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United States ex rel. Ketroser v. Mayo Foundation

United States Court of Appeals, Eighth Circuit

September 4, 2013

United States of America, ex rel. Plaintiff
v.
Mayo Foundation, et al. Defendants-Appellees David Ketroser; Gary Latz; Robert Smith; Jason Kennedy Plaintiffs - Appellants

Submitted: June 11, 2013

Appeal from United States District Court for the District of Minnesota - Minneapolis

Before LOKEN, BEAM, and BYE, Circuit Judges.

LOKEN, Circuit Judge.

Attorney David Ketroser and three others ("Relators") brought this qui tarn action under the False Claims Act (FCA) against the Mayo Foundation and several related entities ("Mayo"), alleging that Mayo billed Medicare for surgical pathology services it did not provide. See 31 U.S.C. § 3729(a)(1)(A) and (B). The government intervened and filed a Complaint in Partial Intervention, alleging that Mayo billed Medicare for "permanent" surgical pathology slides it did not create or examine. See 31 U.S.C. § 3730(b)(2). The parties settled that claim. Relators filed a Second Amended Complaint asserting additional claims. They now appeal the dismissal of their additional claim that Mayo fraudulently billed for services it did not provide whenever it prepared and read a permanent tissue slide but did not prepare a separate written report of that service. The district court[1] concluded that it had subject matter jurisdiction over this claim because there was no prior public disclosure of this false claim, see § 3730(e)(4), but it dismissed the claim under Rule 12(b)(6) because "[t]he billing codes applicable to the claims submitted by Mayo do not explicitly require written reports [and] the regulation that sets forth the Medicare conditions of payment . . . requires a written report for clinical pathology services [but not] surgical pathology services." United States ex rel. Ketroser v. Mayo Found., No. 07-4676, Order, at *5-6 (D. Minn. July 22, 2011). Reviewing these issues de novo, we agree and therefore affirm.

I. Background

Medicare compensates qualified healthcare providers on a "fee-for-service" basis in which the provider bills for each discrete medical service. For "surgical pathology services" — the analysis of tissue samples taken during a surgery — each tissue slide a pathologist reads is billed as a separate service. Mayo's longstanding practice is to analyze every sample taken during a surgery using two different procedures. First, a "frozen" slide is made from a portion of the sample and immediately diagnosed by a pathologist who communicates with the surgeon while the patient is still in surgery. Second, a "permanent" slide is made from the remainder of the sample and read after the surgery through a durable, slower process. A published medical study described this dual-slide procedure in 1995. See Jorge A. Ferreiro, Jeffrey L. Myers, & David G. Bostwick, Accuracy of Frozen Section Diagnosis in Surgical Pathology: Review of a 1-Year Experience with 24, 880 Cases at Mayo Clinic Rochester, 70 Mayo Clinic Proc. 1137, 1137-38 (Dec. 1995).

In August 2001, Medicare audited the records of frozen slides prepared in Mayo's pathology labs and found that many were prepared without the surgeon's specific request.[2] Medicare informed Mayo it would no longer pay for frozen slides unless they were specifically ordered by the treating surgeon. Mayo appealed this ruling, arguing that its practice of routinely preparing frozen slides reduced costs to Medicare by providing immediate diagnoses that reduced the need for subsequent surgeries. The Social Security Administration agreed, concluding that Mayo had documented the "medical necessity" for its frozen slide procedures. In re Mayo Med. Ctr., No. 999-18-0546 at *5 (Social Security Adm. May 27, 2003).

This FCA claim involves a different aspect of Mayo's dual-slide procedure. Mayo submits separate surgical pathology claims for the frozen slide and the permanent slide that are prepared and examined from a patient's tissue sample. Based on initial review of the frozen slide, the Mayo pathologist prepares a written pathology report. The initial report is amended if subsequent review of the permanent slide shows that the initial report was incomplete or inaccurate. In most cases, no amendment is required, so no second report is prepared. Relators argue that Medicare regulations require a written report for every permanent slide for which a healthcare provider bills Medicare. Therefore, Relators argue, Mayo has habitually submitted false claims for Medicare payment of surgical pathology services not provided.

II. The Public Disclosure Jurisdictional Bar

When Relators filed this action, the FCA included a statutory public disclosure bar that withdrew jurisdiction to afford a relator FCA relief if the existence of the alleged fraud had been publicly disclosed, unless the relator was the "original source" of information demonstrating the fraud. Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467-70 (2007), construing 31 U.S.C. § 3730(e)(4)(A).[3] Relators learned the factual basis for the FCA claim at issue while litigating wrongful death and medical malpractice claims against Mayo on behalf of former patients Dolores Smith and William Kennedy.[4] Comparing Mayo's medical records for these and other patients with the "Explanation of Benefits" the patients received from Medicare, Relators observed that, in most cases where Medicare paid claims for both frozen and permanent slides, only one report was in the patient's medical file.

Mayo moved to dismiss this failure-to-prepare-reports claim on the ground that Mayo's reporting procedures had been widely disclosed in public fora, including the 1995 medical study, the Social Security Administration proceedings, and the Steinlage litigation.

At the motion hearing before the district court, Relators argued that a great deal was publicly disclosed in the medical study and the administrative proceedings, but not the essence of the alleged fraud — Mayo's practice of not preparing separate reports for permanent slides billed to Medicare as separate surgical pathology services. Relators only learned of this practice during the Steinlage litigation from Mayo discovery responses that were never filed in court and therefore may not be considered Public disclosures. This was a sound argument; § 3730(e)(4)(A) expressly limits the bar to "public disclosure of allegations or transactions in a . . . civil . . . hearing.'" See United States ex rel. McKenzie v. Bellsouth Tel, Inc., 123 F.3d 935, 939 (6th Cir. 1997), and cases cited (public disclosure "includes documents that have been filed with a court"); United States ex rel. Kinney v. Stoltz, 2002 WL 523869, at *5 (D. Minn. 2002), aff don other grounds, 327 F.3d 671 (8th Cir. 2003). Mayo did not respond to this argument at the hearing.

The district court, without extended discussion, ruled that it had subject matter jurisdiction over this claim because the court "does not discern a public disclosure of the allegations regarding Mayo's alleged failure to prepare reports in the materials cited." On appeal, Mayo argues the court erred, asserting that Mayo's practice of not preparing written reports was specifically disclosed in the published 1995 medical study, in a 2002 Medicare administrative hearing, and in an affidavit filed in the Steinlage litigation. As the issue is jurisdictional, we must address it first.[5] Relators as the parties invoking ...


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