U.S. & N.Y. ex rel. Quartararo v. Catholic Health Sys. of Long Island Inc.

UNITED STATES OF AMERICA and THE STATEOF NEW YORK ex rel. MICHAEL QUARTARARO, Plaintiff, v. CATHOLIC HEALTH SYSTEM OF LONG ISLAND INC.d/b/a/ CATHOLIC HEALTH SERVICES OF LONG ISLAND,ST. CATHERINE OF SIENA MEDICAL CENTER,ST. CATHERINE OF SIENA NURSING HOME,GOOD SAMARITAN HOSPITAL MEDICAL CENTERand GOOD SAMARITAN NURSING HOME, Defendants.

12-CV-4425 (MKB)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 31, 2017

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

On September 5, 2012, Plaintiff-Relator Michael Quartararo brought this qui tam action, under seal, on behalf of the United States of America and the State of New York against Defendants Catholic Health System of Long Island Inc., doing business as Catholic Health Services of Long Island ("CHS"), St. Catherine of Siena Medical Center (the "Medical Center"), St. Catherine of Siena Nursing Home (the "Nursing Home"), Good Samaritan Hospital Medical Center, and Good Samaritan Nursing Home. (Compl., ¶ 1, Docket Entry No. 1.) Relator alleges violations of the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), and the New York State False Claims Act, N.Y. State Fin. Law § 187 et seq. ("NYFCA"), based on the alleged filing of false Medicare and Medicaid reimbursement claims.¹ (Id. ¶¶ 2-10.) While the United States andNew York State investigated the allegations to determine whether to intervene, Relator filed an Amended Complaint on September 10, 2012, (Docket Entry No. 3), a Second Amendment Complaint on August 2, 2013, (Docket Entry No. 6), and a Third Amended Complaint ("TAC") with attachments on February 21, 2015, (Docket Entry Nos. 15, 16). The United States and the State of New York declined to intervene on January 27, 2016, (Docket Entry Nos. 18, 19), and the Court unsealed the TAC the same day. (Order dated Jan. 27, 2016, Docket Entry No. 20.)

Defendants move to dismiss the action for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure and for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and also move for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. (Defs. Mot. for Partial Summ. J., Failure to State a Claim, and Lack of Jurisdiction ("Defs. Mot."), Docket Entry No. 29.) For the reasons discussed below, the Court (1) denies Defendants' motion to dismiss the action for lack of subject matter jurisdiction, (2) grants Defendants' motion to dismiss for failure to state a claim and (3) grants Defendants' motion for summary judgment. The Court grants Relator thirty (30) days to file an amended complaint.

I. Background

a. Overview of Medicare and Medicaid reimbursement programs

Medicare and Medicaid are taxpayer-funded health insurance programs offered to individuals based on age or disability.² (TAC ¶¶ 9, 20, 22.) Medicare is provided by the federal government and Medicaid is provided by the federal, state and local governments and operated through the states. (Id.) The United States Department of Health and Human Services, through its Centers for Medicare and Medicaid Services, runs both programs in conjunction with the stateagencies that oversee Medicaid. (Id.) Individuals may be covered under Medicare, Medicaid, or both. (Id.) New York State maintains a Medicaid program for its citizens. (Id. ¶ 23.) If health care providers³ choose to provide state-based Medicaid services, they must enroll with the New York State Department of Health ("DOH"), which requires health care providers to certify that they will comply with DOH rules and regulations.⁴ (Id. ¶ 24.) Health care providers that treat patients covered by Medicare or Medicaid may submit claims for reimbursement of the costs expended to treat the covered patients. (Id. ¶¶ 21, 38.) Reimbursement claims are submitted to the DOH on CMS-1450/UB-04 Forms.⁵ (Id. ¶ 21.) The reimbursement claim forms contain general compliance certifications specifying that false, misleading, incomplete or inaccurate claims may subject the claimant to civil and criminal penalties. (Id. ¶¶ 21, 24, 25.) The reimbursement claim forms also require a health care provider to include its reimbursement rate. (Id.) In states that provide Medicaid coverage, the reimbursement rate for Medicaid and Medicare claims is calculated and assigned by the state agency that oversees the Medicaid program, (id. at ¶ 26); in New York State, the DOH, (id. ¶ 38).

As health care providers, nursing homes are reimbursed for every day they provide care to a Medicaid or Medicare beneficiary.⁶ (Id. ¶ 27 (first citing N.Y. Pub. Health Law § 2808; and then citing 10 N.Y. Comp. Codes R. & Regs. § 86-2 et seq.) (McKinney 2017).) The reimbursement rates are calculated by a complex formula that considers four components related to a nursing home's costs and expenditures: (1) direct costs; (2) indirect costs; (3) non-comparable costs; and (4) capital expenditures. (Id. ¶ 27 (citing 10 N.Y. Comp. Codes R. & Regs. § 86-2.10).) The first three components are known as the "operating portion" of the reimbursement rate. (TAC ¶ 27.) The operating portion is calculated based on a nursing home's costs from a "base year," a particular fiscal year selected by the DOH. (Id. ¶ 35.) After the DOH selects a base year, it continues to use that base year to calculate a nursing home's operating costs until it decides to select a new base year. (Id.) The DOH obtains the base-year operating costs through annual cost reports that must be submitted by any nursing home intending to seek Medicaid reimbursement. (Id. ¶¶ 34-35.) From 1983 to 2009, the DOH used a base year of 1983, and cost reports from 1983, to calculate the operating-costs portion of the reimbursement rates. (Id. ¶ 35.) In 2011, the DOH selected a new base year of 2002, which selection applied retroactively to years 2009 to 2011. (Id.) Accordingly, from 2009 to 2011, the DOH used 2002 as the base year and used 2002 cost reports to calculate the operating-costs portion of the reimbursement rates. (Id.) In 2012, the DOH selected a new base year of 2007 and changed its reimbursement rate calculation methodology. (Id.)

The DOH also has the option to change, or "re-base," the base year for a nursing home's reimbursement rate calculation when a nursing home changes ownership. (Id. ¶¶ 36-37.) In order to get an accurate reimbursement rate, the new operator of the nursing home is required to submit a rate appeal and an annual cost report to the DOH once the nursing home has operated at a capacity of ninety-percent or higher for a continuous twelve-month period. (Id. ¶ 37 (citing 10 N.Y. Comp. Codes R. & Regs § 86-2.10(k)).) The annual cost report submitted by the new nursing home operator must be certified by an independent accountant, and the new reimbursement rate applies retroactively and prospectively. (TAC ¶ 37.) Until the DOH calculates and assigns the new reimbursement rate, the new operator must use the reimbursement rate that was assigned to the old operator of the nursing home. (Id. (citing 10 N.Y. Comp. Codes R. & Regs. § 86-2.10(k)(2)(i)).) Once the new operator receives its reimbursement rate, it must pay back any overpayment received while using the old operator's reimbursement rate. See 10 N.Y. Comp. Codes R. & Regs. § 86-2.7.

b. Factual background

CHS is a healthcare consortium that operates hospitals and nursing homes. (TAC ¶ 8.) In November of 1999, CHS purchased the Nursing Home and the Medical Center from Episcopal Health Services, who had operated the facilities under the names Bishop Jonathan G. Sherman Episcopal Nursing Home ("Episcopal Nursing Home") and St. John's Episcopal Hospital. (Id. ¶ 39.) CHS officially assumed ownership and control of Episcopal Nursing Home in early 2000. (Id. ¶ 41.)

As the new operator, the Nursing Home used the reimbursement rate that the DOH assigned to Episcopal Nursing Home, and was authorized to do so until the Nursing Home maintained ninety-percent capacity over a twelve-month period, at which point the Nursing Home was required to submit its rate appeal and annual cost report to allow the DOH to assignthe Nursing Home its own reimbursement rate. (Decl. of David DeCerbo ("DeCerbo Decl.") ¶¶ 36-37, Docket Entry No. 29-1.)

In 2001, the Nursing Home submitted its rate appeal and annual cost report to the DOH. (TAC ¶ 43; DeCerbo Decl. ¶¶ 36-38; Nursing Home 2001 Cost Report, annexed to DeCerbo Decl. as Ex. C; Nursing Home Rate Appeal, annexed to DeCerbo Decl. as Ex. D; DOH Acknowledged Rate Appeal, annexed to DeCerbo Decl. as Ex. E.) The DOH, however, never assigned the Nursing Home its own reimbursement rate. (DeCerbo Decl. ¶ 39-40; DOH Record of Open Rate Appeals as of Aug., 2014, annexed to DeCerbo Decl. as Ex. F.) Thus, from 2000 to 2011, the Nursing Home used the reimbursement rate that the DOH had assigned to the prior operator, Episcopal Nursing Home. (TAC ¶ 41.)

i. New York State investigations into the Nursing Home's Medicare and Medicaid reimbursement claims

In August of 2005, the New York State Attorney General's Medicaid Fraud Control Unit (the "Fraud Unit"), investigated the Nursing Home's Medicaid reimbursement claims spanning from 2000 to 2004. (Fraud Unit Letter, annexed to DeCerbo Decl. as Ex. Z.) The Fraud Unit requested that the Nursing Home provide any information regarding overpayments and any information about its reserve accounts related to overpayments. (Id.) The Nursing Home responded to the request on October 5, 2005, detailing that it had kept a reserve for overpayments that it believed may be due to the DOH and stating that:

the NYS DOH . . . has not issued [the Nursing Home] rates using the base year cost report submitted for the period of February 29, 2000 through February 28, 2001. Currently and since 2000, [the Nursing Home] is being paid a Medicaid rate issued to Bishop Sherman Nursing Home (the former operator) . . . .

(Nursing Home Letter Replying to Fraud Unit, annexed to DeCerbo...