McIver et al v. ACT for Health, Inc. et al

Filing 70

ORDER denying 54 Motion to Dismiss by Judge R. Brooke Jackson on 1/6/21.(jdyne, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 18-cv-00792-RBJ
UNITED STATES OF AMERICA, ex rel.
KATHRYN MCIVER et al,
Plaintiffs,
v.
ACT FOR HEALTH, INC, d/b/a Professional Case Management and
KEVIN VOLLMER,
Defendants.

ORDER on MOTION TO DISMISS/JUDGMENT ON THE PLEADINGS

Defendants move to dismiss and for judgment on the pleadings. For the reasons set forth
herein, the motion is denied.
BACKGROUND
ACT for Health, Inc., doing business as Professional Case Management (“PCM”), is a
Colorado-based company that provides home health care services for current and former Energy
Department employees who are eligible for benefits under the Energy Employees Occupational
Illness Compensation Program Act (“EEOICPA”), 42 U.S.C. § 7384. 1 Kevin Vollmer is the sole
owner of PCM. The beneficiaries of the services are workers who have become ill due to
exposure to radiation and other harmful substances while on the job, such as at federal weapons
sites. The services are provided by registered nurses, licensed practical nurses, and various other

1

The EEOICPA is administered by the U.S. Department of Labor’s Office of Workers’ Compensation
Programs (“OWCP”).

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categories of medical and non-medical aids and assistants. PCM bills the United States for the
services it provides.
Plaintiffs Kathryn McIver and Cassandra Ohnstad filed this lawsuit against PCM on April
4, 2018 under the qui tam provisions of the False Claim Act. At that time Ms. McIver was
PCM’s Senior Director of Clinical Operations, but she no longer works for PCM. Ms. Ohnstad
formerly was PCM’s Vice President of Human Services. The case remained largely dormant
while the United States considered whether to intervene. It declined to do so on September 18,
2019. ECF No. 18.
Although it is a federal program, several of the states in which PCM operates require that
providers of home health care services (and professionals who physically provide the services
such as nurses) must be licensed. The EEOICPA and regulations thereunder require that
providers comply with the state requirements. However, the date when this was first required is
disputed, and that is a central issue in this case. PCM contends that this was first required on
April 9, 2019, the effective date of a regulation adopted on February 8, 2019 that expressly
requires compliance with state requirements, 20 C.F.R. 30.400(c), and that it has complied with
this regulation. Plaintiffs claim that the regulation only clarified the requirement that providers
comply with both federal and state licensure requirements which had existed since 2006, and that
PCM had knowingly and intentionally violated the requirement for many years.
Second Amended Complaint
In their Second Amended Complaint, which is the operative complaint in this case,
plaintiffs cite OWCP’s Notice of Proposed Rulemaking which started the process that resulted in
the regulation that became effective on April 9, 2019. The Notice stated, “[T]he Department
proposes to add new language in this paragraph to explain the current qualifications that must be
met before hospitals and providers of medical services or supplies may furnish appropriate
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services, drugs, supplies and appliances to covered employees.” ECF No. 33 at ⁋43 (quoting 80
Fed. Reg. 72296, 72299 (Nov. 18, 2015)).
As evidence of PCM’s knowledge of the necessity that it comply with state licensure
requirements before April 9, 2019, plaintiffs point to a lawsuit filed by PCM in Kentucky, ACT
for Health v. United Energy Workers Healthcare Corp., No. 5:15-cv-195 (D. Ken.). See ECF
No. 33 at ⁋⁋103-08. In that case, filed August 21, 2015, PCM contended that a competitor
engaged in unfair competition by, among other things, operating in violation of Kentucky’s laws
and regulations regarding the licensure of health care service providers. 2
Plaintiffs also point to another lawsuit pending in this district, ACT for Health v. United
States Department of Labor, No. 19-cv-00827-DDD, in which PCM challenges the process that
resulted in the April 9, 2019 rule. ECF No. 33 at ⁋46. In a motion to dismiss that case, which
has been briefed but not yet decided, the defendants note that when the final rule was published,
“OWCP explained that ‘this rule is largely an update to the existing regulations to reflect the
program’s current processes, and incorporates the policy and procedural changes that have been
implemented since the existing regulations were issued in 2006, rather than imposing any new
regulatory burdens.’” ECF No 46 in No. 19-cv-00827-DDD at 3 (quoting 84 Fed. Reg. 3026
(Feb. 8, 2019)). The government’s motion to dismiss in that case also cites PCM’s position in its
Kentucky case. Id. at 14, n.2.
Plaintiffs allege that PCM has concealed its failure to comply with state licensure
requirements by using provider identifications from three states in which PCM is actually
licensed (Colorado, Tennessee, and New Mexico) when it bills for services rendered in other
states. ECF No. 33 at ⁋⁋112-15. As an example of what they claim was fraudulent conduct,

2

The case was dismissed for failure to state a claim upon which relief could be granted, 2018 WL
2090819 (D. Ken. May 3, 2018), aff’d, ACT for Health v. United Energy Workers Healthcare Corp., 784
F. App’x 295 (6th Cir. 2019) (unpublished).

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plaintiffs allege that PCM operated in Texas without a license for five years, avoiding Texas’s
oversight and licensing fees and even altering patient and employee records to create the
appearance that services were begun after PCM applied for a provisional license in 2016. Id. at
⁋⁋116-43. Plaintiffs allege that similarly practices took place in Washington, New Mexico,
Nevada, Georgia and South Carolina. Id. at ⁋⁋144-46.
Plaintiffs further allege that “states develop minimum standards of care and requirements
for healthcare worker licensing, worker qualifications, training, record retention, and mandatory
reporting of abuse, neglect and exploitation.” Id. at ⁋151. According to plaintiffs, PCM’s
practice of operating without a state license deprives patients of state oversight and puts them at
risk. Id. at ⁋155. They also allege that “PCM hires and assigns work to home healthcare
workers, who are not properly registered or licensed – and in some cases qualified to be
licensed/registered – further putting patients at risk of exploitation, abuse, injury, or death.” Id.
at ⁋158. They cite as examples an incident of alleged physical abuse of a patient in Texas in
March 2017 before PCM was licensed there and an incident of a theft of a purse and an iPad
from another patient in Texas that PCM covered up in order to avoid disclosing that PCM was
not licensed in Texas. Id. at 162-166.
Ms. McIver claims to be aware of other incidents of patient exploitation that have gone
unreported in states where PCM was operating without a license. Id. at ⁋167. She claims that
she made anonymous complaints because, effective in approximately the fall of 2017, PCM
adopted a policy that only two individuals, Greg Austin (PCM’s President) or Brad Drevno
(Chief Operating Officer), could report incidents of abuse or neglect to licensing authorities. Id.
at 169.
Based on these allegations plaintiffs assert two claims for violation of the False Claims
Act: (1) liability for false claims, 31 U.S.C. § 3729(a)(1)(A); and (2) liability for false statements
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and records, 31 U.S.C. § 3729(a)(1)(B). They pray for the following relief: (1) an order
requiring PCM to cease and desist violation of the False Claims Act; (2) three times the
(unspecified) damages that the United States has sustained because of PCM’s actions; (3) civil
penalties between $5,500 and $11,000 for each violation; (4) an award to the plaintiffs of
between 15% and 30% of the proceeds or settlement of any related administrative, criminal or
civil action, including the monetary value of any equitable relief, fines, restitution, or
disgorgement to the United States or third parties; and (5) costs and attorney’s fees. Id. at 26.
Motion to Dismiss and for Judgment on the Pleadings
On October 2, 2020 defendant Vollmer moved to dismiss the Second Amended
Complaint under Rule 12(b)(6) for failure to state a claim on which relief could be granted. ECF
No. 54. In the same motion, but because it had answered the Second Amended Complaint,
defendant PCM moved for judgment on the pleadings under Rule 12(c). Id. Defendants make
three basic arguments: (1) compliance with state licensing requirements was not required until
April 4, 2019; (2) plaintiffs did not plausibly allege any false claim; and (3) plaintiffs did not
plausibly allege that state licensure was material to the government’s decision to reimburse
PCM’s claims.
Plaintiffs have filed their response, ECF No. 62. Defendants have filed their reply, ECF
No. 63. Oral argument was held on December 2, 2020. 3 On December 18, 2020 plaintiffs filed
a notice of supplemental authority. ECF No. 66.
STANDARD OF REVIEW
To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain “enough facts
to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider,
493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

3

A transcript of the argument has been filed at ECF No. 68.

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570 (2007)). A plausible claim is a claim that “allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). While the Court must accept the well-pled allegations of the complaint as true and
construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210
(10th Cir. 2002), conclusory allegations are not entitled to be presumed true. Iqbal, 556 U.S. at
681. However, so long as the plaintiff offers sufficient factual allegations such that the right to
relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g.,
Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). A motion
for judgment on the pleadings under Rule 12(c) is treated as a motion to dismiss under Rule
12(b)(6). Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir.
2000).
ANALYSIS AND CONCUSIONS
A. Was State Licensure Required Before April 4, 2019?
The Court answers this question “yes.” PCM argues that it was not until the regulation
now found at 20 C.F.R. § 30.400(c) became effective on April 4, 2019 that providers of services
under the EEOICPA were required to comply with licensure requirements in states in which they
operate. I disagree.
Before April 4, 2019 the regulations did not expressly require state licensure. However,
in addressing the “implied false certification” theory of False Claim Act liability, which I will
discuss in more detail later in this order, the Supreme Court held that “[d]efendants can be liable
for violating requirements even if they were not expressly designated as conditions of payment.”
Universal Health Services, Inc. ex rel. Escobar v. United States, 136 S.Ct. 1989, 1996 (2016).
The OWCA indicated at the beginning of the rulemaking process in 2015 that the new language
was intended to “explain the current qualifications that must be met before hospitals and
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providers of medical services or supplies may furnish appropriate services, drugs, supplies and
appliances to covered employees.” 80 Fed. Reg. 72296, 72299 (Nov. 18, 2015) (emphasis
added). Consistently, OWCP reiterated at the conclusion of the rulemaking process that “this
rule is largely an update to the existing regulations to reflect the program’s current processes,
and incorporates the policy and procedural changes that have been implemented since the
existing regulations were issued in 2006, rather than imposing any new regulatory burdens.” 84
Fed. Reg. 3026 (Feb. 8, 2019) (emphasis added).
Notably, as plaintiffs in this case and the OWCA in ACT for Health v. United States
Department of Labor, No. 19-cv-0027-DDD both have indicted, in PCM’s Kentucky lawsuit in
2015 it challenged a competitor’s failure to comply with Kentucky licensure requirements,
arguing that the failure supported a finding of unfair competition. 4 That was an
acknowledgement that state licensure was required well before the current clarifying regulation
became effective. Although it is a matter of disputed fact as to whether PCM knew of but
attempted to evade licensure requirements in Texas and several other states prior to the
enactment of the new regulation, compare ECF No. 33 at ⁋⁋143-46 with ECF No. 39 (PCM’s
Answer) at ⁋⁋143-46, I do not consider that dispute to be material to the resolution of the legal
issue.
In short, the Court concludes as a matter of law that PCM was required to comply with
state licensing requirement as a condition of seeking reimbursement for home healthcare services

4

In No. 19-cv-827-DDD the government referred to a PCM brief in the Kentucky case: “Indeed, PCM
has filed multiple lawsuits against its competitors alleging that PCM is properly credentialed to offer
services to EEOICPA beneficiaries, while its competitors are not. See, e.g., Act for Health v. United
Energy Workers Healthcare Corp., No. 18-5900 (6th Cir.), Appellants Opening Brief, 2018 WL 5367461,
at *3 (6th Cir. filed Oct. 26, 2018) (PCM and defendants “provide home health services under a federally
funded program [EEOICPA] for eligible beneficiaries who formerly worked at federal nuclear weapons
facilities. PCM and the [defendants] must be authorized by Kentucky law to provide these home health
services. PCM is properly licensed; the [defendants] are not.”). Id. at 14, n.2.

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from the OWCA under the EEOICPA at least from 2015 forward, and probably as far back as
2006.
B. Have Plaintiffs Plausibly Alleged a False Claim?
Again, the Court’s answer is “yes.” Plaintiffs allege that every claim PCM submitted
over a period of several years for services rendered in states that had state licensure requirements
implicitly represented that PCM was in compliance with federal and state licensing requirements.
See Escobar, 136 S.Ct. at 1995-96 (when a provider submits a claim for payment, it impliedly
certifies compliance with all conditions of payment). PCM was not always in compliance.
Indeed, during oral argument defense counsel admitted that PCM was not licensed in, and
therefore was not in compliance with the requirements of, some of the states in which it was
operating; and that in seeking reimbursement for its services from the federal government, PCM
did not disclose its noncompliance. Whether one views the submission of bills for
reimbursement without making that disclosure as a misrepresentation or as an omission,
plaintiffs have plausibly alleged that PCM made false claims.
C. Have Plaintiffs Plausibly Alleged That State Licensure was Material to the
Government’s Decision to Reimburse PCM’s Claims?
Here, my answer again is “yes,” though it is a closer question.
In Escobar the Court addressed the “implied false certification” theory of False Claim
Act liability:
According to this theory, when a defendant submits a claim, it impliedly certifies
compliance with all conditions of payment. But if that claim fails to disclose the
defendant’s violation of a material statutory, regulatory, or contractual
requirement, so the theory goes, the defendant has made a misrepresentation that
renders the claim “false or fraudulent” under [31 U.S.C.] § 3729(a)(1)(A).
136 S.Ct. at 1995 (emphasis added).

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The Court held that this theory can be a basis for liability but only if the provider knew
(or should have known) when it submitted its request for payment that its noncompliance with
the regulatory requirement would be “material to the Government’s payment decision.” Id. at
1996, 2001. “Material” is defined in the statute to mean “having a natural tendency to influence,
or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. §
3729(b)(4). “Natural tendency to influence” is an objective, not a subjective, standard.
Discussing the materiality requirement, the Court noted that “materiality look[s] to the
effect on the likely or actual behavior of the recipient of the alleged misrepresentation,” Id. at
2002 (internal quotation marks and citation omitted). A regulatory requirement is not material
merely because compliance is a condition for payment; or merely because the government could
have declined payment had it known of the noncompliance; or where the noncompliance was
“minor or insubstantial.” Id. at 2003. Furthermore, “False Claim Act plaintiffs must also plead
their claims with plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b)
by, for instance, pleading facts to support allegations of materiality.” Id. at 2004 n.6.
In United States ex rel. Janssen v. Lawrence Memorial Hospital, 949 F.3d 533 (10th Cir.
2020) the court identified three non-exclusive factors that district courts may consider in
evaluating materiality in a False Claims Act case:
(1) whether the Government consistently refuses to pay similar claims based on
noncompliance with the provision at issue, or whether the Government continues
to pay claims despite knowledge of the noncompliance; (2) whether the
noncompliance goes to the ‘very essence of the bargain’ or is only ‘minor or
insubstantial;’ and (3) whether the Government has expressly identified a
provision as a condition of payment.
Id. at 541.
Focusing on those factors, defendants contend that plaintiffs have not alleged that the
government has ever failed to pay a claim because of PCM’s failure to comply with state
licensure requirements, even after plaintiffs allegations were disclosed in this case. ECF No. 54
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at 2, 12. Relatedly, plaintiffs have not alleged that PCM’s state licensure “goes to the very
essence of the bargain, nor that the government has identified the requirement as a condition of
payment. Id. at 13. Rather, defendants contend that plaintiffs have offered only a conclusory
allegation of materiality in paragraph 115 of the Second Amended Complaint: “These omissions
and false statements are material to the Department’s decision to pay PCM for services.” ECF
No. 33 at 17, ⁋115. 5
Plaintiffs dispute that their only allegation of materiality is the conclusory allegation in
paragraph 115 (and paragraph 176) of the Second Amended Complaint. They point to their
allegations concerning the value of state oversight and periodic auditing of licensed facilities;
training requirements for the individuals providing the home healthcare; and specific examples
of incidents adversely affecting patients that they claim were covered up by PCM but might have
been caught had state licensing and regulation been in place. See ECF No. 33 at ⁋⁋150-171.
Plaintiffs add, ‘“materiality does not require a plaintiff to show conclusively that, were it
aware of the falsity, the government would not have paid. Rather, it requires only a showing that
the government may not have paid.’” ECF No. 62 at 11-12 (quoting United States ex rel.
Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1170 (10th Cir. 2010) (emphasis in
original)). Lemmon predated Escobar. But in Janssen, which post-dated Escobar, the court
allowed that “[m]ateriality is a mixed question of law and fact that can be decided as a matter of
law if reasonable minds could not differ on the question.” 949 F.3d at 539.
The government presumably did not know that PCM was submitting claims for years
without being in compliance with state licensure requirements. If, as defendants have suggested,

5 Plaintiffs similarly alleged in ⁋176 that “Defendants have violated and continue to violate the FCA by
knowingly submitting or causing the submission of claims for payment to the Department in violation of
material requirements of the EEOICPA – namely the requirement that PCM be licensed in and follow the
laws of each state where it provides home healthcare agency services which form the basis of claims for
payment.” ECF No. 33 at 24.

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the government has continued to pay claims after this case was filed and hasn’t questioned
PCM’s noncompliance, this might be indicative, even “very strong evidence,” of non-materiality.
See Escobar, 136 S.Ct. at 2003. But “very strong evidence” allows for the possibility of another
explanation. The continuing payment of PCM’s claims could, for example, reflect bureaucratic
neglect or indifference that a reasonable person would not permit. Also, in their supplemental
filing, ECF No. 66-1, plaintiffs provide the Court with a copy of the government’s “Statement of
Interest” recently filed in United States ex rel. Gardner v. Vanda Pharmaceuticals, Inc., No. 17cv-00464 (APM) (D.D.C. Dec. 1, 2020). In that qui tam case the government argued that it is
not necessary to demonstrate that government payors would have denied payment had they
known of the alleged falsity in order to plead materiality; rather, the Act’s materiality standard as
indicted in Escobar is “natural tendency to influence” a reasonable person, not “would have
refused to pay. Id. at 2-4.
What the defendants knew about the government’s view of materiality is within the
defendants’ knowledge and control, which impacts the plaintiffs’ ability to allege facts relevant
to the materiality issue. Cf. United States ex rel. Allison v. Southwest Orthopaedic Specialists,
No. CIV-16-0569-F, 2020 WL 5984814, at *7 (W.D. Okla. Oct. 8, 2020) (“[I]n determining
whether a plaintiff has satisfied Rule 9(b), courts may consider whether any pleading
deficiencies resulted from the plaintiff’s inability to obtain information in the defendant’s
exclusive control.”). Similarly, what the OWCA views as a material omission is within the
knowledge of the OWCA, although a clue might be found in this comment on the clarifying rule
adopted February 8, 2019: “The Department believes that a provider’s failure to inform OWCP
that it no longer satisfies all applicable federal and state licensure requirements is significant,
rather than a mere administrative mishap, and thus a valid basis for exclusion.” 84 Fed. Reg. at

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3040. Although the OWCP’s subjective view is not the ultimate issue, it is relevant to whether
PCM’s noncompliance would have a “natural tendency to influence” OWCP’s actions.
Finally, plaintiffs note that on remand in Escobar the First Circuit rejected defendants’
argument that failure to present evidence that the government had declined payment based on
noncompliance defeated materiality on a motion to dismiss. The court noted that more
information ‘“may come to light during discovery.”’ Id. at 14 (citing United States ex rel. v.
Universal Health Services, Inc. [Escobar II], 842 F.3d 103, 111-12 (1st Cir. 2016)).
Furthermore, the Janssen case was decided on a motion for summary judgment after the
plaintiffs had an opportunity to pursue discovery, not at the motion to dismiss stage.
We shall see what admissible evidence the plaintiffs might obtain in discovery. We will
also have to see what admissible evidence the plaintiffs develop to flesh out their claim for
damages. However, my initial impression that this case was not a good candidate for dismissal
at this stage, see ECF No. 56, has not been changed by the parties’ briefs and argument.
ORDER
Defendants’ motion to dismiss and for judgment on the pleadings, ECF No. 54, is
DENIED.
DATED this 6th day of January, 2021.
BY THE COURT:

___________________________________
R. Brooke Jackson
United States District Judge

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