Opinion
Case No. 18-cv-00653-EMC
2021-08-05
UNITED STATES of America, et al., Plaintiffs, v. MARINER HEALTH CARE, INC., et al., Defendants.
Michelle Lo, United States Attorney's Office, San Francisco, CA, for Plaintiff United States of America. Carlotta R. Hivoral, California Attorney General's Office Bureau of Medi-Cal Fraud and Elder Abuse, San Diego, CA, for Plaintiff The State of California. Jason H. Tokoro, Miller Barondess, LLP, Los Angeles, CA, Phillip Jason Collins, Pro Hac Vice, Jeremy Hubner Wells, Pro Hac Vice, Reid Collins Tsai LLP, Austin, TX, for Plaintiff Integra Med Analytics LLC. Scott Jason Kiepen, Jordan Richea Clark Kearney, Katrina Angela Pagonis, Hooper Lundy & Bookman, P.C., San Francisco, CA, Joseph Ronald LaMagna, Hooper Lundy & Bookman, P.C., San Diego, CA, for Defendants Mariner Health Care, Inc., Grancare LLC, Verdugo Vista Operating Company, LP, Sacramento Operating Company LP, San Rafael Operating Company LP, FMSC San Rafael Operating Company LP, Skyline San Jose Operating Company, LP, Driftwood Hayward Operating Company, LP, Inglewood Operating Company LP, Hayward Hills Operating Company LP, Fruitvale Long Term Care LLC, Monterey Palms Operating Company, LP, Driftwood Santa Cruz Operating Company, LP, Autumn Hills Operating Company, LP, Almaden Operating Company, LP.
Michelle Lo, United States Attorney's Office, San Francisco, CA, for Plaintiff United States of America.
Carlotta R. Hivoral, California Attorney General's Office Bureau of Medi-Cal Fraud and Elder Abuse, San Diego, CA, for Plaintiff The State of California.
Jason H. Tokoro, Miller Barondess, LLP, Los Angeles, CA, Phillip Jason Collins, Pro Hac Vice, Jeremy Hubner Wells, Pro Hac Vice, Reid Collins Tsai LLP, Austin, TX, for Plaintiff Integra Med Analytics LLC.
Scott Jason Kiepen, Jordan Richea Clark Kearney, Katrina Angela Pagonis, Hooper Lundy & Bookman, P.C., San Francisco, CA, Joseph Ronald LaMagna, Hooper Lundy & Bookman, P.C., San Diego, CA, for Defendants Mariner Health Care, Inc., Grancare LLC, Verdugo Vista Operating Company, LP, Sacramento Operating Company LP, San Rafael Operating Company LP, FMSC San Rafael Operating Company LP, Skyline San Jose Operating Company, LP, Driftwood Hayward Operating Company, LP, Inglewood Operating Company LP, Hayward Hills Operating Company LP, Fruitvale Long Term Care LLC, Monterey Palms Operating Company, LP, Driftwood Santa Cruz Operating Company, LP, Autumn Hills Operating Company, LP, Almaden Operating Company, LP.
PUBLIC/REFILING
ORDER DENYING DEFENDANT'S MOTION TO DISMISS
Docket No. 85
EDWARD M. CHEN, United States District Judge
Plaintiff/Relator Integra Med Analytics LLC ("Integra") brings suit on behalf of the U.S. pursuant to the False Claims Act, 31 U.S.C. § 3729, et seq. , against a network of Skilled Nursing Facilities ("SNFs") operated by Mariner Health Care Inc. ("Mariner"). Integra brings one cause of action for a violation of the False Claims Act. First Amended Complaint ("FAC") ¶¶ 144-47. Integra alleges that Mariner has submitted fraudulent claims to Medicare by (1) falsifying information concerning the amount of rehabilitation needed by its patients and (2) failing to report and return overpayments from Medicare within the required time. Id. ¶ 145. Currently pending before the Court is Mariner's Motion to Dismiss the FAC and Motion to Strike ("Mot."). Docket No. 85.
I. BACKGROUND
A. Factual Background
In the First Amended Complaint (Docket No. 75-4), Integra alleges as follows.
SNFs provide skilled care, including nursing and rehabilitation, following an inpatient hospital stay. FAC ¶ 30. To receive Medicare coverage for skilled nursing services, a patient must "be covered under Medicare Part A, have a qualifying inpatient hospital stay, and require skilled services to be provided for an ongoing condition treated during the hospital stay or a new condition acquired since the beneficiary started receiving skilled nursing care." Id. ¶ 32. SNFs must satisfy the "Highest Practicable Level" Standard ("HPL Standard") by providing patients with "specialized rehabilitative services to attain or maintain the[ir] highest practicable physical, mental, and psychosocial well-being ... in accordance with a written plan of care." See Mot. at 2 (citing 42 U.S.C. § 1395i-3(b)(4)(A)(i) ). The Centers for Medicare and Medicaid Services ("CMS") also require that rehabilitative services be "reasonable and necessary for the diagnosis or treatment of the [patient's] condition." See FAC ¶ 32 (citing 42 U.S.C. § 1395y(a)(1)(A) ).
Medicare covers up to 100 days of SNF care per illness. See FAC ¶ 30; 42 U.S.C. § 1395d(a)(2)(A) (patients are entitled to "post-hospital extended care services for up to 100 days during any spell of illness"). It reimburses on a per-diem rate based on the resource utilization group ("RUG") assigned to the patient. FAC ¶ 31. RUGs vary by the quantity of rehabilitative services, and a patient's RUG is decided by an interdisciplinary team of SNF staff and healthcare professionals. Id. ¶¶ 31, 33.
The RUG determination process occurs as follows. First, a "series of assessments" is made at the SNF to determine the necessity of skilled nursing services, including the required amount of rehabilitation, and consequently the appropriate RUG and per-diem reimbursement rate. Id. ¶ 33. The staff at the SNF conducts daily assessments of the patient and periodically submits such assessments to CMS. Id. The initial assessment must be submitted to CMS within eight days after the patient's services have begun, and subsequent recorded assessments are due on days 14, 30, 60, and 90. Id. Additional assessments are required when there are significant changes in the patient's condition. Id. These assessments are usually coordinated by a registered nurse at the SNF, and the patient's plan of care is ultimately determined by the physician and the assessment results. Id.
Integra is a limited liability company which specializes in "using statistical analysis to uncover and prove fraud." Id. ¶¶11-12. It alleges that Mariner's management fraudulently abused the RUG determination process by engaging in a system-wide scheme to deliberately submit false claims to Medicare. Id. ¶ 35. To detect patterns of fraud, Integra employed distinctive algorithms and statistical processes to analyze SNF Medicare claims data obtained from CMS. Id. ¶ 61. For analytical purposes, Integra simplified RUGs into several broad categories, which also vary by quantity. See FAC ¶ 31 (Table 1). The highest RUG category, which it calls "Ultra High Rehab" ("UHR "), is for patients receiving more than 720 minutes of rehabilitative services per week. See id. UHR is the Medicare RUG level with the highest daily reimbursement rate. Id. ¶ 36. Integra alleges that Mariner fraudulently billed for unnecessary UHR and kept patients in UHR longer than medically necessary. Id. ¶ 2. There are three components to this alleged scheme. First, in order to maximize the amount of UHR provided to patients, Mariner management pressured therapists to bill for medically unnecessary therapy (i.e. , therapy to patients either too healthy or too sick to benefit from such treatment). Id. ¶¶ 3, 36. Second, Mariner pressured its staff to keep patients admitted for longer than medically necessary. Id. ¶¶ 3, 55-60. Third, Mariner promoted the billing of services that did not qualify as therapy, along with services that were not actually provided at all. Id. ¶ 3. Integra alleges that Mariner fraudulently obtained more than $94.58 million in reimbursements from Medicare over a five-year period. Id. ¶ 141.
Integra's factual allegations fall into two categories: (1) algorithms and statistical processes, including fixed effect linear regression models which controlled for patient characteristics, and (2) testimonials from former employees and patients of Mariner-operated SNFs. Both are discussed below.
1. Integra's Algorithms and Statistical Processes ("Benchmarking")
Integra compared the rate of UHR therapy provided at Mariner to the rate of UHR therapy provided at other SNFs for patients with comparable principal diagnosis codes at their prior inpatient hospital stay. Id. ¶ 62. It created 58 groupings (or "bins") of similar principal diagnosis codes. Id. ¶ 63. Within each of the bins, Integra compared the average days of UHR billed at Mariner with the average days of UHR billed at non-Mariner SNFs receiving Medicare reimbursements as a benchmark. Id. It found that Mariner had higher rates of UHR for patients in every single one of the 58 inpatient principal diagnosis bins. See id. ¶ 69 (Table 1, Panels A and B). For non-Mariner SNFs, the mean number of UHR days was 12.73 days , whereas Mariner SNFs had a mean of 26.69 days of UHR, more than double the amount. Id. ¶ 70. Integra determined that the excess amount of UHR for patients in all 58 inpatient principal diagnosis bins was statistically significant. Id. ¶ 69. It also determined that, for each bin, there was a less than 1 in 1,000 probability that the difference in average UHR was due to chance. Id.
To control for alternative explanations for the excessive UHR billed at Mariner, Integra employed a fixed effect linear regression model . Id. ¶ 66. This regression model controlled for four separate variables : principal and secondary diagnosis codes of the patient's prior inpatient hospital visit, the existence of surgery (i.e. , whether a patient was admitted after a major surgical procedure), and the length of inpatient stay. Id. Because its model controlled for patients’ inpatient hospital diagnoses prior to admission at the SNF, Integra ruled out that Mariner had a higher mean of UHR because it had sicker patients. See id. ¶¶ 69, 107-108. It also ruled out that Mariner's excessive UHR was due to patient characteristics and demographics. Id. ¶¶ 95-101. For instance, Integra examined county-level demographic data (e.g. , the unemployment rate, percent of population without a high school diploma, and log median income). Id. ¶ 95. Using the continuum codes from the Department of Agriculture as control variables, Integra employed these county demographic variables as a proxy for the income levels, education levels, and access to care available to Mariner and non-Mariner SNF patients. Id. Integra claims that its regression model demonstrates that the excessive UHR at Mariner facilities cannot be explained by patient demographic or health characteristics. Id. ¶ 101.
Integra also found that Mariner maximizes revenue by keeping a disproportionately large number of its patients for exactly 100 days of UHR (the maximum number of days that are reimbursable by Medicare for a patient's illness). See id. ¶¶ 5, 84-85. Integra's analysis showed that Mariner administers UHR for exactly 100 days at 7.72 times the rate of other facilities. Id. ¶ 5. Integra finds that the probability that this is due to random chance is less than 1 in 100 million. Id. ¶ 85.
2. Relative and Employee Testimonials
Integra supplements its statistical analysis with numerous testimonials from family members of former patients at Mariner. See FAC ¶ 51. These family members allege that Mariner employees pressured their relatives into staying in an SNF for longer than medically necessary. Id. ¶¶ 50-51. Mariner moves to strike these public reviews as immaterial, impertinent, and scandalous under Rule 12(f). Mot. at 20 n.13.
Integra also includes several testimonials from former Mariner employees alleging that Mariner's leadership prioritized higher Medicare reimbursement over patient care. Id. ¶¶ 55-60. These former employees state as follows:
(1) An administrator at an SNF stated that "the push [from management] is always for high RUGs" and that financial meetings with Mariner management are "about tracking Ultra Highs and RUG rates." Id. ¶ 56.
(2) Another administrator stated that "[Medicare] census was more important than patient care. At that time it was RUG level. It was getting in more Medicare residents than any other." Id.
(3) A director of rehabilitation at an SNF discussed difficulties convincing Mariner management to lower the RUG level for a particular patient. Id. ¶ 57. That director ended up quitting because of what they perceived as "unethical pressure" from leadership. Id.
(4) An administrator at an SNF alleges that they were fired for not maintaining the desired Medicare census. Id. ¶ 58.
(5) Another director of rehabilitation alleges that she was let go because she "wasn't willing to be all about minutes." Id.
II. LEGAL STANDARDS
A. False Claims Act
The False Claims Act ("FCA") creates liability for any person who knowingly submits a false claim to the government or knowingly causes another to submit a false claim to the government. See 31 U.S.C. § 3729(a)(1)(A) (imposing liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval"). It also imposes liability on those who knowingly make a false record or statement that is material to a false claim. See 31 U.S.C. § 3729(a)(1)(B) (imposing liability on any person who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim").
A person acts "knowingly," for purposes of FCA liability, when they: (1) have "actual knowledge" of the falsity of the information, (2) act "in deliberate ignorance of the truth or falsity of the information," or (3) act "in reckless disregard of the truth or falsity of the information." See 31 U.S.C. § 3729(b)(1)(A)(i)-(iii). Under the FCA, the terms "knowing" and "knowingly" require no proof of specific intent to defraud. 31 U.S.C. § 3729(b)(1)(B).
To establish a cause of action under the FCA, a plaintiff must show the following elements: "(1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due." U.S. ex rel. Campie v. Gilead Scis., Inc. , 862 F.3d 890, 902 (9th Cir. 2017). A false certification of medical necessity can give rise to FCA liability. Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc. , 953 F. 3d 1108, 1118 (9th Cir. 2020). See also Ebeid v. Lungwitz , 616 F.3d 993, 996 (9th Cir. 2010) (joining "sister circuits in recognizing a theory of implied certification under the FCA").
FCA claims must comply with Federal Rules of Civil Procedure 8(a) and 9(b). Cafasso v. Gen. Dynamics C4 Sys. , 637 F.3d 1047, 1054-55 (9th Cir. 2011). Rule 9(b) requires that a Plaintiff "state with particularity the circumstances constituting fraud." See Fed. R. Civ. P. 9(b). Thus, a relator must state with particularity the circumstances which constitute fraud under the FCA, to "includ[e] ‘the who, what, when, where, and how of the misconduct charged.’ " Ebeid , 616 F.3d at 998 (9th Cir. 2010) (quoting Vess v. Ciba-Geigy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003) ). It need not "identify representative examples of false claims to support every allegation," but must "allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Id. at 998-99 (emphases added; quoting United States ex rel. Grubbs v. Ravikumar Kanneganti , 565 F.3d 180, 190 (5th Cir. 2009) ).
III. DISCUSSION
A. Sufficiency of Statistical Analyses
The Court first addresses whether a statistical analysis is sufficient, on its own, to allege fraud with particularity for an FCA claim.
Mariner contends that "no amount of statistical analysis will provide the necessary facts to satisfy the plausibility requirements of Rule 8(a) or the particularity requirements of Rule 9(b)" where the complaint alleges that patients received medically unnecessary treatment. Mot. at 14. However, Rule 9(b) is designed to ensure that factual allegations are " ‘specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.’ " Bly-Magee v. California , 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken , 6 F.3d 666, 672 (9th Cir. 1993) ). Rule 9(b) sets forth a particularity requirement, not the level of proof (e.g. , clear and convincing evidence or preponderance of the evidence).
When Congress intends to impose a heightened pleading burden, it does so expressly. For instance, the Private Securities Litigation Reform Act of 1995 ("PSLRA") "significantly altered pleading requirements in private securities fraud litigation" by requiring that the complaint " ‘specify each statement alleged to have been misleading ... [and] the reason or reasons why the statement is misleading.’ " Gompper v. VISX, Inc. , 298 F.3d 893, 895 (9th Cir. 2002) (quoting 15 U.S.C. 78u-4(b)(1) ). The PSLRA also requires that the complaint "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. 78u-4(b)(2) (emphasis added). To qualify as "strong" within the meaning of the PSLRA, the inference of scienter "must be more than merely plausible or reasonable--it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 314, 127 S. Ct. 2499, 2504-05, 168 L.Ed.2d 179 (2007). Cf. S. Ferry LP v. Killinger , 542 F.3d 776, 784 (9th Cir. 2008) ("[t]he allegations, read as a whole, must raise an inference of scienter that is ‘cogent and compelling, thus strong in light of other explanations,’ ... to satisfy the PSLRA standard") (quoting Tellabs , 551 U.S. at 324, 127 S.Ct. 2499 ).
The Ebeid language regarding "strong inference" is unlike the PSLRA requirement; as stated above, the FCA does not purport to supplant the traditional Twombly standard of plausibility, whereas the PSLRA does.
In the instant case, however, there is no statute which alters the pleading requirements beyond what is required by Rules 8(a) and 9(b). Congress has not enacted a statute which subjects Integra's statistical models to a higher level of proof beyond the plausibility standard and the particularity requirement of Rule 9(b).
Integra is not categorically precluded from using a statistical analysis to allege an FCA claim. The Supreme Court has not announced a categorical rule against the use of statistical evidence; instead, it has stated that "[a] representative or statistical sample, like all evidence, is a means to establish or defend against liability. Its permissibility turns not on the form a proceeding takes — be it a class or individual action—but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action." Tyson Foods, Inc. v. Bouaphakeo , 577 U.S. 442, 136 S. Ct. 1036, 1046, 194 L.Ed.2d 124 (2016). Thus, in Tyson Foods , the Court held that statistical sampling could be used to determine the average time that employees took to "don and dof" their protective clothing in order to establish liability and calculate damages under the Fair Labor Standards Act. Id. at 1046-49. Statistics can also be used to prove intentional discrimination. See Int'l Bhd. of Teamsters v. United States , 431 U.S. 324, 342 n.23, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977) (finding statistical evidence probative of the "inexorable zero," the glaring absence of minorities in higher paying line driver jobs and a pattern and practice of hiring discrimination).
The Third Circuit has specifically found a statistical analysis to be sufficient to put the defendant on notice of an FCA claim. In United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co. , 839 F.3d 242 (3d Cir. 2016), the relator sought to prove that the defendant importer failed to mark pipe fittings with the country of origin before introduction into the U.S. market, as required by the Tariff Act. Id. at 245-48. The relator's methodology was a comparison of (1) shipping manifest data purporting to show that the defendant imported the majority of its pipe fittings from overseas, and (2) a study of listings of from the online auction site eBay for defendant's products. Id. at 247-48. After reviewing the data, the relator found that the majority of the defendant's products were imported but virtually none were properly marked with the foreign country of origin markings on the secondary market. Id. at 248. The Third Circuit held that the relator had met the particularity requirement under Rule 9(b) because it had provided reliable indicia that defendant was not properly marking its imported pipe fittings. Id. at 257-58. It concluded that, at the pleading stage, "nothing more [was] required to give [defendant] adequate notice of the claims raised against it." Id. at 258. Cf. Integra Med Analytics LLC v. Providence Health & Servs. , 854 Fed.Appx. 840, 845 n.5 (9th Cir. 2021) (holding that statistical data may be "used to meet Rule 8(a) ’s pleading requirement and, when paired with particular details of a false claim, Rule 9(b)") (emphasis added); United States ex rel. Integra Med. Analytics, L.L.C. v. Baylor Scott & White Health , 816 F. App'x 892, 898 (5th Cir. 2020) (holding that statistical data may be "used to meet the pleading requirements of Federal Rule of Civil Procedure 8(a) and, when paired with particular details, Rule 9(b)").
Here, Integra has pled with specificity allegations which support the empirical reliability and probative value of its statistical study. For instance, Integra provided Mariner with the equation which it used for its fixed effect linear regression model, including an explanation of the variables included in the model. See FAC ¶ 96. Integra used this fixed effect linear regression model to analyze 13 million admissions at Mariner and other SNFs, and it found that patients at Mariner can be expected to receive an extra 12.49 days of UHR beyond what would be given at other facilities. See FAC ¶ 97 (Table 4). Compare Victaulic , 839 F.3d at 248 (conducting a statistical analysis of "more than 200 listings for [defendant's] pipe fittings" on the secondary market) (emphasis added). Integra has also alleged the particular details of Mariner's false claims through, inter alia , a detailed comparison of the rate of UHR across all 58 principal diagnosis codes at Mariner and non-Mariner facilities. See FAC ¶ 74 (Table 2). For each principal diagnosis group, Integra provided the number of patient admissions at Mariner; the average days of UHR at Mariner; the average days of UHR at other facilities; the Mariner rate of UHR relative to others; and the statistical significance of the UHR disparity (i.e. , the probability that the difference between the average days of UHR at Mariner and other facilities is due to chance) which, for most principal diagnosis groupings, was less than one in 100 million. See id.
Given the massive sample size, and the apparent quality of its statistical analysis, taking into account relevant variables, Integra's allegations establish a plausible claim. And given Integra's transparency regarding the formula which it used to analyze all 13 million samples, it has put Mariner on notice of the "particular misconduct which is alleged to constitute the fraud charged." Bly-Magee , 236 F.3d at 1019. Integra's statistical models, combined with the particular details it has provided regarding the "who, what, when, where, and how" of the fraudulent scheme, are sufficient to state a claim under the FCA. Ebeid , 616 F.3d at 998 (9th Cir. 2010) (internal quotation omitted). Moreover, even if an FCA claim requires specific evidence of unlawful conduct in addition to statistical evidence, see Providence , 854 Fed.Appx. at 845 n.5, Integra has included such allegations here. Integra has provided specific details concerning the fraudulent scheme, including the "who" (Mariner management and Mariner employees at the 22 Defendant SNFs); the "what" (billing for medically unnecessary services, or services that were not provided at all); the "when" (claims for patients admitted on or after January 1, 2011, and prior to October 1, 2016); the "where" (at each of the 22 Defendant SNFs); and the "how" (charging a higher rate of UHR therapy to fraudulently maximize Medicare reimbursement). See FAC ¶¶ 103 (using a Comparative Interrupted Time Series econometric methodology to determine that Mariner management causes the excessive UHR at Defendant SNFs); 97 (using a fixed effect linear regression model to determine that Mariner patients can be expected to receive an extra 12.49 days of UHR); 61 n.18 (explaining that Integra examined claims for patients admitted on or after January 1, 2011, and prior to October 1, 2016, in order to allow for analysis of the patient's entire length of stay); 13-29 (identifying the 22 Defendant SNFs); 36-54 (explaining how Mariner maximized the provision of UHR for medically unnecessary therapy).
In arguing that statistical analyses of claims data cannot establish falsity, Mariner cites cases which are distinguishable. See Mot. at 9-10. In United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc. , 707 F.3d 451 (4th Cir. 2013), the Fourth Circuit found the statistical inferences from the data to be "implausible and unsupported by the stated facts." Id. at 460. In United States ex rel. Thompson v. Columbia/HCA Healthcare Corp. , 125 F.3d 899 (5th Cir. 1997), the relator relied on the statistical studies performed by the Government and other actors, and the Fifth Circuit found no indication that these studies "directly implicate[d] defendants." Id. at 903. And in United States ex rel. Crews & Ill. v. NCS Healthcare of Ill., Inc. , 460 F.3d 853 (7th Cir. 2006), the Seventh Circuit found that a statistical analysis was insufficient to find that any given claim was false. Id. at 856-57.
Here, unlike the relator in Nathan , Integra has created strong statistical inferences directly supported by specific data, and which render its claims plausible. Unlike the relator in Thompson , it has conducted its own statistical analysis of Medicare claims data, and its studies directly implicate Mariner. Finally, Crews is inapposite because in the Ninth Circuit, a relator need not identify a specific false claim; it is sufficient "to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Ebeid , 616 F.3d at 998-99 (internal citation omitted).
Mariner challenges the plausibility of Integra's fraud claims by providing alternative explanations for the disparities in UHR cited by Integra. The Court examines each of those explanations, infra , to determine whether, at the pleading stage, Integra has stated a plausible claim of fraud. Where there are "two alternative explanations, one advanced by defendant and the other advanced by plaintiff, both of which are plausible, plaintiff's complaint survives a motion to dismiss under Rule 12(b)(6)." Starr v. Baca , 652 F.3d 1202, 1216 (9th Cir. 2011). In such a scenario, a plaintiff's complaint "may be dismissed only when defendant's plausible alternative explanation is so convincing that plaintiff's explanation is implausible. " Id. (emphasis in original).
The Ninth Circuit has also clarified that, where a plaintiff's explanation is possible rather than plausible, they must allege "[s]omething more," such as facts "tending to exclude the possibility that the alternative explanation is true." Petzschke v. Century Aluminum Co. (In re Century Aluminum Co. Sec. Litig.) , 729 F.3d 1104, 1108 (9th Cir. 2013). Cf. Providence , 854 Fed.Appx. at 844 (holding that, because "Integra offer[ed] only a possible explanation" for the alleged fraud, it was required to "rule out an obvious alternative explanation" for the conduct at issue) (emphasis in original). For the reasons discussed infra , Integra has crossed the line from possibility to plausibility. Thus, unlike in Petzschke and Providence , Integra need not rule out obvious alternative explanations, and its First Amended Complaint survives a motion to dismiss unless Mariner's alternative explanation is so convincing as to render Integra's explanation implausible. Starr , 652 F.3d at 1216.
B. Locus of Discharge
Here, Mariner advances a non-fraudulent explanation for the higher rate of UHR at its facilities: that a patient's locus of discharge (i.e. , the place to which a patient returns after they are discharged from the SNF) impacts the rehabilitative services that are provided at the SNF. Reply at 9. Mariner argues that there are several variables at the locus of discharge which influence a patient's course of care at the SNF, such as "fall risks ... likely caregivers, or other psychosocial factors that would impact the patient's rehabilitation needs separate and apart from the patient's medical condition and demography." Mot. at 14 n.9. Mariner asserts that its patients tend to face more challenging loci of discharge, hence the need for more intensive UHR at its facilities.
Mariner's explanation is not so convincing as to render Integra's explanation implausible at the pleading stage. Integra sought to control for, inter alia , the "access to care available to the [SNF] patients" sampled in its models through the use of county-level demographic variables (e.g. , unemployment rate, percent of population without a high school diploma, log median income). See FAC ¶ 95 (Equation 1, Panels A and B). But even if Integra did not explicitly factor a more difficult locus of discharge into its regression model, the likelihood that locus of discharge would be the cause of the higher rate of UHR across all 58 principal diagnosis codes (with a sample size of over 13 million SNF admissions) is not so obvious as to render Integra's explanation implausible. Starr , 652 F.3d at 1216. Mariner has not pointed to any evidence that there are such significant differences in locus of discharge at Mariner and non-Mariner facilities. If such differences existed, one would expect that they would appear in the data and influence the UHR rates with respect to certain diagnosis codes, but Mariner has pointed to no such pattern. Cf. Ashcroft v. Iqbal , 556 U.S. 662, 679, 129 S. Ct. 1937, 1950, 173 L.Ed.2d 868 (2009) (in assessing plausibility, the Court should "draw on its judicial experience and common sense").
Further, to require Integra's models to be perfect by eliminating all innocent alternative explanations would contravene the holding in Twombly that Rule 8(a) "does not impose a probability requirement at the pleading stage." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S. Ct. 1955, 1965, 167 L.Ed.2d 929 (2007). Integra need not eliminate every conceivable explanation for the higher billing practices at Mariner on a motion to dismiss.
Mariner also contends that Integra cannot allege fraud because it has not reviewed medical records and therefore lacks firsthand information about any of the services that it provided to its patients. Mot. at 16. However, "[t]o state an FCA claim, a relator is not required to identify actual examples of submitted false claims; instead, ‘it is sufficient to allege ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.’ " Godecke ex rel. United States v. Kinetic Concepts, Inc. , 937 F.3d 1201, 1209 (9th Cir. 2019) (quoting Ebeid , 616 F.3d at 998-99 ). Here, Integra has alleged such details, and its statistical models provide the reliable indicia needed to allege fraud.
C. Role of the Independent Physician
Mariner offers a second plausible alternative explanation for the alleged fraud: that Mariner SNFs were disproportionately selected by patients and physicians with significant needs because they are superior at adhering to the HPL standard and providing the therapy needed to achieve the highest level of functioning possible. Mot. at 10. It also contends that Integra's theory of fraud improperly assumes that independent physicians sacrificed their professional integrity in furtherance of the alleged scheme. Id. at 12-14.
Integra did, at least to some extent, account for Mariner's second alternative explanation (that Mariner SNFs were disproportionately selected by patients with significant rehabilitation needs). Integra examined patients’ specific medical conditions upon admission, and it found that Mariner keeps patients for longer than other SNFs in all 58 diagnosis categories. FAC ¶ 121. By controlling for a patient's hospital diagnosis prior to admission to an SNF, Integra determined that Mariner's higher average length of stay is not due to having sicker patients. Id. ¶¶ 122 (Figure 21, Panels A and B). Integra also controlled for prior surgery, another indication of patients’ degree of sickness upon entering the SNF. See FAC ¶ 66 (explaining that Integra's regression model controlled for patient health characteristics, such as "the existence of [prior] surgery"). Again, for Rule 12 purposes, there is no obvious basis for an alternative explanation that renders Integra's inference of fraud implausible.
Integra also accounted for the possibility that Mariner hires physicians who are predisposed to prescribe more intensive therapy. Integra examined crossover physicians (i.e. , physicians who treated both Mariner and non-Mariner patients). See FAC ¶ 109. Integra found that these physicians prescribed a higher average number of days of UHR at Mariner facilities than non-Mariner facilities: out of 181 doctors who treated at least 10 patients at both Mariner and non-Mariner facilities, 170 (93.9 percent) had higher average days of UHR at Mariner than at their other facilities. Id. ¶ 110.
Integra's allegations of fraud do not assume that physicians sacrificed their professional integrity, a contention which Mariner asserts renders Integra's assertion of fraud implausible. At the motion hearing, Mariner explained that physicians have ultimate authority over the patient's plan of care. See FAC ¶ 33 ("the patient's plan of care is ultimately determined by a doctor's orders and the results of these reported assessments"). Physicians develop a baseline care plan for the SNF resident. See 42 C.F.R. § 483.21(a)(1) ("[t]he facility must develop and implement a baseline care plan for each resident that includes the instructions needed to provide effective and person-centered care of the resident that meet professional standards of quality care"). The comprehensive care plan is developed by an interdisciplinary team, which includes but is not limited to the attending physician, a registered nurse with responsibility for the resident, a nurse aide with responsibility for the resident, a member of food and nutrition services staff, the SNF resident or their representative, and "[o]ther appropriate staff or professionals in disciplines as determined by the resident's needs or as requested by the resident." 42 C.F.R. § 483.21(b)(2)(ii)(A)-(F).
Mariner assumes that physicians take a granular approach to the implementation of the patient's baseline care plan, such that no services may be provided without physician approval. But Integra disputes this characterization and argues that occupational and physical therapists, rather than physicians, controlled the day-to-day therapy provided to the patient, and that these therapists felt pressured by Mariner management to bill for medically unnecessary services. See, e.g. , FAC ¶¶ 37-47 (describing numerous instances of Mariner management pressuring "therapists and staff," including occupational and physical therapists, to provide therapy to patients either too healthy or too sick to benefit from such treatment). The Court must accept Integra's factual allegations as true at the pleading stage; that description permits a pattern of fraud that does not require physician participation in conflict with their professional integrity.
D. Scienter
Rule 9(b) provides that "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." See Fed. R. Civ. P. 9(b). A person acts "knowingly," for purposes of FCA liability, when they: (1) have "actual knowledge" of the falsity of the information, (2) act "in deliberate ignorance of the truth or falsity of the information," or (3) act "in reckless disregard of the truth or falsity of the information." See 31 U.S.C. § 3729(b)(1)(A)(i)-(iii). Further, the FCA's requirement of scienter "require[s] no proof of specific intent to defraud." 31 U.S.C. § 3729(b)(1)(B).
Mariner contends that Integra has not adequately alleged scienter. However, Integra alleges that Mariner management had actual knowledge of the fraud being committed. For instance, it alleges that "[i]n its pursuit to maximize the billing of unnecessary therapy, Mariner directed its staff to bill for non-therapeutic activities." FAC ¶ 53. See also id. ¶ 60 ("[t]he pressure on staff to bill for medically unnecessary treatment was part of a common vision shared by Mariner's ownership, CEO, and Vice Presidents"). Other allegations detail an assertion of management policy to maximize billing above the actual health needs of its patients. See FAC ¶¶ 55-60 (describing instances of Mariner management pressuring SNF directors and therapists to prioritize Medicare reimbursement over patients’ needs). And, as stated above, Integra's statistical model states a plausible claim of fraud which could not have occurred by chance.
Accepting these allegations as true, the Court may reasonably infer that Mariner management either acted with deliberate ignorance as to the truth or falsity of the information submitted to Medicare or had actual knowledge of its falsity. Integra has adequately alleged scienter.
Mariner also contends that the FAC improperly lumps all Defendants together and fails to distinguish between individual SNFs and their alleged role in the scheme to defraud Medicare. Mot. at 25; Reply at 18-19. However, a complaint alleging fraud "need not distinguish between defendants that had the exact same role in a fraud." United States ex rel. Silingo v. WellPoint, Inc. , 904 F.3d 667, 677 (9th Cir. 2018). Cf. United States v. United Healthcare Ins. Co. , 848 F.3d 1161, 1184 (9th Cir. 2016) ("[t]here is no flaw in a pleading ... where collective allegations are used to describe the actions of multiple defendants who are alleged to have engaged in precisely the same conduct"). Integra alleges that each SNF had the exact same role in the alleged scheme: it alleges that the development, promotion, and oversight of the fraudulent billing scheme was overseen by Mariner management (which owns all 22 of the Defendant SNFs). See FAC ¶¶ 55-60. And it alleges that each of the Defendant SNFs implemented this scheme in the same way by billing for medically unnecessary treatment. See FAC ¶¶ 35-54 (alleging numerous instances of Mariner occupational therapists billing for medically unnecessary treatment because they felt pressured by upper management). Integra permissibly alleged fraud through the use of collective allegations.
E. Reverse FCA Claim
Integra alleges that Mariner (1) submitted false or fraudulent claims to Medicare, and (2) further violated the FCA by failing to report and return overpayments from Medicare. FAC ¶ 145. The latter allegation is known as a reverse FCA claim. The reverse false claims provision of the FCA imposes liability where one knowingly makes (or causes to be made) a false statement to avoid having to pay money to the government. 31 U.S.C. § 3729(a)(1)(G). Mariner has an obligation to return Medicare overpayments within 60 days after such overpayments are identified. See 42 U.S.C. § 1320a-7k(d)(2)(A).
Mariner argues that Integra's reverse FCA claim fails as redundant. Mot. at 23. Some district courts have found, in cases where a plaintiff alleges that the defendant overcharged the Government and then failed to repay the Government, that the reverse FCA claim fails as redundant. See United States v. Kinetic Concepts, Inc. , No. CV 08-01885-BRO (AGRx), 2017 WL 2713730, at *14, 2017 U.S. Dist. LEXIS 221777, at *40 (C.D. Cal. Mar. 6, 2017). Mariner asserts that, under Integra's theory, "whenever there is a violation under § 3729(a)(1)(A) for a defendant's receipt of payment of a false claim, there would also be a violation of § (a)(1)(G) for failing to return the overpayment." United States ex rel. Besancon v. Uchicago Argonne, LLC , No. 12 C 7309, 2014 WL 4783056 at *4, 2014 U.S. Dist. LEXIS 134217 at *11 (N.D. Ill. Sep. 24, 2014). Thus, Integra's theory would render the reverse false claim provision redundant to the direct false claim provision, "which is not the intent of the statute." Id.
However, the FCA need not be interpreted in such a way. In United States ex rel. Patzer v. Sikorsky Aircraft Corp. , No. 11-C-0560, 2018 WL 3518518, 2018 U.S. Dist. LEXIS 121604 (E.D. Wis. July 20, 2018), the district court held that:
"a direct FCA violation occurs not when the person receives money from the government, but when the person makes a false claim or statement. Thus, a direct false-claim violation is complete as soon as the person submits the false claim or makes the false statement. It is not unreasonable to think that if the person later receives money from the government based on his prior false claim or statement and does not return it, he could be deemed to have committed a second FCA violation. In this situation, the person has committed two wrongful acts: (1) submitting the false claim or making the false statement, and (2) later avoiding an obligation to return money. Congress may have intended to allow the government to pursue both direct and reverse false claims under these circumstances."
Id. at *8–9, 2018 U.S. Dist. LEXIS 121604 at *30-31 (emphasis added). This interpretation of the reverse false claim provision (as separate and distinct from the direct false claim provision) accords with the canon against surplusage, which advises that " ‘[a] statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.’ " Corley v. United States , 556 U.S. 303, 314, 129 S. Ct. 1558, 1566, 173 L.Ed.2d 443 (2009) (quoting Hibbs v. Winn , 542 U.S. 88, 101, 124 S. Ct. 2276, 159 L. Ed. 2d 172 (2004) ).
Applied to the instant case, Integra has alleged that Mariner has committed two separate and distinct violations of the FCA: (1) the submission of false claims to Medicare (the direct FCA claim), and (2) a later failure to return that money to the Government (the reverse FCA claim). First, Integra alleges that Mariner sought reimbursement for services "that were not actually provided at all." See FAC ¶ 3. It alleges that Mariner would bill Medicare for therapy minutes "even when no medical services were being provided to patients." Id. ¶ 54. For instance, occupational therapists at Vale Healthcare Center would walk to the store with completely healthy and independent patients and would count that treatment as part of the patient's therapy session. Id. Further, a contract therapist at the Rehabilitation Center of Santa Monica would fraudulently bill Medicare by "double dipping" (i.e. , charging for 8 hours of therapy at two Mariner facilities on the same day). Id.
Second, and separately, Integra alleges that when Mariner employees informed management of the fraudulent billing practices, they were silenced. For instance, when the Director of Rehabilitation at the Santa Monica facility informed Mariner management of the fraudulent "double dipping" committed by the contract therapist, they were told to "keep quiet about the situation." Id. Thus, Integra alleges that Mariner committed two separate wrongs: (1) it submitted false claims and made false statements to Medicare, and (2) it later avoided an obligation to return money to the Government when it was alerted to the fraud (and indeed suppressed efforts to do so). Patzer , 2018 WL 3518518 at *8–9, 2018 U.S. Dist. LEXIS 121604 at *30-31.
Because Integra alleges a separate wrong committed by Mariner for its reverse FCA claim, it does not fail as redundant.
F. Motion to Strike
Mariner also moves to strike the factual allegations in paragraphs 40, 50, and 51 of the First Amended Complaint, under Rule 12(f), as immaterial, impertinent, and scandalous. Mot. at 20 n.13. See Fed. R. Civ. P. 12(f). These three paragraphs consist of numerous testimonials from relatives of patients at Mariner SNFs who allege that Mariner kept their relatives admitted for longer than medically necessary. FAC ¶¶ 40, 50, 51.
"[T]he function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." Sidney-Vinstein v. A.H. Robins Co. , 697 F.2d 880, 885 (9th Cir. 1983). Thus, "[a] motion to strike should only be granted if the matter sought to be stricken clearly has no possible bearing on the subject matter of the litigation." Barich v. City of Cotati , No. 21-cv-00034-EMC, 2021 WL 3053204 at *5, 2021 U.S. Dist. LEXIS 135380 at *14 (N.D. Cal. July 20, 2021). Cf. Fantasy, Inc. v. Fogerty , 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, Fogerty v. Fantasy, Inc. , 510 U.S. 517, 114 S. Ct. 1023, 127 L. Ed. 2d 455 (1994) (" ‘Immaterial matter’ is that which has no essential or important relationship to the claim for relief or the defenses being pleaded").
Here, Mariner has not shown that these testimonials from patients’ relatives have no bearing on the subject matter of the instant suit. In fact, these testimonials speak to the very question which Integra's statistical models seek to answer: whether Mariner provided services to SNF patients which were not clinically appropriate. Accordingly, the Court denies Mariner's motion to strike these portions of the First Amended Complaint.
IV. CONCLUSION
For the foregoing reasons, the Court DENIES Mariner's Motion to Dismiss the First Amended Complaint and Motion to Strike. Integra has plausibly alleged fraud under the FCA, and it has provided the requisite details to put Mariner on notice of its claims under Rule 9(b).
At this juncture, the Court instructs the Clerk of the Court to file this order, in its entirety, under seal. The Court orders the parties to meet and confer to determine which portions of this order may be publicly filed. Although the Court has allowed portions of the First Amended Complaint to be filed under seal, the Court expects the parties to make a narrowly tailored request to file under seal, given that the public interest in access to a Court order is significant. The parties shall jointly file their request to file under seal within a week of the date of this order.
This order disposes of Docket No. 85.