St. Luke’s Health Network Inc. v. Lancaster General Hospital, __ F.3d __, 2020 WL 4197525 (3rd Cir. 2020)
The Court found the Plaintiffs’ theory of liability adequately alleged proximate causation and thus reversed the District Court’s dismissal, and thus remanded for further proceedings consistent with this opinion.
This case involves a state-run program to reimburse Pennsylvania hospitals for treating indigent patients. Plaintiffs-Appellants are a group of hospitals and their related health care networks that sought civil remedies from Defendants-Appellees, another hospital and hospital system, for “RICO” violations. Plaintiffs alleged that Defendants submitted fraudulent claims for reimbursement, in violation of the wire fraud statute, 18 U.S.C. § 1343, and received an unduly inflated proportion of the available funding. As a result, Plaintiffs claim they were reimbursed an artificially smaller share of funds. The District Court found that Plaintiffs failed to plead sufficient facts to demonstrate that their injury was caused by Defendants’ alleged fraud.
Specifically, Plaintiffs alleged that employees of Lancaster, “knew that [Lancaster’s] claims were grossly inflated but nevertheless continued to submit them even after being called out by the Auditor General.” These actions were alleged to result in “massively inflated extraordinary expense claims,” which unjustly enriched Lancaster by $9 million during Fiscal Years 2010-2012. Since participating hospitals submitted claims that totaled more than was available in EE Program funding for Fiscal Years 2010-2012, Plaintiffs claim they were collectively undercompensated by $9 million during those years.
The Court discussed that in the RICO context, the focus [of proximate causation] is on the directness of the relationship between the conduct and the harm” rather than “the concept of foreseeability.” Hemi Grp., 559 U.S. at 12, 130 S.Ct. 983 (2010). The court discussed that the allegations pertinent to the question of proximate cause are those of the purported injury.*4.
The court discussed that Plaintiffs’ theory of liability and alleged injury in the present case are nearly identical to that of the Bridge plaintiffs. Because the EE Program has a fixed pool of assets, Defendants’ alleged manipulation to increase their share of the limited funding necessarily resulted in Plaintiffs receiving a decreased proportion of those assets.*5. Moreover, Plaintiffs’ theory of proximate cause satisfies the Supreme Court’s three policy considerations for directness of injury. See Holmes, 503 U.S. at 269–70, 112 S.Ct. 1311.
Given that Plaintiffs have adequately alleged proximate causation, and because the Court did not find no “independent factors that account[ed] for [the plaintiffs’] injury … and no more immediate victim [was] better situated to sue,” the Court reversed the District Court. *6.