The district court granted the defendants’ motion to dismiss a qui tam case alleging fraud on Medicaid arising from the discriminatory practices of an adult daycare facility. The relators alleged that the facility routinely discriminated against certain classes of patients by segregating them from other patients, failing to provide needed services, and providing substandard care. Because the facility had to certify its compliance with various state and federal laws—including anti-discrimination ordinances—the relators alleged their subsequent claims for reimbursement were impliedly false. First, the court found that the allegations of discrimination were anecdotal and mostly limited to the performance and attitudes of individual employees and contractors, and did not necessarily show intentional and systemic discrimination on the part of the defendants. Second, and fatal to the complaint, the court found no evidence that the alleged discrimination was material to the state’s decision to pay claims. The relators argued that anti-discrimination is so fundamental in U.S. law that the court should conclude that the conduct they alleged rose to the level of materiality, as a matter of law. However, the court declined to reach this conclusion, finding no evidence that the state would have declined to pay claims based on the conduct as alleged. Further, the court found the state had realized the benefit of its bargain, as it was undisputed that the defendants provided the services for which they sought reimbursement, even if they were inconsistently or poorly provided.
Relators Orlando Lee, Melville Luckie, and Luz Gonzalez sued their former employer, a Medicaid provider called Northern Manor Adult Day Health Care Program, and several affiliated companies, alleging violations of the False Claims Act. The defendants moved to dismiss.
Northern operated a adult day health care program in serving elderly, low-income individuals. Once certified by the New York Department of Health, Northern was authorized to seek reimbursement for providing day care and health services to qualified registrants. Separately, the state of New York entered into a settlement agreement with Northern, under which Northern admitted to operating a medical-model program without a qualified social worker on staff and to treating more registrants than it was certified to serve at one time. Northern agreed to pay $6.5 million to the State and close its facility. The state and federal governments declined to intervene in this action.
In this complaint, the relators alleged that Northern discriminated against its non-Russian registrants on the basis of national origin and provided all its registrants substandard care, in violation of various federal and state statutes.
Previously, the defendants successfully moved for summary judgment on multiple claims, leaving only the alleged violations of the federal and New York False Claims Act. The court also limited the theory of liability the relators could pursue to their implied false certification theory. Under that theory, the relators alleged that Northern’s discrimination and medical-model failures violate the false claims statutes because when Northern sought reimbursement, it “impliedly” (and falsely) certified its compliance with various laws prohibiting such failures.
The complaint explained that Northern’s registrants and staff were predominantly Russian, but that the facility also recruited and served people of other nationalities. Northern provided health and recreational services, including transportation to and from the facility (through independent contractors); meals; nursing services; arts and crafts; physical and occupational therapy; and trips to museums and restaurants.
The relators alleged that facility employees provided preferential treatment to Russian patients on the basis of national origin and discriminated against its non-Russian registrants. For example, the relators alleged that patients were segregated by nationality and that Russian-speaking employees were verbally abusive to non-Russian registrants. They also alleged that the facility provided Russian language reading materials but did not consistently provide materials in Spanish or Cantonese, and that services and functioning equipment were not readily available to non-Russians. Relator Lee also alleged that he was discouraged from recruiting non-Russian registrants.
However, the court found the relators’ testimony vague and often contradictory. While Lee alleged that nurses had berated him for bringing in non-Russian registrants, his testimony suggested that the conflict arose because he brought in multiple registrants at once, overloading the intake process. Further, while the relators alleged that non-Russians were not provided services, such as physical therapy, day outings, and rides home, their testimony was anecdotal and devoid of personal observation. For example, the relators observed that only Russian-speaking registrants were being provided physical therapy, but had no evidence that non-Russian registrants were denied physical therapy after receiving a physician referral. Because the allegations were based on supposition, rather than ongoing documented observations, the court could not find that Northern discriminated against its non-Russian registrants.
The relators also testified to certain shortcomings in the standard of care provided to registrants. Relator Luckie alleged that after a new director was hired, the healthfulness of the food declined. Previously, food was prepared onsite and registrants were given the option of choosing from among a variety of dishes, including meals that met their medically necessary dietary needs. However, after the new director was hired, Northern began to order food in bulk from a Russian restaurant and registrants had no option to choose their meals. Luckee testified that the facility dietician suggested the meals were not healthy for elderly people.
The relators also alleged that Northern employees handled food improperly and against safety standards, and that they failed to properly supervise registrants. For example, they alleged that registrants would bring alcohol into the facility and would leave without permission or supervision.
While the relators adequately alleged they had witnessed some discriminatory conduct by staff, poor service delivery, and food safety violations, the court could not conclude that this conduct was endemic to the facility, rather than poor performance by an individual or contractor. Fatal to the complaint, however, the court found that the relators had not shown that any of the alleged misconduct was material to the government’s decision to reimburse Northern for its services.
The court noted that the relators presented no evidence that Northern certified compliance with any anti-discrimination statute or any adult day care regulation. They called no government witness to discuss what the government had done in the past, or would have done in this case, in light of similar noncompliance. Finally, they presented no evidence or testimony about whether the noncompliance went to the essence of the Department of Health’s bargain. The court found it undisputed that Northern did provide meals, on-staff nursing professionals, recreational activities, transportation to and from the facility, and other services, regardless of the relators’ opinions about the quality and professionalism.
The court also found no evidence the defendants knowingly failed to disclose noncompliance or that they knew this omission would be material to New York’s payment decision. The relators did not allege they submitted bills or submit evidence about the billing process, and called no Northern employee who would have be responsible for doing so. They also failed to demonstrate that northern made specific representations about the services it provided or provide any Medicaid claim data.
The relators argued that anti-discrimination is so fundamental in U.S. law that the court should conclude that the discrimination they alleged rose to the level of materiality, as a matter of law. However, the court found no precedent to support this concept. The relators cited to U.S. ex rel. Anti-Discrimination Center of Metro New York, Inc. v. Westchester County, which purportedly held that all civil rights violations give rise to False Claims Act liability.
However, the court noted that this case involved a government program aimed at eradicating housing segregation. In order to receive funding, Westchester County certified that it would meet a variety of anti-discrimination metrics, but did not engage in promised conduct. Unlike this case, the court found evidence in U.S. v Westchester County that the regulatory anti-discrimination requirements that were express conditions of payment, and went incontrovertibly to the absolute essence of the government’s bargain, which was about eradicating housing discrimination.
