United States of America Ex Rel et al v. St. Joseph Hospice, LLC

Filing 61

MEMORANDUM OPINION AND ORDER granting in part and denying in part 47 Motion to Dismiss. The motion is granted in part and denied in part as provided in the opinion. Signed by District Judge Keith Starrett on 3/19/19. (cb)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
EASTERN DIVISION
UNITED STATES ex rel. DARLENE
THOMAS and JOHN O=NEILL,
v.

RELATORS

CIVIL ACTION NO. 2:16-CV-143-KS-MTP

ST. JOSEPH HOSPICE, LLC, et al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER
The Court grants in part and denies in part Defendants’ Motion to Dismiss
[47], as provided below.
I. BACKGROUND
This is a qui tam action under the False Claims Act (“FCA”). 1 Defendants
provide hospice services. Relator John O=Neill was the Executive Director of
Defendants’ office in Biloxi, Mississippi, and Relator Darlene Thomas was the
Director of Nursing at Defendants’ office in Hattiesburg, Mississippi. They claim that
Defendants violated the FCA and the Anti-Kickback Statute (“AKS”) 2 by providing
bonuses and incentives to medical directors and employees for referrals, improper
certifications of terminal illness, and improper alterations of patient diagnoses to
maintain Medicare reimbursement status. Defendants filed a Motion to Dismiss [47],
which the Court now addresses.

1
2

31 U.S.C. ' 3729, et seq.
42 U.S.C. ' 1320a-7b(b).

II. PUBLIC DISCLOSURE BAR
Some of Relators’ FCA claims are premised upon violations of the AKS, and
some are premised upon violations of other laws and/or other improprieties. The nonAKS claims can be categorized as follows. First, Relators allege that Defendants’
Medical Director made “improper referrals.” Complaint at 3, United States ex rel.
Thomas v. St. Joseph Hospice, LLC, No. 2:16-CV-143-KS-MTP (S.D. Miss. Sept. 4,
2016), ECF No. 3. They allege that Defendants’ medical directors would write
referrals themselves rather than the patients’ treating physicians, referring patients
who did not meet hospice criteria. Id. at 14-15. Second, Relators allege that
Defendants “made it a company-wide practice to backdate” Certifications of Terminal
Illness (“CTI=s”), which were required by Medicare regulations before payment of
hospice claims. Id. at 15. Third, Relators allege that Defendants “instructed staff to
change patient diagnos[es]” to different codes that Medicare would reimburse. Id. at
16. Fourth, Relators allege that Defendants provided inadequate patient care by
understaffing and failing to provide commonly used medications to their patients. Id.
at 17-18. Defendants argue that the Court must dismiss these non-AKS claims
pursuant to 31 U.S.C. ' 3730(a)(4)(A)’s public disclosure bar.
“[T]he Fifth Circuit has noted that a challenge under the FCA’s public
disclosure bar should be treated as a motion for summary judgment, as it is
necessarily intertwined with the merits of the case.” United States ex rel. Jamison v.
McKesson Corp., No. 2:08-CV-214-SA-DAS, 2010 WL 1276712, at *1 (N.D. Miss. Mar.
25, 2010), aff’d, 649 F.3d 322 (5th Cir. 2011). Therefore, although Defendants framed

their argument under Rule 12(b)(6), Rule 56 applies. 3
Rule 56 provides that “[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); see also Sierra Club,
Inc. v. Sandy Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir. 2010). The Court
is not permitted to make credibility determinations or weigh the evidence. Deville v.
Marcantel, 567 F.3d 156, 164 (5th Cir. 2009). When deciding whether a genuine fact
issue exists, “the court must view the facts and the inference to be drawn therefrom
in the light most favorable to the nonmoving party.” Sierra Club, Inc., 627 F.3d at
138. However, “[c]onclusional allegations and denials, speculation, improbable
inferences, unsubstantiated assertions, and legalistic argumentation do not
adequately substitute for specific facts showing a genuine issue for trial.” Oliver v.
Scott, 276 F.3d 736, 744 (5th Cir. 2002).
The FCA provides:
(A)

The Court shall dismiss an action or claim under this section,
unless opposed by the Government, if substantially the same
allegations or transactions as alleged in the action or claim were
publicly disclosed B
(i)

in a Federal criminal, civil, or administrative hearing in
which the Government or its agent is a party;

The Court provided notice to the parties that it intended to apply Rule 56 and gave Relators an
opportunity to present evidence in support of their response to Defendants’ motion. See Order,
United States ex rel. Thomas v. St. Joseph Hospice, LLC, No. 2:16-CV-143-KS-MTP (S.D. Miss. Oct.
4, 2018), ECF No. 52.
3

3

(ii)

in a congressional, Government Accountability Office, or
other Federal report, hearing, audit, or investigation; or

(iii)

from the news media,

unless the action is brought by the Attorney General or the person
bringing the action is the original source of the information.
(B)

For purposes of this paragraph, “original source” means an
individual who either (1) prior to a public disclosure under
subsection (e)(4)(A), has voluntarily disclosed to the Government
the information on which allegations or transactions in a claim
are based, or (2) who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or
transactions, and who has voluntarily provided the information
to the Government before filing an action under this section.

31 U.S.C. ' 3730(e)(4). Therefore, the Court must compare Relators’ allegations with
“public disclosures available at the time the complaint was filed.” United States ex
rel. Solomon v. Lockheed Martin Corp., 878 F.3d 139, 144 (5th Cir. 2017). The Court
applies a three-part test, “asking 1) whether there has been a public disclosure of
allegations or transactions, 2) whether the qui tam action is based upon such publicly
disclosed allegations, and 3) if so, whether the relator is the original source of the
information.” Id. at 143 (punctuation omitted). But the analysis is flexible, and the
Court may combine steps when expedient. United States ex rel. Jamison v. McKesson
Corp., 649 F.3d 322, 327 (5th Cir. 2011).
The party raising the public disclosure bar “must first point to documents
plausibly containing allegations or transactions on which [the relator=s] complaint is
based.” Id. Then, “to survive summary judgment, [the relator] must produce evidence
sufficient to show that there is a genuine issue of material fact as to whether his
4

action was based on those public disclosures.” Id. The Court views the relator’s
evidence “in the light most favorable to him,” id., and the Court looks at the relator’s
“original complaint to define the scope of his action and to determine whether it was
based on public disclosures of allegations or transactions,” rather than any
subsequent amended complaints. Id. at 328. 4
First, the Court must determine whether the allegations or transactions of
Relators’ initial Complaint had already been publicly disclosed at the time this suit
was filed. According to the statute, a public disclosure occurs when the allegations or
transactions are disclosed in “a Federal criminal, civil, or administrative hearing in
which the Government or its agent is a party;” “in a congressional, Government
Accountability Office, or other Federal report, hearing, audit, or investigation;” or by
the “news media.” 31 U.S.C. ' 3730(e)(4)(A). Defendants must only identify public
disclosures that could plausibly be the source of Relators” FCA claims. Solomon, 878
F.3d at 144.
A.

Prior Qui Tam Complaint
First, Defendants contend that Relators’ claims were publicly disclosed in the

Past versions of the statute specified that the public disclosure bar was jurisdictional in nature, see
Solomon, 878 F.3d at 143, but the statute was amended in 2010. After the amendment, the Fifth
Circuit held that “the public disclosure bar is no longer jurisdictional.” Abbot v. BP Exploration &
Prod., Inc., 851 F.3d 384, 387 n. 2 (5th Cir. 2017). But the Fifth Circuit’s previous holding that courts
must examine a relator’s original complaint when applying the public disclosure bar was premised
upon the jurisdictional nature of the statute. See Jamison, 649 F.3d at 328. The Fifth Circuit has not
revisited the question of whether courts should consider amended pleadings since clarifying that the
public disclosure bar is no longer jurisdictional in nature. Therefore, absent further clarification of
the amendment’s practical implications, the Court will assume that the applicable standard of
review and burdens of proof remain the same.

4

5

complaint of a prior qui tam action. See Complaint, United States ex rel. Diamond v.
St. Joseph Hospice, No. 1:12-CV-393-LG-JCG (S.D. Miss. Dec. 14, 2012), ECF No. 2;
Exhibit 2 to Motion, United States ex rel. Thomas v. St. Joseph Hospice, LLC, No.
2:16-CV-143-KS-MTP (S.D. Miss. Aug. 27, 2018), ECF No. 47-3. In Diamond, the
relators were Defendant’s employees. Exhibit 2 [47-3], at 2. They made the following
allegations:
•

“Defendants routinely admit into hospice patients who are not
eligible to receive hospice benefits from Medicare Part A.” Id. at
5.

•

“Defendants falsify patients’ life expectancy in order to qualify
those patients for hospice reimbursement from Medicare,
maintain patients on hospice after their medical condition has
stabilized rather than discharging them from hospice as
required by Medicare regulations, and exaggerate patients’ signs
and symptoms in order to qualify them for hospice
reimbursement for Medicare.” Id. at 5-6.

•

“Defendants aggressively market continuous care hospice
services and routinely bill continuous care services to the
government for patients who do not qualify for that level of care.”
Id. at 6.

•

“Defendant St. Joseph Hospice, through its marketers and other
staff, engaged in a concerted effort to convince hospitals and the
families of hospice patients that hospice patients should be
enrolled in St. Joseph’s continuous care hospice program,” by
making certain representations to hospital administrators and
the families of hospice patients. Id. 6. “As a result of these efforts,
the continuous care revenues of St. Joseph increased from
$26,000 in 2009 to $373,000 in 2010, $2.57 million in 2011, and
$3.9 million from January 1, 2012, through August 31, 2012.” Id.
at 7.

•

Relators alleged that they reviewed patient charts for “numerous
Medicare beneficiaries” and discovered that “a substantial
6

percentage of patients enrolled with St. Joseph were not eligible
for the Medicare hospice benefit,” and that “a substantial
percentage of St. Joseph patients from whom continuous care
services were billed were not in crisis situations at the time those
claims were submitted and therefore did not qualify for the
continuous care benefit.” Id.
•

Finally, in Diamond, the Relators provided a list of patients
admitted by St. Joseph who did not actually qualify for hospice
care. See Exhibits A & B to Complaint, United States ex rel.
Diamond v. St. Joseph Hospice, No. 1:12-CV-393-LG-JCG (S.D.
Miss. Dec. 14, 2012), ECF No. 2-2, 2-3.

These allegations are substantially identical to Relators’ allegations of improper
referrals, and, therefore, the Court concludes that they could plausibly be the source
of those claims.
Next, the Court must determine whether Relators’ Complaint was “based
upon” the public disclosures. Jamison, 649 F.3d at 331. “A plaintiff’s FCA complaint
is based upon public disclosures if one could have produced the substance of the
complaint merely by synthesizing the public disclosures’ description of the joint
venture scheme.” Solomon, 878 F.3d at 144. “[T]he publicly disclosed allegations or
transactions need only be as broad and as detailed as those in the relator’s complaint
. . . .” Jamison, 649 F.3d at 327. “The public disclosures must therefore provide specific
details about the fraudulent scheme and the types of actors involved in it sufficient
to set the government on the trail of the fraud.” Solomon, 878 F.3d at 144 (quoting
Jamison, 649 F.3d at 329).
The Fifth Circuit has adopted a test to determine “whether public disclosures
contain sufficient indicia of an FCA violation to bar a subsequently filed FCA
7

complaint.” Id.
[T]he combination of X and Y must be revealed, from which the readers
or listeners may infer Z. Z is an inference of fraud under the FCA, while
the X and Y are two required elements for the inference: a
misrepresented state of facts and a true state of facts. The presence of
one or the other in the public domain, but not both, cannot be expected
to set government investigation on the trail of fraud.
Id. (citing United States ex rel. Colquitt v. Abbot Labs., 858 F.3d 365, 374 (5th Cir.
2017); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 654
(D.C. Cir. 1994)).
In the Court’s opinion, Relators “could have produced the substance” of the
improper referral allegations “merely by synthesizing” the allegations of the Diamond
complaint. Id. The Diamond relators alleged a substantially similar scheme involving
the referral of patients who did not qualify for hospice services. Therefore, the Court
finds that the current Complaint’s allegations of improper referrals were “based on”
the prior disclosure in the Diamond case.
Although Relators’ allegations of improper referrals were based on a prior
public disclosure, those claims may proceed if Relators are the “original source” of the
publicly disclosed information. Id. at 146. The statute defines an Aoriginal source@ as:
. . . an individual who either (1) prior to a public disclosure under
subsection (e)(4)(A), has voluntarily disclosed to the Government the
information on which allegations or transactions in a claim are based,
or (2) who has knowledge that is independent of and materially adds to
the publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before filing an
action under this section.
31 U.S.C. ' 3730(e)(4)(B). The Fifth Circuit uses a two-part test when applying the
8

original-source exception: “(1) the relator must demonstrate that he or she has direct
and independent knowledge of the information on which the allegations are based
and (2) the relator must demonstrate that he or she has voluntarily provided the
information to the Government before filing his or her qui tam action.” Solomon, 878
F.3d at 146 (quoting United States ex rel. Reagan v. E. Tex. Med. Ctr. Regional
Healthcare Sys., 384 F.3d 168, 177 (5th Cir. 2004)).
Relators have not alleged or provided any evidence that they disclosed the
information regarding improper referrals to the Government prior to the disclosure
of similar claims in the prior qui tam action. See 31 U.S.C. § 3730(e)(4)(B) (requiring
that “original source” have disclosed the information to the Government before the
public disclosure). However, Relators alleged substantially more details regarding
the improper referrals than were provided in the prior qui tam complaint, and their
positions within the Defendant companies attest that their knowledge was gained
through their own observation and experience, independent from the prior disclosure.
Accordingly, the Court concludes that their knowledge of these matters was acquired
“independent of and materially adds to the publicly disclosed allegations or
transactions.” Id. It appears to be undisputed that they voluntarily disclosed what
they knew to the Government before filing this action. Accordingly, the Court
concludes that the original source exception applies, and their claims regarding
improper referrals are not barred by the public disclosure in the prior qui tam case.
B.

Letters to U.S. Attorney’s Office
9

Defendants also argue that the facts underlying Relators’ claims regarding
backdated CTI’s and face-to-face attestations were publicly disclosed by Defendants
to the U.S. Attorney’s office while the prior qui tam case was pending. Defendants
provided a sworn declaration from its corporate counsel to this effect. Exhibit 1 to
Motion to Dismiss [47-2], at 2. Also, Defendants attached correspondence from 2014
in which they disclosed these matters to Assistant United States Attorney Angela
Williams in response to a subpoena that was issued as part of the investigation of the
prior qui tam complaint. Id. at 4-7. The correspondence concerned the actions of
Defendants’ former employees, Kellie Compton and Carla Schuler, who are
prominently mentioned in the Second Amended Complaint as key figures in the
allegations concerning backdated CTI’s and face-to-face attestations. It is
indisputable that the prior correspondence to the U.S. Attorney’s office concerns the
same events alleged by Relators. Therefore, the Court finds that there was a prior
public disclosure of Relators’ allegations concerning backdated CTI’s and face-to-face
attestations, and that Relators’ claims were based on the public disclosure.
Relators argue that Defendants’ self-reporting does not fall within the
statutory definition of a public disclosure. Relators cited no case law categorically
excluding self-reported matters from the definition of a public disclosure. According
to the statute, a public disclosure occurs when the allegations or transactions are
disclosed in “a congressional, Government Accountability Office, or other Federal . . .
investigation . . . .” 31 U.S.C. ' 3730(e)(4)(A)(ii). The U.S. Attorney’s investigation of
10

the claims in the previous qui tam action is a federal investigation. Therefore, the
Court concludes that the correspondence to AUSA Williams, cited above, falls within
the statutory definition.
Relators also argue that the Court can not consider the correspondence because
it is outside the pleadings. As noted above, “the Fifth Circuit has noted that a
challenge under the FCA’s public disclosure bar should be treated as a motion for
summary judgment, as it is necessarily intertwined with the merits of the case.”
Jamison, 2010 WL 1276712 at *1. The Court notified the parties that it intended to
apply Rule 56 and gave Relators an opportunity to present evidence in support of
their response to Defendants’ motion. See Order [52]. Therefore, the Court may
consider the correspondence.
Although the Court has concluded that Relators’ allegations of backdated CTI’s
and face-to-face attestations were based on a prior public disclosure, those claims may
proceed if Relators are the “original source” of the publicly disclosed information.
Solomon, 878 F.3d at 146. The Fifth Circuit uses a two-part test when applying the
original-source exception: “(1) the relator must demonstrate that he or she has direct
and independent knowledge of the information on which the allegations are based
and (2) the relator must demonstrate that he or she has voluntarily provided the
information to the Government before filing his or her qui tam action.” Id.
Relators have not alleged or provided any evidence that they disclosed the
information about Kellie Compton and Carla Schuler backdating CTI’s and face-to11

face attestations to the Government prior to Defendants’ disclosure to the U.S.
Attorney’s office in 2014. See 31 U.S.C. § 3730(e)(4)(B) (requiring that “original
source” have disclosed the information to the Government before the public
disclosure). Moreover, Relators’ original Complaint contains no additional allegations
that materially add to those disclosed to the U.S. Attorney’s office in 2014. See
Complaint [3], at 15-16; 31 U.S.C. § 3730 (e)(4)(B) (requiring that an original source
must have knowledge that materially adds to what was publicly disclosed). Therefore,
the Court finds that the original source exception does not apply to the public
disclosure in the correspondence to the U.S. Attorney’s office in response to the
Government’s subpoena in the prior qui tam case. Accordingly, Relators’ claims
related to the backdated CTI’s and face-to-face attestations are barred by 31 U.S.C. §
3730.
III. OTHER ARGUMENTS
The Court addresses Defendants’ remaining arguments under Rule 12(b)(6).
To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible
on its face.” Great Lakes Dredge & Dock Co. LLC v. La. State, 624 F.3d 201, 210 (5th
Cir. 2010) (punctuation omitted). “To be plausible, the complaint’s factual allegations
must be enough to raise a right to relief above the speculative level.” Id. (punctuation
omitted). The Court must “accept all well-pleaded facts as true and construe the
complaint in the light most favorable to the plaintiff.” Id. But the Court will not accept
12

as true “conclusory allegations, unwarranted factual inferences, or legal conclusions.”
Id. Likewise, “a formulaic recitation of the elements of a cause of action will not do.”
PSKS, Inc. v. Leegin Creative Leather Prods., Inc., 615 F.3d 412, 417 (5th Cir. 2010)
(punctuation omitted). “While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S.
662, 679, 129 S. Ct. 1937, 1950, 173 L. Ed. 2d 868 (2009).
Additionally, “complaints under the FCA must comply with Rule 9(b), which
provides that ‘[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.’” United States ex rel. Rigsby v. State
Farm Fire & Cas. Co., 794 F.3d 457, 466 (5th Cir. 2015). “Malice, intent, knowledge,
and other conditions of a person=s mind may be alleged generally.” FED. R. CIV. P.
9(b).
Rule 9(b) generally requires the plaintiff to plead the time, place, and
contents of the false representation and the identity of the person
making the representation. However, an FCA claim can meet Rule 9(b)=s
standard if it alleges “particular details of a scheme to submit false
claims paired with reliable indicia that lead to a strong inference that
claims were actually submitted.”
United States v. Bollinger Shipyards, Inc., 775 F.3d 255, 260 (5th Cir. 2014) (quoting
United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)). The
typical “‘time, place, contents, and identity’ standard is not a straitjacket for Rule
9(b).” Grubbs, 565 F.3d at 190.

The “rule is context specific and flexible and must

remain so to achieve the remedial purpose of the False Claim Act.” Id. A “plaintiff
does not necessarily need the exact dollar amounts, billing numbers, or dates to prove
13

to a preponderance that fraudulent bills were actually submitted,” and, therefore, he
does not necessarily have to plead such details to survive a motion to dismiss. Id.
A.

Particular Allegations Against Each Defendant
First, Defendants argue that Relators’ allegations are not sufficiently

particular because they collectively refer to the Defendants, rather than
distinguishing between them. In other words, Defendants argue that Relators must
specify which of the two named Defendants committed each act alleged in the Second
Amended Complaint.
Rule 9(b) provides: “In alleging fraud . . . , a party must state with particularity
the circumstances constituting the fraud or mistake.” FED. R. CIV. P. 9(b). Applying
this rule, the Fifth Circuit has suggested that an FCA plaintiff must plead “the
identity of the corporate actor with particularity.” United States ex rel. Hebert v.
Dizney, 295 F. App’x 717, 722 (5th Cir. 2008). However, in Hebert, the plaintiffs
named twenty-one corporate and six individual defendants. Id. That is a far different
situation than here, where Relators named only two corporate Defendants, St. Joseph
Hospice, LLC and St. Joseph’s Holdings, LLC. Moreover, most of the Fifth Circuit’s
discussion in Hebert focused on the “what, when, or where” of the false allegations,
rather than the identity of the corporate entity submitting the allegedly false claim.
Id. at 721-24.
As noted above, “Rule 9(b) generally requires the plaintiff to plead the time,
place, and contents of the false representation and the identity of the person making
14

the representation,” but “an FCA claim can meet Rule 9(b)=s standard if it alleges
particular details of a scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually submitted.” Bollinger Shipyards,
775 F.3d at 260. In the Court’s opinion, Relators provided sufficient information for
Defendants to answer the allegations and conduct discovery. One does not read a
pleading’s factual allegations in isolation from one another. Rather, they are read
within the context of the whole. The Second Amended Complaint contains enough
context for Defendants to discern which allegations apply to each of them.
B.

Knowledge
Next, Defendants argue that Relators did not sufficiently plead knowledge.

Specifically, Defendants argue that Relators failed to allege that anyone knowingly
submitted a fraudulent claim based upon the conduct alleged in the Second Amended
Complaint.
The FCA imposes civil penalties 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.” 31 U.S.C. § 3729(a)(1)(B). “The terms ‘knowing’ and ‘knowingly’
mean that a person ‘(i) has actual knowledge of the information; (ii) acts with
deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless
disregard of the truth or falsity of the information.’” United States ex rel. Steury v.
Cardinal Health, Inc., 625 F.3d 262, 267 (5th Cir. 2010) (quoting 31 U.S.C. §
3729(b)(1)(B)). Rule 9 provides that “knowledge . . . may be alleged generally.” FED.
15

R. CIV. P. 9(b).
Relators alleged that Darlene Thomas personally observed the fraudulent
activity alleged in the Second Amended Complaint “in IDT meetings, weekly KPI
conference calls, pharmacy conference calls, and various other meetings and phone
calls involving St. Joseph senior management and administrators.” Second Amended
Complaint at 4, United States ex rel. Thomas v. St. Joseph Hospice, LLC, No. 2:16CV-143-KS-MTP (S.D. Miss. Aug. 13, 2018), ECF No. 45. She allegedly “reported the
improper activity as improper to Pat Mitchell, CEO; Anthony Martinez, VP of
Hospice; Carla Bonvillan, Compliance Officer; and Jeff Morthland, Corporate
Attorney by writing a letter listing some of the fraudulent activity she had
witnessed.” Id. Thomas claims that “executive management” later called her to a
meeting where she was “coerced to sign a declaration that [she was] aware of no
wrongdoing by St. Joseph’s Hospice.” Id. She alleges that when she returned from the
meeting, “all of the patient records had been removed from the Hattiesburg office”
and taken to Wiggins, where material alterations were made to them. Id. at 4-5.
Additionally, Relators alleged that the Picayune Medical Director refused to
sign a declaration that he was not “given anything of value for referrals and that he
was never asked to refer patients to St. Joseph.” Id. at 27. The physician, Dr. Gipson,
allegedly “said that he was not comfortable signing the document,” and that “he was
concerned with the referrals and felt that they were inappropriate for hospice
admission.” Id. at 27-28.
16

In summary, Relators alleged that Darlene Thomas informed senior executives
of the fraudulent activity, and that in response to her correspondence, Defendants
coerced her to sign a declaration absolving them of wrongdoing while they altered
patient records to cover their tracks. Relators also alleged that a Medical Director
told Defendants’ administrators that he believed patients were being inappropriately
referred for hospice services. These allegations are sufficient to state Defendants’
knowledge of the fraudulent activities alleged in the Second Amended Complaint.
C.

Presentment
Next, Defendants argue that Relators failed to plead sufficiently particular

allegations of presentment. Defendants apparently contend that Relators must allege
the specific dates, amounts, services provided, and places of the alleged false claims.
To state a claim under Section 3729(a)(1)(A), one must allege: “(1) a false
statement or fraudulent course of conduct; (2) that was made or carried out with the
requisite scienter; (3) that was material; and (4) that caused the government to pay
out money (i.e., that involved a claim).” United States ex rel. Spicer v. Westbrook, 751
F.3d 354, 365 (5th Cir. 2014). Presentment of a claim is the act giving rise to liability
under Section 3729(a)(1)(A), and “[f]raudulent presentment requires proof only of a
claim’s falsity, not its exact contents.” Grubbs, 565 F.3d at 189. A relator “does not
necessarily need the exact dollar amounts, billing numbers, or dates to prove to a
preponderance of the evidence that fraudulent bills were actually submitted.” Id. at
190. Therefore, such details are not required at the pleading stage. Id. at 189-90. As
17

noted above, “a relator’s complaint, if it cannot allege the details of an actually
submitted false claim, may nevertheless survive by alleging details of a scheme to
submit false claims paired with reliable indicia that lead to a strong inference that
claims were actually submitted.” Id. at 190.
Relators alleged specific details of schemes to submit false claims. First, they
alleged that Defendants marketed their hospice services at community events, while
instructing their staff to imply to those in attendance that their conditions made them
eligible for free hospice benefits, without regard for their actual medical condition.
Second Amended Complaint [45], at 27. Second, Relators alleged that Defendants’
Medical Directors would sometimes write referrals to hospice, rather than a patient’s
treating physician. Id. at 27. Third, Relators alleged that Defendants instructed their
staff to “change patient diagnoses to something that allowed reimbursement” for
hospice services, without first seeing the patients. Id. at 32. Relators referred to
specific correspondence from Defendants’ CEO directing their Executive Directors to
instruct billing staff to make the changes. Id. at 32-33. In support of these general
allegations, Relators alleged that specific patients were admitted on specific dates,
and that fraudulent claims were submitted in relation to those specific
services/patients. Id. at 28, 31-32, 34.
In the Court’s opinion, Relators alleged enough “details of a scheme to submit
false claims paired with reliable indicia that lead to a strong inference that claims
were actually submitted.” Grubbs, 565 F.3d at 190. As noted above, a relator “does
18

not necessarily need the exact dollar amounts, billing numbers, or dates to prove to a
preponderance of the evidence that fraudulent bills were actually submitted.” Id. at
190. Therefore, Relators pleaded enough facts to survive a motion to dismiss under
Rule 12(b)(6).
D.

Certification (Non-AKS Claims)
Defendants argue that Relators’ reliance upon Form CMS-855A to support

allegations of false certification is erroneous. Defendants contend that Form CMS855A contains no acknowledgment that payment is conditioned upon compliance with
applicable conditions of participation. Defendants cited cases from outside this
jurisdiction in support of their argument, but they did not attach a copy of the
relevant form or direct the Court to where one can be found. See Memorandum in
Support of Motion to Dismiss at 14, United States ex rel. Thomas v. St. Joseph
Hospice, LLC, No. 2:16-CV-143-KS-MTP (S.D. Miss. Aug. 28, 2018), ECF No. 48. The
Court declines to search for evidence to support Defendants’ argument.
Next, Defendants argue that Relators’ reliance upon CMS Form 1450 to
support claims of false certification is erroneous. Defendants contend that the form’s
certification language can not form the basis of a false certification claim, citing
United States v. Catholic Health Sys. of Long Island Inc., 2017 WL 1239589, at *20
(E.D.N.Y. Mar. 31, 2017), in which the court held that the certifications on Form 1450
were “too vague and broad to support FCA claims based on express-false-certification
arguments.”
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Form 1450 contains numerous certifications. 5 The Court need not discuss
them with any specificity because Defendants did not do so in briefing. Absent
controlling Fifth Circuit precedent or, at the very least, more specific argument on
the issue, the Court declines to categorically bar all false certification claims based
on the submission of CMS Form 1450.
Defendants argue that Relators failed to allege sufficient facts in support of
the non-AKS false certification claims. Defendants contend that Relators failed to
allege the statutes or regulations violated, any certifications of compliance with such
statutes or regulations other than Form CMS-855A, what was stated in such
certification, how it was false, who made the certification, or that the Government
would have declined payment but for the allegedly false certifications.
“Under a false certification theory, a defendant can be liable under the FCA for
a legal violation if the government requires a certification of compliance with a
statute or regulation and the claimant falsely certifies compliance.” United States ex
rel. Guth v. Roedel Parsons Koch Blache Balhoff & McCollister, 626 F. App’x 528, 533
(5th Cir. 2015). But “claims for services rendered in violation of a statute do not
necessarily constitute false or fraudulent claims under the FCA.” United States ex rel.
Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997).
Rather, “where the government has conditioned payment of a claim upon a claimant’s

A copy of the form can be found on the CMS website: https://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PR-Listing-Items/CMS-1450.html.
5

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certification of compliance with . . . a statute or regulation, a claimant submits a false
or fraudulent claim when he or she falsely certifies compliance with that statute or
regulation.” Id. False certifications can be express or implied. See, e.g. United States
ex rel. Academy Health Ctr., Inc. v. Hyperion Foundation, Inc., 2014 WL 3385189, at
*35 (S.D. Miss. July 9, 2014). Relators alleged both theories here.
Among other things, Relators alleged that Defendants altered patient
diagnoses to ensure that claims would be paid. Second Amended Complaint [45], at
32-33. For example, Relators alleged that “all patients that were diagnosed with
dementia or failure to thrive were changed to a diagnosis of Alzheimer’s even though
the patient did not have Alzheimer’s disease.” Id. at 33. Relators alleged specific
examples of this practice, alleging the patients’ initials and admission dates. Id. at
34. Relators also alleged that Defendants were “required to expressly or impliedly
certify compliance with the Medicare, Medicaid, and Social Security laws and
regulations” to receive payment, and that Defendants impliedly certified compliance
with federal law every time they submitted a claim for payment. Id. at 10.
Guth, cited by Defendants, is inapposite because there, the relator generally
alleged that the defendant had “violated the federal regulations of HUD and the
CDBG program,” without citing specific regulations, asserting that they required
certifications of compliance, or alleging that the defendant had falsely certified
compliance. Guth, 626 F. App’x at 533. Likewise, in Gage, the relator failed to allege
“what was false about the claims or how they were false.” United States ex rel. Gage
21

v. Davis S.R. Aviation, LLC, 623 F. App’x 622, 626 (5th Cir. 2015). Here, Relators
have, at a minimum, pleaded sufficient facts to state false certification claims related
to altered patient diagnoses. Relators could have more clearly delineated their
various theories of liability. However, they alleged enough facts to state some false
certification claims, and the Court declines to dismiss all of their false certification
claims pursuant to 12(b)(6).
E.

Employee Ambassador Program
Defendants argue that providing bonuses to employees for referring hospice

patients is not a violation of the AKS because the statute includes a safe harbor for
payments by employers to bona fide employees. See 42 U.S.C. § 1320a-7b(b)(3)(B); 42
C.F.R. § 1001.952(i). “The bona fide employee exception is an affirmative defense on
which Defendants bear the burden of proof.” United States v. Vista Hospice Care, Inc.,
2016 WL 3449833, at *22 (N.D. Tex. June 20, 2016). A plaintiff need not plead facts
to counter an anticipated affirmative defense to avoid dismissal under Rule 12(b)(6).
See Wilson v. Kimberly-Clark Corp., 254 F. App’x 280, 287 (5th Cir. 2007); Odom v.
Am. Nonwovens Corp., 2010 WL 3782426, at *2 (N.D. Miss. Sept. 20, 2010). If
Defendants want the Court to address the bona fide employee safe harbor, then a
motion for summary judgment is the appropriate mechanism.
F.

Medical Director Referrals
Relators allege that Defendants’ Medical Directors were paid for patient

referrals. Defendants argue that they were not, in fact, paid for referrals, citing
22

documents attached to their motion. This is a factual dispute, and, as such, it can not
be addressed in a motion to dismiss. The Court must accept the factual allegations of
Relators’ Second Amended Complaint as true. Great Lakes Dredge & Dock, 624 F.3d
at 210.
Defendants also argue that Relators alleged insufficient facts to state an AKS
violation. Defendants contend that Relators failed to connect the listed patients to a
kickback, failed to allege a specific kickback tied to a specific referral, and failed to
allege a specific agreement between them and any Medical Director to provide
remuneration in exchange for referrals.
As noted above, “[c]laims brought under the FCA are fraud claims that must
also comply with the supplemental pleading requirements of Rule 9(b), demanding
that ‘a party must state with particularity the circumstances constituting fraud or
mistake.’” United States ex rel. Nunnally v. West Calcasieu Cameron Hosp., 519 F.
App’x 890, 892 (5th Cir. 2013). But “[i]n the context of the FCA, we have explained
that Rule 9(b) is ‘context specific and flexible,’ and noted that a plaintiff may
sufficiently state a claim with particularity ‘without including all the details of any
single court-articulated standard – it depends on the elements of the claim in hand.’”
Id. at 892-93 (quoting Grubbs, 565 F.3d at 189-90). A relator can, “in some
circumstances, satisfy Rule 9(b) by providing factual or statistical evidence to
strengthen the inference of fraud beyond mere possibility, without necessarily
providing details as to each false claim.” Id. at 893. Instead, the relator can “provide
23

other reliable indications of fraud and . . . plead a level of detail that demonstrates
that an alleged scheme likely resulted in bills submitted for government payment.”
Id.
Defendants argue that the Second Amended Complaint “merely offers
sweeping and conclusory allegations of ‘verbal agreements’ between [the Defendant]
and ‘various physicians,’ without a shred of detail or particularity,” regarding the
“contents of those agreements, the identity of any physicians, actual inducements, or
improper referrals.” Id. at 894. The Court disagrees with Defendants’ assessment of
the Second Amended Complaint.
Relators pleaded substantial details of the alleged agreement. They alleged
that Defendants paid their Medical Directors varying rates depending on the “volume
and value of each physician’s referrals,” and that Defendants would alter the hours
for which they paid each Medical Director depending on his or her referrals, and
“make up documentation to support those hours.” Second Amended Complaint [45],
at 18. Relators specifically alleged that Defendants’ office manager in Hattiesburg,
Penni Ellington, “would fill in the compensation sheet and make up time entries for
the Medical Directors” that did not correspond to their actual time working. Id.
Relators also alleged that Defendants’ Vice-President ordered one of them to “make
up log hours” for two Medical Directors “to equal the maximum payment available on
their contract and to keep them happy and generate referrals.” Id. at 18-19. Relators
were allegedly responsible for obtaining the Medical Directors’ signatures on falsified
24

time sheets. Id. at 19. When a Medical Director stopped “bringing in referrals,”
Defendants instructed Relators to reduce the Medical Directors’ pay. Id. Relators
named the specific persons employed by Defendants who gave these orders. Id. at 1920. Relators also named multiple Medical Directors who received compensation under
this system. Id. at 19-20, 22-24. Finally, Relators alleged specific patients referred by
specific Medical Directors in exchange for remuneration, and the specific dates on
which they were admitted. Id. at 23-24.
These allegations are “reliable indications of fraud,” and Relators pleaded “a
level of detail that demonstrates that an alleged scheme likely resulted in bills
submitted for government payment.” Nunnally, 519 F. App’x at 893.
G.

Improper Referrals
Defendants argue that Relators provided insufficient facts to support their

claims that Medical Directors would refer patients who did not meet the criteria for
hospice services.
Relators alleged that Defendants’ employees “were instructed to approach . . .
people and imply that their condition made them eligible for free hospice Medicare
benefits that would provide them pain meds and in home care.” Second Amended
Complaint [45], at 27. According to Relators, in some cases “a Medical Director from
St. Joseph would write the referral themselves rather than the patient’s treating
physician.” Id. Relators alleged that they were present when Defendants asked a
Medical Director to “sign a Medical Director Declaration . . . that he was never asked
25

to refer patients to St. Joseph.” Id. The Medical Director allegedly declined because
he was “concerned with the referrals and felt that they were inappropriate for hospice
admission.” Id. at 27-28. Relators cited two specific examples of improper patient
referrals, alleging the patients’ initials, admission dates, and medical conditions. Id.
at 28. These are sufficient facts to state a claim that Defendants admitted patients
who did not meet the criterial for hospice services.
H.

Altering Diagnoses
Defendants argue that they did not alter any patients’ diagnosis to get

reimbursement from Medicare. Rather, Defendants claim that they “clarified coding
requirements” in response to a CMS Hospice Manual Update in October 2014. This
is a factual dispute, and, as such, it can not be addressed in a motion to dismiss. The
Court must accept the factual allegations of Relators’ Second Amended Complaint as
true. Great Lakes Dredge & Dock, 624 F.3d at 210.
Defendants also argue that Relators pleaded insufficient facts to support their
claim that Defendants had a company-wide policy to change diagnoses to ensure
reimbursement. Relators alleged that Defendants altered patient diagnoses to ensure
that claims would be paid. Second Amended Complaint [45], at 32-33. Relators cited
correspondence from Defendants’ CEO, Pat Mitchell, in which he directed all of
Defendants’ Executive Directors – including one of the Relators – to “change the
primary diagnosis codes in the computer immediately from a non-billable code . . . to
a payable diagnosis code . . . ,” without any medical professional re-evaluating the
26

patient. Id. For example, Relators alleged that “all patients that were diagnosed with
dementia or failure to thrive were changed to a diagnosis of Alzheimer’s even though
the patient did not have Alzheimer’s disease.” Id. at 33. Relators alleged specific
examples of this practice, alleging the patients’ initials and admission dates. Id. at
34. According to Relators, this practice persisted from 2013 to present. Id. at 6. These
allegations are sufficient to state a claim that Defendants altered diagnoses to ensure
reimbursement.
I.

Staffing
Defendants argue that Relators provided insufficient facts to support their

claim that Defendants had a company-wide policy or practice of inadequate staffing.
Relators alleged that Defendants’ “nursing staff was so overwhelmed with
patients that they could not possibly provide appropriate care for their patients that
was consistent with their plans of care.” Id. at 34. Relators cited two specific examples
of understaffing, at two separate facilities. Id. According to Relators, these conditions
persisted from 2013 to present. Id. at 6. Therefore, Defendants have notice of an
alleged practice, a time period, two specific locations at which the practice occurred,
and two specific employees who participated in the practice. In the Court’s opinion,
these allegations are barely sufficient to satisfy Rule 12(b)(6).
J.

Supplies/Pharmacy
Defendants argue that Relators provided insufficient facts to support their

claim that Defendant had a company-wide policy or practice of providing inadequate
27

pharmaceuticals and supplies.
Relators alleged that Defendants’ employee, Carla Schuler, told them that
Defendants would not pay for a patient’s prescribed “common pain medicine
combination[ ] used in hospice patient care” because “they would only pay for one
medication and . . . this patient was already receiving a pain medicine.” Id. at 35.
Relators further alleged that Defendants would not provide the following “commonly
prescribed” Alzheimer’s and dementia medications to their patients: Aricept,
Namenda, and Exelon patches. Id. at 35-36. Relators also alleged that more than one
patient discontinued Defendants’ services because they could not received adequate
medication. Id. at 36. Relators alleged twelve specific patients for whom Defendants
would not provide adequate medications, providing their initials, admission dates,
and brief descriptions of their conditions and the medications Defendants would not
provide. Id. at 36-38. These are sufficient facts to support a claim that Defendants
had a company-wide policy or practice of providing inadequate medications.
Hebert, cited by Defendants, is inapposite. There, the relators only alleged that
the defendants “provided false information . . . regarding the quality of care . . . in the
course of negotiating for Medicare and Medicaid contracts . . . .” Hebert, 295 F. App’x
at 722. Here, Relators provided specific details regarding the alleged inadequacy of
the standard of care, including twelve specific examples of patients who were denied
prescribed medications.
K.

Count II – Section 3729(a)(1)(B)
28

Defendants argue that Relators did not plead sufficient facts to state a claim
under Section 3729(a)(1)(B). In response, Relators contend that their allegations
concerning falsified CTI’s state a claim under Section 3729(a)(1)(B). As provided
above, Relators’ claims based on falsified CTI’s are barred by 31 U.S.C. § 3730.
Relators identified no other facts in support of Count II’s assertion of claims under 31
U.S.C. § 3729(a)(1)(B). Therefore, the Court grants this aspect of Defendants’ motion.
L.

Count III – Independent AKS Claim
Finally, Defendants argue that the AKS does not provide an independent,

private right of action. Defendants are correct. AThe AKS provides no private right of
action; therefore, a private plaintiff may not sue a health care provider under the
AKS alone.@ Nunnally, 519 F. App=x at 893 n. 5 (citing 42 U.S.C. ' 1320a-7b(b)(1-2)). 6
To the extent Relators intended to plead an independent cause of action under the
AKS, that claim is dismissed.
IV. CONCLUSION
For these reasons, the Court grants Defendants’ Motion to Dismiss [47] in
part and denies it in part. Specifically:
•

Relators’ claims related to backdated CTI’s and face-to-face
attestations are barred by 31 U.S.C. § 3730.

also Ameritox, Ltd. v. Millenium Labs., Inc., 803 F.3d 518, 522 (11th Cir. 2015); Rzayeva
v. United States, 492 F. Supp. 2d 60, 78 (D. Conn. 2007); United States ex rel. Barrett v.
Columbia/HCA Healthcare Corp., 251 F. Supp. 2d 28, 37 (D. D.C. 2003); United States ex rel. Okeeffe
v. River Oaks Mgmt. Co., No. 2:16-CV-48-KS-MTP, 2017 WL 4685001, at *1-*2 (S.D. Miss. Oct. 18,
2017); United States ex rel. Hartwig v. Medtronic, Inc., No. 3:11-CV-413-CWR-LRA, 2014 U.S. Dist.
LEXIS 44475, at *48 n. 15 (S.D. Miss. Mar. 31, 2014).
6See

29

•

Count II of the Second Amended Complaint, Relators’ claims
under 31 U.S.C. § 3729(a)(1)(B), are dismissed because Relators’
claims related to backdated CTI’s are barred by 31 U.S.C. § 3730.

•

Count III of the Second Amended Complaint, Relators’
independent cause of action under the AKS, is dismissed because
the AKS does not provide a private right of action.

•

The Court denies Defendants’ Motion to Dismiss [47] in all other
respects.

SO ORDERED AND ADJUDGED this 19th day of March, 2019.
/s/ Keith Starrett
KEITH STARRETT
UNITED STATES DISTRICT JUDGE

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