21-1534 U.S. ex rel. Quartararo v. Cath. Health Sys. of Long Island Inc.

United States Court of Appeals For the Second Circuit

August Term 2021

Argued: May 3, 2022 Decided: October 16, 2023

No. 21-1534

UNITED STATES OF AMERICA EX REL. MICHAEL QUARTARARO, STATE OF NEW YORK EX REL. MICHAEL QUARTARARO,

Plaintiffs-Appellees,

v.

CATHOLIC HEALTH SYSTEM OF LONG ISLAND INC., DBA CATHOLIC HEALTH SERVICES OF LONG ISLAND, ST. CATHERINE OF SIENA MEDICAL CENTER,

Defendants-Appellants,

ST. CATHERINE OF SIENA NURSING HOME, GOOD SAMARITAN HOSPITAL MEDICAL CENTER, GOOD SAMARITAN NURSING HOME,

Defendants. ∗

Appeal from the United States District Court for the Eastern District of New York No. 12-cv-4425, Margo K. Brodie, Chief Judge.

∗ The Clerk of Court is respectfully directed to amend the official case caption as set forth above. Before: CALABRESI, CABRANES, and SULLIVAN, Circuit Judges.

Catholic Health System of Long Island (“CHS”) brings this interlocutory appeal challenging the denial of its motion to dismiss a qui tam action brought by a former employee, Michael Quartararo (“Relator”), on behalf of the United States and the State of New York under the federal False Claims Act (“FCA”),

et seq., and the New York False Claims Act (“NYFCA”),

et seq. According to Relator, CHS and certain of its affiliates falsely certified their compliance with federal law, in violation of the FCA and NYFCA, when they submitted Medicare and Medicaid reimbursement claims without disclosing their ongoing violations of 42 U.S.C. § 1320a-7b(a)(4) (the “Benefits Conversion Statute”). After the Department of Justice and the New York Attorney General declined to intervene in the suit, the district court (Brodie, C.J.) denied CHS’s motion to dismiss these claims but granted its motion to certify an interlocutory appeal pursuant to

(b) on the grounds that the case presented an issue of first impression in this Circuit. Because we now hold that the Benefits Conversion Statute is not violated where, as here, the recipient of a reimbursement payment is under no obligation to utilize the funds in any particular way, Relator has failed to plead an FCA or NYFCA claim. Accordingly, we REVERSE the orders of the district court and REMAND with instructions to dismiss Relator’s section 1320a-7b(a)(4)-based claims.

REVERSED AND REMANDED.

THOMAS S. D’ANTONIO (Tony R. Sears, on the brief), Ward Greenberg Heller & Reidy LLP, Rochester, NY, for Defendants-Appellants.

DANIEL J. KAISER, Kaiser Saurborn & Mair, P.C., New York, NY, for Plaintiffs-Appellees.

RICHARD J. SULLIVAN, Circuit Judge:

Catholic Health System of Long Island (“CHS”) brings this interlocutory

appeal challenging the denial of its motion to dismiss a qui tam action brought by

2 a former employee, Michael Quartararo (“Relator”), on behalf of the United States

and the State of New York under the federal False Claims Act (“FCA”),

et seq., and the New York False Claims Act (“NYFCA”),

et seq. According to Relator, CHS and certain of its affiliates falsely certified

their compliance with federal law, in violation of the FCA and NYFCA, when they

submitted Medicare and Medicaid reimbursement claims without disclosing their

ongoing violations of 42 U.S.C. § 1320a-7b(a)(4) (the “Benefits Conversion

Statute”). After the Department of Justice and the New York Attorney General

declined to intervene in the suit, the district court (Brodie, C.J.) denied CHS’s

motion to dismiss these claims but granted its motion to certify an interlocutory

appeal pursuant to

(b) on the grounds that the case presented an

issue of first impression in this Circuit. Because we now hold that the Benefits

Conversion Statute is not violated where, as here, the recipient of a reimbursement

payment is under no obligation to utilize the funds in any particular way, Relator

has failed to plead an FCA or NYFCA claim. Accordingly, we reverse the orders

of the district court and remand with instructions to dismiss Relator’s

section 1320a-7b(a)(4)-based claims.

3 I. BACKGROUND

The United States subsidizes health care for certain individuals through two

programs: Medicare and Medicaid. Medicare is a national program for the elderly

and disabled that the federal government funds and administers. Medicaid,

meanwhile, is a network of statewide programs, funded by both the federal

government and the states, that helps cover medical costs for people with limited

income. Like many health insurance programs, Medicare and Medicaid allow

health care providers to seek reimbursement for services they provide to covered

individuals.

CHS is the parent corporation of an integrated network of hospitals, nursing

homes, and other medical facilities. As relevant here, CHS owns and operates the

St. Catherine of Siena Medical Center (the “Medical Center”) and the St. Catherine

of Siena Nursing Home (the “Nursing Home” and, together with CHS and the

Medical Center, “Defendants”). For services provided to Medicare and Medicaid

patients, the Nursing Home is reimbursed by the government per diem, meaning

it receives a fixed amount for each day a covered patient spends in the facility.

After working at the Nursing Home for thirty-eight years, Relator was fired

in 2012. As relevant here, during his tenure, Relator discovered what he describes

4 as a “fraudulent scheme” by Defendants to divert Medicare and Medicaid funds –

reimbursement payments the Nursing Home had received – from the Nursing

Home to CHS and the Medical Center. J. App’x at 137. To divert the funds, CHS

and the Medical Center allegedly charged the Nursing Home for “certain utility

expenses, payroll expenses[,] and other ancillary medical and laboratory services

that either were not incurred at all or that were grossly inflated.”

at 137–38.

Every year, these charges allegedly drained the Nursing Home of “hundreds of

thousands of dollars . . . that should have been applied to the care of nursing home

residents.”

. Some of the misappropriated funds included monies from

a one-time $4.5 million “remediation payment” that the Nursing Home received

from the New York State Department of Health to offset a retroactive reduction of

its reimbursement rate.

at 163–64.

Relator decided to challenge this alleged misconduct by bringing a qui tam

action against CHS, the Nursing Home, and the Medical Center under the FCA

and NYFCA. These laws authorize individuals to sue, on the government’s behalf,

to recover property or money from individuals who have defrauded the

government. See

(b);

(2). If successful,

5 relators are entitled to receive a share of the proceeds, as set by a court within a

statutory range. See

(d);

(6).

According to Relator, the Nursing Home’s Medicare and Medicaid

reimbursement claims were fraudulent because they falsely certified compliance

with federal law at a time when CHS and the Medical Center were unlawfully

diverting Medicare and Medicaid reimbursement payments away from the

Nursing Home residents. This misappropriation of government funds, Relator

alleges, violated 42 U.S.C. § 1320a-7b(a)(4), a part of the Social Security Act (“SSA”)

that imposes criminal penalties on anyone who, “having made application to

receive [a federal health care program] benefit or payment for the use and benefit

of another and having received it, knowingly and willfully converts such benefit

or payment or any part thereof to a use other than for the use and benefit of such

other person.” 42 U.S.C. § 1320a-7b(a)(4). In addition, Relator alleges that his

firing was an act of retaliation in violation of the federal FCA and NYFCA.

After the Department of Justice and the New York Attorney General

declined to intervene in the suit, Defendants moved to dismiss the complaint and

for partial summary judgment. The district court thereafter dismissed all of

Relator’s claims but granted Relator leave to replead his misappropriation claims

6 discussed above. According to the district court, Relator’s misappropriation

theory was viable, but the allegations in the complaint were incomplete because

Relator failed to allege that Defendants had actually submitted any reimbursement

requests during the course of the alleged scheme. With leave of court, Relator

amended his complaint to include allegations that the Nursing Home had made

the requisite reimbursement requests during the relevant period. After the

complaint was amended, Defendants renewed their motion to dismiss and for

partial summary judgment, which the district court denied. Defendants then

moved for the district court to reconsider its decision. Upon reconsideration, the

district court held that “Relator ha[d] articulated a viable

implied-false-certification argument based on his allegations that Defendants

[had] violated section 1320a-7b(a) during a time they were submitting false

Medicaid and Medicare reimbursement claims.” Sp. App’x at 36. Defendants then

moved for leave to file an interlocutory appeal under

(b), which

the district court granted, finding that the issue of whether section 1320a-7b(a)(4)

may serve as a basis for Relator’s misappropriation claims is a novel question of

law in the Second Circuit. This appeal followed.

7 II. STANDARD OF REVIEW

The issue on appeal – whether section 1320a-7b(a)(4) criminalizes the

conduct alleged in Relator’s misappropriation claims – is a legal question that we

review de novo. United States v. Williams,

(2d Cir. 2013). If

Defendants are correct that section 1320a-7b(a)(4) does not apply to

reimbursements of the sort at issue here, then Relator’s claims fail as a matter of

law and must be dismissed. Fed. R. Civ. P. 12(b)(6).

III. DISCUSSION

The FCA imposes civil liability on anyone who “knowingly presents, or

causes to be presented, a false or fraudulent claim for payment or approval.”

(a)(1)(A). The FCA recognizes two types of false claims: factually

false claims and legally false claims. See Mikes v. Straus,

, 696–97 (2d

Cir. 2001), abrogated on other grounds by Universal Health Servs., Inc. v. United States

ex rel. Escobar,

(2016). A claim is factually false when it includes

an “incorrect description of goods or services provided or a request for

reimbursement for goods or services never provided.” Straus,

. A

claim is legally false when it falsely certifies – expressly or impliedly – compliance

8 with a governing statutory, regulatory, or contractual provision. See Escobar,

.

Relator alleges that the Medicare and Medicaid reimbursement claim forms

submitted by CHS are legally false because they failed to disclose CHS’s ongoing

violations of the Benefits Conversion Statute. According to Relator, Defendants

violated the Benefits Conversion Statute when they misappropriated the Nursing

Home’s Medicare and Medicaid reimbursement payments by using those funds

to pay CHS and the Medical Center for “utility expenses, payroll expenses[,] and

other ancillary medical and laboratory services that either were not incurred at all

or that were grossly inflated.” J. App’x at 137–38. In essence, Relator insists that

the Nursing Home falsely certified compliance with federal law, in violation of the

FCA and NYFCA, every time it applied for Medicare or Medicaid reimbursement.

As a threshold matter, we note that Relator’s claims rest solely on

Defendants’ alleged violation of the Benefits Conversion Statute. Relator has

alleged no other violations of the SSA – or any other statute – as the basis for his

false-certification claims.

Relator’s asserted interpretation of the Benefits Conversion Statute is an

issue of first impression in this Circuit – and apparently in every circuit. In fact,

9 other than the district court below, we have found no decision – in federal or state

court – passing upon the meaning of the statute. In interpreting the Benefits

Conversion Statute, we begin, as always, with the statute’s text. Under the Benefits

Conversion Statute, criminal penalties attach only if a person, “having made

application to receive [a federal health care program] benefit or payment for the

use and benefit of another and having received it, knowingly and willfully

converts such benefit or payment or any part thereof to a use other than for the

use and benefit of such person.” 42 U.S.C. § 1320a-7b(a)(4). By its plain terms, the

Benefits Conversion Statute is violated only if three conditions are met: (1) a

person applies to receive a benefit or payment for “the use and benefit of another”;

(2) the applicant receives such benefit or payment; and (3) after receiving such

benefit or payment, the applicant knowingly and willfully converts the benefit or

payment to a use other than for such other person. Id. (emphasis added). In other

words, if the government makes a payment that is not “for the use and benefit of

another” – i.e., a payment for the use and benefit of the payee -- the statute does

not apply.

The conduct at issue here could not have violated the Benefits Conversion

Statute. Simply put, the Medicare and Medicaid payments reimbursed the

10 Nursing Home for past services already rendered, without any requirement that

the funds be used to confer a future benefit upon any person. Accordingly, the

funds were not “for the use and benefit of another,” and the Benefits Conversion

Statute is inapplicable. 42 U.S.C. § 1320a-7b(a)(4).

There is no question that the Medicare and Medicaid reimbursement

payments were for past services already rendered. During the period in question,

the Nursing Home was reimbursed a fixed dollar amount for each day of care that

it provided to a Medicare or Medicaid patient. To apply for reimbursement, the

Nursing Home periodically completed after-the-fact claim forms that detailed the

benefits it had conferred over a prior period: for Medicare, the prior month; for

Medicaid, the prior week. After receiving a claim form, the government would

reimburse the Nursing Home for the services it had provided. The reimbursement

payment ended the life cycle of the claim. Having already provided the required

services, the Nursing Home had no obligation to spend the reimbursement funds

in any particular way.

Furthermore, the reimbursement claim forms imposed no forward-looking

conditions as to how the Nursing Home had to use the funds. On each claim form,

the Nursing Home had to certify that the information it submitted, all of which

11 concerned services already provided, was accurate. The Nursing Home did not –

and was not required to – certify that it would earmark the funds for a particular

person or type of service, or even retain the funds for the Nursing Home at all.

The same is true for the remediation payment, which Relator concedes was

retroactive. J. App’x at 163–64. The remediation payment was not earmarked for

future services – in fact, it was not for any services. As Relator describes it, the

remediation payment was a payment to the Nursing Home to mitigate the

retroactive reduction in 2011 of the Nursing Home’s per diem reimbursement rate

for Medicaid claims submitted over the previous three years. Id. at 163. In no

sense, then, was it a “payment for the use and benefit of another.” 42 U.S.C.

§ 1320a-7b(a)(4).

Relator nevertheless argues that the Nursing Home had an obligation to use

the Medicare and Medicaid reimbursement and remediation funds to provide

additional services to the same or similar residents of the Nursing Home. J. App’x

at 181. To be sure, the Nursing Home, like all residential health care facilities, has

a general obligation to provide adequate care for its residents. See

et seq. But this general obligation does not create

a requirement to use Medicare and Medicaid reimbursement payments in any

12 particular way. Relator points to no statutory or regulatory provision requiring

the Nursing Home to use its Medicare and Medicaid payments only “for the care

of the beneficiaries in whose names and on whose behalf the funding was . . .

obtained.” J. App’x at 181.

Relator’s reliance on this Court’s holding in United States v. Wright is wholly

misplaced.

(2d Cir. 1998). In Wright, we upheld enhancements under

the Sentencing Guidelines for abuse of trust and vulnerable victims where the

defendant embezzled money from a nursing home that received Medicaid

funding.

. In his brief, Relator plucks a line from Wright – that the

Medicaid funds were “entrusted” to the defendant for the “well-being of the

intended beneficiaries” – to argue that Wright established a rule that Medicare and

Medicaid reimbursement dollars must be used for the benefit of a facility’s

residents. Relator Br. at 4 (quoting Wright,

). But aside from the fact

that Wright involved an application of the Sentencing Guidelines to a defendant

who was not even charged with a violation of section 1320a-7b(a)(4), there is

another fundamental difference between the two cases: In Wright, the defendant

failed to provide the mentally disabled residents in her facility with “any

semblance of adequate care,” wholly depriving them of the services for which the

13 federal funds were provided.

. Here, by contrast, the Nursing Home’s

residents unquestionably received the benefits for which the Nursing Home was

subsequently reimbursed. In short, Wright said nothing about how

reimbursement dollars must be spent when a benefit has already been conferred.

We thus reject the argument that Wright has any relevance whatsoever to this case

or the Benefits Conversion Statute.

Finally, Relator repeatedly alleges that CHS and the Medical Center

overcharged the Nursing Home in order to strip assets from it and make them

available for CHS’s use. But Relator’s allegations of overcharging have nothing to

do with the Benefits Conversion Statute, which simply does not apply when, as

here, the payments were not “for the use and benefit of another.” 42 U.S.C.

§ 1320a-7b(a)(4). While overcharging may be covered by other statutes, the

Benefits Conversion Statute is the only provision on which Realtor has based his

FCA and NYFCA claims. His overcharging allegations are thus irrelevant and

need not be entertained.

In sum, because the Medicare and Medicaid payments at issue here were

reimbursements for services already provided, with no forward-looking

conditions that they be used in any particular way, Defendants’ alleged conduct

14 did not violate the Benefits Conversion Statute. Relator’s claims based on section

1320a-7b(a)(4) therefore fail as a matter of law.

IV. CONCLUSION

For these reasons, we REVERSE the orders of the district court and

REMAND the case with instructions to dismiss Relator’s section 1320a-7b(a)(4)-

based claims against Defendants.

15