United States v. Kindred Healthcare, Inc.

• Decision Date: 29 June 2020
• 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 New Hampshire, 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

469 F.Supp.3d 431

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 New Hampshire, 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, E.D. Pennsylvania.

Filed June 29, 2020

Thomas W. Sheridan, Sheridan & Murray, Fort Washington, PA, James C. Shah, Shepherd Finkelman Miller & Shah LLC, Philadelphia, PA, for Plaintiffs State of California, State of Colorado, State of Connecticut, State of Georgia, State of Indiana, State of Montana, State of Nevada, State of New Hampshire, State of North Carolina, State of Tennessee, State of Washington, State of Wisconsin, Commonwealth of Massachusetts, Commonwealth of Virginia.

Natalie Finkelman Bennett, James C. Shah, Bruce D. Parke, Michael P. Ols, Shepherd Finkelman Miller & Shah LLC, Philadelphia, PA, James E. Miller, Shepherd Finkelman Miller & Shah, LLP, Chester, CT, Nathan C. Zipperian, Shepherd Finkelman Miller & Shah LLP, Fort Lauderdale, FL, for Plaintiff Timothy Sirls.

Andrew H. Struve, Matthew I. Lahana, Hooper Lundy & Bookman PC, San Diego, CA, Jeffrey S. Adler, Stephen Purcell, William J. Mundy, Burns White & Hickton, West Conshohocken, PA, Jordan C. Kearney, Scott J. Kiepen, Hooper Lundy & Bookman PC, San Francisco, CA, for Defendants.

MEMORANDUM

DuBois, J.

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, New Hampshire,¹ North Carolina, Tennessee, Washington, Wisconsin, Massachusetts, and Virginia under their analogous false claims laws² 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. For the reasons set forth below, defendants' Motion is granted in part and denied in part.

II. BACKGROUND

The facts below are drawn from relator's Amended Complaint and matters of public record.³ The Court construes the complaint in the light most favorable to relator, as it must in ruling on a motion to dismiss.

Relator, Timothy Sirls, worked as the Director of Nursing Services at Heritage Manor Healthcare Center in Mayfield, Kentucky, between April 2014 and June 2014. Am. Compl. ¶ 7. Heritage Manor is a nursing facility that was operated by Kindred Nursing Centers, LP from November of 2005 to December of 2015. Am. Compl. 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. Am. Compl. 1 n.1, ¶¶18-19. Kindred Healthcare, Inc. is a healthcare services conglomerate that operates through its subsidiary companies in 46 states and Puerto Rico. Id. ¶ 18. 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. ¶ 23. These entities owned and operated nursing facilities identified by relator in exhibits attached to the Amended Complaint. Am. Compl. 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. ¶¶ 18-19, 22-26.

Relator alleges that defendants⁴ exerted "top down" pressure on their nursing facilities to "recruit residents with high acuity levels (i.e. , residents who were extremely dependent upon staff for their most basic care needs)" while intentionally understaffing the facilities in order to "reap higher Medicare and Medicaid reimbursements." Id. ¶¶ 2, 7. According to relator, defendants thus engaged in a "nationwide false claim scheme ... to obtain payment from Medicare and Medicaid for necessary resident care that it claimed to have provided, but, in fact, did not provide." Id. ¶ 1. Relator avers that, as a result, the nursing facilities identified in Exhibits to his Amended Complaint "engaged in a routine pattern and practice of presenting false claims or causing the same to be presented to federal and state governments." Id. at 1 n.1.

Before the Court considers these allegations in greater detail, a review of the Medicare and Medicaid programs is required.

A. Overview of Medicare Reimbursement

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, in part, provides federally-funded insurance benefits for skilled nursing facilities. See 42 U.S.C. § 1395, et seq. Medicare reimburses skilled nursing facilities using a prospective payment system. Defs.' Req. Judicial Notice, Ex. E, Medicare Program Integrity Manual 6.1; Am. Compl. ¶ 37. The prospective payment system pays a per diem , per patient amount at a rate that is based on the Resource Utilization Group 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 Resource Utilization Group "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). "[Resource Utilization Group] 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 ).⁵

Skilled nursing facilities use a clinical assessment tool referred to as the Minimum Data Set ("MDS") to periodically determine each beneficiary's Resource Utilization Group classification. See 42 C.F.R. §§ 413.337, 413.343 ; Medicare Program Integrity Manual 6.1. An MDS 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. C, 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 nursing facilities 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." Am. Compl. ¶¶ 10, 35, 53.

B. Overview of Medicaid Reimbursement

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.⁶ Id. § 1396a. Both federal and state statutes and regulations apply to the state-administered Medicaid programs. See id.

Each state Medicaid program has its own payment system. Am. Compl. ¶¶ 38, 123. As such, Medicaid reimbursement for nursing facilities varies from state to state. Relator alleges that the Medicaid programs in Colorado, Georgia, Indiana, Massachusetts, Montana, Nevada, New Hampshire, North Carolina, Virginia, Washington, and Wisconsin mirror the Medicare reimbursement system by adjusting the per diem rate based on the facilities case-mix index. Id. ¶ 123. According to relator, "[i]n a case-mix adjusted payment system, the amount of reimbursement to a nursing home is based on the resource intensity of the resident as measured by items on the MDS, including in Section G." Id. ¶ 121. Relator claims that the remaining states—California, Connecticut, and Tennessee—have Medicaid programs that also pay nursing facilities a per diem rate but "do not use a case mix index in making adjustments to the per diem rate." Id. ¶ 38.

C. Relator's Factual Allegations

Relator alleges that, from at least 2008 to the filing of the Amended Complaint, defendants knowingly presented or caused to be presented false or fraudulent claims and certifications through the submission of "false MDS forms" and "false claims for [prospective payment system] payments for thousands of nursing home residents." Am. Compl. ¶¶ 112, 114. Relator alleges that these false claims were the direct result of the staffing policies strictly imposed by defendants on their nursing facilities and the pressure exerted by defendants to recruit high acuity residents. Id. ¶ 7. Relator describes a scheme in which defendants "exerted pressure from the top down" on nursing facilities "to recruit highly-dependent residents who required assistance with labor-intensive ADL care," "deliberately employed a non-acuity-based staffing scheme," and "refused to increase...