United States v. AMERICAN HEALTH FOUNDATION INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

UNITED STATES OF AMERICA, :

: CIVIL ACTION

v. :

: NO. 22-02344

:

AMERICAN HEALTH FOUNDATION INC.; :

AHF MANAGEMENT CORPORATION; :

AHF MONTGOMERY, INC. d/b/a :

CHELTENHAM NURSING AND :

REHABILITATION CENTER; AND AHF :

OHIO, INC. d/b/a THE SANCTUARY AT :

WILMINGTON PLACE and d/b/a :

SAMARITAN CARE CENTER AND VILLA :

MEMORANDUM

SURRICK, J. MARCH 31, 2023

Presently before the Court is Defendants’ Motion to Dismiss First Amended Complaint

(ECF No. 19), the Government’s response in opposition thereto (ECF No. 23), and Defendants’

reply to the Government’s response (ECF No. 26.) For the following reasons, Defendants’

Motion will be denied.

The Government alleges that Defendants submitted claims for Medicare and Medicaid

reimbursements in which they falsely claimed compliance with the Nursing Home Reform Act

(NHRA) and its implementing regulations, thereby violating the False Claims Act (FCA). The

Government also brings common law claims of unjust enrichment and payment by mistake based

on these allegedly false representations. Defendants move to dismiss the Government’s FCA

claim on the grounds that the Medicare and Medicaid reimbursement requests that they

submitted were not “false” under the worthless services doctrine and not material absent proof

that the Government routinely denies reimbursements based on similar misrepresentations.

Defendants also move to dismiss the Government’s common law claims on the basis that they

too require proof of materiality.

This Motion will be denied as to the FCA claim because the allegations against

Defendants rise to the level of gross-negligence necessary to deem their services worthless and,

regardless, Defendants’ requested reimbursements for these services contained impliedly false

certifications. In addition, these alleged misrepresentations materially affected the Government’s

decision to reimburse Defendants’ claims. The Motion will also be denied as to the common law

claims given precedent that payment by mistake and unjust enrichment are adequately pled

where the allegations state a claim for fraud under the FCA.

I. BACKGROUND

This matter stems from allegations of abuse and neglect at three nursing homes:

Cheltenham Nursing and Rehabilitation Center in Pennsylvania, The Sanctuary at Wilmington

Place in Ohio, and Samaritan Care Center and Villa in Ohio. Defendant American Health

Foundation, Inc. (AHF) owns and directs these nursing homes through its subsidiaries and fellow

defendants AHF Management Corporation, AHF Montgomery, and AHF Ohio. The

Government alleges that Defendants had knowledge of the following substandard care at each of

these three nursing homes.

A. Cheltenham Nursing and Rehabilitation Center

The Government contends that from 2016 through 2018, residents at Cheltenham Nursing

and Rehabilitation Center (Cheltenham) were subjected to pervasive general care deficiencies,

inadequate infection control, negligent psychiatric and mental health services, an unsafe and

unsanitary physical environment, and an undersized and untrained staff.

According to the Amended Complaint, Cheltenham failed to provide its residents with

sufficient medical care. Specifically, the facility allegedly failed to follow physician orders for

follow-up medical treatment, including dental care, medication administration, oxygen provision,

wound dressing, cardiac monitoring, and dialysis. (Am. Compl. ¶¶ 130, 142, 147, 157; ECF No.

5.) Moreover, Cheltenham failed to generate accurate assessments or comprehensive care plans

for any of its residents. (Id. at ¶¶ 136, 141, 156.) This led to lapses in care such as failing to:

abide by a resident’s liquid diet restriction (id. at ¶ 135); set up care conferences for wound

development, weight loss, and behavior management (id. at ¶ 138); or provide residents with

necessary diet supplements (id. at ¶ 139). Residents also frequently did not receive their

prescribed medications until a day after they were supposed to be taken. (Id. at ¶¶ 280-83.)

In addition to these lapses in medical care, the Amended Complaint asserts that

Cheltenham staff frequently left residents unattended (id. at ¶ 131), forgot to feed them (id. at ¶

132), did not provide them with showers (id. at ¶ 136), and did not change their clothing or bed

sheets, leaving residents sitting in their own urine (id. at ¶¶ 132, 140). On one occasion,

protective services contacted the facility because a resident had long and dirty fingernails and

was generally unkept. (Id. at ¶ 149.) On another occasion, a resident’s family member found

him dressed inappropriately and sitting in a wheelchair filled with urine. (Id. at ¶ 150.)

As for the relationship between residents and staff, the Government alleges that resident

clothing and personal items were often lost and not returned to them. (Id. at ¶¶ 242-50.)

Moreover, Cheltenham staff mocked or were openly hostile to residents and entered their rooms

without knocking. (Id. at ¶¶ 251-54.) Staff members had to be reminded that residents had the

right to get out of their beds whenever they wanted because the staff had been refusing resident

requests to do so. (Id. at ¶¶ 243.) In addition, the home lacked activities to keep residents

occupied; Pennsylvania health inspectors observed residents sitting in the common area with

their heads on the table and nothing to do. (Id. at ¶¶ 255, 261.)

The Government further contends that residents at Cheltenham were frequently injured or

in danger of becoming injured either due to neglect or allegedly intentional abuse. On February

9, 2018, nurse Colleen Johnson1 reported to AHF management that Cheltenham managers were

“getting good” at writing abuse allegation reports due to their frequency. (Id. at ¶ 151.) In a

survey completed on July 20, 2017, Pennsylvania health officials found that Cheltenham had

restrained a resident’s wrists without any documentation to indicate that it was necessary to do

so. (Id. at ¶ 146). Moreover, facility staff had to be reminded that it was unsafe to leave

residents unattended (id. at ¶ 131), and on March 16, 2018, a confused resident was left alone on

a different floor without supervision (id. at ¶ 152).

The Government alleges that this lack of supervision resulted in several resident falls.

On November 28, 2016, a resident fell and broke her femur. (Id. at ¶ 172.) This resident was

supposed to be under one-to-one supervision because she had bruises from an unknown origin,

but that level of supervision was not provided. (Id.) The Government also identifies five

specific Medicare and Medicaid beneficiaries who suffered from numerous falls during the

relevant time period. (Id. at ¶¶ 177-181.) For many of these beneficiaries, Cheltenham had been

warned repeatedly by a pharmacy that they were taking medications that could contribute to

falls. (Id. at ¶¶ 177, 179-81.) In addition to failing to heed those warnings, Cheltenham

allegedly failed to consistently investigate the cause of resident falls in order to intervene. (Id. at

¶¶ 171.) However, when they did investigate in December of 2016, Cheltenham managers and

1 Colleen Johnson is a registered nurse who worked as a consultant for AHF Management

and whose reports on the state of the three nursing homes form the basis for many of the

Government’s allegations.

staff reported that falls increased during staff shift changes, that high-risk residents were not

identified, and that the facility was not prepared for new high-risk admissions. (Id. at ¶ 174.)

In addition to falls, many Cheltenham residents suffered from pressure ulcers. On

February 5, 2016, a survey by Pennsylvania health inspectors determined that the facility failed

to implement proper interventions to combat this problem. (Id. at ¶ 166.) In one specific

example, a resident’s pressure ulcer was left untreated and grew over three months. (Id.) A

performance improvement exercise found that residents at high risk for pressure ulcers were not

always turned and repositioned as needed or provided with adequate food and liquid, staff were

not following resident care plans, fresh linens and pillows were not available, and risk

assessments for pressure ulcers were not being completed timely and accurately. (Id. at ¶ 167.)

Subsequent internal and external reviews in June of 2017 and June of 2019 found that

Cheltenham had not corrected its pressure ulcer problem. (Id. at ¶¶ 169-70.)

The Government also points to Cheltenham’s lack of infection control. The Amended

Complaint cites a state health department citation indicating that Cheltenham failed to follow

infection control protocols during wound treatments, failed to safely dispose of bloody wound

dressings, and that the facility contained open and overflowing biohazard bins and trash cans.

(Id. at ¶ 158.) In addition, both internal and external sources reported that staff were not

following proper hand hygiene in the kitchen or when treating residents. (Id. at ¶¶ 159-60.) The

facility did not have any bleach wipes to disinfect surfaces or an infection control nurse, despite

this being deemed a “critical position.” (Id. at ¶¶ 161, 164.)

As for Cheltenham’s psychiatric services, the Government alleges that the facility

consistently failed to document and monitor its residents’ mental health conditions and, even

when it did so, failed to ensure that the residents were seen by mental health specialists. (Id. at ¶

184.) The Government’s most poignant example involves a resident who was admitted to

Cheltenham after being hospitalized for wrapping a cord around his neck while living in a prior

nursing home. That resident’s care plan at Cheltenham made no mention of his prior suicide

attempt. Cheltenham staff observed that the resident appeared depressed and angry, but there is

no evidence that a mental health evaluation occurred. (Id. at 190-91.) Eventually, the resident

attempted to slash his wrists. (Id. at ¶¶ 190-91.) Following a hospital stay, the resident returned

to Cheltenham and began refusing his morning medications, only got out of bed to use the

bathroom, refused to eat, and was noncommunicative. (Id. at ¶ 192.) Shortly thereafter, the

resident hung himself with a bedsheet in one of Cheltenham’s shower rooms and died. (Id. at ¶

195.) The Government alleges that, even after this incident, Cheltenham failed to retain

appropriate mental health specialists (id. at ¶¶ 199-201), update resident care plans with mental

health issues (id. at ¶¶ 203-06), or ensure that residents with known mental health issues were

properly attended to (id. at ¶¶ 209.) The Government also contends that Cheltenham was a

significant outlier in the overuse of antipsychotic, anxiolytic, and hypnotic medications, and

allegedly used them unnecessarily without monitoring their effectiveness and without a plan for

gradual dose reductions. (Id. at ¶¶ 265-79.)

Cheltenham’s physical facilities, according to the Amended Complaint, were unsafe,

unsanitary, and in a state of disrepair. The home’s shower rooms lacked privacy curtains, had

feces on the floor and drains clogged with hair, smelled strongly of urine, lacked any soap, and

contained dirty shower chairs, linens, and dried washcloths. (Id. at ¶¶ 212, 213, 216, 220, 222.)

Bathrooms emitted foul odors, had blood and feces on the floors and toilets, and lacked sufficient

toilet paper and paper towels. (Id. at ¶¶ 213, 216, 228.) Cheltenham residents ate in a dining

room where the ceiling was “heavily soiled with a covering of dirt and dust” and the dining

tables were not cleaned after meals. (Id. at ¶¶ 212, 215.) The floor in the food preparation area

was heavily soiled with dirt and trash, and the food carts used to serve residents were covered in

dried food, coffee stains, and “white dried substances.” (Id. at ¶ 226.)

Furthermore, the Government contends that Cheltenham was infested with pests, such as:

cockroaches in the kitchen (specifically infesting the microwave) (id. at ¶¶ 215, 219); ants, flies,

mice, and roaches in the food distribution area (id. at ¶ 226); flies in the dietary department’s

janitor’s closet (id. at ¶ 227); wasps in a resident’s room (id. at ¶ 236); and “flying insects” in all

four nursing units (id. at ¶ 238). Multiple parties complained of a pungent odor throughout

Cheltenham’s facility, and it was subsequently discovered that fourteen out of eighteen exhaust

fans were not working. (Id. at ¶ 229.) Cheltenham did not properly test its generator, carbon

monoxide detectors, emergency lighting, or exit signs, and the facility contained blocked fire

exits. (Id. at ¶ 233.) A formal state survey summarized that Cheltenham had “failed to provide

adequate housekeeping and maintenance services to maintain a safe, functional, sanitary, and

comfortable environment for residents, staff, and the public.” (Id. at ¶ 237.)

The Government further alleges that Cheltenham was understaffed, with nurses leaving at

an alarming rate due to a demanding workload. (Id. at ¶ 287.) It was reported that there was

“not enough staff to cover the floors” (id. at ¶ 291), that staffing levels were so low as to be

unsafe (id. at ¶ 296), that the facility needed to hire one registered nurse, seven licensed practical

nurses, and 40 nursing aides (id. at ¶ 295), and that there was not enough staff to cover the

facility on weekends (id. at ¶¶ 299, 307). In one example, 26 cognitively impaired residents

were left with only one nursing aide to provide supervision, meaning that no one could leave the

room because the aide would have to accompany them and leave the remaining residents

unattended. (Id. at ¶ 285.) It was recognized that the staffing shortage was a result of paying

wages below the competitive rate, yet Cheltenham’s management did not increase their pay rate

and in fact continued to cut down on nursing hours and take on additional patients. (Id. at ¶¶

298, 300, 303, 305, 308.)

Due to Cheltenham’s high turnover, the facility had to be staffed by temporary agency

employees who were not properly oriented or trained. (Id. at ¶ 288.) Multiple staff members

reported that new nurses began working before orientation was completed because they were so

badly needed. (Id. at ¶¶ 288, 294.) Moreover, there was no supervision of the staff or follow-up

to ensure that training had been effective. (Id. at ¶ 290.) In one case, a “clearly observable

knowledge deficit” regarding care for residents with a tracheostomy caused one such resident to

pull out her own breathing tube and die. (Id. at ¶¶ 311-12.) The Amended Complaint also

alleges that the staff member in charge of resident medical records had been nearly fired for

incompetence in previous roles and failed to properly scan and process hospital records for

Cheltenham’s residents. (Id. at ¶ 314.)

Finally, the Government offers five examples of residents who it alleges “received

grossly substandard care at Cheltenham during the relevant period,” and attaches the allegedly

false claims submitted to Medicare and Medicaid on behalf of these residents. (Id. at ¶¶ 318-19.)

Included in these example residents are JM, the resident with a history of suicidal actions who

hung himself in one of Cheltenham’s shower rooms; LC, the resident who pulled out her

breathing tube and died; and JD, the resident who suffered numerous bruises and falls due to a

lack of one-to-one supervision and the administration of medication by Cheltenham against its

pharmacy’s recommendation. There is also CH, who allegedly “informed Cheltenham staff that

she was suicidal and planned to kill herself” (id. at ¶ 327), but whose care plan was not updated

to reflect her need for psychiatric care after she returned from a hospital visit (id. at ¶¶ 328-29).

The fifth resident, RG, was placed in isolation, where she was not fed and was left to soak in

urine. RG was cognitively impaired and refused dental treatment, but no interventions were

taken, and her gums became swollen, bloody, and filled with pus. (Id. at ¶ 333.) Cheltenham

referred RG to an oral surgeon, but it did not administer the recommended medication, follow up

with the surgeon for additional treatment, or inform RG’s physician about the surgeon’s

recommendations. (Id. at ¶ 334.)

B. The Sanctuary at Wilmington Place

The Government contends that, from January 1, 2017, through December 31, 2018, the

Sanctuary at Wilmington Place (Wilmington Place), rendered grossly negligent care through

numerous general care deficiencies, inadequate infection control, overmedication, staffing

shortages and incompetency, and incomplete and inaccurate care plans.

The Amended Complaint alleges that Wilmington Place neglected its residents in ways

that caused them physical and emotional harm. In one example, staff failed to change a

resident’s incontinence pad and she was found in her wheelchair with urine and dried feces up to

her lower back. (Am. Compl. ¶ 358.) Another resident was unable to call for help to urinate

during the night because her nursing aide was sleeping during his shift. (Id. at ¶ 259.) Ohio

health inspectors discovered two additional instances of alleged abuse and neglect, one in which

a nursing aide told a resident to “shut up” when she asked to use the bathroom and then left feces

on the resident’s floor, and another where a nursing aide rudely and improperly put a resident in

bed and left her to urinate on herself before a different aide eventually assisted her. (Id. at ¶¶

366-67.) When Colleen Johnson visited the facility, she observed that residents were left in their

beds during the day in gowns with no call light within reach. (Id. at ¶ 363.) Residents ate less

than half of their food, but Wilmington Place offered no food substitutions. (Id. at ¶ 364.)

In addition to these alleged detriments to resident quality of life and dignity, the

Government asserts that neglect in Wilmington Place also caused residents to suffer physical

harm. On March 8, 2017, Nurse Johnson discovered that numerous Wilmington Place residents

had pressure ulcers but that there was no evidence of wound protocols in place or being

followed. (Id. at ¶ 354.) An outside consultant reported that existing pressure ulcers worsened

upon admission to Wilmington Place and that residents at the facility developed pressure ulcers

at more than twice the statewide and national rate. (Id. at ¶ 355.) An audit in January of 2018

discovered that one third of residents had some sort of wound or sore on his or her skin. (Id. at ¶

365.)

The Government contends that Wilmington Place’s infection control was similarly

lacking. The facility had no infection log, did not map infections to track their spread, and failed

to educate staff on infection practices. (Id. at ¶¶ 370-71.) Nurse Johnson observed a student

nurse draw a resident’s blood without gloves on and saw that staff were simply placing soiled

linens on the floor of resident rooms. (Id. at ¶¶ 372-73.) A survey conducted on November 26,

2019, found that Wilmington Place failed to isolate a resident with an infection and was

generally not equipped for airborne infection control. (Id. at ¶ 374.) Finally, the facility failed to

perform a required monthly test of its water for bacteria. (Id. at ¶ 375.)

Wilmington Place allegedly provided its residents with unnecessary medications at a high

error rate, failed to ensure that residents received their necessary prescribed medications, and did

not abide by pharmacy recommendations concerning these issues. According to the Amended

Complaint, Wilmington Place failed to attempt non-pharmaceutical interventions prior to

administering pain medications and antipsychotics to its residents. (Id. at ¶¶ 384, 401, 403.) The

facility also had a medication error rate over five percent, leading to instances such as

administering two separate blood thinners to a resident and putting her at a high risk of

hemorrhage. (Id. at ¶¶ 385-86.) Wilmington Place administered medications outside of the

parameters of the prescribing physicians’ orders (id. at ¶ 404), did not monitor residents’

responses to medications (id. at ¶ 405), and administered medications in excessive doses or

durations (id. at ¶ 406).

Moreover, when medication was necessary, the Government alleges that Wilmington

Place failed to ensure that residents received it on time or at all. (Id. at ¶ 389.) Facility managers

confirmed problems receiving ordered medications and were not aware that there was a back-up

pharmacy to help address this issue. (Id. at ¶ 390.) Wilmington Place also provided residents

with several discontinued and expired medications. (Id. at ¶ 402.)

Many of these issues were flagged by Omnicare, the consultant pharmacy for

Wilmington Place. The Government contends that between January 2016 and October 2018,

“Wilmington Place received over 1,000 specific recommendations from Omnicare relating to

medications that were unnecessary, contraindicated, or otherwise problematic.” (Id. at ¶ 380.)

The facility did not respond to or address many of the pharmacy’s recommendations. (Id. at ¶

381-82.)

The Government further alleges that Wilmington Place was understaffed to the point that

facility managers had to work as floor nurses. (Id. at ¶ 412.) This problem was primarily

attributed to high staff turnover, with new hires in nursing and housekeeping quitting withing 30

days, and staff working night shifts quitting within 14 days. (Id. at ¶¶ 414-15.) Attempts to

supplement the staff with temporary agency employees was discouraged by Defendants due to

the expense. (Id. at ¶¶ 421, 423-24.) According to the Amended Complaint, the staff members

that Wilmington Place managed to retain were not properly oriented or trained, with incompetent

employees training new hires and even acting in managerial positions. (Id. at ¶¶ 413, 419.)

In addition, Wilmington Place allegedly did not keep complete and accurate care plans

and assessments for its residents. For example, residents were not assessed as fall risks, several

resident care plans had missing or incomplete diet information, and the facility did not perform

resident skin assessments for wounds and pressure ulcers. (Id. at ¶¶ 435-37, 441-44.) Some

residents had no care plan at all. (Id. at ¶ 445.) The facility’s restraint assessments were

incomplete, meaning that residents were physically restrained with no explanation of why doing

so was necessary. (Id. at ¶ 446.) Residents were frequently released without a completed

discharge summary. (Id. at ¶ 432.)

The Government provides two specific examples of Medicare and Medicaid beneficiaries

who allegedly received “grossly substandard care” at Wilmington Place. The first is BF, who

took antipsychotic medication but was not monitored for signs of irreversible nervous system

damage that could be caused by that medication. (Id. at ¶ 458.) On February 13, 2017,

Omnicare recommended that the facility evaluate and possibly discontinue that antipsychotic, but

instead Wilmington Place doubled BF’s dose. (Id. at ¶ 459.) Furthermore, Wilmington Place

allegedly ignored BF’s care plan calling for her pain to be managed without medication and

instead provided her with Oxycodone. (Id. at ¶ 460.) The Government’s other example, CC,

was cognitively impaired and released by Wilmington Place to her home without a necessary

discharge order for physical or occupational therapy or a referral for home health services. (Id.

at ¶¶ 433, 463-64.) This resulted in CC being home alone for two days without these services.

(Id. at ¶ 464.)

C. Samaritan Nursing Home and Villa

The Government contends that, from October of 2016 through 2018, Samaritan Nursing

Home and Villa (Samaritan) neglected its residents’ medical care and quality of life, lacked

infection control procedures, was understaffed, did not complete accurate care assessments, and

failed to maintain a habitable physical environment.

Beginning with medical care, residents at Samaritan frequently were not provided with

consultations with external medical providers due to transportation issues or other unspecified

reasons. (Am. Compl. ¶ 472.) When residents did see external physicians, the facility failed to

follow those physicians’ orders. (Id. at ¶ 474.) Nearly one sixth of Samaritan’s population

suffered from pressure ulcers because the facility failed to perform skin checks or document

pressure ulcer progression. (Id. at ¶ 476.) Samaritan also failed to perform interventions for falls

that were documented in resident care plans. (Id. at ¶ 473.)

The Government also contends that resident dignity and quality of life were lacking at

Samaritan. An external consultant reported that resident call lights were not answered in a

timely manner, with non-nursing staff simply ignoring call lights because they did not know how

to help. (Id. at ¶ 483.) The facility had no activities for residents (id. at ¶ 484) and failed to

respond to concerns raised in resident council meetings (id. at ¶ 486). One Samaritan resident

was forced to wait 90 minutes after requesting help to clean himself from a bowel movement (id.

at ¶ 488), with another reporting that she had been mentally abused by facility staff (id. at ¶ 489).

As for infection control, Samaritan allegedly failed to clean isolation rooms. In one

instance, a resident with a foot wound infected with MRSA was made to walk around barefoot in

such a room with a visibly dirty floor. (Id. at ¶ 493.) Colleen Johnson reported that she

observed open and non-sterile wound dressing supplies, a soiled feeding apparatus, and soiled

wound dressings that were not disposed of properly when she visited the facility. (Id. at ¶ 495.)

Johnson also reported that staff members were not following hand-sanitization procedures when

handling food and assisting residents. (Id. at ¶ 496.) A survey by Ohio health inspectors

completed on August 15, 2018, summarized that Samaritan “failed to ensure adequate infection

control practices were maintained, including appropriate hand washing techniques during a

dressing change.” (Id. at ¶ 498.)

Like Cheltenham and Wilmington Place, Samaritan was understaffed during the relevant

time period. An outside consultant reported that licensed nurses were quitting the facility within

30 days and nursing aides quitting within 14 days. (Id. at ¶ 505.) The fact that Samaritan paid

its nurses $5 per hour less than its competition was identified as the primary cause of this

retention problem. (Id.) Ohio health inspectors found Samaritan’s staffing deficient because

there was not enough staff for the facility on weekends, and because it did not have a registered

nurse working for at least eight hours a day, seven days a week, which the NHRA requires. (Id.

at ¶¶ 511, 515.)

Once again, the Amended Complaint alleges that Defendants attempted to cure their

staffing problems with temporary agency staff, but it was found that these temporary employees

did not answer resident call lights or provide adequate care. (Id. at ¶ 512.) One Samaritan

resident reported that he had to sit in soiled briefs for two and a half hours after notifying staff

that he soiled himself, with another claiming that she felt like her bladder was going to burst

before the staff helped her use the bathroom and that it took a long time for her to receive her

pain medication. (Id. at ¶ 513.) Other residents stated that Samaritan was “chronically

understaffed,” and one reported that when she complained about the lack of care “staff always

told her they were short staffed so she gets what she can get.” (Id.)

Samaritan employees themselves also complained about the inadequate staffing. One

employee stated that Samaritan had a “hostile work environment” causing her to cry during her

shifts. (Id. at ¶ 509.) Defendants were told that there was constant bickering among staff as a

result of a lack of leadership, with a Samaritan administrator reporting that she had “never seen

such arguing between nurses in [her] life.” (Id. at ¶ 521.) The Amended Complaint also cites

reviews from Indeed.com, with former nursing aides writing that the Samaritan was short staffed

to the extent that aides had to do the job of two to three people, had an unfriendly working

environment, and would assign one nurse and one assistant to the entire facility without any help.

(Id. at ¶¶ 518-19.)

Next, the Government alleges that Samaritan failed to keep accurate and comprehensive

care plans and assessments. Many residents had multiple conflicting nutrition care plans, and

some residents did not have a diet card, which indicated what types of food they should or should

not eat. (Id. at ¶¶ 530-31.) Samaritan also failed to document weekly skin assessments and had

numerous incident reports relating to resident falls that had not been completed or logged. (Id. at

¶¶ 529, 532.) One resident care plan called for her to attend out-of-room activities to promote

socialization, but Samaritan staff had not gotten her out of bed for months. (Id. at ¶ 534.)

Similarly, Samaritan failed to update the care plan for a resident who suffered significant

cognitive decline, weight loss, and a pressure ulcer. (Id. at ¶¶ 536-37.) Another resident was

discharged without a discharge care plan. (Id. at ¶ 535.) Colleen Johnson reviewed 27 residents’

records and reported that they were all missing a social work or activity assessment and complete

immunization information. (Id. at ¶ 538.) Many also lacked pharmacist recommendation forms.

(Id. at ¶ 539.)

Nurse Johnson also reported that quarterly assessments of residents were actually being

done only three weeks apart and was told that this was done intentionally to increase the “case

mix” at Samaritan. (Id. at ¶ 540.) Case mix, or “CMI,” is a score that determines the resources

necessary to care for residents. (Id. at 112.) A higher CMI therefore results in higher Medicare

and Medicaid reimbursements. (Id.).

Additionally, Samaritan’s physical building and environment was allegedly unsafe and

unsanitary. The front door to the facility did not lock and the keypad and buzzer were broken,

meaning that anyone could enter or exit the building. (Id. at ¶ 545.) Resident rooms were

cluttered to the point that it caused at least one resident fall. (Id. at ¶¶ 546-47.) This clutter

included incontinence brief bags and wet wipes. (Id. at ¶ 549.) Samaritan staff did not replace

trash can liners, instead opting to throw debris in the unlined trash bins, causing an infection

control issue. (Id. at ¶ 550.) Ohio health inspectors reported a strong urine smell in one

resident’s room—eventually determined to be from the resident hoarding dirty briefs in her

closet—and told Samaritan that “the facility needed cleaning, repairs, and the grounds were not

maintained . . . .” (Id. at ¶¶ 553-54.)

Finally, the Government offers two specific examples of Medicare and Medicaid

beneficiaries who allegedly received grossly substandard care at Samaritan. One such

beneficiary is MF, the resident who suffered from cognitive decline, weight loss, and stage 2

pressure ulcers. (Id. at ¶ 558.) Despite MF refusing medication and treatment, engaging in

delusion behavior, and falling, Samaritan allegedly did not complete a change assessment,

include these issues in her care plan, or inform her doctor or representative. (Id. at ¶¶ 559-61.)

The Government also points to BB, who complained that she felt like her bladder would burst

before she was taken to the bathroom, that the staff bathed her with stained washcloths also used

to provide incontinence care, that she was in constant pain because the facility did not acquire a

prescription for pain medication from her doctor, and that she was mentally abused. (Id. at ¶¶

563-64.) Samaritan did not address these complaints, record BB’s allegation of mental abuse, or

update her care plan with interventions for pain relief. (Id. at ¶ 566.)

II. LEGAL STANDARD

To survive a motion to dismiss pursuant to Rule 12(b)(6), “a plaintiff must allege

‘enough facts to state a claim to relief that is plausible on its face.’” New Jersey Carpenters &

the Trustees Thereof v. Tishman Const. Corp. of New Jersey, 760 F.3d 297, 302 (3d Cir. 2014)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A complaint has facial

plausibility when there is enough factual content ‘that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Id. (quoting Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009)). When considering a motion to dismiss, the Court must accept as true

all factual allegations in the plaintiff's complaint and construe the facts alleged in the light most

favorable to the plaintiff. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009)

(citing Iqbal, 556 U.S. at 677).

A complaint that merely alleges entitlement to relief, without alleging facts that show

entitlement, must be dismissed. See id. at 211. Courts need not accept “[t]hreadbare recitals of

the elements of a cause of action, supported by mere conclusory statements . . .” Iqbal, 556 U.S.

at 678. “While legal conclusions can provide the framework of a complaint, they must be

supported by factual allegations.” Id. at 679. This “‘does not impose a probability requirement at

the pleading stage,’ but instead ‘simply calls for enough facts to raise a reasonable expectation

that discovery will reveal evidence of’ the necessary element.” Phillips v. Cnty. of Allegheny,

515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).

In addition, in cases brought under the FCA, claimants alleging fraud must meet the

higher pleading standard of Federal Rule of Civil Procedure 9(b), which requires them to “state

with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). In

interpreting the “particularity” standard, the Third Circuit has held that “it is sufficient for a

plaintiff to allege particular details of a scheme to submit false claims paired with reliable indicia

that lead to a strong inference that claims were actually submitted.” Foglia v. Renal Ventures

Mgmt., LLC, 754 F.3d 153, 156-157 (3d Cir. 2014). This requires a plaintiff to allege “all of the

essential factual background that would accompany the first paragraph of any newspaper story—

that is, the who, what, when, where, and how of the events at issue.” U.S. ex rel. Moore & Co.,

P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016) (quoting In re

Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002)).

III. DISCUSSION

Defendants move to dismiss the Government’s FCA claim as well as its common law

claims of payment by mistake and unjust enrichment. Defendants first argue that in order to

meet the FCA’s falsity element, they must have rendered entirely worthless services, and that

they did not do so here because their conduct did not rise to the level of gross negligence. This

argument fails for two reasons. First, the Government’s factual allegations, accepted as true at

this stage, demonstrate that Defendants rendered grossly negligent, and therefore worthless,

long-term care. Second, even if Defendants’ services were not worthless, the falsity element can

also be met by making implied false certifications, which Defendants allegedly did here by

falsely affirming that they were in compliance with federal regulations required to receive

Medicare and Medicaid reimbursements.

Defendants next argue that the Government failed to plead a claim under the FCA

because their failure to comply with federal nursing home regulations was not material to the

Government’s decision to pay them Medicare and Medicaid reimbursements. This argument

fails because two of the three factors courts consider to determine materiality weigh heavily in

the Government’s favor. First, Defendants’ compliance with the NHRA was an express

condition of reimbursement which, while not dispositive, is highly relevant to whether that

compliance was material. Second, Defendants’ alleged noncompliance was so severe that a

reasonable person could not conclude it would not have affected the Government’s willingness

to reimburse Defendants under the relevant common sense and holistic inquiry. With regard to

the third factor, there is no evidence regarding the Government’s payment decisions in similar

circumstances in the past, or evidence that the Government had actual knowledge of Defendants’

noncompliance prior to reimbursement here, rendering this factor at most neutral and insufficient

to outweigh the other two.

Defendants also argue that the Government’s common law claims of payment by mistake

and unjust enrichment fail because they too require materiality. However, as discussed, we find

that Defendants’ alleged misrepresentations were material. Moreover, this Court has held that

common law claims such as those advanced by the Government here are properly pled where the

Government makes out a claim under the FCA.

A. Regulatory Scheme

Medicare and Medicaid reimbursement is regulated by the Centers for Medicare and

Medicaid Services (CMS). In order to participate in and receive payments under these programs,

a nursing home must execute form CMS-1561, through which it “agrees to conform to the

provisions of section of 1866 of the Social Security Act and applicable provisions of 42 CFR,”

which are the statutes and regulations governing nursing home care. See Health Benefit

Insurance Form, CMS-1561, https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/CMS-

Forms-Items/CMS012196. Once a facility is deemed eligible, it will receive payment by

submitting Minimum Data Set (MDS) forms for each resident, in which it provides an

assessment of the resident’s health and formulates a care plan. 42 C.F.R. § 483.315(e); 42

U.S.C. § 1395i-3(b)(A). Nursing homes must submit MDS forms quarterly, must certify that the

“information was collected in accordance with applicable Medicare and Medicaid requirements,”

and acknowledge that it “is used as a basis for ensuring that residents receive appropriate and

quality care . . . as a basis for payment from federal funds,” and that “payment of such federal

funds and continued participation in the government-funded health care programs is conditioned

on the accuracy and truthfulness of this information.” Minimum Data Set (MDS) - Version 3.0,

Resident Assessment and Care Screening, at 45, https://www.cms.gov/Medicare/ Quality-

Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/Downloads /Archive-

Draft-of-the-MDS-30-Nursing-Home-Comprehensive-NC-Version-1140.pdf. Furthermore, the

drafter of the MDS must certify that he or she “may be personally subject to or may subject [his

or her] organization to substantial criminal, civil, and/or administrative penalties for submitting

false information.” Id.

It is incumbent on nursing homes submitting Medicare and Medicaid claims to comply

with the NHRA—found at 42 U.S.C. § 1395i-3(a) to (h) and § 1396r(a) to (h)—and its

implementing regulations—found in 42 C.F.R. §§ 483.1-483.95. These regulations are vast, and

the Government outlines them thoroughly in its complaint. In short, a nursing home must

generally “care for its residents in such a manner and in such an environment as will promote

maintenance or enhancement of the quality of life of each resident.” 42 U.S.C. § 1395i-

3(b)(1)(A). To that end, facilities must do the following: provide residents with competent

medical, dental, pharmaceutical, and dietary services; create, follow, and review resident care

plans within certain timeframes; ensure that residents receive care for pressure ulcers, respiratory

care, and pain management; maintain resident grooming and hygiene; provide activities directed

by qualified professionals that meet resident interests and encourage interaction; employ a

sufficient number of nurses with necessary skills and competencies, including one registered

professional nurse at least 8 hours per day, 7 days a week; provide appropriate mental health

treatment and services and avoid overuse of psychotropic drugs; protect a resident’s right to be

free from abuse and restraints and investigate infringements on this right; provide a safe and

orderly discharge from the facility; and maintain a physical facility that is safe and sanitary with

an effective pest-control system and free from accident hazards.

Individual states are required to ensure compliance with the NHRA and conduct on-site

surveys either at regular intervals or when there is a complaint against a facility. 42 U.S.C. §

1395i-3(g)(1)(A), (2)(A), (4)(A). If the survey reveals that the facility “immediately

jeopardizes” the health or safety of its residents, then the state must inform CMS. 42 U.S.C. §

139i-3(h)(1)(A). CMS is then required to impose a remedy to correct the deficiencies, terminate

the facility’s participation in Medicare and Medicaid, or impose any of the remaining remedies

provided for by statute, which include denial of payment and imposition of civil monetary

penalties. 42 U.S.C. § 1395i-3(h)(2)(A)(i), (2)(B). If the facility is not in substantial compliance

with the NHRA within three months of the initial violation, or if it is found to have provided

substandard care in three consecutive inspection surveys, then CMS must deny payments for all

new admissions. 42 U.S.C. §§ 1395i-3(h)(2)(D), 1395(h)(2)(E). If the facility is not in

substantial compliance within six months, then CMS must terminate the facility’s provider

agreement or discontinue Medicare and Medicaid payments to the facility. 42 C.F.R. §

488.450(d).

B. False Claims Act

Where a facility misrepresents its compliance with the above requirements while

applying for Medicare and Medicaid reimbursements, it may be liable under the False Claims

Act. 31 U.S.C. § 3729, et seq. A violation of the FCA requires proof of four elements: falsity,

causation, knowledge, and materiality. United States ex rel. Petratos v. Genetech, Inc., 885 F.3d

481, 487 (3d Cir. 2017). In their motion to dismiss, Defendants argue that the Government has

failed to plead the falsity and materiality elements. We disagree.

1. Falsity

There are two types of false claims that fall under the FCA: factually false and legally

false. “A claim is factually false when the claimant misrepresents what goods or services that it

provided to the Government and a claim is legally false when the claimant knowingly falsely

certifies that it has complied with a statute or regulation the compliance with which is a condition

for Government payment.” U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305

(3d Cir. 2011). The Government has pled both types of falsity here.

(i) Legal Falsity

Legal falsity occurs when the claimant makes a “false certification,” meaning that they

falsely claim to have met a prerequisite for Government payment. The false certification can be

either express or implied. See Universal Health Servs., Inc. v. United States ex rel. Escobar.,

579 U.S. 176, 186-87 (2016) (upholding the implied false certification theory of liability). While

an express false certification, as the name suggests, requires an affirmative certification of

compliance with Government regulations, the “more expansive” implied false certification

occurs “when a claimant seeks and makes a claim for payment from the Government without

disclosing that it violated regulations that affected its eligibility for payment.” Wilkins, 659 F.3d

at 305. In other words, “the act of submitting a claim for reimbursement itself implies

compliance with governing federal rules that are a precondition to payment.” Id. (quotations

omitted).

The Government has made out a claim of implied false certification here. Specifically, it

pled that in order to participate in Medicare and Medicaid, Defendants were required to execute

form CMS-1561, agreeing to conform to the NHRA and its implementing regulations. (Am.

Compl. ¶ 29.) They were also required to submit MDS forms quarterly for each resident

certifying the same. (Id. at 33-36.) Compliance with these regulations was required for

Defendants to continue receiving Medicare and Medicaid payments. The Government alleges

that Defendants continued to submit reimbursement requests with full knowledge that their care

fell well short of the NHRA’s requirements. Submitting these claims “implie[d] compliance

with governing federal rules that are a precondition to payment,” Wilkins, 659 F.3d at 305, and

thus constituted impliedly false certifications.

Moreover, the Amended Complaint alleges that Nurse Colleen Johnson, Defendants’

consultant, told vice president of operations Matt Lehman that Samaritan was performing

quarterly assessments only three weeks apart. (Am. Compl. ¶ 540). Johnson “was told that this

was done to increase the ‘case mix’ at the facility, which typically results in higher

reimbursements from Medicare and Medicaid.” (Id.) Accepting as true that Defendants’

supposedly “quarterly” assessments, which are mandated under the NHRA, were in fact

performed more frequently in order to artificially inflate their need for reimbursement, these

assessments would certainly qualify as impliedly, if not expressly, false certifications.

Indeed, Defendants do not appear to contest falsity under the implied false certifications

theory, arguing only that the implied certifications were not material and that they were not

factually false. However, legal and factual falsity are alternative theories for relief under the

FCA, and because the Government made out a claim of legal falsity it need not also prove factual

falsity. See United States ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89 (3d

Cir. 2018) (“A false or fraudulent claim may be either factually false or legally false.”)

(emphasis added). Nevertheless, we will also address Defendants’ factual falsity arguments.

(ii) Factual Falsity

A factually false claim requires proof that “the service the government was billed for was

not provided.” United States ex rel. Jackson v. DePaul Health Sys., 454 F. Supp. 3d 481, 494

(E.D. Pa. 2020). This includes not only instances where services were literally not rendered, but

also “worthless services” claims where “the service is so substandard as to be tantamount to no

service at all.” In re Genesis Health Ventures, Inc., 112 F. App’x. 140, 143 (3d Cir. 2004). As

this Court has previously held:

[U]nder the theory of worthless services a claim can be maintained against a

defendant that fails to comply with regulations that are intended to ensure that the

services provided to the government have value. Under this theory, a defendant

may be liable for noncompliance with a regulation that aims to prevent “Medicare

waste, fraud, and abuse, i.e. paying out on claims that should not be paid.” And a

failure to comply with a regulation that informs the quality or the level of the

service at issue can be the basis for a claim under a worthless services theory

because “seriously deficient” service is akin to “a product that does not work.”

Jackson, 454 F. Supp. 3d at 494-95 (citations omitted). However, the worthless services theory

requires more than “mere regulatory compliance;” the services rendered must be “grossly

negligent with respect to the regulatory standard of care.” Id. at 495. Gross negligence is

defined as the “lack of even slight diligence or care[.]” Id. at 496 n.19.

Defendants compare this case to others where this Court did not find long-term care

homes to have been grossly negligent. In Jackson, for example, a relator alleged that a nursing

home was understaffed, which resulted in unanswered call bells and bed-ridden residents left in

soiled sheets without being bathed. 454 F. Supp. 3d at 488. The relator also provided three

example residents: one who had scabies and was not quarantined, leading to an unreported

outbreak; another who suffered from bedsores and was not always turned every two hours; and a

third who suffered a fall that resulted in severe injuries. Id. at 489. This Court ultimately

determined that “these incidents do not rise to the grossly negligent or significantly substandard

care required to prove a claim under the worthless services theory.” Id. at 497.

Defendants also point to Taylor v. Comhar, Inc., No. 16-1218, 2021 WL 3857799 (E.D.

Pa. Aug. 30, 2021), where a relator alleged that residential treatment facilities for disabled

individuals were understaffed such that they could not provide one-to-one care and that a staff

member was regularly sleeping on the job. Id. at *1-2. The relator also claimed that she

witnessed abuse and over-medication of residents, and that the facilities did not properly report

this conduct to the state. Id. at *2. This Court dismissed the relator’s complaint, holding that the

lack of one-to-one care and the inattentive employee “are more suggestive of negligence than

worthless services,” and that the more serious allegations of abuse were not pled with sufficient

particularity because the complaint did not “include information as to the frequency of the

alleged abuse, the identities of the perpetrators and residents, the overall level of care provided to

the residents, and whether Defendant sought Medicare and Medicaid reimbursement for services

provided to the harmed residents.” Id. at *4.

These cases are distinguishable. Defendants’ reliance on Jackson is misplaced because,

as the Government points out, that case survived a motion to dismiss and was only later disposed

of at the summary judgment stage. 454 F.Supp. at 490. In addition, Jackson recognized that the

relator’s example residents had received some level of care and distinguished itself from a case

in state court with facts like those pled here. Id. at 497 n.23 (citing Williams v. Terrace, 2014

WL 10896964, at *7 (Pa. Super. Ct. July 31, 2014) (a nursing home's care was beyond grossly

negligent where its “facilities were chronically and continuously understaffed,” its resident

suffering from bedsores was “routinely not repositioned” and died due to the bedsores, and there

was “pervasive and routine[ ] failure[s] at [its] facilities”)). With regard to Taylor, the lack of

specificity fatal to the relator’s complaint in that case is not present here, where the

Government’s allegations are thoroughly pled based on government surveys and example

residents who received Medicare and Medicaid reimbursements which identify the “who, what,

when, where, and how of the events at issue.” Taylor, 2021 WL 3857799, at *4 (quoting U.S. ex

rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016)).

This case is more akin to the cases cited by the Government. See United States ex rel.

Scharber v. Golden Gate Nat’l Senior Care LLC, 135 F. Supp. 3d 944 (D. Minn. 2015) (nursing

homes provided worthless services where they failed to provide adequate staffing, provide harm

prevention services, enhance residents’ quality of life, properly administer drugs, prevent

pressure sores and infection, provide physician ordered treatment, or complete charting); U.S. ex

rel. Academy Health Ctr., Inc. v. Hyperion Found., Inc., No. 10-552, 2014 WL 3385189 (S.D.

Miss. July 9, 2014) (nursing home provided worthless services where it rationed and reused

sterile supplies, was chronically understaffed, forced residents to shower in groups without

privacy, had an unsafe and unsanitary facility with pest and mold problems, failed to supervise

residents, failed to keep residents fed and washed, and the Government provided seven example

Medicare recipients who received grossly substandard care); United States v. NHC Healthcare

Corp., 115 F. Supp. 2d 1149 (W.D. Mo. 2000) (nursing home provided worthless services where

two patients suffered from pressure sores, weight loss, and unnecessary pain, and eventually

died, due to inadequate staffing and substandard care).

Like in these cases, the Government’s allegations here describe three nursing homes in

which residents frequently did not receive adequate medical, dental, or psychiatric treatment,

were left to sit in their own urine and feces, were not properly fed, were not cleaned or changed,

were overmedicated, and suffered from an abnormally high rate of pressure ulcers and falls. All

the facilities lacked proper infection control, including a failure of staff to wash their hands or

properly dispose of dirty bandages and diapers. Residents lived in dirty, unsafe, and pest

infested buildings, cleaned themselves in clogged showers with feces and blood on the walls, and

had their possessions lost and stolen. Moreover, the Government provides two examples of

Medicare and Medicaid beneficiaries who died, one by hanging himself and another who pulled

out her own breathing tube, both of which allegedly could have been prevented through adequate

supervision made impossible by staffing shortages. These allegations, taken as true at this stage,

show that Defendant’s care was grossly negligent and crossed “the proverbial line in the sand for

purposes of determining when clearly substandard services become worthless.” Jackson, 454 F.

Supp. 3d at 495 (quotations omitted).

Defendants argue that, because they billed the government for a bundle of services, rather

than an individual fee for each service, the government must prove that every service in the

entire bundle was worthless. We agree with the Government that this argument is illogical in

that it would prohibit FCA liability where a nursing home provided literally no services except

for one that did not fall below mere negligence. A bundle of services can, on average, be

worthless even if some of them were administered properly. See Sharber, 135 F. Supp. 3d at 964

(“Given the underlying purpose of the FCA to protect the federal fisc, it makes good sense that

the statute would protect the government from paying for significantly deficient, even if not

entirely non-existent, services.”); Hyperion, 2014 WL 2285189, at 44 (“taken to its extreme,

defendants’ argument is that a nursing home is entitled to payment for doing nothing more than

housing an elderly person and providing her with just enough bread and water for short-term

survival . . . This cannot be the case and it is not the law.”). The bundle of services provided

here meets that description, and defendant’s representations therefore were factually false in

addition to legally false.

2. Materiality

Defendants also move to dismiss on the basis that the Government did not plead

materiality. The materiality inquiry “is a holistic, totality of the circumstances examination of

whether the false statement has ‘a natural tendency to influence, or be capable of influencing, the

payment or receipt of money or property.’” United States ex rel. Int’l Bhd. of Elec. Workers Loc.

Union No. 98 v. Farfield Co., 5 F.4th 315 (3d Cir. 2021) (citing 31 U.S.C. § 3729(b)(4);

Escobar, 579 U.S. at 194-95). In conducting this examination, courts consider three factors: 1)

whether compliance with the regulations was an express payment condition; 2) whether the

noncompliance was minor or insubstantial; and 3) evidence of the Government’s past action or

inaction. See Farfield, 5 F.4th at 342-47.

There is no doubt that compliance with the NHRA was an express condition of payment

here, which the Supreme Court has held is “relevant, but not automatically dispositive” of

whether it was material. See Escobar, 589 U.S. at 194. Apart from anything else, form CMS-

1561, which providers must complete in order to receive Medicare and Medicaid payments,

requires the provider to “agree[] to conform to the provisions of section 1866 of the Social

Security act and applicable provisions in 42 CFR,” referring to the NHRA’s implementing

regulations. CMS is then required to deny payments for future admissions in certain instances

where providers are found to be noncompliant with those regulations. See 42 C.F.R. §§

488.412(c), 488.414(a)(1). In other words, providers must expressly assent to comply with the

NHRA in order to begin receiving payments and CMS is required to deny them upon repeated

noncompliance.2

As for the second factor, we find that Defendants’ alleged noncompliance was so

substantial as to overcome any deficiency by the Government in meeting the other two factors.

The Third Circuit has advised that the substantiality of noncompliance is not necessarily based

on the dollar amount of the alleged fraud, but whether it goes “to the very essence of the

bargain.” Farfield, 5 F.4th at 346 (quoting Escobar, 579 U.S. at 193 n.5). As the Court stated,

“[w]hether a contractor complied with the regulations that are central to decisions about how to

spend public funds is a fact that a reasonable person would want to know.” Id. at 347 (citations

and internal quotation marks omitted).

2 Defendants’ argument that these are mere conditions of participation, rather than

conditions of payment, is unpersuasive. This argument relies primarily on U.S. ex rel. Wilkins v.

United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011), which was decided pre-Escobar, when

the rule in this circuit was that “a plaintiff must show that compliance with the regulation which

the defendant allegedly violated was a condition of payment from the Government.” Id.

(emphasis added). Therefore, as the Third Circuit has subsequently explained, “[t]he Supreme

Court’s rejection of the distinction between ‘conditions of payment’ and ‘conditions of

participation’ in effect overruled Wilkins insofar as Wilkins distinguished between these two

types of conditions . . . .” Freedom Unlimited, 728 F. App’x. 101, 106 (3d Cir. 2018). To the

contrary, “[Escobar] explained that compliance with a condition of participation can be just as

material to the government’s payment decision as compliance with an express condition of

payment.” Id. See Sharber, 135 F. Supp. 3d at 962 (adopting in the context of an FCA claim the

Ninth Circuit’s holding that the distinction between conditions of payment and conditions of

participation is “a distinction without a difference.”). Therefore, whether the NHRA regulations

are conditions of payment or participation is ultimately irrelevant given that substantial

noncompliance with either is indicative of materiality.

Any reasonable person would conclude that Defendants’ allegedly substandard care in

this case would be material to the Government’s decision to reimburse them. Whether Medicare

and Medicaid recipients were fed, changed, washed, lived in a habitable environment, given

proper medical care, and prevented by competent staff from killing themselves is certainly

“central to the decision about how to spend public funds” and goes “to the very essence of the

bargain” Defendants made with the Government. Farfield, 5 F.4th at 346-47. It is reasonable to

conclude at this stage that if the Government had been aware of the alleged conditions to which

its Medicare and Medicaid recipients were subjected, it would not have been willing to continue

reimbursing Defendants for their long-term care. See Scharber, 135 F. Supp. 3d at 963-64

(holding that “serious misconduct” under the NHRA “goes to the heart of [nursing home’s]

bargain with the government.”).

Moving to the third factor, Defendants argue that their alleged misrepresentations, despite

their severity, were not material because there is no evidence that the Government tends to deny

payment in similar circumstances. This is true; however, Defendants also have not made any

showing that the Government reimbursed them “despite its actual knowledge that certain

requirements were violated” or that “the Government regularly pays a particular type of claim in

full despite actual knowledge that certain requirements were violated . . . .” Escobar, 579 U.S. at

2003-04. Defendants claim that the Government continued to pay for Medicare and Medicaid

beneficiaries even after Pennsylvania and Ohio conducted surveys finding serious deficiencies at

their facilities. (Motion to Dismiss at 16; ECF. No. 19.) However, there is no evidence that the

Federal Government had actual knowledge of the findings in these state surveys; the

Government’s claim is premised on the allegation that Defendants intentionally hid these

findings in its own submissions. Moreover, the Government claims that Defendants disguised

noncompliance that went beyond what was discovered by the states, citing to a Cheltenham

employee suggesting that the facility was “fake” during state surveys. (Gov. Resp. in Opp. at

18.)

At this stage, there is no evidence to suggest that the Government had actual knowledge

of Defendants’ noncompliance and decided to continue payments regardless or that it regularly

ignores such noncompliance in similar cases. In the absence of any evidence indicating the

Government’s past behavior either way, we are left only with the gravity of the allegations and

the fact that reimbursement was expressly premised on compliance with the NHRA, both of

which support a finding of materiality. See Farfield, 5 F.4th at 346 (without any evidence of past

government action or inaction, the relator’s prima facie showing of materiality was “left

intact.”).

C. The Government’s Common Law Claims

The Government also brings claims of payment by mistake and unjust enrichment.

Defendants move to dismiss these claims on the sole basis that they also require a finding of

materiality. (Motion to Dismiss at 25.) The Government does not contest this for payment by

mistake, but disagrees on whether the prevailing law assigns an element of materiality for unjust

enrichment. (Gov. Resp. in Opp. at 26.) We need not resolve this dispute at this juncture,

because we do find that Defendants’ alleged misrepresentations were material for the reasons

stated above. Since the Government’s allegations supporting payment by mistake and unjust

enrichment are the same as those supporting the FCA claim, and we hold the FCA claim to be

adequately pled, we will deny Defendants’ Motion to Dismiss these common law claims as well.

See Smith v. Carolina Med. Ctr., 274 F. Supp. 3d 300, 327 (E.D. Pa. 2017) (citing U.S. ex. rel.

Monahan v. Robert Johnson Univ. Hosp., No. 02-5702, 2009 WL 1288962 (D.N.J. May 6, 2009)

(holding that claims for payment by mistake of fact and unjust enrichment were adequately pled

where allegations state a claim for fraud under the FCA.)).

IV. CONCLUSION

For the foregoing reasons, Defendants Motion to Dismiss the Government’s Amended

Complaint will be denied. An appropriate Order follows.

BY THE COURT:

/s/ R. Barclay Surrick

R. BARCLAY SURRICK, J.