United States & Texas ex rel. Winnon v. Lozano

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UNITED STATES & STATE OF TEXAS ex rel. TERRI R. WINNON Plaintiffs, v. RAMIRO LOZANO, et al., Defendants.

CIVIL No. 17-2433 (RJL)

United States District Court, District of Columbia

September 15, 2023

MEMORANDUM OPINION

[DKT. #70]

RICHARD J. LEON, UNITED STATES DISTRICT JUDGE

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 seq. (“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. Id. 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”)^[1] and individuals Ramiro Lozano (“Lozano”) and Jay W, Balentine (“Balentine”) (collectively, the “SNF Defendants”).^[2] For the following reasons, the SNF Defendants' Motion to Dismiss is GRANTED.^[3]

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 ¶¶ 3, 12. In particular, Lozano and/or Balentine owned, controlled, and/or operated the eight^[4]Defendant Facilities. Id. at ¶ 3. The Defendant Facilities were enrolled as Medicare and Texas Medicaid providers during the relevant time period. Id.

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. Id. at ¶ 11. After raising such concerns to Lozano over a period of time, she was terminated. Id. 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¶¶ 108-09.

ii. 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 ¶ 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 “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. Id. 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. Id. at ¶ 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 ¶¶ 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.” Id. 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. As a 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 8L8% Ultra-High therapy billing rate in 2014, which put it within the top 1% of Ultra-High therapy billing SNFs in the entire country. See id. at ¶¶ 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 ¶¶ 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.

iii. Cost Report Allegations

In her third and final set of allegations, the Relator claims that the Medicare cost reports^[5] 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 (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.” Id. 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.” Id. 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,^[6] 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 defendants filed separate Motions to Dismiss.^[7] In March 2023, the Court granted the Defendants' Motion to Stay Discovery.^[8]

II. 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.” Id. Although the standard does not amount to a “probability requirement,” it does...