Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 1 of 44
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`OPINION AND ORDER
` 11 Civ. 2325 (ER)
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`ROBERT P. KANE,
`By and on Behalf of the United States of America,
`Relator,
`
`State of New York, ex rel.
`Robert P. Kane, Relator,
`
`State of New Jersey, ex rel.
`Robert P. Kane, Relator,
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`
`
`
`
` – against –
`
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`HEALTHFIRST, INC., et al.,
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`Defendants.
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`
`
`STATE OF NEW YORK and UNITED STATES OF
`AMERICA,
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`
`
`
`
` Plaintiff-Intervenors,
`
` – against –
`
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`CONTINUUM HEALTH PARTNERS, INC.; BETH
`ISRAEL MEDICAL CENTER d/b/a MOUNT SINAI
`BETH ISRAEL; ST. LUKE’S-ROOSEVELT
`HOSPITAL CENTER d/b/a MOUNT SINAI ST.
`LUKE’S and MOUNT SINAI ROOSEVELT,
`
`
`
` Defendants.
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`
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`Ramos, D.J.:
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`
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`Relator Robert P. Kane (“Kane” or the “Relator”) filed this case in 2011 as a qui tam
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`action under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., and related state laws.1
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`1 Pursuant to the False Claims Act (“FCA”) and New York False Claims Act (“NYFCA”), a private citizen, known
`as a “relator,” with personal knowledge of fraud may file a qui tam action, in which he brings suit for himself and
`for the government and/or state in exchange for a share of the damages if the suit prevails. See 31 U.S.C. § 3730(b);
`N.Y. State Fin. Law § 189; see also U.S. ex rel. Taylor v. Gabelli, 345 F. Supp. 2d 313, 327 (S.D.N.Y. 2004)
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`

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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 2 of 44
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`In 2014, after investigating Kane’s allegations, the United States Government (the “United
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`States” or “Government”) and the State of New York (“New York”) elected to intervene as
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`plaintiffs against three of the defendants named in Kane’s Complaint. Presently before the Court
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`are those defendants’ motions to dismiss the United States’ and New York’s Complaints-in-
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`Intervention, Docs. 20, 21, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil
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`Procedure. Docs. 54, 52. For the following reasons, both motions are DENIED.
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`I.
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`BACKGROUND
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`A.
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`Factual Background2
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`
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`This action stems from a software glitch on the part of Healthfirst, Inc. (“Healthfirst”), a
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`private, non-profit insurance program, which caused three New York City hospitals to submit
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`improper claims seeking reimbursement from Medicaid3 for services rendered to beneficiaries of
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`a managed care program administered by Healthfirst. Gov’t Compl. (Doc. 20) ¶¶ 3-4, 20, 31-32.
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`The hospitals—Beth Israel Medical Center d/b/a Mount Sinai Beth Israel (“Beth Israel”), St.
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`Luke’s-Roosevelt Hospital Center d/b/a Mount Sinai St. Luke’s and Mount Sinai Roosevelt
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`(quoting United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1016 (7th Cir. 1999)). Once a qui tam
`action has been initiated, it is the Government’s prerogative either to intervene in and prosecute the case or to
`decline to intervene, thereby permitting the relator to proceed alone. See id.
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` 2
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` The “Facts” sections of the Complaints filed by the United States and New York are virtually, if not completely,
`identical, although their paragraph numbering does not perfectly overlap. See Gov’t Compl. (Doc. 20) ¶¶ 16-39;
`New York Compl. (Doc. 21) ¶¶ 19-42. For clarity, the Court includes citations only to the United States’
`Complaint.
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` 3
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` In 1965, pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., Medicaid was established as a
`joint federal and state program to provide financial assistance for medical care to individuals with low incomes.
`Gov’t Compl. ¶ 16. “Under Medicaid, each state establishes its own eligibility standards, benefit packages, payment
`rates and program administration in accordance with certain federal statutory and regulatory requirements. The state
`pays the health care providers for services rendered to Medicaid recipients, with the state obtaining the federal share
`of the Medicaid payment from accounts that draw on the United States Treasury.” Id. (quoting 42 C.F.R. §§ 430.0–
`30). New York’s Medicaid system, which is administered by the State Department of Health (“DOH”), was created
`by the State Legislature in 1966. Id. ¶ 17 (citing N.Y. Pub. Health Law § 201(1)(v)).
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`2
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 3 of 44
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`(“SLR”), and Long Island College Hospital (“LICH” and, collectively, the “Hospitals”)4—all
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`belonged to a network of non-profit hospitals operated and coordinated by Continuum Health
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`Partners, Inc. (“Continuum”). Id. ¶ 3.5 All three Hospitals were also members of the Healthfirst
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`hospital network and provided care to numerous patients enrolled in Healthfirst’s Medicaid
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`managed-care plan. Id. ¶ 5.
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`Pursuant to a contract entered into by Healthfirst and the New York State Department of
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`Health (“DOH”) on October 1, 2005, Healthfirst provides certain “Covered Services,” including
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`hospital and physician services, to its Medicaid-eligible enrollees in exchange for a monthly
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`payment from DOH. Id. ¶ 21.6 Healthfirst’s reimbursement for the Covered Services is limited
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`to that monthly fee; it may not otherwise bill DOH on a “fee-for service” or other basis. Id. All
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`doctors, hospitals, and providers that participate in the Healthfirst network must agree that the
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`payment they receive from Healthfirst for Covered Services rendered to Healthfirst’s Medicaid
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`enrollees will constitute payment in full for those services, except for co-payments that may be
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`4 LICH, although named as a defendant in Kane’s initial Complaint, is not named in the Intervenor-Complaints filed
`by the Government and New York. See Docs. 20, 21. Moreover, on July 15, 2014, Kane filed a Notice of
`Voluntary Dismissal pursuant to Rule 41(a) of the Federal Rules of Civil Procedure, dismissing LICH and the other
`hospitals—besides Beth Israel and SLR—from the action. See Doc. 33.
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` 5
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` Continuum is a not-for-profit corporation that, at all relevant times, was a member of various not-for-profit
`hospitals, including the Hospitals named in this action. Gov’t Compl. ¶ 13. In September 2013, Continuum and the
`Mount Sinai Hospital System merged certain aspects of the two hospital systems, bringing Beth Israel and SLR
`under the auspices of the newly created Mount Sinai Hospitals Group, Inc. (“Mount Sinai Hospitals Group”) the sole
`member of each. Id.
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` 6
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` Pursuant to the Social Security Act, states may use managed-care organizations (“MCOs”) to deliver Medicaid
`benefits and may require that individuals enroll with an MCO as a condition of receiving those benefits. Id. ¶ 18
`(citing 42 U.S.C. § 1396u–2(a)(1)(A)). New York established a “managed care program,” known as the Medicaid
`Managed Care (“MMC”) Program, in Article 5 Title 11 of its Social Services Law. Id. (citing N.Y. Soc. Serv. Law
`§ 364–j). Additionally, pursuant to Article 44 of the New York Public Health Law, DOH is authorized to certify
`Health Maintenance Organizations (“HMOs”) to operate as MCOs within the State, with their operation and
`structure governed by State law. Id. ¶¶ 18-19 (citing N.Y. Pub. Health Law. § 4400 et seq.; N.Y. Comp. Codes R. &
`Regs. tit. 10, pt. 98). The DOH also authorizes Prepaid Health Services Plans (“PHSPs”), special-purpose New
`York HMOs in which a “substantial portion” of enrollees must be beneficiaries of government healthcare programs
`like Medicaid. Id. ¶ 19 (citing N.Y. Comp. Codes R. & Regs. tit. 10, pt. 98-1.1, 9.8-1.2(ff); N.Y. Pub. Health Law
`§ 4403–a(1)).
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`3
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 4 of 44
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`collected from enrollees where applicable. Id. Healthfirst contracts with such providers
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`(“Participating Providers”) and pays them for the Covered Services they render to Healthfirst’s
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`Medicaid-eligible enrollees; in turn, Healthfirst is compensated through DOH’s monthly
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`payments. Id.
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`The error giving rise to the instant controversy relates to electronic remittances, issued by
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`Healthfirst to its Participating Providers, which indicated the amount of any payment due for
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`services rendered by the provider. Id. ¶ 30. These remittance statements also contained “codes”
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`that signaled whether a provider could seek additional payment from secondary payors in
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`addition to Healthfirst, such as Medicaid, other insurance carriers, or patients themselves. Id.
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`The remittances submitted by Healthfirst for Covered Services rendered to its Medicaid-eligible
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`enrollees should have contained codes informing providers that they could not seek secondary
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`payment for such services, with the limited exception of co-payments from certain patients. Id.
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`Beginning in 2009, however, due to a software glitch, Healthfirst’s remittances to
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`Participating Providers erroneously indicated that they could seek additional payment for
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`Covered Services from secondary payors. Id. ¶ 31. Consequently, electronic billing programs
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`used by numerous Participating Providers automatically generated and submitted bills to
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`secondary payors, including Medicaid. Id. Starting in or around January 2009, Continuum
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`submitted claims to DOH on behalf of the Hospitals seeking additional payment for Covered
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`Services rendered to Healthfirst enrollees, and DOH mistakenly paid the Hospitals for many of
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`those improper claims. Id. ¶ 32.
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`In September 2010, auditors from the New York State Comptroller’s office (the
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`“Comptroller”) approached Continuum with questions regarding the incorrect billing. Id. ¶ 33.
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`Eventually, discussions among the Comptroller, Continuum, and the software vendor revealed
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`4
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 5 of 44
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`that the problem occurred when the codes used in Healthfirst’s billing software were “translated”
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`to codes used in Continuum’s billing software. Id. On December 13, 2010, approximately two
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`years after the problem first arose, the vendor provided a corrective software patch designed to
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`prevent Continuum and other providers from improperly billing secondary payors like Medicaid
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`for services provided to Healthfirst enrollees, along with an explanatory memorandum. Id.
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`After the problem was discovered, Continuum tasked its employee, Relator Kane, with
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`ascertaining which claims had been improperly billed to Medicaid. Id. ¶ 34. In late 2010 and
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`early 2011, Kane and other Continuum employees reviewed Continuum’s billing data in an effort
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`to comprehensively “identify” all claims potentially affected by the software glitch. Id. In
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`January 2011, the Comptroller alerted Continuum to several additional claims for which
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`Continuum had billed Medicaid as a secondary payor. Id.
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`On February 4, 2011, approximately five months after the Comptroller first informed
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`Continuum about the glitch, Kane sent an email to several members of Continuum’s
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`management, attaching a spreadsheet that contained more than 900 Beth Israel, SLR, and LICH
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`claims—totaling over $1 million—that Kane had identified as containing the erroneous billing
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`code. Id. ¶ 35. His email indicated that further analysis would be needed to confirm his findings
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`and stated that the spreadsheet gave “some insight to the magnitude of the issue.” Id., Ex. B.
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`There is no dispute that Kane’s spreadsheet was overly inclusive, in that approximately half of
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`the claims listed therein were never actually overpaid; nor is there any dispute that the
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`spreadsheet correctly included “the vast majority of the claims that had been erroneously billed.”
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`5
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 6 of 44
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`Id. ¶ 35.7 On February 8, 2011, four days after sending his email and spreadsheet, Kane was
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`terminated. Id. ¶ 36.8
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`According to the United States and New York, Continuum “did nothing further” with
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`Kane’s analysis or the universe of claims he identified. Id. In February 2011, Continuum
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`reimbursed DOH for only five improperly submitted claims. Id. Meanwhile, the Comptroller
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`conducted further analysis and identified several additional tranches of wrongful claims, which it
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`brought to Continuum’s attention starting in March 2011 and continuing through February 2012.
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`Id. ¶ 37. The United States and New York allege that although Continuum began to reimburse
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`DOH for improperly billed claims in April 2011, it did not conclude until March 2013,
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`“fraudulently delaying its repayments for up to two years after Continuum knew of the extent of
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`the overpayments.” Id. ¶ 38. In addition, it was not until the Government issued a Civil
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`Investigative Demand (“CID”) in June 2012, seeking additional information about the
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`overpayments, that Continuum finally reimbursed DOH for more than 300 of the affected claims.
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`Id. They further allege that “Continuum never brought Kane’s analysis to the attention of the
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`Comptroller despite many communications with the Comptroller concerning additional claims to
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`be repaid.” Id.
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`By “intentionally or recklessly” failing to take necessary steps to timely identify claims
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`affected by the Healthfirst software glitch or timely reimburse DOH for the overbilling, the
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`United States and New York allege, Defendants violated the False Claims Act and its New York
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`corollary. Id. at ¶ 39.
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`7 But see Defs.’ Mem. Law Supp. Mot. to Dismiss at 14 n. 7 (comparing Kane’s spreadsheet with the Government’s
`Complaint, and finding that Kane omitted $21,000 in overpayments from his spreadsheet).
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` 8
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` Kane’s termination is the basis for his allegation that Continuum retaliated against him in violation of 31 U.S.C.
`§ 3730(h) by terminating him as a result of his initiation of this action. See Amended Compl. ¶¶ 88-94 (Doc. 26).
`His retaliation claim is not addressed by the instant motions to dismiss.
`6
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`B.
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`Procedural Background
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`Kane filed this action on April 5, 2011, for himself and on behalf of the United States, the
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`State of New York, and the State of New Jersey, asserting claims under the FCA, the New York
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`State False Claims Act (“NYFCA”), State Fin. Law §§ 187 et seq., and the New Jersey False
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`Claims Act (“NJFCA”), N.J. Stat. Ann. § 2A:32C–1, et seq. Compl. (Doc. 22).9 He named as
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`defendants numerous hospitals and health care organizations that provide government subsidized
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`health care services in New York and New Jersey and had accidentally billed Medicaid for
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`Covered Services and then failed to timely report and return payments submitted by Medicaid in
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`response to those bills. Id. Kane filed an Amended Complaint on May 15, 2014. Amended
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`Compl. ¶¶ 1-2 (Doc. 26).
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`Meanwhile, in June 2012, the Government issued a CID to Continuum in connection with
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`its investigation of Kane’s allegations, requesting information about the claims submitted for
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`Covered Services rendered to Healthfirst Medicaid enrollees. New York Compl. (Doc. 21) ¶ 8.
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`At the end of this investigation, the United States Attorney’s Office for the Southern District of
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`New York, on behalf of the United States Department of Health and Human Services (“HHS”),
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`and the State of New York, acting through its State Office of the Attorney General, Medicaid
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`Fraud Control Unit, elected to intervene as plaintiffs against three defendants: Continuum, Beth
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`Israel, and SLR (collectively, “Defendants”). See Gov’t’s Notice of Election to Intervene in Part
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`(Doc. 25); New York’s Notice of Election to Intervene in Part (Doc. 27).10 Both the United
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`States and New York filed Complaints-in-Intervention on June 27, 2014. Docs. 20, 21.
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`9 As is required in a qui tam action, Kane’s Complaint and Amended Complaint were filed under seal, Docs. 1, 14,
`and were unsealed on June 27, 2014 as Docs. 22 and 26 when the Intervenor-Plaintiffs filed their complaints.
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`10 Although Kane filed suit on behalf of the State of New Jersey as well as the United States and New York, New
`Jersey declined to intervene in this action. See State’s Notice of Election to Decline Intervention (Doc. 36).
`7
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 8 of 44
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`The United States asserts that Defendants violated the FCA’s “reverse false claims”
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`provision, 31 U.S.C. § 3729(a)(1)(G). See Gov’t’s Compl. ¶ 28. New York asserts that
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`Defendants violated State Financial Law § 189(1)(h), a similar “reverse false claims” provision
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`contained in the NYFCA. See Doc. 21 ¶ 31. Both attached two exhibits to their Complaints:
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`(1) a list of the erroneous claims submitted by Beth Israel, SLR, and LICH as a result of the
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`software glitch, and their subsequent histories;11 and (2) Kane’s February 4, 2011 email and
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`approximately 900-claim spreadsheet of potential overpayments. Docs. 20, 21. The United
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`States seeks treble damages, plus an $11,000 penalty for each improperly retained overpayment.
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`Gov’t’s Compl. at 12. New York also seeks treble damages, along with a $12,000 penalty for
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`each overpayment. On September 22, 2014, Defendants filed motions to dismiss both
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`Intervenor-Complaints. Docs. 52, 54.
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`C.
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`Statutory Framework
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`1.
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`The False Claims Act and the Fraud Enforcement and Recovery Act
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`Congress enacted the FCA, also known as the “Informer’s Act” or the “Lincoln Law,” in
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`1863 in order “to combat rampant fraud in Civil War defense contracts.” S. Rep. No. 345, 99th
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`Cong., 2d Sess. (1863), reprinted in 1986 U.S.C.A.A.N. 5266); see also U.S. ex rel. Taylor v.
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`Gabelli, 345 F. Supp. 2d 313, 327 & n. 72 (S.D.N.Y. 2004) (quoting Mikes v. Straus, 274 F.3d
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`687, 692 (2d Cir. 2001); U.S. ex rel. Graber v. City of New York, 8 F. Supp. 2d 343, 352
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`(S.D.N.Y. 1998)). “The Supreme Court has given the statute an expansive reading, observing
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`that it covers all fraudulent attempts to cause the Government to pay out sums of money.” U.S.
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`ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1194 (10th Cir. 2006) (internal quotation marks
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`11 This spreadsheet captures numerous pieces of information for each alleged overpayment, such as the claim
`number, hospital name, date of service, date of billing, amount billed, primary payor, secondary payor, amount
`repaid, and date repaid.
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`8
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 9 of 44
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`omitted) (quoting United States v. Neifert–White Co., 390 U.S. 228, 232-33 (1968); Am. Textile
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`Mfrs. Inst., Inc. v. The Limited, Inc., 190 F.3d 729, 733 (“ATMI”) (6th Cir. 1999)).
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`More than a century after the FCA was initially signed into law, Congress determined
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`that the “growing pervasiveness of fraud necessitate[d] modernization of the Government’s
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`primary litigative tool for combatting fraud.” S. Rep. No. 99–345, at 2 (1986), reprinted in 1986
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`U.S.C.C.A.N. 5266. In 1986, Congress amended the FCA “to enhance the Government’s ability
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`to recover losses sustained as a result of fraud against the Government.” Id. The so-called
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`“reverse false claims” provision at issue in this litigation was added at that time. Id. at 5280. As
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`enacted, the reverse false claims provision imposed liability on any person who “knowingly
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`makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or
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`decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C.
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`§ 3729(a)(7). It is described as the “reverse false claims” provision “because the financial
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`obligation that is the subject of the fraud flows in the opposite of the usual direction.” Bahrani,
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`465 F.3d at 1195 (quoting United States ex rel. Huangyan Imp. & Exp. Corp. v. Nature’s Farm
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`Prods., Inc., 370 F. Supp. 2d 993, 998 (N.D. Cal. 2005)).
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` The 1986 amendments also raised the fixed statutory penalty for FCA violations, which
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`had not been altered since the Act’s initial passage, such that a party found to have violated the
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`Act, including the reverse false claims provision, is liable to the United States Government for a
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`civil penalty of not less than $5,000 and not more than $10,000, to be adjusted for inflation.12 In
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`so doing, Congress “reaffirm[ed] the apparent belief of the act’s initial drafters that defrauding
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`12 The FCA as enacted in 1863 set a fixed statutory penalty of $2,000 per false claim. S. Rep. 99-345, 17, 1986
`U.S.C.C.A.N. 5266, 5282. The 1986 amendments included a penalty range of $5,000 to $10,000 for each false
`claim, including reverse false claims, to be adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.
`S. Rep. 111-10, 22, 2009 U.S.C.C.A.N. 430, 444. Today, due to inflation, the available penalty is a range of $5,500
`to $11,000. Gov’t Compl. ¶ 28.
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`9
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`the Government is serious enough to warrant an automatic forfeiture rather than leaving fine
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`determinations with district courts, possibly resulting in discretionary nominal payments.”
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`S. Rep. No. 99–345, at 17 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5282. Additionally, the
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`1986 amendments increased the Government’s recoverable damages in FCA cases from double
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`to treble. Id. Finally, among the other 1986 changes was the adoption of a provision granting
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`“Civil Investigative Demand” or CID authority to the Civil Division of the United States
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`Department of Justice. Id. at 5280.
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`Twenty-three years later, in 2009, Congress passed the Fraud Enforcement and Recovery
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`Act (“FERA”), which further amended the FCA and its reverse false claims provision. Pub. Law
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`111-21, 123 Stat. 1617, 1621-25 (2009). Prior to the 2009 amendments, the reverse false claims
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`provision left a “loophole” that excused from liability the concealment, avoidance, or decreasing
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`of an obligation to return to the Government “money or property that is knowingly retained by a
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`person even though they have no right to it.” S. Rep. 111-10, 13-14, 2009 U.S.C.C.A.N. 430,
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`441. As amended by the FERA, the reverse false claims provision now imposes liability for any
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`person who “knowingly makes, uses, or causes to be made or used, a false record or statement
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`material to an obligation to pay or transmit money or property to the Government, or knowingly
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`conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit
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`money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G) (emphasis added). As
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`defined in the FCA, the terms “knowing” and “knowingly” encompass “actual knowledge,” as
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`well as situations in which a person “acts in deliberate ignorance” or “reckless disregard” of the
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`truth or falsity of information. Id. § 3729(b)(1)(A). This knowledge standard expressly requires
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`no proof of specific intent to defraud. Id. § 3729(b)(1)(B).
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`10
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 11 of 44
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`In addition, the FERA aimed to address a “confusion” that had arisen among several
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`courts that had “developed conflicting definitions of the term ‘obligation,’” which previously
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`was not defined in the FCA. See S. Rep. 111-10, 14, 2009 U.S.C.C.A.N. 430, 441 (citing ATMI,
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`190 F.3d 729, 736 (6th Cir. 1999); U.S. ex rel. S. Prawer & Co. v. Verrill & Dana, 946 F. Supp.
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`87, 95 (D. Me. 1996)); see also U.S. ex rel. Dunleavy v. Cnty. of Delaware, No. 94 Civ. 7000
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`(TNO), 1998 WL 151030, at *3 n. 8 (E.D. Pa. Mar. 31, 1998) (“The parties argue extensively
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`over how broadly to interpret the term ‘obligation’ in § 3729(a)(7) and there [have] been
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`considerable differences of opinion in the lower courts.”). In direct response to those conflicting
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`court decisions, the FERA amended the FCA by defining an “obligation” as “an established duty,
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`whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-
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`licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from
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`the retention of an overpayment.” 31 U.S.C. § 3729(b)(3) (emphasis added); U.S. ex rel. Stone v.
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`OmniCare, Inc., No. 09 Civ. 4319 (JBZ), 2011 WL 2669659, at *3 (N.D. Ill. July 7, 2011).
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`2.
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`The Patient Protection and Affordable Care Act
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`In 2010, less than a year after the FERA was signed into law, Congress passed the Patient
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`Protection and Affordable Care Act of 2010 (“ACA”), a broad healthcare reform statute that, as
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`relevant to these proceedings, included a provision prohibiting retention of Government
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`overpayments in the healthcare context. See Pub. L. 111–148, 124 Stat. 119; Stone, 2011 WL
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`2669659, at *3. Specifically, the ACA requires a person who receives an overpayment of
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`Medicare or Medicaid funds to “report and return” the overpayment to HHS, the State, or
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`another party if appropriate. 42 U.S.C. § 1320a-7k(d)(1). The statute sets a deadline for such
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`reporting and returning: An overpayment must be reported and returned within sixty days of the
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`“date on which the overpayment was identified” (the “sixty-day rule” or “report and return”
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`11
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 12 of 44
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`provision), and any overpayment retained beyond that point constitutes an “obligation” carrying
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`liability under the FCA. Id. §§ 1320a-7k(d)(2)-(3) (emphasis added). More simply stated, the
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`ACA provides that any person who has received an overpayment from Medicare or Medicaid
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`and knowingly fails to report and return it within sixty days after the date on which it was
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`identified has violated the FCA. Id. § 1320a-7k(d).
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`The report and return provision does not actually deploy the terms “knowing” or
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`“knowingly,” but the provision contains its own succinct “Definitions” section, which states that
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`provides that “knowing” and “knowingly” should “have the meaning given those terms in [the
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`FCA].” Id. § 1320a-7k(d)(4)(A). However, Congress did not define the pivotal word
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`“identified,” which triggers the sixty-day report and return clock, in the text of the ACA. Its
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`meaning governs the outcome of the motions before the Court.
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`3.
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`The New York False Claims Act
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`The NYFCA, “closely modeled on the federal FCA,” was enacted on April 1, 2007.
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`2007 N.Y. Sess. Laws, Ch. 58, S. 2108-c, § 93(5) (Apr. 9, 2007); U.S. ex rel. Bilotta v. Novartis
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`Pharm. Corp., 50 F. Supp. 3d 497, 509 (S.D.N.Y. 2014). It has a similar penalty scheme as well:
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`Under the NYFCA, the State of New York is entitled to recover three times the amount of each
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`improper claim and, for each claim or overpayment, a civil penalty of not less than $6,000 and
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`not more than $12,000. State Fin. Law § 188(3). When interpreting the NYFCA, New York
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`courts rely on federal FCA precedent. Bilotta, 50 F. Supp. 3d at 509 (quoting United States ex
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`rel. Corp. Compliance Assocs. v. New York Soc. for the Relief of the Ruptured and Crippled,
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`Maintaining the Hosp. for Special Surgery, No. 07 Civ. 292 (PKC), 2014 WL 3905742, at *11
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`(S.D.N.Y. Aug. 7, 2014)).
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 13 of 44
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`Section 189(1)(h) of the NYFCA, which New York contends Defendants violated,
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`provides that a person violates the NYFCA if he or she “knowingly conceals or knowingly and
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`improperly avoids or decreases an obligation to pay or transmit money or property to the state or
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`a local government, or conspires to do the same[.]” New York Soc., 2014 WL 3905742, at *11.
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`It is identical to the second clause of the FCA’s reverse false claims provision, 31 U.S.C.
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`§ 3729(a)(1)(G), but applies to obligations to pay the State government or a local government
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`rather than the federal government. Like the FCA, the NYFCA defines an “obligation” to
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`include “retention of an overpayment,” State Fin. Law § 188(4), and defines “knowing” to
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`include reckless disregard or deliberate ignorance to the truth or falsity of information. Id.
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`§§ 188(3)(a)(ii)-(iii).
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`The reverse false claims provision, § 189(1)(h), was not included in the statute as initially
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`enacted in 2007. See State Fin. Law § 189 (2007). Rather, the New York State Legislature
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`amended the NYFCA in March 2013 to include it, thereby incorporating into the Act those
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`provisions of the federal FCA implemented by the FERA. See 2013 N.Y. Sess. Laws, Ch. 56, S.
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`2606, § 8 (Mar. 28, 2013).
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`II.
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`LEGAL STANDARDS
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`A.
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`Rule 12(b)(6) Motions to Dismiss: General Legal Standard
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`When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all
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`factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff’s
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`favor. Koch v. Christie’s Intern, PLC, 699 F.3d 141, 145 (2d Cir. 2012); see also, e.g., Ruotolo
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`v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008). However, the Court is not required to
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`credit “mere conclusory statements” or “threadbare recitals of the elements of a cause of action.”
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`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 14 of 44
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`(2007)); see also id. at 681 (citing Twombly, 550 U.S. at 551). “To survive a motion to dismiss,
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`a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible
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`on its face.’” Id. at 678 (quoting Twombly, 550 U.S. at 570). A claim is facially plausible “when
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`the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
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`defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). More
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`specifically, the plaintiff must allege sufficient facts to show “more than a sheer possibility that a
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`defendant has acted unlawfully.” Id. If the plaintiff has not “nudged [his] claims across the line
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`from conceivable to plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.
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`B.
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`Heightened Pleading Standard under Rule 9(b)
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`Where a plaintiff brings a cause of action that sounds in fraud, the complaint must satisfy
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`the heightened pleading requirements of Rule 9(b) by stating the circumstances constituting
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`fraud with particularity. U.S. ex rel. Kester v. Novartis Pharm. Corp., 23 F. Supp. 3d 242, 251
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`(S.D.N.Y. 2014) (citing Rombach v. Chang, 355 F.3d 164, 170-71 (2d Cir. 2004)). These
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`requirements apply whenever a plaintiff alleges fraudulent conduct, regardless of whether
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`fraudulent intent is an element of a claim. See Rombach, 355 F.3d at 170 (“By its terms, Rule
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`9(b) applies to ‘all averments of fraud.’”) (quoting Fed. R. Civ. P. 9(b)). Claims brought under
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`the FCA, a “self-evident[ly] . . . anti-fraud statute,” and NYFCA “fall within the express scope of
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`Rule 9(b).” Wood ex rel. U.S. v. Applied Research Associates, Inc., 328 F. App’x 744, 747 (2d
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`Cir. 2009) (citing Gold v. Morrison–Knudsen Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995); U.S. ex
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`rel. Mooney v. Americare, Inc., No. 06 Civ. 1806 (FB) (VVP), 2013 WL 1346022, at *2
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`(E.D.N.Y. Apr. 3, 2013) (noting that claims under the FCA and NYFCA must comply with Rule
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`9(b)’s heightened pleading standards).
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`Case 1:11-cv-02325-ER Document 63 Filed 08/03/15 Page 15 of 44
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`Where Rule 9(b) applies, a complaint must: “(1) specify the statements that the plaintiff
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`contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were
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`made, and (4) explain why the statements were fraudulent.” Rombach, 355 F.3d at 170 (quoting
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`Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). “In other words, Rule 9(b)
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`requires that a plaintiff set forth the who, what, when, where and how of the alleged fraud.”
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`Kester, 23 F. Supp. 3d at 251-52 (quoting U.S. ex rel. Polansky v. Pfizer, Inc., No. 04 Civ. 704,
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`2009 WL 1456582, at *4 (E.D.N.Y. May 22, 2009)). Conditions of a person’s mind—such as
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`malice, intent or knowledge—may be alleged generally, however. See Kalnit v. Eichler, 264
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`F.3d 131, 138 (2d Cir. 2001) (citing Fed. R. Civ. P. 9(b)).
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`Rule 9(b)’s particularity requirement serves several aims: “to provide a defendant with
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`fair notice of a plaintiff’s claims, to safeguard a