IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND STATE OF MARYLAND Plaintr?; v. Case No.: 428607V Judge: Nelson W. Rupp, Jr. NEISWANGER MANAGEMENT SERVICES, LLC, at at. DefendantsDEFENDANTS NEISWANGER MANAGEMENT SERVICES, LLC, NMS HEALTHCARE OF HAGERSTOWN, LLC, AND NMS HEALTHCARE OF SILVER SPRING. PRELIMINARY MOTION TO DISMISS COME NOW the Defendants, Neiswanger Management Services, LLC, NMS Healthcare of Hagerstown, LLC, and NMS Healthcare of Silver Spring, LLC, (collectively referred to herein as the ?Corporate Defendants? or by and through their counsel, Sara M. Lord of Amall Golden Gregory LLP, and Scott D. Nelson of Walker, Murphy Nelson, LLP, and pursuant to Maryland Rule 2-322, ?le this preliminary Motion to Dismiss, and in support thereof state as follows: 1. The above-captioned action arises from the State of Maryland?s attempt to obtain injunctive relief and monetary damages against various Defendants in connection with resident discharges from ?ve (5) Maryland skilled nursing facilities. 2. The State of Maryland has failed to state causes of action against the Corporate Defendants for injunctive relief. 3. The State of Maryland has failed to state a claim against the Corporate HECEW ED JAN 2 7 2017 Clarlx of th .1 Cum nil Court Montgomoiy County. Md. Defendants under the Maryland False Health Claims Act. 4. That as set forth more fully in the accompanying Memorandum of Points and Authorities which is incorporated herein by reference, the Defendants are entitled to have the claims against them dismissed. WHEREFORE, the above-premises considered, it is respectfully requested that this Honorable Court: 1. Grant Defendants Neiswanger Management Services, LLC, NMS Healthcare of Hagerstown, LLC, and NMS Healthcare ol?Silver Spring, Preliminary Motion to Dismiss; and 2. For such other and further relief as this Court deems just and appropriate. Respectfully submitted, ARNALL GOLDEN GREGORY LLP ?S?s M- ?irso") in) M. Lordquuire Alan C. Horowitz 1775 Avenue, NW Suite 1000 Washington, DC 20006 (202) 677-4030 Counsel for Defendants WALKER, MURPHY NELSON, LLP 9% .. 'ot . Nelson, Esquire In . Murphy, Esquire 9210 Corporate Boulevard, Suite 320 Roekville. MD 20850 (301) 519-9150 Counsel for Defendants REQUEST FOR A HEARING Defendants hereby requests a hearing on all issues raised herein. . NeTson, Esquire Murphy, Esquire 9210 Corporate Boulevard, Suite 320 Rockville, MD 20850 (301) 519-9150 a nasal for Defendants CERTIFICATE OF SERVICE I hereby certify that on the 27th day of January, 2017, a true and correct copy of the foregoing Preliminary Motion to Dismiss was served by ?rst-class mail, postage prepaid, to: Joshua N. Auerbach, Esqurie Meghan K. Casey, Esquire Raja Mishra, Esquire Assistant Attorneys General 200 Saint Paul Place, 20th Floor Baltimore, Maryland 21202 elson, Esquire IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND STATE OF MARYLAND Plaintiff, v. Case No.: 428607V Judge: Nelson W. Rupp, Jr. NEISWANGER MANAGEMENT SERVICES, LLC, et a1. DefendantsNEISWANGER MANAGEMENT SERVICES, LLC, NMS HEALTHCARE OF HAGERSTOWN, LLC, AND NMS HEALTHCARE OF SILVER SPRING, MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THEIR PRELIMINARY MOTION TO DISMISS TABLE OF CONTENTS I. Introduction . 1 II. Argumentmm. . 3 A. Legal Standards Governing Motion to Dismiss 3 B. The State?s Claims for lnjunctive Relief Should Be Dismissed 5 1. The State?s Complaint That NMS Failed to Provide Assistance in Applying to Medicaid Fails to State a Claim for lnjunctive Relief. 5 2. The State?s Generalized Complaints Regarding Discharge Practices Fail to State a Claim for Broad Sweeping Injunctive Relief Under 7 C. The Complaint Fails to Allege False Claims under the Maryland False Health Claims Act 10 D. The State?s MFHCA Claims Should Be Dismissed. 15 1. A Theory That Claims for Social Work and Discharge Services Were actually False" Fails To State A Claim Under the MFHCA 15 2. An ?Implied False Certi?cation? Theory Based on the Patient?s Bill of Rights Fails To State A Claim Under the MFHCA 16 3. The State?s ?Implied False Certi?cation? Theory Based on Claims Submitted to Medicaid for Residents Discharged for Failure to Arrange for Medicaid Fails To State A Claim Also Fails to State A Claim Under the MFHCA 18 Conclusion 20 These Defendants, NEISWANGER MANAGEMENT SERVICES, LLC, NMS HEALTHCARE OF HAGERSTOWN, LLC, and NMS HEALTHCARE OF SILVER SPRING, LLC (collectively referred to herein as the hereby submit the following Memorandum of Points and Authorities In Support Of Their Preliminary Motion to Dismiss. I. INTRODUCTION On December 21, 2016, the State ?led a Complaint requesting a sweeping injunction against Neiswanger Management Services, Inc. (NMS) and other named defendants, under the Maryland Patient Bill of Rights, Md. Code Ann, Health-Gen. and I9- and (2) civil penalties and damages for alleged false claims under the Maryland False Health Claims Act (MFHCA), Md. Code Ann., Health-Gen. 2-601 to 2-611. The Complaint centers on wholesale, unsupported claims that NMS, which operates ?ve skilled nursing facilities in Maryland, failed to comply with the Patient Bill of Rights and the parallel Residents? Bill of Rights: Comprehensive Care Facilities and Extended Care Facilities found in the Code of Maryland Regulations (COMAR) at 10.07.09, in discharging patients from its facilities. Essentially, on the basis of eight alleged patient histories, the State alleges that NMS failed to comply with the discharge procedures in the Bill of Rights, failed to assist residents to apply for Medicaid long-term care benefits, and gave preference to Medicare over Medicaid patients. On this scant basis, the Complaint soars into hyperbole, claiming with no support whatsoever, that these patients are representative of hundreds of others who were ?dumped,? ?traf?cked? ?discarded;" ?evicted;? ?abandoned;? etc.1 Even if the allegations were 1 The Complaint is rife with inflammatory claims asserted as facts, that NMS and Ms. Isaacs ?have a longstanding partnersliip;" 1] 29; that NMS ?maintains close relationships with sham assisted living facilities;" 1 96; that has discharged dozens of frail, in?rm, mentally ill and disabled people to . . . [Isaacs? and Brown?s] sham assisted living facilities;? Id; that, in ?dozens of cases . . has dumped frail, in?rm, mentally ill and disabled residents in homeless shelters, delivered vulnerable residents to predatory operators of sham assisted living facilities, or true (which they are not), however, they do not permit the broad injunctive action the State seeks; nor do they provide a basis for false claims liability under the MFHCA. In support of its demand for an injunction, the State alleges violations of 19- 344(c)(5)(ii), various provisions of 19?345, 19-345.1, and 19-3452, COMAR 10.07.09; and COMAR 10.09.10, (which governs nursing facilities? participation in the Maryland Medicaid program). (Compl. 111]] 2?5, 138). First, there is no injunctive relief authorized for violations of See Second, the injunctive relief authorized for violations of 19-345, and 19-3452, and COMAR 10.07.09.11 is expressly limited to speci?cally tailored relief on behalf of individual residents believed to be facing imminent discharge in violation of the speci?ed requirements. See COMAR Neither the Maryland Patient Bill of Rights, nor the COMAR authorizes the kind of broad sweeping injunction the State has requested, much less an injunction based on highly colored in?ammatory assertions with no veri?cation, such as the State has presented here.2 simply forced evictees out of its facilities without identifying any place for them to go;" 1 122, etc. The State's recklessness in presenting these and other unveri?ed allegations, as well as its deliberate use of highly in?ated terms, in a pleading before the Court is deeply troubling. 2 On January 3, 2017, the State ?led a Motion to Expedite Discovery, purportedly to enable the State to supplement the record in connection with its anticipated motion for a preliminary injunction, and an ex parte motion to shorten the time for NMS to resPond by January 6, 20 7. On January 5, 2017, the Court denied the State?s ex parte motion to shorten the time for response, and scheduled a meeting in chambers with the parties on January I l, 2017. On January the Court denied the State's Motion to Expedite Discovery and stated that he would not consider a motion for preliminary injunction until after the next scheduled hearing on March 24, Immediately following the meeting, on January 11, 2017, the State requested and obtained from the Secretary of the Department of Health and Mental Hygiene a Notice of Restrictions on Admissions prohibiting NMS from admitting or re-admitting any patients to its facilities. NMS requested a hearing before the Of?ce of Administrative Appeals, which was held on January 20, 2017. On January 24, 2017, following the evidentiary hearing, which was conducted in part by counsel for the Attorney General in this matter, the Administrative Law Judge issued an opinion recommending that the Secretary's Notice be rescinded. On January 26, 201?, notwithstanding the decision in its favor, NMS entered into a consent agreement with the State, agreeing inter alia not to issue discharge notices prospectively. Despite the consent agreement, and without the knowledge of the Secretary, on the same day, the Of?ce of the Attorney General ?led a Motion for a Temporary Restraining Order, which seeks many of the same modi?cations in discharge practices agreed to in the consent agreement, with this Court. In support of its claims under the MFHCA, the State argues that the alleged failures to comply with the Bill of Rights and COMAR regarding discharges rendered the claims for the services provided during the residents? Medicaid stays false claims.3 (Compl. 111] Notably, the State does not claim that the residents did not receive the services billed for during their stays in the facilities; nor does the State claim that the services provided were de?cient. Instead, the State attempts to turn claims for services that were provided into false claims by incorporating the discharge rights in the Patient Bill of Rights and COMAR into the services required for Medicaid reimbursement. DeSpite the State?s efforts, however, discharge planning services are not included in the list of services reimbursed by Medicaid. See COMAR 10.09.10.04. Alternatively, the State attempts to expand the Medicaid claims certi?cation to include an implicit certi?cation of compliance with the Patient Bill of Rights. This grossly exceeds the limits of false claims actjurisprudence, and neither of the State?s theories supports a claim under the MFHCA. Furthermore, where the State alleges that patients were discharged before or after their Medicare coverage ended and no claims were submitted to Medicaid for these patients, there are no false claims for these patients under the MFHCA. II. ARGUMENT A. LEGAL STANDARDS GOVERNING MOTION TO DISMISS Under Rule 2-322 of the Maryland Rules of Civil Procedure, a defendant may move to dismiss a complaint for failure to state a claim upon which relief can be granted. See Md. R. Civ. Pro. Rule 2-322; Lubore v. RPM Assocs., 109 Md. App. 312 (1996). A motion to dismiss must be granted if ?the well pleaded allegations of fact contained in the complaint, taken as true, reveal 3 The State also seeks to hold NMS liable under the MFHCA for any subsequent healthcare costs incurred by the residents after they were discharged. Since NMS did not submit claims for these alleged healthcare services, there was no possible submission of false claims (the sine qua non for liability under any false claims act), and, thus, no basis for liability under the MFHCA. [no] set of facts that would support the claim made.? Sea?, et at. v. Groover, Christie, Merrit, RC, 435 Md. 112, 199 (2013) (quoting Shenker v. Laureate Educ. Inc, 411 Md. 317, 33435 (2009)). ?[A]ny ambiguity or uncertainty in the allegations bearing on whether the complaint states a cause of action must be construed against the pleadcr.? igueiredo-Torres v. NickeI, 321 Md. 642, 647, 584 A.2d 69 (I991). The analogous Federal Rule of Civil Procedure 12(b)(6) stipulates that a complaint must allege facts that ?raise a right to relief above the speculative level" and must contain ?enough facts to state a claim to relief that is plausible on its face." Bet! Ail. Corp. v. Twombiy, 550 U.S. 544, 555, 570 (2007) (citations and emphasis omitted); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the court must ?construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintif it ?need not accept as true legal conclusions or unwarranted factual inferences,? and ?[c]onclusory allegations or legal conclusions masquerading as factual allegations will not su?ice.? In re Travel Agent Comm ?n Antitrust Litigation, 583 F.3d 896, 903 (6th Cir. 2009) (citations omitted). ?Although Rule 2?305 generally requires that a complaint contain only ?a clear statement of the facts necessary to constitute a cause of action,? Maryland courts have long required parties to plead fraud with particularity.? McCormick v. Medtronic, Inc, 219 Md.App. 485, 527, 101 A.3d 467, 492 (Md. App. 2014) (citations omitted). ?The requirement of particularity ordinarily means that a plaintiff must identify who made what false statement, when, and in what manner orally, in writing, etc.); why the statement is false; and why a ?nder of fact would have reason to conclude that the defendant acted with scientcr that the defendant either knew that the statement was false or acted with reckless disregard for its truth) and with the intention to persuade others to rely on the false statement." Id. at 528, 101 A.3d at 492-93. This requirement is identical to Federal Rule which requires FCA complaints to allege ?the who, what, when, where, and how of the alleged fraud.? Sanderson v. Healthcare Ca, 447 F.3d 873, 877 (6th Cir. 2006). For each fraudulent scheme alleged, ?pleading an actual false claim with particularity is an indiSpensable element of a complaint that alleges an FCA violation in compliance with Rule Bledsoe, 501 F.3d at 504. Where allegations pertain to the submission of false claims for payment to the government, the Complaint must be pled with particularity. United States ex rel. Clausen v. Lab. Corp. of Am, 290 F.3d 1301, 1308 (11th Cir. 2002) (applying the identical Federal Rule of Civil Procedure 9(b) to violations of the federal False Claims Act or the General allegations of fraud are insuf?cient; ?it is necessary that the complainant show, by Specifications, wherein the fraud consists. Issuable facts must be charged." Fairfax v. Wells Fargo Bank, NA, 312 Ga. App. 171, 172 (2011). B. THE STATES CLAIMS FOR RELIEF SHOULD BE DISMISSED. 1. The State?s Complaint That NMS Failed to Provide Assistance in Applying to Medicaid Fails to State a Claim for Injunctive Relief. The State seeks an injunction under Md. Code Ann, Health-Gen. 19-344. (Compl. 111] l, The State is not entitled to an injunction because: (1) it does not plead a violation of 19-344 and (2) Section 19-344 does not authorize injunctive relief, much less the broad, abstract injunctive relief that the State seeks. The State asserts that Defendants have violated Md. Code Ann, Health?Gen. 19- 344(c)(5)(ii) ?by failing to ?c00perate with and assist? residents in applying for Medicaid long term care bene?ts.? (Compl. 1i Section 19-344 provides as follows: (5) An applicant, a resident, or the agent of an applicant or resident shall seek, on behalf of the applicant or resident, all assistance from the medical assistance program which may be available to the applicant or resident. (ii) The facility Shall cooperate with and assist the agent in seeking assistance item the medical assistance program on behalf of the applicant or resident. 5 If a resident or the agent of a resident fails to seek assistance from the medical assistance program or to cooperate fully in the eligibility determination process, a facility providing care to the resident may, without requesting the appointment of a guardian, petition the appropriate circuit court for an order requiring the resident or agent of the resident to seek assistance from the medical assistance program or to cooperate in the eligibility determination process with due diligence. Md. Code Ann., Health-Gen. (emphasis added). The only portion of 19- 344(c)(5) that mandates any action by a facility states: ?The facility shall cooperate with and assist the agent in seeking assistance from the medical assistance program on behalf of the applicant or resident.? Id. Read in light of the preceding section which imposes a duty on the resident or his agent to seek all assistance from the medical assistance program, and the subsequent section which permits (but does not require) a facility to take action if the resident or his agent fails to seek all assistance or cooperate fully in the eligibility determination process, it is clear that mandates only that a facility shall ?cooperate with and assist the agent in seeking assistance ?om the medical assistance program? when the resident or his agent has determined to seek assistance from the medical assistance program. The State alleges generally, however, that: Because of its ambivalence toward Medicaid long term care reimbursement, however, NMS o?en violates these requirements [Md. Code Atm., Health-Gen. COMAR see also COMAR ignoring resident requests for assistance or delaying the submission of required paperwork to the Department of Health and Mental Hygiene. In many particularly troubling cases, NMS delays or impedes the submission of the long term care applications of Medicare/Medicaid dual eligibles, many of whom are people with physical and intellectual disabilities, and who are, categorically, already ?nancially eligible for Medicaid long term care coverage. (Compl. 1] 116.) Signi?cantly, while the State again presents highly colored assertions as facts, it does not identi?? a single resident or resident ?3 agent? who sought assistance and whom anyone 6 at NMS failed to ?cooperate with and assist in seeking assistance ?'om the medical assistance program." Regardless of whether the State?s claims are true or false, however, the penalties for violations of and (S) are found in and (ii) - and do not include injunctive relief Where the legislature intended to authorize injunctive relief in the Patient?s Bill of Rights, it did so expressly. See, e. Md. Code Ann, Health-Gen. (authorizing injunctive relief with respect to violations of 19-345, and 19-3452). That the legislature expressly authorized injunctive relief for violations of some provisions in the Patient?s Bill of Rights, but not for violations of 19-344, clearly indicates that the legislature did not intend for injunctive relief to be available in these circumstances. Indeed, from a practical standpoint, it is dif?cult to see how a broad injunction, requiring a company to ?cooperate with and assist? residents to apply for Medicaid, especially when the resident may choose not to apply for Medicaid, could be fashioned or implemented. Even if injunctive relief were available, however, it would not be appropriate where, as here, there are no cognizable allegations of actual or impending violations of 19-344. 2. The State?s Generalized Complaints Regarding Discharge Practices Fail to State a Claim for Broad Sweeping Injunctive Relief Under a. Section Authorizes lniunctive Relief For Individual Residents. Not lniunctions to Enact Across-the Board Changes in Company Policies The State seeks an injunction, not to address any alleged actual or impending discharges of any identified residents, but to force what it believes would be broad changes in alleged discharge practices. (Compl. 1, 142.) The statute does not authorize broad injunctive relief directed at a company?s practices, but speci?c, tailored injunctive relief for individual residents. Even if the broad injunctive relief the State seeks were permitted, however, many of 7 the requirements that the State seeks to impose are not mandated by law and, in some instances, would actually require NMS to disregard patients? wishes, in violation of the law. Section provides in pertinent part as follows: A resident, resident?s agent, or resident?s attorney, or the Attorney General on behalf of the resident, who believes that an involuntary discharge or transfer that violates the requirements of 19-345, 19-3451, or 19-3452 of this subtitle is imminent or has taken place may request inj unctive relief from a circuit court. Md. Code Ann, Health-Gen. Injunctivc relief is authorized ?on behalf of the resident? with respect to ?an involuntary discharge? that ?is imminent or has taken place.? Id. The plain language of the provision clearly limits the injunctive relief afforded under the Patient Bill of Rights to injunctions preventing or remedying a single, identi?ed discharge or transfer that is imminent or has taken place, on behalf of a single, identi?ed resident. Signi?cantly, the provision grants the some power to seek an injunction from the circuit court to the ?resident,? ?resident?s agent,? ?resident?s attorney,? or ?the Attorney General,? viz. upon the ?belie[t] that an involuntary discharge or transfer that violates the requirements of 19- 345, 19-345.1, or 19-3452 is imminent or has taken place.? Md. Code Ann., Health-Gen. Thus, if, as the State presumes, the authority to ?request injunctive relief from a circuit court? included the authority to seek injunctive relief broadly altering a facility?s discharge practices in the abstract, any ?resident, resident?s agent, or resident?s attorney who believes that an involuntary discharge or transfer that violates the requirements of 19-345, 19-3451, or 19-3452 of this subtitle is imminent or has taken place,? would have the right to request the same broad injunctive relief the State is claiming here. The legislature cannot have intended to grant such power to private parties. The State is seeking a sweeping injunction for which there is no statutory or regulatory authority, and is far beyond the scope of the injunctive relief provided under the Patient Bill of Rights. b. The lniunetion Relief Demanded By the State Far Exceeds the Rights AlTorded To Residents By the Patient Bill of Rights. As Well As the Legal Requirements Governing Discharges In addition to being entirely unauthorized and beyond the scope of the statute, the injunction the State seeks would, in some instances, actually require discharges to exceed state and federal law requirements. For example, the State would have the Court ?[p]rohibit[] the defendants from evicting any resident to any unlicensed assisted living facility or to any person whom the defendants know is an operator of an unlicensed assisted living facility, . . . and ?lrther prohibiting the defendants from incorporating discharge to an unlicensed assisted living facility into any post-discharge plan of care.? (Compl. 1] The State has consistently confused assisted living facilities (ALFs), which are required to be licensed, and personal care or group homes, which are not required to be licensed in Maryland. There is no requirement that residents must be discharged to licensed ALFs to the contrary, a facility may discharge a resident even ?without obtaining the written consent of the resident,? if the discharge is to ?[a]nother licensed, certi?ed, or registered care provider; or [a]nother person who has agreed in writing to provide a safe and secure envirorunent.? Md. Code Ann, Health-Gen. For lower acuity residents, in particular, personal care homes or group homes may be more apprOpriate discharge locations than assisted living facilities because they afford more independence to residents. Until the State itself requires that all residents be discharged only to State?licensed facilities, or requires that personal care or group homes also be licensed, NMS is legally permitted to discharge patients to unlicensed facilities. Similarly, the State demands that NMS be prohibited ?from evicting any resident to a homeless shelter and from evicting any resident without an identi?ed discharge destination and from incorporating discharge to a homeless shelter into any post-discharge plan of care.? (Compl. Again, there is no authority for the proposed restriction against discharges to homeless shelters. Some residents come to nursing facilities from homeless shelters for short- terrn care, and have no expectation (or wish) that the nursing facility will become their permanent home. For all intents and purposes, the homeless shelter is their home and, in the right can be an appropriate discharge location. Moreover, the proposed prohibition against ?incorporating discharge to a homeless shelter into any post-discharge plan of care? would prevent residents who came to the nursing facility from a homeless shelter and who wish to return there from doing so. The State has no authority to require NMS to keep a resident from returning to the place s/he wants to live, no authority to require NMS to house a resident, simply because he has no home other than a homeless shelter, and no authority to require any other facility (ALF, personal care or group home, or otherwise) to provide housing for a resident without the resources to pay for it. Essentially, the State is misusing the injunctivc relief afforded to individual residents to try to force NMS to adept broad policy changes that exceed and may violate the residents? discharge planning rights. There is no authority for either the scope or the substance of the State?s injunctive demands. C. THE COMPLAINT FAILS 1'0 ALLEGE FALSE CLAIMS UNDER THE MARYLAND FALSE HEALTH CLAIMS ACT The MFHCA prohibits any person from, among other things: (1) ?[k]nowingly present[ing] or caus[ing] to be presented a false or fraudulent claim for payment or approval; (2) [k]nowingly mak[ing], us[ing], or caus[ing] to be made or used a false record or statement 10 material to a false or fraudulent claim; (3) [c]onspir[ing] to commit a violation [of the [or] (9) [k]nowingly mak[ing] any other false or fraudulent claim against a State health plan or a State health program.? Md. Code Ann., Health-Gen. see also Compl. 1] 144. Although Maryland courts have not addressed claims made under the MFHCA, the courts in states with similar acts have been guided by the body of federal law interpreting the almost- identical FCA. Jordan v. State, No. 15-1733, 2016 WL 1126450, at *4 (Ga. Ct. App. Mar. 23, 2016) (recognizing, have found no Georgia appellate cases addressing claims made under the MFHCA, although the body of federal law interpreting the almost-identical federal False Claims Act is extensive?). Moreover, federal courts routinely apply the same analysis to claims brought under the FCA and analogous state acts. See, New York v. Amgen, Inc, 652 F.3d 103, 109 (lst Cir. 2011) (?Given the substantive similarity of the state FCAs invoked here and the federal FCA with reSpect to the provisions at issue in this litigation, the state statutes may be construed consistently with the federal ?Liability under the False Claims Act arises from the submission of a fraudulent claim to the government, not the disregard of government regulations or failure to maintain proper internal procedures.? Corsello v. Lincare, Inc, 428 F.3d 1008, 1012 (11th Cir. 2005). There is no FCA liability for regulatory violations unless ?the provider knowingly asks the Government to pay amounts it does not owe.? United States ex rel. Clausen v. Lab. Corp. of Am, 290 F.3d 1301, 1311 (11th Cir. 2002) citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir.l999) (?The statute attaches liability, not to the underlying fraudulent activity or to the government?s wrongful payment, but to the ?claim for payment.? Therefore, a central question in False Claims Act cases is whether the defendant ever presented a ?false or fraudulent claim? to the government?) 11 There are two ways in which a claim for reimbursement by a healthearc provider may be considered false or fraudulent, and, therefore, actionable under the FCA. The ?rst known as ?factual false? or ?direct? fraud occurs when a provider submitting a claim supplies ?an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.? United States ex reI. Mikes v. Straus, 274 F.3d 687, 697 (2nd Cir. 2001), abrogated on other grounds by UniversaI Heatth Serva, Inc. v. United States ex reI. Escobar, 136 S. Ct. 1989 (2016). claim for reimbursement made to the government is not legally false simply because the particular service fumished failed to comply with the mandates of a statute, regulation or contractual term that is only tangential to the service for which reimbursement is sought.? Mikes, 274 F.3d at 697. ?Since the Act is restitutionary and aimed at retrieving ill-begotten funds, it would be anomalous to ?nd liability when the alleged noncompliance would not have in?uenced the government's decision to pay.? Id. The second - known as a ?false certi?cation theory? occurs ?when the claimant knowingly falsely certi?es that it has complied with a statute or regulation the compliance with which is a condition for Government payment.? United States ex reI. Hobbs v. Medquest Assam, Inc, 711 F.3d 707, 714 (6th Cir. 2013). A false certi?cation is therefore actionable under the FCA only if it leads the government to make a payment which it would not otherwise have made. United States ex rel. Conner v. Satina Reg? Heatth Ctr., Inc., 543 F.3d 1211, 1219 (10th Cir. 2008) (citing United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996)). Certi?cations may be express or implied. In its recent decision in Escobar, the Supreme Court recognized two conditions that must be present for an implied certi?cation to give rise to FCA liability: ??rst, the claim does not merely request payment, but also makes Speci?c representations about the goods or services provided; and second, the defendant?s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.? Id. at 2001. The Court recognized that ?billing parties are often subject to thousands of complex statutory and regulatory provisions? and that ?[?acing False Claims Act liability for violating any of them would hardly help would-be defendants anticipate and prioritize compliance obligations.? 1d. at 2002. Therefore, a ?misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government?s payment decision in order to be actionable under the False Claims Act.? Id. The materiality standard is both ?rigorous,? id, and ?demanding,? id. at 2003. misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a ?nding of materiality that the Government would have the option to decline to pay if it knew of the defendant?s noncompliance.? Id. The materiality standard also is not satis?ed even if the defendant knew ?that the Government would be entitled to refuse payment were it aware of the [statutory, regulatory, or contractual] violation.? Id. at 2004. facilities are ?required to comply with a wide variety of regulations and standards of care that are part of Medicare and Medicaid?s complex regulatory scheme.? U.S. ex rel. Absher v. Momence Meadows Nursing C111, Inc, 764 F.3d 699, 703 (7lh Cir. 2014) citing 42 C.F.R. pt. 483. ?Not all failures to comply with a federal statute or regulation expose a provider to liability under the False Claims Act.? United States ex reI. Davis v. Dist. of Columbia, 793 F.3d 120, 125 (D.C. Cir. 2015). See Mikes, 274 F.3d at 699 (the FCA ?was not designed for use as a blunt instrument to enforce compliance with all medical regulations but rather only those regulations that are a precondition of payment?); Swan, 279 F. Supp.2d at 1220 (?the FCA is not 13 an appropriate vehicle for ensuring regulatory compliance?); United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601 Cir. 2005) (false certi?cation must be a condition or prerequisite to the government?s duty to pay; mere technical violations of a statute or regulation are insuf?cient to give rise to FCA liability). Because the per diem payments4 under the Medicare and Medicaid programs encompass all the services provided in a skilled nursing facility, a false claims allegation for these payments must establish that the alleged regulatory or standard of care defect was suf?cient to render the entire claim ?false,? as if, for all practical purposes, the patients had received no care at all. See generally United States ex rel. Sivan v. Covenant Care, Inc, 279 F. Supp.2d 1212, 1221 (ED. Cal. 2002). Although some courts have recognized that a false claim may lie ?on the theory that the defendant received reimbursement for products or services that were worthless," Momence Meadows, 764 F.3d at 709 (citations omitted), ?the performance of the service must be so deficient that for all practical purposes it is the equivalent of no performance at all," id. at 710 (citations omitted). ?Services that are ?worth less? [or diminished by some failure of performance] are not ?worthless.?? Id. ?Truly worthless services may be evidence that a claim for reimbursement is false or fraudulent.? Id. (emphasis in original). Skilled nursing facilities do not bill Medicare and Medicaid separately for each item or service that they provide to a resident. Rather, Medicare and Medicaid pay a per diem amount that covers a bundle of items and services that may be provided to residents. (See Compl. 111] 73-74.) The Medicare per diem skilled nursing facility rate is based upon ??resource utilization groups,? or which differentiate among residents based on types of services needed and overall acuity of health need." (Id. 1] Medicaid per diem nursing facility rates are ?based on statewide, regional and facility-speci?c factors, including the overall acuity of the health needs of the facility's resident population as measured using a variant of the RUGs system." (Id 11 74.) Thus, Medicaid per diem nursing facility rates are not set on a patient-by-patient basis according to the patient?s actual utilization of items and services, but rather are based on anticipated utilization as measured by the patient's acuity level. For example, the rate does not vary depending on whether, or the extent to which, a resident needs or receives social work or discharge planning services, and the provision or not of discharge planning services has no effect on the rate or the amount of the reimbursement. l4 In this case, the Complaint must allege that, as a result of the alleged defects in discharge planning at the end of the stay, the full range of services provided to the resident while they were in the facility were rendered ?worthless,? and did not merit the reimbursement paid. D. THE MFHCA CLAIMS SHOULD BE DISMISSED. The State seeks to convert an alleged violation of the patients? rights to discharge procedures into a false claim for services under the MFHCA. Discharge planning services are not expressly included among the services reimbursed by Medicaid (see COMAR 10.09.10.04, which itemizes the services included in the Medicaid per diem payment), and neither NMS - nor any other company - submits claims for discharge planning services. The State?s (wholly unsubstantiated) claim that NMS failed to provide discharge services has no bearing under the MFHCA because claims for reimbursement were based on the full range of services provided during the residents? stays in the facilities, not on the provision of discharge services. The State cannot show that an alleged failure to provide proper discharge planning rendered the services (nursing, therapy, room, board, etc.) provided during the residents? stay in the facility ?worthless,? or that the per diem claims for those services were ?false.? 1. A Theory That Claims for Social Work and Discharge Planning Services Were ?Factually False? Fails To State A Claim Under the MFHCA The State alleges that NMS ?[k]nowingly submitted or caused to be submitted claims for reimbursement to the Maryland Medicaid program for social work and discharge planning services that NMS did not in fact provide.? (Compl. 1i But the Complaint does not and cannot - identify even a single claim submitted for ?social work? or ?discharge planning services.? Instead, as the State acknowledges, nursing facilities are paid a daily rate of reimbursement established by the Medicaid program on a quarterly basis ?based on statewide, regional and facility?speci?c factors, including the overall acuity of the health needs of the 15 facility?s resident population.? (Compl. 1] 74; see also 1m 32, 38, 43, 47, 53 (alleging failure to provide social work or discharge planning services, but failing to allege any claims for social work or discharge planning).) As a result, the State attempts to claim that implicitly claimed that it provided social work and discharge planning.? (id. 1 132 (emphasis added).) To the extent that the State attempts to allege that NMS submitted ?factually false? implicit claims on this basis, the Complaint fails to allege the actual submission of any claims for discharge planning services. 2. An ?Implied False Certi?cation? Theory Based on the Patient's Bill of Rights Fails To State A Claim Under the MFHCA The State ?lrther alleges that NMS ?[k]nowingly submitted or caused to be submitted claims for reimbursement to the Medicaid program containing the false implied certi?cation that NMS nursing facilities comply with the provisions of the Patient?s Bill of Rights and its implementing regulations identi?ed in Paragraph 138 above.? (Compl. 11 The allegation fails under Escobar. First, the Complaint does not allege that any claim submitted by NMS ?makes Speci?c representations about the goods or services provided.? Escobar, I36 S. Ct. at 2001. Instead, the Complaint alleges only that each claim submitted by an NMS facility ?impliedly certi?ed that [the facility] complied with Maryland?s statutory and regulatory requirements protecting residents against unfair and unsafe evictions.? (Compl. 134 (emphasis added).) This allegation of an implicit representation of general compliance with statutory and regulatory requirements is a far cry from the ?specific representations about the goods or services provided? required under Escobar. 136 S. Ct. at 2001 (emphasis added). In Escobar, the defendant ?submit[ed] claims for payment using payment codes that corresponded to specific counseling services [thereby] represent?ng] that it had provided individual therapy, family therapy, preventive medication 16 counseling, and other types of treatments.? Id. at 2000 (emphasis added). The Escobar defendant ?made further representations in submitting Medicaid reimbursement claims by using National Provider Identi?cation numbers corresponding to specific job titles.? Id (emphasis added). The alleged misrepresentations related directly to the defendants? ?specific representations about the goods or services provided? and made ?those representations misleading half-truths.? Id. at 2000-01! (?By using payment and other codes that conveyed this information without disclosing Arbour?s many violations of basic staff and licensing requirements for mental health, Universal Health?s claims constituted misrepresentations?). The State?s allegations do not relate to any ?speci?c representations about the goods or services provided,? and therefore, the implied certi?cation theory does not apply. Moreover, even if the implied certi?cation theory applied, the State?s allegations do not meet the ?demanding" and ?rigorous" materiality requirement for MFHCA liability. Escobar, 136 S. Ct. at 2002, 2003. The issue of materiality may be resolved on a motion to dismiss. Id. at 2004, n.6. Compliance with laws and regulations regarding discharges is a condition of participation,5 not a condition of payment, which ?is relevant to but not dispositive of the materiality inquiry." Id. at 2001; see also Compl. 111] 125, 129, 133 (identifying discharge laws and regulations as conditions of payment); Md. Code Health-Gen 19-3453, COMAR 10.07.09.11.G., H., I. (penalties do not include forfeiture of payments); COMAR 10.07.09.01 5 ?[C]onditions of participation, as well as a provider?s certi?cation that it has complied with those conditions, are enforced through administrative mechanisms, and the ultimate sanction for violation of such conditions is removal from the government program." Conner, 543 F.3d at 1220. Signi?cantly, violations of a condition of participation do not form the basis of an FCA claim. Medquest, 7? F.3d at 714 (?The success of a false certi?cation claim depends on whether it is based on ?conditions of participation" in the Medicare program (which do not support an FCA claim) or on ?conditions of payment? from Medicare funds (which do support FCA Gross, 415 F.3d at 604 (?An FCA claim premised upon an alleged false certi?cation of compliance with statutpry or regulatory requirements also requires that the certi?cation of compliance be a condition of or prerequisite to government 1? (?Failure to comply with the regulations of this chapter is ground for licensure enforcement actions?). The Complaint does not identify any provision of law, or in contract, empowering the State to refuse to pay a claim for nursing services based on alleged violations of patients? rights related to discharges. Even if the State could identify such a provision, however, it still would need to allege facts showing that the State would decline payment by, for example, alleging ?that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement? at issue. Id. at 2003. The Complaint does not identify even a single instance in which the State has refused to pay a claim, or sought to recoup payment for a claim, based on a nursing facility?s failure to comply with discharge laws and regulations. In fact, while the Complaint describes two survey de?ciencies related to the discharges of two residents, it does not allege that the State sought to recoup the ?mds paid with respect to either claim. (Compl. 1 1 54-63.) The State?s ?implied false certi?cation? of compliance with the Patient Bill of Rights related to discharges as the basis for MFHCA liability fails to state a claim as a matter of law because the State has failed to show that it would have refused to pay any claim for nursing services based upon alleged de?ciencies in the provision of discharge services. 3. The State?s ?Implied False Certification? Theory Based on Claims Submitted to Medicaid for Residents Discharged for Failure to Arrange for Medicaid Fails To State A Claim Also Fails to State A Claim Under the MFHCA Finally, the State also alleges that NMS ?[k]nowingly submitted or caused to be submitted claims for reimbursement to the Medicaid program for services provided to a resident who was evicted for a supposed failure to arrange for Medicaid to pay for the services, while omitting to inform the Medicaid program that the resident had been evicted for that supposed 18 failure.? (Compl. 1 In support of this claim, the State alleges that ?nursing facilities may only evict a Medicaid-eligible resident if the resident, or his or her legal representative, fails, after reasonable and appropriate notice of nonpayment, to arrange to have Medicaid pay for the resident?s stay at the facility? and that has unlawfully evicted a Medicaid-eligible resident for a supposed failure to pay.? (Id 11 135 (emphasis added).) It does not appear that the State is alleging that NMS submitted any claim to Medicaid for any resident whose claim was not covered by Medicaid. (At least, the State has not identi?ed any such claims.) Thus, it appears that the State is arguing that claims submitted to Medicaid for nursing services provided to Medicaid patients that accurately described the services provided are rendered false based on an alleged improper discharges (for which no claims were submitted). This claim fails for the same reasons that the State?s claims based on alleged violations of the Patient?s Bill of Rights and supporting regulations fail. The Complaint does not identify any claim submitted by any Defendant that ?makes Speci?c rcpresentations about the goods or services provided." Escabar, 136 S. Ct. at 2001. Moreover, the allegations of the Complaint fail to meet the ?rigorous? and ?demanding? materiality requirement because the State has failed to allege facts showing that it would have refused to pay any claim for nursing services that were provided based upon allegations that a nursing facility discharged a Medicaid-eligible resident for failure to pay. 19 CONCLUSION For the reasons stated herein, the State has failed to state suf?cient facts to establish a claim under Count One for injunctive relief and under Count Two for violations of the Maryland False Health Claims Act. As a result, Defendants Neiswanger Management Services, LLC, NMS Healthcare of Hagerstown, LLC, and NMS I-lealthcare of Silver Spring, LLC_request that this Court dismiss the Complaint as alleged against them in its entirety. 20 ReSpectfully submitted, WALKER, MURPHY NELSON, LLP CW .Nelson, Esquire Murphy, Esquire 92 ?orporate Boulevard, Suite 320 Rockville, Maryland 20850 (301)-519-9150 ARNALL GOLDEN GREGORY, LLP QWM WW Sinai Lord, Esqu re Alan Horowitz, quire 1775 Avenue, NW, Suite 1000 Washington, DC. 20006 (202)-677-4054 Sara.lordn?Zgjaumcom AlanerowitzQ?gncom