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United States ex rel. Integra Med Analytics, LLC v. Creative Solutions In Healthcare, Inc.

United States District Court, W.D. Texas, San Antonio Division

November 13, 2019




         On this 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.


         Integra 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[1] 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”)[2], 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.

         Medicare 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.

         Relator 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.

         Second, 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[3]; billing for more therapy than was actually provided; and billing for therapy minutes during an evaluation session.[4] Id. at 16-18.

         Relator's 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. Id.

         To 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 21-22.

         Relator 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.

         Relator 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.

         Relator 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.

         Relator 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.


         Defendant 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.

         I. Pleading an FCA Violation under Rules 12(b)(6) and 9(b)

         Defendant 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.

         Relator 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.

         a. Legal Standard

         To 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.

         In 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.

         b. Analysis

         The FCA 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. § 3729(a)(1)(C).

         The 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.

         i. False statement or fraudulent course of conduct

         A claim 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 185-86.

         Here, 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, [5] 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 ...

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