Court to Decide Dismissal of Takemoto MSP Whistleblower Lawsuit
Jeff Signor
June 5, 2015

Franco Signor was invited for oral argument for the MSP False Claims Act case titled Takemoto v. Ace, et. al (Western District of New York) of defendants’ joint motion to dismiss plaintiff’s Amended Complaint before the court held on June 3, 2015. To remind our readers, this False Claims Act case is plaintiff’s (Dr. Kent Takemoto, relator) attempt to recoup money for the federal government (and himself) based upon defendants’ alleged failure to repay the government for conditional payments Medicare made as a result of settlements, judgments or awards.  Dr. Takemoto alleges he was intimately aware of the Medicare Compliance programs, or lack of such programs, relative to the over 50 defendants being sued in this case through his prior work as a Medicare Secondary Payer compliance vendor.

The False Claims Act passed during the Lincoln Administration allows a US Citizen to bring claims on behalf of the government for which defendants failed to pay for obligations owed or inaccurately charged the government for services and/or supplies.  If proven, a successful False Claims’ Act plaintiff (“whistleblower”) is entitled to about 15-25% of the recovery.   Before filing this type of lawsuit, however, the government must be involved and has the option to prosecute the claim on its own or elect to allow the individual plaintiff to go it alone.  In either case, if the whistleblower prevails, the government recovers too.

This litigation was filed by the U.S. Attorney’s office for the Western District of New York in 2011 and unsealed in 2013 after the government elected that Takemoto could pursue the case on his own.  Numerous procedural motions have been made, since, but this is the first recent hearing on whether the allegations in the Complaint were sufficient to support a claim under the False Claims Act.    There has not been a determination to date that Non-Group Health Plans (NGHP) have liability for whistleblower lawsuits based on failure to comply with the Medicare Secondary Payer Act.

The following is a summary of the oral arguments presented by the parties to Magistrate Hon. Jerimiah McCarthy at this hearing.    No one can predict how the Magistrate will rule, as the questions from the Court could be interpreted to favor both sides of this issue.  It is equally true that there is no time-line for a decision.    Nonetheless, when a decision is made it will be an important opinion for all parties involved in Medicare Secondary Payer compliance to comb over for important guidance on improving their compliance programs. Defendants essentially based their joint motions to dismiss upon three theories:

  1. Takemoto Fails to Allege His Claims with Particularity under Rule 9(b) of the FCA;
  2. The Amended Complaint Fails under Rule 8(a) of the FCA; and
  3. The False Claims Act’s Public Disclosure Bar Compels Dismissal.

Rule 9(b).  In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.

The defense began to argue the application of the Rule 9(b) to the facts of the Takemoto case.  The crux of this argument is that Dr. Takemoto fails to allege any particular settlements or Medicare payments that triggered an FCA obligation to reimburse CMS.  Judge McCarthy quickly interjected that it was his understanding that Dr. Takemoto had withdrawn this aspect of the Amended Complaint.  The defense acknowledged that plaintiff had formally stated an intent to withdraw the fraud component, but the defense further argued that fraud is a required element to prove in this qui tam lawsuit, and that plaintiff does not meet this standard.  Whether the fraud component as required by Rule 9(b) of the FCA returns remains to be seen.

Rule 8(a).  This provision of the False Claims Act requires plaintiff to allege enough facts to state a claim for relief that it plausible on its face.

This standard of the FCA is more relaxed than the heightened standard of Rule 9(b), and the court allowed a great deal of discussion during the oral arguments.  Paragraph 69 of plaintiff’s Amended Complaint was discussed at length.  In that paragraph, Takemoto uses statistical evidence in an attempt to demonstrate the thousands of cases defendants resolve each year, combined with the data showing that close to 15% of such settlements generally involve Medicare beneficiaries.  The defense argued that such data is not specific enough to be plausible and therefore the Amended Complaint should be dismissed.

Discussion focused upon Dr. Takemoto’s “sales calls” and the defense argued that just because his compliance program was not selected does not mean that Defendants did not have their own internal programs or use another vendor.  Plaintiff’s counsel countered with a couple of arguments.  First, there were only 4-5 major Medicare compliance vendors used by the large insurers, and it was common knowledge in the industry that the named defendants did not have Medicare compliance programs in place.  In particular, plaintiff argued that while defendants generally had compliance programs for the Workers’ Compensation line of business, the Liability settlements, judgments and awards were not being flagged for Medicare beneficiary status and compliance.

The defense also focused upon the fact that the Government first seeks repayment from the plaintiff, and stressed that considerable efforts are taken by plaintiffs to arrive at payment plans or compromises of Medicare’s conditional payment amounts.  The reasoning here is that very few matters ever mature to a debt owed by the defendants.

The judge intervened at one point with a question to the plaintiff’s counsel: “Other than paragraph 69, where does the Complaint allege failure of a (Medicare) beneficiary repaying Medicare?”  The judge also asked: “How do you know compliance was not being met in different ways?”

The way plaintiff’s counsel handled this question was to state that settlements are private and health information is protected by HIPAA.  Essentially, “We cannot provide specific cases of non-payment without being afforded the ability to enter into discovery.”

At this point in the oral argument, Dr. Takemoto was described by his attorneys as the “quintessential insider” due to his being president of PMSI’s Medicare Set-Aside business, which employed 150 to 200 employees in the Medicare compliance space.  Plaintiff’s position again was articulated as, “We knew what was being managed on the Workers’ Compensation line of business, but the Liability business dwarfs Workers’ Compensation and defendants were not managing their Liability settlements.”

Public Disclosure Bar.  Under this theory, a False Claims Act should be dismissed if the lawsuit is “based upon publicly disclosed information in which would-be relators ‘seek remuneration although they contributed nothing to the exposure of the fraud.’”   This provision allows for dismissal of a False Claim complaint if there is public knowledge of the alleged fraud, which can be in the form of a Federal complaint, news media or other “original source”.

The defense argued that the US v. Stricker case, a Federal lawsuit, is an example of the publicly known potential for insurers and self-insureds to not repay the Government as a result of Medicare making payments related to a settlement.  The defense further re-counted numerous articles and other media commentary publicly articulating the issues plaintiff is suing over.

Plaintiff’s counsel’s response to this line of reasoning was to cite to case law and otherwise deny there was a complete bar to suit.  Candidly, the discussion time about the public disclosure bar was not nearly as long as the Rule 8(a) argument and the likelihood that the litigation would be dismissed upon public disclosure bar was minimal

Franco Signor Commentary:  Judge McCarthy did not provide enough commentary to indicate as to how he will rule in this case.  Important decisions like this can take a long time to be delivered.  However, our Buffalo office is closely watching this case and will keep our readers apprised of any developments. If the case proceeds, the outcome could greatly impact handling of any workers’ compensation, liability, or auto-no fault cases with a Medicare beneficiary by insureds in the future so as to ensure there are no gaps in MSP compliance.