United States ex rel. Holloway v. Heartland Hospice, Inc.

960 F.3d 836

UNITED STATES of America EX REL. Kathi HOLLOWAY, Relator-Appellant,

v.HEARTLAND HOSPICE, INC., Defendant,Heartland Hospice Services, LLC; HCR ManorCare, Inc.; HCR Home Health Care & Hospice, LLC ; ManorCare Health Services, LLC, Defendants-Appellees.

No. 19-3646

United States Court of Appeals, Sixth Circuit.

Decided and Filed: June 3, 2020

ON BRIEF: Brad J. Pigott, PIGOTT LAW FIRM, P.A., Jackson, Mississippi, for Appellant. Eric A. Dubelier, Katherine J. Seikaly, REED SMITH LLP, Washington, D.C., James C. Martin, Colin E. Wrabley, Devin M. Misour, REED SMITH LLP, Pittsburgh, Pennsylvania, for Appellees.

Before: MERRITT, MOORE, and MURPHY, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

The qui tam provisions of the False Claims Act ("FCA") encourage whistleblowers to act as private attorneys general and sue companies making false claims for federal money. See 31 U.S.C. §§ 3729 – 3733. Kathi Holloway, the qui tam relator in this action, sued Heartland Hospice and related entities ("Heartland") under the FCA for orchestrating a corporate-wide scheme to submit false claims for payments from Medicare and Medicaid to cover hospice care. Heartland allegedly enrolled patients in hospice when they were not terminally ill and kept them there, even when employees like Holloway urged their release.

Heartland, however, shoots back that Holloway is not a genuine whistleblower, that her claims are drawn from prior allegations against Heartland, and accordingly that her qui tam action is prohibited by the FCA’s public-disclosure bar. In the alternative, Heartland argues that Holloway has not satisfied the FCA’s heightened pleading standard for allegations of fraud and, in particular, that she has not satisfied the limited exception to that standard that we announced in U.S. ex rel. Prather v. Brookdale Senior Living Cmtys., Inc. , 838 F.3d 750 (6th Cir. 2016). We hold that Holloway’s action is barred in light of prior public disclosures. We accordingly AFFIRM the district court’s judgment of dismissal.

I. BACKGROUND¹

Holloway alleges that Heartland fraudulently claimed Medicare and Medicaid payments to cover hospice care by "recruiting" and keeping patients in hospice despite the fact that many of them were not terminally ill. R. 69 (1st Am. Compl. at 11–12, ¶ 24) (Page ID #485–86).² Because these patients were placed into hospice, they were not provided curative treatment for their non-terminal illnesses. Id . at 17, ¶ 34 (Page ID #491). Meanwhile, Heartland leeched millions of dollars from the federal government in payments for unnecessary hospice care. Id. at 43, ¶ 88 (Page ID #517).

A. Heartland’s Scheme

Heartland orchestrated its alleged scheme through incentives, punishments, and training. To incentivize recruitment of hospice patients, Heartland paid out bonuses to regional directors of operations, administrators in charge of the hospice agencies, and its "sales team"—equal to 30% of their salaries—if they met "targets" for admitting and retaining hospice patients. Id. at 15–16, ¶¶ 31–32 (Page ID #489–90). Heartland set the targets based on its revenue goals. Id. at 15–16, ¶ 31 (Page ID #489–90). It authorized the sales team to ask prospective patients to consent to hospice treatment, rather than curative care, before physician "Medical Directors" received any information regarding patients’ medical history and prognosis. See id. It even incentivized registered nurses employed as "Patient Care Coordinators" to distort clinical records of patients’ medical conditions and progress in a way that would enable the Medical Directors to certify patients as hospice-eligible. Id. at 16–17, ¶¶ 33–34 (Page ID #490–91). They, too, would receive a 30%-of-salary bonus if Heartland met its targets. Id. Heartland also handed out paid vacation hours to the clinical and non-clinical staffs of the facilities that increased their "census," or patient enrollment, the most within each corporate region. Id. at 17–18, ¶ 35 (Page ID #491–92). On the flipside, Heartland threatened to terminate sales team members and clinical staff if they fell short of their required census count. Id. at 18, ¶ 36 (Page ID #492).

To cover its tracks, Heartland "trained its hospice agency nurses and other clinical personnel ... to focus their documentation [of patients’ clinical status], not on truthful clinical evidence of a patient’s stability or need for curative treatment, but instead on purported clinical indicia of medical decline." Id. at 22–23, ¶ 43 (Page ID #496–97). Clinical personnel were trained to avoid "Ship Sinkers" like "improving," "stable," or "no change" because they could render patients hospice-ineligible. Id. Guided by the "Heartland Best Practice" manual, executives, regional officers, and local administrators enforced Heartland’s corporate-wide practice of "negative charting" designed to paint patients as in decline. Id. at 22–23, ¶¶ 43–44 (Page ID #496–97). At the same time, clinicians were encouraged to use phrases that suggest hospice eligibility like "new skin tears," "unable to carry on a conversation without shortness of breath," "new episodes of chest pain," and "eating only sweets, snacks – refusing meals." Id. at 23, ¶ 45 (Page ID #497).

Effectively useless physician oversight paved the way for claims with no sound clinical basis to go forward. Heartland did not require its physician Medical Directors to personally examine patients, or to review the underlying clinical records, "before accepting non-physician employees’ conclusions that patients were terminally ill." Id. at 25, ¶ 52 (Page ID #499). And where Medical Directors or other physicians did determine that patients should be discharged, they were vetoed. Local hospice facility "Directors of Clinical Services"—who were registered nurses, not physicians—were authorized to override physicians’ recommendations of discharge. Id. at 27–28, ¶ 56 (Page ID #501–02). "Heartland likewise ... authoriz[ed] regional and ... corporate-wide administrators to veto, override, or ignore recommendations [of discharge] by physician Medical Directors...." Id. at 28, ¶ 57 (Page ID #502). On the occasions when Heartland did discharge patients, it was company policy not to review the patients’ records to determine when they became hospice-ineligible and how much money should be refunded to the government. Id. at 35, ¶ 76 (Page ID #509).

Holloway also learned that Heartland was misleading the Medicare auditors. She witnessed a Heartland senior officer direct a physician to change a patient’s general "cancer" diagnosis to "Stage IV cancer" in response to an audit request, without evidence supporting the change. Id. at 38, ¶ 80 (Page ID #512). When requests came in from Medicare auditors to review patients’ files to verify hospice-eligibility, "Heartland’s practice ... was to refuse to respond to such requests as to patients Heartland knew (or realized upon inquiry) were not eligible for hospice services." Id. at 37–38, ¶ 79 (Page ID #511–12). Failing to respond came with a minor penalty worth one month’s payment, whereas answering honestly would make Heartland liable for refunds stretching back months or years. Id. Answering honestly could also prompt the auditors to search for evidence of fraud. Id. By accepting the minor penalty, Heartland strategically averted a substantial loss of profits and the discovery of its scheme. Id.

Corporate executives were at the helm of Heartland’s scheme. Id. at 18–19, ¶ 37 (Page ID #492–93). Heartland Vice President Mike Reed, for example, encouraged employees to err on the side of certifying hospice-eligibility. Id. He reassured them that they would not be penalized if an auditor later rebuked their determination. Id. Executives would also use monthly conference calls to "badger and discipline" local and regional managers who failed to meet census requirements. Id. at 19, ¶ 38 (Page ID #493). And, of course, executives doled out incentives and trained employees. See supra p. 841. "[T]hrough its corporate headquarters and its most senior corporate leadership[, Heartland] acted with reckless disregard (a) for the truth of patients’ actual medical conditions and needs, (b) for the clinical accuracy of the resulting clinical records as to each such patient[ ], and (c) for the medical necessity of resulting claims to Medicare and Medicaid for resulting hospice services." Id. at 19–20, ¶ 39 (Page ID #493–94).

Thus, Heartland employees certified patients as hospice-eligible under Medicare regulations, even though many of them were not. Id. ; see also 42 C.F.R. § 418.20. The clinical documents that purportedly supported the certification of hospice-eligibility were distorted. R. 69 (1st Am. Compl. at 20, ¶ 40) (Page ID #494). "Heartland did not and could not reasonably rely on or affirm the accuracy of physician certifications made in reliance on its non-physician staff’s clinical records, since Heartland knew that its marketing, training and clinical practices had substantially corrupted the reliability of such records as a credible and neutral basis for making such physician certifications." Id. at 25, ¶ 51 (Page ID #499). Accordingly, Holloway alleges that the claims based on false certifications that Heartland submitted to Medicare and Medicaid for payment are "factually and legally false." Id. at 21–22, ¶ 42 (Page ID #495–96).

B. Procedural History

Holloway brings this action under three provisions of the FCA: presenting false claims under 31 U.S.C. § 3729(a)(1)(A) (2009), use of false records or statements under § 3729(a)(1)(B), and wrongfully retaining government funds under § 3729(a)(1)(G). Id. at 45–49, ¶¶ 92–108 (Page ID #519–23). She filed her initial qui tam complaint against Heartland Hospice, Inc., HCR ManorCare, Inc. ("HCR"), and The Carlyle Group on August 24, 2010. R. 1 (Compl. at 1, ¶ 1) (Page ID #1). After the government declined to intervene, R. 55 (Election to Decline Intervention) (Page ID #184), Holloway amended her complaint on ...