United States District Court, W.D. Texas, San Antonio Division
UNITED STATES OF AMERICA, ex rel. INTEGRA MED ANALYTICS, LLC, Plaintiff,
CREATIVE SOLUTIONS IN HEALTHCARE, INC., Defendant.
ORDER ON MOTION TO DISMISS
RODRIGUEZ UNITED STATES DISTRICT JUDGE
date, the Court considered Defendant's Motion to Dismiss
Relator's First Amended Complaint (docket no. 35),
Relator's Opposition (docket no. 42), Defendant's
Reply (docket no. 47), both parties' oral arguments on
August 22, 2019 (docket no. 52), and both parties'
supplemental briefings in further support and opposition
(docket nos. 53 and 54). After careful consideration,
Defendant's Motion is DENIED IN PART and GRANTED IN PART.
Med Analytics, LLC (“Relator”) brings this
qui tam action against Creative Solutions in
Healthcare, Inc. (“Defendant”), alleging
violations under the False Claims Act (“FCA”).
Specifically, Relator asserts violations of 31 U.S.C. §
3729(a)(1)(A)-(C) and (G). Defendant owns and operates a
network of skilled nursing facilities (“SNFs”)
throughout Texas. Docket no. 17 at 4. Relator, through both
quantitative and qualitative analysis, alleges that Defendant
and its rehab contractors, Century Rehab
(“Century”) and Reliant Rehabilitation
(“Reliant”), engaged in various practices resulting
in the submission of over $94 million in false claims to
Medicare, as well as approximately $2.01 million in false
claims to Medicaid from coinsurance for Medicare patients
dual enrolled in Medicaid.
covers post-hospitalization services provided in SNFs for up
to 100 days per year, reimbursing SNFs at a per-diem rate
based on one of sixty-six resource utilization groups
(“RUGs”) that are determined by the amount of
therapy and other services provided to patients. Docket no.
17 at 9. The highest category, Ultra High Rehab, is for
patients receiving more than 720 minutes of rehab in a week.
Docket no. 17 at 9.
contends that Defendant engaged in a scheme to manipulate
Medicare reimbursement through a variety of measures, three
of which Relator alleges at detail. First, Relator alleges
leadership pressured therapists to use Ultra High Rehab
regardless of need. Docket no. 17 at 11-16. Relator argues
this manifested in multiple ways, including prescribing
therapy based on patient insurance rather than need and the
provision of therapy to patients without the mental or
physical capacity to tolerate it. Id. As an example,
one former Director of Rehab at a Creative facility alleges
he was ex ante dictated therapy to assign and told
afterwards to create a justification for the provision of
Ultra High Rehab. Id. at 15. In fact, Relator
alleges, Defendant required justification for patients who
did not receive Ultra High Rehab. Id.
Relator alleges that management trained therapists at
Creative-managed facilities to fraudulently bill to meet the
minimum threshold for Ultra High Rehab. Id. at
16-18. Relator claims this manifested in many ways,
including: billing Ultra High Rehab for patients who were
unconscious or otherwise unable to participate in therapy;
falsifying therapy evaluations, including back-dating
evaluations to allow for more possible billing time (and when
the therapist refused to do so, bringing in another who
would); billing group therapy as the more expensive
individual therapy; encouraging therapists to bill for
otherwise non-reimbursable non-skilled services; billing for more
therapy than was actually provided; and billing for therapy
minutes during an evaluation session. Id. at 16-18.
third set of allegations centers around Defendant's
alleged policy of maximizing a patient's stay to the 100
days covered by Medicare Part A-even where not clinically
warranted -to maximize reimbursement. Id. at 18-19.
One therapist assistant alleges being ordered to provide
therapy for the full 100 days even where not warranted and
being asked “to be creative” to find ways to fill
those 100 days, e.g. finding non-skilled, non-therapy tasks
to fill the 100 days, despite Medicare regulations stating
that such routine non-skilled services are not reimbursable.
support those three sets of allegations, Relator conducted
various statistical and econometric analyses, focusing on
identifying excessive amounts of Ultra High Rehab at
Creative-owned facilities compared to other SNFs.
Id. at 19-96. Relator created 589 groupings (or
“bins”) of similar principal diagnosis codes,
using a fixed-effect linear regression model. Id. at
alleges its statistics reveal excessive use of Ultra High
Rehab across Creative facilities, rather than limited to a
few outlier facilities. Id. at 30. In its analysis,
Relator points to specific patients whose claims, Relator
argues, show that Creative billed for medically unreasonable
and unnecessary treatment. Id. at 32-39.
made attempts to rule out alternative hypotheses for the
excessive use of Ultra High Rehab. Id. at 45.
Relator's fixed-effect linear regression model, it
alleges, controls for possible explanations including
variations in patient health, patient characteristics, and
county demographics. Id. at 46-52. Relator used a
Comparative Interrupted Time Series (CITS) model to analyze
Creative's acquisition of new SNFs to determine whether
there was an increase in the amount of Ultra High Rehab
provided after Creative gained ownership and control, finding
a “significant jump” in the amount of Ultra High
Rehab for patients treated before and after Creative's
acquisition of the SNF. Id. at 52-66. Relator also
alleges its statistics reveal there is not something unique
about the diagnoses of Creative patients that explains the
excessive use of treatment, as the analysis compares the use
of therapy within the same diagnostic codes. Id. at
66-67. For example, for patients diagnosed with hip
fractures, Creative provides an average of 34.82 days of
Ultra High Rehab while other facilities provide an average of
21.57 days. Id. at 66. Finally, Relator alleges its
analysis rules out the argument that the statistical
difference is caused by either the attending or referring
physicians. Id. at 68-77.
further alleges that its statistics reveal Creative's
large proportion of patients receiving exactly 100 days of
Ultra High Rehab demonstrates Creative's attempts to
maximize Medicare reimbursements. Id. at 39.
Specifically, Relator alleges that Creative has more than 7.8
times as many patients receiving exactly 100 days of Ultra
High Rehab as compared to other SNF facilities and that the
probability of this difference being due to random chance is
less than 1 in 100 million. Id. at 40. And Relator
alleges that patients within principal diagnosis codes still
receive a significantly higher average length of stay
compared to other patients with the same diagnoses at other
SNFs, ruling out the possibility that Creative simply has
sicker patients. Id. at 78- 85. Relator also
compared the average length of stay at Creative and
non-Creative SNFs for the same doctor, finding the average
length of stay longer for Creative patients, and thus-Relator
argues-ruling out the possibility that Creative doctors'
particular preferences caused the lengthier stays.
Id. at 89-92.
also alleges that Defendant conspired with Century, Reliant,
and its facilities to defraud the federal government in
violation of 31 U.S.C. § 3729(a)(1)(C)-by knowingly and
systematically falsifying claims allowed or paid by the
government. Id. at 97. Finally, Relator alleges that
Defendant violated § 3729(a)(1)(G) by concealing
Medicare overpayments. Id. at 96-97. Relator filed
this action on December 11, 2017. Docket no. 1. On December
12, 2018, the United States indicated its decision not to
intervene. Docket no. 11.
raises three primary arguments in support of its motion to
dismiss. First, Defendant argues Relator's claims fail
under Rules 12(b)(6) and 9(b). Second, Defendant argues the
action is barred by the public disclosure bar. Finally,
Defendant argues that Relator's conspiracy and
“reverse FCA” claims fail as derivative of
inadequate FCA allegations and because Relator does not
allege the required specific intent necessary for conspiracy.
Pleading an FCA Violation under Rules 12(b)(6) and
argues that Relator's First Amended Complaint fails under
Rules 12(b)(6) and 9(b) in that it does not adequately plead
that Defendant knowingly submitted false claims or adequately
plead the “who, what, when, where, and how of the
alleged fraud.” Docket no. 54 at 3.
responds that it alleges sufficient details of the scheme
“paired with reliable indicia” in the form of
statistical analysis, such that the evidence leads to a
strong inference that Defendant submitted false claims.
survive a 12(b)(6) motion to dismiss, “a complaint must
contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A claim for relief must contain: (1)
“a short and plain statement of the grounds for the
court's jurisdiction”; (2) “a short and plain
statement of the claim showing that the pleader is entitled
to the relief”; and (3) “a demand for the relief
sought.” Fed.R.Civ.P. 8(a). In considering a motion to
dismiss under Rule 12(b)(6), all factual allegations from the
complaint should be taken as true, and the facts are to be
construed favorably to the plaintiff. Fernandez-Montes v.
Allied Pilots Assoc., 987 F.2d 278, 284 (5th Cir. 1993).
To survive a 12(b)(6) motion, a complaint must contain
“more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.” Twombly, 550 U.S. at 555.
addition, “a complaint filed under the False Claims Act
must meet the heightened pleading standard of Rule
9(b).” United States ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 185-86 (5th Cir. 2009)
(“Rule 9(b) supplements but does not supplant Rule
8(a)'s notice pleading.”). That rule provides that
“[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or
mistake, ” although the rule permits “[m]alice,
intent, knowledge, and other conditions of a person's
mind [to] be alleged generally.” Fed.R.Civ.P. 9(b). The
rule acts “as a gatekeeper to discovery, a tool to weed
out meritless fraud claims sooner rather than later.”
Grubbs, 565 F.3d at 185. The Fifth Circuit has given
the rule a “flexible” interpretation in the FCA
context to help “achieve [the FCA's] remedial
purpose.” Id. at 190. A complaint can survive
by either alleging “the details of an actually
submitted false claim” or by “alleging particular
details of a scheme to submit false claims paired with
reliable indicia that lead to a strong inference that claims
were actually submitted.” Id.
authorizes actions by the United States or by a relator in a
qui tam capacity on behalf of the government. 31
U.S.C. § 3730(a)-(b). Through those actions, the FCA
imposes civil penalties and treble damages on any person who
“knowingly presents, or causes to be presented, a false
or fraudulent claim for payment or approval” to the
federal government. Id. § 3729(a)(1)(A)
(“presentment claim”). It imposes the same
liability on any person who “knowingly makes, uses, or
causes to be made or used, a false record or statement
material to a false or fraudulent claim.” Id.
§ 3729(a)(1)(B) (“false statement claim”).
The FCA also imposes liability on persons who conspire to
commit a violation of either (A) or (B). Id. §
Fifth Circuit has summarized the FCA inquiry as: “(1)
whether there was a false statement or fraudulent course of
conduct; (2) made or carried out with the requisite scienter;
(3) that was material; and (4) that caused the government to
pay out money or to forfeit moneys due (i.e. that involved a
claim).” United States ex rel. Harman v. Trinity
Inds. Inc., 872 F.3d 645, 653-54 (5th Cir. 2017)
(quoting United States ex rel. Longhi v. Lithium Power
Tech., Inc., 575 F.3d 458, 467 (5th Cir. 2009)). The
Court will consider each element in turn.
False statement or fraudulent course of conduct
is false when it is “grounded in fraud which might
result in financial loss to the government.”
Peterson v. Weinberger, 508 F.2d 45, 52 (5th Cir.
1975). Given the remedial nature of the FCA and the lack of a
reliance and damages requirement, the Fifth Circuit has
relaxed Rule 9(b) when considering such a claim.
Grubbs, 565 F.3d at 189. In pleading the falsity or
fraudulence of a claim, a plaintiff need not provide the
“exact dollar amounts, billing numbers, or dates,
” as such a requirement would be “one small step
shy of requiring production of actual documentation with the
complaint…, significantly more than any federal
pleading rule contemplated.” Id. at 190. The
rule requires only simple, concise, and direct circumstances
constituting fraud which, when taken as true, must make
relief plausible, not merely conceivable. Id. at
Relator alleges particular details of a scheme-through its
witness interviews- which, when paired with the
“reliable indicia” of its expansive statistical
analysis, lead to a “strong inference” that false
claims were actually submitted. Id. at 190. Though
some of Relator's examples are consistent with
non-fraudulent business practices and, as such, do not pass
the plausibility test,  Relator provides other examples which,
if true (which the Court must assume at this stage), make
relief plausible. By way of example, a physical therapist at
Fairfield “recalled being instructed to allot 15
minutes for evaluation, even though it required 45 minutes,
with the rest of the evaluation session charged at therapy
rates.” Docket no. 17 at 17. Or the therapist at
Brownwood II who was asked to fabricate evaluations to
justify the past provision of therapy, being required to