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United States ex rel. Martino-Fleming v. South Bay Mental Health Center Inc.

United States District Court, D. Massachusetts

September 21, 2018

UNITED STATES OF AMERICA ex rel. CHRISTINE MARTINO-FLEMING, Relator Plaintiffs,
v.
SOUTH BAY MENTAL HEALTH CENTER, INC.; COMMUNITY INTERVENTION SERVICES, INC.; H.I.G. GROWTH PARTNERS, LLC; H.I.G. CAPITAL, LLC; PETER J. SCANLON; AND KEVIN P. SHEEHAN Defendants.

          MEMORANDUM AND ORDER

          Honorable Patti B. Saris, Chief U.S. District Judge.

         INTRODUCTION

         Relator Christine Martino-Fleming brings this action under the federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., against South Bay Mental Health Center, Inc. (“South Bay”), and its owners and operators. She alleges that South Bay routinely submitted bills for the mental-health services of unlicensed, unqualified, and unsupervised employees to MassHealth, the Massachusetts Medicaid program, and its contractors. The Defendants are South Bay; H.I.G. Growth Partners, LLC (“H.I.G. Growth”), and H.I.G. Capital, LLC (“H.I.G. Capital”) (collectively, “H.I.G. Defendants”); Community Intervention Services, Inc. (“C.I.S.”); Peter J. Scanlon; and Kevin P. Sheehan.

         Relator's Complaint asserts counts under both the FCA and its Massachusetts counterpart. The Commonwealth subsequently intervened and filed a 27-count Complaint-in-Intervention. The United States elected not to intervene. Defendants have filed motions to dismiss both complaints under Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure.

         Because the Commonwealth has intervened, its Complaint-in-Intervention supersedes the Relator's Complaint with respect to the state-law claims. The motions to dismiss regarding those claims are discussed in a separate opinion, with which the Court assumes familiarity. This memorandum addresses the Relator's three federal-law counts that remain at issue: False Claims, 31 U.S.C. § 3729(a)(1)(A) (Count 1); False Statements Material to False Claims, 31 U.S.C. § 3729(a)(1)(B) (Count 2); and Reverse False Claims, 31 U.S.C. § 3729(a)(1)(G) (Count 3).

         For the reasons stated below, the Court DENIES the motions to dismiss Counts 1 and 2, and ALLOWS the motions to dismiss Count 3.

         FACTUAL BACKGROUND

         The facts below are taken from the Relator's 250-paragraph Second Amended Complaint (“SAC”). Many are disputed.

         I. MassHealth

         The Massachusetts Medicaid program, known as MassHealth, covers mental-health services. It is jointly financed by the federal and state governments. The state has promulgated regulations governing mental-health services provided by the MassHealth program. See generally 130 Mass. Code Regs. §§ 401.401-650.035. Among other things, MassHealth regulations provide that unlicensed counselors must be under the “direct and continuous supervision” of a licensed psychiatrist, psychologist, independent clinical social worker, or psychiatric nurse to provide mental health services. Id. § 429.424.

         Most MassHealth beneficiaries enroll in managed care plans such as a Managed Care Organization (“MCO”) plan or a Primary Care Clinician (“PCC”) plan. People not enrolled in these plans receive mental-health services on a fee-for-service basis. The MCOs contract with MassHealth, and MassHealth pays for the services. The MCOs manage the healthcare services and have their own authorization requirements. Id. § 508.004(B)(3). The Massachusetts Behavioral Health Program (“MBHP”) administers and pays for mental-health services provided to MassHealth members enrolled in a PCC plan and has its own terms as well. See Id. § 450.124(A). MassHealth pays MBHP and the MCOs a fixed monthly fee for each MassHealth member.

         II. South Bay

         South Bay is a mental-health center that offers services to patients throughout the Commonwealth in its 17 satellite clinics. It is a for-profit corporation established under the laws of Massachusetts. It was founded in 1986 by Defendant Dr. Peter Scanlon, who was its sole officer and director, and owned all outstanding capital stock until April 2012.

         South Bay employs therapists and other professionals who do not meet the MassHealth licensing requirements or the requirements of its contractors. Moreover, a vast majority of unlicensed staff therapists at South Bay clinics had no qualified supervisor, and many South Bay clinics did not have qualified clinic directors. Despite these alleged violations of state law and contractual requirements, South Bay was reimbursed for services provided by unlicensed and improperly supervised professionals. Claim submissions by these unlicensed and improperly supervised professionals were false and fraudulent, Relator alleges.

         III. South Bay's Acquisition by Private Equity Investors

         In April 2012, after conducting due diligence, H.I.G. Capital and H.I.G. Growth purchased South Bay through C.I.S. H.I.G. Capital is a Delaware limited liability company described as a “leading global private equity investment firm with $21 billion of equity capital under management.” H.I.G. Growth, also a Delaware limited liability company, is a capital-investment affiliate of H.I.G. Capital and is also a multi-billion dollar private equity company. Sheehan, the Chief Executive Officer (“CEO”) of C.I.S., had over 30 years of behavioral health experience.

         After the acquisition, the officers and members of the Boards of Directors of South Bay and C.I.S. Overlapped:

Name

South Bay Position(s)

C.I.S. Position(s)

Other Position(s)

Sheehan

President, Director

CEO, Director

Scanlon

Treasurer, Director

Chief Clinical Officer, Director (until 2012)

Steven Loose

Director

Director

Managing Director of H.I.G. Growth; Senior Member of H.I.G. Capital

Nicolas Scola

Director

Clerk, Director

Principal of H.I.G. Growth and H.I.G. Capital

Eric Tencer

Director

Director

Principal of H.I.G. Growth and H.I.G. Capital

         From April 2012 on, the Board members of C.I.S. were “heavily involved in the operational decisions of South Bay, including approving contracts, strategic planning, budgeting, and earnings issues.”

         IV. The Whistleblower

         Relator Christine Martino-Fleming is a licensed mental-health counselor. She was employed by South Bay from June 2008 until September 2013. Thereafter, she worked for C.I.S. from September 2013 to September 2014. Initially a Job Coach at South Bay, she became the Coordinator of Staff Development and Training, and was responsible for keeping track of employee turnover. In this role, Martino-Fleming learned that all South Bay clinics were not compliant with the Massachusetts regulations for mental-health centers because they had staff therapists who were unqualified, unlicensed, and unsupervised. Between 2009 and 2015, over 60 percent of regional directors, over 80 percent of clinical directors, and over 75 percent of supervisors across all South Bay facilities were not properly licensed according to MassHealth regulations, and there was a “systemic failure to hire qualified individuals.”

         Beginning in 2012, Martino-Fleming informed Scanlon and Sheehan, as well as other C.I.S. officers, that a significant percentage of employees at South Bay “lacked the requisite qualifications to see, diagnose or treat patients on their own, ” and that supervisors were also unqualified in violation of MassHealth regulations ...


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