United States v. Catholic Health Sys. of Long Island

UNITED STATES OF AMERICAand NEW YORK STATE ex rel. MICHAEL QUARTARARO, Plaintiffs, v. CATHOLIC HEALTH SYSTEM OF LONG ISLAND INC.d/b/a/ CATHOLIC HEALTH SERVICES OF LONG ISLAND,ST. CATHERINE OF SIENA MEDICAL CENTER,and ST. CATHERINE OF SIENA NURSING HOME, Defendants.

12-CV-4425 (MKB)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

July 13, 2020

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

Plaintiff-Relator Michael Quartararo ("Relator"), a former nursing home administrator, commenced the above-captioned qui tam action on September 5, 2012. (Compl., Docket Entry No. 1.) Relator asserts claims against Defendants Catholic Health System of Long Island, Inc., doing business as Catholic Health Services of Long Island ("CHS"), St. Catherine of Siena Medical Center (the "Medical Center"), and St. Catherine of Siena Nursing Home (the "Nursing Home") under the Federal False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), and the New York False Claims Act, N.Y. Finance Law § 187 et seq. ("NYCFCA"). (See Fourth Am. Compl. ("FAC"), Docket Entry No. 47.) On August 10, 2018, the Court denied Defendants' motion to dismiss the FAC and motion for partial summary judgment, (see Mem. & Order dated Aug. 10, 2018, Docket Entry No. 75), and by Order dated March 31, 2019, the Court agreed to reconsider Defendant's underlying motion to dismiss the FAC and motion for partial summary judgment on the merits, (Order dated Mar. 31, 2019). (See Defs. Mot. to Dismiss & for Partial Summ. J. ("Defs. Mot."), Docket Entry No. 61; Defs Mem. in Supp of Defs. Mot ("Defs. Mem."); Docket Entry No. 61-6; Decl. of David DeCerbo in Supp. of Defs. Mot. ("DeCerbo Decl."), Docket Entry No. 61-1.) On reconsideration, and for the reasons explained below, the Court denies Defendants' motion to dismiss and denies the motion for summary judgment without prejudice to renewal.

I. Background

The Court assumes familiarity with the facts as detailed in its prior March 31, 2017 Memorandum and Order (the "March 2017 Decision") and August 10, 2018 Memorandum and Order (the "August 2018 Decision") and provides a summary of only the pertinent facts.¹ See United States v. Catholic Health Sys. of Long Island Inc. ("Catholic Health II"), No. 12-CV-4425, 2018 WL 3825906, at *1-4 (E.D.N.Y. Aug. 10, 2018); United States v. Catholic Health Sys. of Long Island Inc. ("Catholic Health I"), No. 12-CV-4425, 2017 WL 1239589, at *1-6 (E.D.N.Y. Mar. 31, 2017).

a. Overview of Medicare and Medicaid reimbursement programs

Medicare and Medicaid are taxpayer-funded health insurance programs offered to individuals based on age or disability. (FAC ¶¶ 20, 22.) Medicare is provided by the federal government and Medicaid is provided by federal, state, and local governments and administered through the states. (Id.) The United States Department of Health and Human Services, through its Centers for Medicare and Medicaid Services, runs both programs in conjunction with the state agencies that oversee Medicaid. (Id.) Individuals may be covered under Medicare, Medicaid, or both. (Id.) New York State maintains a Medicaid program for its citizens. (Id. ¶ 23.) If healthcare providers² choose to provide state-based Medicaid services, they must enroll with the New York State Department of Health (the "DOH"), which requires health care providers to certify that they will comply with DOH rules and regulations.³ (Id. ¶ 24.) Health care providers that treat patients covered by Medicare or Medicaid may submit claims for reimbursement of the costs expended to treat the covered patients. (Id. ¶¶ 21, 38.) Reimbursement claims are submitted to the DOH on CMS-1450/UB-04 Forms.⁴ (Id. ¶ 21.) The reimbursement claim forms contain general compliance certifications specifying that false, misleading, incomplete or inaccurate claims may subject the claimant to civil and criminal penalties. (Id. ¶¶ 21, 24-25.) The reimbursement claim forms also require a health care provider to include its reimbursement rate. (Id.) In states that provide Medicaid coverage, the reimbursement rate for Medicaid and Medicare claims is calculated and assigned by the state agency that oversees the Medicaid program, (id. ¶ 26); in New York State, that agency is the DOH, (id. ¶ 38).

As health care providers, nursing homes are reimbursed for every day they provide care to a Medicaid or Medicare beneficiary.⁵ (Id. ¶ 26 (first citing N.Y. Pub. Health Law § 2808; andthen citing N.Y. Codes R. & Regs. § 86-2 et seq.).) The reimbursement rates are calculated by a complex formula that considers four components related to a nursing home's costs and expenditures: (1) direct costs; (2) indirect costs; (3) non-comparable costs; and (4) capital expenditures. (Id. ¶ 27 (citing 10 N.Y. Codes R. & Regs. 86-2.10).) The first three components are known as the "operating portion" of the reimbursement rate. (Id.) The operating portion is calculated based on a nursing home's costs from a particular fiscal year selected by the DOH or "base year." (Id. ¶ 34.) After the DOH selects a base year, it continues to use that base year to calculate a health care provider's operating costs until it decides to select a new base year. (Id.) The DOH obtains the base-year operating costs through annual cost reports that must be submitted by any nursing home intending to seek Medicaid reimbursement. (Id. ¶¶ 34-35.) From 1983 to 2009, the DOH used a base year of 1983, and cost reports from 1983, to calculate the operating-costs portion of the reimbursement rates. (Id. ¶ 35.) In 2009, the DOH selected a new base year of 2002. (Id.) From 2009 to 2011, the DOH used 2002 as the base year and used 2002 cost reports to calculate the operating-costs portion of the reimbursement rates. (Id.) In 2012, the DOH selected a new base year of 2007 and changed its reimbursement rate calculation methodology. (Id.)

b. Factual background

CHS is a healthcare consortium that operates hospitals and nursing homes. (Id. ¶ 8.) In or about November of 1999, CHS purchased the Nursing Home and the Medical Center from Episcopal Health Services, who had operated the facilities under the names Bishop Jonathan G. Sherman Episcopal Nursing Home ("Episcopal Nursing Home") and St. John's EpiscopalHospital. (Id. ¶ 39.) CHS officially assumed ownership and control of Episcopal Nursing Home in early 2000. (Id. ¶ 41.)

In April of 2007, Relator, who had been working for CHS for about thirty-eight years, was elevated to the position of Licensed Administrator of the Nursing Home. (Id. ¶ 7.) As the Licensed Administrator, Relator was responsible for the general administration of the Nursing Home, which included "managing, supervising, and coordinating" the various departments at the Nursing Home, as well as "maintaining and developing legally compliant operating protocols, developing and managing budgets, developing financial policies[,] . . . monitoring financial performance . . . , supervising all human resource issues and reporting to the [N]ursing [H]ome's governing body as needed." (Id.)

i. The DOH retroactively re-based the reimbursement rates in 2011 and the Nursing Home received a mitigation payment as a result

In June of 2011, the DOH retroactively changed the base year used to calculate Medicaid reimbursement rates for health care providers from 1983 to 2002 for the reimbursement period covering 2009 through 2011. (Id. ¶¶ 35, 51.) The re-basing caused the Nursing Home's reimbursement rate to drop from "approximately $270 per Medicaid patient day to . . . $250 per Medicaid [patient] day." (Id. ¶ 51.) The DOH sought to minimize the impact of the re-basing by providing one-time mitigation payments to affected health care providers that could be used to off-set any potential losses caused by the retroactive application of the lower reimbursement rates. (Id. ¶ 59.) Under this program, the Nursing Home received a $4.5 million mitigation payment.⁶ (Id.) Relator alleges that CHS subsequently "misappropriated" approximately $1.7million of the mitigation payment by charging the Nursing Home for "workers['] compensation" and "excess Medicaid" costs. (Id. ¶ 61.)

ii. CHS's alleged use of the Nursing Home's Medicaid and Medicare funds for non-Medicaid and non-Medicare purposes

During the course of Relator's employment as the Nursing Home's Licensed Administrator, Relator also discovered that CHS had been improperly diverting the Nursing Home's Medicaid funds. (Id. ¶ 65.) Starting in 2007, CHS and the Medical Center began charging the Nursing Home for "medical, administrative, utility and other costs" that the Nursing Home had not incurred or which costs were overinflated. (Id. ¶ 66.) Relator contends that these false payments include charges for a non-existent inhalation therapy department, (id. ¶ 79), and that CHS took the false payments from the Nursing Home's Medicaid and Medicare funds for the Nursing Home's patients, (id. ¶¶ 67, 75-77).

In 2008, Relator realized that the Medical Center had overcharged the Nursing Home for laboratory costs and brought it to the attention of John Haight, a CHS executive. (Id. ¶¶ 54, 67.) Haight informed Relator that the Medical Center charged the Nursing Home a fixed yearly rate, regardless of the actual laboratory charges incurred. (Id.) Relator also discovered that the Medical Center's laboratory rates for the Nursing Home's residents were much greater than the laboratory rates charged for the residents in CHS's other nursing homes and much greater than the then-current market rate for such services. (Id.)

In late 2009 and late 2011, CHS took $2 million and $1.1 million, respectively, from the Nursing Home's budget to cover "purported workers['] compensation costs," but Relator alleges that the workers' compensation cases originating from the Nursing Home failed to support such large deductions. (Id. ¶¶ 68-69.) When Relator questioned the deductions, he was told that they were not only for the workers' compensation costs incurred in those years, but also to...