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United States ex rel. Stop Illinois Marketing Fraud, LLC v. Addus HomeCare Corp.

United States District Court, N.D. Illinois, Eastern Division

February 3, 2017




         This is a False Claims Act action, charging Defendant home health care providers with Medicare fraud. Relator Stop Illinois Marketing Fraud, LLC, filed a complaint under the False Claims Act (“FCA”), 31 U.S.C. § 3729, alleging that Defendants Addus HomeCare Corporation (“Addus”) and Cigna Corporation (“Cigna”) engaged in multiple schemes to provide kickbacks in exchange for patient referrals; falsely certified compliance with the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b; and submitted reimbursement claims and records to Medicare for services provided to unqualified patients. Both Defendants have moved to dismiss the complaint. For the reasons given below, Defendant Cigna's motion is granted and Defendant Addus's motion is granted in part and denied in part. Relator has leave to amend the complaint within 21 days.


         I. Factual History

         Relator Stop Illinois Marketing Fraud, LLC is a Delaware limited liability company formed (by whom, the complaint does not say) in 2013[1] to bring this action. (First Am. Compl. (“FAC”) [32] ¶ 3.) Addus is a Delaware corporation with headquarters in Palatine, Illinois. (FAC ¶ 7.) Addus provides home health care services in nineteen states, including Illinois; Medicare ultimately reimburses Addus for many of these services. (FAC ¶ 7.) Cigna is the owner of Home Physicians Management, LLC, d/b/a Alegis Care (“HPG”), a Delaware corporation with headquarters in Bloomfield, Connecticut. (FAC ¶ 8.) HPG provides home physician services to the elderly and disabled in several states, including Illinois. (FAC ¶ 8.) Cigna acquired HPG in September 2013; Relator alleges, without elaboration, that Cigna is HPG's successor-in-interest. (FAC ¶ 8.)

         Many of Relator's allegations are based on the statements of Confidential Witness 1 (“CW1”), who was an Addus employee from November 2010 through April 2012, and is now employed bv Relator. (FAC ¶¶ 3, 69.) CW1 worked for Addus as an Account Executive, the title Addus assigned to “sales personnel who market home health in specific regions.” (FAC ¶ 3.) CW1's specific region was in southern Illinois. (FAC ¶ 69.)

         A. Unskilled and Skilled Home Health Services

         Addus provides two broad categories of services. The first are unskilled services, such as bathing, grooming, feeding and dressing assistance, meal preparation, housekeeping, and transportation. (FAC ¶ 26.) These services are known as unskilled because they do not require a nurse. (See FAC ¶¶ 57-58.) Most of the unskilled services Addus provides are reimbursed through Medicaid, which is administered by individual states. (FAC ¶¶ 27-28.) Addus also provides what are called skilled services. (FAC ¶¶ 31, 36-40.) Skilled services are reimbursed by Medicare, which is administered by the federal government; the claims at issue in this case are Medicare claims for skilled services. (FAC ¶¶ 31-35.) Medicare has several requirements for reimbursement of skilled services. Providers must furnish basic information about the patient and services. (FAC ¶ 37.) In addition, as relevant here: (1) health care providers must certify that they personally rendered the services; (2) the patient must be “confined to the home;” (3) and the services must be “reasonable and necessary.” (FAC ¶¶ 37-38.)

         1. Personally Rendered by the Health Care Provider

         To submit a claim to Medicare for skilled services, Addus must submit a form signed by both the physician ordering the skilled services and a nurse from a home health agency, such as Addus, who actually provides the services. (FAC ¶¶ 39-40.) Skilled services are billed to Medicare in 60-day increments. (FAC ¶ 38-39.) Thus, after 60 days, providers must re-certify the patient's need for skilled services for a longer period of time. (FAC ¶ 38-39.)

         2. “Confined to the Home”

         To qualify for Medicare coverage of skilled services, the patient must meet several requirements, including that the patient be “confined to the home” (also known as “homebound”). (FAC ¶ 46.) The Medicare Benefit Policy Manual specifically defines what it means to be “confined to the home.” (FAC ¶¶ 47-52.) This definition has changed over the period of time described in the First Amended Complaint (“FAC”), but in every version, the definition requires that the patient is generally unable to leave the home. (FAC ¶¶ 47-52.) Providers must certify that patients are “confined to the home” to be reimbursed by Medicare. (FAC ¶ 39.)

         3. “Reasonable and Necessary”

         If a patient meets the other qualifications for Medicare skilled services, including being homebound, the patient is entitled to coverage of health services that are “reasonable and necessary.” (FAC ¶¶ 53-54.) Services are reasonable and necessary, and therefore qualify as skilled, if the patient's condition or the complexity of the services require a registered nurse. (FAC ¶¶ 55-57.) For example, bathing would not be classified as reasonable and necessary. (FAC ¶ 58.) In contrast, visits from a nurse might be reasonable and necessary for a patient who had been diagnosed with diabetes to educate the patient about the condition. (FAC ¶ 58.)

         B. Addus's Provision of Skilled Services

         Relator alleges that Addus earns a gross margin (the amount of profit it makes for a given unit of its services) for skilled services nearly double the amount it earns for unskilled services. (FAC ¶ 63.) In 2007, Addus made a concerted effort to increase its skilled services revenue. (FAC ¶¶ 64-65.) Staff involved with this effort included Care Coordinators, who worked inside senior living facilities to sign residents up for skilled services, and Account Executives like CW1, who managed several Care Coordinators. (FAC ¶¶ 70-71.) The effort was successful; Addus substantially grew the skilled services portion of its revenue from 2007 to 2012. (FAC ¶ 66.) In February 2013, Addus entered into an asset purchase agreement to sell most of the assets in its skilled services group in several states, including Illinois; the transaction was completed on March 1, 2013. (FAC ¶ 67.)

         C. Anti-Kickback Statute

         The Anti-Kickback Statute (“AKS”) prohibits soliciting, receiving, offering, or paying any “remuneration” in exchange for referring a patient for services that are reimbursed by a federal health care program. 42 U.S.C. § 1320a-7b(b). The goal of the statute is to ensure that compensation for referrals does not affect patient care. (FAC ¶ 15.) A submitted claim that violates the AKS also violates the False Claims Act. 42 U.S.C. § 1320a-7b(g). When a health care provider submits a claim to Medicare, he or she must certify that the claim complies with all Medicare regulations, including the Anti-Kickback Statute. (Health Insurance Claim Form, Form CMS-1500, Centers for Medicare and Medicaid Services (rev. Feb. 1, 2012), Thus, to receive or provide kickbacks to influence referrals for Medicare patients would necessarily require a false statement in the CMS 1500 form, resulting in a violation of the False Claims Act.

         D. Alleged Fraudulent Schemes

         1. Essington Place Referral Scheme

         Relator claims that several members of Addus's senior management team (Cindi Starek, Georjean Sweis, Donna McNally, Jim Szymanski, and Julie Hearst) were the authors of an alleged scheme to provide marketing services to senior living facilities in exchange for referrals from these facilities of Medicare patients for skilled services.[2] (FAC ¶¶ 71, 72.) CW1's role at Addus was to provide those marketing services to particular senior living facilities working to increase their occupancy. (FAC ¶¶ 74, 83-87.) In return for Addus's marketing efforts, Relator alleges, the facilities “would exclusively refer and recommend all of the facility's patients to Addus, and not to other home health companies.” (FAC ¶ 88.)

         Essington Place, an independent living facility owned by an organization that operates several such facilities, was one of the senior residential facilities where Addus assigned CW1. (FAC ¶¶ 90-92.) CW1 worked directly with Essington Place managers, Debra and Steve Kroll, to find and retain residents. (FAC ¶¶ 100-103.) Relator alleges that the Krolls “specifically agreed to refer any and all Essington Place residents to Addus for skilled and unskilled for [sic] home care in exchange for Addus' assistance in increasing their facility's occupancy.” (FAC ¶ 104.) Relator quotes e-mails in which Addus employees discussed their goal to increase Essington Place's occupancy.[3] (FAC ¶¶ 106-11, 126-35, 144-48.) As part of this scheme, CW1 and Addus would try to discourage seniors from leaving Essington Place for a facility that provided more dedicated skilled care. (FAC ¶¶ 112-25.) CW1 personally marketed Addus's skilled services to patients who lived at Essington Place but were considering a move to an assisted living facility that provided skilled care services itself. (FAC ¶¶ 112-25.) Addus employees, including CW1, also marketed its skilled services directly to potential residents when they toured Essington Place. (FAC ¶¶ 137-42.)

         Addus staffed a “wellness center” at Essington Place and paid rent for an apartment to use for this purpose, paying an amount below the market rate for such apartments. (FAC ¶¶ 151-60.) Addus scheduled free screenings and assessments for residents in order to market its services. (FAC ¶¶ 161-65.) Relator further claims that Addus “encouraged” its employees to buy meals and gifts for facility personnel (Relator does not say whether CW1 specifically received such encouragement). (FAC ¶ 172.) Finally, Relator alleges that Addus offered skilled services to residents even if they were not “homebound.” (FAC ¶¶ 168-70.)

         CW1 has identified eight patients, by their initials, whom she claims Essington Place referred to Addus as part of this scheme. (FAC ¶ 143.) Relator also quotes e-mails that identify additional referred patients, along with a date and the designation “SOC” or “start of care, ” indicating that Addus provided services to these patients, as well. (FAC ¶¶ 145-47.)

         2. Referral Schemes at Other Facilities

         Relator alleges that CW1 was present at meetings in which Addus senior management discussed similar referral schemes at other facilities. (FAC ¶ 149.) The e-mails quoted in the FAC also allude to “more opportunities for all of us as we continue in other retirement communities.” (FAC ¶ 148.) In fact, Relator alleges, Addus replicated the scheme at two other facilities, identified as Church Creek and Tamrac, as well as at “a Holiday Retirement Community in Palatine, Illinois, and twenty two (22) facilities within the Chicago areas owned by Senior Lifestyle Corporation, and facilities owned by Sunrise Senior Living.” (FAC ¶ 176.) CW1 discussed Addus's referral scheme with Addus employees who worked with Sunrise Senior Living. (FAC ¶¶ 177-180.) Relator does not, however, identify particular patients that other facilities referred to Addus.

         3. Referral Scheme with Dr. Dick

         Relator alleges that in 2011, an Addus Account Representative, [4] Brianne Zitko, asked a physician named Dr. Dick “what it would take to get referrals from him.” (FAC ¶ 185.) Dr. Dick “mentioned” that his daughter was looking for a job; soon afterwards, Dr. Dick's daughter, Jaycee Dick, was hired by Addus. (FAC ¶ 186.) During the eight months while Jaycee Dick worked there, Addus received “numerous patient referrals” for skilled services from Dr. Dick, but those referrals stopped when Jaycee Dick stopped working for Addus. (FAC ¶¶ 187-88.) Relator asserts that “[a]ny patients referred to Addus by Dr. Dick were thus necessarily tainted by” Jaycee Dick's employment. (FAC ¶ 191.) Relator claims that she learned about this scheme from Jaycee Dick and Brianne Zitko themselves. (FAC ¶ 189.)

         4. Scheme to Certify Ineligible Patients

         Soon after CW1 began working for Addus in November 2010, someone in Addus management-Relator does not say who-told CW1 that she should solicit all seniors for skilled services, even if they did not meet Medicare's requirements. (FAC ¶¶ 200-05.) Relator alleges that Addus strongly encouraged its employees to market skilled services to patients, and quotes one of Szymanski's e-mails to that effect.[5] (FAC ¶¶ 208-16.) Addus specifically directed these efforts toward Medicare patients. (FAC ¶ 220.) Relator claims that Medicare reimbursed Addus for skilled services simply because many providers were willing to sign the Medicare reimbursement form even if the patient was not qualified. (FAC ¶¶ 206, 229-41.) CW1 personally observed Addus employees prepare these forms, often exaggerating diagnoses and persuading physicians to sign, “hundreds of times.” (FAC ¶¶ 238-242.) She also saw non-homebound seniors at Essington Place receive Medicare-reimbursed skilled services. (FAC ¶ 243-44, 251.) Relator identifies seven seniors (again by initials) who allegedly received skilled services but were unqualified for them-it does not specify whether they lived at Essington Place. (FAC ¶¶ 253-54.)

         CW1 had no direct involvement with patient care beyond soliciting patients for Addus's skilled services and had no access to any billing paperwork. (FAC ¶¶ 250, 252.) Yet a portion of her earnings consisted of commissions based on the number of “starts of care” for patients who were covered by Medicare. (FAC ¶ 197.) Care Coordinators also received bonuses for skilled services “starts of care” or for converting patients from unskilled services to skilled services. (FAC ¶ 217-18.)

         Addus more than doubled its revenue from skilled services from 2008 to March 2013. (FAC ¶ 210.) Essington Place's occupancy also increased by over 20% during the course of the scheme. (FAC ¶ 245.) Relator alleges that at the time CW1 began her involvement with Essington Place, Addus did not provide any skilled services to its residents. (FAC ¶ 246.) By the time CW1 left Addus, Addus had provided skilled services to thirty Essington Place residents, all reimbursed by Medicare. (FAC ¶ 246.) Relator alleges that Addus had similar success at the other facilities with parallel schemes. (FAC ¶ 248.)

         5. Referral Scheme with HPG

         In some cases, a patient's regular physician declined to sign off on the Medicare certification forms that Addus provided. (FAC ¶¶ 259-62.) Addus would then arrange for an HPG physician to visit the patient's home and sign the certification form; Relator alleges that HPG physicians did so even when a patient was unqualified for Medicare-reimbursed skilled services. (FAC ¶¶ 258-64, 269.) In exchange, Addus would refer all patients who needed physician care to HPG; this enabled HPG to bill Medicare for its own visits with the patients. (FAC ¶¶ 265-66.) HPG allegedly certified every single patient referred by Addus for Medicare skilled care. (FAC ¶ 270.) CW1 cannot identify specific claims because she does not have access to HPG records, but Relator alleges, on information and belief, that HPG submitted claims to Medicare for services provided to Addus-referred patients. (FAC ¶¶ 267-68.) Addus eventually created a call center to centrally process all the referrals. (FAC ¶¶ 271-73.)

         According to Relator, HPG participated in this scheme because the then-CEO of HPG, Craig Reiff, “had close personal and business ties to senior management at Addus, including Mark Heaney, Addus' president and CEO” (FAC ¶ 275), and because Addus was a large source of business for HPG. (FAC ¶¶ 276-80.) Relator alleges that this referral scheme was exclusive and when on one occasion, CW1 attempted to get a non-HPG physician to assess a patient, she was criticized for doing so. (FAC ¶ 282.) Finally, Relator alleges that all the claims submitted by either HPG or Addus as a result of this arrangement violated the AKS, and the FCA by extension. (FAC ¶ 286.)

         6. Resulting Medicare Starts of Care

         Relator alleges that she arranged approximately 114 starts of care during 2011, and that approximately 35% of these patients lived at Essington Place. (FAC ¶ 289.) Relator does not explicitly say whether these patients were Medicare recipients, but does allege that more than 75% of these patients did not qualify for Medicare-reimbursed services. (FAC ¶ 289.) Relator breaks these 2011 starts of care into two groups. The first consists of approximately 67 starts of care from January to July 2011. (FAC ¶ 290.) Relator does not identify any particular patient by name or location, but notes that patients in Essington Place are “readily identifiable” through Addus's records system. (FAC ¶ 290.) The second group consists of 54 starts of care from August to November 2011, [6] where Relator identifies patients by initials and by the month in which their care started; as with the first group, Relator explains that Essington Place residents can be identified in Addus's records system. (FAC ¶¶ 291-96.)

         II. Procedural History

         Relator filed its original complaint, pleading violations of the False Claims Act, under seal on December 19, 2013. (Compl. [1].) In the original complaint, Relator did not mention specific facilities by name, nor that Addus engaged with facilities for referrals. Instead, it alleged that Addus sought to establish wellness centers in senior living facilities, and used these wellness centers to solicit Medicare-covered seniors to accept Addus services. (Compl. ¶ 38-55.) The original complaint did allege that Addus sought to provide Medicare-reimbursed skilled services to unqualified patients, and encouraged its employees to provide gifts and meals to facility personnel. (Compl. ¶ 55-58.) The original complaint also described the scheme to certify unqualified patients (Compl. ¶ 59-67), and the agreement with HPG to certify patients in exchange for Addus's business. (Compl. ¶ 68-78.)

         On December 18, 2015, the United States provided notice that it would not intervene in the case. (Notice of the United States [12].) On April 4, 2016, Relator filed the FAC, alleging, against all Defendants, violations of the False Claims Act through the submission of false claims (Count I) and false records and/or statements (Count II), and conspiracy to violate the False Claims Act (Count III).[7] (FAC ΒΆΒΆ 298-320.) Each Defendant ...

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