Aldridge ex rel. United States v. Corporate Mgmt., Inc.

Decision Date18 June 2021
Docket NumberCIVIL ACTION NO. 1:16-CV-369 HTW-LGI
CourtU.S. District Court — Southern District of Mississippi

Before this court are two motions filed by the Defendants herein, Corporate Management, Inc. ("CMI"), Stone County Hospital, Inc. ("SCH"), H. Ted Cain ("Ted Cain"), Julie Cain, and Thomas Kuluz ("Kuluz"): 1) Motion for Judgment as a Matter of Law [ecf doc. no.430]; and 2) Motion for a new Trial [ecf doc. no. 432]. The Plaintiff United States of America ("United States" or "Government") opposes the motions. Briefing has been completed and this court is ready to make its ruling.


The Relator in this case, James Aldridge brought a qui tam action against these Defendants under the False Claims Act (FCA). The FCA imposes significant penalties on anyone who "knowingly presents a false or fraudulent claim for payment or approval" to the federal government. 31 U.S.C. §3729(a)(1)(A). "Claim" includes a direct request to the Government for payment, as well as reimbursement requests made to the recipients of federal funds under federal programs. See §3729(b)(2)(A). The Act's scienter requirement defines "knowing and "knowingly" to mean that a person has "actual knowledge of the information," "acts in deliberate ignorance of the truth or falsity of the information," or "acts in reckless disregard of the truth or falsity of the information." §3729(b)(1)(A); Universal Health Services, Inc., v. Escobar, 136 S.Ct. 1989 (2016).

Stone County Hospital ("SCH") was a Critical Access Hospital located in Wiggins, Mississippi. Ted Cain, the sole owner of Stone County Hospital, Inc., submitted the application to Medicare in 2001 to convert SCH into a Critical Access Hospital. "Critical Access Hospital" is a designation given to eligible rural hospitals by the Centers for Medicare and Medicaid Services ("CMS"). This designation was created through the Balanced Budget Act of 1997 (Public Law 105-33) in response to a significant number of closures of rural hospitals in the 1980's and early 1990's. The "Critical Access Hospital" designation and method of reimbursement is designed to reduce the financial vulnerability of rural hospitals, thereby improving access to healthcare in rural communities. These hospitals, therefore, receive certain benefits, such as cost-based reimbursement for Medicare services.

As part of this conversion, Ted Cain certified that he was familiar with the Medicare or other federal health program laws, regulations, and program instructions governing this type of hospital and that he agreed to abide by them. P-304. He also certified that he "understood that payment of a claim by Medicare or other federal health care program was conditioned on the claim and the underlying transaction complying with such laws, regulations, and program instructions." Id. (emphasis added). These laws, regulations, and program instructions are found in the Provider Reimbursement Manual ("PRM"). 1/16/20 Tr. 7:14-21 (Tisdale).

From 2004 up until he leased the facility to another hospital, Ted Cain held the position of Chief Executive Officer/President of CMI. At all times pertinent to this suit, Ted Cain was the sole owner of CMI and SCH. Ted Cain's wife, Julie Cain held the position of CEO/Administrator of SCH from 2003 to 2012.

Cost reporting process

Payments from Medicare to a Critical Access Hospital are based on the Critical Access Hospital's costs and the share of those costs that are allocated to Medicare patients. As a Critical Access Hospital, Medicare reimbursed SCH at allowable costs plus 1%.

Following the conclusion of each year, SCH, through CMI, prepared and submitted a Medicare cost report, detailing the costs for which SCH sought reimbursement for that cost reporting year. CMI annually prepared a home office cost statement detailing the management costs CMI allocated to SCH's cost report for purposes of Medicare reimbursement. Throughout the year, SCH received interim payments from Medicare based off the prior year's cost report. At all times pertinent to this suit, SCH submitted its Medicare Cost Reports for each cost reporting year to the applicable Fiscal Intermediary ("FI") or the Medicare Administrative Contractor ("MAC")1.

Home Office and Allocation

A group of commonly owned or controlled health care providers may share a home office to perform certain centralized administrative services for its component providers. Inthe instant case, SCH contracted with CMI, the home office, to provide certain administrative services for which SCH pays a fee to CMI. The home office is not a Medicare provider and cannot, therefore, directly receive Medicare reimbursements. See 42 U.S.C. §1395cc. The provider, however, may obtain reimbursement for what it has paid to the home office for these administrative services.

In order for SCH to obtain reimbursement from Medicare for the cost of these services, CMI, as the home office, must also submit a cost report to the FI or the MAC. The home office cost statement must identify the allowable home office costs and how they are allocated among each of its subsidiary companies.

The Defendants
Ted Cain

Ted Cain was the sole owner of SCH, a Critical Access Hospital (CAH) located in Wiggins, Mississippi. A Critical Access Hospital, so designated because it is located in an underserved area, is authorized to bill Medicare for allowable costs plus 1%. This is an advantageous billing practice that is unique to Critical Access Hospitals and is generally unavailable to other kinds of hospitals. 1/16/20 Rough Tr. 15:17-20:18 (Tisdale); 1/28/20 Rough Tr. 5:5-9 (LaRocca); 2/6/20 Rough Tr. 101:8-102:1 (Llewellyn).

When applying for Critical Access Hospital status in 2001, as above stated, Ted Cain certified that he was familiar with, and agreed to abide by, the applicable Medicare laws, regulations, and program instructions. He also certified that he "understood that payment of a claim by Medicare was conditioned on the claim and the underlying transaction complying with such laws, regulations, and program instructions." Id. (emphasis added). These laws, regulations, and program instructions are found in the Medicare Provider ReimbursementManual (PRM). 1/16/20 Rough Tr. 7:14-21 (Tisdale). Ted Cain additionally certified that he would not "knowingly present or cause to be presented a false or fraudulent claim for payment by Medicare or submit claims with deliberate ignorance or reckless disregard of their truth or falsity." PRM at P 304 (emphasis added).

Ted Cain was also the sole owner of CMI, which was the management company that provided administrative services for Stone County Hospital and several other businesses owned by Ted Cain. The evidence at trial showed that Defendants, Ted Cain, Tommy Kuluz, CMI and SCH, sought Medicare reimbursement for Ted Cain's million-dollar plus salary, despite the absence of any significant work performed by Ted Cain related to patient care. Defendants, by the jury's verdict, made no effort to ensure the reasonableness of Ted Cain's compensation, or otherwise comply with the Medicare Provider Reimbursement Manual (PRM).

Julie Cain

Julie Cain, the wife of Ted Cain, was the administrator of SCH for several of the years at issue, and for other years served on the Board of Directors, or as a paid consultant to the hospital. The evidence convinced the jury that Julie Cain did very little work as administrator of Stone County Hospital. She did virtually no work for the hospital during some years. Testimony showed she was primarily staying at home with her children. At trial, she could not provide any evidence of work done as a member of the board of directors, or as a consultant. Yet, her unadjusted, un-modified salary, compensation as a board member, and her pay as a consultant were all included in the cost reports submitted to Medicare and reimbursed by Medicare.

Tommy Kuluz

Tommy Kuluz was the Chief Financial Officer of CMI, the company that served as the "home office" for SCH for Medicare purposes, providing administrative services to SCH and other companies owned by Ted Cain. Kuluz was primarily responsible for submission of the annual cost reports by SCH to Medicare. He allegedly obtained his information from SCH personnel, and allegedly coordinated with the cost report preparers.

The jury was not impressed with Kuluz's honesty, finding that he had assisted Ted Cain's fraud, causing the submission of false claims and the making of false records and documents. The jury found he also had falsely certified all but one of the CMI home office statements.

His conduct, found the jury, violated Medicare's conditions of payment because he falsely attested to the truth and accuracy of the information, in order for SCH to bill Medicare. Kuluz also caused SCH officials to sign the SCH cost reports, thereby "causing the making" of false certifications. Testimony by Manuel Pilgrim at trial was that Kuluz billed Medicare for expenses Kuluz knew were not reimbursable, as evidenced by Kuluz's disallowance of those very same expenses in the 2012 and 2013 Medicaid home office reports.

CMI (Corporate Management Incorporated)

The jury found that CMI had submitted, or caused to be submitted, from 2004 to 2015, twelve (12) false claims related to cost reports. The jury also found that CMI had beenunjustly enriched by $381,866 for the years 2012 and 2013, years for which certain expenses were self-disallowed2 for Medicaid but were submitted for reimbursement to Medicare.

SCH (Stone County Hospital)

The jury found SCH liable for submitting, or causing to be submitted, twelve (12) false cost reports for the years 2004 through 2015. The jury also found that Medicare paid SCH based on a "mistake of fact."

The Alleged Fraudulent Scheme

The fact that Stone County Hospital was a Critical Access Hospital,...

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