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United States ex rel. Holloway v. Heartland Hospice, Inc.

United States District Court, N.D. Ohio, Western Division

June 26, 2019

United States of America, ex rel. Kathi Holloway, Plaintiff
Heartland Hospice, Inc., et al., Defendants


          James G. Carr Sr. U.S. District Judge.

         This is a False Claims Act case.

         Plaintiff-relator Kathi Holloway alleges that defendant HCR ManorCare, Inc. and its subsidiaries HCR Home Health Care & Hospice, LLC, Heartland Hospice Services, LLC, and ManorCare Health Services, LLC (collectively, Heartland) violated the False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq., by billing the government for hospice services it provided patients not qualified for such care and avoiding its obligation to repay funds so obtained.

         Holloway worked for Heartland as a Regional Hospice Consultant. She claims that, during her employment, she came to believe that Heartland engaged in practices that induced employees to certify as hospice-eligible patients who were not terminally ill (and thus unqualified for hospice care) and billed Medicare and Medicaid for their treatment. Holloway further alleges that Heartland ignored its responsibility to refund the government amounts it overpaid for such improperly billed treatment.

         Jurisdiction is proper pursuant to 28 U.S.C. § 1331.

         Pending is Heartland's motion to dismiss (Doc. 82).[1] For the reasons that follow, I grant the motion.[2]


         Heartland provides hospice services to its patients, many of whom are enrolled in Medicare or Medicaid.

         I. Statutory and Regulatory Framework

         Medicare and Medicaid programs reimburse hospice providers for treatment they provide “terminally ill” patients.[3] 42 C.F.R. § 418.20(b). A patient is terminally ill if his or her prognosis “is for a life expectancy of 6 months or less if the terminal illness runs its normal course.” Id. at § 418.22(b)(1). If a patient is not terminally ill, he or she is ineligible for hospice care. See Id. at § 418.20(b).

         For each treatment period, the hospice provider must obtain, as a condition precedent to payment, a written certification from the patient's attending physician (and, for an initial ninety-day period, the hospice's medical director) that the patient is terminally ill. Id. at § 418.22; 42 U.S.C. § 1395f(7). In turn, hospice providers submit CMS Form UB-04 to the government as a claim for payment. (Doc. 69 at 10, ¶ 20). The form acknowledges that “[p]hysician's certifications and re-certifications . . . are on file.”[4]

         II. Holloway's Employment With Heartland

         In November, 2009, Heartland hired Holloway as a Regional Hospice Consultant (RHC). Her job was to evaluate Heartland providers' entitlement to payment for hospice services. To make her evaluations, Holloway reviewed patients' clinical and insurance documentation, including their eligibility for Medicare or Medicaid. (Doc. 69 at 12, ¶ 25). Some patients' files were designated as “Bill Hold Chart Audits, ” meaning Heartland held “claims to Medicare for payment . . . pending . . . Holloway's review.” (Id. (internal quotations omitted)).

         RHCs, including Holloway, prepared for executives' review “workbooks” discussing patients' “clinical records and billing histories” and identifying for discharge patients who the RHCs concluded were not terminally ill. (Doc. 69 at 14, ¶ 28). “Holloway routinely followed up” on her recommendations and often found that the patients she identified in her workbooks “had not been discharged but remained on hospice and continued to be the subject of claims to the Medicare Part A and Medicaid systems.” (Id. at 34, ¶ 72).

         In October, 2010, Holloway's employment at Heartland ended. (Doc. 69 at 12, ¶ 25).

         III. Holloway's Qui Tam Action

         Holloway originally filed her qui tam complaint alleging FCA violations on August 24, 2010. (Doc. 1). After a seven and one-half-year investigation, the government filed its notice of election to decline intervention on March 1, 2018. (Doc. 55). In response to an August 6, 2018 motion to dismiss (Doc. 68), Holloway sought, and I granted, leave to amend her complaint (Doc. 70). The amended complaint (Doc. 69) is the subject of the pending motion (Doc. 82).

         Holloway's amended complaint asserts that Heartland 1) presented false or fraudulent claims for payment to the government (the “presentment” claim); 2) prepared false records in support of such claims for payment (the “false records” claim); and 3) retained payments from the government to which Heartland was not entitled (the “reverse” false claim). (See Doc. 69 at 45-49).

         In support of these claims, Holloway alleges corporate-wide practices aimed at inflating Heartland's hospice census:

• A reward/punishment system, whereby Heartland 1) promised certain employee groups bonuses if hospice agencies met targets for new enrollments and achieved census and billing benchmarks (Doc. 69 at 15-16, ¶ 31); 2) promised additional vacation hours to the agency with the largest census increase in its region (id. at 17-18, ¶ 35); and 3) threatened to terminate certain Toledo-based employees if facilities failed to meet census requirements (id. at 18, ¶ 36).
Employee training that discouraged “clinical personnel charged with preparing [patient] documentation” from using “ship sinkers, ” that is, language depicting patient improvement, and instead encouraged “negative charting, ” or “focus[ing] . . . on purported clinical indicia of medical decline[]” as would support hospice recertification. (Doc. 69 at 22-23, ¶¶ 42-44).
• Authorizing non-physician employees to override physician recommendations to discharge patients from hospice care where physicians' notes indicated the patient no longer needed such care. (Doc. 69 at 27-28, ¶¶ 56-57).

         Holloway submits that these practices caused employees to produce “distorted records, ” on which medical directors and physicians relied when “deciding whether or not to certify or recertify” patients as hospice-eligible. (Doc. 69 at 20, ¶¶ 39-40). In turn, she asserts, Heartland submitted claims for payment that falsely represented the patients' eligibility. (Id. at 20, ¶ 41).

         Holloway also alleges that Heartland retained funds the government paid for treating unqualified patients by:

• Instructing employees not to review discharged patients' records beyond the most recent billing period to determine whether the agency should have discharged such patients sooner (and, thereby, ceased billing for their treatment sooner) (Doc. 69 at 35, ¶ 76); and
• Refusing to respond to Medicare auditors' requests for additional documentation when “Heartland knew (or realized upon inquiry)” that subject patients “were not eligible for hospice services, ” causing the auditors to deny one month's worth of claims but take no further action (Doc.69 at 37, ¶ 79).

         Standard of Review

         To survive a motion to dismiss under Rule 12(b)(6), the complaint “must contain sufficient factual matter, accepted as true, to state a claim that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. At this stage, I must “draw all reasonable inferences in favor of [plaintiffs].” Courtright v. City of Battle Creek, 839 F.3d 513, 520 (6th Cir. 2016).

         “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “[A] complaint alleging FCA violations must allege the underlying facts” in accordance with Rule 9(b). United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 641 (6th Cir. 2003) (hereinafter Bledsoe I) (citing Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 562-63 (6th Cir. 2003)). This means that a qui tam plaintiff must “state with particularity the circumstances (i.e., the time, place, and substance) surrounding the fraudulent activity.” Id. at 642.


The FCA, 31 U.S.C. § 3729, imposes civil liability on a defendant that:
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [or] . . .
(F) knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

         A private individual, known as a relator, may bring a qui tam suit for alleged FCA violations on the government's behalf. United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 329 (6th Cir. 1998) (citing 31 U.S.C. § 3730(b)(1)). On receiving a qui tam complaint, the government may choose whether to participate in the case. 31 U.S.C. § 3730(a)(2). If the government declines to intervene, the relator “shall have the right to conduct the action.” Id. at § 3730(c)(3).

         Heartland argues that the FCA's public disclosure rule bars Holloway's complaint, and, alternatively, that Holloway fails to plead her claims with particularity.

         I. The Public Disclosure Bar

         A qui tam suit cannot proceed if “the basis of the lawsuit” has been publicly disclosed unless the relator “establish[es] [her]self as the original source of the information.” United States ex rel. Antoon v. Cleveland Clinic Found., 788 F.3d 605, 614 (6th Cir. 2015). This so-called “public-disclosure bar ‘provides a broad sweep' and is ‘wide-reaching.'” United States ex rel. Armes v. Garman, 719 Fed. App'x 459, 462-63 (quoting Shindler Elevator Corp. v. U.S. ex rel. Kirk, 563 U.S. 401, 408 (2011)).

         A. Amendments to the Public Disclosure Bar

         Congress amended the public disclosure bar in March, 2010. Id. Because Holloway's complaint concerns conduct beginning in 2004 and ending in 2018 (see Doc. 69 at 11, ¶ 24), “the amended complaint is subject to both versions of the public-disclosure bar.” United States ex rel. Ibanez v. Bristol-Meyers Squibb Co., 874 F.3d 905, 918 (6th Cir. 2017) (citing Antoon, supra, 788 F.3d at 614-15). “But . . . any difference in statutory language is irrelevant if the outcome would be the same under either version.” Id.

         Under the pre-amendment version of the public disclosure rule:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information. 31 U.S.C. § 3730(e)(4)(A) (effective through March 22, 2010).

         The post-amendment version of the statute is non-jurisdictional:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed-
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

31 U.S.C. § 3730(4)(A) (March 23, 2010 amendment); see also United States ex rel. Harper v. Muskingum Watershed Conservancy Dist., 842 F.3d 430, 435 (6th Cir. 2016) (“[T]he public disclosure bar is no longer jurisdictional and instead may be pleaded as an affirmative defense.”) (internal quotations and citation omitted).

         The Sixth Circuit has employed the same analytical framework to both versions of the statute, compare United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 511 (6th Cir. 2009) with Armes, supra, 719 Fed. App'x at 463. Accordingly, I likewise apply that framework here: “To determine whether [the public disclosure] bar applies, a court must consider ‘first whether there has been any public disclosure of fraud, and second whether the allegations in the instant case are ‘based upon' the previously disclosed fraud.'” Poteet, supra, 552 F.3d at 511 (quoting United States ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386, 389 (6th Cir. 2005)) (additional internal citations and quotations omitted). “If the answer is ‘no' to any of these questions, the inquiry ends, and the qui tam action may proceed; however, if the answer to each of the above questions is ‘yes,' then [the court] must determine whether the relator nonetheless qualifies as an ‘original source[.]'” Walburn v. Lockheed Martin Corp., 431 F.3d 966, 974 (6th Cir. 2005) (citing Jones, supra, 160 F.3d at 330).

         C. Whether Holloway's Claims Were Publicly Disclosed

         “For a relator's qui tam action to be barred by a prior ‘public disclosure' of the underlying fraud, the disclosure must have (1) been public, and (2) revealed the same kind of fraudulent activity against the government as alleged by the relator.” Poteet, supra, 552 F.3d at 511 (citing 31 U.S.C. ยง ...

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