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Aetna Inc. v. The People's Choice Hospital, LLC

United States District Court, W.D. Texas

March 13, 2018

AETNA INC. and AETNA LIFE INSURANCE COMPANY, Plaintiffs,
v.
THE PEOPLE'S CHOICE HOSPITAL, LLC, et al., Defendants.

          MEMORANDUM

          Schiller, J.

         Aetna Inc. and Aetna Life Insurance Company (collectively, “Aetna”) allege that Defendants engaged in a widespread $21 million health care billing fraud scheme. Specifically, Aetna claims that Defendants were part of a scheme that wrested control of Newman Memorial Hospital (“Newman”), a small hospital in rural Oklahoma. Defendants allegedly paid off doctors around the country to refer specimens for testing to various labs that were part of the scheme. Defendants would then submit false claims to Aetna, claiming that the tests were performed at Newman. According to Aetna, Defendants misrepresented the location where medical tests and services were performed because Aetna paid a higher contract rate for services performed at Newman than at the various locations where the tests and services were actually performed. Defendants than diverted the funds paid by Aetna.

         Defendants have filed a number of motions to dismiss. Mission Toxicology, LLC, Mission Toxicology II, LLC, Mission Toxicology Management Company, LLC, Sun Clinical Laboratory, LLC, Sun Ancillary Management, LLC, Integrity Ancillary Management, LLC, Michael Murphy, and Jesse Saucedo, Jr. have filed a motion to dismiss, or in the alternative, to transfer venue under 28 U.S.C. § 1404(a). The People's Choice Hospital, LLC, PCH Management Newman, LLC, and PCH Lab Services, LLC filed a motion to dismiss or to transfer venue. Dr. Seth Guterman and David Wanger filed a motion to dismiss for lack of personal jurisdiction, or in the alternative, for failure to state a claim.[1]

         Aetna has raised serious allegations of significant and far-reaching fraud. However, upon reviewing the record, the Court is convinced that this case should not be litigated in this District. Accordingly, the Court will transfer this matter to the Western District of Texas.

         I. FACTUAL BACKGROUND

         A. The Entities and Individuals in the Litigation

         Plaintiffs are Aetna, Inc., and Aetna Life Insurance Company. Aetna, Inc., through its affiliated companies, provides health insurance and administrative services throughout the United States. (Compl. ¶ 5.) Aetna Life Insurance Company is one of Aetna Inc.'s affiliates; it provides health insurance and administrative services throughout the United States. (Id. ¶ 6.) The People's Choice Hospital, LLC is located in Illinois. (Id. ¶ 7.) Seth Guterman is the sole member and manager of The People's Choice Hospital, LLC. (Id.) PCH Management Newman is an Oklahoma limited liability company. (Id. ¶ 8.) PCH Lab Services, LLC is an Illinois limited liability company. (Id. ¶ 9.) PCH Labs, Inc. is a Delaware corporation. (Id. ¶ 10.) Mission Toxicology, LLC, Mission Toxicology II, LLC, and Mission Technology Management Company, LLC, are all Texas limited liability companies.[2] (Id. ¶¶ 11-13.) Sun Clinical Laboratory, LLC and Sun Ancillary Management, LLC, are also Texas limited liability companies.[3] (Id. ¶¶ 15-16.) Integrity Ancillary Management, LLC (“Integrity”) is also a Texas limited liability company. (Id. ¶ 18.)

         The individual Defendants are: (1) Dr. Seth Guterman, a citizen of Illinois; (2) David Wagner, an Arizona citizen and the interim CEO of Newman; (3) Dr. Michael Murphy, a Texas citizen and a principal for the Sun Defendants; and (4) Jesse Saucedo, Jr., a Texas student and the founding partner of Integrity and a principal of the Mission Defendants. (Id. ¶¶ 20-23.)

         Newman is located in Shattuck, Oklahoma, a town with fewer than 2, 000 residents. (Id. ¶ 60.) In 2000, Aetna U.S. Healthcare, Inc. contracted with Newman, making Newman a participating provider with Aetna. (Id. ¶ 55.) “Aetna remits payment to Newman when Aetna receives a claim form bearing Newman's name and billing information, which is only to be used for medical services provided by and at Newman for Aetna members who were Newman patients.” (Id. ¶ 56.) Between 2013 and 2015, Aetna paid Newman Memorial Hospital an average of $91, 000 annually. (Id. ¶ 60.) After Defendants entered the picture, Newman submitted approximately 834 lab claims per month-up from an average of six claims per month-totaling over $21 million in claims. (Id. ¶ 61.)

         B. Aetna's Network

         Newman is an in-network provider, which means that it provides services to Aetna members pursuant to an agreement. (Id. ¶ 49.) Aetna agrees to issue payment, and the provider must accept the contracted rate negotiated between Aetna and the provider. (Id. ¶ 50.) Aetna is not necessarily contractually obligated to pay claims by out-of-network providers. (Id. ¶ 51.) Moreover, even if a member's plan provides out-of-network benefits, such benefits are often limited, with the member required to pay for a larger share of the costs. (Id.) Non-participating providers are also subject to additional administrative reviews and scrutiny for appropriateness of the services and amounts they are charging members. (Id. ¶ 52.)

         Aetna typically reimburses rural hospitals like Newman Memorial Hospital at a higher rate to ensure that Aetna members in rural America who may have minimal access to medical facilities are able to get care from professionals whose quality and credentials were vetted by Aetna. (Id. ¶ 59.)

         C. The Allegations

         Aetna sums up the scheme as follows: In 2016, The People's Choice Hospital, PCH Management Newman, PCH Lab Services, and PCH Labs gained control of Newman with promises to help the financially struggling hospital. (Id. ¶¶ 31, 62.) Subsequently, these Defendants acquired complete control over the management, operations, and finances of Newman Memorial Hospital. (Id. ¶ 63.) Once they gained control, The People's Choice Hospital and PCH Management Newman entered into agreements with PCH Lab Services, PCH Labs, and the Lab Defendants[4] that defrauded Aetna. (Id. ¶¶ 32, 65.) According to the Complaint, certain Defendants paid and induced doctors throughout the country to send urine and blood specimens to the Lab Defendants. (Id. ΒΆ 33.) Under one such agreement, the Sun Defendants and the Mission Defendants received 70% of the monthly revenues not exceeding $4 million that Newman got from Aetna for lab-related services, ...


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