Defendants Can’t Duck Allegations They Billed for Services Provided to Absent Patients; United States District Court for the Eastern District of Virginia No. 3:16cv653, U.S. ex rel. Sethina Fortunatè and Michael Hockaday, et al. v. NDUTIME Youth and Family Services Inc., et al.


The district court denied the defendants’ motion to dismiss a qui tam complaint alleging fraudulent claims were submitted to Medicaid. The court found the relators adequately alleged that the defendants directed mental health professionals to bill for more hours of patient services than they provided and to bill for services that were never provided. The relators provided evidence showing how they were directed to overbill for service hours and showing that patients were not on the premises when services were purportedly provided. The court also found the relators adequately alleged the defendants were aware that Virginia requires certain services to be provided by licensed professionals, but billed for services that were provided by unlicensed employees. The court also found the relators’ claims of employment retaliation were sufficient to survive the motion to dismiss. However, the court dismissed one count of retaliation against an individual supervisor, as the FCA does not create a cause of action against an individual for employment retaliation.

In this qui tam action, relators Sethina Fortunatè and Michael Hockaday allege that their former employer, NDUTIME Youth and Family Services, and Teshana D. Gipson submitted false claims for payment to Medicaid and Medicare, and engaged in unlawful employment retaliation. The United States and Commonwealth of Virginia both intervened. The defendants moved to dismiss the joint complaint in intervention and all counts for failure to state a claim.

The government alleged the defendants billed Virginia for nearly 1,700 claims for mental health services they did not provide or which they submitted with inadequate documentation. According to the government, these billings about to approximately 30 percent of NDUTIME’s billing during the time period of the claims.

Virginia’s Medicaid rules require providers to submit claims with specific documentation, including progress notes, times spent delivering services, and unique details of the beneficiary’s circumstances and treatment. Providers need not submit progress notes with every claim, but must retain them for at least five years. The rules also require that certain services be provided by licensed and certified professionals. The government alleged the defendants were aware of these comments because NDUTIME’s director commented on a Virginia state website where the state posted rules changes implementing these requirements.

The government alleged the defendants submitted claims for payment that were inadequately documented, submitted claims for payment for crisis intervention services that were provided by other than licensed or certified professionals, and billed for crisis intervention and therapeutic day treatment services that were fraudulently completed or not completed at all.

Specifically, the government argued NDUTIME’s billing documentation lacked the required patient progress reports and in some cases contained fabricated progress notes. The defendants also allegedly billed Medicaid for the maximum amount of time allowed per patient encounter, regardless of how much time was spent providing services. For example, counselors documented services for 8 hours per day, because a recipient was housed in a hotel, not because the patient actually received 8 hours of care. When the state removed the 8 hour limit, the defendants nearly doubled the number of hours that counselors were required to bill.

The government provided at least one specific example of an email berating a counselor for billing only 3 hours of care, and for documenting the actual time period in care, rather than billing for a pre-set block of time. Counselors were also directed to create progress notes even when the patient was not present. For example, they were directed to bill for time when patients were visiting family, attending school, or at work. In one case, the defendants submitted a claim billing for six hours of care but also including a note stating the patient had not returned to the facility during the time service was allegedly being provided. The government provided representative claims that showed the service date, hours billed, and amount paid to the defendants.

Next, the government alleged the defendants billed for crisis intervention services that were provided by unlicensed and unqualified counselors. However, despite regulatory changes and internal emails discussing this requirement, NDUTIME continued to bill the government for crisis services provided by unlicensed professionals. For other services, the government provided examples where an unqualified professional provided intake services and then gave completed care forms to a licensed professional to sign, as those the licensed professional had provided the service. In some cases, no intake services were provided, but NDUTIME billed for them anyway.

Relator Sethina Fortunatè alleged that NDUTIME took unlawful employment retaliation action against her for objecting to these billing practices. Fortunatè worked for NDUTIME as a Mental Health Crisis Counselor, with a Qualified Mental Health Professional designation. During her employment, she alleged she witnessed noncompliant billing practices and that she raised her concerns with management. According to the relator, after she raised her concerns and refused to participate in the fraudulent billing, her employment was terminated. The relator alleged the reasons given for her termination were pretextual. Upon her termination, Fortunatè was told she would not be paid for some of the work she performed because she had not yet completed certain client documentation. According to the relator, she did not complete the documentation because NDUTIME wanted her to falsify her records.

Relator Hockaday filed his initial complaint after Fortunatè, alleging the same general facts of false claims and retaliation. Hockaday worked as a crisis counselor and lead crisis counselor, and held credentials as a qualified mental health professional. Hockaday also alleged he was directed to falsify his treatment records and that he complained about billing improprieties. After he refused to participate in the fraudulent billing scheme, his work responsibilities were diminished and he was threatened with termination. Although he voluntarily terminated his employment, Hockaday alleged this amounted to constructive termination due to his protected activity.

The defendants moved to dismiss joint complaint in intervention and to dismiss all counts for failure to state a claim. First, the defendants argued the allegations were conclusory and merely recited law and regulations. Where the allegations cited specific conduct, the defendants argued the conduct was isolated to knowledge of a rule or regulation, or a change in a rule.

The court disagreed, finding the complaint met all four elements of an FCA claim with particularity. The government alleged the presentment of false claims, and provided representative examples of fraudulent claims, including dates and amounts. The government also described who had perpetrated the fraud, as well as when, where, and how, including internal emails among the defendants. The government also showed—through public comments and internal emails—that the defendants were aware of the rules and violated them nonetheless. While the defendants argued that some claims may have been submitted by innocent mistake, the court found the government, at minimum, had demonstrated willful ignorance or reckless disregard.

The court also found the alleged fraudulent activity material to the government’s decision to pay NDUTIME’s claims. Taking the allegations as true, the court held that a reasonable person would conclude—wrongly—that NDUTIME complied with core contract requirements, including the maintenance of patient records, the limitations on use of unlicensed professionals, and the accuracy of hours billed.

The court also held the government sufficiently pled its count of common law fraud, generally for the reasons cited above. However, the court acknowledged that the claim might ultimately be unavailable if the alleged misrepresentations—the omissions or fraudulent claims submitted to Virginia—took place pursuant to the defendants’ contractual duties, a situation that ordinarily forecloses a fraud claim.

The court also declined to dismiss the counts of payment by mistake and unjust enrichment. The defendants argued that the existence of an express contract between NDUTIME and Medicaid precludes the government from pursuing equitable remedies. The court denied the motion on procedural grounds. While such a contract might exist, and while its existence would preclude these claims, the court noted the defendants had not yet filed an answer and therefore it remained unclear whether the written contract would foreclose other theories of liability. Similarly, the defendants articulated no reason the court should conclude as a matter of law that claims of unjust enrichment and payment by mistake must necessarily fail. The court questioned Virginia law bars an unjust enrichment claim when the defendant is a party to the contract but the plaintiffs/relators—here the United States and Commonwealth of Virginia—are not. The court could not settle the question because the substance of NDUTIME’s contract remained unknown.

NDUTIME also moved to dismiss the claims of unlawful employment retaliation. First, the court held that Fortunatè’s retaliation claims survived the motion. The court found the complaint alleged that she repeatedly raised her concerns about the defendant’s billing practices to management and that her employment was terminated soon after. In fact, the complaint alleged that the relator last expressed her concerns to her supervisor on the day she was fired.

The defendants argued that the complaint merely asserted that Fortunatè “raised questions” and was considered a nuisance. They also argued the complaint acknowledged that the relator was terminated for missing a doctor’s meeting with a client and violated policies regarding timekeeping records and had falsified those records.

However, the court found the complaint sufficient to survive the motion. The relator need not have filed an FCA action to claim retaliation, but merely needed to demonstrate actions to stop potential violations. Questioning the defendants’ billing practices to her supervisor satisfied this prong of the test. It was also clear to the court that the relator’s supervisors knew of her concerns. Finally, the proximity between the relator’s expression of her concerns and her termination suggested causation.

The defendants also moved to dismiss the retaliation claim filed by relator Hockaday. Hockaday alleged the defendants diminished his job duties and threatened to terminate his employment after he complained about the billing practices.

The defendants again argued the relator did not demonstrate he engaged in protected activity or that they were aware of any activity. They also argued that the FCA creates a cause of action only against an individual’s employer, not their supervisors, and therefore Hockaday’s complaint against Gipson should be dismissed.

The court found Hockaday adequately alleged that he tried to stop potential FCA violations and that he was terminated because of this activity. The court also found the complaint alleged that NDUTIME was aware of his protected activity.

However, the court agreed that the claims against Dr. Gipson individually were barred, as the FCA allows a relator to sue an employer under its retaliation provisions, not individual supervisors.