Antitrust Law Daily Wrap Up, RICO—D. P.R.: RICO claim alleging hospitals’ fraudulent billing scheme survives motion to dismiss, (Jun 17, 2016)

By Michael Menzhuber, J.D., LL.M.

A motion to dismiss an emergency room administrative provider’s Racketeer Influenced and Corrupt Organizations Act (RICO) claim, which alleged that the defendant hospitals fraudulently billed insurance companies for services it provided, was denied by the federal district court in San Juan, Puerto Rico (Puerto Rico Medical Emergency Group, Inc. v. Iglesia Episcopal Puertorriquena, Inc., June 16, 2016, Besosa, F.).

Puerto Rico Medical Emergency Group, Inc, (PRMEG) entered into a contract with Hospital Episcopal San Lucas, Inc. (HESL) to manage and provide medical coverage for the HESL emergency room. The contract also: (1) gave PRMEG the right to bill insurance companies directly for the services it provided to patients in the HESL emergency room; and (2) required HESL to notify the insurance companies that PRMEG had retained the right to bill.

After the PRMEG-HESL contract was executed, Servicios de Salud Episcopales (SSE) negotiated and signed agreements with insurance companies, representing that HESL and SSE were entitled to bill for the services PRMEG provided. HESL and SSE then began billing the insurance companies, through Servicios Generales Episcopales, Inc. (SGE), for the services that PRMEG provided. As the same time, PRMEG was billing insurance companies for the same services. PRMEG became aware of the double billing when it received a claim letter from one of the insurance companies seeking over $600,000 in reimbursements for payments that it had made.

PRMEG brought an action against HESL, SSE, SGE, and their owner, Iglesia Episcopal Puertorriquena (IEP) (collectively, "defendants") which alleged violations of sections 1962(b) and 1962(c) of RICO, as well as several state law claims. Although the RICO claims were both dismissed, the court granted PRMEG leave to file a second amended complaint with respect to its claim under section 1962(c), which PRMEG did. The defendants responded by filing a motion to dismiss.

After noting that it had previously found the first four elements of PRMEG’s RICO claim sufficiently pled, the court considered the fifth element, whether there was a racketeering activity. The defendants argued that PRMEG’s mail and wire fraud allegations failed to meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The court disagreed. It determined that PRMEG’s second amended complaint sufficiently alleged a predicate act of racketeering activity because it: (1) provided dates, senders, receivers, and modes of delivery for communications in furtherance of the fraudulent scheme; (2) detailed the contractual negotiations and agreements conducted by the defendants using the mail and wires; and (3) provided over 200 pages of fraudulent claims.

The defendants also argued that PRMEG did not allege sufficient facts to state a claim of mail and wire fraud. Because they did not contest the allegation that they knowingly and willfully participated in the scheme to defraud, the court considered whether there was a scheme to defraud and whether the mail or interstate wire was used in furtherance of the scheme.

The court determined that PRMEG sufficiently alleged a scheme to defraud because it alleged that the defendants made affirmative misrepresentations: (1) in their negotiations with the insurance companies; (2) to PRMEG that there were no conflicts with PRMEG directly billing insurance companies for services performed; and (3) by sending claims to insurance companies for reimbursement.

After noting that the "use of mails and wires" element could be met even though no false information was transmitted, the court also determined that PRMEG plead sufficient facts to allege that the defendants used the mails and wires in furtherance of its fraudulent schemes because it alleged that the defendants: (1) mailed documents to insurance companies to enter into contracts for the purpose of later submitting fraudulent claims; and (2) submitted claims for reimbursement through email.

In the event that PRMEG’s RICO claim was dismissed, the defendants requested the court to decline to exercise supplemental jurisdiction over PRMEG’s state law claims. Because it did not dismiss PRMEG’s RICO claim, the court denied the defendants’ request.

The case is No. 14-1616 (FAB).

Attorneys: Guillermo J. Ramos-Luina (Guillermo J. Ramos-Luina, Attorney at Law) and Raul S. Mariani-Franco (Mariani Franco Law Office) for Puerto Rico Medical Emergency Group, Inc. Jose A. Andreu-Garcia (Andreu & Sagardia Law Office) for IGLESIA Episcopal Puertorriquena, Inc. Juan Antonio Pedrero-Lozada (Arroyo, Monrouzean & Associates) for Hospital Episcopal San Lucas, Inc. and Servicios Generales Episcopales, Inc.

Companies: Puerto Rico Medical Emergency Group, Inc.; IGLESIA Episcopal Puertorriquena, Inc.; Hospital Episcopal San Lucas, Inc.; Servicios Generales Episcopales, Inc.

Cases: RICO PuertoRicoNews