United States ex rel. Sirls v. Kindred Healthcare, Inc., CIVIL ACTION NO. 16-683

• Decision Date: 04 February 2021
• Docket Number: CIVIL ACTION NO. 16-683
• Parties: UNITED STATES OF AMERICA, STATE OF CALIFORNIA, STATE OF COLORADO, STATE OF CONNECTICUT, STATE OF GEORGIA, STATE OF INDIANA, STATE OF MONTANA, STATE OF NEVADA, STATE OF NORTH CAROLINA, STATE OF TENNESSEE, STATE OF WASHINGTON, STATE OF WISCONSIN, COMMONWEALTH OF MASSACHUSETTS, and COMMONWEALTH OF VIRGINIA, ex rel. TIMOTHY SIRLS, Plaintiffs, v. KINDRED HEALTHCARE, INC., KINDRED HEALTHCARE OPERATING, INC., KINDRED HEALTHCARE SERVICES, INC., KINDRED NURSING CENTERS EAST, LLC, KINDRED NURSING CENTER WEST, LLC, KINDRED NURSING CENTERS SOUTH, LLC, and KINDRED NURSING CENTERS NORTH, LLC, , Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

UNITED STATES OF AMERICA,STATE OF CALIFORNIA, STATE OF COLORADO, STATE OF CONNECTICUT,STATE OF GEORGIA, STATE OF INDIANA, STATE OF MONTANA, STATE OF NEVADA,STATE OF NORTH CAROLINA, STATE OF TENNESSEE,STATE OF WASHINGTON, STATE OF WISCONSIN, COMMONWEALTH OF MASSACHUSETTS,and COMMONWEALTH OF VIRGINIA, ex rel. TIMOTHY SIRLS, Plaintiffs, v. KINDRED HEALTHCARE, INC.,KINDRED HEALTHCARE OPERATING, INC.,KINDRED HEALTHCARE SERVICES, INC.,KINDRED NURSING CENTERS EAST, LLC,KINDRED NURSING CENTER WEST, LLC,KINDRED NURSING CENTERS SOUTH, LLC,and KINDRED NURSING CENTERS NORTH, LLC, , Defendants.

CIVIL ACTION NO. 16-683

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

February 4, 2021

DuBois, J.

MEMORANDUM

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................. 1

II. BACKGROUND .................................................................................................................... 2

A. Overview of the Medicare and Medicaid Systems ............................................................. 3

B. First Amended Complaint ................................................................................................... 5

C. Second Amended Complaint .............................................................................................. 6

III. LEGAL STANDARDS ...................................................................................................... 9

A. Rule 12(b)(1) ....................................................................................................................... 9

B. Rule 12(b)(6) ..................................................................................................................... 10

C. Rule 9(b) ........................................................................................................................... 11

IV. DISCUSSION ................................................................................................................... 11

A. Applicable Law ................................................................................................................. 11

B. Staffing Requirements ...................................................................................................... 12

i. Materiality ..................................................................................................................... 12

ii. Scienter ......................................................................................................................... 15

iii. Public Disclosure Bar ................................................................................................. 16

a. Pre-March 23, 2010 Public Disclosure Bar ............................................................ 17

1. Relator's Allegations ........................................................................................... 18

2. Original Source ................................................................................................... 21

b. Post-March 23, 2010 Public Disclosure Bar ........................................................... 22

1. Relator's Allegations ........................................................................................... 23

2. Original Source ................................................................................................... 24

C. Government Funding ........................................................................................................ 24

i. Falsity ............................................................................................................................ 25

ii. Materiality ..................................................................................................................... 26

D. Form 1500s ....................................................................................................................... 27

E. MDS Forms and Rule 9(b) ................................................................................................ 27

F. State Claims ...................................................................................................................... 28

i. RUG States .................................................................................................................... 28

ii. California, Tennessee, and Connecticut ........................................................................ 29

iii. Other States and Rule 9(b) .......................................................................................... 31

V. CONCLUSION ..................................................................................................................... 32

I. INTRODUCTION

This is a qui tam action brought on behalf of the United States under the False Claims Act ("FCA") and on behalf of California, Colorado, Connecticut, Georgia, Indiana, Montana, Nevada, North Carolina, Tennessee, Washington, Wisconsin, Massachusetts, and Virginia under their analogous false claims laws¹ by relator, Timothy Sirls, against defendants Kindred Healthcare, Inc.; Kindred Healthcare Operating, Inc.; Kindred Healthcare Services, Inc.; Kindred Nursing Centers East, LLC; Kindred Nursing Centers West, LLC; Kindred Nursing Centers South, LLC; and Kindred Nursing Centers North, LLC. Presently before the Court is defendants' Motion to Dismiss relator's Second Amended Complaint ("SAC"). For the reasons set forth below, defendants' Motion is granted in part and denied in part.

II. BACKGROUND

The facts of this case are summarized in detail in the Court's Memorandum dated June 29, 2020 (Document No. 60) ("Memorandum Addressing Defendants' First Motion to Dismiss"). They are recited in this Memorandum only as necessary to address the pending Motion.²

Relator Timothy Sirls worked as the Director of Nursing Services at Heritage Manor Healthcare Center in Mayfield, Kentucky, between April 2014 and June 2014. Second Amended Complaint ("SAC") ¶ 7. Heritage Manor is a nursing facility that was operated by Kindred Nursing Centers, LP from November of 2005 to December of 2015. SAC Ex. 1. Kindred Nursing Centers, LP is one of several wholly-owned subsidiaries through which defendant Kindred Healthcare, Inc. operated a network of nursing facilities around the country. SAC 1 n.1, ¶¶ 20-21. Kindred Healthcare, Inc. is a healthcare services conglomerate that operates through its subsidiary companies in 46 states and Puerto Rico. Id. ¶ 20. Among those subsidiaries are defendants Kindred Nursing Centers East, LLC; Kindred Nursing Centers West, LLC; Kindred Nursing Centers North, LLC; and Kindred Nursing Centers South, LLC. Id. ¶ 25. These entities owned and operated nursing facilities identified by relator in exhibits attached to the SAC. SAC Exs. 1, 2. Each of these entities were owned by defendant Kindred Healthcare Operating, Inc., which itself is a subsidiary of Kindred Healthcare, Inc. Id. ¶¶ 20-21, 25-28.

A. Overview of the Medicare and Medicaid Systems

Medicare is a federal health insurance program administered by the Centers for Medicare & Medicaid Services ("CMS"), a division of the U.S. Department of Health and Human Services ("HHS") that, inter alia, provides federally-funded insurance benefits for skilled nursing facilities ("SNFs"). See 42 U.S.C. § 1395, et seq. Medicare reimburses SNFs using a prospective payment system. SAC ¶ 41. The prospective payment system pays a per diem, per patient amount at a rate that is based on the Resource Utilization Group ("RUG") to which a resident is assigned. See United States v. Long Grove Manor, Inc., 315 F. Supp. 3d 1107, 1110 (N.D. Ill. 2018). The RUG "uses measures of staff time and service frequency, variety, and duration to classify patients." Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities, 63 Fed. Reg. 26,252, 26,258 (proposed May 12, 1998). "RUG levels also consider a person's capacity to perform activities of daily living ('ADL') such as 'bed mobility, toilet use, transfer from bed to chair, and eating.'" United States v. Life Care Centers of America, Inc., 114 F. Supp. 3d 549, 553 (E.D. Tenn. 2014) (quoting 63 Fed. Reg. 26,252).

Skilled nursing facilities use a clinical assessment tool referred to as the Minimum Data Set ("MDS") to periodically determine each beneficiary's RUG classification. See 42 C.F.R. §§ 413.337, 413.343. An MDS assessment is completed for each resident upon admission to a facility and periodically throughout the resident's stay. See 42 C.F.R. §§ 413.337, 413.343, 483.20. To conduct these assessments, facility staff evaluate the preceding seven days—the "look-back period"—and report the resident's self-performance of ADLs, as well as the level of staff assistance that was required by and provided to the resident. Defs.' Req. Judicial Notice Ex. A, Centers for Medicare & Medicaid Services, Long-Term Care Facility Resident Assessment Instrument User's Manual Version 3.0 (Oct. 25, 2013), at G-3. Skilled nursingfacilities are instructed to identify "what the resident does for himself during each episode of each ADL activity definition as well as the type and level of staff assistance provided." Id. These facilities are specifically instructed to code for the most support provided by staff over the course of the look-back period—"even if that level of support only occurred once." Id. This information is specifically coded in Section G of the MDS form. Id. According to relator, such facilities expressly certify in each MDS form that "the accompanying information accurately reflects resident assessment information." SAC ¶¶ 37, 61.

Medicaid is a health insurance program for low-income people that is jointly funded by the federal and state governments. See 42 U.S.C. § 1396, et seq. Medicaid covers long-term care in nursing facilities.³ Id. § 1396a. Both federal and state statutes and regulations apply to the state-administered Medicaid programs. See id.

Each state...