United States v. Napper, 3:17-cv-1478

CourtUnited States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
Writing for the CourtALETA A. TRAUGER, United States District Judge
PartiesUNITED STATES OF AMERICA and the STATES OF GEORGIA, LOUISIANA, TENNESSEE, and VIRGINIA ex rel. GREGORY FOLSE, Plaintiffs, v. MARQUIS “MARK” NAPPER, JOSHUA KILGORE, DANIEL BIRD, CARE SERVICES MANAGEMENT LLC, MARQUIS HEALTH SYSTEMS LLC, MARQUIS MOBILE DENTAL SERVICES LLC, and SALLY B. DALY DDS LLC d/b/a FLEUR DE LIS MOBILE DENTAL, Defendants.
Decision Date27 October 2021
Docket Number3:17-cv-1478

UNITED STATES OF AMERICA and the STATES OF GEORGIA, LOUISIANA, TENNESSEE, and VIRGINIA ex rel. GREGORY FOLSE, Plaintiffs,
v.

MARQUIS “MARK” NAPPER, JOSHUA KILGORE, DANIEL BIRD, CARE SERVICES MANAGEMENT LLC, MARQUIS HEALTH SYSTEMS LLC, MARQUIS MOBILE DENTAL SERVICES LLC, and SALLY B. DALY DDS LLC d/b/a FLEUR DE LIS MOBILE DENTAL, Defendants.

No. 3:17-cv-1478

United States District Court, M.D. Tennessee, Nashville Division

October 27, 2021


MEMORANDUM

ALETA A. TRAUGER, United States District Judge

Pending before the court are seven motions. Care Services Management, LLC (“CSM”), Marquis “Mark” Napper, Joshua Kilgore, Daniel Bird, Marquis Health Systems, LLC (“MHS”), and Marquis Mobile Dental Services, LLC (“MMDS”) (collectively, “CSM Defendants”) have filed a Motion to Dismiss Pursuant to Fed. R. Civ. P 12(b)(6) (Doc. No. 89), to which the State of Tennessee and the State of Louisiana (collectively, “State Plaintiffs”) have filed a Response (Doc. No. 118). Some of the CSM Defendants-namely, CSM, MHS, and MMDS-have filed a separate Motion to Dismiss Pursuant to Fed. R. Civ. P 12(b)(6) (Doc No. 93), which is directed at claims other than the State Plaintiffs', and relator Gregory Folse has filed a Response (Doc. No. 114). The CSM Defendants[1] have also filed a Motion for Joinder or, in the Alternative, to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(7) (Doc. No. 95), to which the State Plaintiffs have filed a Response (Doc.

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No. 116). Sally B. Daly DDS LLC d/b/a Fleur de Lis Mobile Dental (“Fleur de Lis”) has filed a Motion to Dismiss Relator's First Amended Complaint (Doc. No. 106), to which Folse has filed a Response (Doc. No. 127), and Fleur de Lis has filed a Reply (Doc. No. 133). Fleur de Lis has also filed a Motion to Dismiss Complaint in Intervention (Doc. No. 106), to which the State Plaintiffs have filed a Response (Doc. No. 128), and Fleur de Lis has filed a Reply (Doc. No. 132). The State Plaintiffs have filed a Motion to Exclude Additional Facts Outside the Pleadings (Doc. No. 117), to which the CSM Defendants have filed a Response (Doc. No. 124). Finally, Fleur de Lis has filed a Motion to Strike and Exclude Facts Outside the Complaint (Doc. No. 130), to which the State Plaintiffs have filed a Response (Doc. No. 134). For the reasons set out herein, the evidentiary motions will be granted and the motions to dismiss will be denied, without prejudice to the filing of renewed motions if the plaintiffs and relator fail to amend their complaints in a manner consistent with this Memorandum.

I. BACKGROUND[2]

A. Medicaid and the IME System

“Enacted in 1965, Medicaid offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care.” Nat'l Fed'n of Indep. Bus. v. Sebelius (“NFIB”), 567 U.S. 519, 541 (2012) (citing 42 U.S.C. § 1396a(a)(10)). When a state elects to participate the Medicaid program-which every state has done-it agrees that, in exchange for federal funds, the state will “comply with federal criteria governing matters such as who receives care and what services are provided at what cost.” Id. at 541-42. Medicaid pays for a wide range of medical services, including, at least in some instances,

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long-term care (“LTC”) provided to beneficiaries who, due to aging, illness, and/or disability, are unable to live with the degree of independence available to most fully healthy adults. See In re Est. of Trigg, 368 S.W.3d 483, 487 (Tenn. 2012) (discussing LTC payments under Medicaid).

Although Medicaid pays for a great deal of necessary care for a large number of people, it does not pay for everything that a beneficiary might want or need. Central to this case are two types of payments for beneficiaries' medical services that Medicaid typically will not make: (1) payment for the so-called “patient liability” share of LTC costs; and (2) payment for “non-covered” services that, though medical in nature, are outside the scope of the Medicaid program. The first of those two categories of expense-patient liabilities-stem from the fact that the Center for Medicare and Medicaid Services (“CMS”) “requires [LTC] residents with income remaining . . . to contribute [a portion of] that income to the [LTC facility] to defray the cost of their care to the extent possible.” Md. Dep't of Health & Mental Hygiene v. CMS, 542 F.3d 424, 430 (4th Cir. 2008) (citing 42 C.F.R. § 435.725(a)). Although it is presumably rare for LTC residents to have substantial income from ongoing employment, Medicaid beneficiaries in LTC nevertheless routinely qualify for patient liability because, if nothing else, the beneficiaries often have income from the Social Security Act's Supplemental Security Income (“SSI”) program (as well as, depending on the patient, potentially other sources of limited passive income). (See Doc. No. 76 ¶ 45.) The amount of patient liability in any given beneficiary's case is calculated based on the beneficiary's income minus a number of deductions. See 42 C.F.R. § 435.725(b)-(c). The patient liability share calculated pursuant to Medicaid rules is subtracted from the amount that Medicaid pays to the LTC facility, and the patient must pay that amount himself. 42 C.F.R. § 435.725(a)(1).

The second category of medical expenses not paid for by Medicaid but central to this case-payment for non-covered services-is, at least at first glance, fairly straightforward. Medicaid is a large program but not a wholly comprehensive one; there are some healthcare

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services that Medicaid beneficiaries would benefit from-or even that they truly, desperately need-that Medicaid nevertheless simply does not pay for. One significant example of a non-covered service-and the one most relevant to this case-is non-emergency adult dentistry, which, at least for the most part, is not covered by either of the two Medicaid programs at issue, Louisiana Medicaid or Tennessee Medicaid, known as “TennCare.”

The Medicaid program's approach to these non-covered services, however, consists of more than just leaving recipients to fend for themselves. Medicaid is a complex program and, as such, has tools it can use to subsidize and/or encourage certain services, even if the program itself does not “cover” those services in the ordinary sense. With regard to adult dental services provided to LTC residents, the Medicaid program subsidizes the services in two ways: first, by requiring Medicaid-participating LTC facilities to assist their residents in obtaining emergency dental services, despite the fact that Medicaid itself will not separately compensate the facility for that assistance, see 42 C.F.R. § 483.55(b); and, second, by requiring that states allow Medicaid-eligible LTC residents to classify the money that they spend on non-emergency dental services (and some other specialty services) as incurred medical expenses-“IMEs, ” in health-law parlance-that can be deducted from the resident's income for the purposes of calculating the patient liability share of his LTC charges, see 42 C.F.R. § 435.725(c)(4).

The requirement to assist residents in need of emergency dental care has the potential to benefit every Medicaid beneficiary in an LTC facility. The benefits of the IME deduction, however, are less broadly shared. Medicaid's ability to offer subsidies through IME deductions is inherently limited to recipients whose income causes them to have some patient liability in the first place; otherwise, there is nothing to deduct from. For patients with no recognized income and therefore no share of LTC charges apportioned to patient liability-typically referred to as “zero

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liability” patients-there is no equivalent mechanism under Medicaid for subsidizing non-emergency dental care.

B. The Defendants' Business

In 2008, Bird and Napper founded MMDS for the purpose of “providing mobile dental services to residents in LTC facilities.” (Doc. No. 76 ¶ 65.) According to the State Plaintiffs, MMDS's business model was specifically designed to reap the benefits of the IME deduction system available to Medicaid-covered LTC residents. To that end, there were “four functions” at the core of the business:

1) market to and sign up client LTC facilities to provide mobile dental services to their residents, 2) obtain consents for treatment from and then schedule residents at particular client LTC facilities for treatment, 3) treat the residents with MMDS-contracted dentists, and 4) generate invoices to be submitted to the state agency that approves IME deductions.

(Id. ¶ 65.) The business was a success. (Id. ¶ 69.) Looking to expand, Napper and Bird began exploring the possibility of providing additional, non-dental IME-eligible services, such as optometry, podiatry, audiology, psychology, and dermatology. They could do so by relying on “provider affiliates”-healthcare providers who contracted with the defendants to perform services in accordance with the defendants' business model. A provider affiliate capable of providing one or more types of specialty care would receive a “turn-key operation, ” including a trailer outfitted with the needed equipment and a promise that the defendants would take care of all billing, collections, and scheduling. (Id. ¶ 84.) For example, Fleur de Lis was a Louisiana-based dental provider affiliate. (Doc. No. 22 ¶¶ 72, 76, 81, 83.) Napper and Bird founded CSM and MHS for the purpose of facilitating this expansion. CSM coordinated the provision of services through provider affiliates, while MHS handled billing and collections, and each company got a cut of the provider affiliate's income. (Doc. No. 76 ¶¶ 70-74.) Around the same time, Kilgore joined Bird and Napper as a co-owner and operator of CSM. (Id. ¶ 78.)

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According to the State Plaintiffs, the defendants marketed their services to LTC clients with a “twofold” pitch. (Id. ¶ 79.) First, they would highlight that, by contracting...

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