Complaint-in-Intervention — United States ex rel. Integra Med Analytics LLC v. Isaac Laufer (Document 13)
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Complaint-in-Intervention of the United States filed June 2, 2021 as Document 13 in United States ex rel. Integra Med Analytics LLC v. Isaac Laufer, et al., No. 17 Civ. 9424 (CS), U.S. District Court for the Southern District of New York. The Government sues Issac Laufer, Tami Whitney, Paragon Management SNF LLC and skilled nursing facilities under the False Claims Act, 31 U.S.C. §§ 3729 et seq. It alleges that from at least 2010 through September 2019 the defendants submitted false claims to Medicare Part A for unreasonable, unnecessary, or unskilled therapy services, by keeping patients in residence and on therapy longer than necessary and by placing patients on higher levels of rehabilitation therapy. The prayer for relief requests treble damages and civil penalties on the False Claims Act claims and damages on the unjust enrichment and payment-by-mistake claims.
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“Complaint-in-Intervention — United States ex rel. Integra Med Analytics LLC v. Isaac Laufer (Document 13).”
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Case 7:17-cv-09424-CS-JCM Document 13 Filed 06/02/21 Page 1 of 43
AUDREY STRAUSS
United States Attorney for the
Southern District of New York
By: RACHAEL DOUD
JACOB M. BERGMAN
Assistant United States Attorneys
86 Chambers Street, 3rd Floor
New York, New York 10007
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA ex rel.
INTEGRA MED ANALYTICS LLC,
Plaintiff,
v.
ISAAC LAUFER, MONTCLAIR CARE CENTER,
INC., EAST ROCKAWAY CENTER LLC, EXCEL
AT WOODBURY FOR REHABILITATION AND 17 Civ. 9424 (CS)
NURSING, LLC, LONG ISLAND CARE CENTER
INC., TREETOPS REHABILITATION & CARE, COMPLAINT-IN-INTERVENTION
SUTTON PARK CENTER FOR NURSING & OF THE UNITED STATES OF
REHABILITATION, LLC, SUFFOLK AMERICA
RESTORATIVE THERAPY & NURSING, LLC,
OASIS REHABILITATION AND NURSING, JURY TRIAL DEMANDED
LLC, and FOREST MANOR CARE CENTER,
INC.,
Defendants.
UNITED STATES OF AMERICA,
Plaintiff,
v.
ISSAC LAUFER, TAMI WHITNEY, PARAGON
MANAGEMENT SNF LLC, MONTCLAIR CARE
CENTER, INC., EAST ROCKAWAY CENTER
LLC, EXCEL AT WOODBURY FOR
REHABILITATION AND NURSING, LLC, LONG
ISLAND CARE CENTER INC., TREETOPS
REHABILITATION & CARE CENTER LLC,
SUTTON PARK CENTER FOR NURSING &
REHABILITATION, LLC, SUFFOLK
Case 7:17-cv-09424-CS-JCM Document 13 Filed 06/02/21 Page 2 of 43
RESTORATIVE THERAPY & NURSING, LLC,
OASIS REHABILITATION AND NURSING,
LLC, FOREST MANOR CARE CENTER, INC.,
SURGE REHABILITATION & NURSING LLC,
and QUANTUM REHABILITATION & NURSING
LLC,
Defendants.
The United States of America (the “United States” or the “Government”), by and
through its attorney, Audrey Strauss, United States Attorney for the Southern District of New
York, brings this Complaint-In-Intervention against Issac Laufer, who is a part owner of ten of
the eleven above-captioned skilled nursing facilities located in and around the Southern District
of New York and operates all of the facilities; Tami Whitney, the Coordinator of Rehabilitation
Services at those facilities; Paragon Management SNF LLC (“Paragon”), the management
company through which Laufer operates those facilities; and the skilled nursing facilities
themselves (individually, a “Facility”, and together, the “Facilities”) (collectively,
“Defendants”), to recover treble damages sustained by, and civil penalties and restitution owed
to, the Government under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., and, in the
alternative, to recover damages sustained by the Government under the common law, and alleges
as follows:
PRELIMINARY STATEMENT
1. From at least 2010 through September 2019 (the “Relevant Period”), Defendants
knowingly submitted, or caused to be submitted, false claims to Medicare Part A for
unreasonable, unnecessary, or unskilled therapy services that the Facilities provided to residents.
Defendants also made false statements in connection with those false claims, including
statements erroneously certifying that Defendants complied with applicable Medicare
requirements. Defendants carried out this fraudulent billing scheme in two principal ways. First,
Defendants systematically and deliberately worked to keep patients in residence at the Facilities
Case 7:17-cv-09424-CS-JCM Document 13 Filed 06/02/21 Page 3 of 43
and on therapy longer than necessary or reasonable in order to maximize the amount billed to
Medicare for their stays. Second, while the patients were at the Facilities, Defendants routinely
put patients on higher levels of rehabilitation therapy than reasonable or necessary in order to bill
Medicare at a higher rate for the services Defendants were providing. Defendants Laufer and
Whitney instructed and pressured Facility employees to engage in these practices, in order to
maximize profits and in contravention of the law.
2. Specifically, Whitney tracked the number of Medicare days used by each patient
at the Facilities and expected staff at the Facilities to justify discharges that were substantially
short of 100 days—not for any medical reason, but because 100 days was the maximum stay
compensable by Medicare. Laufer received daily updates from the Facilities reporting the
number of Medicare patients that had been discharged and, when he believed the Facilities were
not making enough money, instructed Whitney to curb discharges in order to maximize Medicare
reimbursement. Laufer’s directives were not based on any information about patients’ clinical
needs; on the contrary, Laufer was explicit that his goal was to increase revenue.
3. To carry out Laufer’s directives, Whitney and the Facilities devised various
strategies to prolong patient stays. For example, the Facilities used challenging balance tests as a
pretext to keep Medicare patients at the Facilities after they were ready to be discharged. In
some instances, the Facilities went so far as to intentionally stunt patients’ progress in order to
create the appearance of a continued need for services and residential care.
4. Similarly, Whitney endeavored to maximize the amount of therapy provided to
patients, again without regard to their clinical needs, and reported to Laufer on this practice.
Whitney directed the Facilities to put virtually all Medicare patients on the highest, and thus
most expensive, level of therapy, and chastised or overrode employees who failed to do so. This
3
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scheme led to the provision of, and billing for, therapy with little or no benefit to patients, and
therapy that did not involve the provision of skilled services.
5. Laufer’s and Whitney’s deliberate efforts to prolong patient stays and maximize
rehabilitation levels, all in order to inflate Medicare billing, were successful. During the
Relevant Period, the Facilities kept Medicare Part A patients at the Facilities longer, and
provided more Ultra High rehabilitation to their patients, than the vast majority of skilled nursing
facilities in the nation.
6. By billing for rehabilitation services that were not reasonable or necessary,
Defendants presented, or caused to be presented, false claims to Medicare. Additionally, by
falsely certifying their compliance with applicable Medicare requirements, Defendants made
false statements material to the payment of false claims.
JURISDICTION AND VENUE
7. This Court has jurisdiction over the claims brought under the FCA pursuant to 31
U.S.C. § 3730(a) and 28 U.S.C. §§ 1331 and 1345, and over the common law claims pursuant to
28 U.S.C. § 1345.
8. This Court may exercise personal jurisdiction over Defendants pursuant to 31
U.S.C. § 3732(a), which provides for nationwide service of process.
9. Venue is proper in this District pursuant to 31 U.S.C. § 3732(a) and 28 U.S.C.
§ 1391(b) because Laufer, Whitney, Paragon, and several of the Facilities transact business in
this District and because a substantial part of the events giving rise to the claims herein occurred
within this District. Defendants submitted claims for services rendered to individuals who lived
in Facilities in this District. Venue is proper in this District as to the remaining Facilities
pursuant to the doctrine of pendent venue.
4
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THE PARTIES
10. Plaintiff is the United States of America. Through its Department of Health and
Human Services (“HHS”), and more specifically through the Centers for Medicare and Medicaid
Services (“CMS”), a component agency within HHS, the Government administers the Medicare
Program, including, as relevant here, Medicare Part A.
11. Relator Integra Med Analytics LLC is a Texas limited liability company. Relator
is an associated company of Integra Research Group LLC, which specializes in using statistical
analysis to identify health care data patterns that suggest fraud. On December 1, 2017, Relator
filed an action pursuant to the FCA alleging that Laufer and nine of the Facilities caused false
claims to be submitted to Medicare in violation of the FCA, by prolonging patient stays in the
Facilities and providing high-level rehabilitation therapy, without any medical justification to do
so.
12. Defendant Issac Laufer is an owner of ten of the eleven Facilities, in most cases
together with other investors. The remaining Facility, Long Island Care Center, Inc., is owned
by Laufer’s father, together with other investors. Issac Laufer operates each of the eleven
Facilities.
13. Defendant Paragon Management SNF LLC is a limited liability company that
Laufer owns and through which he manages the Facilities. Laufer created Paragon in order to
provide support for the Facilities and consolidate cross-Facility operations such as payroll.
Paragon, as ultimately directed by Laufer, exercises authority over hiring and firing decisions
with respect to the administrators that manage the day-to-day operations of the Facilities.
14. Defendant Tami Whitney is an employee of Paragon and the Coordinator of
Rehabilitation Services for the Facilities. As such, she is involved in decisions regarding the
provision of, and billing for, rehabilitation services at the Facilities.
5
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15. Defendant Marquis Rehabilitation & Nursing Center (“Marquis”), d/b/a Montclair
Care Center, Inc. and/or Emerge Nursing and Rehabilitation, is a New York corporation located
at 2 Medical Plaza, Glen Cove, New York 11542. Montclair is a skilled nursing facility (“SNF”)
with the assigned National Provider Identifier (“NPI”) number 1639234149.
16. Defendant Lynbrook Restorative Therapy and Nursing (“Lynbrook”), d/b/a East
Rockaway Center LLC, is a New York limited liability company located at 243 Atlantic Avenue,
Lynbrook, New York 11563. Lynbrook is a SNF with the assigned NPI number 1265724298.
17. Defendant Excel at Woodbury for Rehabilitation and Nursing, LLC (“Excel”) is a
New York limited liability company located at 8533 Jericho Turnpike, Woodbury, New York
11797. Excel is a SNF with the assigned NPI number 1376989376.
18. Defendant Long Island Care Center, Inc. (“LICC”) is a New York corporation
located at 144-61 38th Avenue, Flushing, New York 11354. LICC is a SNF with the assigned
NPI number 1780661785.
19. Defendant North Westchester Restorative Therapy and Nursing Center (“North
Westchester”), d/b/a Treetops Rehabilitation & Care Center LLC, is a New York limited liability
company located at 3550 Lexington Avenue, Mohegan Lake, New York 10547. Treetops is a
SNF with the assigned NPI number 1427100064.
20. Defendant Sutton Park Center for Nursing & Rehabilitation LLC (“Sutton Park”)
is a New York limited liability company located at 31 Lockwood Avenue, New Rochelle, New
York 10801. Sutton Park is a SNF with the assigned NPI number 1376788513.
21. Defendant Momentum at South Bay for Rehabilitation and Nursing
(“Momentum”), d/b/a Suffolk Restorative Therapy & Nursing LLC, is a New York limited
liability company located at 340 East Montauk Highway, East Islip, New York 11730. Suffolk is
a SNF with the assigned NPI number 1508167230.
6
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22. Defendant Oasis Rehabilitation and Nursing, LLC (“Oasis”) is a New York
limited liability company located at 6 Frowein Road, Center Moriches, New York 11934. Oasis
is a SNF with the assigned NPI number 1316360845.
23. Defendant Glen Cove Center for Nursing and Rehabilitation (“Glen Cove”), d/b/a
Forest Manor Care Center, Inc., is a New York corporation located at 6 Medical Plaza, Glen
Cove, New York 11542. Forest Manor is a SNF with the assigned NPI number 1366438418.
24. Defendant Surge Rehabilitation and Nursing LLC (“Surge”) is a New York
limited liability company located at 49 Oakcrest Ave, Middle Island, New York 11953. Surge is
a SNF with the assigned NPI number 1205372042.
25. Defendant Quantum Rehabilitation and Nursing LLC (“Quantum”) is a New York
limited liability company located at 63 Oakcrest Avenue, Middle Island, New York 11953.
Quantum is a SNF with the assigned NPI number 1215473053.
THE FALSE CLAIMS ACT
26. The False Claims Act was originally enacted in 1863 to address fraud on the
Government in the midst of the Civil War, and it reflects Congress’s objective to “enhance the
Government’s ability to recover losses as a result of fraud against the Government.” See S. Rep.
No. 99-345, at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266.
27. As relevant here, the FCA establishes treble damages liability to the Government
where an individual or entity “knowingly presents, or causes to be presented, a false or
fraudulent claim for payment or approval[;]” or “knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false or fraudulent claim[.]” 31 U.S.C. §§
3729(a)(1)(A), (a)(1)(B).
28. “Knowingly,” within the meaning of the FCA, is defined to include acting in
reckless disregard or deliberate indifference of the truth or falsity of information, as well as a
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defendant’s actual knowledge of such falsity. See id. § 3729(b)(1). Further, “no proof of
specific intent to defraud” is required to establish liability under the FCA. Id.
29. For purposes of Section 3729(a)(1)(B), the FCA defines “material” as “having a
natural tendency to influence, or capable of influencing, the payment or receipt of money or
property.” Id. § 3729(b)(4).
30. In addition to treble damages, the FCA also provides for assessment of a civil
penalty for each violation or each false claim.1 See 31 U.S.C. § 3729(a)(1).
MEDICARE REIMBURSEMENT FOR SNF CARE
31. Medicare is a federally operated health insurance program administered by CMS,
benefiting individuals 65 and older and the disabled. See 42 U.S.C. § 1395c et seq.
32. The Medicare program is divided into four “parts” that cover different services.
Medicare Part A generally covers inpatient hospital services, home health and hospice care, and
skilled nursing and rehabilitation care. Under Medicare Part A, CMS reimburses institutional
healthcare providers a predetermined, fixed amount under a prospective payment system
(“PPS”). Specifically, healthcare providers submit claims to CMS for medical services rendered,
and CMS in turn pays the providers for those services based on payment rates established by the
Government.
33. Medicare Part A covers only those services that are “reasonable and necessary for
the diagnosis or treatment of illness or injury.” See 42 U.S.C. § 1395y(a)(1)(A). In the context
of skilled rehabilitation therapy, this means that the services furnished must be consistent with
the nature and severity of the patient’s individual illness, injury, or particular medical needs;
1
As adjusted by applicable laws and regulations, the range of civil penalties for FCA
violations occurring between September 29, 1999, and November 1, 2015, is $5,500 to $11,000,
see 28 U.S.C. § 2461 (notes); 64 Fed. Reg. 47,099, 47,103 (1999); and the range of civil
penalties for FCA violations occurring after November 1, 2015, is $10,781 to $21,563, see 82
Fed. Reg. 9,131–9,136 (2017).
8
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must be consistent with accepted standards of medical practice; and must be reasonable in terms
of duration and quantity. See Medicare Benefit Policy Manual, Ch. 8, § 30; see also 42 U.S.C. §
1395f(a)(2)(B); 42 C.F.R. §§ 409.31(a)-(c) (explaining that, to justify SNF care, a medical
practitioner must certify on a continuing basis that services are required because the individual
needs skilled services on a daily basis).
34. To assess whether services are reasonable and necessary, and therefore eligible
for reimbursement, Medicare rules require proper and complete documentation of the services
rendered to beneficiaries. In particular, the Medicare statute provides that:
no such payments shall be made to any provider unless it has furnished such
information as the Secretary may request in order to determine the amounts due
such provider under this part for the period with respect to which the amounts are
being paid or any prior period.
42 U.S.C. § 1395g(a).
35. To submit claims to Medicare, each SNF must submit a Medicare Enrollment
Application in which the SNF certifies, among other things, that:
I agree to abide by the Medicare laws, regulations and program instructions that
apply to this provider. . . . I understand that payment of a claim by Medicare is
conditioned upon the claim and the underlying transaction complying with such
laws, regulations, and program instructions (including, but not limited to, the
Federal anti-kickback statute and the Stark law), and on the provider’s compliance
with all applicable conditions of participation in Medicare.
See CMS Form 855A.
36. Under the PPS, Medicare pays a SNF a predetermined daily rate for each day of
skilled nursing and rehabilitation services provided to a patient. See 63 Fed. Reg. 26,252,
26,259-60 (May 12, 1998). Subject to certain conditions, Medicare Part A covers up to 100 days
of care in a SNF for a benefit period (i.e., spell of illness) following a qualifying hospital stay of
at least three consecutive days. 42 U.S.C. § 1395d(a)(2)(A); 42 C.F.R. § 409.61(b), (c).
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37. Among the conditions that Medicare imposes on its Part A SNF benefit are that:
(1) the patient requires skilled nursing care or skilled rehabilitation services (or both) on a daily
basis; (2) the daily skilled services are services that, as a practical matter, can only be provided in
a skilled nursing facility on an inpatient basis; (3) the services are provided to address a
condition for which the patient received treatment during a qualifying hospital stay or that arose
while the patient was receiving care in a skilled nursing facility (for a condition treated during
the hospital stay); (4) the services are ordered by a physician; and (5) the services provided
require the skills of technical or professional personnel such as registered nurses, licensed
practical (vocational) nurses, physical therapists, occupational therapists, and speech pathologists
or audiologists and are furnished directly by, or under the supervision of, such personnel. 42
U.S.C. § 1395f(a)(2)(B); 42 C.F.R. §§ 409.31(a)-(c).
38. Medicare requires that a physician or certain other practitioners certify that these
conditions are met at the time of a patient’s admission to the SNF and recertify the patient’s
continuing need for skilled rehabilitation therapy services at regular intervals thereafter, with the
first recertification required no later than the fourteenth day of the stay and additional
recertifications required at intervals not exceeding thirty days. See 42 U.S.C. § 1395f(a)(2);
Medicare General Information, Eligibility, and Entitlement Manual, Ch. 4, §§ 40.3 & 40.4.
39. Skilled therapy services may include the disciplines of physical, occupational, and
speech therapy. In order for the services in question to be considered skilled rehabilitation, they
must be “so inherently complex that [they] can be safely and effectively performed only by, or
under the supervision of, professional or technical personnel.”2 See 42 C.F.R. § 409.32(a).
2
Examples of skilled rehabilitation services include: therapeutic exercises which must be
performed by or under the supervision of a qualified physical or occupational therapist; gait
evaluation and training; range of motion exercises that are part of the active treatment of a
specific disease state that resulted in mobility deficits; maintenance therapy when the specialized
10
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40. The purpose of skilled rehabilitation services is to help patients recover or
improve their function and, to the extent possible, restore their level of function to the level prior
to the patient’s most recent hospitalization. See generally 42 C.F.R. § 409.31(b)(2); id. § 409.33.
If the services can be safely and effectively furnished by non-skilled personnel, then the services
are not considered skilled and are no longer reasonable and necessary rehabilitation services and,
therefore, are excluded from coverage under Medicare parts A and B. See generally id. §
409.31(a)(2); see also Physical, Occupational, and Speech Therapy Services, CMS (September
5, 2012), located at https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-
Programs/Medical-Review/Downloads/TherapyCapSlidesv10_09052012.pdf.
41. Prior to October 1, 2019, the Medicare reimbursement rate paid to a SNF for each
patient was based, in part, on the patient’s anticipated “need for skilled nursing care and
therapy.” Final Rule for Medicare Program’s Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities, 64 Fed. Reg. 41,644 (July 30, 1999). Specifically, the
daily PPS rate that Medicare paid a SNF depended, in part, on the Resource Utilization Group
(“RUG”) to which a patient was assigned, and each distinct RUG was intended to reflect the
anticipated costs associated with providing nursing and rehabilitation services to beneficiaries
with similar characteristics or resource needs.
judgment of a qualified therapist is needed to design and establish a maintenance program;
ultrasound, shortwave or microwave therapy; hot pack, hydrocollator, infrared treatments,
paraffin baths, and whirlpool; and speech services necessary for the restoration of speech or
hearing function. See 42 C.F.R. § 409.33(c). However, the “[g]eneral supervision of exercises
which have been taught to the patient; including the actual carrying out of maintenance
programs, i.e., the performance of the repetitive exercises required to maintain function do not
require the skills of a therapist and would not constitute skilled rehabilitation services. See id. §
409.33(d). Similarly, “repetitious exercises to improve gait, maintain strength, or endurance;
passive exercises to maintain range of motion in paralyzed extremities, which are not related to a
specific loss of function; and assistive walking do not constitute skilled rehabilitation services.”
See id.
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42. Under this system, there were five general rehabilitation RUG levels for those
beneficiaries that required rehabilitation therapy: Rehab Ultra High (known as “RU”), Rehab
Very High (“RV”), Rehab High (“RH”), Rehab Medium (“RM”), and Rehab Low (“RL”). The
RUG level to which a patient was assigned depended on the number of skilled therapy minutes
and the number of therapy disciplines the patient received during a seven-day assessment
reference period (also known as the “look back period”). The chart below reflects the
requirements for the five rehabilitation RUG levels and the corresponding daily reimbursement
ranges during federal fiscal year 2019:
Rehabilitation Requirements to Attain RUG Level Daily Reimbursement Range
RUG Level
Ultra High (RU) At least 720 minutes per week total $527.80 – $832.613
therapy combined from at least two
therapy disciplines; one therapy discipline
must be provided at least 5 days per week
Very High (RV) Between 500 and 719 minutes per week $467.12 – $741.10
total therapy; one therapy discipline must
be provided at least 5 days per week
High (H) Between 325 and 499 minutes per week $373.88 – $671.44
total therapy; one therapy discipline must
be provided at least 5 days per week
Medium (RM) Between 150 and 324 minutes per week $389.13 – $615.93
total therapy; therapy must be provided at
least 5 days per week but can be any mix
of disciplines
Low (RL) Minimum 45 minutes per week total $259.69 – $540.92
therapy; therapy must be provided at least
3 days per week but can be any mix of
disciplines
63 Fed. Reg. 26,252, 26,262 (May 12, 1998); 83 Fed. Reg. 39,162, 39,175 (Aug. 8, 2019).
3
These rates applied to SNFs in urban areas. The specific reimbursement amount within
each range depended on additional factors, including the patient’s ability to perform certain
activities of daily living such as eating and toileting, and the patient’s need for extensive services
such as intravenous treatment, or ventilator or tracheostomy care. 63 Fed. Reg. 26,252, 26,262
(May 12, 1998).
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43. The Ultra High RUG level was “intended to apply only to the most complex cases
requiring rehabilitative therapy well above the average amount of service time.” 63 Fed. Reg.
26,252, 26,258 (May 12, 1998). In announcing the final PPS rule, CMS also made clear that
SNFs should tailor the number of therapy minutes to patients’ clinical needs rather than
providing exactly the minimum needed to trigger a specific RUG level, explaining that the RUG
system “uses minimum levels of minutes per week as qualifiers . . . . These minutes are
minimums and are not to be used as upper limits for service provision . . . . Any policy of
holding therapy to the bare minimum, regardless of beneficiary need, is inconsistent with the
statutory requirements . . . and will result in poor outcomes, longer lengths of stay, and a
degradation in the facility’s quality of care.” 64 Fed. Reg. 41,644, 41,662 (July 30, 1999).
44. Prior to October 1, 2019, a SNF was required to determine each patient’s RUG as
of specific assessment reference dates (“ARDs”). A patient’s RUG as of the ARD then
determined the applicable daily reimbursement rate prospectively for a specific timeframe. For
fiscal year 2019, the Medicare assessment schedule was as follows:
RUG Assessment Assessment Reference Date Window Medicare Payment Days
Type (including grace days) Determined by RUG
5-day 1-8 Days 1-14
14-day 13-18 Days 15-30
30-day 27-33 Days 31-60
60-day 57-63 Days 61-90
90-day 87-93 Days 91-100
83 Fed. Reg. 39,162, 39,229 (Aug. 8, 2019).
45. SNFs reported therapy treatment times for each assessment reference period on a
Minimum Data Set (“MDS”) form that was completed as of each ARD in a patient’s stay. See
64 Fed. Reg. at 41,661; 42 C.F.R. § 413.343. Prior to October 1, 2010, a SNF would
electronically transmit the MDS form to a state’s health department or other appropriate agency,
which in turn would transmit the data to CMS. 42 C.F.R. § 483.20(f)(3) (2008); 42 C.F.R. §
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483.315(h)(1)(v) (2008). From October 1, 2010, through September 30, 2019, SNFs submitted
the MDS form directly to CMS. 42 C.F.R. § 483.20(f)(3) (2012).
46. Completion of the MDS was a prerequisite to payment under Medicare. See 63
Fed. Reg. at 26,265. The MDS form required a certification by the provider stating, in part: “To
the best of my knowledge, this information was collected in accordance with applicable
Medicare and Medicaid requirements. I understand that this information is used as a basis for
ensuring that residents receive appropriate and quality care, and as a basis for payment from
federal funds.” MDS Versions 2.0 and 3.0 for Nursing Home Resident Assessment and Care
Screening. A patient’s RUG information is also incorporated into the Health Insurance
Prospective Payment System (“HIPPS”) code, which Medicare uses to determine the payment
amount owed to the nursing facility. The HIPPS code must be included on the CMS-1450 form
(the claim form used to bill Medicare), which SNFs submit monthly to Medicare via
intermediaries known as Medicare Administrative Contractors that process and pay Medicare
claims on behalf of CMS. Medicare Claims Processing Manual, Ch. 25, § 75.5.
47. Prior to the commencement of skilled therapy in any discipline, a therapist
certified in that discipline must evaluate the patient and develop a treatment plan that is approved
by a physician. See 64 Fed. Reg. at 41,660-61; 42 C.F.R. §§ 409.17, 409.23. The therapy time-
reporting rules made clear that “[t]he time it takes to perform the formal initial evaluation and
develop the treatment goals and the plan of treatment may not be counted as minutes of therapy
received by the beneficiary.” 64 Fed. Reg. at 41,661; see also Resident Assessment Instrument
(RAI) Manual, Ch. 3 at O-19 (Oct. 2014) (“The therapist’s time spent on documentation or on
initial evaluation is not included.”). HHS explained that “[t]his policy was established because
we do not wish to provide an incentive for facilities to perform initial evaluations for therapy
services for patients who have no need of those specialized services.” 64 Fed. Reg. at 41,661.
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The policy was not intended, however, to deprive providers of compensation for performing
initial evaluations, because “the cost of the initial assessment [was] included in the payment rates
for all Medicare beneficiaries in covered Part A SNF stays.” Id. at 41,661-62.
48. As of October 1, 2019, CMS no longer reimburses Part A skilled nursing care
under a therapy-driven RUG Rate system. Instead, CMS now reimburses skilled nursing care
under the Patient Driven Payment Model, or PDPM. This change was motivated in part by
concerns that, under the RUG Rate system, SNFs were providing therapy for purposes of
increasing billing, rather than based on patients’ needs. See 83 Fed. Reg. 39162, 39184 (Aug. 8,
2018). For example, CMS observed that, over time, both the percentage of patients in the Ultra
High therapy level and the percentage of residents receiving just enough therapy to qualify for
the Ultra High and Very High therapy levels had increased. Id. CMS noted that “potential
explanatory factors” for these observed trends, such as “internal pressure within SNFs that would
override clinical judgment,” were “troubling and entirely inconsistent with the intended use of
the SNF benefit.” Id.
49. In light of these concerns, CMS designed the PDPM system to focus payments on
the unique, individualized needs and characteristics of each patient, rather than on the simple
volume of services being provided. While a patient’s need for rehabilitative therapy is still a
relevant part of the patient categorization, in determining payment the PDPM relies more heavily
on what the patient is likely to need, rather than the volume of therapy the facility chooses to
provide. See 83 Fed. Reg. 39162 (Aug. 8, 2018); 84 Fed. Reg. 38,728 (Aug. 7, 2019); see also
SNF PPS: Patient Driven Payment Model, available at https://www.cms.gov/Medicare/Medicare
-Fee-for-Service-Payment/SNFPPS/Downloads/MLN_Call_PDPM_Presentation_508.pdf.
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FACTUAL BACKGOUND
50. Issac Laufer is the owner and operator of Paragon. Over the last decade, Laufer
has acquired numerous SNFs in the suburbs surrounding New York City—all of which are
managed through Paragon. Most recently, Laufer acquired Quantum and Surge in 2016, and
Marquis in 2018.4
51. During the Relevant Period, each of the Facilities was overseen by an
administrator. The Facility’s MDS coordinator and the directors of rehabilitation, social
services, admissions, diet, nursing, food service, maintenance, and housekeeping reported to the
administrator. Tami Whitney, a Paragon employee, oversaw rehabilitation therapy for all of the
Facilities. Whitney reported to the Director of Business Development for Paragon, who reported
to Issac Laufer. However, Whitney also took direction directly from Issac Laufer as described
below. At present, Laufer owns ten of the eleven SNFs named as defendants in this action (in
whole or in part) and operates each of the eleven Facilities through Paragon.
52. During the Relevant Period, new patients were admitted to the Facilities
immediately following their discharge from a hospital. Before a patient was discharged, the
Facility received a document called a Patient Review Instrument (“PRI”), which was prepared by
the hospital and contained basic information about the patient, such as the patient’s condition, the
care the patient required, the patient’s diagnosis and the patient’s insurance (or lack thereof).
According to the typical procedure, the hospital would send this information to a Facility’s
admissions department and, in consultation with the Facility’s director of nursing and sometimes
the director of rehabilitation, the Facility would decide whether it had the resources to admit the
patient.
4
Prior to 2018, Marquis was owned by Issac Laufer’s father, and Issac Laufer was closely
involved in the operation of the Facility.
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53. In or around 2014, this process changed when Laufer also authorized marketing
employees of Paragon—who were non-medical professionals embedded in hospitals and tasked
with promoting the Facilities to hospital patients who were almost ready to be discharged—to
make admissions decisions on their own. In other words, a Paragon marketing employee
embedded at a hospital could decide, without any required consultation with medical or
rehabilitation professionals, that a particular patient should be admitted to a Facility.
54. At times during the Relevant Period, a Facility’s admissions department would
disagree with a marketer’s determination that a patient could be admitted; however, according to
a former Paragon administrator, these disputes were usually resolved in the marketer’s favor and
the patient was admitted over the Facility’s objection.
55. During the Relevant Period, once patients were admitted to a Facility, they were
evaluated by an individual in the Facility’s rehabilitation department (often the rehabilitation
director). Following the evaluation, a plan of care was developed that set forth which services
each patient should receive, the patient’s level of rehabilitation (i.e., the amount of therapy), the
patient’s rehabilitation goals, and the patient’s anticipated length of stay. In addition, an MDS
was completed and periodically reviewed and/or updated throughout the individual’s stay at a
Paragon Facility, as well as at discharge. As described in detail below, during the Relevant
Period, before the applicable regulations changed in October 2019, Whitney applied intense
pressure to administrators and rehabilitation directors at the Facilities to assign virtually all
Medicare Part A patients to the Ultra High rehabilitation level and maximize their lengths of
stay, regardless of their clinical needs.
56. During the Relevant Period, each Facility held a weekly “discharge” meeting.
These meetings were typically attended by the relevant department heads (nursing, rehabilitation,
diet, and social work) and the MDS coordinator. During the meeting, the Facility’s patient roster
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was reviewed and the MDS coordinator stated how many days of Medicare coverage each
Medicare-eligible patient had left. In addition, for individuals who were close to their scheduled
discharge date, the rehabilitation department provided an assessment of that individual’s progress
and how much longer they would likely need therapy. Ultimately, when a patient was about to
be discharged, the social services department arranged for the individual to receive any
equipment the patient might need (such as a walker) and a discharge summary form was
generated. During the Relevant Period, if the rehabilitation department believed that a Medicare
patient was ready for discharge but that person had not used up most of his or her 100 Medicare
days, Whitney, who often attended these meetings in person, frequently pressured the Facility to
prevent such a discharge. Laufer did not attend these discharge meetings but the administrators
of the Facilities and Whitney kept Laufer abreast of the Facilities’ metrics, including in regular
text messages reporting the number of Medicare beneficiaries discharged each day and for the
month.
DEFENDANTS’ FRAUDULENT CONDUCT
57. From at least 2010 through September 2019, Whitney, with Laufer’s knowledge
and at his behest, directed employees at the Facilities to engage in two types of practices that
caused the submission of false claims to Medicare for unreasonable, unnecessary, or unskilled
therapy. First, the Facilities deliberately attempted to keep Medicare-eligible patients at the
Facilities and on therapy for as close as possible to the 100 days compensable by Medicare Part
A, regardless of the patients’ clinical needs. To accomplish this, Whitney worked with
employees of the Facilities to devise strategies for convincing patients to stay longer than
clinically necessary, including intentionally limiting patients’ ability to function independently
and using challenging balance tests in misleading ways to artificially prolong patient stays.
Whitney reported on these efforts to Laufer, who objected when, in his view, too many Medicare
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patients were being discharged, and instructed Whitney—without regard to patients’ medical
needs—to prevent that from happening.
58. Second, Facility management, at Whitney’s instruction and with Laufer’s
knowledge, sought to maximize Medicare billings for rehabilitation therapy, again without
regard to patients’ clinical needs. They did so by directing Facility staff to assign all or most
Medicare Part A patients to the Ultra High therapy level, regardless of the patients’ actual needs.
As a result, the Facilities billed Medicare for rehabilitation therapy that was unnecessary and
therefore not clinically appropriate, and for therapy that did not involve the provision of skilled
services.
59. These practices, which took place at each of the eleven Paragon-managed
Facilities, were part of a concerted effort by Laufer, and in turn, Whitney, to maximize Medicare
billing by providing therapy to the most patients at the highest level and for the longest period
compensable by Medicare—without limitation based on what was reasonable or necessary, and
hence in violation of Defendants’ legal obligations.
I. Defendants Prolonged Patients’ Stays at the Facilities Without Regard to Their
Clinical Needs in Order to Maximize Medicare Reimbursement
60. During the Relevant Period, the Facilities routinely sought to extend the stays of
Medicare Part A patients without regard to the patients’ clinical needs, in order to maximize
reimbursement from Medicare. Whitney directed Facility employees to extend patient stays in
this manner; Whitney, in turn, was instructed by Laufer to avoid patient discharges—and thereby
increase patient stays—without any regard to patients’ medical conditions.
61. In his communications with Whitney, Laufer made clear that maximizing profits
was his number one priority—and that extending stays of Medicare patients was a critical way to
accomplish that. In order to monitor the Facilities’ performance on that front, Laufer tracked
discharges of Medicare patients from the Facilities and, when he considered the discharge
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numbers to be too high, instructed Whitney to reduce the number of discharges and thereby
extend patient stays. These instructions never referenced patients’ clinical needs or what was
medically appropriate; indeed, Laufer did not have any information about those issues. Instead,
Laufer made explicit that his directives regarding discharges were purely driven by profit.
62. In order to track how long the Facilities were keeping patients, Laufer expected
the administrator of each Facility to send him a daily update reporting the number of patient
admissions, discharges, and hospitalizations, broken down by whether the patient had Medicare
or other insurance, and to justify the number of discharges of Medicare patients. When the
numbers were not to his liking, Laufer instructed Whitney to prevent patients from being
discharged. Laufer never cited any medical or clinical justification, and acknowledged that he in
fact had no information about patients’ medical needs.
63. For example, on April 26, 2018, the Administrator of Lynbrook sent Laufer an
update detailing the number of admissions and discharges and the number of patients on
Medicare versus other insurance at the Facility. The Administrator assured Laufer that “all the
discharges” were “long stays.”
64. Dissatisfied with the numbers, Laufer sent messages to Whitney stating: “What is
going on here??? Were falling apart!” and “Can u pls see whats going on at lynbrook with
[community discharges]”—i.e., discharges of patients back into the community. Whitney
responded that she was “concerned that [the Administrator] needs to be stronger when it comes
to not allowing her staff to raise the white flag.” She continued that the Director of
Rehabilitation was “clear on goal,” but “when [the Administrator] says not to have families have
bitter taste in mouth, sometimes he doesn’t put up the fight he should.” Laufer, without any
information concerning the actual rehabilitation or medical needs of the patients at Lynbrook,
responded by pressuring Whitney to slow discharges at the Facility, saying “We can’t have more
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tami! Were falling apart,” and telling Whitney to “[m]ake sure [the Administrator] knows she
has a problem.”
65. This was not the first time Laufer pressured Whitney to prevent patient discharges
from Lynbrook without any reference to, or information regarding, the actual rehabilitation needs
of the patients. On May 24, 2017, Laufer wrote to Whitney that she needed to “jump on
[Lynbrook community discharges].” Whitney responded by assuring Laufer that they had done
what they could to extend patients’ lengths of stay, responding, “I am very comfortable with how
they handle their discharges, especially this last month. Most are over 90 days. They had a few
difficult situations that did lead to [discharge] but they truly did everything they could.”
66. Similarly, on November 20, 2017, Laufer told Whitney to “jump on quantum for
[community discharges].” Laufer noted that the number of discharges was double what it had
been the prior month, and he was speaking to the Director of Business Development for Paragon
about it. Whitney responded that there were only two discharges that “could have gone better on
our end.” Laufer proceeded to ask Tami, “Whats happening,” noting “2 is 2,” and discharging
those beneficiaries early cost the Quantum Facility “42K$ a month.” Whitney responded that
“[t]he patients are horrific,” and “yes, I totally agree . . . even 1 is too many,” but noted that four
of the eight discharges from Quantum were at 100 days.
67. Similarly, on March 15, 2018, Laufer, after receiving an update with Marquis’
metrics and again without any knowledge concerning the patients’ needs or conditions,
instructed Whitney to prevent patients from being discharged from the Facility, writing, “U have
to curb [discharge] pace . . . [a] bit til we fill up . . . . Were hurting.” According to Whitney, with
respect to this message, “[Laufer’s] goal was to make money, and he wants people to stay as
long as they can so we can make lots of money.”
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68. Laufer in fact emphasized to Whitney that he wanted her to focus on limiting
discharges, and hence prolonging patient stays, as a way of increasing revenue. On October 18,
2017, for example, Laufer sent Whitney messages stating, “Max rev[enue]. Watch [discharges],
is always priority #1,” and “I don’t want to take ur focus away from that. So I think twice b4
hitting u up with a cost issue. Im afraid $$ focus will suffer if I pull your eyes away from
rev[enue]/ [discharges] etc.” Laufer went on to point out Facilities that he believed, without any
awareness of the patients’ clinical needs, were allowing patients to be discharged too soon,
noting “[Glencove] has kinda sucked in [discharge] area as well,” “[North Westchester] can do
waaay better here,” and for September, “[S]urge, [L]ynbrook, [and] [Marquis] were high.”
Laufer added, “This is for sure our #1 place to make more profit.”
69. Whitney got Laufer’s message: longer Medicare patient stays mean more profits.
Accordingly, Whitney devised—and instructed employees of the Facilities on—ways to keep
Medicare patients as close as possible to the maximum 100 days compensable by Medicare.
70. To track whether the Facilities were keeping patients as close to 100 days as
possible, Whitney required each Facility to prepare a monthly discharge calendar that specified
when each patient was scheduled to leave, whether the individual was a Medicare patient, and, if
he or she was, how many days of the 100-day Medicare benefit the patient would have used up
by the scheduled date of discharge. According to employees of several of the Facilities, Whitney
frequently challenged discharge determinations when a Medicare patient was set to be released
before being at the Facility for at least 85 or 90 days, and would sometimes overrule employees
who believed patients were ready to be discharged. According to one of these employees, the
goal was not to keep patients for exactly 100 days but for slightly less than that, in order to avoid
creating a red flag. In communicating these directives Whitney made clear that the purpose of
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these targets was to get close to using the maximum Medicare benefit—and that her directives
were not based on an assessment of what therapy was reasonable and necessary for the patient.
71. When Medicare patients were discharged without staying close to 100 days,
employees of the Facilities were expected to justify to Whitney why the patients had been
discharged. For instance, in a March 8, 2019 message, the Director of Rehabilitation at Emerge
explained to Whitney that she had planned for a particular patient “[t]o go on his 100 day but we
can’t convince [him] to stay anymore.” On March 13, 2019, the same employee told Whitney
that when Whitney looked at the discharge calendar for the Facility, “you[ are] going to see [a
patient] on the calendar with only 33 days.” The employee explained that she had had “many
meetings” with the patient’s family “about why he needs to stay” and even “offer[ed] copay
waivers which they declined,” but “[i]t was extremely difficult to even get them to stay till
Monday.” In neither case did the employee explain why extending these patients’ stays would
be justified based on their therapy needs.
72. Because patients, either of their own accord or through a healthcare proxy (like a
family member), had the ability to decide to leave the Facilities when they chose, Whitney and
the Facilities devised strategies to convince patients and their family members to have the
patients stay longer.
73. For example, Facility management expected therapists to devise new goals that
the patients had to meet, to avoid discharging them before Medicare billings had been
maximized. According to one therapist, if the original goal was to have a patient walk 20 feet,
the therapist might extend the goal to 25 feet, in order to try to prolong the patient’s stay.
Another therapist was instructed by Facility management, when completing therapy notes, to
exaggerate the amount of assistance patients required in order to ensure that they remained
eligible for therapy and would stay in the Facility.
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74. At times, the drive to keep Medicare patients at the Facilities for as close as
possible to 100 days resulted in the Facilities intentionally stunting patients’ progress so that they
would not reach the point where they could be discharged. According to one employee, for
example, the Lynbrook Director of Rehabilitation did not permit rooms in that Facility to have
walkers, despite the fact that walkers would increase patients’ ability to ambulate. According to
the employee, the Director implemented this practice so the patients could not improve and the
families of the patients would not see their loved ones walking, thereby reducing pressure from
the patients and their families to discharge Facility residents. Another employee reported that, at
Momentum, patients were kept in wheelchairs so they would not progress.
75. Whitney reported to Laufer on the Facilities’ success in prolonging stays,
particularly for high-functioning patients who likely could have been discharged earlier from a
medical standpoint. In a July 11, 2016 message, for example, Laufer asked Whitney whether she
had reviewed the discharges from Lynbrook for the past two months. Whitney responded that
she had and “[t]here were a few in both months that could have possibly been avoided but
overall they maxed out,” though “sometimes it’s tough to keep the higher level ones.” Whitney
also said that she had been working with the rehabilitation team “to get more specific programs
w[ith] more specific policies that provide concrete timelines” and was “[h]oping that w[ould]
extend some high level patients.”
76. Similarly, in a June 26, 2017 message, Laufer observed—without referring to or
inquiring about the patients’ clinical needs—that discharges from Momentum had been “hig[h]
for a few months.” Whitney responded that she had been working with the administrator of the
Facility on “strategies” to reduce discharges but “[t]here population has gotten younger and
smarter” and “[t]hey need to learn how to deal w[ith] them.”
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77. Whitney also reported to Laufer on the efficacy of specific strategies for
prolonging patient stays—some of which were deliberately designed to prevent patients from
gaining independence. For example, in a January 15, 2016 message, Whitney told Laufer that
“[a] lot of the patients are incontinent and constantly need to go to the bathroom,” but “[i]f we
allow them to take themselves they will think they are ready to go home. So we tell them they
have to use call bell and wait for aide to take them.”
78. These strategies were successful. In an April 25, 2018 message, for example,
Whitney wrote to Laufer that she appreciated him “having faith in [her]” and she was “see[ing] a
difference in discharge prevention already!”
79. Another strategy that Whitney and the Facilities implemented to extend patient
stays was the use of balance tests. One such test, the Berg Balance Scale, is a clinical test used
to assess a person’s balance based on fourteen tasks. Whitney suggested that the Facilities
should administer the Berg test when a patient wanted to be discharged, because it could
convince the patient that he or she was at risk of falling and needed to stay longer.
80. Over time, Whitney refined this approach by installing a Balance Master—a high-
tech machine costing tens of thousands of dollars that is used, among other things, to test
balance—at each Facility. The Facilities used the Balance Masters for the express purpose of
identifying purported balance deficiencies in patients otherwise ready for discharge. These
alleged deficiencies then became pretexts for keeping patients at the Facilities longer than
necessary.
81. In fact, the balance scores generated by the Balance Masters lacked context and
generally did not serve a clinically valid role in discharge decisions. Among other issues,
patients did not have a baseline balance score when they entered the Facility (i.e., they were not
put on the Balance Master when they arrived at the Facility), so their Balance Master scores
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could not be compared against anything. This meant that the results could not be used to
determine whether the patients were improving or had returned to their prior levels of function—
which, as discussed above, is meant to be the purpose of skilled rehabilitation services. See 42
C.F.R. § 409.31(b)(2).
82. Furthermore, Balance Master tests were very easy to fail, and employees noted
that even a top athlete might do so. Even Whitney—who is substantially younger than the
majority of the patients at the Facilities—acknowledged that she herself had been on a Balance
Master and “did not do well.”
83. Simply put, Defendants used the Balance Master as a tool to prevent discharges,
not as a clinical device to help with patients’ rehabilitation. The Facilities put patients on the
Balance Master at the point that they were arguably ready to be discharged in order to convince
them (or their families) that the patients had balance deficiencies and should stay longer. Indeed,
when the Balance Master at one of the Facilities was out of use because the rehabilitation
operation was shifting locations, Whitney sent Laufer a message asking when the process would
be complete because “[t]he balance master is not currently hooked up bc of transition and we
really need it to prolong high level discharges.”5
84. These schemes had a significant effect on the average length of patient stays at the
Facilities. In particular, Medicare Part A patients at the eleven Facilities stayed, on average,
longer than Medicare Part A patients at the vast majority of skilled facilities nationwide.
II. Defendants Put Patients in Higher Levels of Therapy Than Was Justified Based on
Their Clinical Needs in Order to Maximize Medicare Reimbursement
85. In addition to prolonging patients’ stays at the Facilities to increase the amount
billed to Medicare, Defendants also sought to bill Medicare for as much skilled therapy as
5
“High level discharges” refers to discharges involving higher functioning patients.
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possible during the time the patients were at the Facilities, again without regard to the patients’
actual medical needs. As described in more detail below, Defendants’ goal was to put virtually
every patient on the Ultra High—i.e., the most expensive—therapy level, regardless of their
clinical situation.
86. According to Facility employees, there was no wiggle room when it came to
determining how much rehabilitation therapy Medicare patients would receive. Rather than rely
on the therapists who evaluate patients upon admission and are supposed to use their professional
judgment to recommend appropriate and tailored therapy, facility management expected
therapists to provide Medicare Part A patients with sixty minutes of occupational therapy and
physical therapy per day, six times per week across the board, putting them into the Ultra High
rehabilitation category and affording the Facility the ability to be reimbursed by Medicare at the
highest possible rate.
87. Among other effects, this across-the-board practice resulted in high levels of
therapy being provided to patients who, due to their conditions, could not be expected to benefit
from it. Additionally, the Facilities’ efforts to reach at least the minimum minute threshold
necessary to bill for Ultra High rehabilitation led to the provision of “therapy” that did not rise to
the level of skilled services—but was nevertheless billed as such.
88. For example, even patients who were completely incapacitated and could not be
expected to meaningfully improve, and patients who, due to their conditions, could not tolerate a
substantial amount of physical activity, were inappropriately provided rehabilitation at the Ultra
High level. A therapist at Oasis, for example, reported simply moving the arms and legs of
patients who were not cognitively present—activities that do not constitute skilled therapy and
were performed simply to reach the requisite number of therapy minutes for the Ultra High level.
An employee of Glen Cove reported that patients were put on Ultra High therapy even if, due to
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their medical situation, they were unable to tolerate it. And in one instance, a therapist
complained that even when a patient was not actually engaging in therapy, the therapist was
nevertheless told by the director of rehabilitation to continue and “just write something” in the
patient’s chart. Another therapist, at North Westchester, reported that, because she had to fill the
therapy minutes regardless of patients’ needs, she resorted to playing checkers with the patients.
89. The directive to put patients on the highest therapy level possible without regard
to their medical needs came from Whitney, who expected the Facilities to put new patients on
Ultra High therapy by default.
90. For example, each Facility’s director of rehabilitation was in theory tasked with
determining RUG levels for the patients at his or her Facility. If the levels were not sufficiently
high, however, Whitney would intervene and dictate what they should be. For instance, in an
April 4, 2018 message, Whitney told the Director of Rehabilitation at Sutton Park to “pls look at
your RUGs billing,” because “[s]ome of the trends with the books seem weird,” asking “why
was that person only on RH”—i.e., being given therapy at the High, rather than Ultra High, level.
91. Whitney, in turn, reported on this strategy to Laufer. For example, in a November
22, 2013 message, Whitney told Laufer that she had visited Excel and LICC and the “rehab
levels” were “well balanced” but there was “room for improving and prolong dropping residents
down a category” and she would “stay on top of this.”
92. Similarly, in a December 9, 2015 message, Whitney reported to Laufer that she
was at LICC and “the whole team” was “great” except for the Director of Rehabilitation. Laufer
sent Whitney a voice note in response, stating that the prior year she had said the Director of
Rehabilitation was good, and asking what had changed. Whitney responded, stating that the
prior year there were about fifty Medicare patients and the Director had been putting “everyone
on ultra appropriately” and keeping people “the appropriate length of stay,” but now it was
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“quite the opposite,” because the Director was “discharging people too soon,” and her levels
were “all off.”
93. Whitney’s pressure to place patients on the Ultra High therapy level by default
had the desired effect: the Facilities billed for more Ultra High therapy than the vast majority of
skilled facilities nationwide, including in terms of both the average number of therapy days per
patient billed to Medicare at the Ultra High level and the proportion of overall therapy that was
billed at the Ultra High level.
DEFENDANTS’ PRACTICES LED TO THE SUBMISSION OF
FALSE CLAIMS AND FALSE STATEMENTS TO MEDICARE
94. The Facilities’ practice of routinely prolonging patient stays and placing patients
on high levels of rehabilitation without regard to their clinical needs led the Facilities to bill
Medicare for services that were not reasonable or necessary or skilled, and thus resulted in the
submission of false claims for reimbursement to Medicare during the Relevant Period.
95. As detailed above, this conduct took place at each Facility at the direction of
Laufer and Whitney, and directly contravened Defendants’ obligation to comply with Medicare
requirements. In particular, Defendants’ profit-maximizing practices with respect to Medicare
patients violated the requirements that the services billed to Medicare Part A must be reasonable
and necessary, i.e., consistent with the nature and severity of the patient’s individual illness,
injury, or particular medical needs and accepted standards of medical practice, as well as
reasonable in terms of duration and quantity. See 42 U.S.C. § 1395y(a)(1)(A); Medicare Benefit
Policy Manual, Ch. 8, § 30.
96. These practices led to the submission of false claims for reimbursement to
Medicare. Specifically, the Facilities submitted to Medicare, via Medicare Administrative
Contractors, Form 1450s containing HIPPS codes that falsely represented the Facilities’
entitlement to be reimbursed for therapy at higher rates than appropriate, and Form 1450s
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seeking reimbursement for therapy during periods when therapy was no longer reasonable or
necessary.
97. Examples of specific patients with respect to whom false claims were submitted
to Medicare include the following:
a. Patient A6 was a patient at LICC from December 11, 2017 through March 20, 2018.
In Patient A’s case, the Facility billed Medicare for the full 100 days of therapy at the
Ultra High level. LICC provided therapy at the Ultra High level throughout Patient
A’s stay despite the fact that Patient A had difficulty participating in therapy due to
significant cognitive deficits and had been hospitalized for multiple rib fractures.
Further, the Facility never recorded any decrease in the amount of therapy regularly
provided. Indeed, with the exception of the first assessment after admission, the
Facility recorded exactly the minimum number of minutes of therapy needed to
qualify for the Ultra High level during each lookback period—720 minutes per week.
And, during the first assessment period, the Facility billed for therapy at the Ultra
High level despite the fact that the Facility’s records reflect that only 660 minutes of
therapy—i.e., enough to bill only at the Very High level—were provided. On
February 5, 2018, the treatment notes indicated that Patient A had reached the
maximum of his/her potential to benefit from occupational therapy, yet therapy
continued to be provided at the same high level until March 20, 2018. Further, after
several weeks of physical therapy, no clinically significant changes in functional
mobility were reported. Accordingly, the level of therapy billed to Medicare was
excessive, and Patient A received weeks of excessive therapy after such services were
6
The United States will provide the names and other identifying information for these
patients to Defendants upon their request.
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no longer reasonable or necessary. LICC submitted false claims to Medicare for the
unreasonable and unnecessary services rendered to Patient A. Medicare paid LICC a
total of $59,320.38 for these services, when, at most, significantly less than that was
clinically justified.
b. Patient B was a patient at Lynbrook from December 27, 2012 through April 6, 2013.
In Patient B’s case, the Facility billed Medicare for the full 100 days of therapy, with
the first 90 days at the Ultra High level and the last 10 days at the Very High level.
Prior to hospitalization, Patient B, who suffered from Parkinson’s disease and
dementia, was unable to perform activities of daily living independently and received
home health aide assistance eight hours per day, seven days a week. Therapy
evaluations at Lynbrook reported that Patient B had poor endurance and a minimal
ability to follow commands. Physical therapy was nonetheless recorded at a rate of
80 minutes per day without variation, despite the therapist noting poor endurance,
agitation, and confusion and notations that Patient B’s level of function fluctuated
significantly from day to day. Further, Patient B’s records show that the number of
physical and occupational therapy minutes provided was not reduced or therapy
discontinued even after the records show that Patient B had reached his/her prior level
of function with respect to physical therapy and was making minimal progress with
respect to occupational therapy. Accordingly, the level of therapy billed to Medicare
was excessive, and Patient B received weeks of therapy after such services were no
longer reasonable or necessary. Lynbrook submitted false claims to Medicare for
unreasonable and unnecessary services rendered to Patient B. Medicare paid
Lynbrook a total of $54,567.07 for these services, when, at most, significantly less
than that was clinically justified.
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c. Patient C was a patient at Sutton Park from June 28, 2016 through October 5, 2016.
In Patient C’s case, the Facility billed Medicare for a 99-day stay at the Ultra High
level, with physical and occupational therapy minutes recorded at exactly 60 minutes
per day throughout the stay, with the exception of one day on which 30 minutes of
physical therapy and 90 minutes of occupational therapy were recorded without any
clinical justification for the change. The medical records do not reflect any attempt to
customize the amount of therapy Patient C received, and Patient C’s physical therapy
minutes were never reduced or therapy discontinued despite the fact that the patient
regained function, as would be clinically appropriate. Similarly, Patient C’s
occupational therapy minutes were never reduced or therapy discontinued despite the
fact that, by August 2016, the medical records showed that the patient was able to
perform all self-care tasks with only contact guard assistance—i.e., no assistance
other than the therapist placing his or her hands on the patient’s body. Accordingly,
the level of therapy billed to Medicare was excessive, and Patient C received weeks
of therapy after such services were no longer reasonable or necessary. Sutton Park
submitted false claims to Medicare for the unreasonable and unnecessary services
rendered to Patient C. Medicare paid Sutton Park a total of 146,339.12 for these
services, when, at most, significantly less than that was clinically justified.
d. Patient D was a patient at North Westchester from March 9, 2018 through June 15,
2018. In Patient D’s case, the Facility billed for a 98-day stay at the Ultra High level.
Throughout the entire stay, physical therapy was billed for up to 90 minutes per day
and occupational therapy was billed at a rate of 60 minutes per day, despite the fact
that Patient D, who had been hospitalized due to an exacerbation of his or her Chronic
Obstructive Pulmonary Disease, had difficulty breathing and poor endurance.
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Therapy continued at this rate despite the fact that Patient D quickly regained
function. Additionally, Patient D’s therapy minutes as recorded did not actually meet
the minimum thresholds required for the Ultra High RUG level. Accordingly, a
significant proportion of the therapy services billed to Medicare did not occur as
billed or were unreasonable and unnecessary, both with respect to the intensity of the
therapy provided and the number of days for which it was provided. North
Westchester submitted false claims to Medicare for the unreasonable and unnecessary
services rendered to Patient D. Medicare paid North Westchester a total of
$53,685.87 for these services, when, at most, significantly less than that was
clinically justified.
e. Patient E was a patient at Glen Cove from January 20, 2015 through April 30, 2015.
In Patient E’s case, the Facility billed for a 100-day stay at the Ultra High level. Prior
to being admitted to Glen Cove, Patient E had been hospitalized for a fractured ankle,
and the hospital recommended a 25 to 30-minute physical therapy session two to
three times per week. Once at Glen Cove, however, physical therapy was billed at a
rate of 90 minutes per day throughout Patient E’s 100-day stay. Moreover,
occupational therapy was recorded at a rate of approximately 45 minutes per day
throughout the stay (except when occupational therapy was missed one day, after
which 90 minutes were recorded for the following day without any clinical
justification). The therapy records did not identify skilled activities and exercises that
would support the number of minutes of therapy recorded, or any evidence that the
type, intensity, or frequency of therapy were tailored to Patient D’s individual needs.
Accordingly, much of the therapy billed to Medicare was unskilled or unreasonable
and unnecessary, both with respect to the intensity of the therapy provided and the
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number of days for which it was provided. Glen Cove submitted false claims to
Medicare for the unreasonable and unnecessary services rendered to Patient E.
Medicare paid Glen Cove a total of $55,964.86 for these services when, at most,
significantly less than that was clinically justified.
f. Patient F was a patient at Momentum from January 17, 2018 through April 26, 2018,
following a five-day admission to the hospital for diarrhea. In Patient F’s case, the
Facility billed for a 99-day stay at the Ultra High level. The Facility billed for 60
minutes of physical therapy and 60 minutes of occupational therapy per day
throughout Patient F’s stay, despite notes in the medical record that the patient was
noncompliant with treatment and unable to be redirected the majority of the time.
The Facility continued to bill for therapy at the same level even after the medical
records indicate that Patient F was able to perform basic mobility tasks with only
contact guard assistance and did not have significant self-care deficits requiring the
specialized skills of an occupational therapist. Accordingly, the level of therapy
billed to Medicare was excessive, and Patient F received weeks of therapy after such
services were no longer reasonable or necessary. Momentum submitted false claims
to Medicare for the unreasonable and unnecessary services rendered to Patient F.
Medicare paid Momentum a total of $58,622.23 for these services when, at most,
significantly less than that was clinically justified.
g. Patient G was a patient at Oasis from July 17, 2015 through October 25, 2015,
following a hospitalization after falling, likely due to alcohol intoxication. Patient
G’s medical records reflect that Patient G came to the Facility seeking alcohol
detoxification services. In Patient G’s case, the Facility billed Medicare for a 100-
day stay, with 90 days billed at the Ultra High level and 10 days billed at the Very
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High level. Patient G’s medical records do not justify the amount of therapy for
which Oasis billed Medicare. Specifically, the bi-weekly progress notes do not
reflect that Patient G engaged in skilled activities or exercises to support the minutes
of therapy recorded, and in some instances the minutes recorded failed to reach the
minimum needed to justify the level billed by the Facility, without any adjustments to
the amount or type of services offered. Further, physical and occupational therapy
minutes were not reduced or therapy discontinued after Patient G’s impairment
decreased and his/her goals were met, as would be clinically appropriate, and any
care could have been provided by non-skilled providers. Instead, physical therapy
and occupational therapy were generally recorded for 60 minutes a day throughout
Patient G’s stay, except on a few days when the number of minutes was increased to
90 minutes without clinical justification. This was the case even after Patient G was
able to perform basic mobility tasks and most activities of daily living with little to no
assistance and the patient’s medical records did not identify complex impairments or
deficits that would justify daily therapy services. Accordingly, much of the therapy
billed to Medicare either did not occur as billed, was unskilled, or was unreasonable
and unnecessary, both with respect to the intensity of the therapy provided and the
number of days for which it was provided. Oasis submitted false claims to Medicare
for the unreasonable and unnecessary services rendered to Patient G. Medicare paid
Oasis a total of $54,639.63 for these services when, at most, significantly less than
that was clinically justified.
h. Patient H was a patient at Excel from May 11, 2015 through June 15, 2015, following
inpatient psychiatric care related to bipolar disorder. In Patient H’s case, the Facility
billed for physical and occupational therapy at the Ultra High level for the full length
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of the patient’s stay, despite Patient H’s difficulty following commands. Further, the
therapy notes do not identify skilled activities or exercises necessary to support the
minutes of therapy recorded. Accordingly, Patient H’s records do not demonstrate
that the amount of high-level therapy for which Excel billed Medicare was reasonable
and necessary. Excel submitted false claims to Medicare for the unreasonable and
unnecessary services rendered to Patient H. Medicare paid Excel a total of
$18,507.25 for these services, when, at most, significantly less than that was
clinically justified.
i. Patient I was a patient at Marquis from August 21, 2013 through November 28, 2013.
In Patient I’s case, the Facility billed Medicare for the full 100 days of therapy, all at
the Ultra High level. Patient I’s notes did not show a reduction of physical therapy
minutes when Patient I improved function and his or her impairment decreased, as
would be clinically appropriate. Instead, Patient I continued therapy at the same level
even after the point that Patient I’s medical records reflect that he or she needed only
contact guard assistance with functional mobility. With respect to occupational
therapy, Patient I’s medical records consistently note that the patient was resistant to
treatment and lacked motivation to participate; and reflect that Patient I simply
engaged in repetitive exercises rather than activities requiring the services of a skilled
therapist. Accordingly, the level of therapy billed to Medicare was excessive, and
Patient I received weeks of therapy that were unskilled or unreasonable and
unnecessary. Marquis submitted false claims to Medicare for the unreasonable and
unnecessary services rendered to Patient I. Medicare paid Marquis a total of
$55,224.493 for these services when, at most, significantly less than that was
clinically appropriate.
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98. For these patients and others, the Facilities submitted to CMS false claims—
specifically, Form 1450s containing HIPPS codes that falsely represented the Facilities’
entitlement to be reimbursed for therapy at higher rates than appropriate, and Form 1450s
seeking reimbursement for therapy during periods when such therapy was not reasonable or
necessary. A list of examples of false claims submitted in connection with the patients described
above is attached as Exhibit A. A blank Form 1450 is attached as Exhibit B.
99. Additionally, Defendants made false statements material to false claims submitted
to Medicare Part A. Specifically, as discussed above, in order to be paid, the Facilities
completed MDS forms for each patient assessing the patient’s clinical condition, physical and
mental functioning, and actual and expected use of services. An example of a blank MDS form
in use during the Relevant Period is attached as Exhibit C.7 In the MDS forms, the Facilities
certified that the information contained in the forms met all applicable Medicare requirements.
This includes the requirements that services rendered to patients were both reasonable and
necessary. Because the MDS forms submitted by the Facilities reflected services that were not
reasonable and necessary, statements made in the MDS forms—including the Facilities’
certifications of compliance with the applicable regulations—were false.
DEFENDANTS’ FRAUDULENT CONDUCT WAS MATERIAL
TO CMS’S PAYMENT DECISIONS
100. Whether a SNF has complied with its obligation to submit claims only for those
services that are “reasonable and necessary for the diagnosis or treatment of illness or injury,” 42
U.S.C. § 1395y(a)(1)(A), is material to CMS’s payment decisions. If CMS had known that the
Facilities submitted claims for rehabilitation therapy services that were unreasonable,
7
The MDS forms were modified slightly over the course of the Relevant Period but all
versions included the relevant certification language.
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unnecessary, unskilled, or not actually provided as claimed, it would not have paid for those
services.
101. In particular, as reflected in the Medicare Enrollment Applications SNFs must
complete in order to submit claims to and receive payment from Medicare, compliance by SNFs
with applicable Medicare requirements is a condition of payment under the Medicare program.
Further, Defendants’ submission of claims for rehabilitation therapy services that were
unreasonable, unnecessary, unskilled, or not actually provided as claimed had a direct effect on
the payments Defendants received. Specifically, these false submissions were material to CMS’s
decision to reimburse Defendants for therapy services at a higher rate, and for a longer period of
time, than permissible under the applicable regulations. As discussed above, the payments SNFs
receive are based on HIPPS codes, which in turn incorporate patients’ RUG information. If the
Facilities submitted claims with HIPPS codes reflecting RUG levels that were based on the
therapy that was actually reasonable and necessary, Medicare would have paid the Facilities at
that lower rate.
102. As set forth above, moreover, the Facilities were required to certify on their MDS
forms that the information therein was collected in accordance with applicable Medicare
requirements. As such, Defendants’ practice of billing for therapy that was not reasonable or
necessary, in violation of Medicare’s requirements, was material to CMS’s payment decisions.
Additionally, the MDS forms themselves are material to any claim being submitted to the
Government for payment, because the MDS form dictates the amount that CMS will pay to the
entity submitting the form, and because the entity submitting the MDS form must, as a condition
of payment by CMS, certify that it has complied with applicable Medicare requirements.
103. In keeping with CMS’s focus on ensuring that SNFs are paid only for those
services that are reasonable and necessary, Medicare Administrative Contractors—the entities
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that actually process and pay Medicare claims submitted by SNFs—are authorized to audit
providers’ claims to determine whether the services billed were reasonable and necessary and, if
not, prevent payment. See Medicare Program Integrity Manual, Pub. No. 100-08, Chapters 1, 3
& 6, available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-
Only-Manuals-IOMs-Items/CMS019033. In addition, Recovery Audit Contractors (“RACs”) are
authorized to audit SNFs to determine whether claims have been paid appropriately and to
recoup inappropriate payments. Id. This includes auditing SNFs to determine whether they are
overbilling for therapy services and, to the extent such overbilling is identified, to prevent or
recoup payments. See, e.g., id. § 3.6.2.4.
104. In addition to these measures designed to prevent or reverse billing for
unreasonable and unnecessary therapy services, the Government has aggressively pursued SNFs
that have engaged in fraud of the type at issue here. In 2016, for example, Life Care Centers of
America Inc., a company that owns and operates skilled nursing facilities across the country, and
its owner, Forrest L. Preston, agreed to pay $145 million to resolve a Government lawsuit
alleging that Life Care violated the FCA by causing the skilled nursing facilities to submit false
claims to Medicare and TRICARE for rehabilitation therapy services that were not reasonable,
necessary, or skilled. See https://www.justice.gov/opa/pr/life-care-centers-america-inc-agrees-
pay-145-million-resolve-false-claims-act-allegations. Similar to the allegations at issue here,
that lawsuit alleged, inter alia, that Life Care had a practice of placing beneficiaries in the Ultra
High reimbursement level irrespective of their clinical needs and sought to keep patients at the
facilities longer than necessary to continue billing for therapy. Id.
105. Similarly, in 2018, two consulting companies—Southern SNF Management, Inc.
and Rehab Services in Motion—and nine affiliated skilled nursing facilities settled claims that
they violated the FCA by submitting or causing the submission of false claims to Medicare for
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unnecessary rehabilitation therapy services. See https://www.justice.gov/opa/pr/ two-consulting-
companies-and-nine-affiliated- skilled-nursing-facilities-pay-10-million. In that case, as here,
the Government alleged that the defendants’ practices encouraged the provision of therapy
without regard for patients’ individual clinical needs. Id. These cases and others reflect the
Government’s active efforts to enforce the Medicare requirements at issue in this case.
COUNT I
Violation of the FCA: Presentation of False Claims for Payment
(31 U.S.C. § 3729(a)(1)(A))
106. The Government incorporates by reference each of the preceding paragraphs as if
fully set forth in this paragraph.
107. The Government seeks relief against Defendants under 31 U.S.C. §
3729(a)(1)(A).
108. Through the acts set forth above, Defendants knowingly, or acting with deliberate
ignorance or reckless disregard for the truth, presented, either directly or indirectly, false or
fraudulent claims for payment to the Government. Specifically, Defendants knowingly, or acting
with deliberate indifference or reckless disregard of the truth, presented false or fraudulent
claims for payment to Medicare Part A, specifically, Form 1450s requesting payment for
unreasonable, unnecessary, or unskilled therapy services, or for therapy services that did not
occur as billed.
109. The Government made payments to the Defendants because of the false or
fraudulent claims.
110. If the Government had known that the claims presented for payment were for the
provision of unreasonable, unnecessary, or unskilled therapy services, or for therapy services that
did not occur as billed, the Government would not have paid the claims.
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111. By virtue of these false or fraudulent claims, the Government has been damaged
in a substantial amount to be determined at trial and is entitled to recover treble damages plus a
civil monetary penalty for each false record or statement.
COUNT II
Violation of the FCA: Use of False Statements
(31 U.S.C. § 3729(a)(1)(B))
112. The Government incorporates by reference each of the preceding paragraphs as if
fully set forth in this paragraph.
113. The Government seeks relief against Defendants under 31 U.S.C. §
3729(a)(1)(B).
114. Through the acts set forth above, Defendants knowingly, or acting with deliberate
ignorance or reckless disregard for the truth, made, used or caused to be made or used false
records and statements material to the payment of false or fraudulent claims by the Government.
Specifically, Defendants knowingly, or acting with deliberate ignorance or reckless disregard of
the truth, made, used, or caused to be made or used false or fraudulent records, including false
MDS forms, that were material to false or fraudulent claims for payment for unreasonable,
unnecessary, or unskilled therapy, or for therapy that was not provided.
115. By virtue of these false records or statements, the Government has been damaged
in a substantial amount to be determined at trial and is entitled to recover treble damages plus a
civil monetary penalty for each false record or statement.
COUNT III
Unjust Enrichment
116. The Government incorporates by reference each of the preceding paragraphs as if
fully set forth in this paragraph.
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117. Through the acts set forth above, Defendants have received payments to which
they were not entitled and therefore have been unjustly enriched. The circumstances of these
payments are such that, in equity and good conscience, Defendants should not retain those
payments, the amount of which is to be determined at trial.
COUNT IV
Payment by Mistake of Fact
118. The Government incorporates by reference each of the preceding paragraphs as if
fully set forth in this paragraph.
119. The Government seeks relief against Defendants to recover monies paid under
mistake of fact.
120. The Government paid money to Defendants as a result of a mistaken
understanding. Specifically, the Government paid Defendants’ claims under the mistaken and
erroneous understanding that such claims were for services that were reasonable and necessary
and actually occurred as billed. This erroneous understanding was material to the determination
to pay Defendants’ claims. Had the Government known that the claims were for the provision of
unreasonable, unnecessary, or unskilled therapy services, or for therapy services that were not in
fact rendered as billed, it would not have paid such claims. Those payments were therefore by
mistake.
121. As result of such mistaken payments, the Government has sustained damages for
which Defendants are liable in an amount to be determined at trial.
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PRAYER FOR RELIEF
WHEREFORE, plaintiff, the Government, requests that judgment be entered in its
favor as follows:
(a) on the First and Second Claims for relief (violation of the FCA, 31 U.S.C. §§
3729(a)(1)(A) and (a)(1)(B)), a judgment against Defendants for treble damages and
civil penalties to the maximum amount allowed by law.
(b) on the Third and Fourth Claims for relief (unjust enrichment and payment by
mistake of fact), a judgment against Defendants for damages to the extent allowed by
law.
(d) An award of costs and such further relief as is proper.
Dated: New York, New York
June 2, 2021
Respectfully submitted,
AUDREY STRAUSS
United States Attorney for the
Southern District of New York
By: /s/ Rachael Doud
RACHAEL DOUD
JACOB M. BERGMAN
Assistant United States Attorneys
86 Chambers Street, 3rd Floor
New York, NY 10007
Tel: (212) 637-2776/3274
Email: rachael.doud@usdoj.gov
jacob.bergman@usdoj.gov
Attorneys for the Government
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