Colorado ex rel. Lovato v. Kindred Healthcare, Inc.

• Decision Date: 22 March 2021
• Docket Number: Civil Action No. 15-cv-02759-CMA
• Parties: STATE OF COLORADO AND UNITED STATES OF AMERICA, ex rel., RHONDA LOVATO, Plaintiffs, v. KINDRED HEALTHCARE, INC., a Kentucky corporation, d/b/a Kindred Hospital Aurora, d/b/a Kindred Hospital Denver, a Kentucky corporation, DR. ERIC YAEGER, WESTERN AMBULANCE CO, LLC, a Colorado corporation, NORTHGLENN OPERATIONS, LLC, a Colorado corporation, d/b/a Avamere Transitional Care, d/b/a Rehab-Malley, Defendants.
• Court: U.S. District Court — District of Colorado

STATE OF COLORADO AND UNITED STATES OF AMERICA,ex rel., RHONDA LOVATO, Plaintiffs, v. KINDRED HEALTHCARE, INC., a Kentucky corporation,d/b/a Kindred Hospital Aurora, d/b/a Kindred Hospital Denver,a Kentucky corporation, DR. ERIC YAEGER,WESTERN AMBULANCE CO, LLC, a Colorado corporation,NORTHGLENN OPERATIONS, LLC, a Colorado corporation,d/b/a Avamere Transitional Care, d/b/a Rehab-Malley, Defendants.

Civil Action No. 15-cv-02759-CMA

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

March 22, 2021

Judge Christine M. Arguello

ORDER ADOPTING RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

This matter is before the Court on the December 14, 2020 Recommendation of United States Magistrate Judge on four pending motions to dismiss independently filed by each Defendant in this case. (Doc. # 134.) Therein, Magistrate Judge Nina Y. Wang recommends that this Court grant both Malley's Motion to Dismiss (Doc. # 96) and Western's Motion to Dismiss (Doc. # 125) and grant in part and deny in part both Kindred's Motion to Dismiss (Doc. # 96) and Dr. Yaeger's Motion to Dismiss (Doc. # 98). Plaintiff/Relator Rhonda Lovato timely objected to some portions of the Recommendation. For the following reasons, the Court adopts the Recommendation.

I. BACKGROUND

Judge Wang's Recommendation provides a recitation of the factual and procedural background of this dispute and is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b). Accordingly, this Order will reiterate only what is necessary to address Plaintiff/Relator's Objection to the Recommendation.

Plaintiff/Relator Rhonda Lovato worked as the Market Chief Nurse Executive in Defendant Kindred Healthcare Inc.'s ("Kindred") long-term acute care hospitals ("LTACH") in Denver and Aurora, Colorado. (Doc. # 74 at ¶ 14.) Kindred is a healthcare provider whose LTACHs serve Medicaid and Medicare participants and "specialize in the treatment of patients with serious medical conditions that require intense, special treatment for an extended period of time (usually 20 to 30 days)." (Id. at ¶¶ 17, 21-22.) Defendant Eric Yaeger ("Dr. Yaeger") is a licensed pulmonologist who specializes in critical care medicine and internal medicine and contracts with Kindred to serve as its Medical Director and attending physician at its LTACHs in Denver and Aurora. See (id. at ¶¶ 29-30). Dr. Yaeger is also the Medical Director of Defendant Western Ambulance Co., LLC ("Western") and Defendant Northglenn Operations, LLC, d/b/a Avamere Transition Care and Rehabilitation—Malley ("Malley"), a skilled nursing facility. (Id. at ¶¶ 31-36.)

As Market Chief Nurse Executive, Ms. Lovato was responsible for a variety of different tasks, from managing Kindred's daily operations, to monitoring Kindred's patient care expenditures, to working with Dr. Yaeger to ensure adherence to medical staff guidelines. See (id. at ¶ 70). Ms. Lovato alleges that during her employment shewitnessed and became aware of Kindred's and Dr. Yaeger's false and fraudulent bills submitted to the federal and State of Colorado governments (collectively, the "Government"). See (id. at ¶¶ 71-73, 78, 92). Specifically, Ms. Lovato alleges that Kindred and Dr. Yaeger manipulated patients' diagnosis related group ("DRG")—an evaluation of the patient's primary and secondary diagnoses that determines the payment weight assigned to the patient—to procure higher reimbursements by adding diagnoses or complications to the DRGs; discharged patients on the date when Medicare/Medicaid would no longer cover the patients' care even when discharge was clinically inappropriate; fostered improper relationships between Kindred and Dr. Yaeger and Western Ambulance and Malley; billed for services, such as physician "rounding" and intensive care, that either did not occur or were up-coded; created false medical charts; improperly admitted patients; and improperly referred patients to the Aurora LTACH to receive higher reimbursements. See (id. at ¶¶ 59-62, 93-100, 112-64). Kindred allegedly fostered these improper practices by offering bonuses to "leadership" staff who increased patients' DRG and by retaliating against employees who objected to these practices. See (id. at ¶¶ 75, 102-08, 190).

Concerned with these perceived fraudulent practices, Ms. Lovato raised complaints internally, before officially reporting Kindred and Dr. Yaeger to the Colorado Department of Public Health and Environment ("CDPHE") and the federal government. See (id. at ¶¶ 15, 76-79, 83-84, 166-72, 177-82). Both the CDPHE and federal authorities investigated Kindred based on Ms. Lovato's complaints and cited Kindred for various deficiencies. See (id. at ¶¶ 81-88). According to Ms. Lovato, within one or twodays after levying her formal complaint with the CDPHE, Kindred terminated her employment. See (id. at ¶¶ 80, 183-89).

Believing Kindred's, Dr. Yaeger's, Western's, and Malley's (collectively, "Defendants") conduct violated the False Claims Act ("FCA"), 31 U.S.C. §§ 3279 et seq., and the Colorado Medicaid False Claims Act ("CMFCA"), Colo. Rev. Stat. §§ 25.5-4-303.5 et seq., Ms. Lovato initiated this qui tam action on behalf of the United States of America, the State of Colorado, and herself as Relator on December 18, 2015. (Doc. # 1.) The United States of America and the State of Colorado declined to intervene in this action on September 18, 2019. See (Doc. ## 31, 33, 35, 36).

Ms. Lovato's First Amended Complaint ("FAC") became the operative pleading on February 20, 2020. (Doc. # 74.) Pursuant to the FAC, Ms. Lovato asserts nine claims for relief: (1) violations of § 3729(a)(1)(A) of the FCA for false claims against Defendants ("Claim 1"); (2) violations of § 3729(a)(1)(B) of the FCA for false records against Defendants ("Claim 2"); (3) violations of § 3729(a)(1)(G) of the FCA for reverse false claims against Defendants ("Claim 3"); (4) violations of § 3730(h) of the FCA for retaliatory discharge against Kindred ("Claim 4"); (5) violations of § 25.5-4-305(1)(a) of the CMFCA for false claims against Defendants ("Claim 5"); (6) violations of § 25.5-4-305(1)(b) of the CMFCA for false records against Defendants ("Claim 6"); (7) violations of § 25.5-4-305(1)(f) of the CMFCA for reverse false claims against Defendants ("Claim 7"); (8) violations of § 25.5-4-306(7) of the CMFCA for retaliatory discharge against Kindred ("Claim 8"); and (9) violation of Colorado state law for wrongful discharge in violation of public policy against Kindred ("Claim 9"). See generally (Doc. # 74).

The Court referred the instant Motions to Dismiss to Judge Wang, who issued her Recommendation on December 14, 2020. Ms. Lovato timely objected to the Recommendation. (Doc. # 137.) Kindred and Dr. Yaeger filed responses. (Doc. ## 139, 140.)

II. LEGAL STANDARDS

A. REVIEW OF A RECOMMENDATION

When a magistrate judge issues a recommendation on a dispositive matter, Federal Rule of Civil Procedure 72(b)(3) requires that the district judge "determine de novo any part of the magistrate judge's [recommended] disposition that has been properly objected to." An objection is properly made if it is both timely and specific. United States v. One Parcel of Real Property Known As 2121 East 30th Street, 73 F.3d 1057, 1059 (10th Cir. 1996). In conducting its review, "[t]he district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed. R. Civ. P. 72(b)(3).

In the absence of a timely objection, however, "the district court may review a magistrate [judge's] report under any standard it deems appropriate." Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir. 1991) (citing Thomas v. Arn, 474 U.S. 140, 150 (1985) (stating that "[i]t does not appear that Congress intended to require district court review of a magistrate's factual or legal conclusions, under a de novo or any other standard, when neither party objects to those findings.")).

B. FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations and quotation marks omitted).

"A court reviewing the sufficiency of a complaint presumes all of [a] plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall, 935 F.2d at 1198. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (emphasis added) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies "the allegations in the complaint that are not entitled to the assumption of truth," that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, the court considers the factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 679.

However, the court need not accept conclusory allegations without supporting factual averments. Southern Disposal, Inc. v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as...