United States ex rel. Graziosi v. R1 RCM, Inc.

UNITED STATES OF AMERICA, ex rel. CHERRY GRAZIOSI, Relator, v. R1 RCM, INC. f/k/a Accretive Health, Inc., Defendant.

Case No. 13-cv-1194

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

November 30, 2020

Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Relator Cherry Graziosi ("Relator" or "Graziosi") brings suit under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA") against Defendant R1 RCM, Inc., formerly known as Accretive Health, Inc. ("Defendant" or "R1"). Relator alleges in the governing Third Amended Complaint [184] that R1 has violated 31 U.S.C. § 3729(a)(2) and (a)(1)(B) by causing its hospital clients to submit legally false claims for "inpatient" hospital services to Medicare and Medicaid (Count II), and that R1 has acted in conspiracy with its hospital clients to commit these violations (Count III).¹ Before the Court are Relator's motion for partial summary judgment [261] and R1's motion for summary judgment [265]. For the following reasons, both motions [261] and [265] are denied. Counsel are directed to file a joint status report no later than December 15, 2020.

I. Background

The following facts are taken from the parties' Local Rule 56.1 statements and supporting exhibits. See [261-1]-[261-12], [267]-[269], [272], [279], [284], [285], [287], [288], [296], [298]. These facts are undisputed except where a dispute is noted. The Court has jurisdiction over this FCA action pursuant to 28 U.S.C. §§ 1331.

A. The Parties

Relator is an individual who, between January 2010 and October 2013, worked as a "Service Associate" in the Emergency Department of MedStar Washington Hospital Center ("WHC") in Washington, D.C. Defendant R1, formerly known as Accretive Health, Inc. ("Accretive"), is a Delaware corporation with corporate headquarters in Chicago, Illinois. This case involves R1's Physician Advisory Solutions ("PAS") program and recommendations that R1 made to WHC and other hospitals to convert the admission status of patients from "outpatient" or "observation" to "inpatient," allegedly for the purpose of collecting additional revenue from Medicare and Medicaid.

B. Medicare Patient Classifications

Medicare is a federal program that provides health benefits to the aged and disabled. See 42 U.S.C. §§ 1395 et seq. Medicare Part A provides coverage for inpatient hospital services. See 42 U.S.C. §§ 1395c-1395i-5. Medicare Part B provides coverage for outpatient hospital services, including hospital patients placed in "observation" status. See 42 U.S.C. §§ 1395j-1395w-6. The Medicare Act defines "service" as "medical care or services and items, such as medical diagnosis and treatment, drugs and biologicals, supplies, appliances, and equipment, medical social services, and use of hospital, CAH, or SNF facilities." 42 C.F.R. § 400.202.

When a Medicare beneficiary is at the hospital and in need of medical or surgical care, a physician or other qualified practitioner must decide whether to admit the beneficiary for inpatient care or treat him or her as an outpatient. The decision of whether a physician assigns a patient an "inpatient" or an "outpatient" status is commonly referred to in the industry as a "level-of-care" or "admission status" determination. [267] at 3.

According to R1, Medicare's distinction between "inpatient" and "outpatient" affects the amount of payment and level of coverage under the inpatient and outpatient prospective payment systems, and not the type of care ultimately required or received. See [267] at 3. "Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge." Id. at 4. Relator, while agreeing that the inpatient/outpatient distinction affects the amount of payment and level of coverage, denies that the "type of care" between the two classifications is identical. [279] at 4. Relator points out that several R1 officers have testified that Medicare regards "inpatient" as a reimbursable set of services, distinct from all "outpatient" services. See id. at 4-5. Relator also contends that Medicare rules defining "inpatient services" require a physician's expectation that the patient will receive in-hospital services for a longer period of time than "outpatients." Id. at 5. Relator further emphasizes that inpatient hospital services are compensated through a different payment system and diagnostic-related criteria (Medicare Part A), rather than the fee-for-service compensation system that applies to other hospital services (Medicare Part B). Id.

Relator and R1 agree that, in general, Medicare reimburses a hospital a greater amount if the hospital seeks reimbursement for the services provided on an inpatient basis rather than on an outpatient basis. The classification of patients affects the revenue hospitals receive and hassignificant financial implications for Medicare beneficiaries, including whether the Medicare beneficiary ultimately will be billed for the services provided during their hospital stay, and whether Medicare will reimburse the patient for skilled nursing facility services after hospital discharge. Once a Medicare beneficiary is discharged from the hospital, the hospital cannot change the beneficiary's status to outpatient and submit an outpatient claim.

In order to determine whether hospital inpatient claims have been appropriately classified as inpatient, the federal Center for Medicare and Medicaid Services ("CMS") partners with various Medicare claims review contractors, such as Medicare Administrative Contractors, Recovery Audit Contractors, and Comprehensive Error Rate Testing contractors, who perform patient admission classification status reviews. When Medicare's claims review contractors reach a conclusion that inpatient care was not reasonable and necessary under 42 U.S.C. § 1395y(a)(1)(A), they deny the hospital inpatient claim for payment.

It is disputed whether there was "clarity" during the 2012-2013 period concerning when a Medicare beneficiary is appropriately admitted to the hospital as an inpatient. During this period, CMS "observed a trend of 'increases in the length of time for which patients receive observation services' and noted that 'hospitals appear to be responding to the financial risk of admitting Medicare beneficiaries for inpatient stays that may later be denied upon contractor review, by electing to treat beneficiaries as outpatients receiving observation services, often for longer periods of time, rather than admit them.'" [267] at 8 (quoting 77 Fed. Reg. 45156-57 (July 30, 2012)). The increasing number of denials also resulted in a large backlog of appeals of Medicare denials. As a result, in 2012 "CMS solicited public comments on '[p]otential policy changes [it] could make to improve clarity and consensus among providers, Medicare, and other stakeholders regarding ... when a Medicare beneficiary is appropriately admitted to the hospital as an inpatientand the cost to hospitals associated with making this decision.'" Id. at 9 (quoting 77 Fed. Reg. 45155 (July 30, 2012)).

In August 2013, CMS adopted a "Two Midnight Rule," which created a presumption that a patient qualifies as an inpatient if the physician expects the hospitalization to span two midnights. See [267] at 24-25. The rule requires the application of complex and nuanced medical judgment and also provides for a changing list of exceptions to the rule. The physician's expectation of a hospital stay must be based on complex medical factors such as patient history, comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event. These factors must be documented in the patient's medical record. A patient's length of stay is not determinative of the correct status, even under the Two Midnight Rule. CMS released updates to the rule on October 30, 2015, permitting greater flexibility for exceptions and allowing payments for inpatient admissions on a case-by-case basis based on the judgment of the admitting physician.

Medicare guidelines provide that the admission status decision must be made by a physician exercising his or her "complex medical judgment." [267] at 11. R1 asserts, but Relator disputes, that physicians "are not typically trained on the Medicare rules and regulations regarding admission status during medical school and often lack sufficient time to analyze and apply these rules and regulations to each and every admission classification status decision." Id. According to Relator, R1 physicians dispute among themselves whether working hospital physicians understand and apply the relevant federal definitions. For instance, Dr. Steve Andrews testified that physicians in a working hospital typically would be able to understand how Medicare defines inpatient status. See [279-3] at 5.

C. Utilization Review and R1's PAS Program

R1 contends that, in recognition of the pressing patient care responsibilities faced by many treating physicians, CMS has encouraged hospitals to "utilize all the tools necessary" to ensure appropriate initial admission decisions, including through increased use of resources such as "case management and utilization review staff," who are non-treating individuals. [267] at 11. Case management and utilization review staffs often include doctors and nurses who have not personally evaluated the patient. Id. Relator does not dispute this but emphasizes that CMS's references to "staff" means persons and entities that are accountable to and supervised by hospital employers, or otherwise subject to CMS supervision. See [279] at 10-11.

According to R1, utilization review and case management staff often make use of commercially available criteria such as the InterQual Level of Care Criteria ("InterQual") or the Milliman Care Guidelines ("Milliman") as a check to help improve the...