United States ex rel. Graziosi v. Accretive Health, Inc.

UNITED STATES OF AMERICA, ex rel. CHERRY GRAZIOSI, Relator, v. ACCRETIVE HEALTH, INC., MEDSTAR HEALTH, INC.,and WASHINGTON HOSPITAL CENTER CORPORATION, Defendants.

Case No. 13-cv-1194

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 20, 2018

Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Relator Cherry Graziosi ("Relator") brings suit against Defendants MedStar Health Inc. ("MedStar"), MedStar subsidiary Washington Hospital Center Corporation ("WHC") and R1 RCM, Inc. (formerly named Accretive Health, Inc.) ("R1") under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA").¹ Currently before the Court is Relator's motion for leave to file a third amended complaint ("TAC") [159], which is opposed in part by Accretive only. For the reasons explained below, Relator's motion [159] is granted. Defendant MedStar's motion to dismiss Relator's second amended complaint [169] remains pending; it will be construed as a motion to dismiss the TAC, as MedStar requests, and resolved in a separate opinion.

I. Background

In this lawsuit, Relator alleges that R1 has engaged in an "admission certification scheme" with its hospital clients. R1 allegedly generates written recommendations that purport to justify the inpatient admission of the hospital clients' federally-insured patients after the hospitals' own physicians determined that the patients did not meet the medical necessity requirements for inpatient admission. On March 22, 2017, the Court dismissed three defendant hospitals—the Methodist Health Care System, Inc. ("Methodist"), Baptist Health Hospitals, Inc. ("Baptist"), and Southeast Health System, Inc. ("Southeast")—from the lawsuit. Baptist was dismissed for lack of jurisdiction, while Methodist and Southeast were dismissed due to Relator's failure to plead with particularity the circumstances under which those hospitals presented false or fraudulent claims to the Government for payment.

Currently before the Court is Plaintiff's proposed TAC [160-1]. The TAC adds WHC as a Defendant. The TAC also expands the scope of Plaintiff's claims against R1 to cover R1's "national fees-for-recommendations operation" in more than 250 hospitals. [166] at 12; see also [160-1] at 12. R1 opposes the TAC to the extent that it is based on R1s interactions with any hospitals other than WHC.

In particular, the proposed TAC alleges the following facts, which are assumed to be true for purposes of Relator's motion. Relator is a resident of Maryland. Between January 2010 and October 2013, she worked as a "Service Associate" in the Emergency Department of WHC in Washington, D.C. WHC is owned and controlled by MedStar, a Maryland corporation with its principal place of business in Maryland. This lawsuit arises out of WHC's agreement with R1, a Delaware corporation with its principal place of business in Chicago, pursuant to which R1 reviews WHC's physicians' decisions concerning the medical necessity of admitting patients for inpatient stays.

According to the proposed TAC, hospitals that participate in the Medicare program and other federal health programs are required to enter into contracts with the Centers for Medicare and Medicaid Services ("CMS"). In these contracts, the hospitals agree to comply with federal laws and regulations, including specifically the federal Anti-Kickback Act, 42 U.S.C. § 1320a-7b(b) ("AKA").² MedStar's and R1's other hospital clients present claims for payment to federal insurance programs by submitting a "CMS Form UB-04" and/or "CMS Form 1450," in which they certify that "(r)ecords adequately disclosing services will be maintained" by the hospitals. [160-1] at 7.

The proposed TAC alleges that, pursuant to federal statute, hospitals have "the obligation *** to assure *** that services *** ordered or provided *** to [federal health insurance] beneficiaries and recipients *** will be provided economically and only when, and to the extent, medically necessary." 42 U.S.C. § 1320c-5(a); see also [160-1] at 8. According to the proposed TAC, since 2007 "Section 10 of Chapter 1 of the Medicare Benefit Policy Manual, CMS Pub. 100-02, in governing the prerequisites for determining payable Medicare claims, has required in relevant part the following as material prerequisites for any entitlement of any hospital to be paid any amount for any inpatient hospital stay:

The physician or other practitioner responsible for a patient's care at the hospital is *** responsible for deciding whether the patient should be admitted as an inpatient. *** [T]he decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number factors, including the patient's medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital's by-laws and admissions policies, and the relative appropriateness of treatment in each setting. Factors to be considered when making the decision to admit include such things as: *** (t)he availability ofdiagnostic procedures at the time when and at the location where the patient presents[.]"

[160-1] at 9.

In addition, the TAC alleges, "[i]mplicitly prior to October of 2013, and explicitly by regulation thereafter, Medicare rules have required, as a material condition of any hospital's entitlement to payments for any inpatient hospital stay, that any decision and order that it was medically necessary to admit a patient as a hospital inpatient must have been made by a physician who (a) was then admitted to the hospital's medical staff, (b) was then acting under a valid medical license in the jurisdiction where the hospital was located, and (c) had certified that the inpatient admission was medically necessary and that the certifying physician had made that decision regarding medical necessity." [160-1] at 10.

The proposed TAC alleges that since 2007, R1 has entered into uniform "fees-for recommendations 'concurrent review' contracts" with over 250 hospitals—including WHC beginning in 2012—in more than 30 states. [160-1] at 12; see also id. at 14-17 (identifying "fees-for recommendations hospital clients"). Pursuant to these contracts, R1 allegedly uses "off-site 'reviewers'" to generate "written 'recommendations' purporting to justify the inpatient admission of federally-insured patients as to whom the hospitals' own Emergency Departments and other Hospital Staff physicians had previously determined *** did not then meet the medical necessity requirements for an inpatient hospital stay, but instead only met medical necessity requirements for an 'observation' of their medical condition for a period of twenty-four (or, as of October 1, 2013, forty-eight) hours." Id. at 10. "Observation" services are regarded as "outpatient" services and billed through Medicare Part B, whereas inpatient services are paid through Medicare Part A. According to the TAC, Medicare Part A payments are "far more financially lucrative for a hospital" than Medicare Part B payments. R1 represented to potential hospital clients that "thecompensation to a hospital for an inpatient admission and stay could be as much as ten times the compensation for an outpatient 'observation' stay." Id. at 12.

According to the proposed TAC, R1 undertakes "concurrent review" pursuant to a standard agreement and in the same manner for all of its client hospitals. The TAC alleges that in all the agreements, R1 "promised to 'review' the 'patient classification submitted by the (Hospital) Client to determine the appropriate admission status,' and to 'review and communicate their Recommendation regarding the proper patient classification to the attending physician and/or case managers where possible, to the extent required by the hospital client.'" [160-1] at 18. The agreements also included standard language that "'[i]n order to implement the (Accretive/R1) Recommendation, (Hospital) Client may need to change the admission classification status' of patients.'" Id. In exchange for R1s recommendations, Medstar and other hospital clients "agreed to (and did) pay []R1 a per-review amount, which varied in amount (between '$210 per case' and '190 per case') depending on what fraction of the hospital's patients were (or were not) 'Meeting Inpatient Criteria or Equivalent.'" Id.

The proposed TAC alleges that R1 employed approximately 250 physicians at three office sites (in Chicago, Houston, and Seattle) to prepare "concurrent reviews." R1 provided the physicians with uniform training for compiling and communicating their recommendations. The proposed TAC alleges that the training materials "urged all such reviewers as to all such hospitals, in leading-question fashion, to formulate rationales for recommendations to 'admit inpatient' persons previously classified by hospital physicians as then only in medical need of observation (or 'OBS') services." [160-1] at 23. R1 "uniformly instructed all of it physicians in the course of the same uniform national training to insert, into their 'recommendations,' language to '(j)ustifythe hospitalization' and to '(l)ist possible adverse events (consider only for Inpatient)' as to any 'high risk' condition they could identify." Id.

The proposed TAC alleges that R1's reviewers never met or examined the patients; had no information other than the written clinical notes; never met the particular prerequisites for practicing medicine on the medical staffs of the client hospitals; and "typically were not licensed to diagnose medical conditions in (or actually practice medicine in) the jurisdiction in which the relevant hospital was located." [160-1] at 38. R1's reviewers were expected to review 1.5 cases per hour and were given a 50% bonus for completing 1.8 to 1.89 cases per hour and a 150% bonus for completing 2.15 or more cases per hour.

Relator, while employed at WHC, located in WHC's non-public digital records a "Service Proposal" authored by R1 and...