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United States ex rel. Conroy v. Select Medical Corp.

United States District Court, S.D. Indiana, Evansville Division

April 2, 2018

UNITED STATES OF AMERICA ex rel. TRACY CONROY, PAMELA SCHENCK, and LISA WILSON, Plaintiffs,
v.
SELECT MEDICAL CORPORATION, SELECT SPECIALTY HOSPITAL-EVANSVILLE, INC., DR. RICHARD SLOAN, and SELECT EMPLOYMENT SERVICES, INC., Defendants.

          ORDER GOVERNING DISCOVERY INTRODUCTION

          Debra McVicker Lynch United States Magistrate Judge

         This is a qui tam case brought under the federal False Claims Act. The plaintiffs were formerly employed at a long-term acute care hospital in Evansville, Indiana operated by defendant Select Specialty Hospital-Evansville, Inc. The United States gave notice of its decision declining to intervene in June 2015, and a second amended complaint was then filed by the plaintiffs on October 19, 2015, naming as defendants (1) Select Specialty Hospital-Evansville, Inc. (“Evansville Hospital”), (2) the Chief Medical Officer of Evansville Hospital, Dr. Richard Sloan, (3) Evansville Hospital's parent corporation, Select Medical Corporation (“Select Medical”), and (4) an affiliate corporation, Select Employment Services, Inc. (“Select Employment”), which was the plaintiffs' formal employer. The claims against Select Employment are that it unlawfully retaliated against the plaintiffs; Select Employment is not alleged to have been a part of the scheme described in the second amended complaint that Select Medical, Evansville Hospital, and Dr. Sloan defrauded the Medicare program through the submission of alleged false and fraudulent claims.

         The issues before the court concern the appropriate geographic and temporal scope of discovery, and the plaintiffs' plan to use sampling data obtained in nationwide discovery to establish liability or damages or both.

         The plaintiffs assert that their case is nationwide in scope and they therefore are entitled to discovery to establish alleged illegal Medicare payment claims as to every long-term acute care hospital managed or controlled by defendant Select Medical Corporation-over 100 such hospitals located in about 26 states. They assert that the temporal scope of discovery with respect to Medicare reimbursement claims does not end with the date this case was filed, but they do not propose any particular ending date. They also suggest that the court should address the use of statistical sampling for establishing liability and/or damages after some portion of discovery is undertaken. See Dkt. 201.

         The defendants have a different view. They contend that discovery must be limited to Medicare payment claims for Evansville Hospital and that discovery about Medicare payment claims at each of the 100 Select Medical Corporation-affiliated hospitals across the country is not justified by the nature of the claims in this case and as a matter of proportional discovery. As to temporal limits, the defendants contend that Medicare claims after the case was filed in 2012 should not be considered part of the case. With respect to sampling, the defendants state that sampling is unnecessary and inappropriate because this case is limited to the Evansville Hospital. See Dkts. 199 and 203 (Select Medical and Evansville Hospital) and 200 and 202 (Dr. Sloan).

         Overview of this Case

         The following overview is taken substantially, and sometimes verbatim, from the court's September 30, 2016 entry on the defendants' motion to dismiss.

         A. The Second Amended Complaint

         The plaintiffs' second amended complaint alleges that Select Medical, Evansville Hospital, and Dr. Richard Sloan perpetrated a scheme to defraud the Medicare program in violation of the False Claims Act, 31 U.S.C. §§ 3729-3733. Evansville Hospital (and other hospitals managed or controlled by Select Medical) is a long-term acute care hospital (“LTACH”). Patients admitted to an LTACH typically come from general acute hospitals and often have serious medical conditions and needs that require inpatient stays that exceed the typical length of stay appropriate to a general acute care hospital setting.

         Medicare is a federally-funded health insurance program that, in general, covers the costs of reasonable and medically necessary services for persons over the age of 65. Health care providers who participate in the Medicare program must provide services “economically and only when, and to the extent, medically necessary.” 42 U.S.C. § 1320c-5(a)(1). A provider's participation requires certification that any claims made for reimbursement comply with all Medicare requirements. The claims form to obtain reimbursement, a CMS-1500 form, requires the provider to certify that the services that were rendered and for which reimbursement is sought were “medically . . . necessary to the health of the patient.” (See second amended complaint, ¶¶ 21-22). The FCA imposes liability on a person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” to the government.” 31 U.S.C. § 3729(a)(1)(A)-(B).

         According to the complaint, during the relevant period, Medicare reimbursed LTACHs on a prospective payment system. Under this system, an LTACH receives payment on a per-patient basis depending generally on the patient's illness and a corresponding diagnosis related group (“DRG”). Depending on the DRG, the LTACH receives a predetermined payment based on the average cost of treating that illness, no matter the actual duration of the patient's stay or the actual costs that were incurred, though payment adjustments are made for certain “outlier” patients. When an LTACH discharges a patient whose length of stay is less than five-sixths of the geometric mean for that patient's DRG, the patient is deemed a “short-stay outlier” and the LTACH receives less than the full DRG payment.

         Concomitantly, an LTACH's profits will suffer the longer a patient's stay exceeds the five-sixths date. Special payment provisions apply, however, when a patient leaves the LTACH for another facility but then returns to the LTACH. If the patient leaves the LTACH for another facility but then returns within three days, the LTACH receives only one DRG payment (as if the stay at the LTACH had not been interrupted). But if the interruption exceeds three days, the LTACH may receive two separate DRG payments if the stay at the other facility exceeds certain “fixed day periods” depending on the nature of the other facility (e.g., whether it was an acute care hospital, or an inpatient rehabilitation facility, or a skilled nursing facility). For example, if a patient transfers from the LTACH to an acute care hospital and stays there for more than nine days before returning to the LTACH, then the return stay is deemed a “new stay” readmission that entitles the LTACH to another DRG payment.

         The plaintiffs allege that beginning as early as 2006, Dr. Sloan implemented and effected at the Evansville Hospital a corporate-wide policy devised by Select Medical to extend or shorten patient stays depending on where a patient fell with respect to the five-sixths date for his or her DRG, without regard to reasonable medical necessity. Dr. Sloan is alleged to have substantially controlled the practices of discharge and admission for the majority of patients at Evansville Hospital. Medical care decisions allegedly were driven not by the patient's wellbeing and medical necessity but by the desire to maximize Medicare payments; decisions were made to minimize both short-stay outliers and five-sixths “overstays.” For example, patients who were at risk of early discharge (and thus a less than full DRG payment), allegedly were prescribed additional services that were not medically necessary, such as occupational therapy, speech therapy, or physical therapy to lengthen their stay to the five-sixths date. Also, patients whose stays were substantially exceeding the five-sixths date allegedly would be discharged to an acute care hospital for treatment that was not medically necessary but that would require remaining at the hospital for a sufficiently lengthy period before re-transfer to the LTACH so that the re-admission to the LTACH would permit two DRG payments. The plaintiffs also allege that patient diagnoses were sometimes “upcoded” to a higher-paying DRG even though the medical evidence did not support that coding.

         The second amended complaint alleges that the decisions made by Dr. Sloan in managing and controlling patient stays, care, and DRGs at Evansville Hospital were reflective of Select Medical company-wide policies. The plaintiffs allege that Select Medical “recruits and rewards physicians willing to manage patients with the primary goal of maximizing DRG reimbursement even at the cost of patient health and safety” (¶ 65) and that Dr. Sloan in particular was rewarded through his appointment as the Chief Medical Officer of Evansville Hospital. They allege he substantially controlled the practices of discharge and admission for the majority of patients at Evansville Hospital and his decision-making was guided by managing each patient “to the . . . optimal date for reimbursement” even when not in the best interest of the patient's medical needs. (¶¶ 67, 75, 78). Dr. Sloan is also alleged to have falsely coded diagnoses in order to increase DRG reimbursement. (¶ 83).

         B. Court's Order on Motion to Dismiss

         In its order on the defendants' motion to dismiss, described in more detail in the Analysis section of this order, the court dismissed certain portions of the plaintiffs' Medicare fraud claims because they were not pleaded with particularity as required by Fed.R.Civ.P. 9(b). The court ruled that (1) the alleged scheme to render unnecessary medical care to patients who would otherwise constitute short-stay outliers was pleaded with particularity; (2) the alleged scheme to upcode DRG designations to maximize Medicare payments was pleaded with particularity; (3) the alleged scheme to exploit the interrupted stay rules to obtain multiple DRG payments was not pleaded with particularity; and (4) the alleged scheme to discharge patients prematurely once they had reached their five-sixths date was not pleaded with particularity. Schemes three and four were deficient ...


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