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United States of America Ex Rel. v. Allegany Rehabilitation Associates

March 17, 2011


The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court



In this qui tam action, the government and the Relator, David A. Veltz, allege that Defendant Allegany Rehabilitation Associates, Inc., submitted fraudulent claims for Medicaid reimbursement and retaliated against Veltz in violation of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq. Presently before this Court is Allegany's Motion for Partial Summary Judgment on certain of Veltz's FCA Medicaid-reimbursement claims. (Docket No. 87.) For the following reasons, Allegany's motion is granted in part and denied in part.


Allegany is a nonprofit corporation that provides outpatient mental health rehabilitation services and continuing day treatment programs in Allegany and Wyoming counties. (Allegany's Statement,*fn1 Docket No. 87-27, ¶ 2.) Allegany provides services to Medicaid-eligible clients and submits claims for reimbursement to Medicaid. (Allegany's Statement, ¶ 3.)

Veltz worked at Allegany from 1989 until Allegany terminated his employment on March 26, 1999. (Allegany's Statement, ¶ 1; Relator's Statement, Docket No. 93, ¶ 1.) In January 1999, Veltz reported to Jennifer Foth, Allegany's personnel coordinator, what he perceived to be wrongful billing practices as it related to Allegany's (1) upcoding (billing Medicaid at a higher rate code for services provided), (2) billing Medicaid for non-reimbursable services provided during weekend continuing day treatment programs, and (3) billing Medicaid for continuing day treatment services for clients who attended a wedding at the Wellsville treatment facility in August 1998. (Relator's Statement, ¶¶ 2, 3, 19.)

Foth advised Veltz to bring his concerns to Allegany's Board of Directors, which he did. (Relator's Statement, ¶¶ 3, 4.) Veltz discussed his concerns with Board Chair Eugene Krumm. (Relator's Statement, ¶ 4.) Veltz maintains that Krumm was hostile towards him and asked him to quit his job before hanging up on him. (Relator's Statement, ¶ 4.) After this conversation, Veltz declined Foth's further request to submit his allegations in writing, fearing that doing so would lead to his termination. (Relator's Statement, ¶ 5; Allegany's Statement, ¶¶ 6, 7.) In March 1999, Veltz reported his concerns to the Medicaid Fraud Control Unit. (Relator's Statement, ¶ 14.)

A. Upcoding

Veltz maintains that beginning in 1995, Allegany improperly billed Medicaid for continuing day treatment services. (Relator's Statement, ¶ 6.) In 1995, Medicaid required Allegany to transition to an electronic claims-submission system. (Allegany's Statement, ¶ 8.) As a result, Allegany installed and used a billing software program called Integral. (Allegany's Statement, ¶ 9; Relator's Statement, ¶¶ 6, 7.) But difficulties with Integral arose, including that the program would automatically replace correctly-entered rate codes with incorrect ones. (Allegany's Statement, ¶ 9; Relator's Statement, ¶¶ 6, 7.) These errors resulted in both upcoding and downcoding, which in turn resulted in overpayment and underpayment by Medicaid. (Allegany's Statement, ¶ 10; Relator's Statement, ¶ 7.) Integral did not, however, have the capability to correct errors or repay overpayments. (Relator's Statement, ¶¶ 7, 9.)

After Allegany discovered the problems with Integral, it developed an internal corrective procedure and implemented additional billing software called DARRESS to correct the coding errors. (Allegany's Statement, ¶¶ 12, 13.) Veltz admits that Allegany devoted resources to correcting the problems with Integral, but claims that Allegany used individuals who lacked experience in Medicaid billing. (Allegany's Statement, ¶ 9.) Veltz further maintains that despite knowing of the problems with Integral, Allegany continued to use it through 1999. (Relator's Statement, ¶ 8.)

Veltz contends that the shortcomings with Integral resulted in 79 instances of upcoding in 1995, with evidence of repayment by Allegany in only 9 cases. (Relator's Statement, ¶ 10.)Allegany maintains that overpayments it received from 1994-1996, even assuming no adjustments were made, total only $1,466. (Allegany's Statement, ¶ 26.)

Also during this time period, the New York State Department of Health audited Allegany's Medicaid billing practices from January 1, 1993, through December 31, 1995. (Allegany's Statement, ¶ 17.) The Department of Health reviewed a random sample of 100 claims submitted for reimbursement in 1994 and 1995, and then extrapolated from those claims to determine that Medicaid overpaid Allegany $80,278 during that time period. (Allegany's Statement, ¶ 17.) Allegany paid $80,278 to settle the overpayment claims. (Allegany's Statement, ¶¶ 18, 19.)

B. Saturday Continuing Day Treatment Program

Beginning in 1994, Allegany began billing Medicaid for its Saturday continuing day treatment program. (Relator's Statement, ¶ 11.) This program continued though 1999. (Relator's Statement, ¶ 11.) Veltz maintains that the Saturday program was plagued by compliance issues, including improper staffing, lack of medical necessity, and lack of scheduled therapeutic activity. (Relator's Statement, ¶ 12.) For example, regulations suggest a staffing ratio of one clinical staff member for every ten clients, which Veltz maintains Allegany failed to comply with on numerous occasions in 1996 and 1998.*fn2 (Relator's Statement, ¶¶ 16, 17.)

C. The August 1998 Wedding

On August 28, 1998, two patients were married during the Saturday program at the Wellsville treatment facility. (Relator's Statement, ¶ 13.) At the direction of John Mahinis, the Program Director, Allegany billed Medicaid for the clients who attended the wedding, which took place during a time when programming would normally have been provided. (Relator's Statement, ¶ 13; Allegany's Statement, ¶ 15.) Allegany admits billing Medicaid as alleged, but notes that it subsequently reversed its charges and returned the overpayment to Medicaid. (Allegany's Statement, ¶¶ 14-16.) According to Veltz, Allegany repaid Medicaid only after he spoke to the Board of Directors and the Medicaid Fraud Control Unit in 1999. (Relator's Statement, ¶ 15.)


A. Summary Judgment Standard

Summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of material ...

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