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United States ex rel. Joseph v. The Brattleboro Retreat

United States District Court, D. Vermont

August 10, 2014




Qui tam relator Thomas Joseph ("Relator") filed this action under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, against Defendant The Brattleboro Retreat ("Retreat"), alleging that the Retreat fraudulently and improperly submitted claims and retained overpayments of funds that rightly belong to the government in violation of §§ 3729(a)(1)(A)-(B) and (G) of the FCA. After Relator filed this action, the United States conducted an investigation of the claims and declined to intervene. Relator has opted to proceed with his claims despite the government's non-intervention. Presently before the Court is Defendant's motion to dismiss the Complaint on the grounds that several of Relator's claims are barred by the FCA's six-year statute of limitations and that the Complaint fails to state a claim for relief as a matter of law under the heighted pleading requirements of Fed.R.Civ.P. 9(b). For the reasons stated below, the motion to dismiss, ECF No. 21, is granted. The Complaint is dismissed without prejudice and with leave to amend.


Relator Joseph brings this action pursuant to the qui tam provisions of the FCA, 31 U.S.C. §§ 3729-3733, against the Brattleboro Retreat, alleging that the Retreat has engaged in fraudulent and improper claims and refund practices and policies. The Brattleboro Retreat is a mental health and substance abuse health care facility organized and operated in Brattleboro, Vermont. The Retreat serves many individuals who are eligible for government health care benefits including Medicare and various Medicaid programs. Relator Thomas Joseph is a Vermont resident who was formerly employed by the Retreat as a Self-Pay Collections Representative.[2]

I. Allegations

The Complaint brings claims under §§ 3729(a)(1)(A), (B), and (G) of the FCA.[3] Relator's primary allegation is that the Retreat improperly retained overpayments from government health care benefit programs even after it discovered the existence of such overpayments, whether or not the initial overpayments were fraudulent. The Complaint also contends that the Retreat generates these overpayments by knowingly or recklessly submitting duplicate claims for payment to health care benefit programs and that the Retreat maintained deliberately falsified records concealing these overpayments. Relator bases the allegations in the Complaint on evidence obtained directly by him through his employment at the Retreat.

The crux of Relator's theory is that the Retreat established a policy of fraudulently retaining overpayments using its computer billing system - specifically, by using posting code 21 ("Code 21") to eliminate overpayment credits in its accounting. ¶¶ 68, 78-79. According to the Complaint, the Retreat regularly overbills government payers, which results in a credit balance owed to these payers. ¶¶ 100-101. The Retreat then uses Code 21 to enter "an amount calculated to offset the credit balance owed to [the government payer] due to the overpayments." ¶ 102. This operation "results in the patient ledger erroneously showing a zero balance when in reality, a credit remains due and payable to the government health care benefit program, and thus represents knowingly fraudulent avoidance or concealment of an obligation due and payable to the government." Id. Relator refers to this Code 21 practice as an "allowance reversal." ¶ 102.

Relator first discovered this practice in November of 2011 when he was asked to assist with the management of commercial insurance credits. Through this work, he discovered unrefunded commercial insurance credits in several patient accounts. ¶ 85. When he notified his superiors of these unrefunded credits, they entered allowance reversals using Code 21 to eliminate the credits from any accounts for which there was no request for a refund from the commercial insurer. Relator reported this action to the Retreat's Controller in an email on November 18, 2011.[4] The Complaint states that these commercial credits were "never refunded in any large amount nor has any legitimate due diligence process to restore these funds been undertaken." ¶ 90.

Relator then inferred that this lack of due diligence in the commercial insurance context indicated that the Retreat had an active policy of overpayment retention that extended to government programs. ¶ 92. He thus began "investigating" whether overpayment credits involving Medicare, Medicaid, and other government health care benefit programs were being treated similarly. ¶ 94. The results of this "investigation" form the basis of the allegations put forth in the Complaint. They regard 32 separate patient accounts spanning from 2005 to 2012. The descriptions of these accounts do not reference any actual bills or reimbursements, but are instead based on Relator's interpretations of accounting entries and codes in the Retreat's billing system. The allegations in the Complaint implicate three types of misconduct: (1) fraudulent retention of overpayment from government programs; (2) fraudulent double billing for services (resulting in the eventual fraudulent retention); and (3) falsified quarterly/annual reports. The details of these allegations as laid out in the Complaint are summarized below.

a. Fraudulent Retention

Relator's primary contention is that the Retreat frequently accepts overpayment for services and conceals these overpayments by entering an offsetting amount under Code 21 (what the Complaint calls an "allowance reversal"). The Complaint describes several specific examples, discussed below, as supposed evidence of this practice.

In March 2006, Patient 1, a beneficiary of both Medicare and Medicaid of Vermont, received inpatient care services for which the Retreat charges a per diem amount of $1, 590. At the time, Medicare Part A required patients to pay a deductible of $952.00 and was willing to pay a $1, 512.90 per diem rate for this service ($77.11 less than Retreat's nominal charge). The Retreat thus submitted a claim to Medicare Part A for the per diem minus the deductible, or $560.89. It then submitted a claim for payment to Medicaid for the $952 deductible, which Medicaid paid. On April 20, 2006, the Retreat received $3, 891.66 from Medicare Part A for Patient 1's inpatient care. The Complaint alleges that this payment resulted in an overpayment of $3, 330.77 that was eliminated using Code 21. However, because the Complaint does not indicate what Patient 1's proper bill would be, beyond the per diem rate, there is no demonstration in the Complaint that this actually was an overpayment.

The remaining examples provided are similarly deficient. The Complaint cites patient ledgers for Patient 2, episodes 12 and 14, from October 2005, as an example of the Retreat's fraudulent retention of overpayment from Medicare. ¶ 110. For this patient, the line items in the billing system indicate that the Retreat imposed a nominal charge of $1, 590 for the service received but that Medicare Part A paid $3, 485.84, and that there was a Code 21 entry for the difference. The Complaint additionally cites Patient 10, who was treated at the Retreat in 2005, and states that the Retreat received an overpayment from Medicare equaling $6, 099.95 that the Retreat failed to disclose using Code 21. ¶ 154. The Complaint also describes a transaction involving Patient 30 that resulted in a $833.47 overpayment by Nebraska Medicaid. The Complaint does not state its basis for finding an overpayment occurred, nor whether the alleged overpayment was ultimately retained, for any of these patients.

Based on these transactions, the Complaint extrapolates that all entries involving Code 21 involve improper retention. It then goes on to cite multiple entries using Code 21, with even less identifying information than those described above, as additional proof of wrongdoing. Several of these patient ledgers, Patients 11-14, are dated July 2005. The Complaint also cites several patient ledgers without any identifying information at all. ¶ 166. Finally, it states that there were Code 21 entries for Patients 31 and 32 and concludes that these were hidden overpayments; however, it again does not demonstrate why these involved overpayments, what the proper payment rate would have been, or whether any excess charges were actually retained. In fact, the Complaint identifies a Code 21 "allowance reversal" that eliminated $7, 000 owed to a Medicaid program and was later rectified by a manual request, which he expressly concedes resulted in no overpayment at all.

In addition to documenting the allegedly fraudulent practice of "allowance reversals, " the Complaint also asserts that the Retreat conceals the existence of overpayment credits by shifting undiscovered overpayments from one patient's ledger to the ledger of another patient or to an "Unapplied Cash" ledger. As evidence, the Complaint cites Patient 3's billing information to allege that the Retreat was overpaid by the government and rather than returning the overpayment, the excess was diverted to the Retreat's Unapplied Cash ledger on February 5, 2011. This allegation suffers from the same deficiencies as the descriptions of Patients 1 and 2. While the Complaint states that amounts as high as $80, 493.35 were overpaid, it does not explain how it obtained these estimates or what the proper charge would have been. It then states that reimbursement entries posted in February 2011 amounting to $18, 668.05 were never refunded to the government, but it does not provide a basis for this assertion. The Complaint further states that evidence of this patient ledger juggling is provided by a handwritten annotation indicating that overpayments made regarding Patients 4 through 7 were paid for using Patient 3's overpayment. ¶ 127.[5] It concludes that the retreat had "used Patient 3's account as a slush fund." ¶ 128.

Relator's final allegation of improper retention does not actually allege retention at all, but mere delay. In support, the Complaint describes Patient 15, for whom the Retreat overcharged a Medicaid program in Massachusetts. ¶ 159-62. While the Complaint concedes that the Medicaid program was reimbursed for the overcharge, it states that the Retreat should have notified Medicaid program of this overcharge sooner. The Patient 15 allegation is somewhat nonsensical, however, as it seems to argue that the Retreat should have known about the overpayment over a year before it was received. ¶ 161. Regardless, there is no dispute that any overpayment was ultimately refunded with regard to Patient 15.

b. Double Billing

Relator also alleges that the Retreat has fraudulently double billed government programs, thereby resulting in overpayments like those referenced above. Specifically, the Complaint alleges that the Retreat made fraudulent claims to Medicaid of Vermont for the patient responsibility portion of dual-eligible Medicare beneficiaries, i.e., patients eligible for both Medicare and Medicaid benefits. It states that the Retreat "presented straightforward false claims" to obtain Medicaid sums to which it was not entitled. ¶ 129. As a supposed example of this practice, the Complaint cites the patient ledger for Patient 8, Episode 8, and describes a number of confusing billing entries. First, it notes that there were entries for June 7, 2011, several months before Episode 8 began. It then states that the Retreat sought payment from a Medicaid program at a rate of $1, 285.72, which is higher than the amount that Medicare is willing to pay for such services, and thus infers that this constituted an improper claim. ¶ 133. Finally, it argues that the Retreat sought $70, 829.81 of patient responsibility from Medicaid in excess ...

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