In a recent opinion, the Northern District of California allowed FCA claims to proceed against the CEO of a skilled nursing facility operator.  John Orten, the whistleblower in the suit, was a former nursing home administrator for North American Health Care, Inc. (NAHC).  Orten claimed that he had witnessed the CEO of NAHC, John Sorensen, order company administrators to pay physicians who referred patients to NAHC facilities.  The qui tam action alleged violation of the federal False Claim Act, the California and Washington False Claims Acts, and the Stark Law, as well as retaliation and wrongful discharge claims under federal and California law.

Orten alleged that Sorenson told administrators to seek physicians for medical review boards who would refer patients to NAHC’s facilities.  Furthermore, Orten claimed that Sorenson set up a “regeneration” scheme whereby patients who had used up their Medicare skilled nursing coverage would be referred to an acute care hospital for a few days, then referred back to NAHC facilities in order to renew and restart another period of Medicare skilled nursing coverage.  “This would allow for an additional 100 days of compensation to NAHC at the higher rate,” the complaint alleged.

Sorenson moved to dismiss the complaint for failure to state a claim as against him personally.  (NAHC itself did not join Sorenson’s motion.)  On November 9, 2015, Judge Orrick of the Northern District of California granted in part and denied in part Sorenson’s motion to dismiss, allowing the federal FCA claim based on referrals and regeneration to survive.  The court held that Orten plausibly alleged the “referral and regeneration scheme” and plausibly alleged “that false claims were actually submitted.”  Notably, the court denied the motion to dismiss even though Orten had failed to allege that Sorensen had “personally approved kickbacks” or the submission of a particular “a false claim.”  Rather, the existence of other allegations, including Sorensen’s direction to use board seats as a means to reimburse doctors, another NAHC’s employee’s approval of a $2,000 bottle of wine for a physician, an allegation that a doctor was paid a specific sum for referrals, and statistics that showed a “stark . . . shift” in the number of NAHC’s patients whose bills were paid with Medicare funds, was sufficient to survive the motion.  As a result of this scheme involving payment for referrals and regeneration of benefits, “the government paid NAHC facilities more than it needed to,” the court observed.

Orten also alleged an FCA claim that involved NAHC’s inflation of Medicare Star Ratings, a claim the court dismissed because “Orten fail[ed] to allege a sufficient relationship between the Star Ratings, procured through bribes to physicians and inflated staffing data, and any false claim for payment submitted by NAHC.”  The wrongful discharge and retaliation claims were also dismissed upon the court’s holding that Sorenson could not be held individually liable under the relevant statutes.

The case is United States ex rel. Orten v. North American Health Care, Inc., No. 3:14-cv-2401-WHO (Nov. 9, 2015), in the Northern District of California.