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Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 1 of 120 PageID #:<pageID> IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION JOHN KLACZAK and JEFF SHARP, ) Individually and as ex rel. UNITED ) STATES OF AMERICA, ) No. 96 C 6502 ) Relators, ) Judge Mark Filip ) v. ) ) CONSOLIDATED MEDICAL ) TRANSPORT, et al. ) ) Defendants. ) MEMORANDUM OPINION AND ORDER On October 4, 1996, Relators, John Klaczak (“Klaczak”) and Jeff Sharp (“Sharp”) (collectively, “Relators”), filed under seal this qui tam action pursuant to the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq. (D.E. 1.) After investigating Relators’ allegations, the United States intervened in a portion of the case that ultimately settled, but it declined to intervene in the portion of the case that is still ongoing and that is the subject of this opinion. The Second Amended Complaint—the operative pleading—alleges that Consolidated Medical Transport, Inc. (“CoMed”), Tower Ambulance Service, Inc. (“Tower”), and Daley’s Ambulance Service, Ltd. (“Daley’s”) (also, collectively, the “Ambulance Defendants”); John W. Daley, III, Brian T. Witek, Richard S. Witek, Tom Wappel, and the Estate of John W. Daley, Jr. (also, collectively the “Individual Defendants”); and Advocate Bethany Hospital, Advocate South Suburban, Advocate Trinity Hospital, Holy Cross Hospital, Jackson Park Hospital, Loretto Hospital, Mt. Sinai Hospital, St. Bernard Hospital, and St. James Hospital (also, collectively, the “Hospital Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 2 of 120 PageID #:<pageID> Defendants”), violated the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b(b), by knowingly and willfully receiving remuneration (as to the Hospital Defendants) from the Ambulance Defendants (and the Individual Defendants, their owners) in exchange for referrals of Medicare and Medicaid business. (D.E. 85.) Relators further maintain that the Hospital Defendants violated the FCA because, by certifying on their Medicare cost reports that they had complied with the AKS when they actually knew they allegedly had engaged in a kickback scheme, the Hospital Defendants knowingly caused false or fraudulent claims to be presented to the United States for payment or approval. (See, e.g., D.E. 281.) The Hospital Defendants—who are largely hospitals located in the economically poorest areas of Chicago and its suburbs—are the only remaining defendants in this case.1 The case is before the Court on the Hospital Defendants’ motions for summary judgment (D.E. 234, 235, 236, 240, 252, 259, 265) and the parties’ cross-motions to exclude putative expert testimony. (D.E. 230; D.E. 292.) As explained below, the Court grants the Hospital Defendants’ joint and individual motions for summary judgment. Although the basis for the Court’s ruling is set out at length below, in summary, the Courts grants summary judgment to the Hospital Defendants for a number of reasons. There are, generally speaking, three “global” defects in Relators’ case that warrant summary judgment. There are also numerous failures of proof at the “local” level, in that Relators have failed to develop a meaningful record for a number of specific hospitals, relying not on specific facts but rather generalizations and innuendo. Accordingly, there 1 The case was dismissed as to the Individual Defendants following a settlement agreement. (D.E. 208.) It appears that the Ambulance Defendants dropped out as a result of CoMed’s bankruptcy proceedings. (See D.E. 80 at 4.) 2 Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 3 of 120 PageID #:<pageID> are concomitant gaps in the record as to those hospitals that further warrant summary judgment in their favor. The first global defect in Relators’ case is their failure to create a triable case with respect to the illicit remuneration element. In order to prove that the Hospital Defendants violated the AKS, Relators must prove that the Hospital Defendants accepted illegal remuneration, meaning something of value, in return for referrals. Relators have failed to identify a reliable benchmark against which the Court could determine whether the contracts satisfy the statutory definition of remuneration. Relators’ initial theory that the contracts themselves are proof of remuneration is not plausible for a number of reasons, as explained below. Relators have also failed to prove that, as a matter of law, discounts below the amount the Ambulance Defendants charged Medicare constitutes remuneration, and have not shown that the Medicare rate is a reasonable proxy for “fair market value.” Relators have not built a record as to fair market value for ambulance services during the relevant time period and Relators cannot otherwise offer competent proof with respect to fair market value at trial. In sum, Relators have failed to assemble a properly-developed record supporting their assertions on this element of their case. The second global defect in Relators’ case is their failure to create a triable case with respect to the Anti-Kickback Statute’s heightened scienter requirements—i.e., “knowingly” and “willfully” engaging in criminal misconduct. Relators have no direct evidence with respect to the Hospital Defendants’ supposed knowing and willful acts of criminal misconduct. Furthermore, Relators have not shown that any of the Hospital Defendants knew what CoMed charged Medicare or what CoMed charged other contractual customers. Relators’ attempts to draw illicit inferences from the Hospital 3 Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 4 of 120 PageID #:<pageID> Defendants’ conduct is consistently frustrated by legitimate, uncontradicted explanations for their acts. In sum, Relators’ purported proof with respect to scienter in the assembled record is so deficient that no rational jury could find an AKS violation. The final global defect is that Relators’ case, at a conceptual level, is fundamentally implausible. Relators maintain, in so many words, that the agents of the Hospital Defendants were so intent on lowering Medicare Part A costs that they knowingly and willfully risked harsh administrative sanctions and civil and/or criminal liability for the respective hospitals, as well as potential criminal liability for themselves, with no allegation that any agent ever even sought any personal kickback or bribe or supposed personal enrichment of any kind for themselves. Put somewhat differently, to believe Relators’ theory, the jury would have to believe that employees of the Hospital Defendants were willing to go to jail to help their respective non-profit organization fulfill its mission, which largely involved the provision of low-cost or free health care to the needy in and around Chicago. Even if the initial premise of Relators’ theory were not so implausible, the Hospital Defendants took actions fundamentally inconsistent with their alleged motive, such that, based on the record evidence, no rational jury could infer that the Hospital Defendants knowingly and willfully accepted illicit remuneration in violation of federal law. For example, many hospitals were permitted to take “quick- pay” discounts of up to 45% even if they paid bills years later, yet Relators have failed to prove that any of the Hospital Defendants took advantage of these discounts. Relators maintain that the Hospital Defendants were not contractually obligated to act as a guaranty for unpaid bills, yet the Hospital Defendants, in practice, accepted responsibility for patients that had no coverage and no means to pay, and many Hospital Defendants 4 Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 5 of 120 PageID #:<pageID> negotiated “no hassle” provisions in the contracts that protected patients at the expense of the hospitals’ respective bottom lines. No rational jury could believe that the Hospital Defendants were willing to risk criminal sanctions to cut costs while voluntarily assuming substantial costs associated with patient care. In addition to Relators’ global failures of proof, Relators have also failed to address other defects in their case against respective individual Hospital Defendants that further (and sometimes independently) warrant summary judgment. In addition to the joint memorandum in support of the summary judgment motions, the Hospital Defendants filed supplemental memoranda highlighting Relators’ failure of proof with respect to each individual hospital. Relators did not even file responses to these supplemental briefs and motions, and their general brief in opposition to summary judgment is fatally deficient with respect to individual factual circumstances. For example, Relators fail to develop any meaningful argument with respect to St. James, which never had a written contract and never had an explicit referral agreement—supposed cornerstones of Relators’ otherwise defective theories. To take another example, with respect to South Suburban, Relators’ theory fails because South Suburban’s contracted rates were above the Medicare allowable rate in each contract year—another supposed cornerstone of Relators’ case. The individual failures of proof are discussed in the final section of the opinion, and those failures further support the propriety of summary judgment as to various individual defendants. I. Factual Background To provide essential context for Relators’ allegations, the Court sets forth background information concerning Medicare and Medicaid prior to discussing the 5 Case: 1:96-cv-06502 Document #: 321 Filed: 09/30/06 Page 6 of 120 PageID