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United States ex rel Smith v. New York Presbyterian Hospital

July 18, 2007


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Relator Robert C. Smith ("Smith") brings this action qui tam against defendants New York Presbyterian Hospital ("NYPH") and Cornell University Joan and Sanford I. Weill Medical College ("Cornell") (collectively the "New York Defendants"), alleging fraud and retaliation in violation of the federal False Claims Act, 31 U.S.C. §§ 3729 et seq. (the "FCA"), and asserting claims for defamation, intentional infliction of emotional distress ("IIED"), negligent infliction of emotional distress ("NIED"), and violations of New York Labor Law § 741 ("Section 741").*fn1

Smith also alleges breach of contract by Cornell. Defendants now move to dismiss Smith's claims pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), 12(b)(6) and 12(h)(3). For the reasons stated below, we grant defendants' motions with respect to all of Smith's claims, except his claim for retaliation under the FCA.


This lawsuit arises out of Smith's work with the New York Defendants from July of 1999 through the summer of 2003.*fn2 Smith, a medical doctor licensed to practice in New York and Connecticut, was a Professor of Radiology and an Associate Chair of Information Technology and Systems Administration in Cornell's Radiology Department and was an Attending Radiologist at NYPH.*fn3 Smith alleges that he observed NYPH and Cornell perpetrating a scheme to defraud Medicare/Medicaid (the "FCA fraud").

Smith's FCA fraud claim involves the taking and reading of radiological studies (e.g. x-rays, MRIs and other radiological images and data). Radiological studies comprise two components. Physicians complete the "Professional Component" by ordering studies where appropriate and by reading and reviewing those studies once completed.*fn4 Hospital technicians complete the "Technical Component" by taking the radiological images and/or data and returning them to the ordering physicians.*fn5 To support his claim for FCA fraud, Smith alleges that both components must be completed before an entity can properly bill Medicare/Medicaid for either component, and that NYPH and Cornell perpetrated a fraud on the government by repeatedly violating this rule.*fn6

Smith asserts that a Medicare/Medicaid provider can only bill for radiological studies containing both a completed Technical Component and a completed Professional Component because, according to Smith, if either component is lacking, the provider cannot demonstrate that the radiological study was "medically necessary" as required to receive payment from Medicare/Medicaid.*fn7 He further alleges that, during his time with the New York Defendants, NYPH regularly conducted radiological studies, having been ordered to do so by Cornell, and then billed the government for the Technical Component of those studies without waiting for physicians at Cornell to complete the corresponding Professional Component.*fn8 He alleges that NYPH accomplished this, in part, by using a computer system that automatically submitted bills for the Technical Component of studies without waiting for those studies to be "finalized" by Cornell's completion of the Professional Component, and that NYPH could have and should have programmed its computer system to bill only for "finalized" studies.*fn9 Smith does not allege that Cornell submitted any fraudulent bills to Medicare/Medicaid, but asserts that Cornell conspired with NYPH to do so.*fn10

Smith further alleges that employees of NYPH and Cornell retaliated against him in response to his investigation of the FCA fraud. Smith pleads that, starting in around October of 1999 and continuing for at least two and one-half years, he "complained about a number of billing, compliance and patient care issues" at NYPH and Cornell, and that, "[b]ecause of his investigation and reporting of [the FCA fraud], [he] was harassed and was discriminated against in the terms and conditions of his employment."*fn11 More specifically, Smith states that he complained to Dirk Sostman, M.D., who was then Chairman of the Department of Radiology at Cornell and Radiologist-in-Chief at NYPH, that NYPH had "[i]properly bill[ed] the Medicare and Medicaid Programs and other payers for Completed but Not Read Radiology Studies", and that Dr. Sostman responded by disregarding, ignoring and harassing Smith.*fn12 Smith further pleads that he complained about these and other issues related to improper billing, by letters and at meetings, to a long list of administrative personnel at Cornell and NYPH, including Antonio Gotto, M.D., the Dean of Cornell, and that this too bred retaliation. Smith says that, because of his complaints, he:

(1) "lost access to some of the administrative computerized systems [at NYPH]" and that access to those computer systems was "critical to the performance of his administrative and professional functions; (2) that he was informed on June 28, 2002 that his employment contract with Cornell and NYPH would not be renewed; (3) that he received a threatening letter in May of 2003 from Steve Forman, the Vice President of Corporate Compliance and Audits at NYPH; and (4) that Dean Gotto refused, in late May of 2003, to respond to Smith's request for a leave of absence pending the ongoing investigation.*fn13

A. Case History

Smith originally brought this lawsuit before Judge Peter C. Dorsey in the district court for the District of Connecticut in 2002, alleging the same theory of FCA fraud against the Yale School of Medicine ("Yale") and against Yale-New Haven Hospital ("YNHH").*fn14 Smith worked as a professor of medicine at Yale, and as an attending physician at YNHH, from July of 1990 through June of 1999, when he left to work at NYPH and Cornell.*fn15 He initially filed suit in July of 2000, and later filed several amendments to his complaint.*fn16 The operative pleading in this case, Smith's Third Amended Complaint, dated November 24, 2004, is Smith's fifth set of pleadings and the first to assert claims against NYPH and Cornell.*fn17

After Smith submitted his Third Amended Complaint, Yale was dismissed from the case by stipulation, and YNHH's motion for a dismissal of the entire complaint was granted.*fn18 Judge Dorsey dismissed YNHH from the case, through a series of opinions, pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1) and 12(b)(6). In his February 14, 2006 Opinion, Judge Dorsey dismissed Smith's FCA claim against YNHH pursuant to Rule 12(b)(1), finding that the District of Connecticut lacked jurisdiction under the FCA's Original Source Rule,*fn19 which bars FCA claims based on publicly disclosed information unless the plaintiff is an original source of that information. Judge Dorsey held that the basis for Smith's claims had been publicly disclosed in a prior proceeding and that Smith was not an original source of that information.*fn20 Judge Dorsey further held, in both his February 14, 2006 and March 7, 2006 Opinions, that Smith's complaint failed to plead fraud against YNHH with the particularity required by Rule 9(b), noting that his complaint did not assert a single, particular instance or example of a fraudulent claim.*fn21

Finally, Judge Dorsey held, in his March 7, 2006 Opinion, that Smith's theory of fraud, namely his complaint that YNHH billed Medicare/Medicaid for the Technical Component of radiological studies before those studies were finalized by Yale, failed to state a cognizable legal claim.*fn22 Judge Dorsey noted that Smith had provided no basis for his assertion that an entity could not bill the government solely for the Technical Component of a radiological study and that the assertion ignored the fact that the Technical and Professional Components have separate requirements and are performed by separate entities.*fn23

He further held, contrary to Smith's claims, that hospitals, like YNHH and NYPH, are entitled to bill for the Technical Component of a study without waiting for the Professional Component to be completed:

As a provider of technical services, YNHH's obligations are not automatically merged with those of providers of professional services. A provider of technical services is entitled to rely on the judgment of physicians who order radiological studies and who diagnose and treat patients using those studies. Physicians' conduct is not shown to be a contingency to which YNHH is or should be subject in order to be entitled to compensation for rendered technical services.*fn24

Judge Dorsey further noted that Smith's theory of proper Medicare/Medicaid billing, if deemed the law, would have the "illogical" effect of "disqualify[ing] YNHH from being paid for services rendered if the physician's request or intended use of the study deemed, before the fact, to be medically necessary, was found, after the fact, to be medically unreasonable and/or unnecessary."*fn25 He concluded by stating:

There is, therefore, no basis to find that YNHH is not entitled to be compensated for technical services for studies completed but, as categorized by [Smith], not read by a "qualified" physician or improperly processed as final either from Medicare or Medicaid . . . . Absent a demonstrated obligation on the part of YNHH to withhold billing for technical services rendered, it would not be contrary to law for YNHH to bill for such services. Relator has not alleged nor demonstrated authority or a factual basis establishing such an obligation. [As such], any billing for completed studies by YNHH would not constitute fraud as there has been no showing of a falsehood on the part of YNHH in doing so.*fn26

Once Smith's claims against YNHH were dismissed, only his claims against NYPH and Cornell remained before Judge Dorsey. In his April 28, 2006 Opinion, Judge Dorsey transferred those claims to the Southern District of New York, pursuant to 28 U.S.C. §§ 1404(a) and 1406(a), as NYPH and Cornell had no meaningful connection to the District of Connecticut.*fn27

B. Present Controversy

Upon their arrival in this Court, NYPH and Cornell moved for a dismissal pursuant to Rules 9(b), 12(b)(1), 12(b)(6) and 12(h)(3), arguing that Smith's claims should be dismissed for the same reasons that Judge Dorsey dismissed his claims against YNHH. On June 12, 2006, I instructed counsel for Smith to submit a letter-brief to my chambers explaining why I should not dismiss the case as suggested by NYPH and Cornell (the "June 12 Letter"). I also permitted counsel for NYPH and Cornell to respond to Smith's submission. Smith submitted his letter on August 2, 2006 (the "Smith Letter"), addressing the bases for dismissal raised by defendants. The arguments in that missive, as well as the pertinent arguments presented in defendants' response letters, submitted on August 9, 2006 (the "NYPH Letter" and the "Cornell Letter"), are discussed infra. We now address defendants' motions.*fn28


A. Subject Matter Jurisdiction

Defendants first argue that Smith's claims should be dismissed pursuant to Rules 12(b)(1) and 12(h)(3) for lack of subject matter jurisdiction.*fn29 Specifically, defendants argue that Smith has provided no factual basis in his Third Amended Complaint for concluding that he is the original source of the information forming the basis for his FCA claims and, thus, that the Court lacks jurisdiction under the FCA's Original Source Rule.*fn30

By the text of the statute, federal courts lack subject matter jurisdiction over FCA claims brought by a private plaintiff if the information forming the basis for those claims has been publicly disclosed in a prior hearing unless the plaintiff is an original source of that information. 31 U.S.C. § 3730(e)(4)(A) ("No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing . . . unless the action is brought by the Attorney General or the person bringing the action is an original source of the information."); see also United States ex rel. Kriendler & Kriendler v. United Technologies Corp., 985 F.2d 1148, 1157 (2d Cir. 1993) (text of the FCA makes clear that section 3730(e)(4) presents an issue of subject matter jurisdiction); New York Med. College, 252 F.3d at 120 ("To qualify as an original source, a qui tam plaintiff must have . . . direct and independent knowledge of the information on which the allegations are based . . ."). As noted supra, Judge Dorsey held in his March 7, 2006 Opinion that the District of Connecticut lacked jurisdiction over Smith's claims against YNHH because those claims were based on publicly disclosed information and because Smith was not an original source of that information. In particular, Judge Dorsey noted that Smith learned the core of that information during discovery in a Connecticut state court case that he filed before suing the defendants in federal court (the "Connecticut State Action"), and that Smith could not prove direct and independent knowledge of that information.*fn31

Judge Dorsey's prior holding notwithstanding, we have no basis for concluding that this Court lacks jurisdiction over Smith's claims against NYPH and Cornell. On the contrary, Smith: (1) states that the disclosures in the Connecticut State Action pertained only to Yale and YNHH and not to NYPH and Cornell;*fn32 (2) states that there has been no other public disclosure of the information giving rise to his claims against NYPH and Cornell;*fn33 and (3) pleads in his Third Amended Complaint that he is an "original source" of the information forming the basis for his claims, a fact he would only need to prove had there been a public disclosure of that information.*fn34

Accordingly, and since defendants have not contested Smith's first two assertions, we find that this Court has subject matter jurisdiction over Smith's claims. See e.g. United States eX rel. Barmak v. Sutter Corp. and Orthologic Corp. et al., No. 95 Civ. 7637 (KTD), 2002 WL 987109, *2 (S.D.N.Y. May 14, 2002) ("Because there is no evidence from which I could find [that plaintiff's] allegations were disclosed in any way prior to the filing of this action, I find that this Court has subject matter jurisdiction"); see also Smith, 411 F.Supp.2d at 73 ("At the initial stage of litigation, a party seeking to establish jurisdiction need only make a prima facie showing by alleging facts which, if true, would support the court's exercise of jurisdiction.") (quoting Shlomo Marcus v. "Five J" Jewelers Precious Metals Industry Ltd., 111 F.Supp.2d 445, 447 (S.D.N.Y. 2000) (internal marks omitted)).*fn35

B. Rule 9(b)

1. Dismissal

Defendants next argue that Smith has failed to plead FCA fraud with the requisite particularity. In their papers, defendants adopt Judge Dorsey's view of Smith's Third Amended Complaint, namely that it consists solely of conclusory allegations regarding events spanning a number of years that are based primarily on second-hand information or upon Smith's information and belief, and that it fails to state a single specific instance of a defendant submitting a fraudulent bill to the government. Judge Dorsey described Smith's FCA fraud claim against YNHH in his March 7, 2006 Opinion as follows:

Relator's allegations suggest, in a conclusory manner, that professional services related to radiological studies were not performed and that YNHH billed for such studies . . . . The allegations in [the] complaint are fraught with assumptions and conclusions which do not suffice to establish the essential facts of ...

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