Academy Health Center, Inc. et al v. Hyperion Foundation, Inc. et al

Filing 95

ORDER denying 66 Motion to Dismiss United States' Complaint in Intervention; granting in part and denying in part 68 Motion to Dismiss Academy's Second Amended Complaint for Lack of Subject Matter Jurisdiction and Failure to State A Claim; denying 79 Motion for Leave to Amend the Complaint; granting 84 Motion to Strike Affidavit of Melvin Eisele. Signed by District Judge Carlton W. Reeves on 07/09/14. (jc)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
UNITED STATES OF AMERICA
ex rel. ACADEMY HEALTH CENTER,
INC. f/k/a ADVENTIST HEALTH
CENTER, INC.
vs.

PLAINTIFF

CIVIL ACTION NO. 3:10-CV-552-CWR- LRA

HYPERION FOUNDATION, INC.,
d/b/a OXFORD HEALTH &
REHABILITATION CENTER;
ALTACARE CORPORATION;
HP/ANCILLARIES, INC.; LONG
TERM CARE SERVICES, INC.;
SENTRY HEALTHCARE
ACQUIRORS, INC.;
HP/MANAGEMENT GROUP, INC.;
HARRY McD. CLARK; JULIE
MITTLEIDER; DOUGLAS K.
MITTLEIDER; and JOHN DOES 1200,

DEFENDANTS

MEMORANDUM OPINION AND ORDER
Pending before the Court is a series of motions, including a Motion to Dismiss the United
States’ Complaint in Intervention, Docket No. 66; a Motion to Dismiss Academy’s Second
Amended Complaint for Lack of Subject Matter Jurisdiction and Failure to State A Claim,
Docket No. 68; a Motion for Leave to Amend the Complaint, Docket No. 79; and a Motion to
Strike the Affidavit of Melvin Eisele, Docket No. 84. After careful consideration of the briefs
and the record, the Court is ready to rule. The Defendants’ Motion to Dismiss the United States’
Complaint in Intervention will be DENIED.

The Motion to Dismiss Academy’s Second

Amended Complaint for Lack of Subject Matter Jurisdiction and Failure to State A Claim will be
GRANTED IN PART and DENIED IN PART. The Motion for Leave to Amend the Complaint
will be DENIED. The Motion to Strike the Affidavit of Melvin Eisele will be GRANTED.

1

I. PROCEDURAL HISTORY
This case arises out of a qui tam action brought by relator Academy Health Center, Inc.,
frequently known as Adventist Health Center, Inc. (hereinafter “AHC”), on behalf of the United
States (“Relator”). AHC is a health care provider which, as part of its business, owns and leases
skilled nursing facilities to other health care companies to manage them. On October 5, 2005,
Hyperion Foundation, Inc. (hereinafter “Hyperion”) entered into a lease agreement with AHC to
manage the Oxford Health and Rehabilitation Center (hereinafter “Oxford” or “the Facility”), a
skilled nursing facility in Lumberton, Mississippi. In turn, Hyperion entered into a management
agreement with defendant AltaCare Corporation (hereinafter “Altacare”) to manage the facility.
As part of the terms, conditions and provisions of the lease agreement, Hyperion assumed the
operations of Oxford and all of the rights and authority to operate Oxford and receive and accept
payments, including those from Medicare and Medicaid, on behalf of the facility and its residents
for services rendered to those residents.
The Relator AHC claims that this case began when Hyperion failed to pay the rent due to
AHC, in violation of the lease agreement.

AHC performed an initial investigation and

determined that the Defendants could not or would not provide the requisite level of care for the
residents. As a result, AHC took steps to terminate the lease and evict Hyperion as a tenant.
On July 15, 2008, AHC filed a Motion and/or Affidavit to Remove Tenant in the Justice
Court of Lamar County, Mississippi, in an effort to evict Hyperion from the premises and
terminate the relationship. The Motion sought to remove Hyperion as tenant by August 1, 2008,
but Hyperion requested to continue the eviction hearing until August 6, 2008. On August 5,
2008, Hyperion filed a petition under Chapter 11 of the United States Bankruptcy Code before

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the U.S. Bankruptcy Court for the Southern District of Mississippi. As a result of the bankruptcy
filing, the eviction proceeding could not go forward. See 11 U.S.C. § 362(a).
On September 30, 2009, Relator AHC filed its original Qui Tam Complaint and Other
Relief in the bankruptcy proceeding, under seal, pursuant to Title 11, 28 U.S.C. §§ 157 and
1334(a)-(b). AHC provided a copy of the complaint and a confidential disclosure statement of
all material evidence and information to the Attorney General of the United States and the U.S.
Attorney for the Southern District of Mississippi, as required by the False Claims Act. See 31
U.S.C. § 3730(b)(2). On November 20, 2009, Relator AHC filed its First Amended Qui Tam
Complaint and Other Relief, under seal, to allege new information and facts in support of its
cause of action. The Relator duly provided the Complaint to the Government. On March 22,
2010, the bankruptcy court granted the United States Trustee’s Motion to Dismiss Hyperion from
bankruptcy due to Hyperion’s failure to submit a disclosure report and its failure to file all
monthly operating statements with the court and retained jurisdiction over the settlement
agreement between Hyperion and AHC.

On October 4, 2010, the bankruptcy court entered an

agreed order transferring the qui tam proceeding originally brought in the bankruptcy action to
this court. Docket No. 1 1
On December 3, 2012, after extensive investigation, the Government filed a Notice of
Election to Intervene in Part and to Decline in Part in this action. The Government notified the
Court of its decision to “intervene[] in that part of the action which alleges that defendants
Hyperion, AltaCare, Long Term Care Services, Inc. (“LTCS”) and Douglas K. Mittleider, made,
caused to be made, and/or conspired to make false claims and false statements material to false
1

On or about May 14, 2010, AHC brought a separate cause of action in state court against Hyperion and AltaCare in
which it sought termination of the lease agreement with Hyperion and damages based on upon the defendants’
failure to provide proper care to its residents and failure to follow state and federal regulations, in violation of the
lease agreement. On May 18, 2010, the defendants removed that action to the federal district court, see 2:10cv123KS-MTP.
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claims to Medicare and Medicaid, for nursing home services at the Oxford Health &
Rehabilitation Center facility in Lumberton, Mississippi.” Notice of Election, Docket No. 32 at
2. The Government declined to intervene in the remainder of the Complaint.
AHC filed its Second Amended Complaint (hereinafter “Complaint”) on February 11,
2011. Docket No. 7. The Complaint alleges that, from October 5, 2005 through at least May 1,
2012, Defendants made or caused to be made false or fraudulent claims and statements to the
federal Medicare program and the federal-state Mississippi Medicaid program, for nursing home
services purportedly provided to residents of Oxford which services were in fact non-existent,
grossly deficient, materially substandard and/or worthless.

Below is a summary of the

allegations related to AHC’s claims.
II. FACTUAL BACKGROUND 2
A. Relator’s Complaint
1. Count I: Worthless Services and Resident Abuse
The Complaint alleges that “[t]he defendants exploited the residents of the Facility by
receiving federal funds intended for care of the residents and willfully failing to utilize those
funds toward resident care.” It contends that the defendants have “abused the residents of the
Facility by engaging in the willful or negligent infliction of physical pain, injury or mental
anguish on the residents and/or the willful deprivation of services which are necessary to
maintain the mental and physical health of the residents.” SAC, ¶ 35. AHC alleges “financial
abandonment,” in that the Defendants have diverted funds intended for resident care to entities
controlled by Douglas Mittleider. That mismanagement includes rationing items and supplies
needed for the basic care of the residents, including reusing towels, oxygen bottles, garbage and

2

As will be explained more fully below, the recitation of facts are the plaintiff’s version as set out in the SAC and
the Government’s Complaint in Intervention and have been accepted as true.
4

laundry bags, and medical tubing, increasing the risk of infection through repeated use.
Hyperion has also had to hold paychecks to its employees because it did not have sufficient
funds in its bank accounts to cover them; kept the Facility chronically short-staffed to lower
costs; and closed part of the Facility, leaving the 120-bed facility with only 90 operational beds.
Id.
AHC conducted an evaluation of the Facility in September 2008. The AHC evaluation
found that Hyperion failed to provide a nursing home administrator or certified dietary manager
for much of the period of evaluation; at least one laundry dryer was inoperative; several areas of
the Facility had widespread mold and mildew; the bathroom tiles had a strong smell of urine,
which indicated infrequent cleaning; old and mismatched furniture; and all of the showers had
missing tiles, mold and mildew, and no privacy curtains or dividers. The Facility had received
five Life Safety Code violations, while the average number of deficiencies for nursing homes in
Mississippi at that time was 1.2, and the nation was 4.0. AHC indicates that these findings were
reported to the Defendants. SAC, ¶ 36.
A state survey agency completed a survey and inspection of the Facility in February
2009, and found that the Facility was still not in substantial compliance with several conditions
of participation. For example, during the February survey, “an astounding 20 out of 20 female
residents surveyed” stated there were still no shower curtains or screens to provide privacy, and
that “[t]he practice of the staff members was to bring in several females at a time to the shower
area and undress and completely disrobe them in the shower areas in groups.” The women
surveyed stated that “they did not want to be nude in front of others and did not want to see
others nude.” SAC, ¶ 37.

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A second AHC evaluation dated March 19, 2009, found that the Facility was still out of
compliance with federal and state regulations. The Facility still had “inadequate equipment, old,
worn and mismatched furniture, unsecured sprinkler heads, ‘three of four shower areas were
closed to residents,’ and the 200 wing [of the building] was still being used for scavenged parts
and storage.” The evaluation found that many of the toilets in the 200 wing of the building had
no connection to the wall or broken handle, making it impossible to flush dirty toilets. There
were also “widespread moisture and mold problems, roaches in the 200 Hall, and many of the
200 Hall rooms were missing mattresses and had broken air conditioning units.” These findings
were reported to the Defendants. SAC, ¶ 38.
A state survey dated November 24, 2009, found that the facility was still not in
substantial compliance. The survey reported that a resident suffered a fall during a transfer from
a wheelchair to his bed because a certified nurse assistant transferred the resident to the bed
without aid, despite the fact that the resident’s orders required that any transfer required a
mechanical lift with two-person assistance. The resident suffered a sprained right ankle; he
indicated that he had been moved on several occasions by only one staff member. The facility
failed to thoroughly investigate and report the incident, failed to prepare comprehensive care
plans, and failed to ensure the resident environment remained as free of accident hazards as
possible. The report concluded that the Facility had not developed or implemented policies and
procedures that prohibit mistreatment, neglect, and abuse of residents and misappropriation of
resident property. SAC, ¶ 39.
A state survey dated March 25, 2010, indicated that the Defendants failed to maintain an
effective pest control program so that the facility was free of pests and rodents. Their neglect of
the Facility has “placed the residents at risk of physical and mental harm from snakes, rats,

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insects, and other vermin due to the lack of maintenance and housekeeping at the facility.” SAC,
¶ 40. The survey reported the following incidents:
•

•
•
•
•
•

•
•

A snake entered the facility and was found in a bed-ridden resident’s bed.
The snake was discovered when a staff member investigated the resident’s
complaint of leg pain. When she pulled back the covers, a snake jumped out at
her from the area of the resident’s legs while the resident was still in the bed.
The resident’s room where the snake was discovered showed evidence of a lack
of maintenance, namely eroded wallboard in the bathroom with five areas noted
with holes.
The facility’s administrator recounted an incident in which surveyors saw a
poisonous snake, a water moccasin, underneath bushes just outside the facility.
The administrator also told surveyors that facility staff members had previously
discovered a snake in the sitting area in the front of the facility.
Another resident stated that she had spiders around her window until a hole was
plugged and then had ants on the wall across from her bed. The resident stated
that she just laid in the bed and watched them.
Other residents had sticky paper mouse traps in their rooms, and one resident
stated she had recently noticed a mouse run under her bedside table. Another
resident noted that staff members had caught two mice in her room. The floor
was soiled and a gouged out area of the wall was visible under the heater.
The survey noted numerous holes and chipped or soiled tiles in several rooms in
the facility.
A visitor to the facility told surveyors he had heard of snakes in the facility, that
one snake was found in a resident’s bed, and that he had killed a roach in the
hallway and saw roaches often.

The Mississippi State Department of Health conducted a recertification survey at the
Facility on April 30, 2010. It found that the Facility was out of compliance with about twenty
federal conditions of participation, including its status as at an “Immediate Jeopardy” level for
“Administration” and “Accidents and Supervision.” SAC, ¶ 41. Immediate Jeopardy is defined
as “a situation in which the provider’s noncompliance with one or more requirements of
participation has caused, or is likely to cause, serious injury, harm, impairment, or death to a
resident.” 42 C.F.R. § 489.3. The survey findings include the following:
•

Hyperion failed to ensure that a resident received adequate supervision to prevent
that resident from leaving the facility without staff knowledge. On March 30,
2010, a passerby informed staff that a resident was noted approximately 0.6 miles
south of the facility on Highway 11.
7

•
•

•
•
•
•
•
•

The affected resident had known wandering behavior. This failure by Hyperion
placed the resident at risk for serious injury, harm, impairment, and/or death and
was deemed an Immediate Jeopardy level of noncompliance.
Hyperion also received a citation at an Immediate Jeopardy level for the facility’s
failure to be administered in a manner to attain or maintain the highest well-being
of each resident as it relates to substandard quality of care and immediate
jeopardy.
Hyperion failed to ensure sufficient staff was available on a 24-hour basis for six
of fourteen days.
Hyperion failed to maintain an infection control program to provide a safe and
sanitary environment, and 24 of 110 active employees had no documented
evidence of having been tested for tuberculosis.
Hyperion failed to ensure that staff demonstrated competent skills and techniques
in providing personal bathing care to a resident.
A staff member at the facility failed to change into a clean pair of gloves when
cleaning a gastric tube site on a resident. That staff member also cleaned the site
with water only rather than soap and water as was proper.
Hyperion failed to label medications according to physician dose instructions.
Hyperion did not maintain accurate clinical records for nine of 24 records
reviewed.
Hyperion did not ensure the physical environment of the kitchen was clean and
sanitary for four office days of survey.

As a result of the April 2010 survey, the Centers for Medicare and Medicaid Services
(“CMS”) published notice of its intent to terminate the Facility’s participation in Medicare and
Medicaid programs. The Complaint alleges, however, that the Defendants were able to resolve
the Immediate Jeopardy issue after two attempts. Shockingly enough, CMS decided not to
terminate the Facility’s participation.
A revisit by the state took place on May 17-18, 2010, to determine whether Oxford had
removed the Immediate Jeopardy identified on April 30, 2010. The survey found continued noncompliance, but that the scope and severity level had been reduced. The survey found in part the
following:
•
•

The Facility failed to ensure personal privacy by leaving a resident naked
from the waist down and uncovered while the certified nurse assistant left to
go to the bathroom to obtain soap. This occurred with two residents.
Eleven of twelve patients complained of not getting enough to eat. The
Facility failed to provide prompt efforts to resolve the complaint. When
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•

•
•
•
•
•
•

asking for more food, residents reported that staff members told them, “That’s
all we have.” Five of the twelve had lost weight over a three-month period
although not determined to be significant amounts of loss. The Activity
Director informed the agency that residents asked him/her for more food and
he/she would buy them snacks with his/her own money.
The Facility failed to maintain a clean and homelike environment, in violation
of federal housekeeping and maintenance requirements, see 42 C.F.R. §
483.15(h)(2), for two of five survey days. As found in the previous surveys,
there were strong odors of urine, loose baseboards, loose air vents, and
peeling paint.
The Facility failed to ensure that ten of 24 residents had care plans
consistently developed and revised by the interdisciplinary team.
The services provided or arranged by the Facility did not meet professional
standards of quality. For example, the Facility failed to ensure physician
orders were implemented for one resident.
The Facility failed to ensure that sufficient staff was available on a twentyfour hour basis for six of the thirteen days of employee staffing reviewed.
The Facility failed to properly label medications according to physician’s
dosage instruction and medications were not administered as ordered. Drugs
were not properly administered or stored as required by state and federal law.
The Facility failed to maintain an infection control program to provide a safe
and sanitary environment. Staff failed to change gloves and failed to properly
handle soiled linen.
The Facility failed to ensure the physical environment in the kitchen was kept
clean and sanitary. Vents and ceiling tiles were stained and dirty.

The Relator alleges that evidence which surfaced in 2011 demonstrates a
continued lack of care at the facility. They allege the following:
•
•
•
•
•
•

In January 2011, a patient was transferred to another local nursing facility; the
new facility had to scrub the resident clean immediately upon admission
because she had received very poor hygiene care at Oxford.
That same month, another resident was transferred because of bed sores and
wounds that were left unhealed, which is the result of a lack of nutrition.
Local physicians have complained about the status of the Facility and have
reported that they will not refer patients to it.
In January 2011, the security system was stripped from the facility wall
(apparently repossessed), leaving a large unrepaired hole, and staff is required
to stand guard at the doors to prevent elopements.
Staff failed to properly safeguard, account for, or dispose prescriptions drugs;
Relator alleges and indicated that the facility administrator accessed narcotics
and disposed out of them out of compliance with applicable regulations.
Residents of the Facility have filed suit against AHC as the Facility’s owner
for injuries involving inadequate staffing, substantial care following a fall, and
failure to perform hygienic care, along with other claims.
9

In short, Relator alleges that this repeated failure to comply with Medicaid participation
requirements indicates a pattern that Hyperion and/or the other Defendants have received funds
to care for the residents, but operate Oxford at the bare minimum and do not provide it with the
necessary requirements to operate in compliance with federal and state law. “Inadequate care,
inadequate staffing, and inadequate supervision have resulted in pressure ulcers, poor hydration,
poor nutrition, and falls, all of which indicate Defendants have provided worthless services (or
worse, no services at all) to the residents of the Facility.” SAC, ¶ 46. AHC indicates that it has
received two “substantial offers” from Hyperion to purchase the Facility, which the Relator
alleges indicates that Hyperion has sufficient funds or access to funds to operate the Facility in
compliance, but has chosen not to do so. Id.
a) False Claims
Relator alleges that Hyperion and/or other Defendants have billed Medicare and
Medicaid for worthless services, and have submitted false claims knowingly or with “deliberate
indifference or reckless disregard for their truth or falsity.” Id. According to the Relator,
Hyperion holds the licensed authority to operate the Facility, but no one within Hyperion has any
authority to make decisions on behalf of the entity. According to her testimony, Julie Mittleider
was the wife of the Douglas Mittleider when she was appointed the original president, chief
executive officer, chief financial officer, and chairman of the board of directors for Hyperion. 3
Julie Mittleider, however, was never told of her appointment by her husband and never attended
a board meeting. According to the Relator, she knew nothing of the operations of Hyperion from

3

See SAC, ¶ 55; see also Hyperion Found., Inc. v. Academy Healthcare Ctr., Inc., No. 1:09-ap-09-05043 (Bankr.
S.D. Miss.) (Docket No. 23 (Notice of Deposition – Julie Mittleider)). Given the reference in the SAC, the Court
presumes that the Relator is referring to testimony that Julie Mittleider gave in a deposition in the bankruptcy
proceeding.
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its inception in 2004 until July 24, 2008, when she allegedly resigned in favor of Defendant
Harry M. Clark.
According to the testimony of defendant Harry M. Clark, he was asked by Mittleider to
become the president of Hyperion on or about July 29, 2008. Clark did not know if he was
appointed or had been elected. Clark testified that he had no knowledge of any aspect of the
business of the Facility, even though he was the sole officer and director. 4 The Relator, AHC,
claims that it has not had dealings with any person other than Douglas Mittleider since the
inception of the lease agreement, and that there is “no person with control or authority over the
entity that holds the license to operate the facility.” SAC, ¶ 57. Hyperion does not control the
Facility and it cannot prevent the diversion of funds from Oxford to the Defendants. The Relator
contends that Hyperion has abandoned the facility and failed to operate it in compliance with
federal and state laws and regulations governing Medicaid and Medicare programs.
b) Nationwide Pattern of Conduct
The Relator contends that its allegations of inadequate staffing, failure to maintain
facilities, neglect of residents and provision of substandard care at Oxford also hold true at other
facilities controlled by Douglas Mittleider. The Relator has provided the following instances:
•

Massachusetts: Douglas Mittleider and several Mittleider entities which he
controlled owned stakes in Governor Winthrop Nursing Home, a facility in
Winthrop, Massachusetts. In that case, a judge appointed a receiver to oversee the
facility due to the same issues. The court also prevented Douglas Mittleider and
his entities from owning or operating a long-term care facility in Massachusetts
for ten years.

4

Clark testified that he was not aware of the Lease Agreement between Hyperion and AHC, even though the matter
had been in litigation since 2008. Clark was not aware that Hyperion was over $500,000 in debt to AHC for the
lease payments. Clark was not aware that AltaCare was providing management services to the Facility nor was he
aware that Hyperion was paying management fees to AltaCare. SAC, ¶ 56. The Court presumes that the Relator is
referring to testimony that Clark gave in a deposition in the bankruptcy proceeding. See Docket No. 68, Ex. 10
(Testimony of Harry Clark) (excerpt of deposition dated August 9, 2009 with the same style and case number as the
underlying bankruptcy action); Hyperion Found., Inc. v. Academy Healthcare Ctr., Inc., No. 1:09-ap-09-05043
(Bankr. S.D. Miss.) (Docket No. 25 (Notice of Deposition – Harry Clark)).
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•

•

Tennessee: Douglas Mittleider and AltaCare operated and managed Cambridge
House in Bristol, Tennessee, where a resident died from complications from a
broken leg she suffered when a hammock sling used by staff to lift her from a bed
to a wheelchair snapped. Former Cambridge House employees stated
administrators of the home, at the direction of Mittleider and AltaCare, had staff
at the facility use slings and other equipment that were worn and in disrepair. The
employees stated that new equipment was displayed for state surveyors while the
worn equipment that was in daily use was hidden. After surveyors left, the newer
items were put away until the next state surveyor visit.
Connecticut: The George and Sally Tandet Center has experienced financial
problems and strikes due to the financial abandonment of that facility by AltaCare
and Douglas Mittleider. Workers at the facility went on strike in 2010 to protest
cuts in their health care insurance and bounced paychecks. In July 2009, every
paycheck that it issued bounced, and afterward between two and twelve checks
bounced every month.

The Relator alleges that the management of these facilities is part of a broader pattern;
Douglas Mittleider and AltaCare “habitually funnel funds needed for the operation of facilities
under their control and for the care of the residents of those facilities away from the facilities to
entities under the control of Mittleider, neglecting the care of the residents and unjustly enriching
Douglas Mittleider and/or the other defendants.” SAC, ¶ 62. They allege that the Defendants
have collected management fees from Oxford and “earn[ed] a profit while resident care suffers.”
SAC, ¶ 64.
2. Count II: Violation of Mississippi Vulnerable Persons Act
The Relator alleges that the Defendants violated the Mississippi Vulnerable Persons Act,
Miss. Code Ann. § 43-47-1, in that they “exploited the residents of the Facility by receiving
federal funds intended for care of the residents and willfully failing to put those funds toward
resident care.” SAC, ¶ 68. According to the Relator, the “defendants have preyed upon the
residents’ status as beneficiaries of federal and state healthcare programs to profit from funds
paid by those programs that were intended for care of the residents.” SAC, ¶ 69. The Relator
further alleges that the residents of Oxford fall within the definition of vulnerable adults under

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the Act because their “ability to perform the normal activities of daily living or to provide for
their own care or protection from abuse, neglect, exploitation or improper sexual contact are
impaired due to mental, emotional, physical or developmental disabilities or dysfunctions, or
brain damage or the infirmities of aging.” SAC, ¶ 67.
3. Count III: Overall Schemes to Defraud
The Relator has alleged a scheme by which the Defendants have defrauded health care
programs, residents, landlords, vendors and creditors. According to the Relator, the Defendants
fail to operate Oxford and other facilities in compliance with federal and state regulations in
order to “systemically drain the funds from the facilities” and they have been “unjustly enriched
by this conduct.” SAC, ¶ 71.
A number of other entities and individuals assisted with the management of Oxford.
These entities include HP/Ancillaries, Inc.; Long Term Care Services, Inc.; Sentry Healthcare
Acquirors, Inc.; HP/Management Group Inc.; Harry McD. Clark; Julie Mittleider; and Douglas
K. Mittleider. The Relator contends that Douglas Mittleider and all the other Defendants have
siphoned money from Oxford through Hyperion to various entities owned and controlled by
Mittleider. Hyperion submits claims for worthless services to Medicare and Medicaid and
diverts funds paid by these programs to Mittleider companies as payment for alleged services
provided by Oxford. Thus, Hyperion is a “sham corporation” and the alter ego of Douglas
Mittleider, Julie Mittleider, and the other Defendants, which are mostly Mittleider-controlled
companies. SAC, ¶ 73.
The Relator alleges that Douglas Mittleider serves as CEO, CFO, and/or Secretary of the
other Mittleider companies.

Douglas Mittleider, however, installed first his wife, Julie

Mittleider, as a figurehead officer and director of Hyperion and later installed Harry Clark, an

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individual excluded from participation in federal healthcare programs, as the sole officer and
director of Hyperion. Douglas Mittleider is also the CEO, CFO, and secretary of AltaCare.
Corporation. AltaCare serves as manager/accountant of Hyperion and is a creditor of Hyperion.
Under AltaCare’s management, Hyperion was forced to file for Chapter 11 bankruptcy due to an
inability to pay its debts, the largest of which was owed to the Relator for rent.
The Relator also contends that Julie Mittleider knowingly and willfully conspired with
her husband Douglas Mittleider, Harry Clark, and the Mittleider companies to defraud the
Medicare and Medicaid programs. Hyperion has allegedly made false claims and fraudulent
disclosures to obtain payment from Medicare and Medicaid, which Hyperion has then illegally
funneled at the direction of the Mittleiders to the Mittleider companies, including Sentry
Healthcare, which is owned and operated by Julie Mittleider. In the same way, Harry M. Clark
has also allegedly conspired with the Defendants to defraud Medicare and Medicaid programs.
During the bankruptcy proceeding, Hyperion, as managed by AltaCare, continued to pay
out large sums of money to Douglas and Julie Mittleider’s companies. Hyperion’s Medicaid
cost report for fiscal year 2008 also shows that Hyperion claimed costs of $358,993 for
AltaCare’s management fees and accounting fees. 5 Hyperion also claimed $1,608.00 in costs to
HP/Ancillaries, Inc., another of Douglas Mittleider’s companies, on the 2008 Medicaid cost
report. Hyperion made “cash transfers” to LTCS, which is owned and operated by Douglas
Mittleider, totaling $672,300 in three months – May, June, and July 2009 – alone. Sentry
Healthcare Acquirors, Inc., which is owned and operated by Julie Mittleider, received $50,000 in
“cash transfers” from Hyperion in June 2009 alone. The Relator states that it is unclear what
services either of these entities provided.

5

Relator also alleges that Hyperion continues to pay AltaCare $2,732.00 for accounting fees and $27,089.00 for
management fees every month.
14

Relator AHC has also raised allegations related to the bankruptcy proceeding between
itself and Hyperion.

The bankruptcy court entered an order compelling settlement of the

Relator’s claims for past due rent. Hyperion was past due in an amount exceeding $500,000.
The settlement required Hyperion to pay $325,000, a reduced sum, in one installment of
$125,000 and then in eighteen monthly installments of $6,944.44. Hyperion was also to continue
paying monthly lease fees of $36,000 per the lease agreement. The monthly installments were to
be paid by the fifth day of each month and no later than the fifteenth day of each month. The
court order provided that, should Hyperion fail to timely pay the Court ordered settlement and
lease payments by the fifteenth day, the Lease Agreement was to automatically terminate. The
payments were to be transferred by wire into the Relator’s account.
The payments were properly and timely paid from March until May of 2014. On May
14, 2010, a representative of Defendants improperly delivered two checks to Bass Memorial
Academy (“Bass”) for the payments due. According to the Relator, Bass is a nursing school
affiliated with AHC, and it was not a party to the bankruptcy proceeding or settlement
agreement. These checks were drawn on the account of Hyperion Foundation, Inc., DBA Oxford
Health & Rehab CTR, Chap 11 Debtor in Possession Case 09-51228 (“Bankruptcy Account”).
The Relator alleges that, although the bankruptcy action had been dismissed on March 22, 2010,
Defendants continued to write checks on the Bankruptcy Account in an effort to misrepresent to
payees that Hyperion was still protected by the bankruptcy laws and that the case was still open.
After the checks were deposited, they were returned for insufficient funds. The Relator
then learned that, on May 18, 2010, the funds had been wire transferred into its account; the wire
transfer was allegedly in the name of LTCS. In August 2010, Hyperion again hand delivered
checks drawn on the Bankruptcy Account and stopped payment on the checks. Again, the funds

15

were later wired into the AHC account from another account controlled by Douglas Mittleider.
The October 2010 payments were also delivered by check, in violation of the settlement terms,
and were returned for insufficient funds. Funds were again transferred by wire to AHC to cover
the bad checks.
The Relator alleges that Hyperion and/or the Defendants hand delivered the checks
knowing that there were insufficient funds in the Bankruptcy Account in an attempt to deceive
AHC and the bankruptcy court that the payments had been timely made. The Relator also asserts
that this conduct is further evidence of the Defendants’ inability to manage and operate the
facility and its propensity to defraud and deceive its creditors and the court. The commingling of
funds from various accounts owned by Hyperion, LTCS, and others, is evidence that Douglas
Mittleider controls all of the Defendant entities and funds from the operation of other facilities is
being used to pay the debts of Hyperion.
Finally, although the total sum due to Relator was compromised by the order of the
bankruptcy court, Hyperion claimed on its cost report that it paid the full amount of the lease
payments due. The Relator contends that this claim is fraudulent and in violation of state and
federal law.
4. Count V: Failure to Disclose Person With Ownership or Control Interest 6

6

Count IV of the Relator’s Complaint alleges that Clark was excluded from participating in Medicaid and Medicare
programs under the Social Security Act, 42 U.S.C. § 1320a-7(a)(1), for a program-related crime. His exclusion was
entered October 25, 2005, and remains in effect. See Docket No. 68, Ex. 9 (“HHS-OIG Program Exclusions Not.,
70 Fed. Reg. 61,136 (Oct. 20, 2005)”). The Relator alleged that Clark’s knowing and willful acceptance of his
position with Hyperion despite his excluded status could subject Oxford to fines and penalties. Clark may also be
subject to civil monetary penalties for each item or service furnished during the period he was excluded, under 42
C.F.R. § 1003.103 and the Social Security Act. In addition, Clark is subject to treble damages for the amount
claimed for each item or service. After filing the Complaint, the Relator agreed to voluntarily dismiss Harry M.
Clark from this action. Docket No. 92. The United States has consented to the dismissal, provided that it is
“expressly made without prejudice to the United States.” Docket No. 93. Given the parties’ concurrence with the
dismissal, the Court recognizes Clark’s dismissal and holds that it is made without prejudice to the United States.

16

The Relator alleges that Hyperion has failed to disclose this required information about
Harry Clark’s control interest and his exclusion status to Medicaid and is in violation of the
federal and state authorities which give Hyperion an “affirmative obligation” to disclose all
persons who have an ownership, financial or control interest in it. 7 The Relator contends that
this information constitutes a false record or statement for the purpose of obtaining payment
from a federal program.
5. Count VI: Failure to Make Required Disclosures on Medicaid Cost Report
According to the Relator, Hyperion failed to make the required disclosures in its cost
reports as related to at least its officers and directors, as Hyperion did not disclose Mr. Clark as
its sole officer and director on its 2008 cost report filed May 26, 2009. 8 Hyperion also failed to
disclose any individual as an officer or director on its 2009 cost report filed May 7, 2010. The
Relator alleges that these omissions were attempts to conceal the actual officers and directors
from the Division of Medicaid, and that the records were submitted in violation of the False
Claims Act.
a) Nationwide Scheme to Submit False Claims
The Relator contends that Douglas Mittleider, Julie Mittleider and the Mittleider
companies have developed a nationwide scheme intended to defraud Medicare and Medicaid
programs, and that Douglas Mittleider has formed a “web” of more than 150 companies,
including but not limited to the companies subject to this action, in an effort to defraud Medicare,
7

These authorities include 42 U.S.C. § 1320a-3(a)(1), which requires that a provider of services for which payment
may be claimed under any plan covered under Title V of the Social Security Act or a state Medicaid plain must
disclose to the U.S. Department of Health and Human Services (“HHS”) the identity of each person who has an
ownership or control interest in the provider. The Code of Federal Regulations requires the same disclosure in 42
C.F.R. § 420.206. Skilled nursing facilities must disclose all changes in persons with an ownership or control
interest to the state agency that regulates such facilities at the time of change under 42 C.F.R. § 483.75(p).
8
Hyperion’s Statement of Financial Affairs filed in its earlier bankruptcy proceeding, indicates that, prior to July 29,
2008, Hyperion’s officers were listed as Julie Mittleider, president, and Deborah Hoover, secretary. Its Board of
Directors included only Julie Mittleider and two non-defendants. Statement of Financial Affairs, Docket No. 7, Ex.
S. After July 29, 2008, Harry Clark is listed as the sole officer and sole board member.
17

Medicaid, and the companies’ creditors.

Defendant AltaCare Corporation manages and/or

operates at least 34 long-term care homes throughout the United States. The Relator alleges that
the Defendants used “at least three scams as part of their scheme to defraud the Government,
creditors, and residents.” The methods that the Relator has alleged are as follows:
i. Nursing Home Operator Allegations
In the Complaint, the Relator describes a typical scheme that the Mittleider entities use to
commit fraud involving nursing homes. According to the Relator, a Mittleider entity often will
contract with a skilled nursing facility to lease and/or provide management or operations services
to that facility. For example, Defendant Hyperion contracts with AHC to lease Oxford. Then,
Hyperion contracts with AltaCare or other Mittleider companies to manage and/or operate the
Facility. Defendant AltaCare Corporation manages and/or operates a number of long-term care
facilities throughout the United States. Then, as in the case of Hyperion, the Mittleider entity
will contract with one or more different Mittleider companies for a variety of management
services.
Defendant

For example, Defendant AltaCare contracted to provide management services to
Hyperion

then

Defendant

AltaCare

contracted

with

Defendants

LTCS,

HP/Ancillaries, Inc., HP/Management Group, Inc., and/or Sentry Healthcare Acquirors, Inc. for
various services.

Douglas Mittleider and/or Julie Mittleider give preference to Mittleider

companies, which may or may not be providing services to the facility, and funnel Medicare and
Medicaid funds intended for resident care to those companies to the detriment of the residents of
the facilities. The Defendants have allegedly used this scheme in other nursing facilities that
Mittleider manages across the United States.
ii. Landlord/Tenant Allegations

18

According to the Complaint, in this scheme, a Mittleider entity will often lease existing
nursing home facilities from the owners of those facilities, as is the case with Hyperion and
AHC, in exchange for payment of rent by the Mittleider entity. That entity purportedly will
operate the leased facility as a skilled nursing facility. The Mittleider entity fails to make the
agreed-upon rent payments, prompting the lessor to initiate costly litigation. The Mittleider
entity, at the direction and control of Douglas Mittleider, Julie Mittleider, the Mittleider
companies, and/or John Does 1-200 will “vexatiously draw out litigation, eventually forcing
settlement for a lesser amount than what is owed.” The Relator alleges that, “[b]y engaging in
litigation or seeking the protection of bankruptcy for these purposes, the Defendants use the
judicial system to perpetrate their fraudulent scams.”
The Relator provides examples of various cases in federal district courts around the
country against Douglas Mittleider or one of his entities. 9
iii. Vendor Allegations
In this scheme, a Mittleider entity allegedly contracts with one or more vendors of
healthcare items or services (e.g., therapy, pharmaceutical, etc.) to provide services in skilled
9

In summary, the litigation includes:
• LandAmerica Onestop, Inc. v. Douglas K. Mittleider et al., Civil Action No. 1:09-CV0562-TWT, in
the Northern District of Georgia. In this action, the plaintiff was landlord and lessor of space which
Defendant Healthprime, Inc. leased. Defendant Healthprime failed to pay any rental payments at all.
According to the Relator, notable allegations included that “Defendant Douglas Mittleider treated his
companies and himself as a single unit, transferring funds to disguise cash deficits.” The disposition is
pending and the total amount in controversy is $253,718.82 plus late fees and interest.
• NH Texas Properties, L.P. vs. HP/Texas Properties, Inc. et al., Civil Action No. H-034384, in the
Southern District of Texas. Plaintiff leased certain space to Defendants to operate a nursing home, and
Defendants failed to pay rent. The parties entered into a settlement. The Relator indicates that the
complaint is “not accessible,” but that the original amount in controversy was lower than the settlement
amount.
• NH Texas Properties, L.P. vs. HP/Texas Properties, Inc., HealthPrime, Inc., & Douglas K. Mittleider,
Civil Action No. 4:06-03466, in the Southern District of Texas. Plaintiff leased certain space to
Defendants. HealthPrime and Mittleider guaranteed the lease. Defendant HP/Texas Properties failed to
pay the rent and taxes as agreed under the lease, and HealthPrime and Mittleider failed to pay the rent
and taxes due as guarantors. The original amount in controversy was $712,245.66 plus interest and
fees; the court entered a final judgment against HP/Texas Properties (presumably a Mittleider entity)
for $605,468.43 and against Douglas Mittleider for $490,158.02. The amount against Douglas
Mittleider was later reduced to $209,823.12 upon stipulation of the parties).
19

nursing facilities managed or operated by that Mittleider entity. The contracted vendors
will provide items or services under the agreement, triggering the Mittleider entity’s obligation to
pay for the items or services. The Mittleider entity submits claims to Medicare and/or Medicaid
for the costs for the services rendered by the vendors. The Mittleider entity then receives
reimbursement by Medicare and/or Medicaid for services provided by the contracted vendors but
fails or refuses to remit such funds to the vendors. For example, Health Prime and AltaCare
Corporation, both Mittleider entities, left vendors holding unpaid bills for pharmacy, consulting,
and services after they relinquished control of Glen Valley Care Center, a nursing home in
Colorado.
A vendor or creditor of a Mittleider entity will bring suit on an outstanding account owed
by the Mittleider entity. The Mittleider entity, at the direction of Douglas Mittleider, will “draw
out the litigation,” eventually entering into a confidential settlement with the vendor or creditor.
SAC, ¶ 116. Mittleider entities then usually settle the litigation for amounts that are only a
portion of the amounts owed to their vendors and/or creditors. The funds for these settlements
often come from amounts paid by Medicare and Medicaid. Douglas Mittleider, Julie Mittleider,
Hyperion, the Mittleider companies, and/or John Does l-200 receive funds from Medicare and
Medicaid, fail to remit portions of those funds to pay obligations to vendors and creditors,
engage in litigation regarding those obligations, and eventually settle the litigation for less than
the total obligations owed, profiting first from defrauding Medicare and Medicaid and second
from abusing the judicial process to settle their obligations for only a portion of the total amount
owed. The Relator provides examples of various cases in federal district courts around the
country to illustrate the Defendants’ “abuse of the judicial process.” 10

10

In summary, the litigation includes:
20

In sum, AHC seeks recovery of the total amount reimbursed to the Facility provided by
Medicare and Medicaid for each year Hyperion and/or the Mittleider Defendants operated the
Facility and other facilities under their control. AHC estimates that the Facility may have
received in excess of $4,000,000 for each year of operation by the Defendants. AHC also seeks
treble damages as allowed under the False Claims Act as well as an additional $10,000 in civil
money penalties per fraudulent claims submitted for payment by defendants as authorized by the
False Claims Act.
B. Government’s Complaint in Intervention
On November 30, 2012, the United States filed a Notice of Election to Intervene in Part
and Decline to Intervene in Part, notifying the Court of its intervention pursuant to the False
Claims Act, 31 U.S.C § 3730(b)(2) and (4). After an extensive investigation of the Relator’s
allegations, the United States filed a Complaint in Intervention (hereinafter “USA Complaint”)
•

•

•

•

Kindred Rehab Services, Inc. et al. v. HP/Texas Properties, Inc. et al., Civil Action No. 1:03-CV-01495, in
the Northern District of Georgia. In this case, the plaintiffs provided respiratory therapy services to
residents of nursing homes owned, operated, or managed by the defendants. The defendants failed to pay
for these services. Medicare paid for the services based on false representations by Defendants that they
had paid the plaintiffs for the services. The court entered an agreed order of judgment for $1 million against
Healthprime (a Mittleider company) pursuant to a settlement of this case and Kindred Rehab v.
HP/Operations Group, Inc., et al., Case No. 3:02-CV-0534 (M.D. Tenn.). The amount in controversy in
HP/Texas was $213,000 and $953,000 for HP/Operations.
Continental Cas. Co. et al. v. HealthPrime, Inc. et al., Civil Action No. 1:97-CV-2512, in the Northern
District of Georgia. Plaintiffs contracted with Defendants to provide insurance coverage for Defendants’
liabilities under the workers’ compensation and employers liability statutes of various states and to service
claims submitted for coverage under the various policies. Defendants failed to pay amounts due under the
contracts after 2003. Notably, the plaintiffs alleged that Defendant HealthPrime ceased operations and
transferred its assets to one or more of Defendant Douglas Mittleider’s other corporations or to Mittleider
individually. The case is pending and the amount in controversy is $3,438,874.
RehabCare Group East, Inc. v. HCC Healthcare of Birmingham, LLC, et al., Civil Action No. 1:09-CV1675-GET, in the Northern District of Georgia. Plaintiff provided therapy services (physical, occupational,
speech) at skilled nursing facilities operated by Defendants. Defendants failed to pay for the services
provided by Plaintiff. The plaintiffs alleged, among other allegations, that Defendants Douglas & Julie
Mittleider paid themselves excessive compensation, bonuses and other payments, and favored certain
creditors (other Mittleider entities) over others. The case remains pending.
RehabCare Group East, Inc. v. HealthPrime, Inc. et al., Civil Action No.1:05-CV02450-TCB, in the
Northern District of Georgia. In this case, the plaintiff provided therapy services (physical, occupational,
speech) at skilled nursing facilities operated by Defendants. Defendants failed to pay for the services
provided by the plaintiff. Medicare paid for such services based on false representations by Defendants
that they had the Plaintiffs for such services. The case was dismissed as part of a settlement agreement, and
the terms were not disclosed; the amount in controversy was $106,623.69.
21

on February 28, 2013. Docket No. 37 (hereinafter “USA Compl.”). The Government intervened
“in that part of the qui tam action which alleges that defendants Hyperion, AltaCare, [Long Term
Care Services] and Mittleider, made, caused to be made, and/or conspired to make false claims
and false statements material to false claims to Medicare and Medicaid, for nursing home
services at [Oxford; and (b) decline to intervene as to the remainder of the allegations in the qui
tam action, including in any claims against defendants HP/Ancillaries, Inc., HP/Management
Group, Inc., Sentry Healthcare Acquirors, Inc., Harry McD. Clark and Julie Mittleider.” USA
Compl., ¶ 6.
The Government has asserted and the Relator has conceded that the Government’s
intervention has superseded AHC’s False Claims Act claims against Hyperion, AltaCare, LTCS,
and Mittleider relevant to the Government’s intervention. Thus, the Government shall control
the prosecution of the claims in which it has intervened, subject to any rights afforded to AHC as
the Relator under section 3730(c) of the FCA. 11
The Government alleges that Douglas Mittleider caused Hyperion and other Defendants
to enter into agreements which prohibited providing false information or claims to the United
States and outlined the penalties available for such acts. According to the USA Complaint,
Douglas Mittleider caused Hyperion to enter into Medicaid and Medicare Provider Agreements,
to execute other documents necessary for Hyperion to participate in those programs, and to take
such other steps and execute such other documents as were necessary for Hyperion to conduct
business and receive payments as a Medicaid and Medicare provider. He caused his spouse,
Julie Mittleider, to sign Medicaid and Medicare Provider Agreements on behalf of Hyperion.
The Medicaid Provider Agreement contained the following certification: “I understand that any

11

This section includes only new claims or information that the Relator did not include in its complaint related to
the same claims.
22

omission, misrepresentation or falsification of any information contained in this application or
contained in any communication supplying information to Medicaid to complete or clarify this
application may be punishable by criminal, civil or other administrative actions.” USA Compl.,
¶ 24. Hyperion’s Medicaid Provider Agreement also contained the following certification: “I
will not knowingly present or cause to be presented a false or fraudulent claim for payment by
Medicaid and will not submit claims with deliberate ignorance or reckless disregard of their truth
or falsity.”

Id., ¶ 25.

Hyperion also executed an Electronic Data Interchange (“EDI”)

Enrollment Form in order to bill Medicare electronically. By executing the EDI Enrollment
Form, a provider agrees to “be responsible for all Medicare claims submitted to CMS by itself,
its employees, or its agents,” and to “submit claims that are accurate, complete and truthful.” Id.,
¶ 27. A provider also acknowledges that:
[A]ll claims will be paid from Federal funds, that the submission of such claims is
a claim for payment under the Medicare program, and that anyone who
misrepresents or falsifies or causes to be misrepresented or falsified any record or
other information relating to that claim as required by this Agreement may, upon
conviction be subject to a fine and/or imprisonment under applicable Federal law.
Id., ¶ 28. The Government alleges that Douglas Mittleider also signed Hyperion’s cost reports,
which also required acknowledging the penalties for submitting false claims.
The Government also contends that the Defendants violated rules that they were required
to follow to participate in and receive payments under the Medicare and Medicaid programs.
Under these programs, a nursing home must execute a Health Insurance Benefit Agreement,
Form CMS-1561. See 42 U.S.C. § 1395cc. By doing so, a provider expressly agrees to conform
with the applicable Code of Federal Regulations within Title 42, including the standard of care
regulations that implement the Nursing Home Reform Act, 42 U.S.C. §§ 1395i-3, 1396r et seq.
See 42 C.F.R. § 483. The Government asserts further that Douglas Mittleider caused Julie

23

Mittleider to execute the Health Insurance Benefit Agreement on behalf of Hyperion. The
Health Insurance Benefit Agreement expressly commits the provider to comply with federal
regulations in order to receive payment:
In order to receive payment under title XVIII of the Social Security Act [42
U.S.C. § 1395cc], [Name of the nursing home inserted here] as the provider of
services, agrees to conform to the provisions of section of [sic] 1866 of the Social
Security Act and applicable provisions in 42 CFR [which includes the regulations
on care provided in nursing homes].
USA Compl., ¶ 33. To receive reimbursement from Medicaid and Medicare, Hyperion was
required to complete and submit a Minimum Data Set (“MDS”) form to CMS for all residents.
42 C.F.R. § 483.315. The MDS form is the basis upon which CMS determines the per diem
reimbursement rate for each Medicare Part A beneficiary in a nursing facility. CMS relies on the
accuracy of the information the nursing facility provides on the MDS form. According to the
Government, from in or about October 2005 through in or about May 2012, Hyperion received
aggregate payments from the Medicaid and Medicare programs of more than $30 million for
claims for nursing home services provided, or purportedly provided, to Medicaid- and Medicareeligible residents at Oxford.
The Medicaid and Medicare programs pay for a bundle of nursing home services,
provided to eligible residents on a per diem basis under the so-called prospective payment
system. Based upon the MDS assessments that a nursing home submits to the government for
each eligible resident, nursing homes are paid a per diem reimbursement for each day they
provided the required nursing home care to such residents. It is undisputed that, at all times
relevant to this action, Oxford was a nursing facility as defined by the Nursing Home Reform

24

Act. 12 The Act mandates that nursing facilities comply with federal and state requirements
relating to the provision of services, and with professional standards and principles
applicable to nursing facilities.13 Federal regulations mandate that “[e]ach resident must receive
and the facility must provide the necessary care and services to attain or maintain the highest
practicable physical, mental, and psychosocial well-being, in accordance with the comprehensive
assessment [of the resident] and plan of care.” 42 C.F.R. § 483.25. Federal regulations also
require that the facility must ensure proper treatment for specific aspects of living at a nursing
home, including managing pressure sores (or “bed sores”), 14 nutrition, 15 hydration, 16 activities of
daily life, 17 medication errors, 18 administering unnecessary drugs, 19 antipsychotic drugs,20
accidents, 21 and urinary incontinence. 22
12

A “nursing facility” is an institution that:
(1) is primarily engaged in providing to residents –
(A) skilled nursing care and related services to residents who require medical or nursing care;
(B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons, or
(C) on a regular basis, health-related care and services to individuals who because of their mental or
physical condition require care and services (above the level of room and board) which can be made
available to them only through institutional facilities, and is not primarily for the care and treatment of
mental diseases . . . .
42 U.S.C. § 1396r(a).
13
42 U.S.C. § 1396r(b); 42 U.S.C. § 1396r(d)(4)(A) (“A nursing facility must operate and provide services in
compliance with all applicable federal, state and local laws and regulations . . . and with accepted professional
standards and principles which apply to professionals providing services in such a facility.”).
14
Pressure sores. Based on the comprehensive assessment of a resident, the facility must ensure that –
(1) A resident who enters a facility without pressure sores does not develop pressure sores unless the
individual’s clinical condition demonstrates that they were unavoidable; and
(2) A resident having pressure sores receives necessary treatment and services to promote healing, prevent
infection and prevent new sores from developing.
42 C.F.R. § 483.25(c).
15
Nutrition. Based on a resident’s comprehensive assessment, the facility must ensure that a resident –
(1) Maintains acceptable parameters of nutritional status, such as body weight and protein levels, unless the
resident’s clinical condition demonstrates that this is not possible; and
(2) Receives a therapeutic diet when there is a nutritional problem.
42 C.F.R. § 483.25(i).
16
Hydration. The facility must provide each resident with sufficient fluid intake to maintain proper hydration and
health.
42 C.F.R. § 483.25(j).
17
Activities of Daily Life. Based on the comprehensive assessment of the resident, the facility must ensure that – A
resident’s abilities in activities of daily life do not diminish unless circumstances of the individual’s clinical
condition demonstrate that diminution was unavoidable. This includes the resident’s ability to (1) Bathe, dress, and groom;
(2) Transfer and ambulate;
25

1. Worthless Services Allegations
The Complaint in Intervention makes many of the same worthless services allegation as
the Relator’s Complaint. The Government alleges that the Defendants “provided and billed the
government for non-existent, grossly inadequate, materially substandard and/or worthless care to
Oxford’s residents.”

USA Compl., ¶ 56.

In addition to the Relator’s allegations, the

Government contends that “Defendants failed to pay, or were consistently delinquent in paying,
vendors of essential goods and services,” including food and drink, supplies, service and
maintenance. Id. As a result of Defendants’ failure to pay vendors, either on time or not at all,

(3) Toilet;
(4) Eat; and
(5) Use speech, language or other functional communication systems.
42 C.F.R. § 483.25(a).
18
Medication Errors. The facility must ensure that –
(1) It is free of medication error rates of five percent or greater; and
(2) Residents are free of any significant medication errors.
42 C.F.R. § 483.25(m).
19
Unnecessary Drugs.
(1) General. Each resident’s drug regimen must be free from unnecessary drugs. An unnecessary drug is any
drug when used:
(i) In excessive dose (including duplicate therapy); or
(ii) For excessive duration; or
(iii) Without adequate monitoring; or
(iv) Without adequate indications for its use; or
(v) In the presence of adverse consequences which indicate the
dose should be reduced or discontinued; or
(vi) Any combinations of the reasons above.
42 U.S.C. § 483.25(l)(1)
20
Antipsychotic Drugs. Based on a comprehensive assessment of a resident, the facility must ensure that –
(i) Residents who have not used antipsychotic drugs are not given these drugs unless antipsychotic drug therapy
is necessary to treat a specific condition as diagnosed and documented in the clinical records; and
(ii) Residents who use antipsychotic drugs receive gradual dose reductions, and behavioral interventions, unless
clinically contraindicated, in an effort to discontinue these drugs.
42 C.F.R. § 483.25(l)(2).
21
Accidents. The facility must ensure that –
....
(2) Each resident receives adequate supervision and assistance devices to prevent accidents.
42 C.F.R. § 483.25(h).
22
Urinary Incontinence. Based on the resident’s comprehensive assessment, the facility must ensure that –
(1) A resident who enters the facility without an indwelling catheter is not catheterized unless the resident’s
clinical condition demonstrates that catheterization was necessary; and
(2) A resident who is incontinent of bladder receives appropriate treatment and services to prevent urinary tract
infections and to restore as much normal bladder function as possible.
42 C.F.R. § 483.25(d).
26

residents frequently lacked sufficient food and basic nursing supplies necessary for providing
proper and adequate care to residents, such as incontinence briefs, wound care supplies,
colostomy bags, urinary catheter drainage tubing, tube feeding supplies, wipes, and linens. The
Oxford facility was in constant need of essential repairs, including to its roof, ceilings, heating
and cooling units, and door alarms. The Government also raises more specific allegations related
to the presence of vermin at Oxford, including that “[r]oaches were found on food trays and in
the ice machine” and “[a] live rat was found in the bed of one resident.” Id., ¶ 60.
The Government alleges that the Defendants failed to devote necessary resources to the
care of residents at Oxford at least in part because they diverted funds received by Hyperion
from the Medicaid and Medicare programs: (i) to Mittleider and AltaCare, in the form of
excessive administrative expenses; (ii) to LTCS, in the form of transfers from Hyperion, which
left Oxford with inadequate resources to meet resident needs; and (iii) to other entities owned,
operated or controlled by Mittleider, including nursing homes, to pay for their operations or
debts.

According to the Government, the Defendants were aware of the problems with

insufficient resources at Oxford and the resulting adverse health effects on Oxford’s residents,
but recklessly disregarded them, were deliberately ignorant of them, and ultimately, failed to
resolve them, or to do so in a timely fashion.
The Government provides examples of false and fraudulent claims for “non-existent,
grossly inadequate and materially substandard, worthless, harmful care” that it has uncovered in
its investigation. A summary of the examples are as follows:
•

Resident #1: A 77 year-old woman was admitted to Oxford on or about December
7, 2007. She had a diagnosis of dementia, paranoia, possible psychosis, mild renal
disease, mild anemia, and chronic back pain. She weighed 134 pounds and had no
pressure ulcers when she was admitted to Oxford.
In September 2008, she began a series of hospitalizations due to dehydration and
overdoses on pain medication. Throughout Resident #1’s stay at Oxford, the nursing staff
27

•

failed to administer her medication in accordance with her physician’s orders. For
example, Resident #1 had a medical order to receive 50 mg of Prolixin, an antipsychotic,
once every three weeks. From September 24, 2008 through 30, 2008, Resident #1
received 50 mg of Prolixin every day, seven times the normal therapeutic dose. The side
effects of Prolixin can exacerbate renal insufficiency; on October 1, 2008, Resident #1
was hospitalized for five days for chronic renal failure and dehydration. Throughout her
stay at Oxford, her kidney disease worsened due to dehydration and malnutrition.
Starting in September 2008, she began to develop pressure ulcers on various parts
of her body. At each hospitalization, the hospital found that Oxford’s adherence to a plan
of care for the ulcers was “poor.” They became contaminated with feces and increased in
toxicity and appearance, including some that exposed muscle and tendon. She was urged
to have both of her legs amputated, but refused.
In addition to its failure to provide wound care, Oxford failed to provide Resident
#1 with basic hygiene care, such as showers, and oral care. Although Resident #1’s care
plan stated that she was to receive a shower three times a week, there were numerous
instances where Resident #1 did not receive a shower or bath more than once or twice a
month. There were also numerous instances of Resident #1 not receiving oral care for
several days at a time. Her record indicates that she was hospitalized more than two
dozen times in less than five years, most of those visits due to dehydration and
malnutrition, among other ailments. She also steadily lost more than twenty pounds.
For the worthless services provided to Resident #1 from December 7, 2007 to
May 1, 2012, defendants knowingly submitted or caused to be submitted claims for
payment to Medicare, and Medicare paid claims totaling $10,449.59. For the same
services and period of service, Medicaid paid claims totaling $249,889.38.
Resident #2: A 65 year-old man was admitted to Oxford on or about January 20, 2009.
His initial diagnosis upon admission included respiratory failure, end-stage renal disease,
congestive heart failure, and hypertension. He was admitted with a feeding tube,
otherwise known as a “PEG” tube, to provide nutrition, hydration, and medication
directly into his stomach.
On numerous occasions throughout Resident #2’s stay, Oxford failed to provide
him with adequate hydration, resulting in frequent admissions to the hospital for
dehydration. His PEG tube was regularly clogged and he did not regularly receive food
and water. His physician was often not informed when he stopped eating and his tube
feedings were decreased. In addition, Oxford failed to provide Resident #2 with basic
hygiene and catheter care. He experienced recurring urinary tract infections, and on
January 28, 2012, a nurse noted that Resident #2 had a “markedly swollen penis” and that
she was unable to retract the foreskin.” He was later admitted to the hospital and
diagnosed with paraphimosis, an uncommon condition that results when the foreskin of
an adult man’s penis is retracted for examination, cleaning or catheterization, and is not
reduced. The hospital found that his catheter was “old and is poorly draining urine.” In
another hospital visit a month later, the hospital chart noted that he had a tunneled
infection around his Foley catheter. In total, he was hospitalized at least thirteen times
during his stay at Oxford.
For the worthless services provided to Resident #2 from January 20, 2009 to May
1, 2012, defendants knowingly submitted or caused to be submitted claims for payment

28

•

•

to Medicare, and Medicare paid claims totaling $62,806.53. For the same period and
service, Medicaid paid claims totaling $499,141.27.
Resident #3: A 56 year-old woman was admitted to Oxford on January 31, 2007. She
was admitted with a Stage IV pressure ulcer on her coccyx 23 and several rib fractures.
During her stay at Oxford, she developed other serious pressure ulcers. Her
wounds consistently went untreated, despite her physician’s orders, and the ulcers
became progressively worse. On April 28, 2008, her chart noted that Resident #3 was
complaining of pain to her left leg from a fall that happened two days prior. On June 18,
2008, she was transferred to the hospital for evaluation of pain in her left hip and back
after her fall. According to the notes, her family was not notified of her fall until July 1,
2008. On June 26, 2008, she fell again and was hospitalized the same day. There is no
information in Oxford’s records of the results of her evaluation or that Oxford undertook
measures to prevent future falls. On November 23, 2008, she suffered another fall; a
medical order was given for her to follow up with an orthopedic surgeon for treatment of
a humerus fracture in one week. Oxford failed to take her for an appointment until four
weeks later, by which time her humerus had healed in a misaligned state, resulting in
permanent disfigurement and loss of function in her right arm.
On August 24, 2009, she fell out of her bed and complained that she had hit her
head. A licensed practical nurse (“LPN”) at Oxford determined that she had no apparent
injuries. On September 1, 2009, Resident #3’s roommate found her on the floor besides
her bed; Resident #3 stated that she had fallen out of bed. Her chart noted that she was
able to move all extremities and she had no complaint of pain. She was placed back in
bed. The next day, Resident #3 was found to be unresponsive with decreased oxygen
saturation. She was transferred to the hospital, where she died three days later, on
September 5, 2009.
For the worthless services provided to Resident #3 from January 31, 2007 to
September 2, 2009, the Government alleges that Defendants knowingly submitted or
caused to be submitted claims for payment to Medicaid, and Medicaid paid claims
totaling $106,326.00.
Resident #4: A 57 year-old man was admitted to Oxford on or about April 16, 2008 for
rehabilitation following a fall that required hip replacement surgery. Resident #4 had a
medical history of congestive heart failure, obesity, hypothyroidism, diabetes, and mental
retardation. The hospital records state that he should be on a sodium-restricted, highpotassium diet. He had a catheter and was continent of bowel and had no pressure ulcers
when he was admitted to Oxford.
Upon his admission to Oxford, the nursing staff and dietician failed to follow
hospital orders for Resident #4 to be on a sodium-restricted diet. Instead of restricting his
sodium intake as ordered, Oxford gave Resident #4 a low potassium diet until at least
April 29, 2008. He developed three severe pressure ulcers while at Oxford. On a
hospital visit, his physicians ordered that he receive assistance to turn and reposition, that
his sore be kept clean and dry, and that the dressings be changed every three days. But
throughout his stay, Oxford failed to provide him with basic hygiene care, including a
shower or bed bath, on many occasions. Oxford records indicate they failed to provide
Resident #4 with a shower or bath, and failed to turn or reposition him for eleven days –

23

The coccyx is “[t]he small bone at the end of the vertebral column”; it is also known as the tail bone. Steadman’s
Medical Dictionary 402 (28th ed. 2006).
29

•

every day from April 25, 2008 through May 5, 2008. On May 5, 2008, a urine culture
indicated that he had a urinary tract infection with bacterial contamination of feces.
During his stay, he also developed “facility-acquired bowel incontinence” because
Oxford failed to give him toileting assistance. Resident #4’s ulcers became infected with
bacteria and reached Stage IV levels of severity. The ulcers became larger in length and
depth, suggesting that Oxford had not followed the wound care plan ordered by the
hospital.
In May 2008, Resident #4 was also treated for malnutrition; the hospital
recommended “aggressive nutritional support.” USA Compl., ¶ 151. On May 27, 2008,
he was admitted to the hospital with “‘extensive sacral decubitis’ ulcers” 24 and required
immediate surgery. He also required an intravenous infusion of potassium because of his
low potassium level. Resident #4’s family refused to re-admit him to Oxford following
the surgery.
The Government alleges that, for the worthless services provided to Resident #4
from April 16, 2008 to May 27, 2008, the Defendants knowingly made or caused to be
made claims for payment to Medicaid, and Medicaid paid claims totaling $13,888.90.
Resident #5: A 71 year-old man was admitted to Oxford on November 2, 2007 following
treatment and surgical repair of a fractured hip. Medical orders and admission notes
indicate that he was incontinent, but did not identify any pressure ulcers.
Four days after his admission to Oxford, Resident #5 was admitted to the hospital
with pneumonia, hyponatremia, 25 and confusion. On November 20, 2007, Oxford’s
records indicate that he had a necrotic area 26 on his right heel. Physicians recommended
and his care plan indicated that topical ointment should be applied, his heels should be
floated, and he should receive regular body and skin audits to check his progress. Oxford
did not consistently provide these services, or other wound treatments. His condition
worsened and he developed other ulcers on his buttocks. He was referred to restorative
nursing care to build his strength and endurance; there is no evidence that he was
provided with restorative nursing care. The ulcer on his heel eventually reached Stage IV
status, with tendon and bone exposed. He was not given showers or bed baths according
to doctor’s orders; for example, he was ordered to receive showers three times weekly
during April 2008, but Oxford did not provide him any showers during that month.
During June 2008, he also did not receive antibiotics, insulin or other medications
ordered by his physician.
On or about June 20, 2008, Resident #5 was admitted to the medical center after
suffering a left-sided stroke. He did not return to Oxford following his stroke.
For the worthless services provided to Resident #5 from November 2, 2007 to

24

Decubitus ulcers, also known as pressure ulcers or bedsores, “appear[] in pressure areas of skin overlying a bony
prominence in debilitated patients confined to bed or otherwise immobilized, due to a circulatory defect.”
Steadman’s Medical Dictionary 2061 (28th ed. 2006). They can appear in the sacrum, which is a “shield-shaped
bony structure that is located at the base of the lumbar vertebrae and that is connected to the pelvis,” at the base of
the spine at the buttocks. See Sacrum: Medline Plus Medical Encyclopedia Image, Nat’l Insts. of Health,
http://www.nlm.nih.gov/medlineplus/ency/imagepages/19464.htm (last updated Feb. 7, 2011).
25
Hyponatremia involves “abnormally low concentrations of sodium ions in circulating blood.” Steadman’s
Medical Dictionary 934 (28th ed. 2006).
26
Necrotic area refers to a part of the body which is affected by necrosis, which is the “[p]athologic death of one or
more cells, or of a portion of tissue or organ, resulting from irreversible damage.” Id. at 1284.
30

•

June 26, 2008, Defendants submitted claims for payment to Medicare, and Medicare paid
claims totaling $10,051.58. For the same period and services, Medicaid paid claims
totaling $25,848.07.
Resident #6: A 73 year-old woman was admitted to Oxford on October 17, 2006. Her
diagnoses upon admission included hypertension, edema, 27 coronary atherosclerosis, 28
hyperlipidemia, 29 diabetes mellitus, 30 and dysphagia. 31
She was continent and
independent with activities of daily living, except for needing assistance getting in and
out of the bathtub.
Upon admission to Oxford, Resident #6 had physician orders to have her blood
glucose levels checked before each meal and at bedtime, and to receive measured doses
of insulin according to a sliding scale system up to four times a day. From February to
April 2007, Resident #6 either did not receive insulin in accordance with medical orders,
received the wrong dose of insulin, or there was no documentation of the type of insulin
administered.
Starting in May 2009, she developed ulcers that went improperly treated. It was
noted that she had no dressing on her sacral decubitus ulcer and that her wound had
become contaminated by feces due to incontinence. The hospital records state that
Oxford’s adherence to her physician’s plan of care was “poor.” By August 3, 2009, the
ulcer had increased in depth, with “tunneling,” and emitted a foul odor with drainage.
She was given debridement 32 and a colostomy 33 and sent back to Oxford on August 10,
2009. On August 24, 2009, she was treated at the hospital because her colostomy had
become infected. Her ulcers became worse and her physicians recommended that a
wound VAC be performed on her. Oxford never ordered a wound VAC, 34 despite
doctor’s orders, and the hospital noted that Oxford had not adhered to the plan of care.
Oxford records indicate that there were numerous instances when Resident #6 did not
receive wound treatment as ordered by her physician. On August 11, 2010, Resident #6’s
family removed her from Oxford.
The Government alleges that, for such worthless services to Resident #6 from

27

Edema refers to swelling. See id. at 612.
Coronary atherosclerosis refers to a hardening of the arteries in the heart, which often causes a limitation of blood
flow. See id. at 144 (“arteriosclerosis”), 174 (“atherosclerosis”)
29
Hyperlipidemia refers to elevated levels of lipids, or fat, in the blood plasma. See id. at 922.
30
Diabetes mellitus is a “chronic metabolic disorder in which the use of carbohydrate is impaired and that of lipid
and protein is enhanced. It is caused by an absolute or relative deficiency of insulin” and can lead to many health
complications in severe cases. Id. at 529.
31
Dysphagia is defined as “difficulty in swallowing.” Id. at 599.
32
Debridement refers to the removal of dead tissue and foreign matter from a wound. See id. at 496.
33
A colostomy is a “surgical procedure that brings one end of the large intestine out through an opening (stoma)
made in the abdominal wall. Stools moving through the intestine drain through the stoma into a bag attached to the
abdomen.”
Colostomy:
Medline
Plus
Medical
Encyclopedia,
Nat’l
Insts.
of
Health,
http://www.nlm.nih.gov/medlineplus/ency/article/002942.htm (last updated May 15, 2013).
34
“Wound VAC” refers to vacuum-assisted closure, which is a form of wound closure therapy. According to Wake
Forest University, “[t]he V.A.C. treatment applies localized negative pressure to draw the edges of the wound to the
center of the site. The negative pressure is applied to a special dressing positioned within the wound cavity or over a
flap or graft. By applying pressure directly to the wound, [the user can] remove the fluid that causes swelling,
stimulate cellular growth, increase blood flow, and promote an increased healing response.” Vacuum-Assisted
Closure (V.A.C.) – Wound Care and Hyperbaric Center, Wake Forest Baptist Health,
http://www.wakehealth.edu/Plastic-Surgery/Vacuum-Assisted-Closure-(V-A-C-).htm (last updated Mar. 31, 2014).
28

31

•

November 2, 2007 to August 11, 2010, the Defendants knowingly made or caused to be
made claims for payment to Medicaid, and Medicaid paid claims totaling $83,761.92.
For the same period, Medicare paid claims totaling $1,937.65.
Resident #7: A 62 year-old woman was admitted to Oxford on December 12, 2011. Her
diagnoses upon admission included Guillain-Barre syndrome (a disease that causes
paralysis beginning with the feet and hands and moving toward the trunk of the body and,
in Resident #7’s case, caused life-threatening respiratory complications), respiratory
failure, hypertension, mental retardation, morbid obesity, malnutrition, and a bacterial
infection. At the time she was admitted, Resident #7 had a cuffed tracheostomy tube that
had been recently inserted due to respiratory failure.
Despite doctor’s orders, Resident #7 was not provided proper treatment for
respiratory failure. Records indicate Resident #7 did not receive an assessment of her
respiratory or airway status, despite her history of respiratory failure. She was not
provided with medically urgent breathing treatments for at least a week because Oxford
reportedly did not have the proper equipment. Additionally, records indicate Oxford did
not properly insert intravenous infusion devices and then failed to infuse ordered drugs at
a rate sufficient to protect her from adverse events; shortly after her admission to Oxford,
she suffered such a reaction when an antibiotic she had been given for a rash was
administered incorrectly and she became severely ill.
Throughout her stay, records indicate that Oxford never changed Resident #7’s
tracheostomy collar and tubing, nor did they ever wash out her oxygen concentrator filter,
as ordered by her physician, placing her at risk for worsening respiratory infection. On
December 25, an LPN at Oxford gave her oxygen through her nose, but she had a cuffed
tracheostomy tube in place, which blocked airflow from her nose to her mouth, so the
LPN’s services could not have provided oxygen to her lungs. Over the next two days, her
oxygen saturation fluctuated due to a failure to proper oxygen flow and no suctioning of
the tracheostomy was done to increase her oxygen saturation.
On December 31, 2011, Resident #7’s condition worsened. Her breathing
decreased and she became slightly blue around the mouth, with no pulse or respirations.
A registered nurse at Oxford waited for a crash cart 35 to arrive before beginning
respirations. An EMT came about twenty minutes later and took her to the hospital.
After arriving at the hospital, she was pronounced dead as a result of cardiac arrest.
For such worthless services to Resident #7 from December 12, 2011 to December
31, 2012, defendants knowingly made or caused to be made claims for payment to
Medicare, and Medicare paid claims totaling $7,782.39.
The Government has alleged that the examples above are “only examples of the non-

existent, grossly inadequate, materially substandard, worthless care rendered to Oxford
residents” which were the subject of the Defendant’s false claims to Medicare and Medicaid
between October 2005 to May 2012. USA Compl. at 49. It contends that it “has, and will
35

A crash cart is a “movable collection of emergency equipment and supplies meant to be readily available for
resuscitative effort. It includes medication as well as the equipment for defibrillation, intubation, intravenous
medication, and passage of central lines.” Id. at 456.
32

develop through discovery and further analysis, including expert analysis, additional evidence of
defendants’ false or fraudulent claims, representations and certifications, and the United States’
resulting damages.” Id.
2. Defendants’ Knowledge and Evidence of Concealment
The Government asserts that the Defendants knew about the resident care at Oxford both
through their direct operation and management of the facility, but also from various reports and
events that affirmed this knowledge. AltaCare’s regional clinical director frequently visited
Oxford, conducted reviews, and issued Facility Visit Reports recognizing numerous failure of
care issues at Oxford, including, for example: poor resident hygiene; poor wound care; poor
hydration; poor pain management; inadequate food and food shortages; lack of heating in the
facility; leaks in the roof; problems with vendors due to non-payment; filthy conditions; and
pests. These reports were circulated to defendants’ top management, including Mittleider. The
Government also alleges that the Defendants had knowledge as a result of personal injury claims
brought by former residents and their family members, including at least three claims resulting in
litigation, and as the result of surveys by the Mississippi State Department of Health (“MSDH”),
which resulted in civil monetary penalties for noncompliance with nursing home patient care
requirements.
According to the USA Complaint, the Defendants also took “affirmative actions that
caused and contributed to the making of false or fraudulent claims, representations and
certifications,” and attempted to conceal the evidence of their worthless services. USA Compl.,
¶ 248.

Nursing homes such as Oxford use medication administration records (“MARs”),

treatment administration records (“TARs”), and activity of daily living (“ADL”) sheets, to
document resident care. The MARs, TARs and ADL sheets created and maintained at Oxford

33

contained numerous blanks for extended periods of time, and at other times, contained
demonstrably false entries, for example, purportedly documenting care provided to residents who
were not even present in the facility on the dates of the purported care. Moreover, at times,
Oxford staff members were required to stay late into the evening on days before MSDH
inspectors were scheduled to survey the facility, in order to falsify records that the inspectors
would be examining. The administrator of Oxford stated that he maintained two sets of records,
one for the regulators and one for the management of Oxford.
In summary, the Government’s Complaint in Intervention raises the following claims:
Count I: False Claims Act, 31 U.S.C. § 3729(a)(1) (claims up to and through
May 19, 2009) and 31 U.S.C. 3729(a)(1)(A) (claims from and after May
20, 2009)
Count II: False Claims Act, 31 U.S.C. § 3729(a)(1)(B)
Count III: Payment by Mistake
Count IV: Unjust Enrichment
The Defendants have filed motions to dismiss the Relator’s Complaint and the
Government’s Complaint in Intervention. The Court will address the issues raised in each
motion. Where the same issues are raised and the same law applies, the Court will analyze the
issues together. Any distinct issues will be analyzed separately.
III. LEGAL STANDARDS
A. False Claims Act
The False Claims Act imposes liability on “[a]ny person who—(1) knowingly presents,
or causes to be presented . . . a false or fraudulent claim for payment or approval; [or] (2)
knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government.” 31 U.S.C. § 3729(a)(1)–(a)(2).
B. Rule 12(b)(6) Standard

34

According to Federal Rule of Civil Procedure 12(b)(6), a complaint is properly dismissed
if it “fail[s] to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Motions
made pursuant to Rule 12(b)(6) test the legal viability of a complaint. A court reviewing such a
motion must afford “the assumption that all the allegations in the complaint are true,” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), and determine whether the averments
comprise a “plausible” right to recovery. Id. at 570.
A plaintiff must provide “more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Id. at 555 (citation omitted); see Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (emphasizing that “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions”). The alleged facts
must “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. In short, a
complaint fails to state a claim upon which relief may be granted when it fails to plead “enough
facts to state a claim to relief that is plausible on its face.” Id. at 570.
Once the court has accepted the well-pled factual allegations as true, it then turns to
whether the claim is plausible. Iqbal, 556 U.S. at 679. A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.

The plausibility standard is not akin to a

“probability requirement,” but it asks for more than a mere possibility that a defendant has acted
unlawfully. Where a complaint pleads facts that are “merely consistent with” a defendant’s
liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’”
Id. at 678 (citations omitted).

Determining whether a plausible claim of relief has been

adequately pled is “a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Id. at 679.

35

C. Rule 9(b) Standard
“[A] complaint filed under the False Claims Act must meet the heightened pleading
standard of Rule 9(b), which provides: ‘In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.’” United States ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009) (quoting Fed. R. Civ. P. 9(b)). Whereas Rule
9(b) generally requires a plaintiff to plead the “time, place and contents of a false representation,
as well as the identity of the person making the misrepresentation and what that person obtained
thereby, the Fifth Circuit has held that this standard is not a straitjacket.” United States ex rel.
Colquitt v. Abbott Labs., 864 F. Supp. 2d 499, 533 (N.D. Tex. 2012) (quotation marks omitted)
(citing Grubbs, 565 F.3d at 186, 190). Therefore, in the context of a claim under the FCA
presentment provision, “which makes liable any person who ‘knowingly presents, or causes to be
presented’ a false claim to the Government,” Grubbs, 565 F.3d at 188 (quoting 31 U.S.C. §
3729(a)(1)), “a relator’s complaint, if it cannot allege the details of an actually submitted false
claim, may nevertheless survive by alleging particular details of a scheme to submit false claims
paired with reliable indicia that lead to a strong inference that false claims were actually
submitted.” Id. at 190.
Lastly, “[t]he particularity requirements of Rule 9(b) apply to the [FCA’s] conspiracy
provision with equal force as to its ‘presentment’ and ‘record’ provisions.”

Id. at 193.

Therefore, in order to sustain a claim for conspiracy to commit fraud, the plaintiff must “plead
with particularity the conspiracy as well as the overt acts . . . taken in furtherance of the
conspiracy.” Id. (citation omitted).
IV. DISCUSSION
A. Motion to Dismiss Relator’s Complaint (Docket No. 68)

36

The Defendants have sought to dismiss Relator AHC’s Complaint for lack of subject
matter jurisdiction and failure to state a claim. Docket No. 68. The Defendants’ primary
argument is that this Court lacks jurisdiction to hear this case for two reasons. First, the Relator
has litigated and settled claims against Hyperion twice before. The Defendants contend that the
resolution of these earlier matters resulted in releases of claims against Hyperion that cover the
allegations in this case (Counts I-VI).

Second, the Defendants argue that the face of the

Complaint and exhibits to it, among other disclosures, demonstrate that AHC has brought claims
based upon public disclosures, of which Academy is not an original source (namely, Counts I &
III-VI). The Defendants seek to dismiss these counts with prejudice under Rule 12(b)(l).
The Defendants also contend that the Complaint fails under Rules 12(b)(6) and 9(b)
because Academy’s FCA claims related to quality-of-care are superseded by the Government’s
complaint in intervention as to certain Defendants (Count I); there is no private right of action
under the Mississippi Vulnerable Persons Act (Count II); and the Complaint fails as a matter of
law to plead viable claims upon which relief may be granted and fails to plead fraud with the
particularity required for an FCA action under Rule 9(b) (Counts I, III-VI).
1. Release of Claims In Settlement
The threshold issue is whether the Relator ever entered into a settlement agreement which
included a release that encompassed the qui tam action.

Defendants argue that AHC

relinquished standing to bring this FCA action against Defendants when it released all claims
against Defendants as part of settlement negotiations during two cases, the bankruptcy action and
the eviction action. The Relator AHC contends that they did not enter into a settlement to release
claims before the qui tam action, and that any post-qui tam release is unenforceable for the
purposes of barring the qui tam action. Here, the Relator has the more persuasive argument.

37

a) Bankruptcy Settlement
On September 25, 2009, counsel for Hyperion made a settlement offer to AHC by
telephone. Settlement Offer, Docket No. 68, Ex. 1, at p. 9 of 48. Counsel for AHC rejected the
offer and made a counteroffer in writing to Hyperion to dismiss the pending litigation between
the parties. The September 25 letter offered in relevant part that “[a]ll claims between the parties
will be dismissed with prejudice. . . . All the litigation goes away.” Id. at p. 10 of 48. According
to AHC, settlement discussions broke down when AHC’s counsel believed that counsel for
Hyperion had rejected the counteroffer and was making a new proposal on timing of payments.
By contrast, however, Hyperion’s counsel believes that she accepted the offer; AHC also states
that Hyperion’s counsel understood the issues regarding the timing of payments to be issues of
clarification.

AHC rejected Hyperion’s proposed changes and negotiations ended.

On

September 30, 2009, Relator AHC filed its qui tam action. According to Hyperion, AHC’s
counsel also repudiated its settlement offer on that same day. 36
On October 1, 2009, Hyperion filed a Motion to Compel Settlement, maintaining that it
had accepted the counteroffer in the September 25 letter. On October 27, 2009, the bankruptcy
court found that the letter constituted a counteroffer that had been accepted and granted the
motion to compel enforcement of the settlement.
Defendants have not argued that the terms of the September 25 letter would constitute a
release of AHC’s right to file a qui tam action. The most relevant part of the letter indicated that,
if the offer was accepted, “[a]ll claims between the parties will be dismissed with prejudice. . . .
All the litigation goes away.” It should be noted that these two sentences appear to refer to the
claims between the parties which had already been filed, and the litigation between the parties
36

See Order Granting Motion to Compel Settlement, Docket No. 68, Ex. 1, at 14 of 48 (“AHC, however, claims that
the Debtor proposed changes to the Settlement Proposal as to the timing of certain events and these changes
amounted to a counteroffer that AHC rejected on Wednesday evening, September 30, 2009.”).
38

that had already commenced. AHC did not file its qui tam action until September 30, 2009, five
days after AHC’s counsel sent this letter. A claim cannot be “dismiss[ed]” if it has not been filed
with a court. 37 In the same way, litigation cannot “go away” if it has not commenced. 38
Therefore, the language could not apply to the qui tam action.
After the bankruptcy court’s order and the filing of the qui tam action, the parties entered
into further negotiations and agreed to additional terms beyond those of the September 25
letter. 39 The result was the proposed settlement, which included release terms. The release term
stated in relevant part:
8. Further, upon receipt and clearance of the Second Settlement Payment, AHC .
. . hereby release and discharge, the Debtor, HP, AltaCare and Mittleider and its
related companies and entities, incorporations, and its employees, servants, agents
. . . from all the Claims, which AHC ever had or now has, whether known or
unknown and whether derivative or otherwise, out of all the Claims asserted in the
Bankruptcy Case, or that have been asserted by AHC against the Debtor, HP,
AltaCare and Mittleider, excepting any obligations arising under this Settlement
Agreement.
Settlement Agreement, Docket No. 68, Ex. 1 at p. 27-28 of 48. The bankruptcy court approved
the settlement, including the release term, on January 7, 2010.
Defendants argue that this language constitutes a “comprehensive release” which
discharged them from “all the Claims, which AHC ever had or now has, whether known or
unknown and whether derivative or otherwise . . .” They contend that the qui tam claim derives
from the claims asserted in the bankruptcy action, specifically the claim that Hyperion provided
“inadequate care, staffing, and supervision to Oxford facility residents.” Docket No. 69, at 7.
The Relator, however, refers to another part of the settlement agreement which limits the
37

See Black’s Law Dictionary 282 (9th ed.) (defining “claim” as “[a] demand for money, property, or a legal
remedy to which one asserts a right; esp., the part of a complaint in the civil action specifying what relief the
plaintiff asks for.”).
38
See id. at 1017 (defining “litigation” as “[t]he process of carrying on a lawsuit” or “[a] lawsuit itself.”).
39
The record is unclear as to the date that the parties entered into the second settlement, which both parties agree
included release terms. It is clear that it was between October 27, 2009, and January 7, 2010.
39

definition of the term “Claim” in the release paragraph. The Settlement Agreement specifically
defined the term “Claim” as follows: “WHEREAS, the claims and causes of action alleged and
generally described in the preceding paragraphs herein between Hyperion, AHC, AltaCare,
Mittleider and HP are referred to collectively herein as the ‘Claims’ . . .” Docket No. 68, Ex. 1,
at 23 of 48. According to the Relator, the release was narrow and limited to the bankruptcy
disputes enumerated in the Settlement Agreement in the preceding paragraphs of the document.
In summary, these claims included “matters [that] were filed and are pending in the Bankruptcy
Court in Hyperion’s Bankruptcy Case,” id. at 21 of 48, including motions related to Hyperion’s
failure to pay rent; motions for AHC to assume the unexpired lease and to reject the AltaCare
management contract and require disgorgement of fees; a motion to deem the lease agreement
rejected; AHC’s proof of claim; and other procedural motions.
In the cases on which Defendants have relied, courts have enforced broad, global releases
by relators of their claims against a qui tam defendant. In United States ex rel. Radcliffe v.
Purdue Pharma L.P., 600 F.3d 319, 324 (4th Cir. 2010), the court enforced a release signed by
an employee as part of a severance package which stated that “Employee . . . knowingly and
voluntarily releases and forever discharges [Purdue] of and from any and all liability to
Employee for actions or causes of action, suits, claims . . . whatsoever in law or equity, which
Employee . . . ever had, may now have or hereafter can, shall or may have against [Purdue] as of
the date of the execution of this Agreement . . . for, upon, or by reason of any matter, cause or
thing whatsoever.” Similarly, in United States ex rel. Ritchie v. Lockheed Martin Corp., 558
F.3d 1161, 1167 (10th Cir. 2009), the release at issue included “any and all claims [Ritchie]
might have arising under federal, state or local law.” Unlike the releases in Radcliffe and
Ritchie, the release and settlement at issue in this case are limited to the terms of the agreement –

40

the bankruptcy disputes listed on pages 1-3 of the agreement – and do not apply to AHC’s qui
tam action. The Relator also does well to point out that none of these “Claims” is broad enough
to encompass the claims of fraud upon the United States at issue in this case, and which are at the
heart of a qui tam action.
b) Eviction Settlement
After the bankruptcy settlement, AHC alleges that Hyperion failed to abide by the
requirements regarding rent payments and the terms of eviction. On May 18, 2010, AHC filed a
second suit against Hyperion and Altacare, seeking damages and to remove Hyperion from the
Oxford facility. The parties reached a settlement at a settlement conference on February 16,
2012. Hyperion’s counsel announced the settlement before Judge Keith Starrett and included the
following:
MR. MAY: [. . . .] Defendant Hyperion will retain any and all liability for all
claims that have arisen or that might arise from the operation of the facility in
Lumberton, including, but not limited to, matters that are related to employee
benefits and/or employer-related claims and any and all Medicare and Medicaid
liabilities, whether known or unknown, until the change of ownership and
operation of the facility occurs.
In conjunction herewith, plaintiffs and defendants agree that each shall indemnify
and hold the other harmless from any claims that arise or occur during the period
of time that each party operates or owns the facility.
Transcript of In-Chambers Settlement Agrmt., Docket No. 68, Ex. 3, at 4-5 (emphasis added).
The terms of the Eviction Settlement included a mutual release, but none of the terms indicate a
global release, and the Defendant has not pointed to any such terms in this agreement. See id. at
5 (“plaintiffs and defendants agree that each shall indemnify and hold the other harmless”). In
fact, Hyperion’s counsel announced that Hyperion expressly retained “any and all liability for all
claims that have arisen or that might arise from the operation of the facility in Lumberton,
including, but not limited to . . . Medicare and Medicaid liabilities, whether known or unknown”
41

during Hyperion’s operation of the facility. Id. (emphasis added). The specific reference to
“Medicare and Medicaid liabilities” is sufficient to place liability for all claims involving
Medicare and Medicaid squarely with Hyperion. Based on the plain language of the release,
these claims would include, but not be limited to, overpayment and reimbursement as well as
liability for fraud against these programs, precisely what this qui tam action alleges.
According to AHC, the parties then exchanged release drafts. Both versions contained
mutual releases, in which they agreed to “mutually release, hold harmless and discharge each
other,” but they differed on the claims to which the release applied. The Defendants tendered a
version of the release that was mutual and included a broad, global release of all claims. 40 AHC
states that it declined to sign this release. Instead, AHC tendered a release version that was
mutual, but not global. AHC’s release narrowly applied to claims asserted in the federal district
court action which culminated in the settlement order dated February 16, 2012. 41 AHC states
that Hyperion declined to sign AHC’s release and insisted upon its global version. In a later
hearing, Judge Starrett held that the settlement as detailed in the February 16 hearing transcript
remained in effect. None of the parties had signed a release as June 3, 2013, the date on which
AHC filed its response to the Defendants’ motion to dismiss. This lack of accord between the
parties indicates that AHC specifically intended to avoid entering into a broad, global release that
could encompass its qui tam action, and that the Relator has not entered into a release that

40

See Mutual Release With Covenants, Docket No. 68, Ex. 8, at 3 of 5 (“Def.’s Release”) (indicating, inter alia, that
“all parties shall be as free of liability in the premises as if the aforesaid Lease Agreement has never occurred” and
that the agreement “shall apply to all unknown and unanticipated claims resulting from the Lease Agreement, as
well as to those now disclosed for which any claim might or could be made against the Releasees herein.”).
41
See AHC Mutual Release, Docket No. 77, Ex. 2 at 1 of 5 (applying release to “claims asserted in the Complaint,
Amended Complaint and Counter-Complaint filed in Civil Action No. 2:10cv123-KS-MTP in the United States
District Court, Southern District of Mississippi as set forth by the Court in its Settlement Order dated February 16,
2012”); cf. Def.’s Release, at 2 of 5 (applying release to “all claims and demands heretofore made or that ever shall
be made against each other herein in any way growing out of the Lease Agreement of October 5, 2005”).
42

encompassed its qui tam action. AHC’s right to file this qui tam action was never released.
Therefore, the motion to dismiss for lack of standing is denied.
2. Public Disclosure Bar
Defendants have argued that this Court lacks subject matter jurisdiction over the
Relator’s qui tam action under the FCA because the allegations in the complaint are based upon
previously disclosed information. The Relator’s allegations broadly include three categories of
claims: (i) quality of care issues at Oxford, (ii) quality of care issues at other Hyperion-related
facilities, and (iii) certain Hyperion cost reports which contained allegedly false statements. The
Defendants allege that the Government was already aware of the information on which its
allegations were based well before the Relator filed its complaint. The Court agrees.
The FCA limits a court’s jurisdiction over qui tam actions by what is referred to as the
public disclosure bar:
No court shall have jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional, administrative, or Government
Accounting Office report, hearing, audit, or investigation, or from the news
media, unless the action is brought by the Attorney General or the person bringing
the action is an original source of the information. 42
42

The Relator has argued that both the versions of the public disclosure bar in the FCA before and after the Patient
Protection and Affordable Care Act (“PPACA” or “ACA”) must be considered because the Defendants engaged in
“long-running fraudulent conduct” which occurred both before and after the effect date of the PPACA’s amendment
to the public disclosure bar, from late 2005 to spring 2012. Docket No. 78, at 12. In the Relator’s view, the
Defendants are not entitled to “rely on a version of a defense that was not in effect at the time when they engaged in
prohibited conduct.” Id.
The pre-PPACA FCA was originally signed into law in 1986. The public disclosure bar provision was
amended by the PPACA, Pub. L. 111–148, 124 Stat. 119, which was signed into law on March 23, 2010. The
PPACA amended the statute to currently read:
The court shall dismiss an action or claim under this section, unless opposed by the Government,
if substantially the same allegations or transactions as alleged in the action or claim were publicly
disclosed (i) in a Federal criminal, civil, or administrative hearing in which the Government or its
agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal
report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought
by the Attorney General or the person bringing the action is an original source of the information.
31 U.S.C. § 3730(e)(4)(A) (Supp. 2011) (emphasis added). For the Relator, this version of the statute would allow
the Court to consider reports, audits and investigations from the Mississippi State Department of Health, on which it
43

This jurisdictional inquiry requires courts to consider three questions: “(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.” United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322,
327 (5th Cir. 2011).

“An FCA qui tam action even partly based upon publicly disclosed

allegations or transactions is nonetheless ‘based upon’ such allegations or transaction[s].”

Fed.

Recovery Servs. v. United States, 72 F.3d 447, 451 (5th Cir. 1995); United States ex rel. Reagan
v. E. Tex. Med. Ctr. Regional Healthcare Sys., 384 F.3d 168, 176, 179-80 (5th Cir. 2004).
Furthermore, the “Fifth Circuit has defined ‘based upon’ to encompass those situations
where the relator’s allegations are ‘substantially similar to’ or ‘supported by’ the publicly
disclosed allegations or transactions, even if the relator was not aware of the public disclosure.”
United States ex rel. Fried v. Hudson Indep. Sch. Dist., No. 9:05-CV-245, 2007 WL 3217528, at
*4 (E.D. Tex. Oct. 26, 2007) (citing United States ex rel. McKenzie v. Bell South Telecomms.,
Inc., 123 F.3d 935, 940 (5th Cir. 1997), cert. denied, 522 U.S. 1077 (1998)). Thus, if there is a
public disclosure upon which relator’s qui tam action is based, and the relator is not an original
source of the information in the complaint, a court must dismiss relator’s complaint for lack of
jurisdiction. See, e.g., Jamison, 649 F.3d at 332.
has heavily relied for most of its allegations. As the Defendants have indicated, the Fifth Circuit has refused to apply
the amended version of the FCA to cases pending prior to the PPACA’s enactment. See Little v. Shell Exploration
& Prod. Co., 690 F.3d 282, 292 n.11 (5th Cir. 2012) (“This suit has been pending since 2006 and the [ACA
amended] text is not retroactively applicable.”) (citation omitted); United States ex rel. Jamison v. McKesson Corp.,
649 F.3d 322, 326 n.6 (5th Cir. 2011) (“The [ACA] amendments do not apply retroactively to suits pending at the
time they became effective.”) (citation omitted). In analyzing the amendment, the Supreme Court has indicated that
retroactivity would be “necessary for [the PPACA amendment’s] application to pending cases” and declined to
presume retroactivity where it was not indicated in the language of the PPACA amendment. Graham Cnty. Soil &
Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 283 n.1 (2010) (citation omitted); see also
Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 948 (1997) (declining to apply an amended
version of the FCA to alleged conduct pre-dating the 1986 amendment at issue where the qui tam action was filed
after the amendment became effective)). In this case, Relator filed its qui tam action under seal on September 30,
2009 – before the PPACA amendment. Given that the PPACA amendment does not have retroactive effect and was
not in place when the action was filed, the Court will apply only the pre-PPACA version of the public disclosure
bar.
44

a) Allegations Regarding Oxford
In Count I of its Second Amended Complaint, AHC alleges that Hyperion submitted false
claims for payment in connection with worthless services provided at Oxford. See SAC, ¶¶ 3464; see id. ¶ 53.

In sum, the Relator alleged, “[T]he services purportedly provided were

worthless in that they were not provided or were deficient, inadequate, substandard, . . . did not
promote the maintenance or enhancement of the quality of life of the residents, and were of a
quality that failed to meet professionally recognized standards of health.” See id. ¶ 54. To
support its allegations, AHC has pointed to personal injury lawsuits in Mississippi state court
involving allegations of negligence brought by residents of Oxford against the facility, its
physicians, and related entities and individuals. See SAC, ¶ 50 (alleging that “[o]ne resident
sued AHC for injuries due to inadequate staffing [and] substandard care”); see id., Ex. F
(attaching complaints and other documents filed with state courts in three pre-September 2009
personal injury lawsuits involving Oxford). Quality-of-care issues at Oxford were also at issue
in the related bankruptcy proceedings and were discussed in documents on file with the
bankruptcy court. See Docket No. 68, Ex. 7 at pp. 3-9. AHC also references and attaches to its
SAC a series of Mississippi State Department of Health (“MSDH”) surveys of Oxford and
related correspondence from MSDH. See SAC, ¶¶ 37, 39; Exs. B, C.
Documents filed in personal injury lawsuits and other information on file with courts are
public disclosures. “Any information disclosed through civil litigation and on file with the
clerk’s office should be considered a public disclosure of allegations in a civil hearing for the
purposes of [the FCA]. . . . This includes civil complaints.” Reagan, 384 F.3d at 174 (finding
state court lawsuit was a public disclosure); see also United States ex rel. Hartwig v. Medtronic,
Inc., No. 3:11CV413-CWR-LRA, 2014 WL 1324339, at *9 (S.D. Miss. Mar. 31, 2014). The

45

complaints attached to the SAC at Exhibit F, along with at least one filing from the related
bankruptcy proceedings, are public disclosures. Audits or investigations performed by state
agencies are also public disclosures under the FCA and trigger the bar. See Hays v. Hoffman,
325 F.3d 982, 986-87, 994 (8th Cir. 2003) (finding that compliance audit performed by Medicaid
agency was a public disclosure); Stennett v. Premier Rehab., LLC, 479 F. App’x 631, 634 (5th
Cir. 2012) (citing Graham, 130 S. Ct. 1396, 1400 (2010)) (unpublished). Thus, MSDH reports
are public disclosures. AHC also point to a notice that the MSDH issued an “Immediate
Jeopardy” notice against Oxford when it was under Hyperion’s supervision. SAC, ¶ 43, Ex. E-1.
That notice was released in the Hattiesburg American, a local newspaper near the facility. The
FCA is clear that newspaper publication is a form of public disclosure. See 31 U.S.C. §
3730(e)(4)(A). The Defendants have also demonstrated that the Relator’s worthless services
allegations regarding Oxford are substantially similar to these documents. See Docket No. 69, at
13 (chart comparing Relator’s worthless services allegations regarding Oxford alongside various
public disclosures in documents attached to SAC).
b) Allegations Regarding “Nationwide Scheme”
In Counts I, and III through VI, the Relator alleges a “nationwide pattern” of conduct,
including similar worthless service claims, regarding other entities allegedly affiliated with the
Defendants. See SAC, ¶ 59; see also id. ¶¶ 111-17 (alleging various schemes involving related
entities that impact resident care and result in submission of false claims); id. ¶ 114
(summarizing cases to support alleged “landlord/tenant” scheme); id. ¶ 117 (same with respect to
alleged “vendor scam”).

The Defendants contend that AHC relies on publicly disclosed

information to support these allegations, which triggers the FCA bar.
AHC references and attaches to its SAC news stories that it claims support its allegation

46

of a nationwide scheme to defraud government payors. See SAC, ¶ 59-64 (describing incidents
involving purportedly related facilities in Massachusetts, Tennessee and Connecticut); see id. ¶
60, Ex. K (alleging quality of care issues at Massachusetts facility and attaching December 29,
2006 Nursing Home Litigation Reporter article regarding same); see id. ¶ 61, Ex. H (alleging
similar conduct at Tennessee facility and attaching September 29, 2009 Bristol Herald Courier
article). Indeed, these news stories are public disclosures. See, e.g., United States ex rel. Fried
v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008) (noting that allegations or transactions
at issue had been disclosed in “trade publications and on the internet” prior to relator’s suit).
Similar to the claims in Oxford, the Defendants have established that AHC’s nationwide
allegations are substantially similar to public disclosures. See Docket No. 69, at 15-16 (chart
comparing Relator’s nationwide worthless services allegations alongside various public
disclosures in documents attached to SAC).
c) Allegations Regarding Failure to Disclose Clark’s Appointment
In Counts IV through VI of the SAC, Academy alleges that Hyperion submitted false
claims when it filed its cost reports (i) with inaccurate or otherwise misleading information or
(ii) without making certain required disclosures. SAC, ¶ 89-110. Specifically, the Relator
alleges that Hyperion: failed to disclose the appointment Dr. Harry McD. Clark, an excluded
individual, and related ownership information, see id. ¶¶ 97, 101; and failed to make disclosures
regarding Hyperion’s “actual officers and directors,” see id. ¶¶ 109-10.

To support these

allegations, AHC makes allegations concerning Dr. Clark’s exclusion and references (and
attaches to the SAC) corporate filings. See, e.g., SAC, ¶¶ 89-97, 102 & Ex. N.
Dr. Clark’s exclusion and the financial information that AHC has relied upon are public
disclosures. Apparently, AHC has relied on at least one document disclosed in the previous

47

bankruptcy litigation between the parties. See SAC, Ex. N (alleged Hyperion monthly operating
report with filing stamp bearing case number of In re Hyperion Foundation, Inc. bankruptcy
proceedings (No. 08-51288) and filing date of August 31, 2009). The release of this document in
the bankruptcy litigation triggers the public disclosure bar. See Hartwig, 2014 WL 1324339, at
*9; see also United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins.
Co., 944 F.2d 1149, 1159-60 (3d Cir. 1991) (concluding discovery material, even though not on
file with court, triggered bar).
Dr. Clark’s exclusion by the U.S. Department of Health and Human Services Office of
the Inspector General (“HHS-OIG”) was published in the Federal Register. 43 This record,
indeed published by the federal government itself, certainly constitutes a public disclosure. See
United States ex rel. Conrad v Abbott Labs., Inc., No. 02-11738, 2013 WL 682740, at *6 (D.
Mass. Feb. 25, 2013) (concluding that certain Federal Register notices regarding prescription
drug approval process triggered FCA bar). Additionally, Dr. Clark’s exclusion was publicly
disclosed because it was addressed in prior civil litigation, as referenced in the Relator’s
complaint. See SAC, ¶ 56. Dr. Clark was deposed on August 9, 2009, in connection with the
related Hyperion bankruptcy proceedings and testified that he was convicted of one count of
obstruction of justice in a Medicare fraud case. See Docket No. 68, Ex. 10 at 88:5-90:16
(Testimony of Harry Clark). Dr. Clark’s testimony serves as a public disclosure of AHC’s cost
report-related allegations.
In rebuttal to each of Defendants’ arguments about each type of public disclosure, the
Relator does not argue that its allegations are not based on publicly disclosed information.
Rather, it argues that “none of [the materials that the Defendants have cited] allege fraud, or

43

See Def’s MTD, Docket No. 68, Ex. 9 (HHS-OIG Program Exclusions Not., 70 Fed. Reg. 61,136, 61,136 (Oct.
20, 2005)).
48

taken together, contain information that would expose [Defendants’] failures as being the result
of the broad scheme to commit fraud that is alleged in the qui tam.” Docket No. 78, at 16. The
Relator’s argument is unavailing; each component of the alleged fraudulent conduct need not be
publicly disclosed to trigger the statutory bar. In analyzing the “based upon” prong of the public
disclosure bar, the Fifth Circuit has held that “if a qui tam action is even partly based upon
public allegations or transactions then the jurisdictional bar applies.” United States ex rel. Fried
v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008) (emphasis added and internal
quotations marks and citation omitted). In Fried, the Fifth Circuit rejected an argument similar
to the Relator’s argument here, ruling that “specific” allegations of fraud need not be disclosed
for the bar to apply. See id.; see also United States ex rel. Ward v. Commercial Metals Co., No.
C-05-56, 2007 WL 1390612, at *6 (S.D. Tex. May 9, 2007) (“[C]ourts have held that the precise
allegation of fraud (or the fact that the fraud might trigger a cause of action under the [FCA])
need not be publicly disclosed if the essential facts or transaction on which it is based has been
disclosed.”) (emphasis added). 44 Thus, AHC’s FCA claims are substantially similar to public
disclosures, and they are based upon such disclosures for the purposes of public disclosure bar.
d) Whether Academy Is An Original Source

44

AHC has urged this Court to apply the X + Y = Z formulation, which some courts within the Fifth Circuit have
used when conducting a public disclosure bar inquiry. See, e.g., United States ex rel. Lockey v. City of Dallas, Tex.,
3:11-CV-354-O, 2013 WL 268371, at *7 (N.D. Tex. Jan. 23, 2013); United States ex rel. Colquitt v. Abbott Labs.,
864 F. Supp. 2d 499, 519 (N.D. Tex. 2012). Under this formulation, developed by the D.C. Circuit, “if X + Y = Z, Z
represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent
transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e.,
the conclusion that fraud has been committed.” United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d
645, 654 (D.C. Cir. 1994). AHC argues that no public materials “factually disclose an X plus Y that would equal
‘Z,’ allowing anyone to study them and see that a fraudulent scheme was underway.” AHC Reply, Docket No. 78,
at 16. To the contrary, the public disclosures attached to the SAC could lead one to “infer” fraud, in that they
indicate allegations regarding care provided at Oxford and worthless services. These elements would suggest that
the facility was not in compliance with Medicaid or Medicare regulations, and that they may be falsely certifying
compliance to receive payment from the government – the heart of the Relator’s claim. Even under this test, the
public disclosure bar is due to be applied as to Relator’s Oxford allegations.
49

Given that the Relator’s allegations are based on public disclosures, the Court must
determine if AHC is the original source of the information. An “original source” is an individual
who (1) has direct and independent knowledge of the information on which the allegations are
based and (2) has voluntarily provided the information to the Government before filing an action
under this section which is based on the information. See 31 U.S.C. § 3730(e)(4)(B); United
States ex rel. Reagan v. E. Texas Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 177 (5th Cir.
2004) (citation omitted). Only the first part of the test is at issue here because there is no dispute
regarding whether the Relator provided the information to the Government before filing this
action.
In Rockwell International Corp. v. United States, 549 U.S. 457, 470-72 (2007), the
Supreme Court clarified that relators need not have direct and independent knowledge of the
information underlying the publicly disclosed allegations to qualify as original sources, but
instead must have direct and independent knowledge of “the information upon which the
relators’ allegations are based.” Therefore, a relator’s knowledge must therefore be firsthand; for
a relator to have “direct” knowledge, it must have “knowledge derived from the source without
interruption or gained by the relator’s own efforts rather than learned second-hand through the
efforts of others.” Laird v. Lockheed Martin Eng’g and Sci. Servs. Col., 336 F.3d 346, 355 (5th
Cir. 2003), abrogated on other grounds, Rockwell, 549 U.S. at 472. A relator’s “knowledge is
considered ‘independent’ if it is not derived from the public disclosure.” Reagan, 384 F.3d at
177.

With this “direct and independent knowledge” requirement, Congress intended “to

encourage qui tam suits brought by insiders, such as employees who come across information of
fraud in the course of their employment.” Laird, 336 F.3d at 355-56 (internal quotation marks

50

omitted); United States ex rel. Lam v. Tenet Healthcare Corp., 287 F. App’x 396, 400 (5th Cir.
2008) (unpublished).
Relators found to have direct and independent knowledge are those who actually viewed
source documents or viewed firsthand the fraudulent activity that is the basis for their qui tam
action. Lam, 287 F. App’x at 400. However, the relator must do more than “discover through
investigation or experience what the public already knew. Instead, the investigation or
experience of the relator either must translate into some additional compelling fact, or must
demonstrate a new and undisclosed relationship between disclosed facts, that puts a government
agency ‘on the trail’ of fraud, where that fraud might otherwise go unnoticed.” Reagan, 384
F.3d at 179.
In this case, the Relator AHC had entered into a lease agreement with Hyperion to run the
Oxford facility. AHC became concerned when Hyperion breached the lease agreement by
failing to pay rent. According to the Relator, “The breach of the Lease Agreement prompted
AHC to conduct an investigation into whether Hyperion as a tenant and operator of the Facility
was actually providing the level of care essential to maintaining the Facility and to properly
provide for its residents as required by statute and regulation. Upon its initial investigation,
AHC determined that defendants could not or would not provide the requisite level of care for
the residents.” SAC, Docket No. 7, ¶ 19. AHC alleges that it learned that Defendants have
engaged in “fraudulent conduct” through its “actual business dealings with the Defendants.” Id.
¶ 27.
AHC did indeed utilize its own resources to investigate the conditions at Oxford which
support their allegations. In the Complaint, AHC indicates numerous evaluations of Oxford

51

conducted “at AHC’s direction.” 45

The problem is that this information had already been

publicly disclosed. AHC conducted a September 2008 evaluation in which it identified a lack of
proper administration and staffing at Oxford; equipment and furniture either inoperative and/or
in poor shape; and showers in poor condition. Id. ¶ 36. The evaluation referenced an Online
Survey Certification and Reporting (“OSCAR”) system report compiled along with the
September 2008 evaluation that indicates a history of Life Safety Code violations and citations
for deficiencies that exceeds the state average.

See SAC, Ex. A. The OSCAR system is

maintained by the Centers for Medicare and Medicaid Services (“CMS”), and contains data
collected by surveyors from CMS. 46 Thus, this information is not “independent” because it is
derived from a public disclosure. Reagan, 384 F.3d at 177. The results of this survey also
indicate that the Mississippi State Department of Health (“MSDH”) already knew about the
substandard care at Oxford. A March 2009 evaluation determined that similar conditions still
existed, see SAC, Ex. A-1 – but the Relator admits that an investigation from the MSDH in
February 2009 uncovered similar conditions. See SAC, Ex. B. AHC also alleges “further
evidence” of the “overall lack of care” at Oxford, including: a) an account of patients who were
transferred to other facilities in January 2011 and the very poor hygiene and health problems that
afflicted them when they arrived at the new facility, SAC, ¶ 47; b) a claim that local physicians
complain about Oxford’s status and refuse to refer patients to the facility, id.; c) the security
system ripped from the wall in January 2011 which left a “large unrepaired hole” and a policy

45

It appears that AHC hired Kay Wilkes Consulting to conduct evaluations of the facility on its behalf to determine
whether Hyperion was in compliance with its lease agreement and with licensing and certification requirements of
the Mississippi State Department of Health. The September 2008 evaluation included Kay Wilkes, RN, and Bob
Wilkes, a videographer. See SAC, Docket No. 7, Ex. A.
46
See
What
is
OSCAR
Data?,
Am.
Health
Care
Ass’n.,
http://www.ahcancal.org/research_data/oscar_data/Pages/WhatisOSCARData.aspx (last visited July 7, 2014);
Nursing Home Quality Initiative, Ctrs. for Medicare and Medicaid Svcs., http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/index.html (last modified Apr. 4, 2014, 9:26
AM).
52

which requires staff to stand guard at the door to prevent patients from leaving unauthorized, id.
¶ 48; and d) an anecdote about a patient whose family told AHC that “their resident family
member suffered from persistent pressure ulcer that was not being properly treated,” id. ¶ 50.
AHC does not indicate the source of this information and whether it came from public
disclosures or from its direct and independent knowledge.

“Collateral research and

investigations do not establish direct and independent knowledge of the information on which
the allegations are based.” United States ex rel. Richardson v. E-Systems, Inc., No. 3:90-CV0607, 1999 WL 324666, at *3 (N.D. Tex. May 18, 1999) (citing United States ex rel. Barth v.
Ridgedale Elec., Inc., 44 F.3d 699, 703 (8th Cir. 1995)); see also Fed. Recovery Servs., 72 F.3d
447, 451-52 (5th Cir. 1995).
AHC found similar problems that the MSDH observed in its investigations, and that were
disclosed in lawsuits and in the bankruptcy action. As the Fifth Circuit established in Reagan, it
is insufficient that AHC has only “discover[ed] through investigation or experience what the
public already knew.” 384 F.3d at 179. They have not provided “additional compelling fact[s]”
or brought to light a “new and undisclosed relationship between disclosed facts.” Id. Even if
AHC had not conducted its investigations, essentially the same information would already be in
the public domain. AHC has not brought substantially new information to the table. As a result,
it cannot be said to be an “original source” for claims involving worthless services at Oxford.
Additionally, AHC has not demonstrated that it is an original source for its remaining
allegations, which include the Defendants’ nationwide pattern of conduct, failure to disclose Dr.
Clark’s status as an officer, and Hyperion’s failure to make certain disclosures on Medicare and
Medicaid cost reports are based on public disclosures and AHC has not provided any information

53

for which it has “direct and independent knowledge” on these counts. Therefore, 31 U.S.C. §
3730(e)(4) bars AHC from pursuing this qui tam litigation.
The Court makes it clear, however, that this dismissal under the public disclosure bar is
without prejudice to the United States. The United States has intervened in the claims against
Hyperion, AltaCare, LTCS and Douglas Mittleider for violating the False Claims Act and
common law in connection with the operation of Oxford. While it has declined to intervene in
the remainder of the Complaint, it retains a strong interest in these aspects of the qui tam action.
The United States remains the real party in interest entitled to the bulk of any recovery and
retains important rights with respect to the future conduct of the litigation by Relator. See 28
U.S.C. § 3730(c) and (d); Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 756 n.10 (5th Cir.
2001). To that end, the United States has filed a Statement of Interest, Docket No. 83, which the
Court has considered in resolving the Relator’s remaining issues.
3. Meeting the Pleading Standards for Rules 12(b)(6), 9(b), and 8(a)
In its response to Defendants’ motion to dismiss, AHC conceded that the worthless
services claims in which the Government has intervened (Count I) have been superseded by the
Government’s Complaint in Intervention. 47 It also conceded that its claim under the Mississippi
Vulnerable Persons Act (Count II) should be dismissed because the statute does not grant an
express or implied private right of action for enforcement. Given these concessions, the Court
will turn to the other allegations for which the Defendants contend that the Relator has failed to
properly plead its claims.

The Court will also address the Defendants’ argument that the

Government has also failed to plead fraud with particularity.
47

The Government has intervened with regard to AHC’s claims against defendants Hyperion, AltaCare, LTCS, and
Douglas K. Mittleider. AHC is correct in its assertion that its worthless services claims against the other defendants
against whom the Government has not intervened remain pending; they have been addressed in this opinion. The
Court also concurs that AHC has the right to participate as a party in the worthless service claims lodged by the
United States against the intervention defendants. United States ex rel. Magee v. Lockheed Martin Corp., No.
1:09CV324-HSO-JMR, 2010 WL 972214, at *3 (S.D. Miss. March 12, 2010).
54

Under Rule 8(a), a party asserting a claim must include (1) the grounds for the court’s
jurisdiction; (2) a statement of a claim showing the pleader is entitled to relief; and (3) a demand
for relief. See Fed. R. Civ. P. 8(a). To prove a conspiracy actionable under the FCA, a relator
“must show (1) the existence of an unlawful agreement between defendants to get a false or
fraudulent claim allowed or paid by [the Government] and (2) at least one act performed in
furtherance of that agreement.” United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 193
(5th Cir. 2009) (internal quotation marks omitted). Under this standard, a relator must meet the
Rule 9(b) pleading standard for FCA claims and its complaint may survive, even “if it does not
include the details of an actually submitted false claim . . . by alleging particular details of a
scheme to submit false claims paired with reliable indicia that lead to a strong inference that
claims were actually submitted.” Id. at 190. In Grubbs, the court ruled that allegations of a
scheme to submit false claims coupled with specific details such as “dates and descriptions of
recorded, but unprovided, services and a description of the billing system that the records were
likely entered into,” would satisfy Rule 9(b). Id. at 190-91.
a) Conspiracy Claims Regarding Oxford (Count III)
In Count III of the Complaint, the Relator asserts that the Defendants “conspired” to
defraud Medicare and Medicaid programs. See SAC, ¶¶ 77-78, 83-88. The Defendants argue
that this claim fails as a matter of law because the Relator has failed “to allege any facts . . . that
could establish” the required elements, and has thus failed to satisfy Rule 8(a). 48 The Court
disagrees.

48

Defendants argue that the Relator has made “unstructured assertions” of a conspiracy to defraud “federal health
care programs, residents, landlords, vendors and creditors.” Docket No. 69, at 21. Under Count III, the Complaint
states that the Defendants conspired to defraud “Medicare and Medicaid programs”; the allegations at ¶¶ 111-117
indicate allegations of fraud against vendors, residents, landlords, and creditors at facilities nationwide. The Court
will address the actual language of Count III and consider the other allegations in addressing the “nationwide
scheme” allegations.
55

Contrary to the Defendants’ assertion, the allegations in Count III as to Hyperion and
Oxford are very specific and do allege acts in furtherance of the conspiracy that indicate
agreement and participation between the Defendants.

The Relator alleges that “[u]pon

information and belief, Relator asserts that Douglas Mittleider and all other Defendants have
planned and implemented a broad scheme to defraud Medicare and Medicaid by siphoning
money to various entities owned and controlled by him through Hyperion from the Facility.”
SAC, ¶ 72. The Relator alleges that Douglas Mittleider installed his wife, Julie Mittleider, as a
“figurehead officer and director of Hyperion” and later installed Harry Clark in the same
position. However, AHC states that it had no dealings with any person other than Douglas
Mittleider during the term of the Oxford lease agreement. Id. ¶ 74. According to the Complaint,
Douglas Mittleider was CEO, CFO, and secretary of AltaCare.

AltaCare served as the

manager/accountant of Hyperion and was among its creditors. The Relator has provided a copy
of the Georgia Secretary of State business information records which indicate that Douglas
Mittleider also is the CEO, CFO, and secretary of other corporations which are defendants in this
action, including HP/Ancillaries, Inc., LTCS, and HP/Management Group, Inc. See id. ¶ 79; Ex.
L. The Relator has attached to its Complaint Hyperion’s Medicaid cost reports and monthly
operating reports, which indicate that, while Hyperion was in bankruptcy, it claimed and/or paid
large amounts in fees and “cash transfers” to other Mittleider companies for services allegedly
performed at Oxford and for which Medicare and Medicaid were billed. 49

49

Hyperion’s Medicaid cost report for fiscal year 2008 shows that Hyperion claimed costs of $358,993 for
AltaCare’s management fees and accounting fees. SAC, ¶ 80; Ex. M, pp. 9, 14. The Relator alleges that, “upon
information and belief, Hyperion continues to pay AltaCare $2,732.00 for accounting fees and $27,089.00 for
management fees every month.” Id.; see, e.g., Ex. G (Monthly Operating Report). According to the Complaint,
“Hyperion also claimed $1,608.00 in costs to HP/Ancillaries, Inc., another of Doug Mittleider’s companies, on the
2008 Medicaid cost report.” Id.; Ex. M, pp. 9, 14. LTCS received $672,300 in “cash transfers” from Hyperion in
May, June, and July 2009 alone. Id., ¶ 81, Ex. N (Monthly Operating Reports). Sentry Healthcare Acquirors, Inc.
(“Sentry”) is owned by Julie Mittleider. Sentry received $50,000 in “cash transfers” from Hyperion in June 2009
56

The Relator also describes an incident which suggests acts in furtherance of a conspiracy
between the Defendants. Hyperion promised to pay rent for the Oxford facility as part of the
bankruptcy settlement. The terms of the settlement required that Hyperion make these payments
by wire transfer into AHC’s account. Hyperion paid on the due date with checks that it paid to a
nursing school affiliated with AHC, but which was not part of the bankruptcy proceeding or
settlement agreement, in violation of the settlement. These checks would bounce and would be
followed by late wire transfers of funds into AHC’s account from other Mittleider companies
who were not the lessee. See SAC, ¶¶ 83-88.
These allegations and the attachments to the Complaint together allege that Douglas
Mittleider and his affiliates own and operate the other Defendant corporations. These companies
allegedly contracted with Hyperion to provide a variety of services to Oxford. Hyperion billed
Medicaid and Medicare for these services, and the proceeds were diverted to these companies,
essentially to keep the money in the family of Mittleider companies, and thus unjustly enrich
Douglas Mittleider and his affiliates at the expense of the federal government and the residents at
Oxford. The Relator has provided details that are more than sufficient to “lead to a strong
inference” that false claims were submitted to the Government for payment. Grubbs, 565 F.3d at
193. As for the claim of conspiracy, the Complaint has also sufficiently alleged “the existence of
an unlawful agreement between defendants to get a false or fraudulent claim allowed or paid by
[the Government].” The Complaint also alleges many “act[s] performed in furtherance of that
agreement.” Id.
b) Nationwide Scheme (Allegations ¶ 111-117)

alone. Id., ¶ 82; Ex. N. Based on the record and the Defendants’ pleadings, it is unclear what services these entities
allegedly provided in exchange for compensation.
57

The Relator has also alleged that the Defendants have used similar schemes to defraud
“federal health care programs, residents, landlords, vendors, and creditors” through the use of
nursing homes around the country. The extent to which the Relator’s allegations meet the
requirements of Rule 9(b) and the FCA, however, ends at Oxford’s doorstep and does not extend
to this scheme. In its Statement of Interest, the Government argues compellingly that the Relator
has not adequately plead other FCA violations committed by the Defendants at any other nursing
home other than Oxford. Docket No. 83.
An FCA complaint cannot survive a motion to dismiss without providing particular
details to describe the “who, what, when, where, and how” of the fraud. United States ex rel.
Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997). The standard
in Grubbs is indeed relaxed, but not so relaxed that it allows “suggestive or conclusory
allegations” to move forward. United States ex rel. Vavra v. Kellogg Brown & Root, Inc., 903 F.
Supp. 2d 473, 484-85 (E.D. Tex. 2011), rev’d on other grounds, 727 F.3d 343 (5th Cir. 2013).
Other district courts in this circuit, following Grubbs, have set out minimum levels of specificity
required to support allegations of wrongdoing in similar contexts. See United States ex rel.
Woods v. SouthernCare, Inc., No. 3:09-cv-00313-CWR-LRA, 2013 WL 1339375, at *5-*6 (S.D.
Miss. 2013) (relator’s non-specific allegation of company-wide fraud, beyond the defendants’
conduct at four Mississippi offices about which relator had actual knowledge, did not satisfy
Rule 9(b)); United States ex rel. Nunnally v. West Calcasieu Cameron Hosp., No. 2:08cv0371,
2012 WL 1866586, at *4 (W.D. La. 2012) (Grubbs “does not absolve the relator of having to
plead any specific facts of a false claim”; dismissing qui tam action which did “not identify any
specific physicians, patients, services or claims involved in the alleged scheme”).

58

The section of the Complaint alleging a “Nationwide Pattern of Conduct,” at ¶¶ 59-64,
states that the events at Oxford are “not an isolated occurrence,” id. ¶ 59, but sets forth no other
such occurrence with the specificity needed to satisfy Rule 9(b). The Complaint alleges abuse
and neglect at a nursing home in Massachusetts, a resident lawsuit at a Tennessee nursing home,
and financial difficulties and labor problems at a nursing home in Connecticut – all of which are
owned and operated by Mittleider companies. The allegations, however, lack particular details
about the actual operation of these facilities, the Defendants’ participation in them, and the
Defendants’ knowledge of them.

As the Government has argued, “Fundamentally, the

[Complaint] does not provide sufficient details, either directly or enough to raise a strong
inference, about the basic who, what, where, when or why of FCA violations at any nursing
home other than Oxford.” 50 Docket No. 83, at 8. See also Thompson, 125 F.3d at 903. Thus,
the Defendants’ motion to dismiss is granted as to the allegations regarding a nationwide pattern
of conduct. 51
c) Government’s Complaint in Intervention
Defendants argue that the USA Complaint also fails to meet the heightened pleading
standards of Rule 9(b) because it does not allege the details of any particular claim submitted to
50

The Government has also raised an important policy principle which undergirds the requirement that relators
provide more than speculative allegations to avoid dismissal of their claims. The FCA includes what has been called
the “first-to-file” provision, which states: “When a person brings a [qui tam] action, no person other than the
Government may . . . bring a related action based on the facts underlying the pending action.” 31 U.S.C. §
3730(b)(5). A relator who files speculative allegations and invokes this provision could prevent other more
knowledgeable relators from filing suit. See Walburn v. Lockheed Martin Corp., 431 F.3d 966, 973 (6th Cir. 2005)
(heightened pleading requirement of Rule 9(b) in FCA cases “deters would-be relators from making overly broad
allegations that fail to adequately alert the government to possible fraud in an effort to preclude future relators from
sharing in any bounty eventually recovered.”) (internal quotation marks omitted).
51
To be sure, this determination is not to suggest that FCA violations may not have occurred at nursing homes other
than Oxford that are affiliated with Defendants, or that Defendants may not be liable for such conduct. It does
recognize, however, that the Relator did not allege FCA violations – other than at Oxford – in more than a
conclusory fashion. Relator’s allegations did not allow the United States meaningfully to investigate, no less sue,
Defendants under the FCA. They do not, therefore, entitle the Relator to stake a claim to share in any FCA recovery
the United States might ever obtain resulting from Defendants’ conduct at other nursing homes. See United States
ex rel. Detrick v. Daniel F. Young, Inc., 909 F. Supp. 1010, 1021 (E.D. Va. 1995) (FCA “is not designed to have the
government function as a sort of free private investigator to help persons achieve qui tam relator status and the
resulting opportunity of financial gain.”).
59

the Government or “specific details regarding who submitted the alleged false claims, what the
alleged false claims contained, when the alleged false claims were submitted to the Government,
or where the alleged false claims were executed.” Docket No. 86, at 11. In particular, the
Defendants argue that the USA Complaint alleges only “allegedly deficient” services for seven
residents. However, the USA Complaint alleges that these descriptions were “only examples” of
worthless services to Oxford residents from October 5, 2005 through at least May 1, 2012. USA
Compl., ¶ 243.
The Defendants argue for a threshold that exceeds the requirement for pleading evidence
of fraud in this context – one in which the conduct is allegedly long-term and systemic. As the
Sixth Circuit explained in United States ex rel. Bledsoe v. Community Health Systems, Inc., 501
F.3d 493 (6th Cir. 2007):
There are . . . valid reasons for not requiring [an FCA complaint] to plead every
specific instance of fraud where the . . . allegations encompass many allegedly
false claims over a substantial period of time. . . . These reasons primarily
advance the goal of logistical efficiency. Where the allegations in a . . . complaint
are complex and far-reaching, pleading every instance of fraud would be
extremely ungainly, if not impossible.
Id. at 509 (internal quotation marks and citations omitted). “[I]t has been widely held that where
the fraud allegedly was complex and occurred over a period of time, the requirements of Rule
9(b) are less stringently applied.” United States ex rel. Johnson v. Shell Oil Co., 183 F.R.D. 204,
206–07 (E.D. Tex. 1998) (collecting cases supporting this proposition); see also United States ex
rel. Foster v. Bristol-Myers Squibb Co., 587 F. Supp. 2d 805, 821 (E.D. Tex. 2008) (“[S]ome
district courts in the Fifth Circuit have also relaxed Rule 9(b)’s pleading standard where the
alleged fraud occurred over an extended period of time and consists of numerous acts.”)
(collecting cases). As the court in Johnson recognized, “To approach the issue otherwise would
allow the more sophisticated to escape liability under a False Claims case due to the complexity
60

of their scheme and their deviousness in escaping detection.” 183 F.R.D. at 207. The fraud
alleged by the Government consists of a scheme that occurred over the course of several years
and involved numerous acts. The Government has also alleged specific and horrifying details
about the services, or lack thereof, allegedly provided to the residents at Oxford, and specific
amounts that Medicare and Medicaid paid on behalf of each of these residents – all of which
provide reliable indicia that false claims were submitted, and that the Government has more
information about these claims and many others. Given these circumstances and the case law,
the Government has provided the Court with ample reason to find that it has met the Rule 9(b)
pleading requirement.
4. Alter Ego Theory of Liability Against Non-Hyperion Defendants
The Relator AHC has alleged that the Defendants are “the alter ego of Defendant
Mittleider and/or each other, and the other individuals and entities unknown to AHC.” SAC, ¶
17. According to the Defendants, the Relator attempts to apply the doctrine of piercing the
corporate veil by asserting that Douglas Mittleider “exercises such control over the business and
operations of these entities that this Court should disregard the corporate formalities of separate
existence.” Id. Defendants argue that AHC has failed to state a claim or plead with particularity
the allegation that the non-Hyperion Defendants are alter egos of Hyperion. As a result, they
argue that all Defendants except Hyperion should be dismissed.
The Defendant raised this argument against both the Relator and the Government, but the
Government contends that it has not pled a theory of liability that requires piercing the corporate
veil or a determination of whether the Defendants are alter egos to state a claim under the FCA
or common law. The Court agrees that this issue falls within a garden variety FCA claim. The
FCA expressly provides that a person is liable, assuming all other elements are met, for

61

knowingly causing false claims or statements to be made to the United States. 31 U.S.C. §
3729(a)(1)(A) and (B). Even though Hyperion, and not AltaCare, LTCS or Mittleider, submitted
the false claims at issue to Medicare and Medicaid, the Government’s allegations have stated a
claim that the other Defendants may be still liable for causing Hyperion to do so. United States
ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 378 (5th Cir. 2004) (“The FCA applies
to anyone who knowingly assists in causing the government to pay claims grounded in fraud,
without regard to whether that person has direct contractual relations with the government.”)
(internal quotations and citations omitted). The motion to dismiss the non-Hyperion defendants
is denied. 52
5. Failure to Disclose Clark’s Interest (Count V)
In Count V of the SAC, the Relator alleges that, because Hyperion “has an affirmative
obligation under federal and state law to disclose all persons who have an ownership, financial,
or control interest in it,” Hyperion violated the FCA when it allegedly failed to disclose
“information about Mr. Clark’s control interest and his exclusion status to Medicare or
Medicaid.” SAC, ¶¶ 98-101. AHC also alleges that Hyperion breached a duty under federal and
state law to disclose that Dr. Harry Clark was its “sole officer and director on its 2008 report
filed May 26, 2009.” SAC, ¶¶ 103-09. AHC alleges that the disclosure statutes and regulations
that Hyperion violated are conditions of payment, while Defendants argue that they are
conditions of participation which cannot form the basis of a claim under the FCA.
The FCA imposes liability, among other grounds, on anyone who “knowingly presents,
52

The Relator has presented arguments asserting that the Defendants are alter egos of each other and that they
engaged in a conspiracy. Although Relator argues that it matters whether one company is an alter ego of the other,
the simple fact is that, under the FCA, an entity is liable for knowingly submitting false claims or causing false
claims to be submitted. If an entity participated in any way, they can be held liable. This is the argument of the
United States and this is a more direct path to stating a claim. Thus, the Court declines to journey down the rabbit
hole of “piercing the corporate veil” and has instead adopted the Government’s arguments. The non-Hyperion
Defendants will not be dismissed because they participated in the scheme.
62

or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C.
§ 3729(a)(1)(A).

“[W]here the government has conditioned payment of a claim upon a

claimant’s certification of compliance with, for example, a statute or regulation, a claimant
submits a false or fraudulent claim when he or she falsely certifies compliance with that statute
or regulation.” United States ex rel. Thompson v. Columbia Healthcare Corp., 125 F.3d 899,
902 (5th Cir. 1997). In Thompson, the Fifth Circuit noted that the Ninth Circuit in United States
ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996), interpreted the scope of the FCA in
line with the Fifth Circuit and that it “concluded that false certifications of compliance create
liability under the FCA when certification is a prerequisite to obtaining a government benefit.”
Id. at 902. The Defendants have focused their arguments on the distinction between “implied
certification” and “express certification” theories of FCA liability. Docket No. 67, at 7. In this
framework, a theory of liability based on an express certification that is knowingly false (and
material to payment) is “straightforward,” according to the Defendants; a claim containing such a
certification can readily be described as false. However, some courts have held that a facially
truthful claim may be considered false if the claimant “violates its continuing duty to comply
with the regulations on which payment is conditioned.”

Chesbrough v. VPA, P.C., 655 F.3d

461, 468 (6th Cir. 2011). In such cases, FCA liability is based on the notion that even though
the certification does not explicitly mention regulatory compliance, it is deemed to include an
“implied certification” of compliance with a particular regulation on which payment is
conditioned. Id.; see also United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262,
269 (5th Cir. 2010) (“[A] false certification of compliance, without more, does not give rise to a
false claim for payment unless payment is conditioned on compliance.”)

63

The Medicare and Medicaid regulations make a distinction between Conditions of
Participation and Conditions of Payment. For a skilled nursing facility (SNF), Conditions of
Participation are the “requirements that an institution must meet in order to qualify to participate
as a SNF in the Medicare program, and as a nursing facility in the Medicaid program.” 42
C.F.R. § 483.1 (2011). In other words, “Conditions of Participation are quality of care standards
directed towards an entity’s continued ability to participate in the Medicare program rather than a
prerequisite to a particular payment.” United States ex rel. Landers v. Baptist Mem’l Health
Care Corp., 525 F. Supp. 2d 972, 978 (W.D. Tenn. 2007). Therefore, violations of a Condition
of Participation do not necessarily give rise to an implied certification claim.
The Defendants have done well to point out that the Fifth Circuit has never recognized an
implied certification theory of liability under the FCA, but the Fifth Circuit has explained that, if
such a theory were viable, the government could succeed under such a theory only if it
established that the defendant impliedly certified compliance with a condition of payment. See
United States ex rel. Willard v. Humana Health Plan of Tex., 336 F.3d 375, 381-83 (5th Cir.
2003).
The Relator has alleged that Hyperion falsely certified compliance with applicable
regulations based on the failure to truthfully disclose its officers and directors in its cost reports.
The Government has raised a similar claim based on Hyperion’s certification that it was in
compliance with regulations governing skilled nursing homes generally. The Court will address
each argument in turn.
a) Relator
Medicaid claims for payment by a nursing home involve a two-part process – first, cost
reporting, and second, billing. The Medicaid program uses cost reports submitted each year by

64

the nursing home. The Medicaid program uses these cost reports to determine the prospective
per diem rates an entity will be paid two years subsequent to the cost report for services to
Medicaid-eligible residents. A cost report is, therefore, a claim of entitlement to a particular per
diem rate. A nursing home then bills for services to each resident at the per diem rate calculated
by Medicaid based on the cost report. See Mississippi Medicaid State Plan, Attachment 4.19D. 53

Cost reports require certification of truthfulness of all information contained therein,

including disclosure of all the owners, officers, and/or directors. See SAC, Docket No. 7, Ex. M
at Form 2 and Form 15, p. 2; Exh. R; Exh. R-1. The 2008 cost report filed on May 26, 2009,
with the Mississippi Division of Medicaid listed only Julie Mittleider as the director of Hyperion.
She had, in fact, been removed as of July 29, 2008. Dr. Harry Clark was then appointed
president and sole officer and held that position from that date until March 25, 2011. Dr. Clark
is an individual excluded from participation in federal health care programs. 54 Rather than
disclose Dr. Clark’s position, the 2009 cost report did not list that Hyperion had any officers.
Truthful disclosure of persons with a control interest in an entity participating in federal
health care programs is a condition of payment. Indeed, if an excluded individual has a control
interest in the program, the government will not render payment: “No payment will be made by
Medicare, Medicaid or any of the other Federal health care programs for any item or service
furnished, on or after the effective date of the notice period, by an excluded individual or entity
or at the medical direction . . . of a physician or other authorized individual who is excluded
when the person furnishing such item or service knew or had reason to know of the exclusion.”

53

Mississippi Medicaid State Plan, Miss. Div. of Medicaid, https://www.medicaid.ms.gov/about/state-plan/ (click
“4.19-D Guide Lines for the Reimbursement for Medical Assistance Recipients of Long Term Care Facilities”) (last
visited June 5, 2014).
54
See Docket No. 68, Ex. 9 (“HHS-OIG Program Exclusions Not., 70 Fed. Reg. 61,136 (Oct. 20, 2005)”).
65

42 C.F.R. §1001.1901(b)(1) (emphasis added). 55 Furthermore, “an excluded individual or entity
that submits, or causes to be submitted, claims for items or services furnished during the
exclusion period is subject to civil money penalty liability under section 1128A(a)(1)(D) of the
Act . . . .” 42 C.F.R. §1001.1901(b)(3). The Defendants argue that the government does not
condition payment of Medicare or Medicaid claims on whether the entity has disclosed “all
persons who have an ownership, financial, or control interest in the entity.” Docket No. 69, at
24. The regulation above makes it clear that the government conditions payment on whether the
claim is made by an “excluded individual” – and the claims issued by Hyperion under Dr.
Clark’s tenure fall within that category. Contrary to the Defendants’ characterization of the
certification as “implied,” the Relator has stated an express, false certification claim based on
concealment of Clark’s status with Hyperion.
In United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th
Cir. 1997), the Fifth Circuit considered an allegation that the defendants had falsely certified that
the Medicaid services identified in the hospital annual cost reports complied with the laws and
regulations dealing with the provision of healthcare services. The Fifth Circuit remanded the
issue for the district court to consider whether the certification was a “prerequisite for obtaining a
government benefit.” Id. at 902. The form at issue in Thompson included nearly identical
language as the cost reports at issue here. 56 On remand, the district court found the importance
of recognizing the certifications in cost reports as part of the fight against fraud:

55

See, e.g., United States v. Adoh, 496 F. App’x 731, 732 (9th Cir. 2012), cert. denied, 133 S. Ct. 1480 (2013)
(finding that “Section 1320a–7(a)(3) bars an individual convicted of a health care fraud felony from being paid by a
federally funded health program for providing products or services” and liability may arise from participation in
“providing any Medicare services.”).
56
See Thompson, 20 F. Supp. 2d at 1041. Arguing in favor of finding that false certifications in a Medicare cost
report constitute a false claim, the United States filed an amicus curiae brief and submitted a declaration and a copy
of the cost report at issue. According to the district court, “the certification provision in the Hospital Cost Report
requires the responsible provider official to certify, in pertinent part, that ‘to the best of my knowledge and belief,
[the Hospital Cost Report] is a true, correct and complete statement prepared from the books and records of the
66

The cost report and certification process is a self-policing mechanism that is
critical to the national effort to prevent and remedy fraud and abuse in the public
health care financing system, since the government can review only a small
fraction of the claims submitted and therefore must rely on them.
United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F. Supp. 2d 1017, 1042
(S.D. Tex. 1998). There is no merit in the Defendants’ allegation that the cost reports do not
contain an express, false certification because Form 2 for the cost report warns that knowingly
providing false information on the cost report “may be punishable by fine and/or imprisonment
under state and federal law.” 57 Numerous courts have also held that allegations referring to the
same forms are sufficient to plead certification as required for FCA liability. 58 The Government
conditioned payment upon these certifications. Thus, Relator has stated a claim under the FCA.
b) Government
Defendants argue that the statutes and regulations cited in the Complaint in Intervention,
which Defendants allegedly violated by providing grossly deficient, materially substandard,
worthless services to Oxford residents, are “conditions of participation” and thus have no bearing
upon defendants’ right to payment by the United States. “When . . . the express certification
does not state that compliance is a prerequisite to payment, we must look to the underlying
statutes to surmise if they make the certification a condition of payment.” United States ex rel.
Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1218 (10th Cir. 2008) (citing United
provider in accordance with applicable instructions, except as noted.’ That form also states that ‘intentional
misrepresentation of any information contained in this cost report may be punishable by fine and/or imprisonment
under federal law.’” Id. (citation omitted); cf. infra, n.64
57
See Ex. M at Form 2 (“INTENTIONAL MISREPRESENTATION OR FALSIFICATION OF ANY
INFORMATION CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY FINE AND/OR
IMPRISONMENT UNDER STATE OR FEDERAL LAW. This Cost Report is submitted as a part of the request
by this Long-Term Care Provider for reimbursement under the Mississippi Medicaid Program. I HEREBY
CERTIFY that I have examined the contents of the accompany cost report to the State of Mississippi, Office of the
Governor, Division of Medicaid for the period stated above and certify to the best of my knowledge and belief that
the said contents are true and correct statements prepared from the books and records of this facility in accordance
with applicable instructions.”)
58
See United States ex rel. Parikh v. Citizens Med. Ctr., 977 F. Supp. 2d 654 (S.D. Tex. 2013); United States ex rel.
Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 376 n.6 (5th Cir. 2004); United States ex rel. Fry v. Health
Alliance of Greater Cincinnati, No. 1:03-CV-00167, 2008 WL 5282139 (S.D. Ohio Dec. 18, 2008)).
67

States v. Southland Mgm’t Corp., 288 F.3d 665, 679 (5th Cir. 2002); cf. Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 786 (4th Cir. 1999)).
The statutes and regulations governing skilled nursing facilities such as Oxford set forth
essential obligations that the United States expects a nursing facility to meet to obtain
reimbursement under the Medicare and Medicaid programs. See United States ex rel. Aranda v.
Comm. Psych. Ctrs. of Okla., Inc., 945 F. Supp. 1485, 1488, (W.D. Okla. 1996) (declining to
dismiss FCA complaint alleging violations of Medicaid quality of care statutes and regulations,
ruling that FCA claims can stand “against a provider of substandard health care services under
appropriate circumstances”). The USA Complaint alleges that, to qualify for participation in and
receive payment from Medicare and Medicaid, nursing facilities must meet certain standards set
out in the regulations implementing the Nursing Home Reform Act (“NHRA”). 59 The NHRA
explicitly states that violations of its provisions can be material to the United States’ decision to
pay a nursing facility, expressly permitting the denial of payment for such violations:
The Secretary [of the United States Department of Health and Human
Services] may take the following actions with respect to a finding that a
facility has not met an applicable requirement:
(i) Denial of payment - The Secretary may deny any further
payments under this subchapter with respect to all individuals
entitled to benefits under this subchapter in the facility or with
respect to such individuals admitted to the facility after the
effective date of the finding.

59

The standards alleged are as follows: (a) provide a proper level of care to prevent and treat pressure sores, 42
C.F.R. § 483.25(c); (b) provide adequate nutrition, 42 C.F.R. § 483.25(i); (c) maintain adequate hydration, 42 C.F.R.
§ 483.25(j); (d) ensure that residents are able, to the best of their abilities, to engage in such basic activities of daily
life as bathe, dress and groom themselves, transfer and ambulate, use the toilet, eat and speak or otherwise
communicate, 42 C.F.R. § 483.25(a); (e) ensure that residents receive their proper medications, 42 C.F.R. §
483.25(m); (f) avoid the use of unnecessary drugs, including unnecessary antipsychotic drugs, 42 C.F.R. § 483.25(l);
(g) prevent avoidable accidents, 42 C.F.R. § 483.25(h); and (h) manage urinary incontinence, especially in a manner
so as to prevent infection, 42 C.F.R. § 483.25(d). The USA Complaint also alleges a violation of the rules which
require that nursing facilities maintain sufficient nursing staff “to provide nursing and related services to attain or
maintain the highest practicable physical, mental, and psychosocial well-being of each resident, as determined by
resident assessments and individual plans of care.” 42 C.F.R. § 483.30. See USA Compl., ¶¶ 40-50.
68

42 U.S.C. § 1395i-3(h)(2)(B)(I) (emphasis added). Indeed, the NHRA further provides that if a
facility remains out of compliance with any of these conditions of participation within three
months after having been found to be out of compliance, the Secretary must deny payment for
new patients. See 42 U.S.C. § 1395i-3(h)(2)(D). Thus, Sections 1395i(b), (c) and (d) of the
statute and their corresponding regulations are therefore conditions material to payment. 60 The
Government’s allegations are sufficient to state a claim and dismissal is not appropriate at this
stage of the proceedings. 61
6. Civil Monetary Penalties (Count IV)
In Count IV of the SAC, the Relator cites statutes and regulations concerning OIG
exclusion and Civil Monetary Penalty (“CMP”) authority, including 42 U.S.C. 1320a-7(b)(8)
(exclusion authority), 42 C.F.R. § 1003.103 (CMP amounts), and 42 C.F.R. § 1001.1901(b)(1)
(no payment for any item or service furnished by an excluded individual or entity), and alleges
that Dr. Clark has been excluded. See SAC, ¶¶ 90-94. The Relator then alleges that “Hyperion
is subject to exclusion and/or civil money penalties” under various authorities for allegedly
employing Dr. Clark when he was excluded from participating in federal healthcare programs,
SAC, ¶ 96, and that Hyperion has knowingly submitted false claims under the direction of Dr.

60

The Defendants have argued that the Government alleges that they violated the FCA by impliedly certifying
compliance with federal regulations governing skilled nursing facilities. An implied certification theory does not
apply here because the Government has not alleged it and the Relator and the Government have both established that
either the certifications or the underlying statutes or regulations for the certification make the requirements material
to payment and not simply conditions of participation. Indeed, as the Fifth Circuit has recognized, “not all statutory,
regulatory, or contractual violations necessarily give rise to liability under the FCA. However, once a claimant has
made a certification of compliance with a statutory or regulatory provision or a provision of a contract mandated by
statute or regulation, the claimant is subject to liability under the Act for submitting a false claim if that certification
of compliance is known by the claimant to be false.” United States v. Southland Mgmt. Corp., 288 F.3d 665, 680
(5th Cir. 2002), aff’d on reh’g en banc, 326 F.3d 669 (5th Cir. 2003).
61
Defendants argue that the statements they made, or caused to be made, to Medicare and Medicaid in Provider
Agreements, EDI Enrollment forms, claims forms, cost reports, Health Insurance Benefit Agreement forms, and
MDC forms, see USA Compl., ¶¶ 23-36, can never be the bases for FCA liability. To the extent that these
statements were, as alleged, knowingly false with respect to the specific laws and regulations that defendants
knowingly violated, the Government has stated a claim under 31 U.S.C. § 3729(a)(1)(B) against the Defendants for
false statements material to Defendants’ false claims.
69

Clark, id. at ¶ 95. Defendants argue that this claim fails as a matter of law because AHC does
not have a private right of action to enforce these provisions either directly or through the FCA.
The Court agrees with Defendants that Relator cannot state a cause of action under the
False Claim Act based on the Civil Monetary Penalties Law or the Federal Health Care Fraud
Statute, 42 U.S.C. § 1320a-7b. In United States ex rel. Gonzalez v. Fresenius Medical Care of
North America, No. 07-247, 2010 WL 1645969, at *8 (W.D. Tex. Jan. 21 2010), the court
rejected the relator’s argument that it could escape the fact that “no private right of action exists
under the [Civil Monetary Penalties Law] couching its claims within the context of the False
Claims Act.” Id. (internal quotation marks omitted). As the court explained, “Relator does not
cite, and the Court has not found, any case in which a relator in a qui tam action has successfully
built a False Claims Act suit upon violations of the Civil Monetary Penalties Law or the Federal
Health Care Statute.” Id. See also United States ex rel. Grayson v. Genoa Healthcare, No. C09506Z, 2011 WL 2670079, at *5 (W.D. Wash. July 6, 2011) (dismissing a similar claim on similar
grounds).
On rebuttal, the Relator has argued that the amendments in the PPACA resulted in
attaching liability under the FCA to violations of the Federal Health Care Fraud Statute. 62
However, the Fifth Circuit has noted that the ACA amendments do not apply retroactively where
the relator’s claims were pending before the law was enacted in 2010. 63 Each of the provisions
that the Relator cites limits enforcement to an administrative agency and does not provide a
private right of action for a third party. 64 The Department of Justice has not sought recovery
62

See 42 U.S.C. §1320a-7b [section 1128B(g)] (“In addition to the penalties provided for in this section or section
1128A, a claim that includes items or services resulting from a violation of this section constitutes a false or
fraudulent claim for purposes of subchapter III of chapter 37 of title 31, United States Code.”).
63
See n.42, supra (stating that amendments to FCA contained in the Affordable Care Act do not apply
retroactively).
64
See 42 U.S.C. § 1320a-7(b)(8) (providing, in relevant part, that “[t]he Secretary [of Health and Human Services
(“HHS”)] may exclude [listed categories of] individuals and entities from participation in any Federal health care
70

under these provisions, nor has it alleged a right to do so. Therefore, the Court grants the
Defendants’ motion to dismiss Count IV for failure to state a claim.
B. Motion to Dismiss Eisele Affidavit
The Relator filed a response to the Defendant’s Motion to Dismiss the Relator’s
Complaint to which the Relator “attache[d] and incorporate[d]” the “Affidavit of Melvin Eisele,
AHC Board of Directors” (“the Eisele Affidavit”).

Docket No. 77, at 3 (Eisele Affidavit

attached at Exhibit 1). The Defendant argues that the Court should strike the Eisele Affidavit
because the Relator attempts to use the factual allegations contained in the affidavit to amend its
Complaint. The Court agrees.
“It is well-established that, in deciding whether to grant a motion to dismiss, a district
court may not ‘go outside the complaint.’” Gines v. D. R. Horton, Inc., 699 F.3d 812, 820 (5th
Cir. 2012) (citation omitted). Indeed, it is an “axiomatic rule that a plaintiff may not amend his
complaint in his response brief.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v.
Walgreen Co., 631 F.3d 436, 448 (7th Cir. 2011); see also Skidmore Energy, Inc. v. KPMG LLP,
No. 03-2148, 2004 WL 3019097, at *5 (N.D. Tex. Dec. 28, 2004) (“[I]t is well established that
. . . Plaintiffs may not amend their Complaint through briefs submitted in response to [a] motion
to dismiss.”). In response to this authority cited by the Defendant, the Relator argues that it
asserted the facts in the Affidavit in opposition to Defendants’ motion to dismiss for lack of
subject matter jurisdiction under Rule 12(b)(1). 65 Rule 12(b)(1) provides an exception to the

program”) (emphasis added); 42 C.F.R. § 1001.1901(b)(1) (not allowing payment under Medicaid or Medicare to
excluded individuals, citing 42 U.S.C. § 1320a-7 as authority); 42 C.F.R. § 1003.103 (providing that “the OIG
[Office of the Inspector General of HHS] may impose a penalty” for violations of certain health care regulations)
(emphasis added).
65
The Defendants have moved to dismiss the Relator’s Complaint pursuant to Rules 12(b)(1) (for lack of subject
matter jurisdiction); Rule 12(b)(6) (failure to state a claim upon which relief can be granted); Rule 8(a) (failure to
state a claim for relief); and Rule 9(b) (failure to plead fraud with particularity). Docket No. 67. Apparently, the
Relator has conceded that the Court need not consider the Eisele Affidavit in connection with the Defendants’
arguments dismissal under Rules 8, 9, and 12(b)(1).
71

general rule which limits a court to the four corners of a complaint when it considers a motion to
dismiss.
Under Rule 12(b)(1), “[c]ourts may dismiss for lack of subject matter jurisdiction on any
one of three different bases: (1) the complaint alone; (2) the complaint supplemented by
undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the
court’s resolution of disputed facts.” United States ex rel. King v. Univ. of Tex. Health Sci. Ctr.Hous., 907 F. Supp. 2d 846, 848-49 (S.D. Tex. 2012) (citing Clark v. Tarrant Cnty., 798 F.2d
736, 741 (5th Cir. 1986)). There are two ways to use a Rule 12(b)(1) motion to attack a
complaint: a “facial attack” and a “factual attack.” “A facial attack requires the court merely to
decide if the plaintiff has correctly alleged a basis for subject matter jurisdiction.” Rodriguez v.
Tex. Comm’n of Arts, 992 F. Supp. 876, 878 (N.D. Tex. 1998), aff’d sub nom. Rodriguez v. Tex.
Comm’n on the Arts, 199 F.3d 279 (5th Cir. 2000) (citation omitted). “A facial attack is valid if,
from the face of the pleadings, the court can determine that it lacks subject matter jurisdiction.
For the purposes of the motion, the allegations in the complaint are taken as true.” Id. (citing
Saraw P’ship v. United States, 67 F.3d 567, 569 (5th Cir. 1995)). By contrast, a factual attack
occurs where the defendant has “challenged the facts that formed the basis for the plaintiff’s
claim of subject matter jurisdiction . . .” Id. at 879. A factual attack challenges the existence of
subject matter jurisdiction by looking beyond the pleadings. In reviewing a factual attack the
court may consider matters outside the pleadings, such as testimony and affidavits. Id. If a
defendant has posed a facial challenge to the complaint, the court considers the allegations in the
complaint and documents that are judicially noticed. By contrast, if a defendant has posed a
factual challenge, the court will not presume that the contested factual allegations in the
complaint are true, and it may consider other extrinsic evidence. The pleader, the author of the

72

complaint, may also “establish the actual existence of subject matter jurisdiction through extrapleading material.” 5B Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure §
1350 (3d ed.); McDaniel, 899 F. Supp. at 307.
In this case, the Relator has argued that the Defendants have asserted a factual challenge
to subject matter jurisdiction because the Defendants attached ten exhibits to the motion to
dismiss, “all of which were outside of the Complaint.” Docket No. 90, at 6. In fairness, the
Relator contends, the Court should consider the Eisele Affidavit, which it attached to its reply to
the Defendants’ motion to dismiss.

However, the pleadings indicate that the Defendants’

challenge is facial; the Defendants’ Motion to Dismiss cites to and relies upon the complaint and
the documents attached to the Complaint.

Although the Defendants have attached other

documents, including nine court filings from the Southern District of Mississippi and an entry in
the Federal Register, they are all matters of public record subject to judicial notice. 66 Kinnett
Dairies, Inc. v. Farrow, 580 F.2d 1260, 1277 n.33 (5th Cir. 1978) (permitting judicial notice of a
court’s own records); 44 U.S.C. § 1507 (“The contents of the Federal Register shall be judicially
noticed and without prejudice to any other mode of citation, may be cited by volume and page
number.”). Even when a defendant attaches documents to its motion to dismiss, “the Court can
take judicial notice of [these documents] without transforming the Motion to Dismiss into a
factual attack.” In re Parkway Sales & Leasing, Inc., 411 B.R. 337, 343 (Bankr. E.D. Tex.
2009). The Fifth Circuit has compared and analogized facial attacks under Rule 12(b)(1) to
motions to dismiss for failure to state a claim under Rule 12(b)(6). Id. (citing Williamson v.
66

The Defendants have challenged the Court’s subject matter jurisdiction over the Relator’s FCA claims for two
reasons: 1) the Relator allegedly released its FCA claims in the underlying bankruptcy and eviction proceedings; and
2) the Relator’s claims are public upon public disclosures. To support the release argument, the Defendants
referenced the FCA claims asserted in the Complaint and eight publicly available filings maintained in the records of
the U.S. District Court for the Southern District of Mississippi. To support the public disclosure argument, the
Defendants relied on documents attached to the Complaint, a Federal Register entry, and a record on the docket of
the bankruptcy court for this federal judicial district.
73

Tucker, 645 F.2d 404, 412 (5th Cir. 1981)). In a motion to dismiss for failure to state a claim, a
court may “consider matters of which [it] may take judicial notice,” Sifuentes–Barraza v. Garcia,
252 F. Supp. 2d 354 (W.D. Tex. 2003) (citing Lovelace v. Software Spectrum, Inc., 78 F.3d
1015, 1017–18 (5th Cir. 1996)), and matters of public record without converting the motion into
a motion for summary judgment. 67 Id. (citing 5A Charles A. Wright & Arthur R. Miller, Federal
Practice and Procedure § 1357 (2d ed. 1990)).
Because the Defendants have only referenced the Complaint, documents attached to it,
and judicially noticeable sources, the Court will resolve the motion without reference to extrinsic
evidence, such as the Eisele Affidavit. The Defendants have remained within the lines and the
Relator must do the same. The Defendants’ motion to strike the Eisele Affidavit is hereby
granted.
C. Leave to Amend Complaint
The Relator has filed a motion for leave to amend its second amended complaint.

In

general, district courts may “freely give leave” to amend when “justice so requires.” Fed. R.
Civ. P. 15(a)(2). The Fifth Circuit has ruled that “[d]enial of leave to amend may be warranted”
in many cases, including for “repeated failure to cure deficiencies” or “futility of a proposed
amendment.” United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270 (5th Cir.
2010). A district court does not abuse its discretion when it denies a motion for leave to amend
67

The Relator has also argued that the Defendants’ motion to dismiss under Rule 12(b)(1) should be properly treated
as a motion for summary judgment since the FCA jurisdictional bar is “necessarily intertwined with the merits.” See
United States ex rel. Reagan v. East Tex. Med. Ctr. Regional Healthcare Sys., 384 F.3d 168, 173 (5th Cir. 2004).
Although the Fifth Circuit has recognized that a challenge under the FCA’s public disclosure bar can be treated as a
motion for summary judgment, see United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 326 (5th Cir.
2011), it has never ruled that it must be treated as such. A district court is required to treat a motion to dismiss
asserting a public disclosure challenge as a motion for summary judgment only if the defendants present facts
outside the pleadings that are not subject to judicial notice. See Grynberg v. Koch Gateway Pipeline Co., 390 F.3d
1276, 1279 n.l (l0th Cir. 2004) (“We decline to recharacterize the defendants’ [12(b)(l)] motion as a summary
judgment motion because we need consider only the allegations in [the relator’s] complaint and those in the prior . . .
action.”).

74

after the plaintiff has had two previous opportunities to amend its complaint. See Hermann
Holdings Ltd. v. Lucent Tech., Inc., 302 F.3d 552, 566-67 (5th Cir. 2002). Indeed, a plaintiff has
been given “ample opportunity to plead” its claims when it has already filed an original
complaint alleging variations of the same claims. See id. at 567.
In this case, the Relator has filed an original complaint and two amended complaints
asserting variations of the same claims. The Relator has had “ample opportunity to plead,” and
at this stage, further amendments would be futile. The Court denies the Relator’s motion for
leave to amend.
D. Remaining Issues - Government’s Complaint in Intervention
The Government has made up for what the Relator’s complaint lacked. The allegations
reveal which residents or representative residents of which nursing homes were affected, and
whether such services were even reimbursed by Medicare or Medicaid. It provides specific
allegations about the care of any residents or representative residents and resulting claims to the
Government for worthless services.
1. Worthless Services Claims
The USA Complaint alleges that, from October 5, 2005 through at least May 1, 2012,
defendants made or caused to be made false or fraudulent claims and statements to Medicaid and
Medicare for nursing home services purportedly provided to residents of the Oxford facility.
which services were in fact non-existent, grossly deficient, materially substandard and/or
worthless. The USA Complaint further alleges that defendants’ knowing misconduct caused
significant physical and mental harm to vulnerable, elderly, disabled and low-income residents at
Oxford, and resulted in significant damage to the United States. Together, these allegations
comprise the Government’s worthless services claim. Defendants argue that the FCA sets a high

75

bar for pleading a worthless services theory in the nursing home context because skilled nursing
facilities submit claims on a per diem basis – not for individual services, but for a predetermined
daily rate that encompasses all room, board, and other services for each SNF resident. The
Defendants contend that, in this context, the United States must plead that the “entire bundle of
billed-for services had no value to the Government” to prevail on a worthless services theory.
Docket No. 67, at 5. The Government has the argument that best comports with the case law.
The Supreme Court has observed that, in enacting the FCA, “Congress wrote
expansively, meaning ‘to reach all types of fraud, without qualification, that might result in
financial loss to the government.’” Cook Cnty. v. United States ex rel. Chandler, 538 U.S. 119,
129 (2003) (citation omitted). The legislative history of the FCA indicates that recovery from
persons who knowingly provide substandard and deficient products to the United States was a
driving force behind enactment of the FCA. See United States v. McNinch, 356 U.S. 595, 599
(1958) (impetus for the FCA was sales of “provisions and munitions to the War Department
[during the Civil War]” of “nonexistent or worthless goods”) (citing H.R. Rep. No. 2, pt. 2,
(1862)) (emphasis added). “Defective products were one of Congress’s primary concerns when
it first enacted the statute in 1863.” Claire M. Sylvia, The False Claims Act: Fraud Against the
Government § 4:28 (2d ed. 2010) (citing Cong. Globe, 37th Cong., 3d Sess. 955 (1863))
(emphasis added).
Contrary to the Defendants’ assertion, courts have recognized that worthless services
claims under the FCA are not, as a legal matter, limited to instances where no services at all are
provided. A service can be worthless because of its deficient nature even if the service was
provided. In Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2011), the Second Circuit explained
that “[i]n a worthless services claim, the performance of the service is so deficient that for all

76

practical purposes it is the equivalent of no performance at all.” In the nursing home context, the
worthless services theory of FCA liability was well-articulated by the court in United States v.
NHC Healthcare Corp., 115 F. Supp. 2d 1149, 1155-56 (W.D. Mo. 2000). In that case, the
complaint alleged that nursing home patients developed pressure sores, incurred weight loss, and
suffered unnecessary pain because the defendant knowingly provided inadequate staffing and
grossly substandard care, but nonetheless billed the government for these purported services. The
court denied both the defendant’s motion to dismiss and its subsequent motion for summary
judgment, stating:
NHC agreed to provide “the quality of care which promotes the maintenance and
enhancement of the quality of life.” At some very blurry point, a provider of care
can cease to maintain this standard by failing to perform the minimum necessary
care activities required to promote the patient’s quality of life. When the provider
reaches that point, and still presents claims for reimbursement to Medicare, the
provider has simply committed fraud against the United States.
United States v. NHC Healthcare Corp., 163 F. Supp. 2d 1051, 1055-56 (W.D. Mo. 2001).
In United States ex rel. Absher v. Momence Meadows Nursing Center, No. 2:04-cv00289-HAB-DGB (C.D. Ill.), the court denied a motion for summary judgment made by the
defendants, a 140-bed nursing home in rural Illinois and its principal. Id. (Docket No. 76, Ex. 1,
Order on Summary Judgment, Jan. 15, 2013). Relators alleged, as the United States’ Complaint
does here, that the nursing home defendant billed Medicare and Medicaid over several years, on
a per diem basis, for services that were so deficient as to be essentially worthless, including
allegations that facility residents “routinely went without medical care and food, were left to lay
in urine and feces-soaked beds, went without prescribed medications needed for their mental and
physical well-being and pain relief, suffered from ongoing outbreaks of skin disorders and
infection including scabies and painful bedsores, and otherwise suffered from substantial

77

neglect.” Id. at 1. The defendants argued that there was no FCA liability, as a matter of law,
unless relator could prove that defendants provided “no services at all.” Id. at 6.
Rejecting this argument and denying defendants’ motion for summary judgment, the
court reasoned as follows:
The defendants argue that the relators’ claim of substandard services cannot be
equated to no services at all. This misapplies the case law. In Chesbrough [v.
VAP, 655 F.3d 461 (6th Cir. 2011)], radiology images were of such poor quality
that they had limited to no diagnostic value. Chesbrough, 655 F.3d at 465. “A
test known to be of ‘no medical value,’ that is billed to the government would
constitute a claim for ‘worthless services.’” Chesbrough, 655 F.3d at 468
(quoting Mikes, 274 F.3d at 702-03). The relators do not claim that no services
were provided; they claim that the services were so deficient that they were
worthless.
The presentation of a worthless services claim must be knowing, or
reckless with deliberate ignorance; negligence or innocent mistake is insufficient.
Mikes, 274 F.3d at 703.
One difficulty in proving a worthless services claim lies in the per diem
billing system utilized by Medicare and Medicaid. See United States v. NHC
Health Care Corp., 163 F. Supp. 2d 1051, 1055 (W.D. Mo. 2001). Under the
system, nursing homes bill Medicare and Medicaid for overall care per diem,
rather than for each individual service. Therefore, occasional services not
provided [footnote omitted] do not give rise to an FCA claim because the billing
is the same whether or not the service is provided. . . . However, when the
government pays the per diem rate for services that fall short of “the minimum
necessary care activities required to promote the patient’s quality of life,” the
facility may have crossed the “very blurry point” into worthless services. NHC,
163 F. Supp. 2d at 1055-56. . . . In this case, whether MMNC’s services crossed
into the “admittedly grey area” of worthless services is a factual determination.
Id. See also United States v. Houser, No. 4:10-CR-012-HLM, 2011 WL 2118847, at *10 (N.D.
Ga. May 23, 2011) (stating, in a criminal health care fraud case against nursing home owners,
that “the overall conditions at the Facilities were so poor and the residents neglected to such a
degree that any services provided were worthless. . . . Even where services are provided per
diem, reasonable persons would know that supplying limited, or no, basic services would fail to
comport with the very essence of the provider and benefit agreements, and that seeking
reimbursement for such deficient services would constitute fraud.”).
78

Defendants contend that the USA Complaint presents “conclusory” or “unsupported”
allegations concerning the conditions and care at Oxford during their tenure; the control
exercised by AltaCare, LTCS and Mittleider over Oxford’s operations and budget; and the
defendants’ knowledge of the lack of resources and resulting harm to residents of Oxford. To
the contrary, the USA Complaint is replete with specific details and representative examples.
See Factual Background, supra, at II.B.

In other words, the allegations have crossed the

proverbial “very blurry point” into worthless services. A motion to dismiss is not the proper
vehicle to resolve such factual disputes, any more than a motion for summary judgment was in
Absher. Docket No. 76, Ex. 1. The determination of what constitutes worthless services is factspecific and must be established on a case-by-case basis. See United States v. Villaspring Health
Care Ctr., No. 3:11-43-DCR, 2011 WL 6337455, at *5 (E.D. Ky. Dec. 19, 2011).
Defendant rely mainly upon two cases 68 to argue that FCA liability for the provision of
worthless services at a skilled nursing facility requires allegations that nothing in the bundle of
nursing home services had any value whatsoever to the residents or the United States. This
argument raises problematic implications.

As the Government has indicated compellingly,

“taken to its extreme, defendants’ argument is that a nursing home is entitled to payment for
68

The Defendants rely on United States ex rel. Swan v. Covenant Care, 279 F. Supp. 2d 1212 (E.D. Cal. 2002), and
United States ex rel. Sweeny v. ManorCare Health Servs., Inc., No. C03-5320RJB, 2005 WL 4030950 (W.D. Wash.
Mar. 4, 2005). These cases are not binding on this court and are not persuasive in this case because the facts are
distinguishable. Both Swan and Sweeny are qui tam actions in which the United States declined to intervene. In
Swan, the relator alleged that the defendant billed for worthless services and violated applicable regulations; the
relator did not allege a nexus between the statutes and regulations that the defendant violated and payment by the
government. 279 F. Supp. 2d at 1215. On the worthless services claim, the court ruled that the defendant’s neglect
of residents was so severe as to be the equivalent of providing no services at all. See id. at 1221. Thus, Swan does
not stand for the proposition that to sustain an FCA claim for worthless services the Government must allege that no
services at all were provided. The court granted the defendant’s motion to dismiss the relator’s FCA claim for
worthless services based on allegations that the defendant nursing facility failed to administer certain dietary
supplements and snacks. Sweeny, 2005 WL 4030950, at *1. The court gave relator at least one opportunity to
amend her complaint, and thereafter, although denying leave further to amend, the court stated that it “takes no
position on the viability of ‘quality of care’ or ‘worthless services’ as theories of recovery under the FCA in a
nursing home setting under different facts. Clearly, each case should be decided on a case to case basis.” United
States ex rel. Sweeny v. ManorCare Health Servs., Inc., No. C03-5320RJB (W.D. Wash.). Order, Feb. 27, 2006,
Docket No. 76, Ex. 2, at 9. To be sure, the facts alleged in this case go far beyond not administering dietary
supplements and snacks and make for a different case entirely.
79

doing nothing more than housing an elderly person and providing her with just enough bread and
water for short-term survival, even in conditions of filth, mold and insect infestation; and even if
it consistently provides her too little medication, or too much, or the wrong medication, contrary
to her physician’s orders; and even if it allows her to develop horrific pressure ulcers infected by
feces and urine to the point that amputations are required; and even if it permits her to suffers
falls and fractures; and even it allows her to asphyxiate on her own fluids due to inadequate
resources to properly attend to her worsening condition. This cannot be the case and it is not the
law.” Docket No. 76, at 12.
The facts alleged in the Complaint, including the heinous examples of grossly deficient
care suffered by the seven representative residents, USA Compl., ¶¶ 62-253, if taken as true,
support the overall charge in the USA Complaint that Defendants had actual knowledge
recklessly disregarded and/or remained in deliberate ignorance, of the truth or falsity of the
claims and statements made to Medicaid and Medicare, and thus “knowingly” made or caused to
be made to Medicaid and Medicare false or fraudulent claims and statements, within the meaning
of the FCA, 31 U.S.C. § 3729(b). They also create factual issues as to whether the services
provided by defendant at Oxford were essentially worthless. The Government’s allegations
more than meet the threshold pleading requirements of Rules 8 and 12(b)(6). The motion to
dismiss Count I of the USA Complaint is denied.
2. Payment By Mistake and Unjust Enrichment (Counts III and IV)
The Government has alleged that “Mittleider caused Hyperion to enter into Medicaid and
Medicare Provider Agreements, to execute other documents necessary for Hyperion to
participate in those programs, and to take such other steps and execute such other documents as
were necessary for Hyperion to conduct business and receive payments as a Medicaid and

80

Medicare provider.” USA Compl., ¶ 23. The Defendants have argued that the Court should
dismiss Counts III and IV of the USA Complaint, which allege payment by mistake and unjust
enrichment, because those claims sound in quasi-contract and the Medicaid and Medicare
Provider Agreements are “express contracts.” Docket No. 67, at 10.
As other district courts in this circuit have determined, “Medicare Provider Agreements
create statutory, not contractual, rights.” United States ex rel. Roberts v. Aging Care Home
Health, Inc., 474 F. Supp. 2d 810, 820 (W.D. La. 2007); see also Maximum Care Home Health
Agency v. HCFA, No. 97–1451, 1998 WL 901642, at *5 (N.D. Tex. Apr. 14, 1998) (“[A]
Medicare service provider agreement is not a contract in the traditional sense. It is a statutory
entitlement created by the Medicare Act.”). Thus, the Government’s claims do not sound in
contract, but arise out of federal common law claims arising out of statutory obligations and
violations of the FCA. 69 As a general proposition, “[t]he Government by appropriate action can
recover funds which its agents have wrongfully, erroneously, or illegally paid.” United States v.
69

The Defendants have also argued that a statute of limitations precludes in part the Government’s payment by
mistake and unjust enrichment claims for claims submitted before February 28, 2007. The Defendants rely on the
six-year statute of limitations, which provides that “every action for money damages brought by the United States . .
. which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed
within six years of when the cause of action accrues.” 28 U.S.C. § 2415(a) (emphasis added). As the Court has
clarified above, the Provider Agreements at issue create statutory, not contractual, rights; by definition, they are not
contracts. Thus, this argument fails. Indeed, the FCA’s relation back provision also preserves these common law
claims. The FCA provides, in relevant part:
“If the Government elects to intervene and proceed with an action brought under 3730(b), the
Government may file its own complaint . . . to add any additional claims with respect to which
the Government contends it is entitled to relief. For statute of limitations purposes, any such
Government pleading shall relate back to the filing date of the complaint of the person who
originally brought the action, to the extent that the claim of the Government arises out of the
conduct, transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint
of that person.”

31 U.S.C. § 3731(c). The payment by mistake and unjust enrichment claims arise out of the same conduct
set forth by the Relator and thus relate back to the date on which the Relator filed its qui tam complaint.
The Government may pursue claims accruing since September 30, 2003. See 31 U.S.C. § 3731(b)(1) (“A
civil action under section 3730 may not be brought more than 6 years after the date on which the violation
. . . is committed”). Since these claims arise from the point at which Defendants first started to operate
Oxford, in October 2005, they are not time-barred under the relevant statute.

81

Medica–Rents Co., 285 F. Supp. 2d 742, 776 (N.D. Tex. 2003) (quoting United States v. Wurts,
303 U.S. 414, 415 (1938)). To prevail on a claim for payment by mistake (also known as
payment by mistake-of-fact), the Government must show that the Medicare program “made . . .
payments under an erroneous belief which was material to the decision to pay . . .” United States
v. Mead, 426 F.2d 118, 124 (9th Cir. 1970) (citing Wurts, 303 U.S. at 414). As the Court has
indicated above, the Defendants’ cost reports to the Medicare and Medicaid programs contained
express certifications of compliance with Medicare and Medicaid regulations. To the extent that
the Government alleges that these certifications were false and material to the Medicare
program’s decision to pay, the Government has stated a claim for payment by mistake.
To prevail on a claim for unjust enrichment under federal common law, the Government
must show: “(1) [the Government] had a reasonable expectation of payment, (2) [Defendants]
should reasonably have expected to pay, or (3) ‘society’s reasonable expectations of person and
property would be defeated by nonpayment.’” Roberts, 474 F. Supp. 2d at 820. Taking the
allegations of the USA Complaint as true at this stage of the litigation, the examples of claims
submitted for seven residents in the worthless services allegations alone total $1,071,883.28.
The Government has alleged that the Defendants have submitted claims for more than $30
million for worthless services at Oxford. Assuming that the Government can produce sufficient
evidence to support its allegations of widespread provision of worthless services, the amount of
taxpayer dollars that have unjustly enriched the Defendants is breathtaking. As a result, the
Government has stated a claim of unjust enrichment which may move forward.

See id.

(“Defendants received substantial Medicare reimbursements, totaling approximately $427,000,
from their relationship with these physicians. Mrs. Davis also benefited from her affiliation . . .
by drawing a generous salary. As a result, Defendants were unjustly enriched.”).

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V. CONCLUSION
For the foregoing reasons, the Defendants’ Motion to Dismiss the United States’
Complaint in Intervention is DENIED. The Motion to Dismiss Academy’s Second Amended
Complaint for Lack of Subject Matter Jurisdiction and Failure to State A Claim is GRANTED
IN PART and DENIED IN PART. The Motion for Leave to Amend the Complaint is DENIED.
The Motion to Strike the Affidavit of Melvin Eisele is GRANTED.
SO ORDERED, this the 9th of July, 2014.
s/Carlton W. Reeves
UNITED STATES DISTRICT JUDGE

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