Winnon v. Lozano

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES & STATE OF TEXAS
ex rel, TERRI R. WINNON

Plaintiffs,

RAMIRO LOZANO, et al.,

)
)
)
)
)
V. ) Civil Case No. 17-2433 (RJL)
)
)
)
Defendants. )

MEMORANDI Mi OPINION
(September /$, 2023) [Dkt. #70]

Relator Terri R. Winnon (“Winnon” or “Relator”) brought suit on behalf of the
United States and the State of Texas under the qui tam provisions of the False Claims
Act, 31 U.S.C. § 3729, et seq. (“False Claims Act” or “FCA”), and the Texas Medicaid
Fraud Prevention Law, TEX. HUM. RES. CODE ANN. § 36.011, et seg. (“TMFPL”).
Relator’s Second Am. Compl. (“SAC”) [Dkt. #23] § 1. The Relator alleges that the
defendants knowingly submitted, or caused to be submitted, false claims to government
health care programs, including Medicare and the Texas Medicaid program, and
knowingly offered, paid, solicited, and/or accepted remunerations in exchange for
medical referrals in violation of federal and state laws. Jd. at | 2. The action is brought
against seventeen defendants who have been organized into three groups, and each of the
three groups of defendants has filed a separate Motion to Dismiss. This memorandum

discusses the Motion to Dismiss brought by eight Skilled Nursing Facility (“SNF”)
entities (“Defendant Facilities”)! and individuals Ramiro Lozano (“Lozano”) and Jay W.
Balentine (“Balentine”) (collectively, the “SNF Defendants”).’ For the following
reasons, the SNF Defendants’ Motion to Dismiss is GRANTED.’

I. Background

a. Factual Background

The Relator was the Executive Assistant and later Controller for Lozano who,
along with Balentine, owned, controlled, and operated a number of health care facilities
throughout Texas from January 2009 through at least 2016. See SAC §f] 3, 12. In
particular, Lozano and/or Balentine owned, controlled, and/or operated the eight*
Defendant Facilities. /d. at {3. The Defendant Facilities were enrolled as Medicare and
Texas Medicaid providers during the relevant time period. Jd.

After a period of time working for Lozano, the Relator began to notice anomalies
with the companies’ finances and became concerned about certain practices by Lozano,

Balentine, and the Defendant Facilities. /d. at 11. After raising such concerns to

' The eight SNF entities include: RJ Meridian Care Alta Vista, LLC; RJ Meridian Care of Alice, LTD
(“Alice Facility”); RJ Meridian Care of Galveston, LLC; RJ Meridian Care of Hebbronville, LTD; RJ Meridian Care
of San Antonio, LTD; RJ Meridian Care of San Antonio III, LLC; Spanish Meadows of Katy, LTD (“Katy
Facility”); and Empire Spanish Meadows, LTD.

2 See Mem. in Supp. of SNF Defs.’ Mot. to Dismiss Second Am. Compl. (“SNF Defs.” MTD”) [Dkt. #70];
Relator’s Resp. to the SNF Defs.’ Mot. to Dismiss Relator’s Second Am. Compl. (Relator’s Resp. to SNF Defs.’
MTD”) [Dkt. #73]; SNF Defs.’ Reply in Support of Their Mot. to Dismiss Second Am. Compl. (“SNF Defs.’
Reply”) [Dkt. #78]. The other two groups of defendants are: first, a group of six physicians—Miguel A. Molinas,
Diana Carubba, Ronaldo Factoriza, Francis Gumbel, Paul A. Lenz, and Javier A. Jover (collectively, the “Defendant
Physicians”); and second, RehabCare Group East, LLC (“RehabCare”).

3 The Court declines to exercise supplemental (or “pendant”) jurisdiction over the remaining state law
claims. See 28 U.S.C. § 1367(c)(3); Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988) (explaining that
when all federal claims are eliminated before trial, courts may “declin{e] to exercise jurisdiction over the remaining
state-law claims”); Edmondson & Gallagher v. Alban Towers Tenants Ass’n, 48 F.3d 1260, 1267 (D.C. Cir. 1995).

4 According to the SNF Defendants, three of the facilities are owned by other entities with Lozano as their
registered agent: RJ Meridian Care of San Antonio III, LLC; Spanish Meadows of Katy, LTD; and Empire Spanish
Meadows, LTD. See SNF Defs.’ MTD at 2.
Lozano over a period of time, she was terminated. Jd. The Relator brought three sets of
allegations against the SNF Defendants.
i, Remuneration Allegations

In her first set of allegations, the Relator alleges that the SNF Defendants violated
the FCA and the TMFPL by providing illegal remuneration to physicians and discharge
planners in exchange for referrals to the Defendant Facilities. See SAC ¥ 5. In particular,
she alleges that the SNF Defendants provided illegal remuneration through two forms:
first, she alleges that the SNF Defendants paid certain physicians, including the six
Defendant Physicians, as medical directors in an effort to illegally induce patient referrals
to the Defendant Facilities, id. at [| 96-99; and second, she alleges that one of the
Defendant Facilities, Empire Spanish Meadows, provided remunerations (in the form of,
among other things, alcohol and meals) to discharge planners and doctors, including the
six Defendant Physicians, as evidenced by Empire Spanish Meadows’ own account
records, id. at [J 108-09.

li, RUG Upcoding Allegations

Medicare Part A reimbursement to SNFs covers medically necessary inpatient
therapy services provided during a Medicare beneficiary’s covered SNF stay. See 42
U.S.C. § 1395y(a)(1)(A). During most of the period between 2009 and 2016, SNFs were
paid under Medicare Part A for skilled nursing services and therapy services under a
prospective payment system according to the calculated daily payment rates. See SAC 4
127. Under this system, SNFs classified each beneficiary who received skilled nursing

services at their facilities into a particular group, known as a resource utilization group, or

3
“RUG,” based on the patient’s care and resource needs. See id. The RUG classification
was then used to determine the daily payment rate for each patient beneficiary in the
SNF. See id. at § 128. Under the RUG classification system—the “RUG-IV System”—
there were 66 different payment coding levels for SNF patients, which were divided into
several categories, including categories related to therapy. Jd. at § 130. Under the RUG-
IV System, there were five levels of therapy services: (1) Ultra High, which required a
minimum of 720 minutes of therapy per week in at least two therapy disciplines; (2) Very
High, which required between 500 and 719 minutes of therapy per week; (3) High, which
required between 325 and 499 minutes of therapy per week; (4) Medium, which required
between 150 and 324 minutes of therapy per week; and (5) Low, which required between
45 and 149 minutes of therapy per week. Jd. at J 132.

In her second set of allegations, the Relator alleges that the SNF Defendants
overcharged for skilled nursing services by falsely claiming higher daily rates for'‘such
services than were justified. See id. at J] 7, 123. Specifically, she alleges that the
Defendant Facilities “repeatedly and systematically assigned higher [RUG levels] to
patient beneficiaries for whom the higher level of care was not medically justified.” Jd.
at 123. She also alleges that the Defendant Facilities assigned those higher RUG levels
to patient beneficiaries for a longer period of time than was medically justified based on
the patients’ needs. See id. Asa result, the Relator claims the SNF Defendants received
more taxpayer funds than they were lawfully entitled to receive. See id. at { 124.

She alleges that, for example, the Katy Facility had an 81:8% Ultra-High therapy

billing rate in 2014, which put it within the top 1% of Ultra-High therapy billing SNFs in

4
the entire country. See id. at J§ 159-60. She therefore asserts that the Katy Facility’s
billing rates “represent a gross outlier” compared to other similar facilities nationwide.
See id. at § 162. The Relator also claims that in 2014, the Katy Facility subjected patients
to a disproportionately high number of days of Ultra-High therapy, an average of 42.9
days compared to the national average of 23.9 days. See id. at | 163. According to the
Relator, the Alice Facility similarly submitted false and unsubstantiated RUG claims.
See id. at Jf 175-79. To support her allegations, the Relator points to internal invoices
for three specific patients and alleges that the number of days that those patients were
billed out as receiving “Very High” or “Ultra High” therapy alone suggests a pattern of
overbilling. See id. at {] 188—90.
ili. Cost Report Allegations

In her third and final set of allegations, the Relator claims that the Medicare cost
reports’ submitted annually by the Defendant Facilities contained false information. The
report contains “provider information such as facility characteristics, utilization data, cost
and charges by cost center (in total and for Medicare), Medicare settlement data, and
financial statement data.” SAC {200 (quoting CMS, Cost Reports,
https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-
Files/Cost-Reports [https://perma.cc/KBU5-87B5]). Specifically, wage index
information, overhead costs, wage related costs, and direct care expenditures are required

to be reported by SNFs. See id. (citing CMS, Medicare Provider Reimbursement Manual

5 Also known as Form 2540-10 (formerly Form 2540-96).
5
(Aug. 19, 2016), https://www.cms.gov/Regulations-and-
Guidance/Guidance/Transmittals/Downloads/R7PR241 .pdf [https://perma.cc/U9UJ-
PKWJ)).

The Relator alleges that because kickbacks were paid to referral sources, the
relevant Medicare cost reports contained “per se material misrepresentations or
omissions.” /d. Specifically, the Relator alleges that the reports submitted by the SNFs
included improper expenses associated with two airplanes and a yacht owned by Lozano
and/or Balentine—including labor costs for services rendered on the yacht and costs to
pay an airplane pilot—and not for work associated with the health care facilities. See id.
at {] 200-07. The Relator alleges that she “believes that similar practices across the
Defendant Facilities caused the submission of numerous cost reports that contained false
information, inflated costs, and unallowable expenses.” Jd. at { 207.

b. Procedural Background

Winnon filed this action in November 2017, asserting claims for violations of the
FCA and the TMFPL. See SAC. The United States sought and received from the Court
several extensions of time to conduct its own investigation of the facts and to consider
whether it would intervene. In February 2022, the United States and the State of Texas
noticed their election to decline intervention,® and shortly thereafter the Court unsealed
relevant portions of the record and directed for the Complaint to be served upon all

defendants. See Order (Feb. 10, 2022) [Dkt. #29]. In July 2022, the three groups of

6 See Notice of Election to Decline Intervention by United States of America [Dkt. #28].

6
defendants filed separate Motions to Dismiss.’ In March 2023, the Court granted the
Defendants’ Motion to Stay Discovery.®
Il. LEGAL STANDARD

“A Rule 12(b)(6) motion tests the legal sufficiency of a complaint.” Browning v.
Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). To survive a motion to dismiss, a complaint
“must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when the
allegations contained in the complaint allow the Court to “draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Jd. Although the standard does
not amount to a “probability requirement,” it does require “more than a sheer possibility
that a defendant has acted unlawfully.” Jd. “Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements,” are not sufficient to state a
claim. Jd. When resolving a Rule 12(b)(6) motion, the Court “assumes the truth of all
well-pleaded factual allegations in the complaint and construes reasonable inferences
from those allegations in the plaintiffs favor.” Sissel v. U.S. Dep’t of Health & Hum.
Servs., 760 F.3d 1, 4 (D.C. Cir. 2014). In addition to the complaint’s factual allegations,
the Court may consider “documents attached to or incorporated in the complaint, matters

of which courts may take judicial notice, and documents appended to a motion to dismiss

7 Def. Miguel A. Molinas, Diana Carubba, Ronaldo Factoriza, Francis Gumbel, Paul A. Lenz, and Javier A.
Jover’s Mot. to Dismiss Relator’s Second Am. Compl. [Dkt. #68]; Def. RehabCare Group East, LLC’s Mot. to
Dismiss Relator’s Second Am. Compl. [Dkt. #69]; SNF Defs.” MTD.

8 See Minute Order (Mar. 30, 2023).
whose authenticity is not disputed, if they are referred to in the complaint and integral to
aclaim.” Harris v. Amalgamated Transit Union Loc. 689, 825 F. Supp. 2d 82, 85
(D.D.C. 2011).

Rule 9(b) requires a relator to “state with particularity the circumstances
constituting fraud.” Fed. R. Civ. P. 9(b). The heightened pleading standard serves to
“discourage[] the initiation of suits brought solely for their nuisance value,” “safeguard[]
potential defendants from frivolous accusations of moral turpitude,” and “guarantee all
defendants sufficient information to allow for preparation of a response.” United States
ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 123 (D.C. Cir. 2015) (quoting United States ex
rel. Williams v. Martin—Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004)).
Moreover, the False Claims Act is “self-evidently an anti-fraud statute, [and] complaints
brought under it must comply with Rule 9(b).” United States ex rel. Totten v.
Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002).

Rule 9(b) does not require a complaint that covers a multi-year period “to contain
a detailed allegation of all facts supporting each and every instance of submission of a
false claim,” United States ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.
Supp. 2d 28, 35 (D.D.C. 2003), but in order to satisfy Rule 9(b), a plaintiff must allege
the “who,” “what,” “when,” and “where” with respect to the circumstances of an alleged
fraud, United States ex rel. Riedel v. Bos. Heart Diagnostics Corp., 332 F. Supp. 3d 48,

76 (D.D.C. 2018).
II. ANALYSIS

The SNF Defendants argue, inter alia, that the Relator’s remuneration, RUG
upcoding, and cost report claims should be dismissed pursuant to Rule 12(b)(6) and Rule
9(b). See SNF Defs.” MTD at 18-35. The Relator argues that the SAC adequately pleads
the claims. See Relator’s Resp. to SNF Defs.’ MTD at 5-23. Unfortunately for the
Relator, the SNF Defendants have the better argument.’ How so?

The three sets of allegations are addressed in turn below.

a. Remuneration Allegations

The SNF Defendants argue that the Relator’s remuneration claims should be
dismissed because she fails to sufficiently plead predicate violations of the Anti-
Kickback Statute, 42 U.S.C. § 1320a-7b(b), and the Physician Self-Referral Law (or
“Stark Law”), 42 U.S.C. § 1395nn, fails to identify tainted referrals, and does not identify
any false claims or submissions tied to specific tainted referrals. See SNF Defs.’ MTD at
19. The Court ultimately reaches the same conclusion as it did with respect to the
remuneration allegations against the Physician Defendants, see Memorandum Opinion
[Dkt. #94], which is that the Relator failed to plead fraud with particularly to the standard
required by Rule 9(b).

The Relator contends that the Defendant Physicians illegally referred patients to

the Defendant Facilities in exchange for “sham” medical directorships and other

° The Relator also brought a claim for conspiracy violate the FCA. See SAC 4 223-25. However, because
the Court determines that the Relator failed to adequately plead the underlying violations of the FCA, the Court can
dispose of the conspiracy count in short order. See Pencheng Si, 71 F. Supp. 3d at 98 (“[T]here can be no
conspiracy to commit fraud in violation of the FCA if an underlying false claim has not been adequately alleged’’).

9
remunerations from Empire Spanish Meadows in the form of meals, alcohol, and other
gifts. See SAC fj 93-118. According to the Relator, she does not recall ever seeing a
written agreement between the facilities and a “medical director,” and the medical
directors were paid a static monthly rate. See id. at 98-99. The Relator alleges such a
static payment rate from month-to-month is suspicious because it does not account for the
amount of work the physicians performed in a particular month. See id. The Relator also
alleges that Empire Spanish Meadows, one of the Defendant Facilities, provided
remunerations to discharge planners and doctors, including the Defendant Physicians, as
evidenced by examples from Empire Spanish Meadows’ own account records from 2013
to 2015. See id. at Fj 109-10.

Although the Relator adequately alleges the “who,” “where,” and “when”
requirements of Rule 9(b) by identifying the individuals and corporate entities who
allegedly participated in the purported scheme,” the locations at which the scheme
allegedly occurred,'! and the relevant time period,'” the “what” element is not alleged
sufficiently because she fails to provide a “detailed identification” of the allegedly
fraudulent scheme. See Riedel, 332 F. Supp. 3d at 78 (quoting Heath, 791 F.3d at 124).
Instead, a careful reading of the SAC reveals only conclusory allegations of the alleged
scheme to provide unlawful remunerations and kickbacks to the Defendant Physicians in
return for unlawful referrals. See SAC 4 93-118. Although Rule 9(b) does not require

the Relator to “identify particular claims resulting from the kickback scheme,” the

0 See SAC Ff 8-11.
1 Id, at {4 3, 97-109.
2 Td. at 43.

10
Relator fails to “fully explain how the alleged scheme concerning these physicians is
supposed to work.” United States ex rel. Parikh vy. Citizens Med. Ctr., 977 F. Supp. 2d
654, 665, 674 (S.D. Tex. 2013). Relator Winnon’s allegations against the SNF
Defendants are therefore insufficient to satisfy Rule 9(b)’s particularity standard.

Unlike in United States ex rel. Thomas v. St. Joseph Hospice, LLC, No. 2:16-cv-
143, 2019 WL 1271019 (S.D. Miss. Mar. 19, 2019), a case involving similar allegations
of allegedly fraudulent medical directorships, Relator Winnon did not plead “substantial
details of the alleged agreement.” Jd. at *1, *10. In Thomas, the relators made the
following specific allegations against the defendants, providers of hospice services:
defendants paid their medical directors varying rates based on the volume and value of
each physician’s referrals; defendants’ employees made up fake time entries and
compensation sheets that did not correspond to the actual amount of time the medical
directors worked; defendants reduced a medical director’s pay when the medical director
stopped bringing in referrals; and relators identified specific patients referred to the
defendants by specific medical directors in exchange for remuneration as well as the
specific dates the patients were admitted. Jd. at *10. Not surprisingly, the court in
Thomas held that such allegations are “reliable indications of fraud” and the relators had
pleaded “‘a level of detail that demonstrates that an alleged scheme likely resulted in bills
submitted for government payment.” Jd. (quoting United States ex rel. Nunnally v. W.
Calcasieu Cameron Hosp., 529 F. App’x 890, 893 (Sth Cir. 2013)). In the instant case,
Relator Winnon’s allegations against the SNF Defendants fall far short of the level of

specificity pleaded by the relators in Thomas.

11
Relator Winnon’s allegations are also unlike the plaintiffs’ allegations in United
States ex rel. Kaczmarcyk v. SCCI Health Servs. Corp., Civ. No. H-99-1031, 2004 WL
7089810 (S.D. Tex. Mar. 11, 2004). Although the defendant in Kaczmarcyk, a hospital,
alleged that the United States’ complaint failed to meet Rule 9(b)’s requirements, the
court found that the complaint provided sufficient detail of the alleged scheme. Jd. at *4—
7. In that case, the complaint alleged that the medical directorship agreements were
shams because the compensation provided “was, in reality, both a reward for the volume
of past referrals and an incentive to continue a high number of referrals,” and the
complaint further noted that three of the physicians hired as medical directors admitted
nearly fifty percent of the defendant hospital’s patients during a specified time period. Jd.
at *4-5. The court noted that the Government’s complaint also explained why the
medical directorships did not fit within the personal service arrangements exception to
the Stark Law because the defendant hired more medical directors than were reasonable
and necessary, compensated the medical directors at a rate exceeding fair market value
for the services they were expected to perform, and took into account past and future
referrals in setting the contract rates. /d. at *5. By comparison, Relator Winnon’s
allegations against the SNF Defendants provide far less detail about the alleged medical
directorships scheme.

Rather, Relator Winnon’s allegations are more akin to the original complaint
dismissed by the court in United States ex rel. Emanuele v. Medicor Assocs., No. 10-cv-
245, 2013 WL 3893323 (W.D. Pa. July 26, 2013). In Emanuele, the court found that the

relator’s original complaint had failed to meet the Rule 9(b) pleading requirement

12
because it “[did] not delineate why the medical directorships at issue were not legitimate
service contracts, what instructions concerning the service contracts were allegedly given,
and whether any specific or even general number of referrals allegedly took place
pursuant to the contracts.” Jd. at *8. Ultimately, the court in Emanuele held that the
allegations contained in the original complaint were “conclusory and nonspecific” and
dismissed the claims. Jd.

The Relator’s claims here fail to provide “detailed identification” of the allegedly
fraudulent remuneration scheme, Riedel, 332 F. Supp. 3d at 78 (quoting Heath, 791 F.3d
at 124), which “fully explain{s] how the alleged scheme concerning these physicians is
supposed to work,” Parikh, 977 F. Supp. 2d at 674, as is required by Rule 9(b).

b. RUG Upcoding Allegations

The SNF Defendants argue that the Relator’s use of statistical data regarding RUG
billing codes fails to meet the heightened pleading requirements of Rule 9(b). The Court
finds that the Relator’s reliance on the comparison of statistical averages of Ultra-High
RUG codes between the Defendant Facilities and other SNFs nationwide, without also
pleading “particular details of a scheme to submit false claims,” does not meet the
particularity requirements of Rule 9(b). See Heath, 791 F.3d. at 126 (quoting United
States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (Sth Cir. 2009)).

The Relator claims that the Defendant Facilities overcharged for skilled nursing
services by assigning higher payment rates and applying them for longer periods of time
than were medically justified. See SAC { 123. The Relator relies on comparisons of

rates and days that Defendant Facilities billed for Ultra-High RUG codes with those of

13
SNFs nationwide. For example, the Relator points out that the Katy Facility billed 81.8%
of the total patient days at the facility in 2014 at Ultra-High rug codes, compared to the
SNF nationwide average of 39% according to a 2010 OIG Report. Jd. at {] 159-60. The
Relator also notes that among all SNFs nationwide that provided Ultra-High therapy in
2014, the average number of days of Ultra-High therapy for each patient that received
such therapy was 23.9 days, whereas at the Katy Facility, the average number of days of
Ultra-High therapy was 42.9 days. Jd. at § 163. The Relator concludes that because
Defendant Facilities billed for Ultra-High RUG codes at higher rates and for longer
periods of time than the nationwide averages, the therapy services provided were
medically unnecessary and resulted in the submission of false claims. Jd. at {{] 123-24,
156.

However, under Rule 9(b), reliance on statistical or mathematical probabilities
alone does not meet the heightened particularity requirements. See United States ex. rel.
Integra Med. Analytics, L.L.C. v. Baylor Scott & White Health, 816 F. App’x 892, 900
(Sth Cir. 2020) (finding that relator’s allegation that defendant’s patients were placed on
mechanical ventilation “over twice the national average” did not “withstand the
heightened pleading requirements for fraud under Rule 9(b)”); see also Est. of Helmly v.
Bethany Hospice & Palliative Care of Coastal Ga., LLC, 853 F. App’x 496, 502-03
(11th Cir. 2021) (concluding that “numerical probability is not an indicium of reliability”
that defendants submitted a false claim); Carrel v. AIDS Healthcare Found., 898 F.3d

1267, 1277 (11th Cir. 2018) (finding that relators cannot “rely on mathematical

14
probability to conclude that the [defendant] surely must have submitted a false claim at
some point”).!?

Instead, relators must plead “particular details of a scheme to submit false claims
paired with reliable indicia that lead to a strong inference that claims were actually
submitted.” Heath, 791 F.3d. at 126 (quoting Grubbs, 565 F.3d at 190). Here, the
Relator’s allegations plead far fewer details of a scheme to submit false claims compared
to other similar cases involving fraud schemes. For example, in United States ex rel.
Harris v. Bernad, 275 F. Supp. 2d 1 (D.D.C. 2003),'* the Government brought an action
against a neurologist and his neurology clinic and alleged a complex fraud scheme
involving the upcoding of certain medical services. Jd. at 1,4. The Government’s
allegations provided details about the fraudulent scheme and described the methodology
the defendants used to inflate the code above the actual level of service provided. Jd. at
3-4. Specifically, the Government alleged that defendants provided physicians with fee
tickets pre-printed for higher codes, regardless of the actual services provided. Jd. The
Government provided statistical averages of the percentage of claims at high levels, but
also pointed to 12 sample patient cases and analyzed the differences between the code

documented with the actual services and treatment provided. Jd. The Court ultimately

13 The Court does not read the cases the Relator cites regarding the use of statistical sampling as an
endorsement that the comparison of raw statistical data is sufficient to meet Rule 9(b) particularity standards, as the
two are very different mathematical methodologies. See Relator’s Resp. to SNF Defs.’ MTD at 17-18; United
States v. Life Care Ctrs. of Am., Inc., 114 F. Supp. 3d 549, 570-72 (E.D. Tenn. 2014) (holding that statistical
sampling and extrapolation may be used to establish FCA liability); United States v. Fadul, No. 11-cv-0385, 2013
WL 781614, at *14 (D. Md. Feb. 28, 2013) (endorsing statistical sampling and extrapolation as a method to
calculate damages).

'4 Cited in Relator’s Resp. to SNF Defs.’ MTD at 16-17.

15
concluded that such allegations provided an “‘adequate factual basis for [the
Government’s] allegations of fraud under Rule 9(b).” Jd. at 9.

Similarly, in Grubbs, a doctor brought a qui tam action alleging that a hospital and
other doctors participated in a fraud scheme to bill patient visits by nurses on the
weekend as physician treatments. 565 F.3d at 184. The Fifth Circuit found that the
relator in Grubbs alleged “particular details of a scheme to submit false claims” by
providing specific details of the scheme, such as “the date, place, and participants [of a]
dinner meeting at which two doctors in his section attempted to bring him into the fold of
their [fraudulent scheme]” and first-hand accounts of how certain nursing staff attempted
to assist him in recording physician visits that had not occurred. Jd. at 191-92.

In contrast, the Relator’s allegations fall short of the particularity provided by the
relators in Grubbs and Harris. The Relator’s RUG upcoding allegations rely primarily
on a comparison of certain Defendant Facilities’ rates of billing for Ultra-High RUG
codes and average number of days of Ultra-High therapy to averages for SNFs
nationwide, see SAC 4 159-99, but fail to provide “particular details of a scheme to
submit false claims,” Grubbs, 565 F.3d at 190, such as “how [the fraud scheme] was
implemented, and the . . . materials used,” Heath, 791 F.3d. at 126.

Further, the complaint must be “particular enough to ‘guarantee all defendants
sufficient information to allow for preparation of a response.’” Heath, 791 F.3d at 123
(quoting United States ex rel. Williams v. Martin—Baker Aircraft Co., 389 F.3d 1251,
1256 (D.C. Cir. 2004)). The Fifth Circuit in Grubbs found that “[c]onfronting False

Claims Act defendants with both an alleged scheme to submit false claims and details

16
leading to a strong inference that those claims were submitted . . . gives defendants
adequate notice of the claims. In many cases, the defendants will be in possession of the
most relevant records, such as patients’ charts, doctors’ notes, and internal billing
records, with which to defend on the grounds that alleged falsely-recorded services were
not recorded, were not billed for, or were actually provided.” Grubbs, 565 F.3d at 190-
91. As the SNF Defendants point out, statistical averages, by definition, do not provide
information about specific patients or specific claims, see SNF Defs.” MTD at 29, nor do
statistics provide particular details of a fraudulent scheme, which makes it difficult for the
defendants to respond appropriately. A lack of particularity prevents the SNF Defendants
from, for example, justifying the medical necessity of higher RUG codes for particular
patients on certain dates. Jd. Indeed, the Relator’s failure to make allegations which
satisfy the particularity requirements of Rule 9(b) inhibits the SNF Defendants’ ability to
prepare an adequate response.

The Relator’s attempts at providing patient-specific information, however, fail to
elevate her claims to meet the Rule 9(b) particularity threshold. While the Relator points
to individual patients and the number of days of “Very High” and “Ultra High” therapy
the patients received, she fails to make claims to suggest that such therapy was medically
unnecessary for those patients. For example, the Relator alleges that internal invoices
indicate Patient R.L. received 86 straight days of “Very High” or “Ultra High” therapy at
the Alice Facility in early 2015 but she does not allege that Patient R.L. did not have a
legitimate medical need for such therapy. SAC 4 188. Providing identifying patient

information without indication about what makes it a false claim is conclusory and does

17
not meet the Rule 9(b) particularity standard either. See Baylor Scott & White Health,
816 F. App’x at 898 (‘[Relator’s] examples simply give some identifying patient
information and pair it with a diagnosis. No example gives any indication about what
makes it a false claim. The claims of falsity are simply conclusory.”). While the Relator
is not required to plead the precise details of individual claims, see Heath, 791 F.3d. at
126, the allegations concerning specific patients the Relator does provide do not help her
cross the particularity threshold of Rule 9(b).

The statistics the Relator cites do raise eyebrows, but such statistics absent
“particular details of a scheme to submit false claims” fail to meet the particularity
requirements of Rule 9(b).

c. Cost Report Allegations

The SNF Defendants argue that the Relator’s cost report allegations fail to meet
Rule 9(b)’s particularity requirements. The Court finds that the Relator falls far short of
meeting Rule 9(b)’s requirements because she fails to allege with particularity that any
Medicare cost reports with erroneous or improper costs were actually submitted to the
Government, and she further fails to provide specific factual allegations regarding the
source and nature of any alleged repayment obligation that was implicated by the
allegedly false cost reports.

The Relator alleges that the SNF Defendants submitted Medicare cost reports that
included costs associated with two airplanes and a yacht owned by Lozano and/or
Balentine. See SAC § 200-07. For example, the Relator alleges that based on her

recollection and internal documentation, a significant amount of money paid to certain

18
individuals by the SNF Defendants was for services rendered on a yacht and not for
maintenance work associated with health care facilities. /d. at 202. The Relator further
alleges that she “believes” these costs were submitted in Medicare cost reports to the
Government. Jd. at { 203. As a second example, the Relator alleges that she exchanged
emails with Lozano questioning the wages at some of the Defendant Facilities, which
included expenses that were in fact wages for an airplane pilot. Jd. at [{[ 205-06. The
Relator again alleges that she “believes” these expenses would have been included in cost
reports submitted to the Government. Jd. at § 206.

The Relator alleges that such actions violated Section 3729(a)(1)(G) of the FCA
by making what is commonly known as a “reverse” false claim. See SAC J 200-07,
226-29. Section 3729(a)(1)(G) imposes liability on any person who “knowingly makes,
uses, or causes to be made or used, a false record or statement material to an obligation to
pay or transmit money or property to the Government, or knowingly conceals or
knowingly and improperly avoids or decreases an obligation to pay or transmit money or
property to the Government.” 31 U.S.C. § 3729(a)(1)(G). “[A] typical false claim action
involves a defendant knowingly making a false statement in order to avoid having to pay
the government when payment is otherwise due.” Pencheng Si v. Laogai Rsch. Found.,
71 F. Supp. 3d 73, 88 (D.D.C. 2014).

However, the Relator fails to provide even conclusory, but specific, factual
allegations about the alleged repayment obligation. See id. at 96-97 (“In addition to
failing to provide any details about the source of the alleged obligation, the Relator also

fails to specify the parameters of that obligation, such as what triggers the duty to repay

19
and what sort of repayment it requires. Because the amended complaint provides none of
this information, it is plainly insufficient.”). The Relator fails to provide any specific
allegations to establish that the SNF Defendants had a duty to repay in connection with
the reported costs and also fails to explain, for example, “what triggers the duty to repay
and what sort of repayment it requires.” See id. at 96.

At best, the Relator merely claims that “CMS requires providers to submit
accurate cost reporting information, which is material to CMS’s administration of the
Medicare program” and that “there is evidence that Lozano tried to conceal the nature of
some of his financial transactions.” SAC {§ 204, 207. However, courts in this District
have determined that a “reverse false claim may not rest .. . on the argument ‘that an
obligation arose out of [the d]efendants’ concealment of their allegedly fraudulent
activity,’ because ‘by this logic, just about any traditional false statement or presentment
action would give rise to a reverse false claim action; after all, presumably any false
statement actionable under sections 3729(a)(1)(A) or 3729(a)(1)(B) could theoretically
trigger an obligation to repay the fraudulently obtained money.’” Riedel, 332 F. Supp. 3d
at 82-83) (quoting United States ex rel. Groat v. Bos. Heart Diagnostics Corp., 255 F.
Supp. 3d 13, 32 (D.D.C. 2017), amended on reconsideration in part, 296 F. Supp. 3d 155
(D.D.C. 2017)); see also United States ex rel. PCA Integrity Assocs., LLP v. NCO Fin.
Sys., Inc., No. 15-cv-750, 2020 WL 686009, at *28 (D.D.C. Feb. 11, 2020); United States
ex rel. Scollick v. Narula, 215 F. Supp. 3d 26, 41 (D.D.C. 2016); Pengcheng Si, 71 F.

Supp. 3d at 97.

20
As such, the Relator’s cost report allegations fall woefully short of meeting Rule
9(b)’s particularity requirements.
IV. CONCLUSION

For the foregoing reasons, the SNF Defendants’ Motion to Dismiss is hereby
GRANTED. An order consistent with this decision accompanies this Memorandum

Opinion.

°

Gebundy

United States District Judge

21