United States ex rel. Conroy v. Select Med. Corp.

Citation211 F.Supp.3d 1132
Decision Date30 September 2016
Docket Number3:12-cv-00051-RLY-DML
Parties UNITED STATES of America, EX REL. Tracy CONROY, Pamela Schenck, and Lisa Wilson, Plaintiffs-Relators, v. SELECT MEDICAL CORPORATION; Select Specialty Hospital-Evansville, Inc.; Select Employment Services, Inc. ; and Dr. Richard Sloan, Defendants.
CourtU.S. District Court — Southern District of Indiana

211 F.Supp.3d 1132

UNITED STATES of America, EX REL. Tracy CONROY, Pamela Schenck, and Lisa Wilson, Plaintiffs-Relators,
SELECT MEDICAL CORPORATION; Select Specialty Hospital-Evansville, Inc.; Select Employment Services, Inc. ; and Dr. Richard Sloan, Defendants.


United States District Court, S.D. Indiana, Evansville Division.

Signed September 30, 2016

211 F.Supp.3d 1136

Shelese M. Woods, United States Attorney's Office, Indianapolis, IN, Aaron M. Zigler, Robert L. King, Stephen M. Tillery, Korein Tillery, LLC, St. Louis, MO, Colette G. Matzzie, Phillips & Cohen, LLP, Washington, DC, George A. Zelcs, Korein Tillery, LLC, Chicago, IL, Karolina Viehe, Lane C. Siesky, Siesky & Viehe, PC, Evansville, IN, Larry P. Zoglin, Phillips & Cohen, LLP, San Francisco, CA, for Plaintiffs-Relators.

Andrew C. Bernasconi, Reed Smith LLP, James P. Holloway, Ober Kaler Grimes & Shriver, PC, Washington, DC, Bradley L. Williams, Myra Consetta Selby, Ice Miller LLP, Indianapolis, IN, Colin E. Wrabley, Karl A. Thallner, Jr., Thomas Howle Suddath, Jr., Reed Smith LLP, Pittsburgh, PA, Michael C. Keating, Yvette M. Laplante, Keating & Laplante LLP, Evansville, IN, S. Craig Holden, Ober Kaler Grimes Shriver, Baltimore, MD, for Defendants.



In April 2012, Tracy Conroy, Pamela Schenck, and Lisa Wilson ("Relators") brought this qui tam action against their former employer, Select Specialty Hospital-Evansville ("Select-Evansville"); its parent company, Select Medical Corporation ("Select Medical"); a subsidiary of Select Medical, Select Employment Services, Inc. ("Select-Employment") (collectively, "Select"); and Richard Sloan, M.D. ("Dr. Sloan"), Chief Medical Officer of Select-Evansville. In Count I of the Second Amended Complaint ("Complaint"), Relators allege that Select and Dr. Sloan perpetrated a scheme to defraud Medicare in violation of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 –3733. Counts II through VII assert claims against Select and Dr. Sloan for unlawful retaliation under the FCA and Indiana's statutory analogs, the Indiana False Claims Act ("Indiana FCA"), Ind. Code § 5–11–5.5 et seq. , and the Indiana Medicaid False Claims and Whistleblower Protection Act ("Medicaid FCA"), Ind. Code § 5–11–5.7 et seq.1 In June 2015, the government elected not to intervene in the lawsuit pursuant to 31 U.S.C. § 3730(b)(4)(B).

This matter comes before the court on Select's motion to dismiss Relators' Complaint pursuant to Rules 12(b)(1), 12(b)(6), and 9(b) of the Federal Rules of Civil Procedure. Dr. Sloan separately moves to dismiss the claims against him pursuant to Rules 12(b)(6) and 9(b).2 For reasons set forth below, the court GRANTS in part and DENIES in part each motion.

I. Standard

A motion to dismiss under Rule 12(b)(1) challenges the court's subject matter jurisdiction. The scope of the court's

211 F.Supp.3d 1137

inquiry in evaluating a challenge to subject matter jurisdiction turns on the type of challenge. See Apex Dig., Inc. v. Sears, Roebuck & Co. , 572 F.3d 440, 443–44 (7th Cir.2009). A facial challenge attacks the sufficiency of the allegations in the complaint as a basis for subject matter jurisdiction. Id. at 443. When evaluating a facial challenge, the court accepts all well-pleaded allegations as true and draws all reasonable inferences in the plaintiff's favor. Silha v. ACT, Inc. , 807 F.3d 169, 173 (7th Cir.2015) (citing Apex Dig., Inc. , 572 F.3d at 443–44 ). By contrast, a factual challenge asserts that notwithstanding a formally sufficient pleading, the court in fact has no subject matter jurisdiction. Id. "In reviewing a factual challenge, the court may look beyond the pleadings and view any evidence submitted to determine if subject matter jurisdiction exists." Id.

To survive a Rule 12(b)(6) challenge, the complaint must contain sufficient factual allegations to state a claim upon which relief may be granted. See, e.g. , Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7 , 570 F.3d 811, 820 (7th Cir.015). The court accepts all facts in the complaint as true and views them in the light most favorable to the plaintiff. Bonte v. U.S. Bank, N.A. , 624 F.3d 461, 463 (7th Cir.2010). But because the FCA is an anti-fraud statute, claims brought under it must satisfy the heightened pleading requirements of Rule 9(b). United States ex rel. Gross v. AIDS Research All. Chi. , 415 F.3d 601, 604 (7th Cir.2005). Unlike Rule 8, which requires only "enough details about the subject-matter of the case to present a story that holds together," Swanson v. Citibank, N.A. , 614 F.3d 400, 403 (7th Cir.2010), Rule 9(b) instructs plaintiffs to "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This heightened standard ordinarily requires allegations that describe the "who, what, when, where, and how" of the fraud. United States ex rel. Lusby v. Rolls Royce Corp. , 570 F.3d 849, 853 (7th Cir.2009).

II. Background

Select-Evansville is a long-term acute care hospital ("LTCH") in Evansville, Indiana. (Complaint ¶ 9). Patients admitted to LTCHs typically come from general acute care hospitals and often have serious medical conditions and specialized needs, but they generally require inpatient stays that exceed the typical length of stay at a general acute care hospital. (Id. ¶ 8). Select-Evansville's parent company, Select Medical, owns and operates more than one hundred LTCHs in thirty states. (Id. ¶¶ 8–9). Select Medical also wholly owns Select-Employment, which allegedly employed Relators at some point during the period relevant to this litigation. (Id. ¶ 10). As early as 2006, Dr. Sloan, a nephrologist, practiced medicine at Select-Evansville and became the facility's Chief Medical Officer in August 2009. (Id. ¶¶ 11, 37).

Tracy Conroy began her employment at Select-Evansville as the Chief Nursing Officer from 1999 to 2001, when she accepted a promotion to Chief Executive Officer of Select-Evansville, a position she held until her termination in June 2012. (Id. ¶ 5; Filing No. 145–1 ("Conroy Decl.") ¶ 5). As CEO, Conroy was charged with implementing Select Medical's policies for patient admission, length of stay, and discharge. (Conroy Decl. ¶ 7).

Conroy's former employees, Pamela Schenk and Lisa Wilson, had similarly long tenures at Select-Evansville. Schenk served first as an admissions coordinator before assuming the role of case manager for eleven years until March 2012. (Complaint ¶ 6). Wilson began her employment as a staff nurse before accepting a promotion to Director of Marketing and the Director of Clinical Services. (Filing No. 145–3 ("Wilson Decl.") ¶ 5). In 2006, Wilson

211 F.Supp.3d 1138

became the Director of Case Management and served in that role until December 2011. (Id. ).

Relators' Complaint describes a system whereby the Defendants manipulated patient stays at the Select-Evansville facility to maximize Medicare reimbursements without regard to medical need. An understanding of the alleged scheme requires a brief summary of the law governing Medicare reimbursements.

A. Medicare

Medicare, a federally-funded health insurance program, generally covers the cost of reasonable and medically necessary services for persons over the age of 65, disabled persons, or persons who suffer from end stage renal disease. See 42 U.S.C. § 1395c ; § 1395y(a)(1). Participating health care practitioners and providers must provide services "economically and only when, and to the extent, medically necessary." 42 U.S.C. § 1320c–5(a)(1). Claims for excessive charges or unnecessary services rendered to patients can result in the health care provider's exclusion from the Medicare program. 42 U.S.C. § 1320a–7(b)(6). A provider's participation, therefore, requires certification that any claims made for reimbursement comply with all Medicare requirements. (Complaint ¶ 22). Providers submit payment claims to Medicare using a "CMS-1500" form, which requires the provider to certify that the services rendered were "medically...necessary to the health of the patient." (Id. ¶ 21).

Since 2002, Medicare has reimbursed LTCHs on a prospective payment system ("PPS") referred to as LTCH-PPS. (Complaint ¶ 23). Under this system, payment an LTCH receives on a per-patient basis generally depends on the patient's illness and corresponding diagnosis related group ("DRG"). Depending on the DRG, the hospital receives a predetermined payment based on the average cost of treating that illness notwithstanding the duration of inpatient stay or the actual costs incurred. (Id. ¶ 24); see generally 42 C.F.R. § 412.523(a)–(c).

The LTCH-PPS sets forth payment adjustments for certain outlier patients. For example, when a hospital discharges a patient with a length of stay less than five-sixths of the geometric mean for that patient's DRG, the system considers this a "short-stay outlier" for which the hospital receives less than the full DRG payment. See 42 C.F.R. § 412.529. Thus, a patient stay that reaches the five-sixths date for a specific DRG means the difference between a full DRG payment and the lesser payment for a short-stay outlier....

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