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United States ex rel. Zverev v. USA Vein Clinics of Chicago, LLC

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

March 27, 2017



          John J. Tharp, Jr. United States District Judge.

         Plaintiff-Relator Constantine Zverev brings this qui tam action on behalf of the United States of America and the states of Illinois, California, Massachusetts, and New York under the federal False Claims Act, 31 U.S.C. § 3729(a)(1)(A)-(C), Illinois False Claims Act, 740 Ill. Comp. Stat. 175/1 et seq., California False Claims Act, Cal. Gov't Code § 12650, et seq., Massachusetts False Claims Act, Mass. Gen. Laws ch. 12 §§ 5A-5O, New York False Claims Act, N.Y. State Fin. Law, §§ 187-194, and the Illinois Insurance Claims Fraud Prevention Act, 740 Ill. Comp. Stat. 92/1 et seq. The crux of Zverev's allegations is that the defendants, his former employers, schemed to defraud Medicare and Medicaid (as well as various other private insurance providers) by billing those providers for medical procedures that were either never performed, performed inadequately, or performed when medically unnecessary. Zverev also maintains that once it was discovered that he was conducting his own private investigation of these acts, his employment was terminated him in retaliation, and in violation of the Federal False Claims Act, 31 U.S.C. § 3730(h)(1) and the Illinois Whistleblower Act, 740 Ill. Comp. Stat. 174/20. The defendants move to dismiss Zverev's Second Amended Complaint (“complaint”) in its entirety. For the reasons that follow, that motion is granted in part and denied in part.


         In addition to Dr. Yan Katsnelson, a cardiovascular surgeon, the complaint names numerous limited liability corporations as defendants in the action. According to the complaint, defendant Dr. Katsnelson either owns or controls the defendant entities in their entirety, and they operate in an integrated and uniform manner in terms of “policies, practices, treatment and billing modalities.” Sec. Am. Compl. (“Compl.”), ¶ 13, ECF No. 37. Each of the corporate defendants is centrally connected to a common computer system and common databases. For simplicity's sake, the corporate defendants will generally be referred to collectively as “USA Vein” except where noted.

         USA Vein provides in-patient endovascular laser therapy (“EVLT”) procedures. EVLT is used to treat varicose veins, which are veins that are visibly swollen and twisted. The EVLT procedure entails the insertion of a heated laser fiber into the target vein via a catheter. The physician then gradually increases the fiber's temperature until reaching the required temperature. The fiber is then removed, which collapses the vein and shut off circulation through it. The vein then slowly dies off, and blood is diverted through the remaining healthy veins. EVLT can serve both cosmetic and medical purposes; the defendants obtained reimbursement for medically necessary EVLT procedures rendered to patients insured through Medicare, Medicaid, and private insurance plans.

         Plaintiff-Relator Constantine Zverev worked out of USA Vein's Northbrook, Illinois clinic as an information technology and data analyst from May 2011 through October 2011. As an analyst, he was responsible for compiling patient data and creating programs that could be used to identify trends in patient populations and the services they requested. In conducting these duties, he claims to have had access to USA Vein's patient data including patient identifying information, dates of service, and details of services provided. The complaint also refers to “billing data spreadsheets” to which Zverev claims he had access (e.g., Compl. ¶ 100).

         In reviewing this information, Zverev became suspicious of the defendants' billing practices. He first became concerned when he was copied on an email sent from Cathy Mata, USA Vein's billing manager, to Dr. Katsnelson, Jekaterina Rapaport (USA Vein's insurance manager for Illinois), and Stella Gazaryan (USA Vein's office manager for California). The email stated “I noticed that Dr. Katsnelson is billing in Boston and Chicago in the same date. We should be more careful.” Id. at ¶ 87. His interest piqued, Zverev began sleuthing through USA Vein “patient databases” (id. at ¶ 88) looking for examples of such occurrences. These databases included a patient database and a billing database; the latter, according to the complaint, indicated which insurer was billed for which patient.

         According to Zverev, this review revealed that the defendants were billing Medicare for EVLT procedures that could not have possibly been completed on the dates that the defendants represented in the bills. He points, for example, to records indicating that on October 12, 2009 Dr. Katnelson performed eight EVLT procedures on eight different patients in Chicago, while on the same day he also apparently conducted five initial patient visits in Boston. At least six of these patients were billed for the defendants' services through Medicare. These same records allegedly indicate that on March 22, 2010-in a single day-Katsnelson performed nineteen patient visits in Chicago, eight in New York, and fourteen in Boston. Zverev maintains that at least thirty-one of these forty patients were insured through Medicare or Medicaid, and that Medicare or Medicaid was subsequently billed for those procedures. Similarly, records indicate that on March 23, 2010 Dr. Katsnelson billed for nine patient visits in Chicago, two in New York, and twenty in Boston. At least twenty-six of these thirty-one patients were billed through Medicare or Medicaid. Assuming an hour per procedure, Zverev concluded that the defendants were billing more procedures than Katsnelson possibly could have completed and so must have been engaged in a scheme to defraud insurance providers, including Medicare and Medicaid, by billing for services that were never rendered. Zverev's suspicions were further bolstered by a conversation that Zverev allegedly had with another one the defendants' employees, Dr. Melkonyan. Melkonyan told Zverev that he had been asked by Dr. Katnelson to sign off on several altered and backdated patient bills, which reflected charges for services which he (Melkonyan) had never actually performed. Shortly after this conversation, Dr. Melkonyan left his job with USA Vein.

         In addition, Zverev maintains that the defendants also billed insurance providers for “services inadequately rendered.” Id. ¶¶ 82, 110, 113-116. More specifically, Zverev alleges that Katsnelson and other doctors at USA Vein reused what were supposed to be single use laser fibers when performing EVLT procedures, while billing Medicare and Medicaid for new fibers in connection with each procedure. The complaint alleges that several doctors and technicians who worked, or formerly worked, at several USA Vein locations told Zverev that Dr. Katsnelson directed them to sterilize and reuse single-use fibers, and that Zverev had personally observed fibers soaking in a sterilization fluid even though they were only supposed to be used once. He claimed that the defendants then “billed Medicare, Medicaid and private insurers, as if the procedure were properly conducted using new instruments.” Id. at ¶ 84.

         Finally, Zverev also alleges that his investigation revealed that the defendants were billing insurance providers for “medically unnecessary” services because USA Vein ultrasound technicians recommended EVLT procedures as medically necessary “at a significantly higher rate than would be expected.” Id. at ¶ 124. He maintains that this occurred because Dr. Katsnelson ordered ultrasound technicians to make as many “positive diagnosis” as possible, even in cases where no procedure was medically necessary, in order to increase the number of claims that could be submitted to the government. Id. at ¶ 127. Other physicians allegedly told Zverev that Dr. Katsnelson ordered them to perform EVLT procedures on the same vein multiple times within a period of two months without a determination of medical necessity. These same physicians told Zverev that Dr. Katsnelson then ordered them to indicate on Medicare and Medicaid submissions for reimbursement that the procedures were medically required, even though they did not believe that was the case.

         Zverev alleges that in October 2011 Dr. Katsnelson became aware that Zverez was investigating the defendants' billing practices. Zverev believes that Dr. Katsnelson became aware of his investigation by having a family member monitor Zverev's computer activities. Subsequently, on October 22, 2011, a Saturday, Katsnelson unexpectedly approached Zverev at a local restaurant and demanded that Zverev turn over his work laptop immediately. Zverev complied. Later that evening, Katsnelson called Zverev and demanded the password for that same laptop. According to Zverev, Katsnelson told Zverev that if he did not give the password to him that he would call the police, so Zverev provided the password to Katsnelson. A few hours later, Katsnelson sent an email to Zverev stating that Zverev was fired.


         Defendants move to dismiss the complaint, with prejudice, pursuant to Federal Rule of Civil Procedure 12(b)(6), alleging that Zverev's fraud claims lack the particularity required by Rule 9(b), and that his retaliation claims are unsupported by any allegations of fact.[1] When analyzing the sufficiency of a complaint, the court construes it in the light most favorable to the plaintiff, accepting well-pleaded (that is, non-conclusory) facts as true, and drawing all reasonable inferences in the plaintiff's favor. W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016). Under Federal Rule of Civil Procedure 8, a complaint can withstand a motion to dismiss only if it alleges enough facts to render the claims facially plausible, not just conceivable. Id. (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Moreover, under Rule 9(b) of the Federal Rules of Civil Procedure, applicable to Zverev's claims that defendants were engaged in fraudulent billing practices (Counts I-III and V-IX), a party who alleges fraud or mistake “must state with particularity the circumstances constituting fraud or mistake.” Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co. 631 F.3d 436, 441 (7th Cir. 2011). “The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims.” Fidelity Nat. Title Ins. Co. of New York v. Intercounty Nat. Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005). For purposes of Rule 9(b), particularity “means the who, what, when, where, and how: the first paragraph of any newspaper story.” DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

         A. Application of Rule ...

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