Court Opinion

ID: 5118214
Source: CourtListenerOpinion
Date Created: 2021-10-13 21:00:46.337585+00
Date Added: 2024-06-11T08:22:06.177774
License: Public Domain

RECOMMENDED FOR PUBLICATION
                                Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                       File Name: 21a0242p.06

                   UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT

                                                             ┐
 UNITED STATES   OF   AMERICA, et al., ex rel. CATHY
                                                             │
 OWSLEY,
                                                             │
                                    Relator-Appellant,       │
                                                              >        No. 19-4240
                                                             │
        v.                                                   │
                                                             │
 FAZZI ASSOCIATES, INC.; CARE CONNECTION OF                  │
 CINCINNATI; GEM CITY HOME CARE; ASCENSION                   │
 HEALTH CARE; ENVISION HEALTHCARE HOLDINGS,                  │
 INC.,                                                       │
                           Defendants-Appellees.             │
                                                             ┘

  Appeal from the United States District Court for the Southern District of Ohio at Cincinnati.
                   No. 1:15-cv-00511—Timothy S. Black, District Judge.

                                 Argued: November 17, 2020

                             Decided and Filed: October 13, 2021

              Before: KETHLEDGE, DONALD, and LARSEN, Circuit Judges.

                                      _________________

                                            COUNSEL

ARGUED: Warner Mendenhall, THE LAW OFFICES OF WARNER MENDENHALL,
Akron, Ohio, for Appellant. Douglas H. Hallward-Driemeier, ROPES & GRAY LLP,
Washington, D.C., for Appellee Fazzi Associates, Inc. George B. Breen, EPSTEIN BECKER
& GREEN, P.C., Washington, D.C., for Appellees Care Connection of Cincinnati, Gem City
Home Care, Ascension Home Care, and Envision Healthcare Holdings, Inc. ON BRIEF:
Warner Mendenhall, THE LAW OFFICES OF WARNER MENDENHALL, Akron, Ohio, for
Appellant. Douglas H. Hallward-Driemeier, ROPES & GRAY LLP, Washington, D.C., John P.
Bueker, ROPES & GRAY LLP, Boston, Massachusetts, for Appellee Fazzi Associates, Inc.
George B. Breen, Erica Sibley Bahnsen, Elizabeth A. Harris, EPSTEIN BECKER & GREEN,
P.C., Washington, D.C., Jason W. Hilliard, DINSMORE & SHOHL LLP, Cincinnati, Ohio, for
Appellees Care Connection of Cincinnati, Gem City Home Care, Ascension Home Care, and
Envision Healthcare Holdings, Inc.
 No. 19-4240               United States v. Fazzi Assocs., Inc., et al.                    Page 2

                                       _________________

                                            OPINION
                                       _________________

       KETHLEDGE, Circuit Judge. Cathy Owsley—a nurse for defendant Care Connection, a
company providing home-health care to Medicare patients—alleged in considerable detail that
she observed, firsthand, documents showing that her employer had used fraudulent data from
Fazzi Associates, Inc. to submit inflated claims for payment to the federal and Indiana state
governments. She therefore sued both companies and some related entities under the False
Claims Act and an Indiana statute. But Owsley’s complaint provided few details that would
allow the defendants to identify any specific claims—of the hundreds or likely thousands they
presumably submitted—that she thinks were fraudulent. For that reason alone her complaint fell
short of the requirements of Civil Rule 9(b). We therefore affirm the district court’s dismissal of
her claims.
                                                  I.
       At the pleadings stage, we take Owsley’s allegations as true. See Norfolk Cnty. Ret. Sys.
v. Cmty. Health Sys., Inc., 877 F.3d 687, 689 (6th Cir. 2017).

                                                 A.

       Private home-healthcare agencies obtain payments from Medicare through a “prospective
payment system.” 42 U.S.C. § 1395fff(a); United States ex rel. Prather v. Brookdale Senior
Living Cmtys., Inc., 838 F.3d 750, 756 (6th Cir. 2016). These agencies provide “episodes” of
care, for which Medicare normally pays in two installments: an initial payment “made in
response to a request for anticipated payment (RAP)” and a “residual final payment.” 42 C.F.R.
§ 484.205(b)(1), (g).

       The amount of each payment depends in large part on the patient’s condition: the more
care the patient needs, the larger the Medicare payments. For that reason, at the outset of a
patient’s treatment, a clinician (usually a registered nurse) conducts a “comprehensive
assessment” of the patient. Id. § 484.55(b). As part of that assessment, the clinician collects data
for a form called the Outcome and Assessment Information Set (OASIS)—which is the Centers
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for Medicare and Medicaid Services’ standardized assessment of a patient’s condition. See id.
§ 484.55(c)(8); 64 Fed. Reg. 3764, 3765 (Jan. 25, 1999). The OASIS form records many details
about a patient, including his primary and other diagnoses and his ability to bathe and walk. See
Ctrs. for Medicare & Medicaid Servs., OASIS-C1/ICD-10 Guidance Manual, ch. 3, at C-10, K-6,
K-14 (2015). Those data ultimately take the form of codes enumerated by the Centers for
Medicare and Medicaid Services (CMS). See id. ch. 1, at 8, ch. 3. The data on OASIS forms—
and hence the codes—“must accurately reflect the patient’s status at the time of assessment.”
42 C.F.R. § 484.45(b).

       A home-health agency uses the OASIS data to establish an “individualized plan of care”
for the patient and to complete a request for anticipated payment. See id. § 484.60 (plan of care);
Ctrs. for Medicare & Medicaid Servs., Medicare Claims Processing Manual, ch. 10, §§ 10.1.7,
10.1.10.3, 40.1 (2021) (use of OASIS data for RAP); 42 C.F.R. § 484.205(c) (same). At the end
of an episode of care, the agency reassesses the patient’s condition and updates his OASIS form.
See 42 C.F.R. § 484.55(d)(1). The agency then uses the updated OASIS data to complete its
claim for residual payment. See Claims Processing Manual, ch. 10, § 40.2.

                                                B.

       Cathy Owsley was a Quality Assurance Nurse at Care Connection of Cincinnati, a
home-health agency. In that role she reviewed OASIS forms and used them to complete plans of
care. In 2014, Envision Healthcare Holdings acquired Care Connection and outsourced its
OASIS coding to Fazzi Associates. Soon Owsley noticed that “Fazzi coders were altering
OASIS data by enhancing existing diagnosis codes and adding new codes that were not
supported by any medical documentation.” Am. Compl. ¶ 36.

       Owsley reported these concerns to several of her supervisors at Envision and Care
Connection, repeatedly providing examples of specific patients whose OASIS data Fazzi had
fraudulently changed (or “upcoded”). None of those supervisors took any action in response.
One told her “[i]t is what it is”; another replied, “if you don’t agree with this you can leave and
get another job.” Id. ¶¶ 42, 55. Meanwhile, Care Connection instructed nurses who had
personally assessed patients’ conditions to “agree to any changes Fazzi makes to the original
 No. 19-4240              United States v. Fazzi Assocs., Inc., et al.                    Page 4

answers to OASIS questions.” Id. ¶ 57. Multiple nurses complained that Fazzi had inaccurately
or fraudulently coded the condition of patients whom the nurses had assessed. See id. ¶¶ 57–59.
But most nurses acquiesced. Id. ¶ 58.

       According to Owsley, Fazzi fraudulently changed the coding on the OASIS forms for
about half of Care Connection’s patients. Id. ¶ 70. Owsley then used those forms to complete
patient plans of care; others at Care Connection used those same forms to complete requests for
anticipated payment, which Care Connection would submit to Medicare the morning after
Owsley had completed the patient’s plan of care. Id. ¶ 34.

       Owsley also alleged that this scheme extended beyond Care Connection.             Envision
controlled “dozens of home health agencies across the United States”—including Gem City and
Ascension—and had outsourced coding for each of those agencies to Fazzi. Id. ¶¶ 66, 68.
Owsley once observed the same pattern of fraudulent upcoding at Gem City. A physician had
noted that the patient did not suffer from diabetes, chronic obstructive pulmonary disease, or
apnea. Id. ¶ 67. But Fazzi changed the patient’s OASIS form to report that the patient had each
of those ailments. Id.

                                                C.

       Owsley thereafter sued Fazzi, Envision, Care Connection, Gem City, and Ascension on
behalf of the United States and the State of Indiana, asserting various claims under the False
Claims Act, 31 U.S.C. § 3729(a)(1)(A), (B), (C), (G), and a similar statute in Indiana, see Ind.
Code § 5-11-5.7-2. The United States declined to intervene in the case. The district court later
dismissed all of Owsley’s claims, reasoning that her amended complaint had not pled the alleged
fraudulent scheme with the particularity required by Civil Rule 9(b). This appeal followed.

                                                II.

       The question presented is whether Owsley’s allegations satisfied Rule 9(b). That rule
requires a plaintiff “to state with particularity the circumstances constituting fraud[.]” Fed. R.
Civ. P. 9(b). “We review de novo a district court’s dismissal of a complaint for failure to plead
 No. 19-4240                United States v. Fazzi Assocs., Inc., et al.                    Page 5

with particularity under Rule 9(b).” Chesbrough v. VPA, P.C., 655 F.3d 461, 467 (6th Cir.
2011).

         All of Owsley’s claims under the False Claims Act (and the Indiana statute) rest on the
premise that the defendants knowingly submitted or caused to be submitted “a false or fraudulent
claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A); Ind. Code § 5-11-5.7-2(a)(1). The
quoted language “attaches liability, not to the underlying fraudulent activity or to the
government’s wrongful payment, but to the claim for payment.” United States ex rel. Sheldon v.
Kettering Health Network, 816 F.3d 399, 411 (6th Cir. 2016) (cleaned up). For that reason, our
circuit has imposed a “clear and unequivocal requirement that a relator allege specific false
claims when pleading a violation of” the Act. Id. (cleaned up). Thus, under Rule 9(b), “[t]he
identification of at least one false claim with specificity is an indispensable element of a
complaint that alleges a False Claims Act violation.” United States ex rel. Hirt v. Walgreen Co.,
846 F.3d 879, 881 (6th Cir. 2017) (cleaned up). Rule 9(b) therefore “does not permit a False
Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply that
claims requesting illegal payments must have been submitted.”              Sanderson v. HCA-The
Healthcare Co., 447 F.3d 873, 877 (6th Cir. 2006) (cleaned up).

         That in substance is what Owsley has done here. Owsley’s allegations describe, in detail,
a fraudulent scheme: Fazzi fraudulently upcoded patient OASIS data, which Care Connection
then used to submit inflated requests for anticipated payment to CMS. The defendants respond
that Care Connection required a clinician—typically the nurse who performed the patient’s
assessment—to sign off on the final OASIS coding before that coding was used for a request for
anticipated payment. But Envision and Care Connection told employees (including Owsley
herself) to accept Fazzi’s coding or leave the company. See Am. Compl. ¶ 55. And most nurses
accepted “Fazzi’s changes out of fear of losing their jobs.” Id. ¶ 58. The idea that those same
nurses nonetheless corrected all the fraudulent upcoding that Owsley allegedly observed is itself
implausible.

         But Owsley makes little effort in her complaint to “identify any specific claims” that Care
Connection submitted pursuant to the scheme. Sanderson, 447 F.3d at 877. Owsley could have
done that in one of two ways. The default rule is that a False Claims Act claimant must identify
 No. 19-4240               United States v. Fazzi Assocs., Inc., et al.                    Page 6

a “representative claim that was actually submitted to the government for payment.” United
States ex rel. Ibanez v. Bristol-Meyers Squibb Co., 874 F.3d 905, 915 (6th Cir. 2017). Owsley
did not do that here. Alternatively, a claimant “can otherwise allege facts—based on personal
knowledge of billing practices—supporting a strong inference that particular identified claims
were submitted to the government for payment.” Prather, 838 F.3d at 771 (emphasis added).

       Here, Owsley did allege “personal knowledge of billing practices” employed in the
fraudulent scheme—namely, her knowledge of the OASIS codes that she says Fazzi fraudulently
changed. Id.; Am. Compl. ¶ 70. But Owsley did not allege facts that identify any specific
fraudulent claims. Her complaint instead describes several instances of upcoding from 2015:

       (a) A [Care Connection (CCC)] registered nurse evaluated Patient A and indicated
       on the OASIS form that this patient was being treated for a simple leg wound.
       However, Fazzi altered the diagnosis on the OASIS form to include uncontrolled
       diabetes, hypertension, diabetic neuropathy and morbid obesity. There was no
       medical documentation supporting these diagnoses.
       (b) A CCC registered nurse evaluated Patient B—a Medicare Advantage
       patient—and diagnosed her with a leg ulcer. Without any supporting
       documentation, Fazzi altered the diagnosis to include a malignant cancer of the
       larynx.
       (c) Another CCC Medicare patient—Patient C—is ambulatory and can self-inject
       insulin. Nevertheless, Fazzi altered the OASIS forms to indicate that she is
       non-ambulatory and cannot self-inject insulin.
       (d) Patient D, a CCC post-surgical patient on Medicare, utilizes the assistance of a
       hand-held walker. Fazzi upcoded her diagnosis to paraplegia.
       (e) Another CCC patient on Medicaid—Patient E—was treated for a skin lesion,
       but the diagnosis was fraudulently upcoded to non-ambulatory and diabetic.

Am. Compl. ¶ 38.

       This information does not amount to an allegation of “particular identified claims”
submitted pursuant to the fraudulent scheme. Prather, 838 F.3d at 771. Owsley identifies
neither the dates on which she reviewed the OASIS forms for these patients, nor the dates of any
related claims for payment, nor the amounts of any of those claims. Compare id. at 769-70.
That is not to say that our precedents require a plaintiff in one case to allege all the facts found
sufficient in another; the facts of a particular case should not be mistaken for its rule. Instead,
 No. 19-4240              United States v. Fazzi Assocs., Inc., et al.                     Page 7

the touchstone is whether the complaint provides the defendant with notice of a specific
representative claim that the plaintiff thinks was fraudulent. See Sanderson, 447 F.3d at 877;
United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 643 (6th Cir. 2003). And
the diagnostic information in Owsley’s complaint is simply not enough for Care Connection,
Fazzi, or Envision reasonably to pluck out—from all the other claims they submitted—the five
that Owsley was alluding to here. Her complaint therefore did not satisfy Civil Rule 9(b) as to
those defendants.

                                                B.

       The district court was also correct to dismiss Owsley’s claims against Gem City and
Ascension. Owsley worked only at Care Connection, see Am. Compl. ¶¶ 6, 34, and did not
allege that she regularly reviewed the OASIS forms of other defendant home-health agencies.
She therefore lacked personal knowledge about the billing practices of those defendants.

       Finally, the district court did not abuse its discretion when it denied Owsley
leave to amend her complaint a second time. Owsley neither moved formally to amend nor
proffered a proposed amended complaint. See Begala v. PNC Bank, Ohio, Nat’l Ass’n, 214 F.3d
776, 783-84 (6th Cir. 2000).

                                            *    *   *

       The district court’s judgment is affirmed.