, and the relative utilization frequency of the services differ, as explained below.
In this regard, ambulance providers bill the hospital, rather than Medicare, for Part A transports. (See, e.g.,290 ¶ 8.) Prior to 1983, hospitals were paid their "reasonable costs" for Part A ambulance transports and these costs were developed via individual Medicare cost reports. (D.E. 271 ¶ 28.) Since then, "a hospital's payments are received through a system referred to as a 'Diagnosis Related Group' (DRG) classification," meaning that "a hospital receives one global payment for all patient care needs and expenses to include medical care, room and board, food, procedures, medications, and supplies." (D.E. 294, Ex. 13A at 4-5.) Hospitals have an incentive to economize on costs for Part A services because "the hospital is responsible for any additional cost outside the predetermined payment set by Medicare Part A for the specific payment condition." (Id. at 5.) In addition, Medicare strongly encourages, and perhaps even requires, hospitals to act as prudent buyers and to seek lower prices where available and appropriate for goods and services. (See D.E. 270 at 8 (Medicare directive in its Reimbursement Manual that, "'The prudent and cost conscious buyer not only refuses to pay more than the going price for an item or service, he/she also seeks to economize by minimizing cost. This is especially so when the buyer is an institution or organization which makes bulk purchases and can, therefore, often gain discounts because of the size of its purchases. In addition, the bulk purchase of items or services often gives the buyer leverage in bargaining with suppliers for other items or services . . . Any alert and cost conscious buyer seeks such advantages, and it is expected that Medicare providers of services will also seek them.'") (quoting Medicare Provider Reimbursement Manual § 2103).)
Generally speaking, Part A ambulance transports are less costly because they involve pre-scheduled, less costly transport of stabilized inpatients.*fn2 (D.E. 267 ¶ 12.) These Part A transports also generally result in lower billing and collection costs for the ambulance company. (Id.)
Generally speaking, Part A pays for ambulance services when a hospital inpatient is transported to and from another hospital for specialized treatment, OEI-12-99-00280 at 1; hence, Part A ambulance transports are typically round-trips. (D.E. 301 ¶ 5.) However, it appears that the Part A transport rates specified in the Hospital Defendants' contracts with the Ambulance Defendants were for one leg of a transport, unless specifically noted as a round-trip fee. (D.E. 294, Ex. 18 (Peterson Dep.) at 47.)
Part B covers at least two levels of ambulance services, Basic Life Support (BLS) and Advanced Life Support (ALS)*fn3 , OEI-12-99-00280 at 3, but does not cover other means of transporting patients, such as wheelchairs, taxis, or vans. Id. at 1. Medicare classifies both BLS and ALS transports as emergency and non-emergency. (D.E. 294, Ex. 13A at 5). "'Emergency' is generally defined as a service provided after the sudden onset of a medical condition, manifesting itself by acute symptoms of such severity that the absence of immediate medical attention could reasonably result" in serious injury to the patient. (Id. at 5-6.) Medicare regularly pays for emergency ambulance services (e.g., service providers do not face substantial risk of having such claims denied). (Id.)
Part B imposes stringent criteria for covering non-emergency ambulance services, including that: (1) Part A coverage is unavailable; (2) the vehicle and crew meet certain requirements; (3) the transport is medically necessary; and (4) the trip, as a general rule, stays within certain distance and destination limitations. OEI-12-99-00280 at 3. An ambulance transport is "medically necessary" when a beneficiary's medical condition at the time of transport is such that other means of transportation would endanger the beneficiary's medical condition. See Office of the Inspector General, Department of Health and Human Services, OEI-05-02-00590, Medicare Payments for Ambulance Transports 1 (January 2006). Providers are not required to submit additional documentation for billing purposes but they must retain appropriate documentation supporting their claims. Id. at 3-4.
Defendant Mt. Sinai's proffered expert, Dr. Larry Lee Isley ("Isley"), established (largely without any attempt at contradiction) that, during the relevant time period, Medicare's "enforcement of the [eligibility criteria was] resulting in additional work and expense for ambulance providers to bill, collect, and manage these [non-emergency] transports." (D.E. 294, Ex. 13A at 14.) Stricter enforcement of the Part B eligibility criteria also exposed ambulance providers to substantial risks of financial loss because it was difficult to bill patients directly for rejected claims. (Id. at 14-15 ("Under Part A transports, it was reasonable to assume the ambulance provider would be reimbursed 100 percent of the contracted rate. Under Medicare Part B . . . especially with those transports originating in a hospital to another destination, ambulance providers could reasonably expect only 60-70 percent of those transports to meet Medicare's 'medical necessity' criteria. Unless the providers conducted certain very precise steps prior to the transport the company could not seek payment from the patient for [denied claims].").) Furthermore, "the Account Receivables (A/R) for Medicare Part B transports could range from 90 to 180 days, while Part A receivables typically range from 30 to 90 days." (Id. at 15.)*fn4
During the relevant time period, Medicare's stated policy was to use a reasonable charge methodology to pay for Part B ambulance services. OEI-12-99-00280 at 1. Under this methodology, Medicare would pay 80% of the reasonable (or allowed) charge, and the beneficiary would be responsible for the remaining 20% of the charge.*fn5
Medicare based payment on the bill it received from ambulance suppliers. Id.
The record assembled reflects that, during the 1990s, the Medicare allowable rate was not necessarily or even typically based upon "fair market value" for ambulance services.*fn6 (See, e.g.,D.E. 294, Ex. 13A.) In 1999, for example, OIG attempted to compare Medicaid payment rates to those of commercial and other Federal payors; such comparisons were not possible due to the complexity of the payment methods of both Medicare and other payors. (See D.E. 294, Ex. 13A at 9 (citing Office of the Inspector General, Department of Health and Human Services, Medicare Payments for Ambulance Services-- Comparisons to Non-Medicare Payers, OEI-09095-00411 (January 1999)).) Furthermore, OIG determined that current Medicare payment methods reflected historical charges and were not based on reliable cost data. (D.E. 294, Ex. 13A (citing OEI-12-99-00280).)An analysis of Medicare's outpatient fee schedule also supported the conclusion that the allowable rate was not synonymous with fair market value. (D.E. 294, Ex. 13A at 7 ("Under Medicare's 2002 outpatient provider-based reimbursement regulations, the same surgical procedure may be reimbursed 55 percent greater" depending upon the designation of the facility); id. at 9 ("OIG . . . states that payment levels to ambulance providers were not based on the actual cost of providing services within a geographical region. Medicare's methodology of payment based on historical charges allowed providers operating in overlapping service areas to be reimbursed at different rates."); id. at 9-10 ("In a 1998 comparison of ambulance charges across the country, the reasonable charges for a BLS transport ranged from $90.00 to $421.00, and for ALS ranged from $125.00 to $550.00. In reality, the Medicare Part B reimbursement system was so inconsistent that there was no practical means to establish a [fair market value ("FMV")] in an area or region without conducting a competitive bid process."); id. at 10 ("[T]he federal government's reimbursement structure does not set market rates for two distinct reasons: (1) reimbursement methodology shows no . . . pattern to cost; and (2) Medicare has repeatedly demonstrated two different reimbursements for the same service.").) Relators have adduced no evidence that the Medicare allowable rate is equivalent to, or even approximates, fair market value for ambulance services.
All Part A providers, including the Hospital Defendants, file a cost report following the close of their cost reporting year for the purposes of reconciling their allowable costs and the payments they have received from their fiscal intermediaries on an interim basis. See 42. U.S.C § 1395g; 42 C.F.R. § 413.20(b). The cost report begins with an accounting of the costs a provider has incurred; costs not eligible for partial or full reimbursement are deducted. See 42 C.F.R. § 413.24. The provider then uses a cost accounting methodology to allocate allowable costs to the provider's routine and ancillary departments for which charges are made. See id. When all the costs are stepped down to the costs of the routine and ancillary departments, an allocation is made between Medicare and non-Medicare patients to determine Medicare's share of the costs. See id. In the actual cost report, Worksheet A is an overview of the Hospital's finances, Worksheet B is an allocation of overhead, Worksheet C is a "Computation of Ratio of Costs to Charges," Worksheet D is an apportionment to Medicare, and the aforementioned costs are carried forward to Worksheet E. See Medicare Provider Reimbursement Manual §§ 2800-17. Cost reports must include a signed statement from the provider's administrator or chief financial officer certifying the accuracy of the electronic file or the manually prepared cost report.*fn7 42 C.F.R. § 413.24(f)(4)(iv).
Medicaid is a means-tested entitlement program that is typically funded in equal parts by the federal government and state governments. Illinois Department of Public Aid, Illinois Medicaid-A Primer: FY 2003 2 (2003). Illinois Medicaid-the state program primarily administered by the Illinois Department of Public Aid-provides preventive and primary health care, hospital, pharmacy, long-term care, and other medical services. Id. Medicaid requires that Illinois must cover, among other things, hospital care and transportation. Id. at 7.
Illinois Medicaid classifies providers of transportation services as emergency or non-emergency. See Illinois Department of Health and Family Services, Handbook for Providers of Transportation Services-Chapter T-200: Policy and Procedures for Transportation Services T-201(1) (September 2005). Enrolled providers may bill the program for a number of services, including, inter alia, emergency ambulance (transportation of a patient whose medical condition requires immediate treatment), non-emergency ambulance (transportation of a patient whose medical condition requires transfer by stretcher and medical supervision), and medicar (transportation of a patient whose medical condition requires the use of a hydraulic or electric lift or ramp, wheelchair lockdowns, or stretcher when the patient's condition does not require medical supervision or equipment). Id. at T-201(2). According to IDPH regulations, Illinois Medicaid provides coverage for ALS and BLS services when necessitated by the patient's medical condition. Id. at T-203(1).
Illinois Medicaid requires that charges made to the program "be the provider's usual and customary charges as made to the general public for the same service." Id. at T-202(1). Providers are reimbursed for allowable transportation services provided to patients who are not eligible for Medicare at the lesser of the provider's usual and customary charge or the maximum rate as established by DHFS, pursuant to 89 Ill. Adm. Code 140.492 and 140.493. Id. at T-202(2). When patients are eligible for both Medicare and Medicaid, providers are reimbursed at the lower of the provider's usual and customary charge or the maximum rate as established by DHFS, pursuant to 89 Ill. Admin. Code 140.493, or the Medicare allowable rate. Id. at T-202(2)-(3). DHFS sets maximum rates for administration of oxygen during BLS transports and for all ancillary charges associated with ALS transports. Id. at T-202(3).
B. The Alleged Kickback Scheme and Alleged Subsequent False Claims
The Second Amended Complaint alleges that the Hospital Defendants violated the FCA (specifically, 31 U.S.C. § 3729(a)(1)) by: (1) willfully engaging in an illegal kickback scheme that violated the AKS (specifically, 42 U.S.C. § 1320a-7(b)(2)); and (2) falsely certifying cost reports, which caused Medicare to pay out false or fraudulent Part B claims, which it would not have done if not for the certifications. (D.E. 85 ¶¶ 78-84.)
1. The Basic Contours of the Alleged Scheme
The crux of the alleged kickback scheme is a purported quid pro quo-the Defendant Hospitals accepted discounts on Part A transports in exchange for affording CoMed an exclusive or preferred position with respect to Part B transports. (See, e.g., D.E. 80 at 4.). This allegation is different from those common in many types of alleged kickback cases: there are no allegations that anyone at any of the Hospital Defendants personally accepted any bribe, kickback, or remuneration of any kind; nor are there any allegations that there was any billing of the Government for any services that were not actually provided. This is certainly not to say that the alleged AKS scheme, if actually proven to be colorable on an assembled record (which has not occurred here), could not constitute an AKS violation as a matter of law. However, the nature of the alleged scheme-individuals at hospitals knowingly and willfully engaging in federal criminal misconduct, for no personal gain, presumably so as to allow their institutions to have a more stable financial footing so as to serve their largely underprivileged patient-base, is not the scenario that one often sees in the caselaw.*fn8 Compare, e.g., United States v. Starks, 157 F.3d 833, 836 (11th Cir. 1998) (AKS defendants found to willfully and knowingly violated the law where they accepted substantial bribes and/or commercial kickbacks in exchange for patient referrals, which payments were made in remote locations such as restaurants and parking lots because of a desire that the activities remain unseen).
With regard to the alleged scheme, Relators maintain that the scheme was made possible by a purported "perfect storm" of: the Hospital Defendants' incentive to keep Medicare Part A costs low (D.E. 281 at 3), the Ambulance Defendants' ability to bill Medicare directly for Part B transports (id. at 4), the Hospital Defendants' substantial population of Medicare and Medicaid patients (id. at 5-6), the dynamic that Part B transports vastly outnumber Part A transports (id. at 6), and the Ambulance Defendants' willingness to use Part A transports as a loss-leader (D.E. 301 ¶ 188) for what Relators assert was "a continuous volume of lucrative Medicare/Medicaid Part B transports." (Id. at 4-5.)
This basic structure of a potentially-illegal scheme has received some critical scrutiny. David Werfel ("Werfel"), Medicare consultant for the American Ambulance Association, has expressed concern about the propriety of ambulance providers offering discounts to hospitals in a position to refer Medicare or Medicaid business. (D.E. 301 ¶¶ 135, 174.) As an attorney, Werfel would advise ambulance companies not to offer discounts substantially below the Medicare allowable charge. (Id. ¶¶ 157, 175-76.) Furthermore, Werfel, on behalf of the AAA, requested that the Health Care Finance Administration ("HCFA") publish a Medicare National Fraud Alert for ambulance services on the issue of discounts. (Id. ¶ 178.) In addition, Werfel, in July 2003 (i.e., years after this case was filed), wrote an opinion letter to an ambulance company regarding the level of discounts that can be offered to hospitals (for DRGs), and opined "you want to tie your lowest rates to facilities to the Medicare allowable or, very slightly below the Medicare allowable." (Id. ¶ 177.)
In 1999, OIG published "OIG Advisory Opinion No. 99-2," which addressed whether a proposed arrangement "for discounted ambulance services provided to residents of Medicare skilled nursing facilities" would "result in prohibited remuneration under the [AKS] or would constitute grounds for the imposition of sanctions under the [AKS]." Id. (citations omitted). In the contract analyzed by OIG, the "contractual rates for BLS and ALS services represent discounts of up to 50% of the "reasonable charge" established by Medicare for Ambulance Company X's services in the State A area." Id. OIG suggested that "such price reductions create a risk that a supplier [i.e., the ambulance company] may be offering remuneration in the form of discounts on business for which the purchaser pays the supplier, in exchange for the opportunity to service and bill for higher paying Federal health care program business reimbursed directly by the program to the supplier." Id. OIG identified at least two arrangements as particularly suspect: "discounted prices that are below the supplier's cost, and discounted prices that are lower than the prices that the supplier offers to a buyer that (i) generates a volume of business for the supplier that is the same or greater than the volume of Part A business generated by the PPS SNF, but (ii) does not have any potentially available Part B or other Federal health care program business." Id.
2. The Alleged Kickback Scheme in Practice
The Hospital Defendants, at various periods of time during the years 1991 through 2001 (the "Contract Years"), contracted with the Ambulance Defendants to provide ambulance transport services for their patients. (D.E. 282 ¶ 19.) St. James orally negotiated at least one transport rate while the remaining hospitals had written agreements with CoMed at various times during the Contract Years (collectively, "Ambulance Contracts"). (Id.)
The Ambulance Contracts share a number of common features. CoMed was obligated to provide Advanced Life Support ("ALS") and Basic Life Support ("BLS") ambulance transports seven days a week, twenty-four hours a day, with appropriate transport response times. (Id. ¶ 20.) Pursuant to the Ambulance Contracts, CoMed agreed to provide ALS and BLS services to the Hospital Defendants in a timely and professional manner. (Id. ¶ 21.) These transports (and ancillary services) were to be provided to patients of the Hospital Defendants at negotiated rates (e.g., flat rate per transport) that were lower than CoMed's rates charged to customers without contracts (often, but not always, identified on the contracts as "retail" or "non-contracted rates").
(Id.) Under the Ambulance Contracts, the Hospital Defendants were responsible for paying all invoices that were billed directly to them for inpatient transports; CoMed received the negotiated rate. (Id. ¶ 22.)
The majority of the contracts included a provision, Section 3.1(a), stating that "Customer agrees to contact [CoMed] for all medical ambulance transportation to be provided to it's [sic] patients" (hereinafter, "Standard 3.1(a) Language"). (See, e.g.,D.E. 294, Ex. 1C (Holy Cross 1995-1996 contract).) The parties dispute whether the contracts made CoMed the "exclusive" provider of ambulance services. (See, e.g., D.E. 301 ¶ 23.) CoMed actively sought preferred status in contract negotiations because, in Mr. Cybulski's view, patients would choose the default provider unless they had a preference for a specific transport company. (D.E. 294, Ex. 7 (Cybulski Dep. at 24). (Mr. Cybulski was the founder of Stat, a small ambulance company that was acquired by Tower, which in turn merged into CoMed; Mr. Cybulski negotiated many of the Ambulance Contracts for the ambulance companies.)
The parties agree that, under the majority of the contracts, CoMed was at least the preferred provider, meaning that CoMed was contacted first, and other ambulance services were used when CoMed was unable to provide prompt service.*fn9 (D.E. 301 ¶ 118.) Thus, at a minimum, preferred-provider arrangements may have afforded CoMed greater opportunity to obtain Medicare Part B business than CoMed would have had in the absence of the contracts. (See, e.g., id.)
The majority of the contracts had provisions stating that the hospital would pay "retail rates" or "non-contracted" rates if the hospital did not pay the invoice within a specified period of time (ranging from 30 to 90 days). (See, e.g.,D.E. 294, Ex. 1D, Ambulance Fee Schedule (Holy Cross 1996-97 contract).) In addition, many of the contracts included additional discounts of up to 45% for prompt payment ("quick-pay discounts"). (See, e.g, id., Ex. 1M § 4.2(b) (Loretto Hospital 1997 contract).) Relators maintain that these provisions were never enforced, and that the Hospital Defendants were given a discount regardless of whether they paid in the specified time period. (D.E. 290 ¶¶ 208-217.)
Jon Peterson was engaged by the Hospital Defendants to "determine whether any material differences existed between the negotiated rates for Part A ambulance services, on the one hand, and the Medicare Part B and Illinois Medicaid payment rates that were payable to [CoMed]." (D.E. 317 ¶ 2.) After examining voluminous records, Peterson concluded that there is no evidence that Holy Cross, Jackson Park, Loretto, or St. Bernard's actually took the quick-pay discounts.*fn10 (See, e.g.,D.E. 254, Ex. C at 16 (Holy Cross); D.E. 238, Ex. A at 16-17 (St. Bernard); D.E. 260, Ex. C at 16 (Loretto); D.E. 233, Ex. B at 16 (Jackson Park).) Due to limited access to records, Peterson was unable to opine on whether Bethany, South Suburban, or Trinity took advantage of the quick-pay discounts. (See D.E. 239.) Neither party has adduced any evidence concerning Mt. Sinai's quick-pay discount practices. St. James did not have a written contract and no evidence suggests there was a custom of quick-pay discounts that were offered to St. James regardless of when it paid received invoices.
It appears that, at least facially, many of the contracts provided rates lower than the Medicare Allowable rate.*fn11 (See, e.g.,D.E. 317 (Peterson Reports on individual hospitals).) However, the negotiated rates (without the quick-pay discounts applied) are, in many cases, equivalent to or higher than the Medicaid rate.*fn12 (See id.)
The Hospital Defendants maintain that a superficial examination of rates compares apples and oranges. In this regard, the Hospital Defendants' experts argue, without meaningful contradiction, that Medicare Part B rates cannot be fairly compared to the contracted rates without making a number of adjustments to the contracted rates. First, the Medicare Allowable rate, which is based upon historical costs, does not reflect the industry custom of discounts. (D.E. 271 ¶ 30.) Second, the Medicare Allowable Rate does not reflect contractual provisions for exclusive vendor relationships, automatic contract renewal, and fixed pricing. (Id.) Third, the contracts either shifted the costs of administrative and billing expenses, along with risk of non-payment, from the Ambulance Defendants to the Hospital Defendants (or, alternatively conceived, permitted CoMed to avoid costs, which allowed them to offer a lower rate). (Id. ¶¶ 31-33; see also D.E. 282 ¶ 33.)
Peterson analyzed a voluminous set of billing and accounting records maintained by the Hospital Defendants, save for Mt. Sinai. (Id. ¶¶ 3, 7.) He then applied Medicare cost-accounting principles to those records to develop adjusted contract rates. (Id. ¶ 7.) Peterson concluded that, once the rates were adjusted for cost-shifting aspects of the contracts, that there was no material difference between the contracted rates and the Medicare allowable rate, or that any difference was a reasonable discount given industry custom and practice. (See, e.g., id. ¶¶ 2, 7.) Peterson does not have any information that anyone from any hospital or CoMed did any type of analysis similar to what he has done on behalf of the Joint Defense Team. (D.E. 301 ¶ 248.) At the time the Hospital Defendants entered into the Ambulance Contracts, they did not have the benefit of Peterson's analysis nor did they have knowledge of the Medicare reimbursable rates for part B transports. (Id. ¶ 249.)
Relators steadfastly deny that the contracts made the hospitals the payors of last resort. (See, e.g.,D.E. 282 ¶ 34.) Relators' position is based upon their gloss on Peterson's deposition testimony, which Relators interpret to mean "there was not a contractual obligation to guarantee payment for certain unpaid ambulance transportation costs that were billed by ambulance company to third-party payors." (Id. (citing D.E. 294, Ex. 18 (Peterson Dep.) at 276).) However, Peterson is not an expert in contract interpretation (id. at 73), and even if he had sufficient expertise in the subject, he would not be permitted to offer his opinion on how, as a matter of law, the contract should be construed. (See D.E. 204 at 7 (collecting cases).) However, expert testimony may be allowed when it addresses on custom and practice in a particular trade, as it relates to a contract dispute. (See id. at 15 (citing, inter alia, WH Smith Hotel Servs. v. Wendy's Int'l, Inc., 25 F.3d 422, 429 (7th Cir. 1994)).) On this point, Peterson testified, based upon his review of the Hospital Defendants' actual billing records, that the hospitals, in fact, would pay for bill-backs, i.e. would reimburse the Ambulance Defendants for bad debts, regardless of whether the hospitals were technically obligated to do so. (D.E. 294, Ex. 18 at 276-77; see also id. at 277 ("St. Bernard's Hospital and the other hospitals appeared to have effectively acted as the payor of last resort, or the guarantor.").) Thus, to the extent that Peterson's testimony is relevant and admissible as to the meaning of the contracts, it supports the Hospital Defendants' claim that the contract rates should be adjusted to account for their assumption of patients' unpaid debts. (See, e.g., D.E. 270 at 28.)
Relators maintain that the Hospital Defendants' certification of Medicare cost reports caused false or fraudulent claims to be presented to and paid out by Medicare. (See, e.g., D.E. 281 at 48.) Relators have identified three different theories of liability for false claims: express certification, implied certification, and enabling third-party false claims. (See, e.g.,D.E. 281 at 48.)
The first theory-express certification-applies to an alleged "claim that falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment." United States ex rel. Mikes v. Straus, 274 F.3d 687, 698 (2d Cir. 2001). As discussed previously, when a Part A provider submits a cost report, the administrator or CFO must certify the report as complying with Medicare regulations, including the AKS. See 42 C.F.R. 413.24.
The second theory-implied certification-is "based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment." Mikes, 274 F.3d at 699. It appears that Relators' theory is that, regardless of the precise language of the certification, the Hospital Defendants were impliedly certifying the validity of their claims when they sought reimbursement under Part A.
The final theory is based on traditional causation principles-the Hospital Defendants, by participating in the kickback scheme, caused false claims to be presented by CoMed. See, e.g., United States ex rel. Franklin v. Parke-Davis, Div. Of Warner-Lambert Co., 147 F. Supp. 2d 39, 53 (D. Mass. June 25, 2001). It is not pellucid whether this theory relies upon certification-Relators' theory may be that, independent of certification, the false or fraudulent claims submitted by the Ambulance Defendants were the foreseeable consequence of the Hospital Defendants' participation in the alleged kickback scheme and thus can be attributed to the Hospital Defendants. See, e.g., id. Or, the theory may be that the false certification caused Medicare to accept the Ambulance Defendants' false claims.
C. The Ambulance Defendants' Role in the Alleged Kickback Scheme
David Cybulski formed Stat in 1988; Relator Klaczak was a Stat shareholder. (D.E. 301 ¶¶ 47-48.) Mr. Klaczak, along with David Cybulski ("Cybulski"), represented Stat in contract negotiations with hospitals. (Id. ¶ 81.*fn13 ) In negotiating contracts with the hospitals, one of Stat's objectives was to obtain the denomination as the hospital's primary preferred provider in order to get a volume of business from the hospital. (Id. ¶¶ 50-51.) Relator Sharp was a dispatcher at Stat; he did not routinely transport patients. (D.E. 294, Ex. 20 at 27.)
When Tower purchased Stat, Klaczak was not offered a position to stay on with Tower (id., Ex. 14 at 35), while Sharp continued in his role as an emergency medical technician. (D.E. 301 ¶ 100.) As part of his compensation, Cybulski received one percent of the total monthly revenue collected by Tower for services rendered to Trinity, Jackson Park, Saint Bernard, South Suburban, and Holy Cross. (Id. ¶¶ 73-74.)
In or about 1995, Tower and Daley's merged to form CoMed. (Id. ¶ 100.) CoMed employed Sharp as an emergency medical technician/dispatcher until approximately December 1997. (Id. ¶ 100.) Cybulski was an account manager for CoMed and handled negotiations with various area hospitals. (See, e.g., id. ¶ 243.) The record does not indicate that Klaczak was employed by CoMed at any time.
Soon after the merger, Jerald Gordon ("Gordon") left CoMed, in part because he had been removed from the Bethany Hospital account and had been replaced by Cybulski. (Id. ¶¶ 189-90.) Gordon expressed his view that some of the rates that Cybulski had negotiated were "whore rates," meaning "do it for nothing, give it away, do it for less than your cost of business." (Id. ¶ 188.) Gordon knew what some other ambulance companies were charging because some of the hospitals would show him the contracts from the other companies. (Id. ¶ 224.) Michael Orze, who worked at Tower and CoMed doing contract billing, was also surprised at some of the (unspecified in the record) rates that were given to the hospitals, because the unspecified rates were significantly lower than the ordinary rates. (Id. ¶¶ 160, 288.) There is no allegation that anyone at any of the Hospital Defendants was privy to any of these discussions.*fn14
There were internal discussions at CoMed regarding an attempt to increase the contract rates of some of Cybulski's hospital accounts. (Id. ¶ 77.) Sharp was advised by Cybulski that they could make up any losses on discounted rates by increased volume of Part B transports because Part B transports significantly outnumbered Part A transports. (Id. ¶ 78.) The record suggests that Cybulski's assessment was, at least in part, correct-the majority of Tower's transports for the Hospital Defendants were Medicare Part B transports, the next lowest in volume was Medicaid transports, the next lowest in volume was third-party transports, and Part A transports were the lowest volume. (Id. ¶ 79.) The record does not reflect whether Cybulski was correct that CoMed profited from the additional referrals. Again, there is no allegation that anyone at any of the Hospital Defendants was privy to these internal discussions.
After investigating the allegations in the complaint filed under seal, the United States ultimately intervened in the case against the Ambulance Defendants and Individual Defendants only. (See D.E. 80.) The factual basis of the United States' claims against the Ambulance Defendants and the Individual Defendants was substantially different than the factual basis underlying the Relators' claims in the instant case against the Hospital Defendants-in which the United States declined to join. Specifically, the factual basis of the United States' claims against the Ambulance Defendants and the Individual Defendants was that they knowingly and willfully engaged in an overbilling scheme predicated on widespread billing for medically unnecessary services, largely in connection with kidney dialysis patients. In this regard, in an independent assessment of medical necessity, John M. Stone, M.D., an expert retained by the United States, estimated that 67% of CoMed's transports in the sample population were not medically necessary. (D.E. 301 ¶ 346.) On the basis of this report and other evidence that CoMed was systematically billing Medicare for unnecessary transports, the United States sought actual damages from the Ambulance Defendants and the Individual Defendants in the amount of $8,971,580.00. (See D.E. 80 at 6.) There has never been any allegation that the Hospital Defendants knowingly participated in any such scheme, or even that they would have had access to relevant information in that regard.
On or about July 2000, CoMed filed for bankruptcy protection (D.E. 85 ¶ 4); its assets were later sold pursuant to an order of the Bankruptcy Court. (D.E. 80 at 6.) On June 28, 2005, after the United States and the Individual Defendants reached a settlement agreement, the Court granted the United States's motion to dismiss the Individual Defendants from the case. (D.E. 208.) What therefore remains is the instant case-the Relators' claims alone against the Hospital Defendants on the alleged kickback scheme distinct from the bogus kidney-dialysis overbilling.
D. The Hospital Defendants
St. James Hospital and Health Centers ("St. James") operates a hospital campus located in Chicago Heights, Illinois, which is a southern suburb of Chicago. (D.E. 287 ¶ 1.) Thomas Senesac ("Senesac") has been employed by St. James since 1984, and he has been the Chief Financial Officer since 1992. (D.E. 301 ¶ 327.)
The majority of St. James's patients rely upon Medicare or Medicaid for the payment of their medical bills. (Id. ¶ 2.) In any given year, the patient population is roughly 45% Medicare enrollees and 18% Medicaid enrollees. (Id.) St. James was responsible for paying for ambulance transports that were covered under St. James's Part A payment. (D.E. 301 ¶ 12.) The typical Part A transport involved a round-trip transport of a patient to a specialized testing facility and back to St. James. (Id. ¶ 13.) Under Part A, St. James received a DRG payment from Medicare for each patient, meaning that if the actual costs of treatment exceeded the DRG payment, St. James would be responsible for the difference. (Id. ¶ 14.)
In 1990, St. James opened an MRI building on its hospital campus in Chicago Heights. The MRI building was approximately 250 feet from the main hospital. (Id. ¶¶ 3-4.)
During the early-to-mid 1990s, Daley's provided ambulance-transport services for St. James; in 1995, CoMed began servicing St. James. (Id. ¶¶ 5-6.) However, St. James never had a written agreement with any ambulance company, including Daley's or CoMed. (D.E. 241 ¶ 7.) In this regard, it appears that Cheryl Nemeth ("Nemeth"), St. James's Controller, orally negotiated a flat rate of $80 for transports to the MRI facility. (Id.) Furthermore, over time, it appears that St. James and the ambulance providers settled on customary charges for ALS and BLS transports. (Id.) However, St. James lacked knowledge that these rates were discounts or were not indicative of fair market value. (Id. ¶ 13.) To the contrary, St. James believed that the negotiated rate was reasonable because the MRI building was 250 feet away and Daley's had an ambulance barn in Chicago Heights, near the hospital.*fn15 (Id. ¶ 15.) St. James did not receive prompt-pay discounts (id. ¶ 13) and neither Daley's nor CoMed reduced or forgave St. James's outstanding bills. (Id. ¶ 14.)
When Medicare patients required transportation to the MRI building during hospitalizations, a clerical employee in the MRI building generally contacted Daley's to make arrangements. (D.E. 241 ¶ 10.) For all other ambulance transports, including Medicare Part B transports, patients were given the opportunity by employees in the hospital's Social Service Department to select the ambulance company, unless the individual was unconscious or unable to respond. (Id.)
St. James maintained a list of several local companies so as to assist patients in selecting ambulance companies. (Id.) St. James's patients often selected Daley's or CoMed for ambulance services because, among other things, Daley's had an ambulance barn in close proximity to the hospital and had a reputation for providing prompt, courteous, and good service. (Id. ¶ 12.) However, St. James's patients did not exclusively select Daley's or CoMed. (Id.)*fn16 Furthermore, nothing in the record suggests that St. James was obligated to refer patients to Daley's or CoMed; Relators have not demonstrated that Daley's or CoMed ever suggested that the $75 rate would not be honored if they were not sufficient referrals from St. James. Relators have also failed to adduce evidence that the St. James personnel involved in negotiating with the ambulance companies had any influence over ambulance provider choices.
In July 2000, St. James opened an additional campus in Olympia Fields, Illinois; the new campus was only 4.8 miles from the Chicago Heights campus. (D.E. 301 ¶ 105.)
St. James subsequently formed Alverno Ambulance ("Alverno") to shuttle patients between the two campuses. (Id.) One of the reasons that the new ambulance company was profitable is because the number of Medicare Part B transports exceeded transports that were the responsibility of other payors. (Id. ¶ 106.) The record does not reflect Alverno's profit margins nor does it indicate the relevant contribution of Part B transports to its profit margins.
Senesac was familiar with the laws and regulations regarding the provisions of health care services. (Id. ¶ 284.) More specifically, Senesac was aware that receiving something of value, such as discounted rates (id. ¶ 281), in exchange for a referral could potentially be illegal. (Id. ¶¶ 282, 285.) Put somewhat differently, Senesac believed that if a rate was below fair market value then it could be in violation of a regulation or guideline, but if it is in line with the fair market value, then he would not be concerned. (Id. ¶ 240.) Furthermore, Senesac understood that the kickback arrangement or scheme does not have to be in writing in order for it to be a violation of the regulations and guidelines. (Id. ¶ 283.)
Senesac certified St. James's cost reports beginning in 1992. (D.E. 301 ¶ 328.) 2. South Suburban South Suburban is located in Hazel Crest, Illinois, a southern suburb of Chicago. South Suburban's patient-population mix was slightly over 50% Medicare, around 10% Medicaid, and around 35% "Insurance/Other."*fn17 (D.E. 239 ¶ 2.) South Suburban is operated by Advocate Health and Hospitals Corporation ("Advocate"), which also operates Trinity and Bethany. (D.E. 283 ¶ 1.)
South Suburban had contracts beginning in 1994 through 1998. (D.E. 283 ¶ 7.) Cybulski negotiated the agreements with Brian Kelly. (D.E. 301 ¶ 63.)
The May 1994 contract between Stat and South Suburban includes the standard Section 3.1(a) language. (D.E. 294, Ex. T at CMT000244.) Section 4.2(b) (as amended by Amendment A) requires payment within 60 days from receipt of invoice. (Id. at CMT000249.) Appendix A establishes a flat rate of $75 for ambulance transports to the South Suburban Cancer Center; it also requires Stat to offer a "no-hassle" collection policy. (Id. at CMT000248.) The fee schedule specifies ALS and BLS rates, as contrasted with the "Contracted Rate," which offered a 25% discount off the listed ALS and BLS rates. (Id. at CMT000250.) The fee schedule also specifies a 35% discount off the contracted rate if the invoice is paid within a 30-day period. (Id.) The contract does not specify that South Suburban must pay retail rates if it fails to pay within the period set forth in Section 4.2(b). The contract was signed by [illegible], who signed in his or her capacity as "V.P. of Patient Care Services." (Id. at CMT000247.)
South Suburban's June 11, 1996 contract includes the Standard Section 3.1(a) Language. (D.E. 294, Ex. 1U at CMT000252.) Section 4.2(b) requires payment within 60 days and states that invoices paid beyond sixty days are subject to retail rates. (Id. at CMT000254.) Section 4.2(c) states "Terms:____/60 net 75." (Id.) The fee schedule shows ALS and BLS Rates and contracted rates as a 25% discount; the schedule also indicates a 35% discount for payment within 60 days after receiving an invoice. (Id.) The charges are significantly higher than in the previous year's contract-the BLS contracted base rate was $135 (compared to $105 the previous contract) and the ALS contracted base rate was $258.75 (compared $157.50 the previous contract). (Compare id. at CMT00257 with id., Ex. 1T at CMT000250.)
The September 1997 contract was similar to previous agreements in many respects. However, the rate sheet does not indicate contracted v. non-contracted rates nor does it offer a quick-pay discount. (Id., Ex. 1V.) The contracted rates are $149.70 for ALS and $98.65 for BLS. (Id. at CMT000266.) The contract was signed by "RR," designated as South Suburban's Chief Executive. (Id. at CMT00264.)
The Peterson analysis reflects that the differences between CoMed's Medicare Part B reimbursement rate and South Suburban's contract rates were, in dollars and cents*fn18
The Peterson analysis further reflects that the differences between CoMed's Medicaid rate and South Suburban's contract rates were, in dollars and cents:
Peterson, after taking into account the cost-shifting provisions in South Suburban's contracts, estimated the actual gap between the Medicare Part B rates and what he determined were the effective contract rates to be as follows*fn19
Part B -- Contract RateALS($100.81)($63.75)($52.88)($63.75)($50.77)
Part B -- Contract RateBLS($38.86)($16.65)($12.91)($6.30)($1.88)
Peterson's analysis demonstrates that, once the cost-shifting aspect of the contracts are accounted for, that South Suburban's contract rates for ALS substantially exceeded the Medicare allowable rate during each of the contract years. Peterson's analysis also shows that South Suburban's contract rates for BLS were also above the Medicare allowable rate during each of the contract years.
The record does not indicate who certified South Suburban's cost reports during the relevant years.
Holy Cross Hospital operates a hospital located at 2701 W. 68th St. in the Chicago Lawn neighborhood of Chicago. (D.E. 284 ¶ 1.) During the years 1993-1997, the payor mix at Holy Cross reflected the following in terms of percentage of patient base:
During the period 1991-1998, Holy Cross used CoMed and its predecessor companies, as well as other ambulance companies, for its patient transports to and from the hospital.*fn20 (Id. ¶ 7.) Other ambulance companies provided transport services for Holy Cross patients, including Safe Ride Service, Inc., Trace Ambulance, Inc., AMR of Illinois, Inc., Vandenburg Ambulance, and Superior Air-Ground Ambulance Service. (Id.) The time periods covered by Holy Cross's various preferred-provider contracts are as follows:
(1) Stat from December 31, 1991 through February 1993 (id. ¶ 8); (2) Vandenburg Ambulance from March 1, 1993 through August 1995 (id. ¶ 9); (3) Tower from August 14, 1995 through July 11, 1996 (id. ¶ 18); (4) Comed from July 12, 1996 through 1998. (Id. ¶ 19.)
Around late December 1994 or early January 1995, Holy Cross wanted to review proposals from ambulance companies other than Vandenburg because its nursing staff was dissatisfied with Vandenburg's level of service and responsiveness. (Id. ¶ 10.) Thomas Corkery ("Corkery"), the Director of Materials Management at the time, began the process of reviewing candidates for a new preferred-provider contract. (Id. ¶ 11.) Holy Cross's Purchasing Department took individual proposals specific to Holy Cross or through formal bids. (Id. ¶ 12.) Holy Cross's previous contracts and proposals were used to determine benchmark pricing for ambulance services. (Id.)
As part of the contract proposal review, Holy Cross compared proposals from Vandenburg, Tower, and other providers, and compared these proposals to a previous proposal from Stat that was on file. (Id. ¶ 13.) Holy Cross reviewed the proposals against previous and existing agreements, and compared the pricing in the proposals based upon market conditions in the Chicago area. (Id. ¶ 14; D.E. 301 ¶ 231.) However, Holy Cross did not obtain pricing terms of the ambulance contracts for other hospitals to protect itself from potential antitrust liability.*fn21 (D.E. 254 ¶ 17.)
Holy Cross chose Tower over Vandenburg, even though the Vandenburg offered lower rates, because Corkery thought Tower would provide better service. (Id. ¶¶ 15, 33.) Corkery had no knowledge of Tower's market rates for patients whose transports were not billed directly to Holy Cross. (Id. ¶ 35.) Furthermore, Holy Cross had no knowledge as to how CoMed or other ambulance companies were billing Medicare beneficiaries for services not billed to the hospital. (Id. ¶ 34.)
The August 14, 1995 contract includes the Standard Section 3.1(a) Language. (D.E. 294, Ex. 1C at CMT000079.) Section 4.2(b) states that invoices paid beyond 60 days are subject to retail rates. (Id. at CMT000080.) Section 4.2(c) states "Terms____/60 net 75." (Id.). Attachment A sets a flat rate of $75 for round-trip transports to a mental health facility. (Id. at CMT000084.) The fee schedule identifies "B.L.S. Rate," "A.L.S. Rate," "Contracted Rate," and "H.C." (Id. at CMT000085.) The H.C. rates were written into the contract by Corkery in order to clarify Holy Cross's rate if they paid within sixty days. (D.E. 301 ¶¶ 233-34.) These rates reflected a 40% discount off the contracted rate. (D.E. 271 ¶ 23.) In addition, Corkery negotiated the oxygen price of $18.75 to no charge. (D.E. 301 ¶ 205.) The contract was signed by Corkery. (D.E. 294, Ex. 1C at CMT000082.) Holy Cross's July 12, 1996 contract with CoMed is not materially different from its previous agreement with Tower. (Compare id. with id., Ex. 1D.)
During the years 1992 through 1998, various Holy Cross personnel, including case managers, social workers, physicians, and health care coordinators, arranged for ambulance transports for Holy Cross patients. (D.E. 271 ¶ 4.) If a patient needed an ambulance transport, Holy Cross would contact an outside ambulance service for services that Holy Cross medically could not provide as part of the discharge process, or which required ambulance transportation to a skilled nursing facility. (Id.)
Holy Cross had preferred-provider agreements in which it agreed to contact a particular ambulance provider first when requesting transports. (D.E. 254 ¶ 5.) These agreements permitted Holy Cross to make one call to the same ambulance company, which Holy Cross perceived as desirable because it permitted internal operating efficiencies. These agreements also produced service expectations, response expectations, and standards of performance to be met more consistently. (Id.) Holy Cross would require preferred providers to provide a commitment in time response. (Id. ¶ 6.) If the primary service provider was unable to meet its obligation, then a secondary provider would be contacted, depending upon the judgment of the caregiver as to medical immediacy. (Id.) Relators maintain that CoMed, not Holy Cross, took responsibility for calling the secondary providers. (D.E. 284 ¶¶ 6-7.)
The Peterson analysis reflects that the differences between CoMed's Medicare Part B reimbursement rate and Holy Cross's contract rates were, in dollars and cents:
The Peterson analysis further reflects that the differences between CoMed's Medicaid reimbursement rate and Holy Cross's contract rates were, in dollars and cents:
Peterson, after taking into account the cost-shifting provisions in Holy Cross's contracts, estimated the actual gap between the Medicare Part B rates and what he determined were the effective contract rates to be as follows:
Part B -- Contract RateALS$0.44$37.50$37.12$26.25$52.98
Part B -- Contract RateBLS($8.86)$13.35$5.84$12.45$52.12
The ambulance contracts at Holy Cross were not reviewed by anyone to determine whether or not the contract complied with Medicare or Medicaid regulations. (D.E. 301 ¶ 275.) The record does not indicate who certified Holy Cross's cost reports.
Jackson Park Hospital operates a hospital located at 7531 S. Stony Island Avenue in the South Shore neighborhood of Chicago's south side. (D.E. 285 ¶ 1.) During the relevant time period, the majority of Jackson Park's patients were Medicaid enrollees, very few were Medicare patients, and even fewer patients had private insurance. (D.E. 301 ¶ 88; see also D.E. 285 ¶ 2 (in 1998, less than 10% of Jackson Park's patients had private insurance, approximately 50% were Medicaid enrollees, and 20-30% were Medicare enrollees).)
In the years leading up to 1991, Jackson Park had a large psychiatric program and treated numerous mental health patients, many of whom were brought to Jackson Park's emergency room by the police. (D.E. 285 ¶¶ 3-4.) It was common for mental health patients to become violent, which placed substantial stress on the emergency room, especially when two or three individuals became violent at the same time. (Id. ¶ 4.) Jackson Park's nursing staff were charged with taking care of mental-health patients and determining whether to admit them or to transfer them to another mental-health facility- typically the Tinley Park Mental Health Care Facility ("Tinley Park"), located in Tinley Park, Illinois, a Chicago suburb. (Id. ¶ 5.) Chicago Police and Fire Department personnel are not permitted to transport patients outside of city limits. (Id. ¶ 6.) Jackson Park had great difficulty in finding private firms willing to transport violent patients to Tinley Park because of the difficulties posed by the patients and the volume of such patients. (Id. ¶¶ 6-7.)
Prior to entering into any ambulance-service agreements, Jackson Park utilized an internal service to transport mental health patients. (Id. ¶ 8.) However, Jackson Park found that practice to be quite expensive because of the need for additional personnel to ensure driver safety, long wait times at Tinley Park prior to a patient being admitted, and higher insurance costs from frequent patient attacks on drivers. (Id. ¶ 9.) Jackson Park eventually abandoned its attempts to internally provide transport services and sought to outsource provision to a private firm. (Id. ¶ 10.)
In early 1991, or at some point prior, John Burke ("Burke"), Jackson Park's associate administrator at that time, requested that Daley's and Stat submit contract proposals. (Id. ¶¶ 11-12.) On February 1, 1991, Jackson Park entered into a transport-service contract with Stat; the agreement was negotiated by Burke and Cybulski. (Id. ¶ 13; D.E. 301 ¶¶ 59-60.) Jackson Park did not draft any contracts or proposals-Stat did all the drafting, although Jackson Park was able to make changes to the contract. (D.E. 285 ¶ 13.)
Prior to outsourcing its transports, Jackson Park was losing money on mental health transports. (D.E. 233 ¶ 25) While Jackson Park did turn a profit from outsourcing its transports, it did reduce its losses by outsourcing. (Id.) Jackson Park also believed that outsourcing would ensure that transport services were available when needed. (Id.) Stat believed that the contract with Jackson Park would increase its revenues through a volume of transports. (D.E. 301 ¶ 61.) Klaczak questioned Cybulski about the $75 flat fee for Tinley Park transports; he wondered how Stat could do the trip so cheaply, given that Stat had to tie up an ambulance for an extended period of time as part of the transport. (Id. ¶ 194.) There is no allegation that Jackson Park was privy to Klaczak's question posed to Cybulski. Furthermore, Cybulski testified that Jackson Park was given a discount for Tinley Park transports because Stat could transport multiple patients in one run. (D.E. 294, Ex. 7 at 59-60.)
As part of the negotiating process, Burke would send proposed contracts to several Jackson Park employees for review. (D.E. 233 ¶ 27) Burke would receive input and suggestions and then incorporate this feedback into his negotiations with the Ambulance Defendants. (Id.) However, the terms of the contracts (save for the rate) do not substantially vary, suggesting that Jackson Park did not actively negotiate non-price terms. (D.E. 285 ¶ 27.) During the period he negotiated ambulance service agreements, Burke was not personally aware of what a kickback scheme was under Medicare, what the AKS was, or what particular Medicare regulations and guidelines would apply to ambulance-service agreements. (Id. ¶ 28.) Furthermore, Burke does not recall any discussions about whether the contracts complied with Medicare regulations. (Id. ¶ 29.) However, Dr. Peter Friedell ("Friedell"), Jackson Park's President, signed the ambulance agreements and he was aware of ...