MEMORANDUM OPINION

LEWIS A. KAPLAN, District Judge.

Relator Najmuddin Pervez, a former executive at Beth Israel Medical Center ("BIMC") from 1973 to 1991, brings this qui tam action on behalf of the United States of America, the State of New York, and himself against BIMC and Ernst & Young ("E & Y"), an accounting and consulting firm retained by BIMC to audit certain of its financial statements and Medicaid cost reports. The government intervened to assert and then settled the claims of the United States against BIMC. It declined to take over the claims against E & Y. Accordingly, Pervez pursues those claims.

Pervez asserts that E & Y violated various provisions of the federal and New York False Claims Acts (the "FCA" and the "NY FCA," respectively)1 by causing false claims and statements to be made and presented in connection with the preparation and submission of Medicaid cost reports (also known as Institutional Cost Reports, or "ICRs") for the Petrie campus ("Petrie"), of BIMC for the years 1991 through 2003. The matter is before the Court on E & Y's motion to dismiss the third amended complaint for failure to state a legally sufficient claim. For the reasons set forth below, the motion is granted.

Facts

Notwithstanding the parties' voluminous submissions, the allegations at base are relatively simple. Pervez claims that BIMC fraudulently reported certain financial information to the New York state Medicaid agency from 1991 to 2003 in order to receive reimbursements to which it was not entitled. He asserts that E & Y knowingly assisted BIMC in this alleged fraud by falsely certifying that E & Y had audited BIMC's fraudulent cost reports and by falsely representing in its accompanying opinion letters that it believed the information to be "free of material misstatements" and "fairly presented in all material respects."2

Medicaid

Medicaid provides medical insurance for low income individuals and families. It is funded jointly by the federal and state governments and is supervised by the United States Department of Health and Human Services through the Centers for Medicare and Medicaid Services ("CMS"). It is administered, however, by the states. In New York City, the program is managed primarily by the New York State Department of Health ("DoH") and is subject to regulations and guidelines governing the process by which providers seek reimbursement for their Medicaid expenses. The federal government pays 50 percent of Medicaid costs, and the State and City share the remaining 50 percent.3

Each participating hospital is required to submit an ICR to DoH at the end of the fiscal year.4 Among other things, the hospital must allocate the hospital's expenses among "cost centers." Under N.Y. Medicaid law, some costs—those related to administering the Medicaid program—are reimbursable and are properly allocated to reimbursable cost centers. Other costs deemed unrelated to Medicaid services— including capital costs incurred by a provider to support the space and operations of physicians' private practices—are not reimbursable and must be allocated to nonreimbursable cost centers.5

These cost reports are prepared by the provider, which must certify that the information contained therein is true, correct, and complete and prepared in accordance with applicable instructions.6 In addition, Section § 86-4.4 of the pertinent regulations7 mandates that "[a]ll financial and statistical reports . . . be certified by an independent licensed public accountant or an independent certified public accountant on forms prescribed and provided by the Department."8 The reports, including the certifications, then are submitted to the DoH.

Pervez alleges in a conclusory fashion that DoH uses these ICRs to estimate current-year Medicaid entitlements, allowing hospitals to receive funds on an interim basis throughout the year.9 He later explains that, under N.Y. State Medicaid law, "capital costs" are reimbursed in accordance with their "actual" costs and that wrongly allocating capital costs to reimbursable cost centers in a cost report necessarily results in the state and federal government overreimbursing the provider. The State of New York as amicus curiae describes the process in similar terms, explaining that "a hospital's `capital costs'. . . are reimbursed on an annual basis using the actual costs reported in each year's ICR; if the information contained in an ICR is not accurate, a hospital will not receive the proper reimbursement for its capital costs. . . . DOH uses the ICR to calculate a hospital's capital cost reimbursement."10 New York State then seeks reimbursement from the federal government of half of the actual cost of the reimbursement paid to the provider.

BIMC's Petrie Medicaid Cost Reports

BIMC is a not-for-profit corporation, owned by parent company Continuum Health Partners, that operates a teaching hospital and other health care facilities in New York City, including the Petrie campus, the Phillips Ambulatory Care Center, and, before it was sold, Beth Israel-North (formerly Doctors Hospital).11 Petrie has contractual arrangements, known collectively as the "faculty practice plan" ("FPP"), with more than 500 physician-employees pursuant to which the physicians are required, inter alia, to engage in professional private practices at Petrie-supplied offices. Petrie does the billing for the participating physicians and benefits from the substantial resulting revenue.12 As these private practices are not eligible for Medicaid reimbursement, however, the capital costs associated with those practices also are not reimbursable.

Pervez alleges that Petrie's ICRs for the years 1991 through 2003 fraudulently misrepresented information regarding capital costs associated with the FPP.13 The factual details alleged to show the falsehoods contained in the Petrie ICRs—e.g., specifically which care facility and service costs were accounted for inaccurately and how those inaccuracies appeared in different portions of the cost reports and exhibits 14 —are complicated. The gist, however, is not. Pervez claims that Petrie's ICRs failed to allocate a variety of non-reimbursable FPP capital costs to non-reimbursable cost centers in the Petrie ICRs and that they failed in 2002 and 2003 to allocate the correct amounts of non-reimbursable FPP capital costs to non-reimbursable cost centers in the reports.15 BIMC and E & Y allegedly became aware in 2002 of a government investigation regarding BIMC's Medicare and Medicaid reporting and, as a result, the 2002 and 2003 ICRs for the first time correctly assigned some but not all of the non-reimbursable FPP capital costs to non-reimbursable cost centers.16

Pervez alleges, without explaining precisely how this came to pass,17 that submitting these false ICRs "caus[ed] Medicaid damages to the United States and the State of New York of approximately $60 million."

E & Y's Audits, Certifications, and Opinion Letters

Around 1982, BIMC retained E & Y to serve as its outside auditor with respect to the ICRs for its Petrie campus.18 E & Y audited, certified, and provided an opinion letter for each of Petrie's allegedly false ICRs from 1991 to 2003. Each letter stated, inter alia, that:

Each letter stated also that "these [audited] financial statements are the responsibility of the facility's management. Our responsibility is to express an opinion on these financial statements based on our audit."20 Each letter then certified that, in light of its audit, E & Y believed that the financial information contained in the reports and the exhibits that were audited was "fairly presented in all material respects" and was "in conformity in all material respects" with the applicable DoH computer-form instructions.21

Pervez claims that E & Y, contrary to the statements contained in these certifications and opinion letters, in fact did not perform the audits it claimed to have performed.22 Moreover, he asserts that E & Y knew that the Petrie cost reports and exhibits falsely allocated FPP capital costs to reimbursable cost centers and that BIMC falsified the Petrie cost reports and exhibits for the purpose of defrauding the state and federal Medicaid programs.23

Prior Proceedings

Pervez brought this qui tam action in 2001 against BIMC, alleging substantially the same theory of fraud now before the Court. E & Y subsequently was added as a co-defendant in an amended complaint.

On November 30, 2005, the government partially intervened in the case with respect to BIMC and settled the claims against that defendant,24 leaving only the claims against E & Y. More than three years later, the government declined to intervene as to those claims.25 Pervez now pursues the claims against E & Y.

The third amended complaint alleges multiple causes of action under the federal and New York False Claims Acts. Pervez asserts liability for (1) presenting false claims to the government under FCA Section 3729(a)(1); (2) making false records or statements under Section 3729(a)(2); (3) reverse false claims under Section 3729(a)(7); and (4) conspiracy to defraud the government via false claims under Sections 3729(a)(3) and 3732(b). He asserts the same claims under the comparable provisions of the New York False Claims Act.

E & Y challenges the sufficiency of these claims on multiple grounds. In addition to other arguments particular to each specific statutory provision, E & Y argues with respect to all of the claims that (1) the ICRs are not "claims" within the meaning of the FCA,26 (2) the complaint does not allege a false statement by E & Y, and (3) the complaint fails to plead fraud with particularity as required by Rule 9(b).

Discussion

The Motion to Dismiss Standard

In deciding a motion to dismiss, a court must accept as true all well pleaded facts alleged in the complaint and draw all reasonable inferences in the plaintiff's favor.27 At the same time, "`[c]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to [defeat] a motion to dismiss.'"28 A court must apply a "plausibility standard": while "not akin to a `probability requirement'. . . it asks for more than a sheer possibility that a defendant has acted unlawfully."29 The plaintiff must plead "factual allegations sufficient `to raise a right to relief above the speculative level.'"30 Such motions are addressed to the face of the pleadings, but a court may consider also documents attached to the complaint as exhibits or incorporated into it by reference.31

Because "[i]t is self-evident that the FCA is an anti-fraud statute . . . claims brought under the FCA fall [also] within the express scope of Rule 9(b)." 32 In addition to the normal pleading requirements, Rule 9(b) requires that a plaintiff alleging fraud "state with particularity the circumstances constituting fraud."33 "Malice, intent, knowledge, and other conditions of a person's mind may be averred generally."34 Nonetheless, "[w]hile Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the charges."35

I. The Federal False Claims Act

A. Sections 3729(a)(1) and 3729(a)(1)(B)

The FCA imposes civil liability on any person who "knowingly presents, or causes to be presented, to an officer or employee of the United States Government. . . a false or fraudulent claim for payment or approval."36 To state a claim under this section, Pervez must allege that (1) there was a false or fraudulent claim (2) E & Y knew it was false or fraudulent, (3) E & Y presented the claim, or caused it to be presented, to the United States, and (4) it did so to seek payment from the federal treasury.37

Section 3729(a)(1)(B) imposes liability also where a person "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."38 Under this provision, Pervez must allege that: (1) E & Y made, or caused BIMC to make, a false or fraudulent record or statement (2) E & Y knew it to be false or fraudulent, and (3) it was material to a claim.

As is apparent, some of the elements are common to both causes of action. In each case, there must have been a "claim." Either the claim itself, under subsection (a)(1), or a record or statement material to a claim, under subsection (a)(1)(B), must have been false or fraudulent. And the defendant must have known that the claim or statement was false or fraudulent.

1. False Claims and/or Statements

The FCA defines a "claim" as "a request or demand for money or property ... that is presented to an officer, employee, or agent of the United States; or is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest, and if the United States Government provides or has provided any portion of the money or property requested or demanded; or will reimburse such contractor . . . for any portion of the money . . . requested. . . ."39

The FCA does not define falsity. Courts, however, have identified three distinct types of claims as actionable on such a basis. "In some cases, a claim made to the government is `factually false,' meaning that a contractor supplies `an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided'—in other words, the contractor bills for something it did not provide. . . . More difficult to assess, however, are cases in which a contractor falsely represents that it is in compliance with a particular federal statute or regulation."40 An "express [and therefore actionable] false certification" occurs where a claim "falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment."41 Even where no express certification is required, however, there may still be liability on an "implied certification theory." An implied false certification "takes place where a statute expressly conditions payment on compliance with a given statute or regulation, and the contractor, while failing to comply with the statute or regulation (and while knowing that compliance is required), submits a claim for payment."42

E & Y argues first that the Petrie ICRs did not constitute "claims" because no reimbursements flowed directly from them. Even if they were claims, E & Y argues, Pervez has not made a sufficient showing that either the ICRs or E & Y's certifications and opinion letters were false or fraudulent.

Pervez sufficiently has pleaded falsity with respect to the Petrie ICRs. Taking as true the extensive pleadings regarding (1) the New York Medicaid regulations governing presentation of financial data, particularly with respect to non-reimbursable capital costs, and (2) BIMC's seeming failure to account properly for a variety of non-reimbursable FPP capital costs in its Petrie ICRs, Pervez plausibly has alleged that the ICRs were both factually false and false as well on an express certification theory. He has identified several specific types of capital costs associated with Petrie's FPP that allegedly were reported inaccurately as reimbursable in the cost reports and exhibits. Pervez has pleaded sufficient factual details to make plausible his allegations that the Petrie ICRs falsely allocated FPP capital costs to reimbursable rather than non-reimbursable cost centers.

The same cannot be said for Pervez's allegations regarding the alleged falsity of E & Y's certifications and opinion letters. First, Pervez has alleged no facts from which the Court reasonably might infer that E & Y did not perform the audits it claimed to have performed, or did not perform them in compliance with professional standards, as it certified to the DoH. He does not identify any auditing procedures that should have been but were not employed by E & Y. Instead, the complaint repeatedly makes the bald assertion that E & Y must not have performed the audits in conformity with its professional obligations and standard auditing procedures as claimed because it would have identified various misrepresentations contained in the ICRs if it had done so.43 Pervez has not, however, identified any factual support for this theory that would raise it from merely consistent with the other allegations to plausible.44 He does not point to any facts indicating that an audit performed in conformity with professional guidelines necessarily would have uncovered the falsehoods allegedly contained in Petrie's ICRs. Nor does he allege any statements or documentary evidence that might indicate that the audit was not performed or that it was performed other than in conformity with E & Y's professional obligations. In fact, he alleges nothing at all with respect to how E & Y did or did not perform the audits, except to make the bare assertion that the results in and of themselves show that E & Y must not have done so. He has not satisfied the requirements of Rule 9(b) in this respect.

The complaint is insufficient also with respect to the alleged factual falsity of E & Y's opinion letter. On its face, each opinion letter offered only a professional opinion, informed by E & Y's audit, that the financial information contained in the Petrie ICRs and related audited exhibits, was "fairly presented in all material respects in relation to the basic financial statements taken as a whole and is in conformity in all material respects with the applicable instructions provided with the EICR software. . . relating to the preparation of the cost report."45 Pervez has stated no facts tending to show that this actually was not E & Y's professional opinion with regards to the information contained in the Petrie ICRs. He makes only the conclusory assertion that it must not have been E & Y's true opinion because E & Y knew that it had not done the audits and/or knew that BIMC had falsified the Petrie ICRs. This bare accusation alone is insufficiently particular to allege falsity. Without more, it does not support a reasonable inference that the opinion letters were factually false with respect to the opinions they expressed.

For essentially the same reasons, Pervez has not pleaded adequately that the opinion letters were false on either an express or an implied certification theory. The letters did not attest to the Petrie ICRs' regulatory compliance as Pervez claims. They certified only that E & Y believed the statements and related audited information to be fairly presented in all material respects and in conformity with the EICR software's instructions.46 And while Pervez has identified numerous New York rules and regulations governing the preparation of ICRs, he has not alleged any manner in which E & Y—as an auditor auditing the cost reports, not a provider preparing and submitting them—failed to conform its professional conduct to a rule, regulation, or statute governing audits.

Accordingly, Pervez has not adequately pleaded that E & Y's certifications and opinion letters were false statements or records. But the Court does not rest on this conclusion alone.

2. Scienter

To survive E & Y's motion to dismiss with respect to any of the FCA claims, Pervez must sufficiently allege E & Y's "knowledge" that the claim and/or statement at issue was false. For purposes of claims under the FCA, a person acts knowingly when he "has actual knowledge of the information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information."47 "No proof of specific intent to defraud" is required.48

Pervez seems to assert in the alternative that E & Y(1) actually knew that the Petrie ICRs incorrectly claimed FPP capital costs as reimbursable, and (2) recklessly disregarded the ICRs' falsity either by not performing the audits claimed or by performing them in a manner E & Y knew to be inadequate or incomplete.

Pervez has not pleaded any facts tending to make Pervez's allegations of actual knowledge plausible. As previously discussed, Pervez does not allege any facts supporting his assertion that E & Y did not perform the audits as claimed. He does not identify any auditing procedures that E & Y should have employed but did not employ. Nor does he provide any reason for inferring that E & Y deliberately chose not to perform the audits as certified or to perform them inadequately. Pervez merely makes the sweeping and, so far as the complaint discloses, entirely unfounded assertion that E & Y either must have intentionally assisted BIMC in its fraudulent concealment or it must not have done the audits as claimed because if it had done the audits it necessarily would have detected the falsity of the ICRs.49 He does not, however, point to any facts indicating how or why an audit performed in conformity with professional guidelines necessarily would have uncovered the falsehoods allegedly contained in Petries' ICRs. Hence, the facts alleged in the complaint simply do not make out a plausible allegation of knowledge on any theory— actual, reckless, or deliberate ignorance.

This failure is especially glaring in the unusual context of FCA claims brought against a secondary actor—an outside auditor—rather than the provider that actually submitted the allegedly false claims. Section 3729(a)(1)(B) does provide a cause of action in such circumstances, but it seems particularly important here, where the allegedly culpable conduct at issue is at a somewhat greater remove, that the complaint describe adequately a plausible basis for attributing knowledge or deliberate ignorance to the party facing secondary liability. This complaint does not do so.50

* * *

No reasonable interpretation of the complaint makes Pervez's claim that E & Y knew of the alleged falsity of the Petrie ICRs on any cognizable theory. The first and second causes of action must be dismissed.51

B. Section 3729(a)(3) and Section 3729(a)(7)

Pervez claims damages also under Section 3729(a)(3) for conspiracy52 and under Section 3729(a)(7) for a "reverse false claim."53

Pervez has made only conclusory allegations with regards to the claimed conspiracy,54 failing to plead any facts making plausible an unlawful agreement between the parties.55 Moreover, because Pervez has failed adequately to allege E & Y's knowledge of the falsity of the false claims and statements at issue, he fails also to make out either a conspiracy or a reverse false claim. Accordingly, the third and fourth causes of actions are dismissed.

II. The New York False Claims Act

Pervez asserts essentially the same claims under the N.Y. FCA as well. E & Y argues that these claims fail (1) because the N.Y. FCA does not apply retroactively and (2) on the merits.

The N.Y. FCA, enacted on April 1, 2007, is closely modeled on the federal FCA56 and provides for liability with respect to any person who, inter alia, (1) knowingly presents a false or fraudulent claim to the State or a local government for payment, (2) knowingly makes a false statement to get a false claim paid, (3) conspires to defraud the state or local government by getting a false claim paid, or (4) knowingly makes or causes to be made a reverse false claim.57 Even assuming that the N.Y. FCA applies retroactively—a question this Court need not and does not decide—Pervez's claims under the N.Y. FCA fail for the same reasons as his claims under the federal FCA.

Conclusion

For the foregoing reasons, the defendant's motion to dismiss [DI 73] is granted. In light of Pervez's previous opportunities to amend the pleadings, the Clerk shall enter final judgment of dismissal with prejudice.

SO ORDERED.