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State v. Premier Healthcare Inc.

Superior Court of Delaware

June 14, 2018


          Submitted: May 30, 2018

         On Defendants' Motion to Dismiss. DENIED.

          Kate S. Keller and Laura N. Najemy, Esquire, Deputy Attorneys General, Department of Justice, Wilmington, Delaware, Attorney for Plaintiff.

          Maria R. Granaudo Gesty, Esquire, Burns White LLC, Wilmington, Delaware, Attorney for Defendants.


          RICHARD R. COOCH, J.


         The State of Delaware ("Plaintiff) filed a Delaware False Claims and Reporting Act ("DFCRA") action against Premier Healthcare Inc. d/b/a Newark Manor Nursing Home ("Newark Manor"), Bruce Boyer, David Boyer, and Susan Comegys (collectively "Defendants"). The complaint alleged that since 2011 Defendants have submitted or caused to be submitted fraudulent claims for Medicaid reimbursement for "non-existent, grossly deficient, and materially substandard and/or worthless nursing home services" provided to five residents of Newark Manor.[1]

         The issue at this stage is whether Plaintiff has alleged sufficient facts in the complaint for a DFCRA claim, an unjust enrichment claim, and DFCRA liability as to the individually named Defendants to survive Defendant's motion to dismiss for failure to state a claim pursuant to Delaware Superior Court Civil Rule 12(b)(6).

         This Court concludes that Defendants' motion fails to demonstrate how Plaintiff is not entitled to recovery under any reasonably conceivable set of circumstances since this Court must accept all well-pleaded factual allegations as true under the standard of Delaware Superior Court Civil Rule 12(b)(6). The Court thus denies Defendant's motion to dismiss, without prejudice with leave for Plaintiff to amend the complaint at a later time, if needed.


         Newark Manor is a Delaware licensed, long term care nursing facility. Bruce Boyer is the owner of Newark Manor. David Boyer and Susan Comegys were administrators at Newark Manor at various times.

         In 2009, Newark Manor contracted with the Delaware Medicaid program through the Contract for Items or Services Delivered to Delaware Medical Assistance Program Eligibles in the Department of Health and Social Services ("DMAP"). The DMAP provides that when a healthcare service provider submits a claim for payment for items or services provided under the DMAP, the provider certifies that the items or services were in compliance with the DMAP rules, regulations, and policies.

         Pursuant to federal law, nursing facilities, such as Newark Manor, must provide services that "meet professional standards of quality" to participate in the Medicare and Medicaid programs.[2] This compliance is a prerequisite to participation to participation in the Medicaid program. Compliance is assessed through annual survey inspections.

         Plaintiff asserts that, since at least 2011, Defendants "submitted or caused to be submitted claims for payment for non-existent, grossly deficient, and materially substandard and/or worthless nursing home services, provided to highly vulnerable, elderly and disabled residents at Newark Manor."[3] Plaintiff argues that Defendants were informed about the multiple failures of care at Newark Manor and were provided state survey reports. Defendants contend that Plaintiff required Defendants to submit plans to correct the deficiencies and return Newark Manor to substantial compliance.[4] Defendants state that Newark Manor in fact returned to its compliant standard and Plaintiff renewed Newark Manor's license as an nursing home in Delaware. However, Plaintiff now, according to Defendants, seeks to further penalize Defendants with sanctions under the DFCRA for every claim relating to five identical residents that was submitted before, during, and after the alleged violations.

         Plaintiff filed a complaint on September 18, 2017 which alleged that Defendants are subject to not only the penalties related to their noncompliance with the DMAP, but are also subject to DFCRA liability and should not receive payment from Plaintiff for any service provided to five Newark Manor residents. Plaintiff has identified five residents whose alleged substandard care by Newark Manor warrants recoupment by the State of its Medicaid payments to Newark Manor.

         A. Resident 1

         Resident 1 was an 88 year old woman admitted on December 30, 2010 who suffers from cognitive decline and Alzheimer's Disease. The care provided to Resident 1 was inspected by Plaintiff on four occasions between 2011 and 2014. Plaintiff alleges that, on June 7, 2014, Resident 1 suffered severe burns when a Newark Manor staff member's coffee spilled on Resident l's leg. Plaintiff contends that Defendants did not transport Resident 1 to the hospital, nor did they administer first aid, [5] with the exception of removing her clothing. Plaintiff also noted deficiencies in 2011 and 2014, respectively, in the form of weight loss and verbal abuse.

         B. Resident 2

         Resident 2 was a 95 year old woman who was admitted to Newark Manor with dementia, agitation, balance problems, and decreased muscle coordination. After numerous fall risk assessments, Newark Manor identified Resident 2 as a fall risk. Plaintiff alleges that Resident 2 fell eight times between February 24, 2014 and June 22, 2014.[6] Plaintiff also alleges that "[d]espite the eight falls in the four month period in 2014, Newark Manor failed to ensure Resident 2's safety by implementing an effective fall prevention strategy."[7]

         Resident 2 suffered an additional ten falls between July 8, 2014 and September 25, 2015.[8] Resident 2 was also found lying on her bed with a television on her body that had apparently fallen off of its mounted position on the wall.[9]

         C. Resident 3

         Resident 3 was an 88 year old woman who suffered from disorientation, weakness to her left side cause by a stroke, confusion, and a history of falls and agitation. Plaintiff states that Resident 3 fell twenty-two times between June 14, 2013 and September 9, 2014, three of which resulted in "serious injuries."[10] On June 26, 2013, Resident 3 suffered a fractured neck.[11] Plaintiff contends that after Resident 3's return from the hospital, Defendants failed to implement the correct care plan for Resident 3. Plaintiff contends that Defendants did, however, change Resident 3's care plan to ensure her safety from falls after Resident 3 fractured her vertebrae on September 9, 2014.

         Plaintiff contends that Resident 3 also suffered a coffee burn less than two months after Resident l's coffee burn. Plaintiff alleges that Newark Manor did not have a burn policy in place when both Residents were burned, but implemented one afterward "that did not meet Mayo Clinic standards."[12]

         D. Resident 4

         Resident 4 was an 88 year old woman who suffered from low sodium levels and high potassium levels due Syndrome of Inappropriate Antidiuretic Hormone release. Resident 4's six-year residency at Newark Manor is the longest of the five Residents discussed herein. Plaintiff alleges that "Defendants failed to monitor Resident 4's fluid intake and failed to request sodium chloride tablets as needed for Resident 4's condition."[13]

         Plaintiff also contends that Defendants failed to implement an appropriate fall prevention plan for Resident 4, as she fell fourteen times between November 23, 2012 and July 2, 2015. Plaintiff states that Resident 4 suffered a fractured rib and a right tibial fracture as a result of two of those falls. Plaintiff also asserts that Defendants failed to implement an effective dental plan or plan to restore Resident 4's continence.

         E. Resident 5

         Resident 5 was an 88 year old man who was diagnosed with legal blindness and a had history of blood clots and strokes. Allegedly, Defendants did not provide Resident 5 with his anti-coagulant medication for over four months, during which time he suffered edemas.[14] During the state survey, on August 30, 2016, Defendants "admitted that there was no clinical reason for discontinuing Resident 5's medication [and] that the lack of anti-coagulant was an oversight and 'missed medication.'"[15]Defendants contend that, following this survey, they began to again give Resident 5 his medication.

         Plaintiff alleged in its Complaint that "[t]he substandard, grossly negligent and practically worthless services provided by the Defendants to Residents 1 through 5 would have been material to the [Managed Care Organizations], and the State Medicaid Agency's decision to make these [claim] payments . . ., "[16] Plaintiff contends "Defendants were aware of the failure to provided care that met professional standards of quality when they submitted claims for payment."[17]Plaintiff claims that, despite being made aware of the significant deficiencies in their service, Defendants still knowingly submitted claims for $1, 515, 504.35, which was paid to them by Medicaid.

         Defendants assert that the question of the applicability of the DFCRA or the parallel federal law, the False Claims Act ("FCA"), "to claims related to services by a medical provider such as a nursing home" is an issue of first impression in Delaware.[18] Defendants now bring the Motion to Dismiss pursuant to Superior Court Civil Rule 12(b)(6) for failure to state a claim for which relief can be granted.


         A. Defendants' Contentions

         Defendants argue in favor of dismissal on essentially four grounds. First, Defendants contend that Plaintiff cannot make a DFCRA claim under either the "worthless services" or false certification theories. Second, Defendants maintain that Plaintiff cannot make out a claim for unjust enrichment. Third, Defendants assert that Plaintiff fails to state a cause of action against the individually named Defendants, Bruce Boyer, David Boyer, and Susan Comegys. Fourth, and alternatively, Defendants argue that Plaintiff fails to make a fraud claim under the strict pleading standard of Superior Court Civil Rule 9(b).

         First, Defendants claim that the Complaint should be dismissed because Plaintiff fails to allege a proper DFCRA claim under either the "worthless services" or false certification theories.[19]

         Defendants contend that, for a DFCRA claim to be successful under the "worthless services" theory, "Plaintiff must show that 'performance of the services [was] so deficient that for all practical purposes it is the equivalent of no performance at all."'[20] Defendants illustrate this argument by stating, "[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. That is, a 'diminished value' of services theory does not satisfy this standard. Services that are 'worth less' are not 'worthless.'"[21] As such, Defendants maintain that, although state surveys revealed certain deficiencies in the service provided to the five Residents, Plaintiff cannot reach the conclusion that "the entire bundle of services provided to each of the five Residents during their long residency was substandard, much less 'worthless.'"[22]

         Defendants state that the purpose of the DFCRA is to punish and deter the submission of fraudulent claims for payment to the government. Defendants contend that the goal of the DFCRA is not to focus on "torts, medical negligence, regulation violation, contractual breaches or other violations."[23]

         Defendants also argue that Plaintiff cannot make out a DFCRA claim under the false certification theory because Plaintiff fails to allege "materiality." Defendants contend that Plaintiffs argument that, because Defendants participated in DMAP, they certified that they complied with all regulations is incomplete because it fails to allege the materiality of Plaintiff s payment decision.[24] Defendants seem to make this argument on the basis that Plaintiff continued to make payments to Defendants with knowledge of the alleged noncompliance with DMAP.[25]Defendants claim that, because the State had knowledge of the deficiencies and still paid the claims, the DMAP requirements were not material.[26] Defendants reiterated this argument at oral argument asserting that this Court need not reach the "worthless services" portion of the DFCRA analysis because Plaintiff has failed to adequately plead materiality, which is an essential element of the claim.[27]

         Second, Defendants assert that Plaintiff fails to set out a proper unjust enrichment claim because the DFCRA claim fails.[28] Defendants state, "[s]ince the [DFCRA] claims fail as a matter of law, Plaintiffs common law claim for unjust enrichment must also fail because the facility's retention of the benefits is not inequitable."[29]

         Third, Defendants argue that Plaintiff has failed to sufficiently plead "any factual allegation that could establish a basis for false claims against individual Defendants" Bruce Boyer, David Boyer, and Susan Comegys.[30] Defendants contend that Plaintiff "cannot establish that any of these individuals had any reason to believe that an action they took constituted a 'false or fraudulent claim.'"[31]

         Fourth, Defendants argue in the alternative for dismissal because, as they claim, Plaintiff fails to meet the strict pleading requirement of Superior Court Civil Rule 9(b). Defendants contend that Plaintiff "fails to state when the fraudulent misrepresentation occurred[, ]" and that Plaintiff "does not articulate any factual basis to support the conclusion that there was a fraudulent intent behind the submission of requests for payment."[32]

         B. Plaintiff's Contentions

         Plaintiff responds to Defendants' four arguments in order and also makes a fifth argument. First, Plaintiff argues that it has made a DFCRA claim under the "worthless services" and false certification theories. Second, Plaintiff claims that the complaint makes an adequate showing of a claim for unjust enrichment. Third, Plaintiff contends that the complaint states a cause of action against the individually named Defendants, Bruce Boyer, David Boyer, and Susan Comegys. Fourth, Plaintiff states that it has pleaded its complaint with specificity in accordance with Superior Court Civil Rule 9(b). Fifth, Plaintiff argues that Defendants' arguments come under the guise of a Rule 12(b)(6) motion to dismiss for failure to state a claim when they are more appropriately brought under a motion for summary judgment.

         First, Plaintiff argues that it has pled a sufficient DFCRA claim under the "worthless services" theory because it alleges facts that show the care provided to Residents 1-5 was so collectively deficient in ...

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