United States District Court, N.D. Illinois, Eastern Division
United States of America, State of Illinois, State of North Carolina Ex rel. Raymond Dolan, Plaintiffs,
Long Grove Manor, Inc. d/b/a Arlington Rehabilitation & Living Center, et al. Defendants.
MEMORANDUM OPINION AND ORDER
ELAINE E. BUCKLO, District Judge.
In this qui tam action, relator Raymond Dolan alleges that various skilled nursing facilities ("SNFs") and certain physicians and service providers with whom they contracted violated the False Claims Act, 31 U.S.C. § 3729(a)(1); the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b); the Stark Law, 42 U.S.C. § 1395nn; the Illinois Whistleblower Reward and Protection Act ("IWRPA"), 740 ILCS § 175/1, et seq.; and the North Carolina False Claims Act, N.C. G.S.A. § 1-605, et seq. through a fraudulent scheme that included unlawful self-referrals and bonus payments, the provision of inappropriate or unlicensed treatments and services, the miscoding of procedures, and the submission of false claims, cost reports, and certifications to Medicare and Medicaid. Relator also alleges that defendants retaliated against him in violation of the anti-retaliation provisions of the False Claims Act and the IWRPA.
Before me are five motions to dismiss: one by each of the three physician defendants, Drs. Stanford Tack, Kalpesh Patel, and Yakov Ryabov; one by the service provider Fox Valley Wound Care Associates; and one by the SNFs, collectively. For the reasons that follow, the motions are granted.
In the opening paragraph of his First Amended Complaint ("FAC"), relator asserts that he was a Corporate Nurse employed by defendant Arlington from April of 2003 to July 30, 2007, and that in that capacity, he "was privy to intimate details of Defendant businesses and management behaviors." FAC at ¶ 1. What he discovered, as he describes in the ensuing 151 paragraphs, was a multifaceted and far-reaching fraudulent scheme carried out by three individuals and thirteen entities providing healthcare services in Illinois, North Carolina, Utah, and Colorado. In the "Factual Allegations" portion of the FAC, relator delineates eight categories of fraudulent activity. The following is a summary of the allegations in each category. The FAC captions the first type of wrongful conduct "Self-Referral/Bonuses for Increased Medicare & Medicaid Income." In this section, relator alleges that the physician defendants "were given remuneration for patient referrals because as medical directors they were each paid a flat monthly fee to be medical directors on the contingent basis that they continued to refer patients to their facility in violation of STARK." Id. at ¶ 38. As to Dr. Tack specifically, this relationship allegedly resulted in "double-billing to the United States." Id. at ¶ 39. Relator also alleges that "Defendants paid bonuses to its (sic) Directors of Business Development" that were keyed to increases in the SNFs' Medicare patient population. Id. at ¶ 41.
Relator captions the second category "False Claims for Medicare Payments for Skilled Nursing Care." The factual allegations in this portion of the FAC assert that SNF Business Director Whitney Arado "worked with Dr. Ryabov to admit patients to acute care facilities and then have them re-admitted to the Defendant SNFs... with manipulated clinical records solely for the purpose of satisfying the payment criteria set forth by Medicare and Medicaid." Id. at ¶ 43. To accomplish this scheme, "Arado would either falsify medical information about the patient... or Dr. Ryabov would, sometimes without even examining the patient, order a battery of diagnostic tests to be done, and order that the patient stay in the hospital" for the period required to satisfy Medicare criteria for payment. Id. at ¶ 46. In addition, Dr. Ryabov would "fabricate the need for physical or occupational therapy services, " which allegedly "resulted in Medicare's payment of higher daily reimbursement rates to the SNF." Id. at ¶ 47.
The third and fourth categories of wrongdoing, respectively captioned, "Additional Method of Submitting False Claims for Medicare Payments for Skilled Nursing Care, " and "Medically Unnecessary Procedures/Upcoding, " assert various ways in which defendants allegedly provided improper patient care, and improperly accounted for the care they provided. Relator states that defendant Simply Rehab "colluded with the SNFs" to provide medically unnecessary services; to provide services by unlicensed staff; to backdate physician signatures certifying services; and to "fabricate" patient records in an effort to justify the care provided and to meet Medicare and/or Medicaid payment criteria. Id. at ¶¶ 48-54. Relator also asserts that defendants "upcoded" their services, i.e., billed for more costly services than were actually provided. Id. at ¶¶ 58-59. The foregoing allegations are illustrated by examples of the cases of four specific patients, identified as Patients W, X, Y, and Z.
Relator's next section, "Submission of False Claims, Cost Reports, and Other Information to Medicare and Medicaid, " alleges that defendants were required by law to maintain Cost Reports including a Certificate of Compliance, which had to be signed by an administrator of defendants. These Certificate of Compliance state that the signatory is "familiar with the laws and regulations regarding the provisions of health care services and that the services identified in the Cost Report were provided in compliance with such laws and regulations." Id. at ¶ 85. Relator asserts that each of the Cost Reports and Certificates of Compliance that defendants signed from 2000 "until the present" was a false record because defendants "knew that they had violated various laws and regulation[s], including those pertaining to kickbacks, providing medically [un]necessary services, and the waiver of co-payments and deductibles; and (sic)." Id. at ¶ 86. Relator also alleges that each Cost Report and Certificate of Compliance was material to the government's decision to pay the claims submitted during those years. FAC at ¶¶ 87.
Relator's sixth category of alleged wrongdoing, "Wound Care: Out of Scope Practice, " focuses on defendant Fox Valley Wound Care Associates. The thrust of the allegations in this section is that two, non-party podiatrists associated with Fox Valley, Drs. Lamiot and Tsang, provided medical services on patients at defendant Aurora's facility that exceeded the lawful scope of their licensure. That is, although podiatrists are limited to provide medical services only "on the ankle and below, " pursuant to the Podiatric Medical Practice Act of 1987, 225 ILCS 100), Fox Valley's podiatrists performed, and defendants billed Medicare and Medicaid for, wound care treatment above the ankle. In addition, Dr. Lamiot and Dr. Tsang allegedly billed their services for unnecessary medical procedures, and billed their services under another physician's name, which relator asserts, on information and belief, is Dr. Sayeed. Id. at ¶¶ 95-100. One patient-patient "V"-is identified as an example of the "out of scope" practice conducted by Fox Valley's podiatrists.
Relator's penultimate section of factual allegations is captioned "Pharmaceutical Contract." The allegations in this portion describe negotiations and agreements between former defendant Omnicare (which relator dismissed voluntarily on June 9, 2014) and defendants Aurora and Arlington. Relator alleges that Omnicare offered "deep discounts" for medications for the SNF's "Medicare A" patients in exchange for the SNFs' agreement to give all of their "Medicare D prescription business" to Omnicare, in violation of the Anti-Kickback Statute. Further, relator claims that Omnicare "is also overbilling Medicare for the prescriptions it provides to the SNFs' Medicare Part D patients by not giving Medicare the same percentage discount that it is giving the facilities." FAC at ¶¶ 103-113.
In a final section captioned "Dual Medicare/Medicaid Eligibility, " relator asserts that defendants Willow Ridge and Simply Rehab entered into an agreement under which Simply Rehab provided unnecessary and unlicensed services to patients at Willow Ridge, targeting patients who were eligible for both Medicare and Medicaid, then submitted false claims to both Medicare and Medicaid for the purpose of unlawfully enriching themselves.
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) challenges the sufficiency of a complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). To survive a Rule 12(b)(6) motion, the claim must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). In addition, the factual material in the complaint must plausibly suggest a right to relief that rises, assuming the truth of the allegations, "above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Because the False Claims Act ("FCA") is an anti-fraud statute, complaints alleging its violation are subject to the heightened pleading requirements of Rule 9(b). U.S. ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005); United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003). This means the complaint must set forth "the who, what, when, where, and how" of the alleged fraud. U.S. ex rel Lusby v. Rolls-Royce Corp., 570 ...