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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

March 21, 2018



          REBECCA R. PALLMEYER United States District Judge

         This is Relator Stop Illinois Marketing Fraud, LLC's third attempt at stating a claim for relief under the False Claims Act (“FCA”), 31 U.S.C. § 3729. Relator alleges that Defendant Addus Homecare Corporation committed Medicare fraud through multiple schemes aimed at providing kickbacks to senior living facilities in exchange for patient referrals. According to Relator, the Defendant falsely certified compliance with the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, and submitted false reimbursement claims and records to Medicare for services provided to ineligible patients at dozens of senior living facilities across Illinois. (See Second Amended Complaint [49] (“SAC”), ¶ 2.)

         The court dismissed Count III of the Relator's First Amended Complaint for failure to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b), and dismissed all but one of the fraudulent schemes Plaintiff alleged in support of Counts I and II. See U.S. ex rel. Stop Illinois Marketing Fraud, LLC v. Addus Homecare Corp., No. 13-CV-9059, 2017 WL 467673, at *17 (N.D. Ill. Feb. 3, 2017) (“Addus I”). In the allegations that survived, Plaintiff described Defendant's alleged referral arrangement with one senior living facility, Essington Place. Id. at *11. The Relator's Second Amended Complaint purports to remedy the defects identified in the remaining counts. Relator also adds a new claim for relief under the Illinois False Claims Act, 750 ILCS 175/1 et seq., based on the same allegations that support its federal claims. Defendant again moves to dismiss in part. As explained below, the motion [58] is granted in part and denied in part.


         Defendant Addus Homecare Corp. is a Delaware company with its headquarters in Palatine, Illinois. (SAC ¶ 8.) Defendant provides two broad categories of home health care services-skilled and unskilled-to individuals unable to life fully independent lives. (Id. at ¶¶ 46, 51.) Unskilled services are non-medical in nature and include bathing, cooking, and transportation, among other things. (Id. at ¶ 46.) Defendant's provision of unskilled services is almost entirely paid for by state Medicaid programs. (Id. at ¶ 47.) Skilled services are those performed by medical professionals, and are eligible for reimbursement from the federal government's Medicare program. (Id. at ¶ 51.) In order to receive federal funds for medical care administered to Medicare recipients, service providers must “agree to abide by the rules, regulations, policies, and procedures governing reimbursement, and to keep and allow access to records and information as required by Medicare.” (Id. at ¶ 56.) Providers bill Medicare for all eligible care provided to a patient within a given 60-day window. (Id. at ¶ 58.) For each claim submitted, Medicare requires providers to describe in detail the care provided, and to certify that the services were personally rendered by the provider, that the services were “reasonable and necessary, ” and that the patient treated was “confined to the home.” (Id. at ¶¶ 56-81.) In addition to complying with Medicare's terms and conditions, care providers must also certify compliance with the Anti-Kickback Statute. The AKS prohibits providers from soliciting, receiving, offering, or paying any “remuneration” in exchange for referring a patient for services that are reimbursed by a federal health care plan. See 42 U.S.C. § 1320a-7b(b). Because compliance with the AKS is a prerequisite for Medicare reimbursement, offering or soliciting kickbacks to influence referrals for Medicare patients necessarily violates the False Claims Act as well. 42 U.S.C. § 1320a-7b(g).

         Relator Stop Illinois Marketing Fraud, LLC is a Delaware company formed for the sole purpose of bringing this qui tam action. (Id. at ¶ 3.) Relator's allegations are based on the statements and knowledge of Confidential Witness 1 (“CW1”)-a former Addus employee now employed by the Relator. (Id.) From November 2010 to April 2012, CW1 worked for Addus as an “Account Executive” and marketed its home health services in southern Illinois. (Id. at ¶ 89.) According to CW1, the home health care industry is highly competitive. Different senior living facilities are in constant competition to acquire and retain residents, and Addus and other care-providers compete against each other within those facilities to serve individual residents. (Id. at ¶¶ 97-102.) In light of these challenges, Relator claims that Addus's management team crafted a “referral recruitment plan” (“the Plan”) in order to ensure a constant stream of Medicare-eligible patients. (Id. at ¶¶ 92, 101.) Under the alleged scheme, Addus would provide marketing services for specific senior living facilities to help them increase their occupancy- and therefore their profitability-in relation to competing facilities. (Id. at ¶¶ 102-08.) In exchange, the facility “would exclusively refer and recommend all of the facility's patients to Addus, and not to other home health companies.” (Id. at ¶ 108.) CW1 claims that Addus's management sought to implement the referral recruitment plan across Addus's entire geographic footprint, but that CW1 personally witnessed the relevant conduct only in her assigned territory in southern Illinois. (Id. at ¶ 109.)

         Relator filed its original complaint against Addus and another defendant, Cigna Corporation, for violations of the FCA on December 19, 2013. (Complaint [1].) On December 18, 2015, the United States notified the court that it would not intervene in the case. (Notice of the United States [12].) On April 4, 2016, Relator filed its First Amended Complaint, which claimed that Addus and Cigna violated False Claims Act Sections § 3729(a)(1)(A), (B), and (C) by submitting false claims to the government for payment (Count I), making false records and statements (Count II), and by conspiring to violate the FCA (Count III). (First Amended Complaint [32] (“FAC”), ¶¶ 298-320.) The majority of Relator's allegations concerned the quid pro quo referral scheme at one location to which CW1 was assigned, Essington Place. (See id. at ¶¶ 91-174.) In support of its allegations, Relator offered CW1's first-hand accounts of Addus's practices, cited e-mails between CW1 and Addus management discussing the alleged scheme and its goals, and identified residents of Essington Place supposedly referred to Addus as a result of the scheme and their corresponding Medicare “starts of care.” (Id.) In addition, Relator identified several other unlawful schemes in support of its FCA claims; namely, (1) that Addus implemented the same quid pro quo referral scheme at numerous other senior living facilities in Illinois (Id. at ¶¶ 176-83)[1]; (2) that Addus hired the daughter of a physician named Dr. Dick in order to secure further Medicare referrals from him (Id. at ¶¶ 184-91); (3) that Addus falsely certified patients as eligible for Medicare-reimbursable skilled services (Id. at ¶¶ 192-254); and (4) that Addus conspired with a company called HPG (a subsidiary of fellow-defendant Cigna Corp.) to obtain referrals and to falsely certify patients as eligible for Medicare-reimbursable services. (Id. at ¶¶ 255-87).

         The Defendants moved to dismiss the First Amended Complaint on June 6, 2016, and this court granted the motion in part on February 3, 2017. Under Federal Rule of Civil Procedure 9(b), complaints alleging fraud must be pleaded with particularity-“the who, what, when, where, and how: the first paragraph of any newspaper story.” U.S. ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)). The court found that the First Amended Complaint met this standard only with respect to the alleged referral scheme described at Essington Place.

         Based on the factual detail provided, the court was “satisfied that Relator's allegations both describe the scheme with particularity and support a strong inference that Addus submitted claims to Medicare for patients referred by Essington Place.” Addus I, 2017 WL 467673, at *11. The First Amended Complaint described the referral scheme and named specific patients at Essington Place that had been referred to Addus. Id. Defendant argued that the complaint was insufficient under Rule 9(b) because Relator did not identify specific claims submitted to Medicare, but the court rejected that argument:

“[W]hen details of the fraud itself ‘are within the defendant's exclusive knowledge, ' specificity requirements are less stringent.” Goldberg v. Rush Univ. Med. Ctr., 929 F.Supp.2d 807, 815 (N.D. Ill. 2013) (quoting Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994)). Here, Relator explained that CW1 was responsible only for soliciting patients who were on Medicare, and had no responsibility for billing. Addus effectively suggests that CW1 should have retained more records, but this places an unreasonable burden on relators, especially in a situation like this one, where CW1 was involved in soliciting more than a hundred patients while at Addus.
. . . Relator alleges that a significant amount of Addus's revenue came from skilled services reimbursements from Medicare: the FAC alleges that “Addus went from zero to dozens of Medicare referrals” in the first three months of the Essington Place scheme and significantly increased its Medicare revenue for the duration of the alleged scheme. Second, Relator infers that Addus submitted many claims to Medicare because Addus paid CW1 bonuses for each Medicare patient to whom Addus provided skilled services. Third, Relator identifies 54 specific Medicare starts of care in a mere four-month period from August to November 2011; though the FAC does not specify that these were all at Essington Place, it allows the inference that many of Addus's patients were covered by Medicare. Finally, Relator alleged that Addus's billing system can identify specific patients whose claims were submitted to Medicare. Addus alone has access to its billing system from which these patients are most easily identified; CW1 does not, and apparently never had, access to this system.

Id. (internal citations to record omitted). This court concluded that Relator had provided enough detail to describe the fraudulent scheme and identify specific patients who received care pursuant to that scheme in order to survive the Defendant's motion to dismiss. Id. at *14. Although facts concerning specific claims remained outside of Relator's reach, the court was satisfied that Relator's allegations were sufficient to support an inference that Addus submitted claims to the government based on the alleged scheme at Essington Place. Id.

         The court did not, however, extend this conclusion to Relator's other four theories of recovery. The court found Relator's allegations lacking with respect to the alleged conspiracy with HPG, and dismissed Count III of the First Amended Complaint. Id. at *16. Relator's allegations were also not sufficient to hold Defendant Cigna liable as HPG's successor-in-interest for conduct that had occurred before Cigna acquired HPG in 2013, and the court dismissed Cigna as a party to the case as well. Id. at *6-8. The court also rejected the Relator's other theories in support of Counts I (submitting false claims) and II (making false records). In support of its theory that Addus falsely certified ineligible patients for skilled services, Relator identified specific patients but failed to describe how they were not qualified for the care they received-information that CW1 was in the position to know. Id. at *15. Accordingly, the court dismissed Relator's false certification theory. Relator provided even less detail in regards to the alleged referral schemes with Dr. Dick and at the numerous other senior living facilities. Id. Relator did not identify any patients or allege any particulars for these other schemes. Apart from the Church Creek and Tamarack facilities, Relator failed to even provide the names of the more than twenty-three other locations at which Addus allegedly implemented referral schemes. Id. The court found that the limited information alleged as to these other locations was not sufficient to raise an inference that Addus submitted false claims to Medicare for illegally-referred patients anywhere but at Essington Place.

         On March 3, 2017, Relator filed the present Second Amended Complaint. The Second Amended Complaint is largely identical to the previous complaint, but there are three significant main differences. For one, Relator has dropped its claims against Cigna Corp. (SAC 1.) Only Addus Homecare remains as a defendant in this case. Next, Relator provides more detail with respect to certain other senior living facilities at which it believes Addus implemented the quid pro pro referral scheme underlying Relator's claims for relief under the federal False Claims Act (Counts I and II). (Id. at ΒΆΒΆ 218-48.) Finally, Relator asserts a new claim for relief under the Illinois False ...

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