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United States ex rel. Lemon v. Nurses To Go, Inc.

United States Court of Appeals, Fifth Circuit

May 7, 2019

United States of America, ex rel, DEBORAH LEMON, relator; SARAH DIAZ, relator; ERIC CASTILLO, relator; LAVERNE FOWLER, relator, Plaintiffs-Appellants

          Appeal from the United States District Court for the Southern District of Texas

          Before DAVIS, JONES, and DENNIS, Circuit Judges.


         Qui tam relators Deborah Lemon, Sarah Diaz, Eric Castillo, and Laverne Fowler appeal the district court's dismissal of their False Claims Act (FCA) suit on a Rule 12(b)(6) motion against several hospice organizations owned and operated by Walter Crowder. The district court found the fraudulent claims, as alleged, immaterial. We disagree and therefore reverse and remand for further proceedings.


         A. Factual Background[1]

         Relators are former employees at Nurses To Go, a hospice care provider in Austin, Texas. Relator Deborah Lemon served as an administrator and supervising nurse; Relator Laverne Fowler served as a nurse and alternate administrator; Relator Sarah Diaz was an administrative assistant; and Relator Eric Castillo was a human resources and payroll representative. Each worked at Nurses To Go at various times between November 2013 and November 2015.

         Defendants in this action are Walter Crowder, who is the president and director of Nurses To Go as well as the other named corporate defendants.[2]Defendants provide hospice services throughout Texas with operations in Austin, Cypress, Houston, Pasadena, San Antonio, and Texas City. The headquarters and center of Defendants' operations are in Texas City, where executives maintain control, establish policies, manage and direct personnel in all Defendants' offices, and where billing policies are made and managed. All Defendants submit claims for payment to Medicare for hospice services through the Texas City headquarters.

         During their employment, Relators allegedly discovered irregularities in Defendants' billing practices to Medicare for hospice services. These discoveries were based in part on an audit of patient charts from Defendants' Austin office in 2015 by Relators Lemon and Diaz. Relators learned that Defendants failed to complete and maintain certifications and recertifications for hospice patients; failed to complete and maintain physician narratives in support of certifications for hospice patients; allowed non-medical personnel to complete certifications for hospice patients; allowed non-medical personnel to complete physician narratives for hospice patients; failed to have required face-to-face encounters between physicians and patients; permitted nurses to conduct required face-to-face encounters with hospice patients instead of a physician or nurse practitioner; completed certifications after the time period required for completion; failed to write individualized plans of care; and billed for and provided services to deceased patients. Despite these alleged violations of the relevant Medicare statute, 42 U.S.C. § 1395f, and its implementing regulations, Defendants submitted claims to Medicare affirming that they satisfied these statutory and regulatory requirements.

         In their complaint, to highlight these deficient certifications, Relators specifically pointed to seven hospice patients' records (JS, CB, DW, TO, NS, LS, and TS), with allegations similar to those this paragraph:

Hospice patient CB was admitted by Defendants' Austin office in January of 2013. Though CB had received hospice services since 2009, Defendants failed to perform a face-to-face encounter with her upon admittance. Between this time and June of 2015, Defendants routinely failed to provide a physician narrative in support of certifications. Likewise, during this period, Defendants failed to conduct at least three required face-to-face encounters. Defendants sought payment for their services to CB from Medicare despite failing to comply with Medicare hospice certification requirements. Defendants were improperly paid by Medicare for their services to CB.

         Additionally, Relators described a scheme in which Defendants reaped a premium payment from the Government by automatically enrolling patients in "continuous home care," when the patients did not qualify for this type of hospice service.[3] According to Relator Lemon, during her employment training, an administrator of Defendants "told [her] that [they] utilized continuous care as a marketing tool," providing 72 hours of continuous care for new patients at the beginning of hospice treatment, regardless of whether a "period of crisis" existed. Continuous care is the costliest hospice service; Medicare regulations reserve this round-the-clock care only for patients experiencing a crisis.[4]

         When Lemon began her role as an administrator in June 2015, she discovered that Defendants' Austin office was in fact improperly billing for continuous care. She described: "[O]ne hospice patient was on the second week of continuous care treatment," even though such care is only allowed for brief periods of time when the patient is experiencing a crisis. Lemon later told Defendant Crowder that they must report these violations and overpayments to Medicare, but Crowder refused.

         After Lemon re-trained staff on the limited availability of continuous care service, the billable hours for such care in the Austin office were reduced from an average of 323 hours per month (from October 2014 to June 2015) to less than ten hours per month (5 hours in July 2015, 8 hours in August 2015, no hours in September 2015, and 10.75 hours in October 2015). In October 2015, the Texas City headquarters sent an administrator from its Houston office to meet with Austin personnel to push for more continuous care hours. The Houston administrator instructed that "each new hospice admission required continuous care."

         Finally, Relators claimed that "on approximately four occasions in 2013- 2014, patients were admitted by the Defendants' Austin office to hospice care despite already being deceased."

         B. Procedural History

         Relators filed the instant action under seal in June 2016. In June 2017, the Government declined to intervene. Relators thus elected to bring this case on the Government's behalf. In October 2017, Relators filed the operative first amended complaint. In November 2017, Defendants filed a Rule 12(b)(6) motion to dismiss on grounds that Defendants' alleged violations, if true, were immaterial under the FCA and that Relators failed to plead with the requisite particularity under Rule 9(b). Following a hearing, the district court dismissed this case, holding that Defendants' underlying acts, as alleged, were immaterial under the FCA and that Relators supposedly lacked bases to bring this action against their non-employer organizations.[5] This appeal timely followed.


         We review de novo the district court's dismissal of Plaintiffs' complaint under Federal Rule of Civil Procedure 12(b)(6).[6] We accept as true all well-pleaded allegations of fact in the complaint and construe them in the light most favorable to Plaintiffs.[7] We evaluate whether the factual allegations, together with all reasonable inferences, state a plausible claim to relief.[8]


         A. False Claims Act

         We resolve this appeal on the sole ground relied on by the district court in dismissing the complaint: whether the Medicare fraud, as alleged, is material under the False Claims Act.

         The FCA imposes liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval," or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."[9] A "claim" includes direct requests for government payment as well as reimbursement requests made to the recipients of federal funds under a federal benefits program.[10] "In determining whether liability attaches under the FCA, this court asks (1) whether there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys due (i.e., that involved a claim)."[11] The only issue on appeal is whether Relators' alleged violations are material.[12]

         1. Materiality

         Under the FCA, "the term 'material' means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property."[13]

         The Supreme Court recently elaborated on the factors that lower courts should consider in determining materiality under the FCA. In Universal Health Services, Inc. v. United States ex rel. Escobar, the Court considered whether the so-called "implied false certification" theory can be a basis for FCA liability.[14] The Court held in the affirmative, and stated that "liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant's noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading."[15] In other words, the Supreme Court made clear that defendants could be liable under the FCA for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.

         After their daughter's death, the relators in Escobar filed a qui tam suit against the defendant health provider for submitting reimbursement claims for medical services but failing to disclaim serious violations of regulations pertaining to qualifications and licensing requirements for staff performing these services.[16] The petition alleged that the medical provider flouted regulations requiring that mental health services be performed by properly licensed clinicians (i.e., psychiatrists, social workers, or nurses). The plaintiffs' claim was based on the fact that medical benefits were paid based on requests for reimbursement for services performed by unlicensed, unqualified, and unsupervised staff-in violation of regulations that did not expressly provide that compliance was a condition of payment for these services.[17] The defendant, Universal Health Services, however, argued that because the regulations did not make compliance with licensing and other provider qualifications conditions of payment, the violations could not be material.[18]

         The Supreme Court rejected Universal Health's argument, holding that "when evaluating materiality under the False Claims Act, the Government's decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive."[19] In explaining its refusal to adopt a flat rule that billing for services without complying with a requirement expressly made a condition of payment is material, the Court stated: "Under Universal Health's view, misrepresenting compliance with a requirement that the Government expressly identified as a condition of payment [without regard to its importance] could expose a defendant to liability. Yet, under this theory, misrepresenting compliance with a condition of eligibility to even participate in a federal program when submitting a claim would not."[20]

         Escobar explained some of the evidence relevant to the materiality issue: (1) "the Government's decision to expressly identify a provision as a condition of payment" and (2) "evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement."[21] Moreover, (3) materiality "cannot be found where noncompliance is minor or insubstantial."[22] The ...

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