Smith v. Carolina Med. Ctr., CIVIL ACTION NO. 11–2756

• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
• Writing for the Court: STENGEL, C. J.
• Citation: 274 F.Supp.3d 300
• Parties: Karen SMITH, ex rel. v. CAROLINA MEDICAL CENTER, et al.
• Docket Number: CIVIL ACTION NO. 11–2756
• Decision Date: 02 August 2017

274 F.Supp.3d 300

Karen SMITH, ex rel.
v.
CAROLINA MEDICAL CENTER, et al.

CIVIL ACTION NO. 11–2756

United States District Court, E.D. Pennsylvania.

Filed August 2, 2017

274 F.Supp.3d 305

Bruce G. Baron, Capozzi & Associates, P.C., Harrisburg, PA, for Karen Smith, ex rel.

David M. Laigaie, Joshua David Hill, Eckert Seamans Cherin & Mellott LLC, Philadelphia, PA, John Stewart Benson, Penglase & Benson, Inc., Doylestown, PA, for Carolina Medical Center, et al.

MEMORANDUM

STENGEL, C. J.

Karen Smith, the former clinical director at a mental health clinic in North Carolina, filed a qui tam complaint under the False Claims Act (FCA), 31 U.S.C. § 3729, et seq. , alleging that an "excluded person,"—Melchor Martinez, who had been convicted of Medicaid fraud in 2000—was improperly managing the clinic as well as several others, and that these clinics were concealing this fact, thereby rendering their Medicare and Medicaid billings fraudulent.¹ She brought her claims against three corporations that owned the clinics: Carolina Community Mental Health Centers, Inc., Northeast Community Mental Health Centers, Inc., and Lehigh Valley Community Mental Health Centers, Inc.

Several years later, the government intervened, expanding the scope of this lawsuit to include FCA claims for other improper billing practices and common law claims for unjust enrichment and fraud, and adding as defendants Martinez himself, his wife, Melissa Chlebowski, three of the clinics' administrators, Jorge Acosta, Nancy Seier, and Patricia Eroh, and two corporations formed by Martinez and Chlebowski, MM Consultants and MCM Bethlehem. Some of the defendants moved to dismiss, and the others moved for judgment on the pleadings. Now, for the reasons stated below, I will deny the defendants' motions.

I. FACTUAL BACKGROUND

The government and relator Karen Smith allege the following:

A. Martinez, Chlebowski, and the Clinics

In the mid and late 1990s, defendant Melchor Martinez owned and operated

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three outpatient mental health clinics in Pennsylvania: two clinics under the corporate ownership of Lehigh Valley Community Health Centers, Inc., and the separate Pedro Arias Melchor Martinez (PAMM) Human Resources Clinic in Philadelphia. (Gov't Compl. ¶¶ 28, 30.) His wife, Melissa Chlebowski, was an administrator at these clinics. (Id. ¶ 38.)

In 2000, Martinez was convicted of Medicaid fraud in the Commonwealth of Pennsylvania "for billing for psychotherapy services not rendered and falsification of records" at PAMM. (Id. ¶¶ 4, 28.) (Unlike Medicare, which is administered by the federal Department of Health and Human Services (HHS), Medicaid is administered by the states and funded jointly by them and the federal government. 42 U.S.C. § 1396 et seq. (Id. ¶¶ 55–72.)) As a result, Martinez was prohibited by federal law from participating in Medicare or Medicaid for ten years, after which he could seek readmission. 42 U.S.C. S. 1320a–7(a). (Gov't Compl. ¶¶ 90–92.) Both HHS and the Pennsylvania Department of Public Welfare (DWP) notified him of his exclusion and its effects. (Id. ¶¶ 90, 91.)

While criminal proceedings were underway against him, Martinez transferred his stock ownership of the Lehigh Valley Corporation to Chlebowski. The couple also closed the Philadelphia clinic, PAMM, and created a new corporation, Northeast Community Mental Health Centers, Inc., which began operating a clinic that assumed the patient population and employees of PAMM. (Id. ¶¶ 26, 31, 38.)

Since 2000, Martinez has continued to operate these clinics with Chlebowski despite his exclusion. They expanded the businesses, opening three other clinics under the Lehigh Valley corporation, three more under the Northeast corporation, and one clinic in North Carolina under a corporation called the Carolina Community Mental Health Centers, which the couple created in 2008. (Id. ¶¶ 6, 7, 25–27, 34, 38, 183–84; Smith Compl. ¶¶ 32, 36.) Martinez actively directed the daily operation of the clinics, led their recruitment efforts, managed staff, and profited from their billings, nearly all of which came from Medicaid and Medicare. (Id. ¶ 36; Gov't Compl. ¶¶ 95–155.) Specifically, Martinez:

• interviewed, hired, and fired staff, as well as negotiated their compensation and responsibilities, (id. ¶ 119, Ex. C; Smith Compl. ¶¶ 36, 37);

• instructed staff on how to bill for services, (Gov't Compl. ¶ 147, Ex. I; Smith Compl. ¶ 36);

• ordered staff to alter doctors' notes in patient treatment charts, (Gov't Compl. ¶ 134);

• monitored the productivity of the clinics' therapists and psychiatrists by reviewing production reports regularly provided to him, (id. ¶ 120);

• determined caseloads, schedules, and responsibilities of therapists, psychiatrists, and staff, (id. ¶¶ 132–33, 138, 146);

• trained therapists on topics including patient treatment, treatment documentation, and billing, (id. ¶ 148–49, Ex. J);

• monitored patient intake and volume, including by calling the front desk at the clinics to ask about the numbers of patients that had been processed, receiving lists of new patients, (id. ¶¶ 144–45, Ex. F), and viewing live data feed from surveillance cameras in the clinics, (id. ¶¶ 139–40, Ex. H);

• directed the implementation of a new electronic medical records system, (id. ¶ 143, Ex. D);

• attended meetings of clinical supervisors, (id. ¶ 150, Ex. K); and

• led patient recruiting efforts, (id. ¶ 154.)

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The couple hid Martinez's involvement by using Chlebowski's name on legal documents and disguising Martinez's receipt of profits as rent. The rent profits were charged by either Martinez himself or one of two corporate entities he and Chlebowski formed—MM Consultants or MCM Bethlehem Property, LLC—who owned many of the properties on which the clinics operated. (Id. ¶¶ 7–8, 36, 38, 39–44, 105, 185–90.) Martinez earned over $35,000 per month in rent from the clinics. (Id. ¶ 190.) The clinics also paid for renovations on the properties, including a $200,000 renovation to a clinic in Allentown in 2010, (id. ¶ 192), and a $700,000 improvement to a site in Bethlehem. (Id. ¶ 193.) Additionally, Martinez traveled on the companies' credit cards. (Id. ¶¶ 177, 201.)

Chlebowski certified multiple times, in 2003, 2005, 2007, 2008, 2009, and 2010 on Medicare and Medicaid clinic enrollment forms and in Medicaid provider reimbursement applications that no excluded person was an operator, director, manager, agent, consultant or owner of the clinics. (Id. ¶¶ 223–29.) She never notified Medicare or Medicaid of the involvement of an excluded person, although the clinics continued to submit claims for payment. (Id. ¶ 230; Smith Compl. ¶ 35.) And she falsely denied to Medicaid that any excluded person had an affiliation with or day-to-day involvement in the clinics. (Gov't Compl. ¶ 231.) In 2010, Martinez falsely stated to the government in his application to HHS for reinstatement that he had not been associated with any clinic or employed at all since his exclusion. (Id. ¶ 93, Ex. A.) He has not been reinstated. (Id. )

B. Acosta, Seier, and Eroh

The government also brings claims against three of the clinics' other administrators: the clinics' clinical and educational director, Jorge Acosta, the clinics' human resources director, Nancy Seier, and the clinics' billing director, Patricia Eroh. (Id. ¶¶ 12–13.) Acosta acted as Martinez's "right hand man" and attempted to conceal Martinez's involvement. (Id. ¶¶ 46–48.) Seier similarly carried out Martinez's orders, made his travel arrangements, and otherwise acted formally in his stead, knowing that he was excluded from participation. (Id. ¶¶ 49–51.) Eroh submitted claims to Medicaid and Medicare despite her knowledge of Martinez's exclusion, and knowing that the claims misrepresented the services provided.

C. Overbilling

In addition to submitting false claims as a result of Martinez's involvement in the clinics, the defendants also allegedly submitted false claims by overbilling for services. The clinics submitted claims to Medicaid for patient medication management visits, or "med checks," that falsely represented that the visits lasted fifteen minutes—one payable unit—when in fact they frequently lasted fewer than ten or even five minutes. (Id. ¶¶ 242, 254, 255.) Additionally, all the defendants except for Carolina submitted claims to Medicare and Medicaid for the services of people purporting to be therapists but who in fact had not completed the requisite master's degrees. (Id. ¶¶ 284–94.) Lastly, the clinics billed for services provided by auxiliary personnel as though they had been supervised by physicians when they had not been. (Id. ¶¶ 308–13.)

On several occasions, Pennsylvania behavioral health services management companies, working on behalf of state Medicaid administrators,² audited the clinics and

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found violations. They found that psychiatrists at the Northeast and Lehigh Valley clinics had failed "to document ‘clock times’ in and out for several" med checks in 2009 and 2012. (Id. ¶¶ 248...