Relators Failed to Show False Third-Party Billings and Regulatory Violations Resulted in False Claims; United States District Court for the Northern District of Illinois, Eastern Division, No. 17 C 4457, U.S. ex rel. Kenya Sibley, et al. v. University of Chicago Medical Center, et al.


The district court granted the defendants’ motion to dismiss a qui tam case alleging healthcare fraud, finding that the complaint alleged regulatory violations without connecting them to the submission of false claims. While the plaintiffs plausibly alleged two of the defendants submitted inflated invoices for medical debt collection services, the court found no evidence the healthcare provider defendant was aware of the scheme or that it had used the invoices to induce Medicare to increase its reimbursements. The relators also adequately pled the defendants violated rules about medical debt collection and write-offs, but again without connecting the violations to false claims. The court also rejected the relators’ claims of retaliation. While sympathetic, the court found the adverse employment actions were taken in response to complaints about internal policy and regulatory violations, not in relation to protected FCA activity.

Defendants Medical Business Office, Trustmark Recovery Services, and University of Chicago Medical Center moved to dismiss a qui tam complaint alleging they violated the False Claims Act by submitting fraudulent billings to Medicare.

UCMC is a medical provider and Medical Business Office is a medical billing company that helps collect payments from patients. Trustmark is a medical debt collection agency that handles MBO’s collections. MBO and Trustmark are owned and operated by the same individuals. In its contract with UCMC, MBO agreed to provide 1 manager, 2 support clerks, and 26 collectors for a flat monthly rate.

Using the contact and MBO’s invoices as a basis, the relators alleged two schemes in violation of the False Claims Act. First, the relators alleged a “ghost payroll” scheme, through which MBO and Trustmark regularly falsified UCMC invoices, listing employees who did no work on UCMC collections and including time charges from people who were not employees. One relator alleged she saw her name on an invoice, even though she did no work for UCMC collections. The complaint listed various examples of specific employees whose time was falsely billed and other discrepancies.

The realtors alleged that UCMC paid these invoices and submitted an annual cost report to CMS to receive its allowable costs and bad debt reimbursement under Medicare. According to the relators, the fraudulent billings caused UCMC to overstate its administrative and general wage index by 1.5 percent from July 1, 2016, to June 30, 2017. In turn, this triggered a larger reimbursement from CMS than UCMC was entitled to. According to the relators, all three defendants were aware of the scheme, to which they agreed in order to compensate MBO and Trustmark for losses on another UCMC contract. The relators also alleged that Trustmark paid a monthly consulting fee to UCMC’s financial director, Keith Sauter, so that he would not report the fraudulent billing to CMS.

Next, the relators alleged a scheme involving debt collections. MBO’s customer service team was supposed to review potential write-offs and conclude whether the overdue payments were eligible for debt collection through Trustmark. The relators alleged MBO instructed them to skip reviews and instead automatically approve unreviewed bad debt write-offs. These debts included bills that were still being paid by beneficiaries, bill where no reasonable collection effort was made, and accounts where no debt was owed. MBO would then send those debts to Trustmark for collection. The relators alleged this practice did not comply with CMS rules for bad debt review and collection. For example, some purportedly bad debts included amounts actually paid by insurance. Nonetheless, these amounts were written off as Medicare bad debt.

The three relators also alleged individual retaliation claims and relator Sibley alleged that her termination violated the Americans with Disabilities Act.

Relator Kenya Sibley’s observations as an MBO and Trustmark customer service manager largely formed the basis for the qui tam complaint. Sibley noticed that her name was included on UCMC billings when she had not performed any relevant collection services. After raising this issue to management without success, Sibley continued complaining about the practice and began assembling spreadsheets documenting bad debts that were written off without appropriate review. After management told her to stop compiling these reports, an MBO vice president learned that Sibley had been a relator in a qui tam case against a previous employer and had written a book about medical fraud.

In February 2017, Sibley had a medical event that caused her to miss work. After informing MBO that she would not return to work for at least a month, her employment was terminated. Sibley asserted she was terminated for reporting fraud, because her employers were worried she’d file a qui tam action, and because she took medical leave.

Relator Jessica Lopez, a former MBO customer service representative, also alleged she raised concerns about MBO’s billing practices and double-billing of patients. Sibley alleged she was told to fabricate a pretext for firing Lopez but refused. Lopez was later fired by an HR representative.

Relator Jasmeka Collins worked as a Trustmark bad debt collections and legal department manager. She alleged that she was instructed to write off Medicare debts as bad debts before the company received required debt notices and bills. When Collins argued these practices were illegal, she was chastised for using the term “illegal” and demoted from manager to supervisor. When she refused to accept the demotion, Collins was terminated.

To support their allegations about the “ghost payroll” scheme, the relators relied on a wage index theory. According to the relators, because MBO and Trustmark billed UCMC for work that was never performed, UCMC overstated its fees paid information to CMS in its annual cost report. This resulted in UCMC’s receipt of a higher Medicare reimbursement and an improper increase in UCMC’s Medicare wage index at the expense of other hospitals.

However, in response to the defendants’ motion to dismiss, the relators abandoned this theory and opted for a new one—the UCMC bad debt theory. The relators argued that MBO failed to conduct reasonable collection efforts on UCMC’s debt because MBO lacked adequate staffing to do so. In support, the relators pointed to an invoice billing for 12 employees, even though only two employees worked part-time collecting debt. The relators alleged MBO falsified its invoices to UCMC to make it seem like it was providing adequate staffing, inflating the bad debt amounts in UCMC’s annual cost report. The relators provided a cost report showing $4,369,842 in Medicare bad debt, of which the government reimbursed $2,840,397, and argued that two part-time employees could not reasonably have billed and collected over $4 million under the applicable regulations.

First, the court noted that plaintiff’s may not amend a complaint in a response brief. Second, the court found no factual support for the new theory. The court found that the relators failed to identify a false statement. They alleged a regulation had been violated, but the court explained this was not sufficient, as they did not allege the defendants certified compliance with the regulation. Second, the court found no evidence that the scheme was material to the government’s decision to pay UCMC for any bad debt. Further, the court noted the relators did not allege any facts showing the defendants’ debt collection efforts were not reasonable under CMS rules. In fact, the complaint did not allege that MBO or Trustmark conducted bad debt collection efforts for UCMC, nor that amount of bad debt reported in UCMC’s cost reports was false or that UCMC received reimbursements for bad debt that were improper.

The complaint also failed to establish UCMC’s knowledge, but suggested that a lone employee acted in concert with MBO and Trustmark in exchange for payments. The court held the plaintiffs had not imputed knowledge of the scheme to UCMC.

Next, the court turned to the bad debt scheme, in which the relators alleged the defendants improperly wrote off bad debt. However, the court found this claim failed due to the same defect as Count I: the relators failed to allege the defendants made false statements to obtain money from the government. Again, this count alleged a regulatory violation, but this was insufficient. Even assuming the relators’ description of CMS’ reimbursement scheme was accurate, the court noted that the relators merely alleged that healthcare providers could report the bad debt to Medicare, not that they actually did.

The court also dismissed the claims of FCA retaliation, finding the relators failed to establish that a reasonable employee in their positions would have believed MBO and Trustmark were defrauding the government. Thus, their activity was not protected such that it could give rise to retaliation claims. The court explained that the allegations describe complaints about internal processes, not claims activity. None of the relators alleged she complained about false claims to the government, outside their speculation that certain information could be incorporated into government-directed cost reports. The one cost report cited in the complaint was submitted well after each relator’s last day on the job.

Specific to Sibley, the court found no evidence—outside bare assertions—that any MBO employee investigated her background, discovered adverse information about her previous employment, and terminated her because of it. The defendants also argued that neither Sibley’s previous qui tam activity nor the publication of her book were activities protected under the FCA. The court found it plausible that Sibley could argue that MBO fired her because she had been a relator in a previous qui tam case, but because the complaint was so poorly pleaded, the court held it need not decide the matter.

Finally, the court considered Sibley’s allegation that her terminated violated the ADA. The defendants argued that because she requested indefinite leave, Sibley was ineligible for ADA relief. MBO and Trustmark also noted that Sibley did not provide a doctor’s note confirming her disability or stating that she needed an accommodation. Sibley argued that she did not request indefinite or multi-month leave but sought a month-long leave of absence to recover and determine her ability to return to work because her stroke was sudden, and her recovery time was unclear. Sibley also noted that MBO terminated her only four days after her medical incident and two days after her request for leave, during which she was using her allotted sick days.

The court sided with the defendants, finding that any benefits Sibley might have had under the ADA never accrued. The ADA requires reasonable accommodations for disability but does not guarantee an indefinite right to employment. In this case, the doctor’s note provided by the plaintiff stated she was not able to work at all during her recovery and would likely not return for almost three months. The ADA covers individuals who are able to work provided they are given some accommodation to account for a disability, but does not cover the type of extended leave Sibley requested.

Nonetheless, the court chided the defendants for terminating Sibley’s employment so soon after becoming aware of her health incident, and before they knew the extent of her medical issues. The court noted Sibley was fired four days after she suffered a stroke and only two days after she requested leave, during a period when the doctors had not yet established her recovery plan. While her circumstances eventually fell outside the scope of the ADA, MBO could not have known that when it fired Sibley. The court suggested a bit of compassion might have been in order, but could not impose it from the bench.