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U.S. v. FRANKLIN-WILLIAMSON HUMAN SERVICES INC.

March 11, 2002

UNITED STATES OF AMERICA AND STATE OF ILLINOIS, EX. REL. TENNA L. HUMPHREY, PLAINTIFF,
V.
FRANKLIN-WILLIAMSON HUMAN SERVICES, INC., DEFENDANT.



The opinion of the court was delivered by: Phil Gilbert, District Judge.

  MEMORANDUM AND ORDER
This matter comes before the Court on the motion of defendant Franklin-Williamson Human Services, Inc. ("FWHS") to dismiss this case pursuant to Federal Rule of Civil Procedure 12(b)(6) (Doc. 70). Plaintiff Tenna L. Humphrey ("Humphrey") has responded to the motion (Docs. 76 & 77), and FWHS has replied to the response (Doc. 79). The Court also considers Humphrey's motion to strike the exhibits attached to FWHS's motion to dismiss (Doc. 74). FWHS has responded to the motion (Doc. 80).
I. Motion to Strike
As a preliminary matter, FWHS's motion to dismiss refers to matters outside the pleading. When such material is presented in connection with a Rule 12(b)(6) motion to dismiss, the Court may convert the motion to dismiss into a motion for summary judgment or it may exclude the additional material from consideration. In this case, the Court declines to consider the additional materials and will consider this motion as it was captioned, under Rule 12(b)(6). Because the Court is well able to confine itself to considering the appropriate materials, there is no need to strike the matters outside the pleading. Accordingly, the Court DENIES as moot Humphrey's motion to strike (Doc. 74) those matters.
II. Motion to Dismiss
FWHS asks the Court to dismiss the complaint for failure to state a claim pursuant to Rule 12(b)(6). Although the motion purports to seek dismissal of the entire complaint, it only addresses the claims brought in counts 1 and 2 but not the claim brought in count 3. The Court will therefore limit its consideration to counts 1 and 2.
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts all allegations as true and draws all reasonable inferences in favor of the plaintiff. Holman v. Indiana, 211 F.3d 399, 402 (7th Cir.), cert. denied, 531 U.S. 880 (2000). The Court should not grant a motion to dismiss unless it appears beyond doubt that the plaintiff cannot prove his claim under any set of facts consistent with the complaint. Id. at 405.
Humphrey filed this qui tam action pursuant to 31 U.S.C. § 3730(b)(1) and 740 ILCS 175/4(b)(1), alleging that FWHS violated the False Claims Act ("FCA"), 31 U.S.C. § 3729(a)(1) and (2), and the Illinois Whistleblower Reward and Protection Act ("Whistleblower Act"), 740 ILCS 175/3(a)(1) and (2) in connection with its billing practices, as outlined below. FWHS agrees that Humphrey's description of its billing practices are accurate but denies that such practices violate the law. The following section outlines the allegations in counts 1 and 2 of Humphrey's complaint against the general regulatory background.

A. Allegations

1. Medicaid and the Spenddown Programs*fn1

FWHS provides medical services to needy people. The Medicaid program assists needy people to pay medical bills and is funded by the federal government and the state of Illinois. Some of FWHS's indigent patients qualify for Medicaid assistance because their incomes and/or assets are below the threshold necessary to qualify for the Medicaid program. Others who exceed the Medicaid income/asset threshold qualify for assistance only after they have incurred certain costs for their medical care that are not covered by Medicaid. This program of contingent receipt of Medicaid assistance is called the Spenddown Program. Under the Spenddown Program, the state looks at a patient's finances and determines the amount of medical costs that the patient must incur before becoming eligible for Medicaid assistance ("spenddown obligation"). The spenddown obligation is equivalent to the amount by which the patient's income and/or asset level exceeds the threshold to qualify for Medicaid. After the patient incurs the spenddown obligation, he is eligible for Medicaid assistance for additional medical costs. If a patient does not incur enough costs to reach his spenddown obligation, he is not eligible for Medicaid assistance.
The patient must show documentary proof to the Illinois Department of Public Aid ("IDPA") that he has incurred the spenddown obligation before he can receive a medical card that entitles him to Medicaid assistance for additional medical costs. Two types of documents are sufficient documentary evidence: (1) receipts or other documents showing the amount of money that a patient has paid for medical care and (2) bills from a medical provider showing that the patient is liable for costs for medical care (he need not actually have paid those costs yet).
2. Grant Assisted Fee Program
Independent of Medicaid, FWHS provides additional medical cost assistance to some patients though grants from the state of Illinois. FWHS enters into Grant Assisted Fee ("GAF") agreements with those patients ("GAF patients"). Under those agreements, patients agree to be liable for reduced payments for services they receive — normally between $2.00 and $7.00 per hour depending on the patient's income, household size and insurance coverage — as opposed to the rates billed to other patients or the rates charged to Medicaid eligible patients ("Medicaid allowable rate"). The Medicaid allowable rate is significantly higher than the rate GAF patients agree to pay under the GAF agreements. State grants pay the difference between the actual charge to the patient ($2.00 to $7.00) and the Medicaid allowable rate.
3. Alleged Fraudulent Practices
The alleged fraud occurs at the intersection of the Spenddown and GAF programs. After FWHS serves a GAF patient who is also in the Spenddown Program, it prepares a statement showing that the GAF patient is liable for the Medicaid allowable rate for the services provided, not the rate agreed to under the GAF agreement. It then instructs the GAF patient to present the statement to the IDPA as documentary support that the patient has incurred medical costs that count toward the spenddown obligation. The patient is actually liable by virtue of the GAF agreement for far less, and FWHS instructs the patient not to submit to IDPA receipts for any amounts that they actually paid pursuant to the GAF agreement.
Once the patient has documentation that he has satisfied his spenddown obligation and receives his medical card, FWHS submits Medicaid claims on behalf of the patient for additional medical services at Medicaid allowable rates. Medicaid pays those claims.
4. The Complaint — Counts 1 and 2
Humphrey alleges that FWHS has violated the FCA and the Whistleblower Act since August 1991 by causing its GAF patients who are also in the Spenddown Program to provide IDPA with false statements in support of the patients' claims for Medicaid assistance. The statements prepared by FWHS are false, she alleges, because they assert that the patients are liable for the Medicaid allowable rates when they are really only liable for rates agreed to under the GAF agreements. As a result, a patient is able to receive Medicaid assistance before he has become liable for the amount of his spenddown obligation. Thus, FWHS is able to submit and receive payment for Medicaid claims on behalf of the patient for Medicaid allowable rates sooner — assuming the patient would even satisfy his entire spenddown obligation — than it would if the patient had only counted his ...

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