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United States ex rel Zizic v. Q2Administrators, LLC

United States Court of Appeals, Third Circuit

August 26, 2013

UNITED STATES OF AMERICA ex rel. THOMAS M. ZIZIC, M.D., Appellant
v.
Q2ADMINISTRATORS, LLC and RIVERTRUST SOLUTIONS, INC.

Argued January 8, 2013

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-09-cv-05788) District Judge: Honorable Norma L. Shapiro

Brian J. McCormick, Jr. (ARGUED) Matthew C. Monroe Sheller Counsel for Appellant

Stephanie C. Chomentowski Blank Rome, Daniel E. Chudd James C. Cox Warren J. DeVecchio (ARGUED) Marina K. Jenkins Jenner & Block Counsel for Q2Administrators, LLC

James A. Backstrom, Jr., Jaime L. Derensis Gary C. Shockley (ARGUED) Baker, Donelson, Bearman, Caldwell & Berkowitz Counsel for RiverTrust Solutions, Inc.

Before: RENDELL, FISHER and JORDAN, Circuit Judges.

OPINION

FISHER, Circuit Judge.

Relator Thomas M. Zizic, M.D. ("Zizic") filed this qui tam[1] suit under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33, alleging that Q2Administrators, LLC ("Q2A") and RiverTrust Solutions, Inc. ("RTS") fraudulently billed the United States for the unperformed review of benefit claim denials that was required by the Medicare Act ("Medicare"), 42 U.S.C. § 1395 et seq., Department of Health and Human Services ("HHS") regulations, and their Government contracts. Q2A and RTS moved to dismiss Zizic's claims for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The District Court dismissed the complaint with prejudice, concluding that it lacked jurisdiction because the allegations against Q2A and RTS were based on certain prior public disclosures and because Zizic was not an original source of that information. For the reasons stated below, we will affirm.

I.

Because Zizic's FCA claims allege Medicare fraud, we first describe those two statutory schemes. Next, we relate the relevant factual background of this case.[2] We finally recount the procedural history of this appeal.

A.

Zizic asserts claims under the FCA, which punishes the knowing presentation of a fraudulent demand for payment to the United States, 31 U.S.C. § 3729(a)(1)(A) & (b)(2)(A)(i), and permits a private relator to bring a qui tam civil suit in the Government's name, § 3730(b)(1). To proceed with the suit, the relator must serve on the Government a written statement disclosing "substantially all material evidence and information the person possesses." § 3730(b)(2). If the Government declines to take over the case, § 3730(b)(4)(B), the successful relator is entitled to reasonable expenses, attorney's fees, and between 25% and 30% of the proceeds of the litigation, § 3730(d)(2), which include civil penalties and treble damages, § 3729(a)(1). Importantly, the FCA's public disclosure bar divests a court of subject matter jurisdiction over a qui tam suit that is based on allegations or transactions that have been publicly disclosed in certain sources, unless a relator is an original source of that information. § 3730(e)(4).[3]

Zizic's FCA claims are based on allegations of fraud related to Medicare, a federal health insurance program for the aged and disabled. Medicare Part B subsidizes the costs of covered medical services and devices. 42 U.S.C. § 1395k(a). Covered medical supplies include certain durable medical equipment ("DME"), § 1395x(n) & (s)(6), which are "reasonable and necessary for the diagnosis or treatment of illness or injury, " § 1395y(a)(1)(A).

HHS contracts out the administration of DME coverage determinations to a DME Medicare administrative contractor ("DMAC"). § 1395u(a). The DMAC may make an "initial determination" whether a claimant is entitled to benefits, § 1395ff(a)(1)(A), based in part on whether a DME is "reasonable and necessary, " 68 Fed. Reg. 63, 692, 63, 693 (Nov. 7, 2003). If the DMAC denies the claim, the claimant may engage in a five-step appeals process. First, the claimant may request a "redetermination" by the same DMAC. 42 U.S.C. § 1395ff(a)(3).

Second, the claimant may request a "reconsideration, " § 1395ff(b)(1)(A), by a qualified independent contractor ("QIC"), § 1395ff(c)(1), which must have "sufficient medical . . . and other expertise . . . and sufficient staffing" for such reconsiderations, § 1395ff(c)(3)(A). If the initial determination was based on whether the DME is medically reasonable and necessary, then the QIC's review "shall include consideration of the facts and circumstances of the initial determination by a panel of physicians or other appropriate health care professionals." § 1395ff(c)(3)(B)(i). Similarly, "[w]here a claim pertains to . . . the provision of items or services by a physician, a reviewing professional must be a physician." 42 C.F.R. § 405.968(c)(3). The QIC's decision with respect to whether the DME is medically reasonable and necessary must "be based on applicable information, including clinical experience (including the medical records of the individual involved) and medical, technical, and scientific evidence, " 42 U.S.C. § 1395ff(c)(3)(B)(i), and must include "an explanation of the medical and scientific rationale for the decision, " § 1395ff(c)(3)(E).

Third, the claimant may appeal to an administrative law judge ("ALJ"), § 1395ff(b)(1)(A) & (d)(1)(A), who reviews the QIC record, § 1395ff(c)(3)(J). Fourth, the claimant may appeal to the Medicare Appeals Counsel within the Departmental Appeals Board. § 1395ff(b)(1)(A) & (d)(2)(A). Finally, the claimant may seek judicial review. § 1395ff(b)(1)(A) & § 405(g).

B.

Zizic is the former President and CEO of the now-bankrupt BioniCare Medical Technologies, Inc. ("BioniCare"), a company formed to commercialize the BIO-1000, a DME designed to treat osteoarthritis of the knee. BioniCare attempted to bill Medicare for the BIO-1000, but many claims were denied as not medically reasonable and necessary. Zizic personally participated on behalf of BioniCare in the ALJ appeals of the QIC's denials of the BIO-1000 claims.

From July 2005 to about December 2006, Q2A contracted with HHS to serve as the QIC responsible for review of all DME claim denials across the nation. Q2A frequently denied BIO-1000 claims, always as medically unreasonable and unnecessary. However, Q2A's decisions were reached without the physician review required by the Medicare Act, HHS regulations, and its Government contract, as demonstrated by the lack of evidence of such review in the ALJ files.

According to a March 28, 2007 affidavit by Wayne van Halem ("van Halem"), a former Q2A employee who managed all DME appeals for all DMAC regions from November 2005 to September 2006, Q2A employed only three or four physicians to review several hundred daily appeals of claim denials. Because Q2A was short-staffed, it first implemented an internal policy to deny all BIO-1000 claims, which were reviewed by a single nurse rather than a panel of physicians. Then, Q2A allowed non-physician subcontractors to prepare BIO-1000 appeals for review by a single physician. Q2A finally developed a mail merge letter that automatically denied BIO-1000 claims without any review.

From about January 2007 to the present, RTS replaced Q2A, contracting with HHS to serve as the QIC responsible for review of all DME claim denials throughout the country. RTS consistently denied BIO-1000 claims, often as medically unreasonable and unnecessary. Like Q2A, RTS arrived at its decisions without performing the physician review required by the Medicare Act, HHS regulations, and its Government contract. RTS employed only two physicians to review the more than one hundred thousand annual appeals of claim denials.

On July 26, 2007, BioniCare declared bankruptcy. Amended Complaint at ¶ 10, Almy v. Sebelius, No. 08-cv-01245 (D. Md. May 28, 2008). The bankruptcy trustee then sued HHS, seeking the reversal of the denial of seven groups of BIO-1000 claims as neither medically reasonable nor necessary. Id. at ¶¶ 1-6. During discovery, HHS produced almost 35, 000 pages of documents, Statement of Material Facts in Support of Plaintiff's Motion for Summary Judgment ("Summary Judgment Submission") at ¶¶ 22-27, Almy v. Sebelius, No. 08-cv-01245 (D. Md. Nov. 6, 2009), at least some of which contained personal medical information related to individual beneficiaries, id. at ¶¶ 46-47. On the trustee's behalf, Zizic "personally reviewed the medical records for claims that [we]re the subject of th[at] complaint and based on [his] experience and expertise . . ., explained why the BIO-1000 was reasonable and medically necessary for the beneficiary." Id. at ¶ 68. The trustee moved for summary judgment, arguing that the QICs, which were "funded by a contract with [HHS], " id. at ¶ 13, "subjected none of the [BIO-1000] claims to physician or nurse review, " id. at ΒΆ 66 (citations omitted), despite the fact that they were "required to use a ...


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