Suppressed v. Suppressed
MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 6/20/2017. Mailed notice(gel, )
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 1 of 41 PageID #:1741
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
UNITED STATES OF AMERICA
and the STATE OF ILLINOIS ex rel.
Case No. 14-cv-1098
AMERICA AT HOME HEALTHCARE
AND NURSING SERVICES, LTD.,
d/b/a ANGELS AT HOME
HEALTHCARE, et al.
Judge John Robert Blakey
MEMORANDUM OPINION AND ORDER
Relator and Plaintiff Amy O’Donnell (“Relator”) filed this qui tam action
under the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., and its Illinois
counterpart, the Illinois False Claims Act (“IFCA”), 740 ILCS § 175/1, et seq., on
behalf of the United States and the State of Illinois.
Relator sues corporate
Defendant America at Home Healthcare and Nursing Services, Ltd. d/b/a Angels at
Home Healthcare (“AAH”), as well at its purported successor, Great Lakes
Acquisition Corp. d/b/a Great Lakes Caring (“Great Lakes”).
Relator also sues
former AAH employees Rachael Fitzpatrick (“Fitzpatrick”), Tami Shemanske
(“Shemanske”), and Kim Richards (“Richards”) (collectively, the “Individual
Relator alleges that, beginning in 2006, AAH and the Individual Defendants
routinely engaged in multiple fraudulent Medicare and Medicaid payment schemes,
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 2 of 41 PageID #:1742
which continued after Great Lakes purchased AAH in approximately March 2015.
Relator filed her Second Amended Complaint (“SAC”)  on February 13, 2017.
On March 14, 2017, Defendants AAH, Fitzpatrick, Shemanske, and Richards
(collectively, the “AAH Defendants”) filed a joint Motion to Dismiss Relator’s
complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). AAH
Defs.’ Mot. Dismiss . Great Lakes filed its own Motion to Dismiss the same day.
Great Lakes’ Mot. Dismiss . This Memorandum Opinion and Order addresses
both pending motions, which, for the reasons discussed below, are granted in part
and denied in part.
Home Health Services Under Medicare and Medicaid
The federal Medicare and Medicaid programs provide government health
insurance for elderly, disabled, and low-income Americans. SAC  ¶ 45. Both
programs, which are administered by the Centers for Medicare and Medicaid
Services (“CMS”), reimburse health care providers for certain “home health
services” rendered to eligible beneficiaries. Id. ¶¶ 46-47. “Home health services”
are defined as “items and services” provided on a “visiting basis” by a home health
agency (“HHA”) to individuals in their place of residence.
42 U.S.C. § 1395x.
Defendant AAH, and later Defendant Great Lakes, are two such HHAs. Potential
“home health services” include, inter alia, part-time or intermittent nursing care,
1 The below facts are derived primarily from Relator’s SAC  and, for the purposes of Defendants’
motions, accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This Court is not, however,
required to accept as true conclusory statements of law. Northern Trust Co. v. Peters, 69 F.3d 123,
129 (7th Cir. 1995).
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 3 of 41 PageID #:1743
physical or occupational therapy or speech-language pathology services, medical
social services, and part-time or intermittent services of a home health aide. SAC
 ¶ 47.
To qualify for home health services, a beneficiary must be: (1) confined to his
home or in an institution that is not a hospital, skilled nursing facility, or nursing
facility; (2) under the care of a physician who establishes and periodically reviews a
plan of care; and (3) in need of at least one of the aforementioned home health
services, as certified by a physician. Id. ¶ 50.
According to Relator, HHAs may not solicit patients for home health services.
Id. ¶ 48. Instead, HHAs must receive a physician referral. Id. Moreover, the
federal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, prohibits HHAs from
paying kickbacks, bribes, or rebates to doctors (or any other individual) in exchange
for home health service referrals.
Similarly, the Stark Law, 42 U.S.C.
§ 1395nn(a)(1), prohibits a physician from referring patients to entities with which
the physician maintains a financial relationship.
Upon receipt of a physician’s referral, an HHA conducts its own initial
medical assessment to determine a patient’s medical needs and eligibility for home
health services. SAC  ¶ 58. The HHA documents this initial assessment in an
Outcome and Assessment Information Set (“OASIS”) form and transmits that form
to the government. Id. ¶ 59. Federal regulations require that this data accurately
reflect the patient’s status at the time of the assessment. Id. ¶ 88.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 4 of 41 PageID #:1744
Medicare pays HHAs through what is known as the Prospective Payment
System (“PPS”). Id. ¶ 66. PPS payments are based upon sixty-day “episodes” of
care, and are designed to reimburse HHAs for all items and services provided
during that period. Id. ¶ 67. These episodic payments are further divided into an
estimated payment at the onset of the sixty-day period, followed by a residual
payment at the close of the episode. Id. ¶ 71.
Residual payments are occasionally subject to adjustments. One potential
downward adjustment—known as a “low-utilization payment adjustment” or
“LUPA”—occurs when a patient is visited by the HHA four or fewer times during
the 60-day episode of care. Id. ¶ 72. Upward adjustments, on the other hand, may
occur when an HHA reaches certain “therapy thresholds.” Id. ¶ 73. Under this
three-tiered step system, payments are progressively increased when a patient
receives six, fourteen, or twenty therapy visits during an episode of care. Id.
In addition to payment adjustments within each episode of care, payments
across multiple episodes may be adjusted to account for the patient’s changing
health condition, clinical characteristics, and service needs (known as the “case-mix
adjustment”). Id. ¶¶ 67-68. There are eighty established case-mix groups (known
as “Home Health Resource Groups,” or “HHRGs”), which are based upon score
values derived from the patient’s OASIS form. Id. ¶¶ 68-69.
After a patient’s sixty-day episode of care has ended, the patient may be recertified for an additional sixty-day period, provided that home health care
continues to meet coverage rules. Id. ¶ 74. To recertify, the HHA must determine
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 5 of 41 PageID #:1745
(through its own assessment) that the patient remains homebound and continues to
require a qualifying home health service. Id. ¶ 63. Based upon the HHAs findings,
a physician then re-certifies the qualifying conditions and plan of care for the
patient. Id. ¶ 62. As with the initial episode of care, the HHA must document its
recertification assessment in an OASIS form and transmit that form to the
government. Id. ¶¶ 64, 87.
The Present Litigation
Relator is a licensed registered nurse who was employed by AAH as a case
manager between January 2008 and June 2011. SAC  ¶ 10. Relator alleges
that beginning in 2006, Defendants fraudulently billed the government for millions
of dollars of Medicare and Medicaid services that violated the assorted regulations
discussed above. Id. ¶ 105. Specifically, Relator alleges that Defendants:
“Upcoded” or artificially inflated bills to the government. See
id. ¶¶ 195-218. Relator claims that Defendants, in an effort to
maximize revenues, instructed employees to inflate HHRG scores, as
well as increase patient visits to avoid LUPAs and exceed therapy
thresholds, without regard to medical necessity.
Billed for unnecessary and duplicative personal care services.
See id. ¶¶ 219-32. Relator claims that Defendants instructed home
health aides to provide personal care services to residents of assisted
living facilities even though such services were already provided by
Provided illegal kickbacks to AAH staff and physicians in
exchange for referrals and certifications. See id. ¶¶ 168-94.
Unlawfully solicited patients for home health services. See id.
Caused patients to be certified and/or recertified for home
health services that were not medically necessary. See id.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 6 of 41 PageID #:1746
¶¶ 108-45. Relator claims that Defendants instructed employees to:
falsify patient records, including OASIS forms, to make it appear that
home health services were necessary; generate home health plans of
care for ineligible patients; and draft false physician orders for
Relator claims that many of these instances involved the Individual Defendants,
and continued after Defendant Great Lakes purchased AAH in March 2015. Id. ¶ 4.
Relator originally filed suit in this Court on February 14, 2014. See Compl.
. The United States declined to intervene on April 18, 2016, see Notice , and
the record was unsealed on April 26, 2016. Order . Relator originally brought
four claims in her SAC:
Count I. Violations of the FCA for knowingly presenting, or causing
to be presented to the government, a false or fraudulent claim for
payment, see 31 U.S.C. § 3729(a)(1)(A), as well as knowingly making or
using a false record or statement that is material to a false or
fraudulent claim paid by the government, see id. § 3729(a)(1)(B); 2
Count II. Violations of the FCA for knowingly making, using, or
causing to be made or used, a false record or statement material to an
obligation to pay or transmit money or property to the Government, or
knowingly concealing or knowingly and improperly avoiding or
decreasing an obligation to pay or transmit money or property to the
Government, see id. § 3729(a)(1)(G);
These specific statutory citations correspond to the version of the FCA effective May 20, 2009,
following an amendment by the Fraud Enforcement and Recovery Act of 2009. See Pub. L. No. 11121, 123 Stat. 1617, 1621-25 (2009). Prior to the amendment, the relevant statutory citations would
have been 31 U.S.C. § 3729(a)(1) and 31 U.S.C. § 3729(a)(2), respectively. The amendment generally
applies only to conduct that occurred after May 20, 2009. See § 4(f), 123 Stat. at 1625. The
amendment to § 3729(a)(2) (now § 3729(a)(1)(B)), however, applies to all claims pending on and after
June 7, 2008. Id.; see also U.S. ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 855 (7th Cir. 2009)
(acknowledging the exception Congress made for applying § 3729(a)(1)(B) to claims brought before
May 20, 2009).
Here, Relator’s allegations span both versions of the statute, including § 3729(a)(2) (now
§ 3729(a)(1)(B)). See generally SAC  (alleging misconduct between approximately 2006 and at
least 2015). The precise language of the various statutory iterations at issue, however, does not alter
any portion of the Court’s substantive analysis. For ease of reading, therefore, the Court refers to
particular statutory provisions in their current designation.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 7 of 41 PageID #:1747
Count III. Conspiracy to violate the FCA, see id. § 3729(a)(1)(C); and
Count V. 3 Corresponding violations of the IFCA, see 740 ILCS
§§ 175/3(a)(1)(A)-(C), (G).
SAC  ¶¶ 240-96.
In her response to Defendants’ motions, Relator “does not contest Defendants’
challenges” to Counts II and III. Rel.’s Resp.  3 n. 2. Defendants’ motions to
dismiss are therefore granted as to those claims. The Court analyzes Defendants’
remaining challenges to Counts I and V below.
A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the
complaint for failure to state a claim upon which relief may be granted.” Gen. Elec.
Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). To
survive a motion to dismiss, a complaint must first provide a “short and plain
statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P.
8(a)(2), such that the defendant is given “fair notice” of what the claim is “and the
grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Second, the complaint must contain “sufficient factual matter” to “state a
claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 570). That is, the allegations must raise the
possibility of relief above the “speculative level.”
E.E.O.C. v. Concentra Health
Servs. Inc., 496 F.3d 773, 776 (7th Cir. 2007). The plausibility standard “is not akin
The SAC  does not list a Count IV.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 8 of 41 PageID #:1748
to a ‘probability requirement,’ but it asks for more than a sheer possibility that a
defendant has acted unlawfully.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir.
2013). The “amount of factual allegations required to state a plausible claim for
relief depends on the complexity of the legal theory alleged,” but “threadbare
recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Limestone Dev. Corp. v. Vill. Of Lemont, 520 F.3d 797,
803 (7th Cir. 2008). In evaluating the complaint, the Court draws all reasonable
inferences in favor of Relator. Iqbal, 556 U.S. at 678.
Additionally, the FCA “is an anti-fraud statute and claims under it are
subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of
Civil Procedure.” United States ex rel. Gross v. AIDS Research All.–Chi., 415 F.3d
601, 604 (7th Cir. 2005). Rule 9(b) mandates that in all averments of fraud or
mistake, the circumstances constituting fraud or mistake shall be stated “with
particularity.” In adding “flesh to the bones of the word particularity,” the Seventh
Circuit has “often incanted that a plaintiff ordinarily must describe the who, what,
when, where, and how of the fraud—the first paragraph of any newspaper story.”
Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d
436, 441-42 (7th Cir. 2011) (internal quotations omitted). In other words, if the
fraudulent scheme involves misrepresentation, the plaintiff must state “the identity
of the person who made the misrepresentation, the time, place and content of the
misrepresentation, and the method by which the misrepresentation was
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 9 of 41 PageID #:1749
communicated[.]” Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777
(7th Cir. 1994).
At the same time, the Seventh Circuit has warned against taking “an overly
rigid” view of this shorthand formulation. Pirelli, 631 F.3d at 442. The precise
details that must be included in a complaint—even one subject to Rule 9(b)—“may
vary on the facts of a given case.” Id. The operative issue is whether a plaintiff
uses some means “of injecting precision and some measure of substantiation into
their allegations of fraud.” United States ex rel. Presser v. Acacia Mental Health
Clinic, LLC, 836 F.3d 770, 776 (7th Cir. 2016) (internal quotations omitted).
Rule 9(b)’s heightened pleading requirements serve three main purposes: (1)
protecting a defendant’s reputation from harm; (2) minimizing “strike suits” and
“fishing expeditions”; and (3) providing notice of the claim to the adverse party. Id.
The importance of providing fair notice means that a plaintiff who pleads fraud
“must ‘reasonably notify the defendants of their purported role in the scheme.’” Id.
at 778 (quoting Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992));
see also Guarantee Co. of N. Am., USA v. Moecherville Water Dist., N .F.P., No. 06cv-6040, 2007 WL 2225834, at *2 (N.D. Ill. July 26, 2007) (“The purpose of the more
restrictive pleading standard is to ensure that the accused party is given adequate
notice of the specific activity that the plaintiff claims constituted the fraud, so that
the accused party may file an effective responsive pleading.”). To that end, “Rule
9(b) is of especial importance in a case involving multiple defendants. Where there
are allegations of a fraudulent scheme with more than one defendant, the complaint
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 10 of 41 PageID #:1750
should inform each defendant of the specific fraudulent acts that constitute the
basis of the action against the particular defendant.” Balabanos v. N. Am. Inv.
Grp., Ltd., 708 F. Supp. 1488, 1493 (N.D. Ill. 1988).
The FCA and IFCA
The FCA seeks “to protect the funds and property of the Government from
fraudulent claims,” Rainwater v. United States, 356 U.S. 590, 592 (1958), by
“imposing civil liability on an individual or entity that makes such a claim.” U.S. ex
rel. Heath v. Wisconsin Bell, Inc., 111 F. Supp. 3d 923, 926 (E.D. Wis. 2015); see also
31 U.S.C. § 3729(a)(1). Enacted in 1863, the FCA “was originally aimed principally
at stopping the massive frauds perpetrated by large contractors during the Civil
War.” United States v. Bornstein, 423 U.S. 303, 309 (1976). Since then, “Congress
has repeatedly amended the Act, but its focus remains on those who present or
directly induce the submission of false or fraudulent claims.” Universal Health
Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1996 (2016) (“Escobar
A “claim” includes “direct requests to the Government for payment,” as well
as “reimbursement requests made to the recipients of federal funds under federal
benefits programs” such as Medicare and Medicaid.
Id.; see also 31 U.S.C. §
3729(b)(2)(A). In its present incarnation, the FCA allows the government to recover
treble damages, as well as a $5,000-$10,000 penalty for each fraudulent submission,
regardless of actual damage. Neal v. Honeywell, Inc., 826 F. Supp. 266, 268 (N.D.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 11 of 41 PageID #:1751
Ill. 1993), aff’d, 33 F.3d 860 (7th Cir. 1994). The FCA also permits private citizens,
or “relators,” to file a civil action on behalf of the government.
§ 3730(b)(1). These actions are referred to as qui tam actions. 4 United States ex rel.
Yannacopoulos v. General Dynamics, 652 F.3d 818, 822 (7th Cir. 2011).
“incentive to bring suit,” a prevailing relator “may collect a substantial percentage
of any funds recovered for the benefit of the government.” Id. IFCA claims are
evaluated under standards identical to those applied in cases arising under the
FCA. Cunliffe v. Wright, 51 F. Supp. 3d 721, 740 (N.D. Ill. 2014).
The FCA and IFCA each prohibit: (1) knowingly presenting, or causing to be
presented, a false or fraudulent claim for payment, see 31 U.S.C. § 3729(a)(1)(A);
740 ILCS § 175/3(a)(1)(A); and (2) knowingly making or using, or causing to be
made or used, a false record or statement that is material to a false or fraudulent
See 31 U.S.C. § 3729(a)(1)(B); 740 ILCS § 175/3(a)(1)(B).
alleges violations of both provisions.
To adequately plead a violation of § 3729(a)(1)(A) of the FCA (or
§ 175/3(a)(1)(A) of the IFCA), Relator must allege: (1) a false or fraudulent claim; (2)
which was presented, or caused to be presented, by the defendant to the United
States for payment or approval; (3) with the knowledge that the claim was false.
United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741 (7th Cir.
4 The term qui tam “is derived from the Latin phrase qui tam pro domino rege quam pro se ipso in
hac parte sequitur, which means ‘who brings the action for the king as well as for himself.’” Neal v.
Honeywell, Inc., 826 F. Supp. 266, 268 (N.D. Ill. 1993), aff’d, 33 F.3d 860 (7th Cir. 1994) (citing
William Blackstone, Commentaries on the Law of England 160 (1768)).
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 12 of 41 PageID #:1752
2007), overruled on other grounds by Glaser v. Wound Care Consultants, Inc., 570
F.3d 907 (7th Cir. 2009).
To adequately plead a violation of § 3729(a)(1)(B) of the FCA (or
§ 175/3(a)(1)(B) of the IFCA), a plaintiff must allege that: (1) the defendant made a
statement in order to receive money from the government; (2) the statement was
false; and (3) the defendant knew the statement was false. Thulin v. Shopko Stores
Operating Co., 771 F.3d 994, 998 (7th Cir. 2014). In addition, the misrepresentation
“must be material to the other party’s course of action.” Escobar II, 136 S. Ct. at
Stated broadly, the AAH Defendants argue that the allegations in Relator’s
SAC: (1) do not allege materially false misrepresentations under the FCA; (2) are
not sufficiently particular under Rule 9(b); and (3) fail to state claims for which
relief may be granted under Rule 12(b)(6). Additionally, Defendant Great Lakes
separately asserts that Relator has failed to plead any cognizable claims against
Great Lakes. Finally, all Defendants contend that Relator released her present
claims when she accepted a settlement in a prior lawsuit. The Court addresses each
objection in turn.
To adequately state a violation of § 3729(a)(1)(B), Relator must not only
allege that Defendants knowingly made a false statement in order to receive money
from the government, but also that the false statement was material to the
government’s decision to pay. U.S. ex rel. Marshall v. Woodward, Inc., 812 F.3d
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 13 of 41 PageID #:1753
556, 561 (7th Cir. 2015), cert. denied, 136 S. Ct. 2510 (2016); see also 31 U.S.C. §
3729(a)(1)(B) (imposing 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”) (emphasis added).
Additionally, § 3729(a)(1)(A) not only encompasses claims that make
fraudulent misrepresentations, but also claims which include materially misleading
omissions. Escobar II, 136 S. Ct. at 1999. Specifically, liability may attach where
two conditions are satisfied: “first, the claim does not merely request payment, but
also makes specific representations about the goods or services provided; and
second, the defendant’s failure to disclose noncompliance with material statutory,
regulatory, or contractual requirements makes those representations misleading
half-truths.” Id. at 2001 (emphasis added). This is commonly referred to as an
“implied false certification” theory of liability. Id. at 1995.
Here, Relator alleges multiple false statements and omissions on the part of
Defendants. First, as discussed above, Relator claims that Defendants falsified, or
caused to be falsified, OASIS forms regarding patients’ need for home health
services. See, e.g., SAC  ¶¶ 130, 212. Second, in order to bill for Medicare
services, HHAs must first submit an enrollment application to CMS. Id. ¶ 77. As
part of this agreement, HHAs certify that they “agree to abide by the Medicare
laws, regulations and program instructions” and that “payment of a claim by
Medicare is conditioned upon the claim and the underlying transaction complying
with such laws, regulations, and program instructions (including, but not limited to,
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 14 of 41 PageID #:1754
the Federal antikickback statute and the Stark law).” Id. ¶ 78. HHAs further agree
to not “knowingly present or cause to be presented a false or fraudulent claim for
payment by Medicare,” or “submit claims with deliberate ignorance or reckless
disregard of their truth or falsity.”
Once their enrollment application is
approved, HHAs must submit similar certifications to report changes to their
enrollment information. Id. ¶ 80. Relator claims that during the relevant period,
AAH submitted multiple versions of this certification that, due to AAH’s fraudulent
business practices, were false. Id. ¶¶ 81-82.
Third, CMS contracts with financial intermediaries to assist in the
administration of home health claims. Id. ¶ 70. To be paid for covered services,
HHAs must file an annual cost report with its intermediaries. Id. ¶ 92. Certifiers
of cost reports must attest to the following:
I hereby certify that . . . I have examined the
accompanying home health cost report and the balance
sheet and statement of revenue and expenses . . . and that
to the best of my knowledge and belief, it is a true,
correct, and complete report prepared from the books and
records of the provider . . . . I further certify that I am
familiar with the laws and regulations regarding the
provision of health care services, and that the services
identified in this cost report were provided in compliance
with such laws and regulations.
Id. ¶ 95. In this case, Relator asserts that AAH submitted false annual cost reports
throughout the relevant period. Id. ¶ 93.
Finally, Medicare claims themselves may be submitted electronically or
through standardized paper forms. SAC  ¶ 85. To submit claims electronically,
HHAs must agree to “submit claims that are accurate, complete, and truthful.” Id.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 15 of 41 PageID #:1755
¶ 84. The standardized form also states that submission of a claim “constitutes
certification that the billing information as shown on the face hereof is true,
accurate and complete,” and that “the submitter did not knowingly or recklessly
disregard or misrepresent or conceal material facts.” Id. ¶ 85. Here, Relator alleges
that AAH submitted both electronic and paper claims throughout the relevant
period that failed to disclose its regulatory violations. Id. ¶¶ 83, 85.
In response, Defendants argue that, even taking Relator’s allegations as true,
such statements and omissions are immaterial to the government’s decision to pay
Indeed, the materiality standard is “rigorous” and
Escobar II, 136 S. Ct. at 1996.
The FCA defines “material” as
“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); see also United States v.
Rogan, 517 F.3d 449, 452 (7th Cir. 2008) (defining “materiality” in the FCA context
as a statement with “a natural tendency to influence, or is capable of influencing,
the decision of the decisionmaking body to which it was addressed”). This is an
objective standard, and “case law focuses on whether the false statement itself,
rather than the certificate or document containing that statement, is capable of
influencing the government’s decision.”
Marshall, 812 F.3d at 563 (emphasis
Furthermore, materiality in the implied certification context does not wholly
depend upon the government expressly designating the contractual, statutory, or
regulatory provision at issue as a condition of payment. Escobar II, 136 S. Ct. at
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 16 of 41 PageID #:1756
2001. A statement that “misleadingly omits critical facts” constitutes a material
misrepresentation “irrespective of whether the other party has expressly signaled
the importance of the qualifying information.” Id. (emphasis added). At the same
time, the FCA “is not ‘an all-purpose antifraud statute’ or a vehicle for punishing
garden-variety breaches of contract or regulatory violations.” Id. at 2003 (internal
citation omitted). Thus, not every undisclosed violation of an express condition of
payment automatically triggers liability. Id. Materiality cannot be found “where
noncompliance is minor or insubstantial”; nor is it sufficient that the government
would “have the option to decline to pay if it knew of the defendant’s
In essence, when evaluating materiality in the implied certification context,
the “Government’s decision to expressly identify a provision as a condition of
payment is relevant, but not automatically dispositive.” Id. (emphasis added). In
proof of materiality can also include, but is not necessarily
limited to, evidence that the defendant knows that the
Government consistently refuses to pay claims in the
mine run of cases based on noncompliance with the
requirement. Conversely, if the Government pays a
particular claim in full despite its actual knowledge that
certain requirements were violated, that is very strong
evidence that those requirements are not material. Or, if
the Government regularly pays a particular type of claim
in full despite actual knowledge that certain requirements
were violated, and has signaled no change in position,
that is strong evidence that the requirements are not
Id. at 2003-04.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 17 of 41 PageID #:1757
Defendants argue that the statements and regulations alleged here fall into
the realm of immaterial “garden variety” fraud. See id. at 2003. In support of their
argument, Defendants rely heavily upon Escobar II. There, a teenage beneficiary of
Massachusetts’ Medicaid program received counseling services at a satellite mental
health facility owned and operated by a subsidiary of Universal Health Services.
Id. at 1997.
Tragically, the teenager suffered a deadly adverse reaction to
medication prescribed by a purported doctor at the facility. Id. Thereafter, it was
revealed that, contrary to state regulations, many of the facility employees were not
licensed to provide mental health services, yet still counseled patients and
prescribed drugs without supervision. Id. The teenager’s parents subsequently
filed an FCA qui tam suit. Id. Relying upon an “implied false certification” theory
of liability, the parents alleged that Universal’s Medicaid reimbursement claims
were false because they failed to disclose its state regulatory violations pertaining to
staff qualifications and licensing requirements. Id. at 1997-98.
A close reading of Escobar II and its procedural progeny, however, belies
Defendants’ theory. In the end, even though the Supreme Court remanded Escobar
II for reconsideration of whether the relators sufficiently pled a material omission,
id. at 2004, the Court also noted that the supposed misrepresentations at issue
(compliance with the state’s mental health facility requirements) were alleged to be
“so central to the provision of mental health counseling that the Medicaid program
would not have paid these claims had it known of these violations.” Id. The Court
acknowledged that, on such allegations, the relators “may well have adequately
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 18 of 41 PageID #:1758
pleaded a violation” of the FCA, but left it “to the courts below” to resolve the
question in the first instance. Id.
On remand, the First Circuit had “little difficulty” reaffirming that the
relators had sufficiently alleged Universal’s misrepresentations to be material.
United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 110 (1st
The court reached this conclusion for three reasons.
First, it was
relevant (though not dispositive) that the relators alleged that regulatory
compliance was a condition of payment.
Second, the court found that the
Massachusetts licensing and supervision requirements which were circumvented by
Universal went to “the very essence of the bargain” of the state’s contractual
relationships with healthcare providers under the Medicaid program. Id. Finally,
there was no evidence in the record that Massachusetts paid claims to Universal
despite knowing of the violations. Id.
As in Escobar, Relator here explicitly alleges that compliance with the
Medicare and Medicaid regulations named in the SAC is a condition of payment.
See SAC  ¶¶ 49, 65, 90-91, 291. Moreover, courts have routinely found the
various statements and regulations at issue to be central to the government’s
Medicare and Medicaid programs. See United States v. Rogan, 517 F.3d 449, 452
(7th Cir. 2008) (“[I]nformation that a hospital has purchased patients by paying
kickbacks has a good probability of affecting” a repayment decision); U.S. ex rel.
Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (“A certificate of
compliance with federal health care law is a prerequisite to eligibility under the
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 19 of 41 PageID #:1759
Medicare program. It follows that Schmidt alleged a violation of the FCA when he
alleged that Mercy certified its compliance with federal health care law knowing
that certification to be false.”) (internal citation omitted); United States ex rel.
Cieszyski v. LifeWatch Servs., Inc., No. 13-cv-4052, 2015 WL 6153937, at *9 (N.D.
Ill. Oct. 19, 2015); Mason v. Medline Indus., Inc., 731 F. Supp. 2d 730, 739 (N.D. Ill.
2010) (“Providers are required to submit annual cost reports . . . . Each cost report
includes a certification attesting to compliance with healthcare laws and
regulations, including anti-kickback provisions. . . . Mason has sufficiently alleged
that the cost report certifications are a required condition of government payment
under federal healthcare programs.
The allegation is more than speculative.
Certifications are material to government reimbursement under Medicare.”); U.S.
ex rel. Bidani v. Lewis, 264 F. Supp. 2d 612, 616 (N.D. Ill. 2003) (“[T]he alleged AKS
violation is material to the government’s treatment of defendants’ reimbursement
Finally, the SAC contains no allegations that either the federal
government or the State of Illinois paid claims to Defendants despite knowing of the
supposed violations. 5
Thus, Defendants’ “garden-variety fraud” theory fails to
In their motion to dismiss, the AAH Defendants claim that the government did not disqualify AAH
from the Medicare or Medicaid program despite reviewing AAH’s recertification practices in 2008,
2011, and 2014. Mem. Supp. AAH Defs.’ Mot. Dismiss  10-11. In support of their assertion,
Defendants submit a CMS “Statement of Deficiencies and Plan of Correction” form dated September
2, 2011, which states that AAH “was found to be in compliance with the requirements of 42 CFR
484.” Id. Ex. A. When considering a motion to dismiss pursuant to Rule 12(b)(6), however, the
Court’s inquiry “is generally limited to the factual allegations contained within the four corners of
the complaint.” Mannie v. Potter, 326 F. Supp. 2d 880, 882 (N.D. Ill. 2004); see also U.S. ex rel.
Walner v. NorthShore Univ. Healthsystem, 660 F. Supp. 2d 891, 893 n. 1 (N.D. Ill. 2009) (“In his
response to Defendants’ Motion to Dismiss, Walner set forth additional facts to support his claims
and attached various exhibits, including his own declaration. Walner’s response and attached
exhibits, however, are not part of the pleadings and are therefore outside the scope of the Court's
12(b)(6) analysis.”). Although the AAH Defendants seek to paint their evidence as a proper subject
for judicial notice, see Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013) (permitting courts to
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 20 of 41 PageID #:1760
undermine the materiality of the SAC’s allegations. See Menzies v. Seyfarth Shaw
LLP, 197 F. Supp. 3d 1076, 1098 (N.D. Ill. 2016) (rejection of “garden-variety fraud”
challenge to a RICO complaint).
Allegations against the Individual Defendants
Defendants next argue that various portions of the SAC fail to satisfy Rule
9(b)’s particularity requirement. Defendants claim, for example, that the SAC fails
as to the Individual Defendants because it relies upon impermissible group
pleading. As stated supra, to comply with Rule 9(b), a complaint “should not lump
multiple defendants together, but should inform each defendant of the specific
fraudulent acts that constitute the basis of the action against the particular
defendant.” Suburban Buick, Inc. v. Gargo, No. 08-cv-0370, 2009 WL 1543709, at
*4 (N.D. Ill. 2009) (internal citation omitted).
Defendants claim that the SAC
references collective “Defendants” but does not present individualized allegations
against Defendants Fitzpatrick, Shemanske, and Richards.
Defendants correctly state the law, but largely misread the SAC, at least as it
applies to Defendants Fitzpatrick and Shemanske.
The SAC does indeed make
frequent reference to collective groups of defendants 6 which, standing alone, would
consider “information that is properly subject to judicial notice” on a motion to dismiss), such an
argument is unavailing. See Fed. R. Evid. 201 (defining facts that may be judicially noticed as those
“not subject to reasonable dispute”).
See, e.g., Second Am. Compl.  ¶¶ 97 (“On information and belief, Defendants made the foregoing
submissions and certifications, repeatedly, in the course of submitting claims for reimbursement”)
(emphasis added), 105 (“From at least 2006 and continuing through July 2015, the AAH Healthcare
Defendants generated millions of dollars annually in revenues through the billing of Medicare and
Medicaid for services provided to patients by engaging in, and/or participating conspiratorially in,
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 21 of 41 PageID #:1761
be insufficient under Rule 9(b). At the same time, however, the SAC also outlines
multiple specific instances of purportedly fraudulent activity on the part of
Defendants Fitzpatrick and Shemanske:
Between approximately December 2008 and January 2009,
Defendant Fitzpatrick ordered Relator and another nurse, Jolynn
Bartlett, to fraudulently recertify nine AAH patients at Spring
Meadows Nursing Home in Naperville, Illinois for unnecessary home
health services. SAC  ¶¶ 111-24.
In approximately December 2010, Defendants Fitzpatrick and
Shemanske ordered Relator to fraudulently certify A.Z., an AAH
patient at Brighton Gardens in Orland Park, Illinois, for physical
therapy. Id. ¶ 125.
In approximately June 2011, Defendant Fitzpatrick ordered nurse
Andrea Castrejon to recertify a patient for home health services even
though Castrejon believed home health services were no longer
necessary. Id. ¶ 127.
On approximately May 30, 2015, Defendant Shemanske arranged
for orders certifying a patient for skilled nursing care, even though Sue
Suria, AAH’s physical therapy supervisor, determined that skilled
nursing care was unnecessary. Id. ¶ 136.
Defendants’ argument as it relates to Defendants Fitzpatrick and Shemanske,
therefore, is denied.
The same cannot be said, however, for Defendant Richards.
In terms of
allegations that specifically relate to that individual defendant, the SAC states:
“In connection with their home health care business, Defendant AAH
Healthcare and Defendants Fitzpatrick, Shemanske, and Richards
intentionally and knowingly submitted false and fraudulent claims and
statements for payment to Medicare and Medicaid.” Id. ¶ 2 (emphasis
the following fraudulent and unlawful activities . . . .”) (emphasis added), 145 (“The AAH Healthcare
Defendants submitted claims for payment to the Government for home health services provided to
patients that were ineligible for home health services”) (emphasis added).
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 22 of 41 PageID #:1762
“[B]eginning as early as 2006 and lasting through 2010, Defendant
Fitzpatrick and Defendant Richards routinely instructed [nurse
Patti Dougherty] and other nurses to certify and recertify ineligible
patients for home health care services. . . . Dougherty did as she was
instructed at least a dozen times.” Id. ¶ 128 (emphasis added).
Defendant Richards paid one of her employees in Massachusetts
“illegal remuneration for referrals and recertifications.” Id. ¶¶ 168,
176 (emphasis added).
Between 2006 and 2010, Defendants Richards instructed nurses “to
select the higher HHRG number when in doubt, rather than
instructing them to carefully reassess the patient to determine the
correct HHRG score.” Id. ¶ 212 (emphasis added).
These sweeping allegations may list Defendant Richards by name, but they
each lack other elements of particularity required by Rule 9(b). Some allegations—
such as those related to improper certifications and upcoding—raise broad, multiyear time periods without listing any representative examples or specifics. Others,
such as Defendant Richards’ payment of illegal kickbacks, fail to identify the
particular AAH employee involved.
Under Rule 9(b), this is not enough.
Accordingly, the AAH Defendants’ Motion to Dismiss  is granted as it relates to
Submission of a False Claim
Defendants next argue that the SAC does not particularly allege “the actual
submission of a false claim.” Mem. Supp. AAH Defs.’ Mot. Dismiss  7 (emphasis
In other words, Defendants attack Relator’s failure to link her various
theories of fraud (improper certification of patients, kickbacks, upcoding, etc.) to
specific government reimbursement claims.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 23 of 41 PageID #:1763
On this issue, the Seventh Circuit’s recent decision in United States ex rel.
Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 772 (7th Cir. 2016), is
instructive. The relator there, a nurse practitioner, brought an FCA qui tam action
against the defendants, a mental health clinic and its owner, for “upcoding” and
providing gratuitous medical procedures.
Id. at 772-73.
In her complaint, the
relator provided multiple examples of what she believed to be “unnecessary medical
billings.” Id. at 774. She also alleged, albeit generally, that the mental health clinic
submitted bills “to Medicare and Medicaid programs run by the United States and
the State of Wisconsin for services provided to patients.” Id. The district court
dismissed the relator’s complaint, holding that the relator did not “definitively
allege that at least one patient’s bill was submitted to the United States or the
State of Wisconsin.” Id. at 775-76 (emphasis removed).
The Seventh Circuit reversed. According to the court, “a plaintiff does not
need to present, or even include allegations about, a specific document or bill that
the defendants submitted to the Government.” Id. at 777 (citing United States ex
rel. Lusby v. Rolls–Royce Corp., 570 F.3d 849 (7th Cir. 2009); Leveski v. ITT Educ.
Servs., Inc., 719 F.3d 818, 839 (7th Cir. 2013)). Rather, the relevant inquiry is
whether the facts alleged “necessarily [lead] one to the conclusion that the
defendant” presented claims to the government.
Id. at 778 (emphasis added).
Ultimately, it was sufficient that the relator’s complaint in Presser alleged that
“almost all” of the mental health clinic’s patients “dealt with Medicare” and that the
defendants’ “questionable practices and procedures were applied to all patients at
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 24 of 41 PageID #:1764
Indeed, given the relator’s position as a nurse practitioner, “a
position that does not appear to include regular access to medical bills,” the court
did “not see how she would have been able to plead more facts pertaining to the
billing process.” Id. (citing Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1051
(7th Cir. 1998) (“[T]he particularity requirement of Rule 9(b) must be relaxed where
the plaintiff lacks access to all facts necessary to detail [her] claim.”)); Goldberg v.
Rush Univ. Med. Ctr., 929 F. Supp. 2d 807, 818 (N.D. Ill. 2013) (“Rule 9(b) does not
act as a rigid bar to filing a charge of fraud for individuals with less than perfect
At the pleadings stage, therefore, “an inference [was] enough.”
Presser, 836 F.3d at 778 (quoting Leveski, 719 F.3d at 839); see also Lusby, 570 F.3d
at 854 (“[M]uch knowledge is inferential.”).
Here, as in Presser, Relator details multiple instances of supposedly
fraudulent business practices. Also as in Presser, Relator generally alleges that
Defendants “intentionally and knowingly submitted false and fraudulent claims and
statements for payment to Medicare and Medicaid.”
SAC  ¶ 2; see also id.
¶¶ 108 (“Defendants then knowingly submitted claims to Medicaid and Medicare for
home health services that were not medically necessary”), 116 (“Defendants had
submitted claims for reimbursement and had been paid by Medicare for services
provided to these patients even though the patients did not qualify for services”).
Given Relator’s termination in June 2011 (nearly three years before the filing of the
present litigation), it would be unfair to demand that Relator plead more at this
stage relating to particular reimbursement claims. For present purposes, it can be
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 25 of 41 PageID #:1765
reasonably inferred that Defendants presented such claims to the government. See
also United States v. Omnicare, Inc., No. 11-cv-8980, 2014 WL 1458443, at *10
(N.D. Ill. Apr. 14, 2014); Goldberg v. Rush Univ. Med. Ctr., 929 F. Supp. 2d 807, 818
(N.D. Ill. 2013) (“Here, Relators allege specific details about all but the submission
of the claims, and they provide reasonable inferences that [defendants] submitted
false Medicare claims.
They have pleaded on information and belief only facts
about the submissions of the claim that are inaccessible to them, and they have
stated reasonable grounds for their suspicions.”); U.S. ex rel. Kennedy v. Aventis
Pharm., Inc., 512 F. Supp. 2d 1158, 1167 (N.D. Ill. 2007) (“Given the significant
proportion of medical care in this country that is financed by Medicare and
reimbursement . . . were submitted to the federal government or the State of Illinois
for payment. For these reasons, dismissal at this stage under Rule 9(b) would be
Relator’s Individual Theories of Liability
Finally, in addition to attacking Relator’s SAC en masse, Defendants also
raise particularity objections to Relator’s individual theories of liability.
Inflation of Visits
As it relates to Defendants’ supposed improper inflation of patient visits,
Defendants claim that Relator fails to identify any particular patients with inflated
visit frequency. This Court agrees. The nine paragraphs of the SAC devoted to the
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 26 of 41 PageID #:1766
manipulation of visit frequency, see SAC  ¶¶ 196-204, speak almost entirely in
“Defendants fraudulently increased their revenue by instructing
nurses and physical therapists, including Relator, Sue Suria, and Patti
Dougherty, to visit patients with a frequency that would maximize
revenue, without regard to medical necessity.” SAC  ¶ 196.
“Defendant Fitzpatrick routinely instructed Relator and other nurses
to avoid LUPAs in fraudulent ways.” Id. ¶ 197 (emphasis added).
“To avoid LUPAs, Defendant Fitzpatrick repeatedly forced Relator to
add visits for unnecessary physical therapy or skilled nursing.” Id.
¶ 198 (emphasis added).
“Relator had several patients who required skilled nursing services
approximately once a month to change catheters—a visit frequency
that would result in a LUPA payment reduction.” Id. ¶ 199 (emphasis
“[Sue Suria, AAH’s physical therapy supervisor] recalls being routinely
asked to add or subtract visits by AAH Healthcare schedulers in order
to manipulate Medicare reimbursement thresholds, without regard to
patient needs.” Id. ¶ 204 (emphasis added).
Relator fails, however, to provide specificity regarding any particular upcoding
violation. Of course, where, as here, an alleged FCA scheme “involves numerous
transactions occurring over the course of several years, a plaintiff need not provide
the details of every fraudulent transaction.” United States ex rel. Kalec v. NuWave
Monitoring, LLC, 84 F. Supp. 3d 793, 800 (N.D. Ill. 2015).
At the same time,
Relator is required to provide “representative examples.” Id. (citing United States
ex rel. Geschrey v. Generations Healthcare, LLC, 922 F. Supp. 2d 695, 702 (N.D. Ill.
2012)); Singer v. Progressive Care, SC, 202 F. Supp. 3d 815, 825 (N.D. Ill. 2016). In
other words, particularity “has often been interpreted as more than just general
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 27 of 41 PageID #:1767
accusations of wrongdoing, but providing at least one specific instance of
wrongdoing that satisfies the who, what, where, when and how requirements of
Rule 9(b).” U.S. ex rel. Grenadyor v. Ukranian Vill. Pharmacy, Inc., 895 F. Supp. 2d
872, 878-79 (N.D. Ill. 2012) (citing United States ex rel. Hebert v. Dizney, 295 Fed.
App’x 717, 722-723 (5th Cir. 2008) (rejecting False Claim Act claim where relator
alleged a general policy of waiving copays, but failed to cite any example with
Relator provides no such specific instances here. At most, Relator speaks of
“a female patient” with a “Foley catheter” and “another patient with a supra pubic
catheter,” see SAC  ¶ 199, but does not provide additional identifiers. Relator
also claims that during Sue Suria’s “brief period of employment,” she was ordered to
provide six physical therapy visits to all patients regardless of need, but omits
further chronological detail or representative examples. Relator does mention one
occasion “on or about January 21, 2012” where Suria was asked by an AAH
employee to “do at least 6 or 7” physical therapy visits for a patient, but does not
identify the patient, or, more importantly, whether Suria actually followed the
Relator also references “another occasion” where another
unnamed AAH employee instructed Suria to increase therapy visits for another
unidentified patient, but once again, fails to delineate any specific details. Rule 9(b)
prohibits such abstraction. The AAH Defendants’ Motion to Dismiss , therefore,
is granted to the extent Relator’s theory of liability depends upon the improper
inflation of patient visits.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 28 of 41 PageID #:1768
The same analysis applies to Relator’s allegations concerning HHRG scores.
See SAC  ¶¶ 205-12. There, Relator alleges that she and other AAH nurses
were “directed periodically in staff meetings” that, “if a patient was between two
[HHRG scores], to choose the higher score to ensure higher reimbursement from
Medicare.” Id. ¶ 209. Particularity aside, questions remain whether such conduct
actually constitutes fraud in the first place. Regardless, however, Relator does not
identify any specific patients to which supposedly inflated HHRG scores were
ultimately applied. As a result, Relator fails to “specifically link”—either explicitly
or implicitly—the alleged HHRG scheme “to an actual claim that was submitted to
Medicare.” NuWave Monitoring, 84 F. Supp. 3d at 807. The AAH Defendants’
Motion to Dismiss , therefore, is granted to the extent Relator’s theory of
liability depends upon the manipulation of HHRG scores.
Relator’s allegations regarding double billing are equally vague. See SAC
 ¶¶ 219-32.
Relator references only two senior living facilities (Brighton
Gardens and Sunrise Senior Living) where purported double billing occurred. But
once again, Relator fails to mention any specific patients or other requisite details;
at most, she discusses the “dementia units.”
See id. ¶¶ 225-36.
Relator’s imprecision is her lack of specificity in timing; she only alleges that such
misconduct occurred over a three-year period “between approximately June 2008
and June 2011.” Rule 9(b) requires more. The AAH Defendants’ Motion to Dismiss
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 29 of 41 PageID #:1769
, therefore, is granted to the extent Relator’s theory of liability depends upon
billing for duplicative personal care services.
As stated above, the AKS prohibits soliciting or receiving remuneration in
return for referring an individual for a service that may be paid for under a federal
health care program. 42 U.S.C. § 1320a-7b(b)(1). It further prohibits the offering or
paying of remuneration to any person to induce that person to refer an individual
for a service that may be paid for under a federal health care program. Id. § 1320a7b(b)(2).
Although the AKS itself does not provide an express private right of
action, courts have recognized FCA claims based upon violations of the statute. See
United States ex rel. Kalec v. NuWave Monitoring, LLC, 84 F. Supp. 3d 793, 806
(N.D. Ill. 2015) (collecting cases).
Where an FCA claim is premised upon the
violation of the AKS, however, “the underlying violation must also be pled in
compliance with Rule 9(b).” United States Ex rel. Dolan v. Long Grove Manor, Inc.,
No. 10-cv-368, 2014 WL 3583980, at *1 (N.D. Ill. July 18, 2014). Here, Relator
alleges two broad categories of kickbacks: (1) those paid to Defendant Shemanske;
and (2) those paid to physicians. 7 The Court addresses each in turn.
Kickbacks to Defendant Shemanske
Relator broadly alleges that, from approximately 2008 until as late as April
2015, AAH’s CEO instructed AAH’s human resources director to track all home
Relator technically alleges a third category of kickbacks: those purportedly paid by Defendant
Richards to one of Defendant Richards’ marketers in Massachusetts. See Second Am. Compl. 
¶¶ 169, 171, 176. Because the Court dismisses the allegations against Richards for other reasons, it
need not discuss that kickback claim here.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 30 of 41 PageID #:1770
health service referrals and recertifications within Defendant Shemanske’s
“geographic territory.” See SAC  ¶¶ 169-70. Relator claims that AAH paid
Defendant Shemanske a $100 bonus for every such referral and recertification in
order to induce Defendant Shemanske to obtain illegal Medicare and Medicaid
referrals and recertifications. Id. ¶ 171. Like Relator’s upcoding and double billing
allegations, however, the SAC once again fails to name any specific patient.
Relator attempts to justify her lack of detail by arguing that her allegations
apply to every patient certification within Defendant Shemanske’s territory. See
Rel.’s Resp.  33. This purported scope, however, does not relieve Relator of her
pleading burdens under Rule 9(b).
The Seventh Circuit’s ruling in U.S. ex rel.
Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102 (7th Cir. 2014),
confirms this point. Like Relator here, the relator in Grenadyor filed an FCA suit
against a pharmacy for, inter alia, providing illegal kickbacks to Medicare and
Medicaid customers. Id. at 1103. Oddly, the supposed remuneration in that case
took the form of “one tin of caviar, plus either a packet of whole grains or a tin of
Riga sprats (a small fish packed in oil), plus a Russian language T.V. Guide.” Id. at
1103, 1107. The complaint alleged that it was the defendant’s “standard practice”
to give this package with “each” delivery of prescriptions, such that “when
customers did not receive their regular monthly allotment, they would telephone
[the defendant] to complain.” Id. at 1107.
On appeal, the Seventh Circuit affirmed dismissal of this portion of relator’s
complaint on particularity grounds.
According to the court, the complaint
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 31 of 41 PageID #:1771
merely alleged “that all customers” received the remuneration package; to comply
with Rule 9(b), however, the relator “would have had to allege” either “that the
pharmacy submitted a claim to Medicare (or Medicaid) on behalf of a specific
patient who received a kickback,” or “at least name a Medicare patient who had
received a kickback (presumably if the pharmacy provided a drug to a Medicare
patient it billed Medicare for the cost of the drug minus the copay).” Id. (emphasis
in original). By “failing to identify a single patient,” the complaint contained “no
such allegations.” Id. The same reasoning applies here. The AAH Defendants’
Motion to Dismiss , therefore, is granted to the extent Relator’s theory of
liability depends upon illegal kickbacks to Defendant Shemanske.
Kickbacks to Physicians
A portion of Relator’s allegations regarding physicians, on the other hand,
does not suffer from this deficiency.
See SAC  ¶¶ 178-94.
provides a specific example where AAH provided physicians with complimentary
goods and services in order to induce Medicare and Medicaid referrals and
recertifications. Relator alleges that between 2010 and 2011, AAH provided two
doctors (Dr. Zaman and Dr. Nagubadi) with free office space at the Waterford
Estates “Wellness Center,” as well as free administrative and nursing services from
AAH employees. Id. ¶¶ 178-85. Within the context of the other allegations, this is
sufficient to satisfy Rule 9(b).
At the same time, Relator’s reference to similar schemes at the Spring
Meadows Assisted Living Facility in Libertyville, Illinois and Smith Village Senior
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 32 of 41 PageID #:1772
Living Community in Chicago, Illinois, fail to identify the specific physicians at
Id. ¶¶ 186-87.
Merely naming a facility is not enough.
Defendants’ Motion to Dismiss , therefore, is denied as it relates to supposed
illegal kickbacks to Dr. Zaman and Dr. Nagubadi, but granted as it relates to other
Regarding solicitation, the SAC does not indicate that Defendants’ purported
solicitation practices were actually unlawful. See SAC  ¶¶ 146-67. Instead,
Relator alleges that, by soliciting patients, Defendants violated Medicare and
Medicaid marketing guidelines, specifically 42 C.F.R. §§ 422.2268(d) and
See SAC  ¶ 48.
By their plain language, however, these
regulations govern Medicare Part D plans, not HHAs. See 42 C.F.R. §§ 422.2268,
423.2268(d) (“In conducting marketing activities, a Part D plan may not—(d) Solicit
door-to-door for Medicare beneficiaries or through other unsolicited means of direct
contact, including calling a beneficiary without the beneficiary initiating the
contact.”) (emphasis added); see also 42 C.F.R. § 423.4 (defining a Medicare Part D
In her response, Relator attempts to rectify this pleading error by turning to
the Health Insurance Portability and Accountability Act (“HIPAA”), specifically 42
Defendants also argue that Relator’s kickback theory is deficient because it does not allege that
Defendants acted “knowingly and willfully.” The SAC, however, specifically alleges that Defendants
“knowingly and willfully offered these kickbacks to physicians in their Wellness Centers for
improper purposes.” SAC  ¶ 191.
The SAC  also references § 70.4 of the CMS Medicare Marketing Guidelines. This section,
however, simply cites 42 C.F.R. §§ 422.2268(d) and 423.2268(d).
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 33 of 41 PageID #:1773
U.S.C. § 1320d-6 (“Wrongful disclosure of individually identifiable health
information”). Although the SAC makes general reference to the HIPAA statute,
however, see SAC  ¶¶ 48, 147, this specific provision is notably absent. To the
extent Relator is attempting to amend the SAC in her response brief, the Court
rejects the effort. Relator cannot amend her complaint through a response to a
motion to dismiss. Adedeji v. Cobble, No. 10-cv-0892, 2013 WL 449592, at *1 (N.D.
Ill. Feb. 5, 2013).
Currently, the lack of particularity fails to adequately place
Defendants on notice of Plaintiff’s theory of liability.
See United States ex rel.
Hanna v. City of Chicago, 834 F.3d 775, 779 (7th Cir. 2016) (“Where the allegedly
false certification relates to a failure to comply with certain statutory and
regulatory provisions, the plaintiff should be able to tell [the defendant] which ones
it flouted, and how and when. If the particularity requirement is meant to ensure
more thorough investigation before filing, it is not too much to ask that one aspect
of that investigation include the specific provisions of law whose violation made the
certification of compliance false.”). The AAH Defendants’ Motion to Dismiss ,
therefore, is granted as it relates to improper solicitation.
All that remains is Relator’s theory of improper certification. See SAC 
¶¶ 108-45. Unlike most of her other theories of liability, here, Relator provides
multiple representative examples. Although some of these specific instances still
suffer from fatal overgeneralization, see, e.g., id. ¶¶ 129-35, 137-45, others are
sufficiently particular to satisfy Rule 9(b):
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 34 of 41 PageID #:1774
Between approximately December 2008 and January 2009, Defendant
Fitzpatrick ordered Relator and another nurse, Jolynn Bartlett, to
fraudulently recertify nine AAH patients at Spring Meadows Nursing
Home in Naperville, Illinois for unnecessary home health services. Id.
In approximately December 2010, Defendants Fitzpatrick and
Shemanske ordered Relator to fraudulently certify A.Z., an AAH
patient at Brighton Gardens in Orland Park, Illinois, for physical
therapy. Id. ¶ 125.
In approximately June 2011, Defendant Fitzpatrick ordered nurse
Andrea Castrejon to recertify a patient for home health services even
though Castrejon believed home health services were no longer
necessary. Id. ¶ 127.
On approximately May 30, 2015, Defendant Shemanske arranged for
orders certifying a patient for skilled nursing care, even though Sue
Suria, AAH’s physical therapy supervisor, determined that skilled
nursing care was unnecessary. Id. ¶ 136.
Defendants argue that Relator’s improper certification/recertification theory
is nonetheless deficient because she does not allege that any physician falsely
certified or recertified patients; rather, Relator only claims action on the part of
nurses. According to Defendants, it is physicians, not nurses, who ultimately certify
and recertify patients for home health treatment. As the theory goes, therefore,
certification by nurses is irrelevant to whether a claim is false, and thus immaterial
to the government’s decision to pay Medicare or Medicaid reimbursement claims.
Defendants misread the FCA’s scope. The Act expressly imposes liability on
those who “cause” false claims for payment to be submitted to the government, or
“cause” a material false record or statement to be made or used.
31 U.S.C. §
Moreover, the FCA places liability “not only on persons who
cause false claims to be submitted or who cause false statements to be made, but
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 35 of 41 PageID #:1775
also on those who cause the claims or statements to be false in the first place.”
Mason v. Medline Indus., Inc., 731 F. Supp. 2d 730, 738 (N.D. Ill. 2010) (citing
United States v. Bornstein, 423 U.S. 303, 313 (1976)). Here, Relator alleges that
Defendants knowingly drafted false physician orders for ineligible patients and
submitted those orders to the patients’ physicians for signature, and that such
misrepresentations misled the certifying physicians. Such conduct falls under the
FCA’s purview. See Bornstein, 423 U.S. at 313 (“United . . . caused Model to submit
false claims to the Government. . . . If United had not shipped any falsely branded
tubes to Model, Model could not have incorporated such tubes into its radio kits and
would not have had occasion to submit any false claims to the United States.”); U.S.
ex rel. Landis v. Hospice Care of Kansas, LLC, No. 06-2455-CM, 2010 WL 5067614,
at *4 (D. Kan. Dec. 7, 2010) (“[P]laintiffs do not allege that the physicians made
false certifications independently, but that the physicians could not legitimately
exercise their medical judgment because defendants provided false information on
which the physicians relied.”).
Defendant further argues that Relator’s allegations only highlight a
disagreement of opinion amongst medical personnel, and a mere disagreement
between non-physician employees and a certifying physician does not render the
doctor’s certification fraudulent. Facts that rely upon clinical medical judgments,
however, “are not automatically excluded from liability under the FCA.” Landis,
2010 WL 5067614, at *4; U.S. ex rel. Morton v. A Plus Benefits, Inc., 139 F. App’x
980, 983 (10th Cir. 2005) (“[W]e are not prepared to conclude that in all instances,
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 36 of 41 PageID #:1776
merely because the verification of a fact relies upon clinical medical judgments . . .
the fact cannot form the basis of an FCA claim.”).
Moreover, Relator does not
merely allege a difference of opinion; rather, she essentially claims that Defendants’
misrepresentations prevented physicians from properly exercising their medical
judgment in the first place. Such allegations do more than “second-guess” medical
conclusions. See Strom ex rel. U.S. v. Scios, Inc., 676 F. Supp. 2d 884, 891 (N.D.
Cal. 2009) (“[T]his Court acknowledges that the Complaint alleges that doctors did
not, in fact, make considered medical judgments. Instead, the Complaint alleges
that doctors prescribed Natrecor for outpatient use only because they were induced
to do so by Defendants’ misrepresentations.”).
The AAH Defendants’ Motion to
Dismiss , therefore, is denied as it relates to improper certifications.
Claims Against Great Lakes
Claims against AAH and the Individual Defendants aside, Defendant Great
Lakes separately argues that Relator fails to adequately state any claims against
Great Lakes in particular. Recall that, according to Relator, Great Lakes did not
purchase AAH until approximately March 2015. Great Lakes argues that there are
no sufficiently particular allegations that any fraudulent conduct continued after
With or without direct allegations of fraudulent conduct, this Court finds that
Relator has sufficiently alleged that Great Lakes may be liable as AAH’s successor.
The doctrine of successor liability “provides an exception from the general rule that
a purchaser of assets does not acquire a seller’s liabilities.” Chicago Truck Drivers,
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 37 of 41 PageID #:1777
Helpers & Warehouse Workers Union (Indep.) Pension Fund v. Tasemkin, Inc., 59
F.3d 48, 49 (7th Cir. 1995). Under normal circumstances, successor liability applies
to FCA cases. United States ex rel. Ceas v. Chrysler Grp. LLC, 78 F. Supp. 3d 869,
877 (N.D. Ill. 2015); United States ex rel. Geschrey v. Generations Healthcare, LLC,
922 F. Supp. 2d 695, 709 (N.D. Ill. 2012). Of course, successor liability does not
automatically attach where one company acquires another.
applies only if: (1) the successor had notice of the claim before the acquisition; and
(2) there was substantial continuity in the operation of the business before and after
the sale. Chi. Truck Drivers, 59 F.3d at 49. In reviewing Relator’s allegations, it
must be noted that successor liability “is an equitable doctrine, not an inflexible
command.” Id. In “light of the difficulty of the successorship question, the myriad
factual circumstances and legal contexts in which it can arise, and the absence of
congressional guidance as to its resolution, emphasis on the facts of each case as it
arises is especially appropriate.” Howard Johnson Co., Inc. v. Detroit Local Joint
Exec. Bd., 417 U.S. 249, 256 (1974).
Here, the court finds that, viewing the facts in the light most favorable to
Relator, Relator has sufficiently alleged both notice and continuity at this stage of
the proceedings. True, Relator’s claims were not unsealed until April 26, 2016, a
year after Great Lake’s purchase. Relator alleges, however, that Great Lakes: (1)
conducted a presale audit; (2) retained management level employees, including
Defendant Shemanske; (3) operated the same business out of the same office; (4)
employed the same staff; (5) took control of AAH’s medical records and documents;
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 38 of 41 PageID #:1778
and (6) received AAH’s Medicare licenses and patient accounts. For the purposes of
a motion to dismiss, these facts indicate both notice and continuity. See SAC 
¶¶ 21-36; see also Chi. Truck Drivers, 59 F.3d at 49 (“New Tasemkin was owned by
the daughter-in-law of Old Tasemkin’s owner, Irving Steinberg; Steinberg’s son
Leslie, formerly the registered agent for Old Tasemkin, was New Tasemkin’s
president and secretary; New Tasemkin operated the same business (albeit from
fewer locations), employed largely the same staff, and relied primarily on the same
suppliers. Leslie Steinberg’s active role in both old and new companies may well
satisfy the notice prong; New Tasemkin’s assumption of Old Tasemkin’s corporate
identity makes a strong case for substantial continuity.”); U.S. ex rel. Geschrey v.
Generations Healthcare, LLC, 922 F. Supp. 2d 695, 709 (N.D. Ill. 2012) (“The
continuance of staff in management positions further supports the inference that
Odyssey or its principals had actual notice of Generations’s potential liability.”).
Relator’s Purported Release of Claims
Finally, Defendants claim that Relator’s claims are barred by a release
contained in a prior settlement agreement.
As background, Relator brought a
federal civil suit against AAH in 2012 alleging violations of the Fair Labor
Standards Act. See generally O’Donnell v. Angels at Home, No. 1:12-cv-6762 (N.D.
Ill. 2012). After Great Lakes purchased AAH during the course of Relator’s pending
employment suit, Relator filed a state civil suit against both AAH and Great Lakes
alleging violations of the Uniform Fraudulent Transfers Act.
O’Donnell v. Angels at Home, No. 2015-L-8039 (Ill. Cir. Ct.). The parties settled
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 39 of 41 PageID #:1779
both suits shortly thereafter. Defendants allege that, as part of the underlying
settlement agreement, Relator agreed to a release of all related claims, including
those that form the subject of the present litigation.
Based upon the current record, this Court declines to rule upon Defendant’s
argument at this juncture. In Illinois, a release within a settlement agreement is
governed by contract law. Cannon v. Burge, 752 F.3d 1079, 1088 (7th Cir. 2014)
(citing Farm Credit Bank of St. Louis v. Whitlock, 581 N.E.2d 664, 667 (Ill. 1991)).
Thus, where a release agreement “is clear and explicit, a court must enforce the
agreement as written.” Id. (citing Rakowski v. Lucente, 472 N.E.2d 791, 794 (Ill.
1984)). That is, both “the meaning of the instrument,” and “the intention of the
parties” must be gathered “from the face of the document,” without the assistance of
“parol evidence or any other extrinsic aids.” Id. (citing Rakowski, 472 N.E.2d at
794). In contrast, “when a contract is ambiguous, construction of the agreement is a
question of fact, and the finder of fact may consider parol evidence in determining
the intent of the parties.”
Id. (citing Whitlock, 581 N.E.2d at 667).
purported release statement contains the following language:
Mutual Release. In consideration of the payments set
forth in . . . this Agreement, and of the other promises and
covenants set forth herein, the Parties agree to the
following Mutual Release: (a) Steven O’Donnell and Amy
O’Donnell, on behalf of themselves and their heirs,
legatees, personal representatives, successors and
assigns, hereby waive, release and forever discharge all
employment claims and employment causes of action, and
all claims asserted in the Federal Lawsuit and State
Lawsuit, which they have, had, or may have through the
date of this Agreement, whether known or unknown, from
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 40 of 41 PageID #:1780
the beginning of time up to and including the date of this
Agreement . . . .
Rel.’s Resp.  Ex. E at 3. At present, the Court need not delineate the exact scope
of Relator’s release agreement. For the purposes of Defendants’ motions, it suffices
to say that the mutual release does not clearly and explicitly release Relator’s FCA
claim. As such, the need to resort to extrinsic evidence to resolve any possible
ambiguity reaches beyond the scope of Defendants’ motions to dismiss. See Mannie
v. Potter, 326 F. Supp. 2d 880, 882 (N.D. Ill. 2004).
Leave to Re-plead
In her response to the present motions, Relator requests leave to re-plead any
claims dismissed by the Court, and predictably, Defendants insist that leave to replead should not be granted. Relator has the better of this argument. Although
further amendment will constitute Relator’s third try, “the Court notes that this is
the first complaint actually challenged by motions to dismiss. Because Defendants
have only had to answer once, and because the Court does not believe amendment
would necessarily be futile, it grants leave to replead.” U.S. ex rel. Grenadyor v.
Ukranian Vill. Pharmacy, Inc., 895 F. Supp. 2d 872, 882 (N.D. Ill. 2012); see also
Fed. R. Civ. P. 15(a) (“The court should freely give leave [to amend] when justice so
requires.”). Both Defendants and the Court, however, “have put Relator on notice of
several deficiencies,” and she must “be diligent about addressing them in any new
complaint.” Id. Needless to say, any failure to properly address the deficiencies will
result in serious consequences for her case.
Case: 1:14-cv-01098 Document #: 94 Filed: 06/20/17 Page 41 of 41 PageID #:1781
Defendants’ motions to dismiss [76, 79] are granted in part and denied in
part as stated above.
Counts II and III of the SAC  are dismissed with
prejudice. The SAC is further dismissed as it relates to Defendant Richards, as well
as to the extent Relator’s theory of liability depends upon: (1) the improper inflation
of patient visits; (2) manipulation of HHRG scores; (3) billing for duplicative
personal care services; (4) kickbacks to Defendant Shemanske and physicians
besides Dr. Zaman and Dr. Nagubadi; and (5) unlawful solicitation of patients. The
remaining portions of the SAC stand. Relator is given leave to re-plead any claims
dismissed pursuant to the Court’s order, except for Counts II and III.
Date: June 20, 2017
John Robert Blakey
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?