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United States ex rel Graziosi v. Accretive Health, Inc.

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

March 22, 2017

UNITED STATES OF AMERICA, ex rel. CHERRY GRAZIOSI, Relator,
v.
ACCRETIVE HEALTH, INC., MEDSTAR HEALTH, INC., THE METHODIST HEALTH CARE SYSTEM, INC., BAPTIST HEALTH HOSPITALS, INC., SOUTHEAST HEALTH SYSTEM, INC., V.B. HARLIGEN HOLDINGS, INC., and “JOHN DOE HOSPITALS, ” Defendants.

          MEMORANDUM OPINION AND ORDER

          Robert M. Dow, Jr., United States District Judge

         Relator Cherry Graziosi (“Relator”) brings suit against Defendant Accretive Health, Inc. (“Accretive”) and Defendants MedStar Health Inc. (“MedStar”), the Methodist Health Care System, Inc. (“Methodist”), Baptist Health Hospitals, Inc. (“Baptist”), Southeast Health System, Inc. (“Southeast) (collectively, the “Hospital Defendants”), as well as unnamed John Doe hospitals under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”).[1] Before the Court are Accretive's and the Hospital Defendants' motions to dismiss Relator's second amended complaint. See [62], [67], [72], [78], and [81]. For the reasons explained below, Baptist's motion to dismiss [62] is granted; Methodist's motion to dismiss [67] is granted; Southeast's motion to dismiss [78] is granted; MedStar's motion to dismiss [81] is denied; and Accretive's motion to dismiss [72] is granted in part and denied in part. This case is set for status hearing on April 19, 2017 at 9:00 a.m.

         I. Background[2]

         Relator is a resident of Maryland and current employee of Defendant MedStar. MedStar is a Maryland corporation with its principal place of business in Columbia, Maryland. MedStar operates nine hospitals and twenty other health-related facilities in Maryland and Washington D.C. Relator has worked as a Service Associate in the emergency department of a MedStar-owned hospital in Washington D.C., “WHC, ” since January 2010.

         Between mid-2012 and October 2013, part of Relator's job was to make and receive daily communications from WHC's emergency department to staff of Defendant Accretive, a Delaware corporation with its principal place of business in Chicago, Illinois. Specifically, Relator worked in the implementation of what she calls the “Accretive admissions certification scheme” to submit allegedly false claims for health care costs reimbursed by the federal Medicare, Medicaid, and Tricare programs. See [59] at 3-4, 9. Relator also alleges, on information and belief, that in the course of her work she “became aware through non-public information that” Methodist (a Texas nonprofit corporation with a principal place of business in Houston, Texas), Baptist (an Arkansas nonprofit corporation with a principal place of business in Little Rock, Arkansas), and Southeast (a Missouri nonprofit corporation with a principal place of business in Cape Girardeau, Missouri) also had agreements with Accretive to engage in the same admissions certification scheme. Id. at 4.

         According to Relator, the Defendant Hospitals present a claim for payment to the federal health insurance programs by submitting a “CMS Form 1450, ” which includes a physician's certification of the medical necessity of a hospital admission. [59] at 10-11. Relator alleges that each hospital is obligated to assure that medical services will be provided only to the extent that they are “‘medically necessary, '” as “determined by a licensed physician with personal knowledge of that medical necessity.” Id. at 11 (quoting 42 U.S.C. § 1320c-5(a)). Relator also alleges that each hospital Defendant, in its contract with the federal agency Centers for Medicare and Medicaid Services (“CMS”), represented that it understood that “payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with (Medicare) laws, regulations, and program instructions . . . and on the provider's compliance with all applicable conditions of participation in Medicare, ” including the “federal anti-kickback statute.” Id. at 8-10 (citing 42 U.S.C. § 1320a-7b(b)).

         Under the Accretive admissions certification scheme, Accretive allegedly “generated written ‘recommendations' purporting to justify the inpatient admission of federal-insured patients as to whom the hospitals' own Emergency Departments and Hospital Staff physicians had previously determined, based on their own medical judgments after consulting with the patients and reviewing their relevant medical records, did not then meet the medical necessity requirements for an inpatient hospital stay, but instead only met medical necessity requirements for an ‘observation' of their medical condition for a period of up to twenty-four (or forty-eight) hours.” [59] at 13. According to Relator, “[a] physician's order that a patient is to be admitted as an ‘inpatient' constitutes a representation that a hospital stay involving treatment longer than forty-eight hours is medically necessary.” Id. at 14. The federal health insurance programs allegedly pay substantially more for patients for whom an inpatient admission, rather than an in-hospital observation, is ordered.

         Relator alleges that Accretive's recommendations for inpatient admission were made by persons who did not have the proper qualifications and information to make such recommendations. Relator also alleges that the “Hospital Defendants” pressured and expected their medical staff members to adopt and enforce Accretive's recommendations when presenting claims to Medicare, Medicaid, and Tricare. The Hospital Defendants allegedly “regularly ‘copied' the purported clinical contents of [Accretive's] inpatient admission ‘recommendations' . . . and ‘pasted' [the] contents onto records which falsely appeared to have been authored and generated by licensed personnel” working in the hospitals. [59] at 2. The purpose of this scheme, Relator alleges, was for Accretive to receive remuneration (in the form of per-review fees paid by the Hospital Defendants) in return for substantial numbers of recommendations from Accretive to change the level of health care services provided to substantial numbers of patients from observation-only to inpatient admission, and for the Hospital Defendants to receive more revenue from federal health insurance programs. Relator alleges that Accretive recommended changing 40% to 60% of the records it reviewed from observation-only to inpatient admission, as confirmed by monthly reports that Accretive sent to hospital administrators.

         According to the second amended complaint, Accretive's recommendations were “legally and factually false” because they “contradicted . . . medical staff members' own prior professional judgments that [inpatient] admission was not . . . medically necessary.” [59] at 15, 19. Relator also asserts that claims based on Accretive's recommendations “would not have been paid but for the explicit and implicit” certifications by the Hospital Defendants that the claims were certified as medically necessary by properly licensed physicians. Id. at 12.

         Relator provides what she calls a “random and representative sample of the hospital admissions (and resulting claims to Medicare and Medicaid) resulting from the Accretive admissions certification scheme.” [59] at 24. All nine of the admissions in the sample were drawn from the hospital in which Relator works, WHC. Relator alleges, for example, that one patient was examined by a WHC emergency room physician for complaints of lower back pain and resulting inability to walk. The physician found that the patient's condition did not medically justify a full hospital admission and prescribed an initial observation of her condition. Accretive changed the patient's diagnosis, “representing that ‘[d]ue to inability to ambulate patient is at immediate risk for traumatic fall injuries, increased morbidity and mortality.” Id. at 25. Accretive also changed the patient's prescribed treatment to a hospital admission, resulting in a claim to Medicare.

         Relator alleges that Accretive violated 31 U.S.C. § 3729(a)(1)(A) by causing false claims for payment to be presented to the United States (Count I); 31 U.S.C. § 3729(a)(1)(B) (post-2009 amendments) and (a)(2) (pre-2009 amendments) by making false records to get false or fraudulent claims paid by the United States government (Count II); and 31 U.S.C. §§ 3729(a)(1)(C) and (a)(3) by conspiring with the Hospital Defendant to carry out the fraudulent admissions certifications scheme (Count III). Similarly, Relator alleges that the Hospital Defendants violated 31 U.S.C. § 3729(a)(1)(A) by presenting false or fraudulent claims for payment to the United States Government (Count IV); 31 U.S.C. § 3729(a)(1)(B) (post-2009 amendments) and (a)(2) (pre-2009 amendments) by causing to be made or using false records or statements to get false or fraudulent claims paid or approved by the United States government (Count V); and 31 U.S.C. §§ 3729(a)(1)(C) (post-2009 amendments) and (a)(3) (pre-2009 amendments) by conspiring with Accretive to carry out the fraudulent admissions certifications scheme (Count VI).

         II. Baptist's Motion to Dismiss for Lack of Jurisdiction

         A. Personal Jurisdiction

         Baptist argues that Relator's complaint should be dismissed for lack of personal jurisdiction because Baptist does not have any contacts with the state of Illinois other than contracting with Accretive, which is an Illinois corporation with its principal place of business in Illinois. Relator responds that because Congress authorizes nationwide service of process in any cases brought under the FCA, Baptist need only have minimum contacts with the United States as a whole to render Baptist amenable to suit in this district. See [99] at 5 n.9 (citing 31 U.S.C. § 3732(a)).

         The Court concludes that it has personal jurisdiction over Baptist. All of Relator's claims are brought under 31 U.S.C. § 3730 for alleged violations of 31 U.S.C. § 3729. “Any action under section 3730 may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, [or] transacts business.” 31 U.S.C. § 3732(a). Relator alleges, and Baptist does not deny, that Accretive resides and transactions business in Illinois. Therefore, section 3732 authorizes Relator to bring her FCA claims against Accretive and the Hospital Defendants in this state. Further, this complies with the minimum requirements of due process because the FCA contains a nationwide service of process provision. See id. (“A summons as required by the Federal Rules of Civil Procedure shall be issued by the appropriate district court and served at any place within or outside the United States.”). Where a federal statute authorizes nationwide service of process, due process is satisfied “as long as the defendants have adequate contacts with the United States as a whole, ” which Baptist-an Arkansas non-profit with its principal place of business in Little Rock, Arkansas-does. Bd. of Trustees, Sheet Metal Workers' Nat. Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031, 1035 (7th Cir. 2000) (ERISA case); see also U.S. ex rel. Finks v. Huda, 205 F.R.D. 225, 227 (S.D. Ill. 2001) (physicians located and practicing in various states had minimum contacts with the United States, so that district court had personal jurisdiction over physicians in qui tam action brought under FCA).

         B. Subject Matter Jurisdiction

         Baptist argues that the Court does not have subject matter jurisdiction over Relator's claims against Baptist because Relator's allegations of fraud are based on information in the public domain for which Relator is not the original source. See [63] at 14 (citing 42 U.S.C. 3730(e)(4)(A) (2009)). According to Baptist, the pre-2010 version of section 3730(e)(4)(A)- which the parties agree should apply here-sets forth “a jurisdictional requirement that must be addressed before a court can reach the merits of any substantive FCA claim.” [63] at 14 (citing Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467 (2007)). Baptist argues that Relator's allegations against it are based on two categories of information that were already in the public domain when Relator filed suit. First, Baptist points to federal government investigations from the 1980s to early 1990s into Medicare payments for medically unnecessary hospital admissions. Second, Baptist refers to an Office of Inspector General's (“OIG”) audit of 2008 and 2009 Medicare claims for inpatient short stays for outpatient services. In its audit, OIG preliminarily found that one of Baptist's hospitals “allegedly submitted short stay inpatient claims as a result of: (a) improper orders for inpatient status converted from outpatient status; (b) improper inpatient standing orders for admission without proper involvement of a physician; and, (c) improper orders for inpatient status following scheduled outpatient procedures.” [63] at 11 (quoting DOJ Announcement, “Baptist Health Medical Center North Little Rock Enters Into Settlement Agreement Under False Claims Act, ” available at https://www.justice.gov/usao-edar/pr/baptist-health-medical-center-north-little-rock-enters-settlement-agreement-under-false (last accessed Mar. 21, 2017)). Following the audit, OIG referred its findings to the U.S. Attorneys' Office. Baptist agreed to pay $2, 700, 000 to resolve its liability under the FCA. See id. at 12.

         Section 3730(e)(4) of the FCA provides that “[t]he court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed-(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730. Case law applying both the pre-2010 and post-2010 versions of Section 3730(e)(4) have described this “public disclosure” rule as “jurisdictional.” United States ex rel. Sheet ...


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