United States v. Advocate Health & Hosps. Corp.

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UNITED STATES OF AMERICA and THE STATE OF ILLINOIS, ex rel. ANTHONY J. DUSTMAN, Plaintiffs and Relator, v. ADVOCATE HEALTH AND HOSPITALS CORPORATION d/b/a ADVOCATE BROMENN MEDICAL CENTER, THE CARLE FOUNDATION, BROMENN PHYSICIAN MANAGEMENT CORPORATION, THE CENTER FOR ORTHOPEDIC MEDICINE, LLC, MCDERMOTT WILL & EMERY, and ATTORNEY JOHN AND JANE DOE, Defendants.

No. 1:20-cv-01243

United States District Court, C.D. Illinois, Peoria Division

April 5, 2023

ORDER & OPINION

JOE BILLY McDADE UNITED STATES SENIOR DISTRICT JUDGE

This matter is before the Court on Defendants' joint Motion to Dismiss (doc. 32) Relator Anthony J. Dustman's qui tam action. Plaintiffs (the United States and the State of Illinois) have given notice that they decline to intervene at this time. (Doc. 8). The Complaint (doc. 1) has been unsealed, all Defendants have moved to dismiss, and that Motion has been fully briefed. For the following reasons Defendants' Motion is granted, and Relator is given leave to file an amended complaint only with respect to his claims against The Center for Orthopedic Medicine under the False Claims Act and Illinois False Claims Act and on theories of unjust enrichment and payment by mistake.

Background

Relator Dr. Anthony J. Dustman, is a founding member of The Center for Orthopedic Medicine, LLC, a limited liability company operating an ambulatory surgical center located in Bloomington, Illinois. (Doc. 1 at 2-3). Acting qui tam on behalf of the state and federal governments, he filed suit against The Center for Orthopedic Medicine (TCOM), several other owner-members of TCOM, and the law firm that prepared TCOM's operating agreement and other pertinent legal documents.

Relator's allegations, which the Court accepts as factually true at this stage, are derived “from his direct knowledge of Defendants' fraud and improper conduct, as a member in the Defendant company, [TCOM], recently learning Defendants had previously devised a scheme to hide the true identity of those entities holding ownership/membership interests in the company.” (Doc. 1 at 4). He describes the ownership and operational structure of TCOM as follows: TCOM is an LLC operating in conjunction with BroMenn Comfort Care &amp Suites, a recovery care center (RCC) where patients in need of overnight care following surgery can stay for observation. (Doc. 1 at 28-30).

TCOM has both institutional and individual members. (Doc. 1 at 23). A number of individual surgeons are named in the operating agreement as “physician class members.” (Doc. 1 at 23). The institutional members are McLean County Surgicenter Ltd. (a professional corporation of which Relator is the sole shareholder) and a list of “institutional class members”: Carle Clinic Association (CCA), The Carle Foundation (Carle), BroMenn-Advocate Healthcare Hospitals (Advocate),^[1] and BroMenn Physician Management Corporation (BPMC).^[2] (Doc. 1 at 23). By the terms of the operating agreement, when a physician class member or a physician affiliated with McLean County Surgicenter refers a patient to TCOM, he or she must personally provide the medical services for which the patient was referred. (Doc. 1 at 24).

Initially Relator assumed BPMC and CCA were both subsidiaries of hospitals; however, he later found out that they are instead group medical practices comprised of primary care and specialty physicians who are not surgeons. (Doc. 1 at 23). BPMC and CCA physicians referred patients to TCOM, yet they themselves did not perform surgery or oversee care provided at TCOM. (Doc. 1 at 22, 31).

Relator claims that unidentified physicians in the two group practices were referring patients to TCOM and then sharing in TCOM's revenues in ways that did not fit into any “safe harbor” defined in regulatory guidance and thus violated federal and state laws that prohibit self-dealing in health care. (Doc. 1 at 11). Under the Stark Law, a federal statute also known as the Ethics in Patient Referrals Act, physicians may not refer patients to other providers with which they have an impermissible financial relationship (as defined in the statute). 42 U.S.C. § 1395nn(a)(1). And under the Illinois Health Care Worker Self-Referral Act, a health care practitioner may not refer patients to another provider or entity in which he or she holds an ownership interest, unless the referring provider will personally treat the referred patient (or some other exception applies). 225 ILCS 47. Relator alleges the above-described arrangement runs afoul of both. He also links TCOM's ownership structure to violations of the Anti-Kickback Statute, a federal law prohibiting certain types of payments, gifts, and reimbursements in exchange for healthcare referrals. 42 U.S.C. § 1320a-7b(b).

Relator further alleges an unlawful relationship between TCOM and BroMenn Comfort Care & Suites. TCOM and the RCC share space and equipment and are operated as essentially one entity. (Doc. 1 at 28). Patients are more or less automatically transferred to the RCC if they need to stay overnight following surgery at TCOM. (Doc. 1 at 29-30). There is significant overlap between the members of TCOM and the owners of BroMenn Comfort Care, and Advocate owns an 83.5 percent interest in the RCC. (Doc. 1 at 28). The RCC pays TCOM for each referred patient, and TCOM's member-investors benefit financially. (Doc. 1 at 29-31).

Defendants violated the False Claims Act (FCA) and Illinois False Claims Act (IFCA), Relator says, by submitting false claims to Medicare and Medicaid (medical assistance programs operated and overseen by the federal and state governments respectively). (Doc. 1 at 2). He attests the bills are false and fraudulent because they were for services provided to patients referred to TCOM in violation of healthcare laws and regulations, and to patients with respect to whom kickbacks were paid to TCOM by the RCC. (Doc. 1 at 3). Furthermore, Relator alleges, Defendants deliberately structured TCOM on paper (with the help of Defendant MWE and its attorneys) in such a manner as to conceal from regulatory oversight bodies the fact that it was operating unlawfully as previously described. (Doc. 1 at 2).

Relator brings four claims against the five defendants (TCOM, Advocate, BPMC, Carle, and MWE). CCA is no longer a member of TCOM, as it was purchased by The Carle Foundation, and only The Carle Foundation, not CCA, is named as a Defendant in this action. (Doc. 1 at 6). Relator has not sued any individual physicians-either physician class members of TCOM or any physicians maintaining practices under the auspices of BPMC or CCA.

Count 1 states Defendants are liable under the False Claims Act for unlawful conduct in that they knowingly submitted false or fraudulent claims for payment, knowingly making false statements to the government to induce payment, knowingly received improper payments to which they were not entitled, and falsely certified compliance with the law. (Doc. 1 at 34). Count 2 claims Defendants violated the AKS by knowingly and willfully paying kickbacks to induce or reward healthcare referrals for services reimbursed by Medicare and Medicaid. (Doc. 1 at 34-35). Count 3 alleges Defendants violated the IFCA in the same manner as the FCA. (Doc. 1 at 35). Count 4 alleges Defendants violated the Illinois Health Care Worker Self-Referral Act by referring patients to outside entities in which the Defendants were investors and did not provide direct patient care. (Doc. 35-36). Relator asks for civil penalties plus treble damages for each false or fraudulent claim, as § 3730 of the FCA allows, with 30 percent of the total recovery going to him and the rest to the government Plaintiffs. (Doc. 1 at 36).

Legal Standard

To survive a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), the complaint must contain “a short and plain statement” of the plaintiff's claim sufficient to plausibly demonstrate entitlement to relief. Fed.R.Civ.P. 8(a); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-57 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

At this stage, the Court construes the complaint in the light most favorable to the plaintiff, accepting all well-pleaded factual allegations as true and drawing “all reasonable inferences from those facts in favor of the plaintiff.” United States ex rel. Berkowitz v. Automation Aids Inc., 896 F.3d 834, 839 (7th Cir. 2018). However, those statements which are legal conclusions rather than factual allegations are not taken as true. McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012).

Additionally “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). The False Claims Act is an anti-fraud statute; claims made pursuant to it are subject to the Rule 9(b) standard. See, e.g.¸ United States ex rel. Hanna v. City of Chicago, 834 F.3d 775, 778 (7th Cir. 2016). To meet the requirements of Rule 9(b), “[t]he plaintiff must describe the ‘who, what, when, where, and how' of the fraud-‘the first paragraph of any newspaper story.' ” Berkowitz¸ 896 F.3d at 839 (quoting United States ex rel. Lusby v. Rolls-Royce Corp.¸ 570 F.3d 849, 853 (7th Cir. 2009)). The Seventh Circuit has cautioned that courts should not “take an overly rigid view” of this shorthand, and that the precise details “may vary on the facts of a given case.” United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d at 776 (quoting Pirelli Armstrong Tire Corp. Retiree Med....