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United States v. Apria Healthcare Group Inc.

May 19, 2010

UNITED STATES OF AMERICA ON THE RELATION OF CHRISTINE CHOVANEC, PLAINTIFF-APPELLANT,
v.
APRIA HEALTHCARE GROUP INC., DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 C 4543-Charles P. Kocoras, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.

ARGUED DECEMBER 4, 2006

Before EASTERBROOK, Chief Judge, and CUDAHY and SYKES, Circuit Judges.

The district court dismissed this qui tam action under 31 U.S.C. §3730(b)(5), which provides: "When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." The complaint accuses Apria Healthcare of fraudulently billing the Medicare and Medicaid programs for medical devices (such as oxygen tanks) and related services that were unnecessary or should have been recorded under less expensive reimbursement codes. According to the complaint, the fraud took place at Apria's office in Morton Grove, Illinois, from 2002 through 2004. When Christine Chovanec filed this suit, two other qui tam actions against Apria were pending: United States ex rel. Costa v. Apria Healthcare Group, Inc., filed in California in 1998, and United States ex rel. Wickern v. Apria Healthcare Group, Inc., filed in Kansas in 1999. Both Costa and Wickern charged Apria with the same sort of inappropriate billing, often called "miscoding" or "upcoding." The district court deemed Chovanec's suit "related" to these suits because it too alleged miscoding; differences in time and place are irrelevant, the court stated.

Four days after the district court dismissed Chovanec's suit, the Costa and Wickern actions were settled under the auspices of the Department of Justice, which had taken over the litigation. (Perhaps this is why Wickern was not itself dismissed under §3730(b)(5).) Apria agreed to pay $17,600,000 on account of claims for reimbursement submitted from June 1995 through December 31, 1998. Chovanec then moved for reconsideration, arguing that the settlement not only ended the prior actions that blocked her suit but also established (through the time limits of the settlement) that the three qui tam actions do not overlap. The district court denied this motion, and the effect of the settlement is our first order of business.

Chovanec treats §3730(b)(5) as if it read something like: "While another action under this section is pending, no person other than the Government may continue to prosecute a related action. . .". Then §3730(b)(5) would do nothing to block an infinite series of claims; me-too actions could proliferate, provided only that the copycat asked for a stay until the action ahead of it in the queue had been resolved. That's not at all what the actual statute says, however. It provides that if one person "brings an action" then no one other than the Government may "bring a related action" while the first is "pending".

One "brings" an action by commencing suit. Many statutes are of the form "do not bring an action until. . .", where the condition is exhausting administrative remedies, negotiating, or waiting a specified time. Statutes of this form are understood to forbid the commencement of a suit; an action (or a given claim within a larger action) "brought" while the condition precedent is unsatisfied must be dismissed rather than left on ice. See, e.g., Hallstrom v. Tillamook County, 493 U.S. 20 (1989); McNeil v. United States, 508 U.S. 106 (1993); Jones v. Bock, 549 U.S. 199, 219--24 (2007). And United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1188 (9th Cir. 2001), applied this principle to §3730(b)(5), holding that a follow-on suit must be dismissed if its predecessor is still pending when the new one is filed.

Thus "a related action based on the facts underlying the pending action" must be dismissed rather than stayed. And if the action is related to and based on the facts of an earlier suit, then it often cannot be refiled-for, once the initial suit is resolved and a judgment entered (on the merits or by settlement), the doctrine of claim preclusion may block any later litigation. The plaintiff in a qui tam action, after all, is the United States rather than the relator; whether the United States wins or loses in the initial action, that is the end of the dispute. Only when the initial action concludes without prejudice (or covers a different transaction) will a later suit-by the original relator, a different relator, or the Department of Justice-be permissible. See United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009); but see United States ex rel. Campbell v. Redding Medical Center, 421 F.3d 817 (9th Cir. 2005) (if a freeloader is the first to file and that action is doomed by the requirement that the relator be the original source of the information, see 31 U.S.C. §3730(e)(4), then the real original source may file a later suit without transgressing the limit set by subsection (b)(5) once the first suit is no longer pending).

So is Chovanec's claim "a related action based on the facts underlying" the Costa and Wickern suits? The actions are related in the sense that both allege that Apria billed the federal government too much for medical devices and services. They are distinct in the sense that the first actions cover the period 1995--98, while Chovanec's claim covers the period 2002--04 and concerns conduct at just one of Apria's offices in Illinois. Which scope of "related" is right-the broad reading or the narrow one? That the settlement of the first-filed actions covers only 1995--98 is a factor in favor of the narrow reading, though not a sufficient one: §3730(b)(5) refers to the "facts underlying the pending action" (that is, to the complaint and potentially the record compiled in the suit) rather than to the parties' later choices. Identification of a "related" action must depend on the claim made in the initial suit and not the terms of the settlement, for it is the suit rather than the settlement that activates §3730(b)(5).

The disposition of a follow-on claim such as Chovanec's must come not from staring hard at the word "related" but from its context-both linguistic and functional. The full phrase describing the impermissible follow-on claim is: "a related action based on the facts underlying the pending action." It is not enough that claims be related in the loose sense that they arise out of the same general kind of wrongdoing; they must also have facts in common. Not identical facts; then a copycat claim could pass muster if the relator added some details missing from the initial complaint. As so often when a statute contains a word such as "facts" and the question arises "which facts," courts supply the answer: "the material facts" (or alternatively "the essential facts"). That is what every court of appeals to consider this phrase has done. See United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 32--34 (1st Cir. 2009); United States ex rel. LaCorte v. SmithKline Beecham Clinical Laboratories, Inc., 149 F.3d 227, 232--34 (3d Cir. 1998); United States ex rel. Branch Consultants v. Allstate Insurance Co., 560 F.3d 371, 377--80 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 971 (6th Cir. 2005); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d at 1187--89; United States ex rel. Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279--80 (10th Cir. 2004); United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217--18 (D.C. Cir. 2003).

We agree with that conclusion. One can't use an identical-facts approach (or a definition modeled on the same-facts version of claim preclusion that some states employ); that would read "related" out of the statute. But one also can't say that "all similar frauds are related" without reading the same-facts language out of the statute. In Einstein's universe, everything is related to everything else. A materiality rule accommodates both parts of the statutory phrase-though at the expense of posing the question what "material" means. It is a protean term that requires further analysis.

The other circuits that have addressed this subject understand the "material" or "essential" facts to be those on which the original relator is entitled to compensation if the suit prevails. There's a good reason for that view. Relators receive substantial awards for their services in bringing fraud to light-as much as 30% of the total to which the United States is entitled. See 31 U.S.C. §3730(d). The lure of this payoff is what induces people to do the work to uncover fraud and to bear the risk and expense of the litigation. Me-too suits designed to divert some of the reward to latecomers do not serve any useful purpose, and they weaken the incentive to dig out the facts and launch the initial action. What's more, secondary suits that do no more than remind the United States of what it has learned from the initial suit deflect recoveries from the Treasury to rewards under §3730(d). The False Claims Act offers private relators bonanzas for valuable information. If a suit makes a claim for compensation without revealing anything new, then it is sensible to block it under §3730(b)(5) even if the relator is an "original source" (a technical term eluci-dated in Rockwell International Corp. v. United States, 549 U.S. 457 (2007)). The author of the fraud won't escape when the first suit (or the ensuing federal investigation) tells the agency everything it needs to know, and the full recovery will go to the Treasury, without an unnecessary diversion.

Chovanec did not propose to muscle in on the Costa and Wickern relators or siphon off any portion of their reward. Still, to understand whether the suits materially overlap we must know whether the initial suits alleged frauds by rogue personnel at scattered offices or instead alleged a scheme orchestrated by Apria's national management. Allegations about a scam in California or Kansas in the 1990s would not reveal to the United States any risk of a scam in Illinois in 2003-beyond the obvious fact that any medical provider can engage in upcoding, and that sort of generic knowledge differs from "the facts underlying the pending action."

So what did the Costa or Wickern relators allege? The United States, which defends the judgment dismissing Chovanec's suit, believes that they alleged a nationwide scheme, which would indeed give the Medicare and Medicaid systems enough knowledge to spark further investigations without the goad of qui tam litigation or the need to pay a ...


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