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United States v. America at Home Healthcare and Nursing Services, Ltd.

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

June 20, 2017



          John Robert Blakey United States District Judge.

         Relator and Plaintiff Amy O'Donnell (“Relator”) filed this qui tam action under the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., and its Illinois counterpart, the Illinois False Claims Act (“IFCA”), 740 ILCS § 175/1, et seq., on behalf of the United States and the State of Illinois. Relator sues corporate Defendant America at Home Healthcare and Nursing Services, Ltd. d/b/a Angels at Home Healthcare (“AAH”), as well at its purported successor, Great Lakes Acquisition Corp. d/b/a Great Lakes Caring (“Great Lakes”). Relator also sues former AAH employees Rachael Fitzpatrick (“Fitzpatrick”), Tami Shemanske (“Shemanske”), and Kim Richards (“Richards”) (collectively, the “Individual Defendants”).

         Relator alleges that, beginning in 2006, AAH and the Individual Defendants routinely engaged in multiple fraudulent Medicare and Medicaid payment schemes, which continued after Great Lakes purchased AAH in approximately March 2015. Relator filed her Second Amended Complaint (“SAC”) [69] on February 13, 2017. On March 14, 2017, Defendants AAH, Fitzpatrick, Shemanske, and Richards (collectively, the “AAH Defendants”) filed a joint Motion to Dismiss Relator's complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). AAH Defs.' Mot. Dismiss [79]. Great Lakes filed its own Motion to Dismiss the same day. Great Lakes' Mot. Dismiss [76]. This Memorandum Opinion and Order addresses both pending motions, which, for the reasons discussed below, are granted in part and denied in part.

         I. Background[1]

         A. Home Health Services Under Medicare and Medicaid

         The federal Medicare and Medicaid programs provide government health insurance for elderly, disabled, and low-income Americans. SAC [69] ¶ 45. Both programs, which are administered by the Centers for Medicare and Medicaid Services (“CMS”), reimburse health care providers for certain “home health services” rendered to eligible beneficiaries. Id. ¶¶ 46-47. “Home health services” are defined as “items and services” provided on a “visiting basis” by a home health agency (“HHA”) to individuals in their place of residence. 42 U.S.C. § 1395x. Defendant AAH, and later Defendant Great Lakes, are two such HHAs. Potential “home health services” include, inter alia, part-time or intermittent nursing care, physical or occupational therapy or speech-language pathology services, medical social services, and part-time or intermittent services of a home health aide. SAC [69] ¶ 47.

         To qualify for home health services, a beneficiary must be: (1) confined to his home or in an institution that is not a hospital, skilled nursing facility, or nursing facility; (2) under the care of a physician who establishes and periodically reviews a plan of care; and (3) in need of at least one of the aforementioned home health services, as certified by a physician. Id. ¶ 50.

         According to Relator, HHAs may not solicit patients for home health services. Id. ¶ 48. Instead, HHAs must receive a physician referral. Id. Moreover, the federal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, prohibits HHAs from paying kickbacks, bribes, or rebates to doctors (or any other individual) in exchange for home health service referrals. Similarly, the Stark Law, 42 U.S.C. § 1395nn(a)(1), prohibits a physician from referring patients to entities with which the physician maintains a financial relationship.

         Upon receipt of a physician's referral, an HHA conducts its own initial medical assessment to determine a patient's medical needs and eligibility for home health services. SAC [69] ¶ 58. The HHA documents this initial assessment in an Outcome and Assessment Information Set (“OASIS”) form and transmits that form to the government. Id. ¶ 59. Federal regulations require that this data accurately reflect the patient's status at the time of the assessment. Id. ¶ 88.

         Medicare pays HHAs through what is known as the Prospective Payment System (“PPS”). Id. ¶ 66. PPS payments are based upon sixty-day “episodes” of care, and are designed to reimburse HHAs for all items and services provided during that period. Id. ¶ 67. These episodic payments are further divided into an estimated payment at the onset of the sixty-day period, followed by a residual payment at the close of the episode. Id. ¶ 71.

         Residual payments are occasionally subject to adjustments. One potential downward adjustment-known as a “low-utilization payment adjustment” or “LUPA”-occurs when a patient is visited by the HHA four or fewer times during the 60-day episode of care. Id. ¶ 72. Upward adjustments, on the other hand, may occur when an HHA reaches certain “therapy thresholds.” Id. ¶ 73. Under this three-tiered step system, payments are progressively increased when a patient receives six, fourteen, or twenty therapy visits during an episode of care. Id.

         In addition to payment adjustments within each episode of care, payments across multiple episodes may be adjusted to account for the patient's changing health condition, clinical characteristics, and service needs (known as the “case-mix adjustment”). Id. ¶¶ 67-68. There are eighty established case-mix groups (known as “Home Health Resource Groups, ” or “HHRGs”), which are based upon score values derived from the patient's OASIS form. Id. ¶¶ 68-69.

         After a patient's sixty-day episode of care has ended, the patient may be recertified for an additional sixty-day period, provided that home health care continues to meet coverage rules. Id. ¶ 74. To recertify, the HHA must determine (through its own assessment) that the patient remains homebound and continues to require a qualifying home health service. Id. ¶ 63. Based upon the HHAs findings, a physician then re-certifies the qualifying conditions and plan of care for the patient. Id. ¶ 62. As with the initial episode of care, the HHA must document its recertification assessment in an OASIS form and transmit that form to the government. Id. ¶¶ 64, 87.

         B. The Present Litigation

         Relator is a licensed registered nurse who was employed by AAH as a case manager between January 2008 and June 2011. SAC [69] ¶ 10. Relator alleges that beginning in 2006, Defendants fraudulently billed the government for millions of dollars of Medicare and Medicaid services that violated the assorted regulations discussed above. Id. ¶ 105. Specifically, Relator alleges that Defendants:

• “Upcoded” or artificially inflated bills to the government. See Id. ¶¶ 195-218. Relator claims that Defendants, in an effort to maximize revenues, instructed employees to inflate HHRG scores, as well as increase patient visits to avoid LUPAs and exceed therapy thresholds, without regard to medical necessity.
• Billed for unnecessary and duplicative personal care services. See Id. ¶¶ 219-32. Relator claims that Defendants instructed home health aides to provide personal care services to residents of assisted living facilities even though such services were already provided by facility personnel.
• Provided illegal kickbacks to AAH staff and physicians in exchange for referrals and certifications. See Id. ¶¶ 168-94.
• Unlawfully solicited patients for home health services. See Id. ¶¶ 146-67.
• Caused patients to be certified and/or recertified for home health services that were not medically necessary. See id. ¶¶ 108-45. Relator claims that Defendants instructed employees to: falsify patient records, including OASIS forms, to make it appear that home health services were necessary; generate home health plans of care for ineligible patients; and draft false physician orders for certification.

         Relator claims that many of these instances involved the Individual Defendants, and continued after Defendant Great Lakes purchased AAH in March 2015. Id. ¶ 4.

         Relator originally filed suit in this Court on February 14, 2014. See Compl. [1]. The United States declined to intervene on April 18, 2016, see Notice [10], and the record was unsealed on April 26, 2016. Order [12]. Relator originally brought four claims in her SAC:

Count I. Violations of the FCA for knowingly presenting, or causing to be presented to the government, a false or fraudulent claim for payment, see 31 U.S.C. § 3729(a)(1)(A), as well as knowingly making or using a false record or statement that is material to a false or fraudulent claim paid by the government, see Id. § 3729(a)(1)(B);[2]
Count II. Violations of the FCA for knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the Government, see Id. § 3729(a)(1)(G);
Count III. Conspiracy to violate the FCA, see Id. § 3729(a)(1)(C); and
Count V.[3] Corresponding violations of the IFCA, see 740 ILCS §§ 175/3(a)(1)(A)-(C), (G).

SAC [69] ¶¶ 240-96.

         In her response to Defendants' motions, Relator “does not contest Defendants' challenges” to Counts II and III. Rel.'s Resp. [85] 3 n. 2. Defendants' motions to dismiss are therefore granted as to those claims. The Court analyzes Defendants' remaining challenges to Counts I and V below.

         II. Legal Standard

         A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted.” Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). To survive a motion to dismiss, a complaint must first provide a “short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), such that the defendant is given “fair notice” of what the claim is “and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

         Second, the complaint must contain “sufficient factual matter” to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). That is, the allegations must raise the possibility of relief above the “speculative level.” E.E.O.C. v. Concentra Health Servs. Inc., 496 F.3d 773, 776 (7th Cir. 2007). The plausibility standard “is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013). The “amount of factual allegations required to state a plausible claim for relief depends on the complexity of the legal theory alleged, ” but “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Limestone Dev. Corp. v. Vill. Of Lemont, 520 F.3d 797, 803 (7th Cir. 2008). In evaluating the complaint, the Court draws all reasonable inferences in favor of Relator. Iqbal, 556 U.S. at 678.

         Additionally, the FCA “is an anti-fraud statute and claims under it are subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure.” United States ex rel. Gross v. AIDS Research All.-Chi., 415 F.3d 601, 604 (7th Cir. 2005). Rule 9(b) mandates that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated “with particularity.” In adding “flesh to the bones of the word particularity, ” the Seventh Circuit has “often incanted that a plaintiff ordinarily must describe the who, what, when, where, and how of the fraud-the first paragraph of any newspaper story.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011) (internal quotations omitted). In other words, if the fraudulent scheme involves misrepresentation, the plaintiff must state “the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated[.]” Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994).

         At the same time, the Seventh Circuit has warned against taking “an overly rigid” view of this shorthand formulation. Pirelli, 631 F.3d at 442. The precise details that must be included in a complaint-even one subject to Rule 9(b)-“may vary on the facts of a given case.” Id. The operative issue is whether a plaintiff uses some means “of injecting precision and some measure of substantiation into their allegations of fraud.” United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th Cir. 2016) (internal quotations omitted).

         Rule 9(b)'s heightened pleading requirements serve three main purposes: (1) protecting a defendant's reputation from harm; (2) minimizing “strike suits” and “fishing expeditions”; and (3) providing notice of the claim to the adverse party. Id. The importance of providing fair notice means that a plaintiff who pleads fraud “must ‘reasonably notify the defendants of their purported role in the scheme.'” Id. at 778 (quoting Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992)); see also Guarantee Co. of N. Am., USA v. Moecherville Water Dist., N .F.P., No. 06-cv-6040, 2007 WL 2225834, at *2 (N.D. Ill. July 26, 2007) (“The purpose of the more restrictive pleading standard is to ensure that the accused party is given adequate notice of the specific activity that the plaintiff claims constituted the fraud, so that the accused party may file an effective responsive pleading.”). To that end, “Rule 9(b) is of especial importance in a case involving multiple defendants. Where there are allegations of a fraudulent scheme with more than one defendant, the complaint should inform each defendant of the specific fraudulent acts that constitute the basis of the action against the particular defendant.” Balabanos v. N. Am. Inv. Grp., Ltd., 708 F.Supp. 1488, 1493 (N.D. Ill. 1988).

         III. Analysis

         A. The FCA and IFCA

         The FCA seeks “to protect the funds and property of the Government from fraudulent claims, ” Rainwater v. United States, 356 U.S. 590, 592 (1958), by “imposing civil liability on an individual or entity that makes such a claim.” U.S. ex rel. Heath v. Wisconsin Bell, Inc., 111 F.Supp.3d 923, 926 (E.D. Wis. 2015); see also 31 U.S.C. § 3729(a)(1). Enacted in 1863, the FCA “was originally aimed principally at stopping the massive frauds perpetrated by large contractors during the Civil War.” United States v. Bornstein, 423 U.S. 303, 309 (1976). Since then, “Congress has repeatedly amended the Act, but its focus remains on those who present or directly induce the submission of false or fraudulent claims.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1996 (2016) (“Escobar II”).

         A “claim” includes “direct requests to the Government for payment, ” as well as “reimbursement requests made to the recipients of federal funds under federal benefits programs” such as Medicare and Medicaid. Id.; see also 31 U.S.C. § 3729(b)(2)(A). In its present incarnation, the FCA allows the government to recover treble damages, as well as a $5, 000-$10, 000 penalty for each fraudulent submission, regardless of actual damage. Neal v. Honeywell, Inc., 826 F.Supp. 266, 268 (N.D. Ill. 1993), aff'd, 33 F.3d 860 (7th Cir. 1994). The FCA also permits private citizens, or “relators, ” to file a civil action on behalf of the government. 31 U.S.C. § 3730(b)(1). These actions are referred to as qui tam actions.[4] United States ex rel. Yannacopoulos v. General Dynamics, 652 F.3d 818, 822 (7th Cir. 2011). As an “incentive to bring suit, ” a prevailing relator “may collect a substantial percentage of any funds recovered for the benefit of the government.” Id. IFCA claims are evaluated under standards identical to those applied in cases arising under the FCA. Cunliffe v. Wright, 51 F.Supp.3d 721, 740 (N.D. Ill. 2014).

         The FCA and IFCA each prohibit: (1) knowingly presenting, or causing to be presented, a false or fraudulent claim for payment, see 31 U.S.C. § 3729(a)(1)(A); 740 ILCS § 175/3(a)(1)(A); and (2) knowingly making or using, or causing to be made or used, a false record or statement that is material to a false or fraudulent claim. See 31 U.S.C. § 3729(a)(1)(B); 740 ILCS § 175/3(a)(1)(B). Here, Relator alleges violations of both provisions.

         To adequately plead a violation of § 3729(a)(1)(A) of the FCA (or § 175/3(a)(1)(A) of the IFCA), Relator must allege: (1) a false or fraudulent claim; (2) which was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with the knowledge that the claim was false. United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741 (7th Cir. 2007), overruled on other grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009).

         To adequately plead a violation of § 3729(a)(1)(B) of the FCA (or § 175/3(a)(1)(B) of the IFCA), a plaintiff must allege that: (1) the defendant made a statement in order to receive money from the government; (2) the statement was false; and (3) the defendant knew the statement was false. Thulin v. Shopko Stores Operating Co., 771 F.3d 994, 998 (7th Cir. 2014). In addition, the misrepresentation “must be material to the other party's course of action.” Escobar II, 136 S.Ct. at 2001.

         Stated broadly, the AAH Defendants argue that the allegations in Relator's SAC: (1) do not allege materially false misrepresentations under the FCA; (2) are not sufficiently particular under Rule 9(b); and (3) fail to state claims for which relief may be granted under Rule 12(b)(6). Additionally, Defendant Great Lakes separately asserts that Relator has failed to plead any cognizable claims against Great Lakes. Finally, all Defendants contend that ...

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