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United States v. Anesthesia Services Associates, PLLC

United States District Court, M.D. Tennessee, Nashville Division

December 31, 2019

UNITED STATES OF AMERICA and THE STATE OF TENNESSEE ex rel. SUZANNE ALT et al., Plaintiffs,
v.
ANESTHESIA SERVICES ASSOCIATES, PLLC, d/b/a COMPREHENSIVE PAIN SPECIALISTS, et al., Defendants.

          MEMORANDUM

          ALETA A. TRAUGER, UNITED STATES DISTRICT JUDGE.

         This matter was originally brought as a qui tam action by relator Suzanne Alt on March 9, 2016. (Doc. No. 1.) It was consolidated with several other pending qui tam actions on April 15, 2019. (Doc. No. 42.) After announcing their intent to intervene in part in April 2019 (Doc. Nos. 43, 44), the United States and the State of Tennessee (collectively, “the government” or “the plaintiffs”) filed their Consolidated Complaint in Intervention on July 22, 2019, asserting claims under the False Claims Act, 31 U.S.C. § 3729 et seq. (the “FCA”); the Tennessee Medicaid False Claims Act, Tenn. Code Ann. §§ 71-5-182 to -185 (the “TMFCA”); the Federal Priority Statute, 31 U.S.C. § 3713; and common law theories of payment by mistake, unjust enrichment and fraud, against numerous defendants, including Anesthesia Services Associates, PLLC d/b/a Comprehensive Pain Specialists (“CPS”), Peter B. Kroll, M.D., John Davis, Steven R. Dickerson, M.D., Gilberto A. Carrero, M.D., and Russell S. Smith, D.C. (See Consol. Compl. in Intervention, Doc. No. 65.) Dr. Smith had not previously been identified as a defendant in any of the qui tam Complaints.

         Relators Jennifer Pressotto and Allison Chancellor filed Amended Complaints on July 17 and 22, 2019, respectively, both of which adopt and incorporate, in whole or in part, the claims asserted by the government but also maintain separate claims, including claims for retaliation under state and federal law. (Docs. Nos. 63, 66.) The separately maintained claims are not asserted against Smith.

         Now before the court is Dr. Russell Smith's Motion to Dismiss (Doc. No. 104) and contemporaneously filed Memorandum of Law (Doc. No. 105), seeking dismissal of all claims asserted against him in the Consolidated Complaint, as well as in the relators' Amended Complaints, for failure to satisfy the particularity requirements of Rule 9(b) of the Federal Rules of Civil Procedure. The government has filed a Joint Memorandum in Opposition to Smith's Motion to Dismiss (Doc. No. 117), and Smith has filed a Reply (Doc. No. 118). The relators have not responded separately to the motion.

         For the reasons set forth herein, the Motion to Dismiss will be granted, but without prejudice to the plaintiffs' ability to file a motion to amend the Consolidated Complaint.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The government alleges, in essence, that the defendants either submitted false claims or caused others to submit false claims to Medicare and other government health care programs for urine drug testing, genetic testing, and psychological testing that was either non-reimbursable or medically unnecessary. (See generally Doc. No. 65.) More specifically, the Consolidated Complaint alleges that CPS, a Tennessee professional limited liability company with a principal place of business in Franklin, Tennessee, began operations in 2000. By 2011, it was operating over sixty pain management clinics across twelve states and employed approximately 250 health care providers, who saw approximately 48, 000 patients per month. The principal physician-owners of CPS included defendants Dickerson, Carrero, and Kroll (“Owners”). (Id. ¶ 23.)

         In support of their claims, the plaintiffs allege the existence of a complex scheme perpetrated by the Owners and John Davis, CPS's Chief Executive Officer. CPS, through Davis and Owners, allegedly implemented unlawful policies and procedures that resulted in the submission and payment of false claims by various federal and state healthcare programs, including Medicare, TRICARE, Medicaid/TennCare, and CHAMPVA/Choice (the “Government Health Care Programs”). (Id. ¶¶ 3, 4, 6.) Dickerson was a founding member of CPS when it was formed as Skyline Anesthesia Services, PLLC in July 2000. (Id. ¶ 75.) Carrero joined the company in 2004 and Kroll joined in 2007. (Id. ¶¶ 76, 79.) Davis became CEO in 2011. The plaintiffs allege that CPS's scheme to submit false claims began in earnest after Davis joined the company. (Id. ¶ 82.)

         The plaintiffs allege that CPS, through Davis and the Owners, took steps to ensure that other medical providers employed by CPS were ordering medically unnecessary testing, including by instituting a “standing order, ” pursuant to which urine drug testing was performed on virtually every single patient, regardless of patient risk levels. (Id. ¶ 4.) The standing order was allegedly executed by Kroll and Dickerson. (Id. ¶ 134.) CPS further maximized its profits by opening its own testing facility beginning in 2012, where urine drug testing was performed. (Id. ¶¶ 123-33.) Following the success of this program, CPS, through Davis and the Owners, expanded its policies and procedures to include submission of claims for genetic blood testing and psychological testing that allegedly did not meet requirements for payment and were not medically necessary. (Id. at ¶ 6.)

         The plaintiffs also allege that Davis, with the knowledge of the Owners, adopted a bonus program that incentivized CPS's mid-level providers to order urine drug testing, genetic testing, and psychological testing as well as other ancillary services. (Id. at ¶ 7.) The Owners and Davis allegedly produced and promulgated urine drug screening guidelines that resulted in the over-utilization of medically unnecessary tests. (Id. ¶ 166.) The Consolidated Complaint further alleges that Davis himself altered billing codes submitted by the providers, implemented a policy to bill, and obtain reimbursement, for non-reimbursable acupuncture, and entered into a scheme that allowed him to receive kickbacks for referring durable medical equipment (“DME”) to an unaffiliated business. (Id. ¶¶ 9-12.) The plaintiffs allege that, as a result of this scheme, Dickerson directly submitted over seven hundred and fifty false claims; Carrero directly submitted approximately eight hundred false claims; and Kroll directly submitted or caused to be submitted over fifteen thousand false claims. (Id. ¶¶ 15-17.)

         Regarding Smith specifically, the Consolidated Complaint alleges that Smith is a chiropractor who resides in Cleveland, Tennessee. (Id. ¶ 28.) In May 2013, CPS purchased the clinic owned by Smith in Cleveland and then entered into an agreement with Smith pursuant to which Smith continued to “oversee” his clinic and two other East Tennessee clinics owned by CPS. Smith did not personally treat patients at any of these clinics, but his compensation was based on the net revenue generated at the three clinics-94 percent of the revenue generated at the Cleveland clinic, 75 percent of all revenue collected for “ancillary services, ” and “substantial revenues” from the others. (Id. ¶¶ 8, 91.) The plaintiffs allege that Smith was “incentivized” by this compensation package “[t]o ensure that revenues were high.” (Id. ¶¶ 8, 91.) Consequently, he “asserted [sic] pressure on the providers at his clinics, which resulted in unnecessary medical services and devices, including excessive and unnecessary urine and blood testing and the ordering of DME.” (Id. ¶ 8.) The plaintiffs do not explain what form of pressure Smith exerted or what leverage he employed in exerting such pressure, other than to say that he “was attempting to influence the clinical decision-making of the providers” practicing at the clinics he oversaw. (Id. ¶ 283.).

         On July 14, 2014, AdvanceMed, a Zone Program Integrity Contractor (“ZPIC”) for the Centers for Medicare and Medicaid Services (“CMS”) performed an audit covering claims from January 1, 2012 to May 31, 2014. (Id. ¶ 152.) In response to the audit, CPS personnel conducted an internal review of claims and providers and noted that several providers at the East Tennessee clinics, and particularly at the Cleveland clinic, were “ordering [urine drug screens] on every patient on every visit.” (Id. ¶ 163.) Despite training conducted with these providers, the pattern continued. (Id. ¶ 170.) CPS decided to conduct individual training for these providers, but this training, too, apparently had little effect. (Id. ¶ 170, 180.)

         One particular nurse practitioner at the Cleveland, Tennessee clinic, Anita Bayles, failed to change her practice of over-ordering both urine drug tests and opioids. Although CPS's Compliance Committee voted to terminate Bayles' employment in September 2016, after a conference call involving members of the Compliance Committee, Dr. Niendorff (who was Bayles' supervising physician), and Davis, Davis made the decision to keep Bayles on staff because of her revenue-generating abilities. (Id. ¶¶ 171-73.)

         From 2011 to February 25, 2018, Cahaba Government Benefit Administrators, LLC (“Cahaba”) was the Medicare Administrative Contractor (“MAC”) that administered Medicare Part B claims in Tennessee. In October 2016, Cahaba notified CPS that seven providers at the East Tennessee clinics were being placed on prepayment review, largely for over-utilization of urine drug testing, which meant that claims submitted by these providers would not be processed until a review of the documentation supporting their claims confirmed that the services were medically necessary and reimbursable. (Id. ¶ 178.)

         The government alleges that the Owners, Davis, and Smith all profited from the excessive urine drug testing at the clinics managed by Smith. (Id. ¶¶ 197, 198; see also Id. ¶ 415.) The Consolidated Complaint provides specific examples of patients who Smith has admitted underwent medically unnecessary urine drug screens in 2016 and 2017.[1] (Id. ¶ 210.) They allege that, if the Government Health Care Programs had known that the testing was not medically necessary and that the providers submitting the claims lacked the requisite medical documentation, they would have denied payment for the claims (Id. ¶ 211.)

         Sarah Trent, CPS's Director of Clinician Education, has “acknowledged that mid-level providers ordered ancillary services that were not medically necessary because of CPS's bonus structure and pressure put on them expressly by Davis and Smith.” (Id. ¶¶ 265.)

         The Consolidated Complaint also details the compensation packages and bonuses provided to some of CPS's medical providers, including several at the East Tennessee clinics, that incentivized them to order unnecessary medical tests and services. The doctors at the East Tennessee clinics with astounding compensation packages included Paul Pinson, M.D., whose employment agreement provided for a monthly salary of $37, 500, plus a bonus based on “overall productivity” of the Cleveland clinic where he practiced (id. ¶ 267), and Cynthia Niendorff, M.D., whose employment agreement, which was signed by Davis, provided for “only” thirty percent of the revenues collected from services she personally provided during the first year, an additional ten percent of all revenue collected from services rendered by nurse practitioners and physician assistants under her supervision (including Anita Bayles), and an unspecified share of “ancillary services” revenue (id. ¶ 271). In addition, she received a salary of $39, 500 per month for providing supervisory services at both the Cleveland and Chattanooga clinics, or only $19, 750 per month if she provided such services only at the Cleveland location. (Id.)

         Smith was terminated “for cause” in June 2017. (Id. ¶ 285.) The Consolidated Complaint does not specify the cause other than to imply that it was because Smith was pressuring medical providers to provide unnecessary testing and services.

         Based on these allegations, the Consolidated Complaint asserts claims against Smith specifically for (1) violating 31 U.S.C. § 3729(a)(1)(A) and Tenn. Code Ann. § 71-5-182(a)(1)(A) by causing false claims for testing to be presented for which the Government Health Care Programs do not reimburse or that were not medically necessary (Doc. No. 65 ¶¶ 434-38, Count I); (2) violating 31 U.S.C. § 3729(a)(1)(B) and Tenn. Code Ann. § 71-5-182(a)(1)(B) by causing false records or statements to be made or used related to testing, including the false certifications and representations on forms CMS 1500 and the electronic version thereof, to obtain approval for and payment by the United States and Tennessee for false or fraudulent claims (Doc. No. 65 ¶¶ 439- 44, Count II); and (3) violating 31 U.S.C. § 3729(a)(1)(G) and Tenn. Code Ann. § 71-5-182(a)(1)(D), by knowingly making, using, or causing to be made or used false records or statements material to obligations to pay or transmit money to the government (Doc. No. 65 ¶¶ 445-48, Count III). The Consolidated Complaint also asserts common law claims against Smith for payment by mistake, unjust enrichment, and fraud. (Id. ¶¶ 462-77, Counts VI, VII, and VIII.)[2]

         Smith now seeks dismissal of all claims against him in the Consolidated Complaint and in the Amended Complaints filed by the relators, to the extent the latter adopt and re-allege the same claims. (See Doc. Nos. 63, 66.)

         II. STANDARD OF REVIEW

         Two standards of review govern the consideration of a motion to dismiss claims under the False Claims Act. First, under Rule 12(b)(6), “all well-pleaded material allegations of the pleadings” are accepted as true, and those allegations must “be sufficient to give notice to the defendant as to what claims are alleged, and . . . plead ‘sufficient factual matter' to render the legal claim plausible, i.e., more than merely possible.” Fritz v. Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009)). That is, under the general pleading standards of Rule 8, the factual allegations in the complaint need not be detailed, although “a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         Second, “[t]he heightened pleading standard set forth in Rule 9(b) applies to complaints brought under the FCA.” Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir. 2003). Under that rule, “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity, ” while “[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally.” Fed.R.Civ.P. 9(b). To comply with Rule 9(b), “a plaintiff, at a minimum, must ‘allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury ...


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