The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
HEALTHPRO THERAPY SERVICES : Civil No. 3:17-CV-01959
LLC, :
:
Plaintiff/Counter-Defendant, :
:
v. :
:
RIDGEVIEW OPERATIONS LLC :
d/b/a RIDGEVIEW HEALTHCARE :
AND REHABILITATION CENTER, :
:
Defendant/Counterclaimant. : Judge Jennifer P. Wilson
MEMORANDUM
This is a case involving competing claims of breach of contract that was
submitted to the court for decision following a three-day bench trial and post-trial
submissions. At bottom, this is a lawsuit over a bill for services rendered that has
remained unpaid since 2017. Based on the court’s assessment of the evidence and
arguments presented by the parties, the court finds in favor of Plaintiff on its
breach of contract claim as well as Defendant’s counterclaim. Accordingly,
judgment will be entered in favor of Plaintiff.
PROCEDURAL BACKGROUND
This matter was commenced on September 19, 2017, when Plaintiff
HealthPRO Therapy Services (“HealthPRO”) filed a civil action against Defendant
Ridgeview Operations LLC d/b/a Ridgeview Healthcare and Rehabilitation Center
(“Ridgeview”) in the Court of Common Pleas of Schuylkill County, Pennsylvania.
(Doc. 1, ¶ 1.) Thereafter, Ridgeview filed a notice of removal to this court. (Doc.
1.) HealthPRO filed an amended complaint on November 21, 2017, and
Ridgeview then filed its answer and counterclaim on December 12, 2017. (Docs.
10, 16.) HealthPRO subsequently answered the counterclaim. (Doc. 18.)
HealthPRO brings two causes of action against Ridgeview. The first claim
is for breach of the Therapy Services Agreement (“Agreement”) based on
Ridgeview’s failure to pay the invoices submitted by HealthPRO for therapy
services provided to residents of Ridgeview between November 2016 and March
2017. (Doc. 10, ¶¶ 40–49.) The second claim, pleaded in the alternative to the
breach of contract claim, is for unjust enrichment based on Ridgeview’s receipt of
reimbursement from Medicare, Medicaid, and other third-party payors for the
therapy services provided by HealthPRO, and the subsequent failure by Ridgeview
to pay the amounts invoiced by HealthPRO. (Id. ¶¶ 50–56.) Ridgeview brings a
counterclaim for breach of the Agreement based on HealthPRO’s failure to provide
therapy services and sufficient staff at Ridgeview as required by the Agreement.
(Doc. 16, ¶¶ 69–80.)
Once the pleadings were closed, the parties engaged in a combination of
settlement conferences and fact discovery that spanned all of 2018 and the first six
months of 2019. The parties continued to engage in fact discovery until the end of
2019, when this case was reassigned to the undersigned on December 3, 2019.
Following a status conference with the court on January 23, 2020, the parties
continued to conduct fact discovery.
Fact discovery concluded on July 1, 2020, and on the same date, HealthPRO
filed a motion for summary judgment and a brief in support on its claims, though
not on Ridgeview’s counterclaim. (Doc. 57.) At that point, some procedural chaos
ensued. Because that period of chaos is not at issue at present, the court simply
notes that the details of this aspect of the procedural background are set forth in the
order entered on October 23, 2020. (Doc. 79.) In the end, the court permitted
HealthPRO to withdraw its motion for summary judgment in favor of proceeding
with the bench trial scheduled for October 26, 2020. (Doc. 66.)
The court convened a bench trial on October 26, 2020, and the trial
concluded on October 28, 2020. The trial has been transcribed. (See Docs. 88–
90.) The parties simultaneously submitted proposed findings of fact and
conclusions of law on December 7, 2020, and trial briefs on December 21, 2020.
(Docs. 91–94.) Accordingly, this matter is ripe for review.
JURISDICTION AND VENUE
The court has diversity jurisdiction in this case under 28 U.S.C. § 1332,
because HealthPRO and Ridgeview are domiciled in different states and the
amount in controversy exceeds $75,000. Venue is proper in this district pursuant
to 28 U.S.C. § 1392 because: (1) the underlying events giving rise to HealthPRO’s
causes of action arose in this district; (2) Ridgeview has a principal place of
business in this district; and (3) Ridgeview regularly conducts business in this
district.
BURDEN OF PROOF
In order to prevail on its claim following a bench trial, a party must prove all
elements of its claim by a preponderance of the evidence. Hetzel v. Swartz, 31 F.
Supp. 2d 444, 447 (M.D. Pa. 1998). The court must make all decisions on the
credibility and weight of the evidence and testimony, as well as on all legal issues.
Id.
FINDINGS OF FACT
A. The Parties and Their Business Relationship
HealthPRO is a national organization that provides therapy services to
hundreds of nursing homes across the United States. (Tr. I at 27.)1 Ridgeview is a
for-profit company that owned and operated a 111-bed skilled nursing facility in
Shenandoah, Pennsylvania during the time at issue in this case. (Id. at 118, 124;
Tr. II at 6–7.)
The parties stipulated and agreed that the Therapy Services Agreement,
which was attached to Plaintiff’s Amended Complaint (and admitted at trial as
1 For ease of reference, the court utilizes the page numbers from the CM/ECF header. The trial
transcript is referenced as “Tr. I, Tr. II, and Tr. III” with the roman numeral indicating the day of
trial. The trial days were October 26, 27, and 28, 2020. (Docs. 88–90.)
Plaintiff’s Exhibit 1), is a full and correct copy of the Agreement to which the
parties are mutually bound. (Tr. I at 101–102; Doc. 76, p. 4, ¶ 4.) The Agreement
was entered into by the parties on April 20, 2016. (P. Ex. 1.) The agreement
provided that HealthPRO was retained as an independent contractor to provide
physical, occupational, and speech therapy services to Ridgeview residents on an
as-needed basis. (Id. at ¶ 1.) Ridgeview offered nursing care, hospice services,
dietary care, social services, recreational services, housekeeping, and laundry
services to residents, but those services were not provided by HealthPRO. (Tr. I at
106–107; Tr. II at 6–7.)
Pursuant to the Agreement, HealthPRO was obligated, inter alia, to arrange
for the provision of services to Ridgeview residents who requested services from
HealthPRO in accordance with the Agreement, all applicable laws and regulations,
and the plan of care established by the physician responsible for the resident’s care.
(P. Ex. 1, ¶ 2(a).) Before HealthPRO could provide therapy services to a
Ridgeview resident, a physician must issue an order authorizing such services in a
“plan of care” for that resident. (Tr. I at 28–29.) HealthPRO was required to
provide therapy services through qualified therapy personnel who were employed
by or under contract with HealthPRO and who held all required therapy licenses to
provide the services. (P. Ex. 1, ¶ 2(b).)
Under the terms of the Agreement, Ridgeview was obligated, inter alia, to
admit residents; secure and review the required orders from physicians for therapy
services; and determine each resident’s classification under the “minimum data
set” (“MDS”) classification system. (Id. ¶ 3(a).) In sum, Ridgeview was
responsible for communicating the needs of residents and the wellbeing of the
residents. (Tr. I at 29–30.) Ridgeview employees decided whether to admit
residents based on an assessment of whether they offered the services the person
needed and whether the person had the financial means to pay for their care. (Id. at
108–110.) Ridgeview’s registered nurse assessment coordinator “RNAC” was
responsible for compiling information from the “plan of care team” (which
includes nursing staff, therapists, dieticians, and social workers) to determine the
resource utilization group (“RUG”) classification for residents.2 (Id. at 111–112.)
Any person could request a referral for a physician’s order for an evaluation
based on a change in a resident’s condition, including but not limited to a therapist.
(Tr. I at 73–74.) If a physician ordered a therapy evaluation, HealthPRO was
obligated to complete that evaluation. (Id. at 74.) A HealthPRO therapist would
2 The RUG is a classification system established by the state and federal government to put a
resident into a particular group. (Tr. I at 111.) The RUG score captures all of the different types
of services that Ridgeview provides to a resident. (Id. at 113.) The RUG determines the
reimbursement rate for Medicare reimbursement purposes and Medicaid case mix index (“CMI”)
purposes. (Id. at 115.) In order to get a RUG classification for a resident, the tool that is used is
the minimum data set (“MDS”). (Tr. II at 29.) The data included in the MDS is provided by the
clinician from each discipline who is providing services to a resident. (Tr. III at 16.)
then determine the frequency and duration of the resident’s therapy services. (Id.
at 92.) Short of an evaluation, however, HealthPRO employees could conduct a
hands-off screen of a patient to assess whether to request a physician’s order for an
evaluation. (Id. at 92–93.)
The HealthPRO rehab director also conducted monthly “grand rounds” at
Ridgeview to identify unmet therapy needs of Ridgeview residents. (Id. at 92–94.)
The records resulting from the HealthPRO “grand rounds” were maintained in each
resident’s chart. The residents’ charts were kept and maintained by Ridgeview.
(Id. at 99–100.) There was conflicting testimony at trial about whether HealthPRO
was completing “grand rounds” during its final few months at Ridgeview. Because
the evidence that could have resolved this conflict (the residents’ charts) was in
Ridgeview’s possession, and Ridgeview did not present this evidence or, at a
minimum, testimony indicating that the residents’ charts were reviewed for the
purpose of determining whether “grand rounds” occurred, the court finds that
“grand rounds” continued throughout HealthPRO’s tenure at Ridgeview.
Ridgeview was also responsible for billing residents or their governmental
or other third-party reimbursement sources for therapy services provided by
HealthPRO. (P. Ex. 1, ¶ 3(b); Tr. I at 46–47.) The parties’ Agreement has a
section addressing “Denial of Payment by Reimbursement Sources,” which
provides, in pertinent part:
(c) HealthPRO reserves the right to make any payments to
[Ridgeview] in installments over time. [Ridgeview] shall have no right
of set-off against any amounts owed to HealthPRO based on a denial of
payment for Services or for any other reason.
(e) . . . Except to the extent explicitly provided in this “Denials of
Claims” section, [Ridgeview] releases and discharges HealthPRO from
any and all past, present and future liability, claims, demands,
controversies, damages, actions and causes of actions of every kind and
nature, related to any third party disallowance or denial of claim.
(P. Ex. 1, ¶ 5(c) and (e).)
B. Ridgeview’s Failure to Compensate HealthPRO for Therapy
Services Provided from November 2016 to March 2017
The Agreement states, in relevant part, with respect to HealthPRO’s
compensation for providing therapy services as follows:
(a) Compensation. [Ridgeview] shall compensate HealthPRO
during the term of this Agreement for the provision of Services in
accordance with the terms and conditions of this Agreement . . . .
HealthPRO will be compensated by [Ridgeview] for the Services
rendered from the first day of the calendar month to the last day of the
calendar month . . . according to invoices submitted to [Ridgeview] for
services rendered by HealthPRO. Payment to HealthPRO pursuant to
services rendered under this Agreement is not dependent upon
[Ridgeview’s] ability to collect such revenue.
(c) Invoices. HealthPRO shall submit to [Ridgeview], by the fifth
(5th) business day of each month, an invoice for all Services rendered
through the last day of the previous month. [Ridgeview] shall remit
payment in full as shown on each invoice within thirty (30) days from
the date of the invoice. [Ridgeview] must notify HealthPRO in writing
of any dispute of any portion of an invoice within thirty (30) days of
receipt of the invoice. Failure to notify HealthPro within this thirty (30)
day period shall be deemed [Ridgeview’s] confirmation of its
obligation under this Agreement to pay HealthPRO in full for the
invoice.
(d) Late Payments. If [Ridgeview] does not pay HealthPRO within
the time frames set forth herein, then [Ridgeview] shall pay a service
fee of 1.5% (or the maximum rate allowable by law, whichever is less)
on all outstanding amounts owed by [Ridgeview] for each thirty (30)
day period beyond the due date; provided that, in no event shall interest
be charged in excess of the amount permitted by applicable law.
(e) Collection Costs. [Ridgeview] will reimburse HealthPRO for all
costs of collection of HealthPRO’s invoices, including all collection
agency fees, attorney’s fees and costs, and court costs that HealthPRO
incurs in the pursuit of payment of any delinquent invoices.3
(Id. ¶ 4.)
HealthPRO rendered therapy services to Ridgeview between November 1,
2016 and March 31, 2017. (Tr. I at 101–102; Doc. 76, p. 3, ¶ 1.) HealthPRO
timely submitted invoices to Ridgeview for these services, which invoiced amounts
totaled $212,910.50. (Tr. I at 101–102; Doc. 76, pp. 3–4, ¶ 2; see also P. Exs. 2,
94.) Ridgeview has not paid HealthPRO the invoiced amounts. (Tr. I at 101–102,
121; Doc. 76, p. 4, ¶ 3.) Ridgeview did not notify HealthPRO in writing or
otherwise within the time permitted in the Agreement that it disputed any portion
of the invoices at issue. (Tr. I at 40, 121.) Through October 1, 2020, the monthly
service charges applicable to the principal amount due and owing from Ridgeview
3The Agreement also specifies that the prevailing party in any litigation arising out of or in
connection with the Agreement, or the breach, termination, or validity thereof, shall be entitled to
recover from the other party all of the costs incurred, including reasonable attorney’s fees and
costs. (P. Ex. 1, ¶ 15(h).) This attorney’s fees provision does not “apply to, limit, or in any
manner affect HealthPRO’s rights to collect legal, accounting, court fees, costs and expenses”
from Ridgeview for the collection of delinquent amounts due under Section 4 (relating to
compensation) of the Agreement. (Id.)
was $137,596.23, with service charges continuing to accrue at the rate of 1.5% of
the principal, or $3,193.66 per month. (Id. at 44–45; P. Ex. 95; P. Ex. 1, ¶ 4(d).)
HealthPRO has incurred costs of collection, including attorney’s fees. (Tr. I at 42.)
C. Termination of the Agreement
The Agreement was terminated by Ridgeview by letter dated March 8, 2017,
with an effective termination date of April 1, 2017. (P. Ex. 14.) The Agreement
specifies the following with respect to termination:
(b) Termination.
(i) Default. Either Party may terminate this Agreement any
time if the other party defaults in the performance of any material term
or condition of this Agreement to be performed by it, and, subject to
Section 6(c) below, such default continues for a period of thirty (30)
days, or such longer period as may be required to effect a cure provided
that the defaulting party initiates curative action within thirty (30) days
and thereafter is diligently and in good faith pursuing such cure; . . .
(c) Immediate Termination. Either Party may terminate this
Agreement immediately in the event of an act by the other party
constituting gross negligence, willful misconduct, fraud or any other
felonious act which is materially detrimental to the terminating
party. . . .
(e) Effect of Termination. In the event of termination of this
Agreement for any reason, such termination shall not affect or negate
the obligation of [Ridgeview] to pay the fees to HealthPRO accruing
prior to the effective date of termination . . . . All fees for Services
rendered by HealthPRO shall become immediately due and payable
within five (5) days after the date of any termination hereunder
notwithstanding anything set forth herein to the contrary. In the event
[Ridgeview] terminates this Agreement, [Ridgeview] must be current
with all payment terms set out in this Agreement.
(P. Ex. 1, ¶ 6.)
Ridgeview’s termination letter, which was signed by Louise Bekisz, the
Ridgeview Administrator, generally cited “numerous factors” for the termination,
but specified only the following reasons: (1) “the total lack of support given to the
new Director of Rehab at the facility”; and (2) “the inability to recruit and maintain
adequate Therapy staff as well as a dramatic decrease in the Facility’s CMI which
can be directly tied back to your Therapy staff.” (P. Ex. 14.) Ms. Bekisz admitted
that she did no financial analysis to support the statement in the March 8, 2017
letter about the cause of the drop in the CMI. (Tr. II at 105–106.)
HealthPRO responded by letter two days later, stating that the term of the
Agreement would not expire until April 1, 2018. (P. Ex. 15.) On March 15, 2017,
Ridgeview corresponded with HealthPRO again, affirming the termination of the
Agreement as of April 1, 2017, and stating that the termination decision “is based
on the willful neglect and gross negligence exhibited by HealthPro in relation to
contracted rehabilitation services which is significantly & materially detrimental to
this facility.” (P. Ex. 16.) In closing, Ridgeview stated that it expected that all
HealthPRO services would continue through March 31, 2017. (Id.) Although the
letter was signed by Ms. Bekisz, she testified that Ridgeview’s owner/operator Leo
Gutman wrote the letter. (Tr. II at 106.) In the final correspondence regarding the
termination, HealthPRO’s Chief Counsel sent a letter to Ridgeview dated March
24, 2017, denying the accusations of gross negligence or willful neglect. (P. Ex.
93.)
By reference to the termination provisions in the Agreement, P. Ex. 1,
¶¶ 6(b) and (c)), Ridgeview never provided HealthPRO with a 30-day notice of
default in order to allow HealthPRO to cure the alleged default. (Tr. I at 60–61.)
Rather, in its second letter to HealthPRO, Ridgeview appeared to rely on the
“immediate termination” provision in the Agreement. (Id. at 61; P. Ex. 16.)
D. Ridgeview’s Counterclaim
The owner/operator of Ridgeview, Leo Gutman, asserts that HealthPRO was
in breach of paragraph 2(b) of the Agreement by providing insufficient staffing.
(Tr. I at 133.) He also asserts that HealthPRO was in breach of section one of the
Agreement because they provided insufficient services to the Ridgeview residents
which caused irreparable harm to the residents. (Id. at 134.) Mr. Gutman
concluded that Ridgeview suffered a loss of $120,000 based on the 17-point rate
drop of CMI of February 1, 2017, which he asserts was caused by the insufficient
staffing by HealthPRO. (Id. at 144.) Mr. Gutman believes that HealthPRO’s
insufficient staffing at Ridgeview caused the rate drop, and on that basis, he
believes HealthPRO owes Ridgeview an offset of not less than $120,000. (Id. at
132.) Ridgeview has refused to pay HealthPRO’s invoices from November 2016
to March 2017 because Mr. Gutman believes that Ridgeview’s counterclaim for
breach of contract should reduce the amount that Ridgeview owes. (Id. at 131.)
1. HealthPRO Staffing Changes
When Ridgeview took over operations of the facility in March 2016, it kept
HealthPRO as the therapy services provider at the facility for the following
reasons: “HealthPRO had a good reputation for therapy services, a provider, as a
national provider of therapy services. And the Schuylkill area, the Schuylkill
County area in particular, was a difficult area to staff. There was an existing staff
already on-board in the facility and [Ridgeview] made the decision to retain the
existing company in the anticipation of providing good care and good services for
[the] residents.” (Tr. II at 9.)
In 2016, HealthPRO employed Paul Jacobs as the Rehabilitation Director at
Ridgeview and Zeina Keruly as the Regional Manager. (Tr. I at 64.) At some
point in 2016, Mr. Jacobs was moved to another position within HealthPRO and
Ms. Keruly resigned from her position. (Id.) Mr. Jacobs was succeeded by Jillian
Rinehimer from July 2016 to February 2017, and Ms. Keruly was succeeded by
Marge Marvel with support from Devin Riley. (Id. at 64–65.)
Ridgeview was very pleased with Mr. Jacobs and Ms. Keruly. (Tr. I at 153–
154.) However, Ridgeview was not pleased with Ms. Rinehimer.4 (Tr. II at 15–
16.) Ridgeview also was not pleased with Mr. Riley and Ms. Marvel. (Id. at 17–
18.) Mr. Gutman felt that the therapy program “began to fall apart” in December
2016. (Id. at 18.)
Ms. Rinehimer submitted her resignation to HealthPRO in January 2017.
(Id.) Mr. Gutman became concerned about the changes in HealthPRO staffing and
communicated with HealthPRO employees about some of his concerns via email.
(Id. at 19–25; D. Exs. 52, 60.) The administrator, Louise Bekisz, also
communicated concerns about staffing on a few specific occasions via email to
HealthPRO. (Tr. II at 96–98; D. Exs. 72, 61, 56.)
After Ms. Rinehimer resigned, Kathleen Boris became the Interim Rehab
Director at Ridgeview for HealthPRO. (Tr. II at 139–140.) During her
directorship, in February and March 2017, she relied on PRN (or per diem) staff
for some therapy services. (Id. at 140; D. Ex. 9.) Ms. Boris sent one email stating
that hiring a full-time speech therapist for Ridgeview would enable them to “pick
more people up.” (Tr. II at 142.) She sent another email in February 2017
4 Multiple witnesses testified to Ms. Rinehimer having “problems” or “issues” and using leave
towards the end of her employment with HealthPRO. In fact, Ms. Rinehimer was pregnant and
suffered from morning sickness. (Tr. II at 153.)
expressing her view that a full-time physical therapist was needed at Ridgeview.
(Id. at 143; D. Ex. 10.)
During the time period from December 2016 to February 2017, a
HealthPRO recruiter named Whitney Deck was working on filling the full-time
physical therapist and speech therapist positions at Ridgeview as well as assisting
with securing coverage while the positions remained open. (D. Exs. 75–91.)
Although HealthPRO was working on hiring qualified individuals for those
positions, they had difficulty because of job market conditions at that time and the
location of the facility. (D. Ex. 91, pp. 59–60.) Despite the delay in filling the
full-time therapist positions, HealthPRO was able to meet all therapy needs during
that period by qualified HealthPRO employees from other facilities and temporary
per diem staff, or contract workers providing coverage. (Tr. I at 67–68.)
Prior to the March 2017 correspondence from Ridgeview’s Administrator,
Ridgeview had not previously notified HealthPRO that HealthPRO had failed to
provide therapy services for residents of Ridgeview at any time. (Tr. I at 40–41,
58–59, 119.) There was no documented instance when a Ridgeview resident did
not receive an evaluation or therapy services that were ordered by a physician
during the time period of November 2016 to March 2017. (Id. at 41, 62, 66, 147;
Tr. II at 47, 50, 99–101, 147.) Ridgeview never notified HealthPRO that any
therapy order under a physician’s plan of care was not fulfilled. (Tr. I at 62, 66,
68, 83.) Finally, Ridgeview never notified HealthPRO that the temporary staff
who provided coverage while the full-time physical therapist positions remained
open had failed to meet a resident’s need or deliver therapy services as ordered by
a physician’s instruction. (Id. at 68.)
Based on the data presented at trial, there was no reduction in on-site hours
worked by HealthPRO staff at Ridgeview. Comparing the first six months of
2015, when HealthPRO first began providing therapy services to Ridgeview, to the
last six months that HealthPRO provided therapy services at Ridgeview, there was
a 23 percent increase in labor hours worked by HealthPRO employees on-site at
Ridgeview. (Id. at 87; P. Ex. 77.) In addition, comparing the hours worked by
HealthPRO employees in the final five months of the Agreement to the same
months in the prior year, the therapy service hours worked were higher in each
category (with the exception of speech therapy in February 2017) in the final time
period. (Tr. I at 88–89; P. Ex. 96.) Finally, comparing the hours worked on-site
by HealthPRO’s evaluating clinicians only, as well as all staff from the period of
June 2016 to October 2016 and November 2016 to March 2017, there was an
increase in hours worked in both categories in the final five months of
HealthPRO’s contract with Ridgeview (twelve percent and ten percent,
respectively). (Tr. III at 59–60; P. Ex. 99.)
Accordingly, the court finds that the therapy staff provided by HealthPRO to
work at Ridgeview from November 2016 to March 2017 was sufficient to fulfill
HealthPRO’s obligations to Ridgeview under the Agreement.
2. Ridgeview’s CMI Rate Drop in February 2017
The CMI average for Medical Assistance residents, which is based on the
RUG classifications for the residents, effectuates the rate that Medicaid will pay to
a facility per patient for each day. (Tr. II at 29.) The CMI report for the February
2017 “picture date” for Ridgeview for Medicaid residents dropped by 17 points
from the previous CMI of November 1, 2016 down to 1.03. (Tr. II at 27; D. Ex.
47.) Ridgeview’s CMI in February 2016 was 1.15, in May 2016 it was 1.16, in
August 2016 it was 1.17, and in November 2016 it was 1.19. (D. Exs. 43, 44, 45,
46.) Ridgeview’s CMI in May 2017 rebounded to 1.14.5 (D. Ex. 48.)
Ridgeview’s CMI in August 2017 was 1.15, and in November 2017 it was 1.21.
(D. Exs. 49, 50.)
The change in CMI score caused a change in the payment rate from the
Commonwealth for Ridgeview residents covered by Medicaid. (Tr. II at 38; D Ex.
62, 63.) The rate sheets are issued twice per year. The rates are adjusted
retroactively. When there is a reduction in the effective rate versus the rate that
5 The “picture date” of May 2017 included two months when HealthPRO was the therapy
services provider and one month when a successor provider was working with Ridgeview. (Tr.
II at 36.)
was paid, then there must be a recoupment of the amount that the Commonwealth
overpaid to the facility. (Tr. II at 40–42.) At the end of 2017, the Commonwealth
advised Ridgeview that it owed a recoupment of $119,000. (Id. at 42; D. Ex. 65.)
This recoupment figure is the basis for Ridgeview’s calculation of damages. (Tr. II
at 42.)
The only evidence presented by Ridgeview in support of the assertion that
the CMI rate drop was caused by HealthPRO’s “insufficient staffing” was the
opinion testimony of Mr. Gutman (the credibility of which is addressed in the next
section). Contrary to Mr. Gutman’s opinion about the causation for the rate drop,
there were several possible contributing factors.
First, Ridgeview’s RNAC was responsible for determining each resident’s
MDS and the resulting RUG classification. (Id. at 63.) If an inaccurate RUG
classification was assigned to a resident because of a faulty MDS, that would affect
CMI. (Id.) In a survey completed by the Pennsylvania Department of Health in
October 2016, it was determined that Ridgeview’s nursing staff failed to accurately
conduct MDS assessments in ten of nineteen sampled residents. (Id. at 67.) In the
follow up survey in December 2016, the Department of Health concluded that
Ridgeview failed to accurately conduct MDS assessments for five of fourteen
sampled residents. (Id. at 68.) It is clear that the MDS accuracy problem was not
solved at Ridgeview as of late 2016. And the inaccuracy issue with MDS
assessments translated into inaccurate RUG scores and potentially impacted the
CMI as well. (Id. at 70.)
Second, the “picture date” of February 1, 2017 captured the details of what
transpired with residents at Ridgeview in the preceding ninety-two days. (Id. at
42.) In any ninety-two-day period, patient population fluctuates for a variety of
reasons, including new admissions, deaths, hospitalizations, transfers to acute care,
or changes in patient acuity. (Id. at 43; Tr. III at 43–45.) And services provided
to a resident may fluctuate based on changes in clinical need. (Tr. III at 42.) A
change in one resident’s RUG score during the period could impact the CMI at the
end of the quarter. (Tr. II at 110.)
Looking specifically at the CMI records for Ridgeview for the November
2016 and February 2017 “picture dates,” several factors may have influenced the
drop in CMI score: (1) there was a five-resident reduction in the number of
Medical Assistance residents (from sixty-nine to sixty-four); (2) there was a four-
resident reduction in the number of residents receiving higher-CMI “extensive
services” (from seven to three); and (3) there was a six-resident increase in the
number of residents in the lowest category (from zero to six). (Tr. III at 46–47.)
Ridgeview experienced a CMI rate drop from November 2016 to February
2017 that resulted in a recoupment payment by Ridgeview of $119,000. However,
the court finds that there were multiple factors that may have contributed to the
rate drop, and staffing levels by HealthPRO was not proven to be the sole cause of
the rate drop.
E. Leo Gutman Was Not Credible
Mr. Gutman’s opinion testimony was the primary evidence relied upon by
Ridgeview in support of its counterclaim. For the reasons detailed in this section,
individually and in combination, the court finds that Mr. Gutman’s testimony was
not credible. As a result, the court does not rely on his opinion as evidence in
support of Ridgeview’s counterclaim.
The first issue with Mr. Gutman’s credibility was the false reporting of
HealthPRO’s invoices to Medicare for reimbursement. For the time period of
November 2016 to March 2017, Ridgeview–under Mr. Gutman’s leadership–billed
Medicare and received reimbursement from Medicare for therapy services
provided by HealthPRO, but failed to issue payment to HealthPRO for those
services. (Tr. I at 45–48, 121–122; P. Ex. 3.)
On the first day of trial, after Plaintiff established this fact in support of its
unjust enrichment claim, the court convened a conference with counsel to express a
concern that the issue of reimbursement from Medicare for the therapy services
provided and invoiced by HealthPRO that remain unpaid by Ridgeview may
generate collateral consequences for Ridgeview. (Tr. I at 48–50.) After the court
raised this concern with counsel, the court allowed a recess for counsel to confer
with their clients. (Id. at 50.) Following the recess, Ridgeview’s counsel indicated
that curative measures would be taken. (Id. at 51.)
Later that same day, Mr. Gutman testified that reporting the HealthPRO
costs to Medicare without paying HealthPRO was problematic, and that was why
he amended the cost report to Medicare. (Id. at 147; D. Ex. 73.) However, Mr.
Gutman acknowledged that he only decided to amend the cost report on that day of
trial after counsel pointed out to him that he may have violated federal law. (Tr. I
at 147–148.) Mr. Gutman was aware of the “problematic” nature of the cost report
for several years, but only decided to submit an amended cost report after concern
was expressed at trial. The court concludes that Mr. Gutman submitted a false
report to Medicare, and did not feel compelled to correct the falsehood for any
reason other than to address an issue raised in the context of litigation. Mr.
Gutman’s decision to submit the false report and his subsequent failure to amend it
prior to trial–standing alone–cast significant doubt on his credibility.6
The second issue with Mr. Gutman’s credibility was the denial of material
facts for three years without a valid factual basis. Mr. Gutman reviewed the
answer and counterclaim as member and operator of Ridgeview. (Tr. I at 139.)
Plaintiff’s counsel asked Mr. Gutman about the basis for several material facts that
6 In reaching this conclusion, the court has not considered Exhibit A attached to Ridgeview’s
post-trial brief, Doc. 93, as the document was submitted to the court at a time when HealthPRO
had no opportunity to address the exhibit.
he denied in Ridgeview’s answer to HealthPRO’s amended complaint in December
2017, after Mr. Gutman had admitted these same facts at trial. In each instance,
Mr. Gutman testified that he could not recall his basis for asserting the denial in
Ridgeview’s answer other than possibly the “offset of the issue.” (Id. at 135–139.)
Most significantly, Mr. Gutman admitted that he knew the amount of what he
perceives to be the amount of Ridgeview’s loss or “offset” as of December 2017.
(Tr. II at 46.) That alleged loss amount was not included in Ridgeview’s answer
and counterclaim filed on December 12, 2017. (Doc. 16.)
The third issue with Mr. Gutman’s credibility was the inconsistency in some
of his statements and positions. For example, Mr. Gutman admitted that contrary
to what was stated in the termination letter Ridgeview sent to HealthPRO on
March 15, 2017, P. Ex. 16, he does not allege therapy negligence in this case. (Tr.
II at 53.) Rather, his issue is the loss of revenue arising from fewer therapy needs
being identified by HealthPRO. (Id.) In addition, Mr. Gutman testified that his
concern about reduced therapy services first arose in January 2017. However, he
refused to pay HealthPRO’s invoices from November and December 2016, which
refusal had no basis whatsoever at the time payment was refused initially.
Moreover, Mr. Gutman continued to allow HealthPRO to provide therapy services
to Ridgeview residents for several months despite his view that their insufficient
staffing was in breach of the agreement and causing harm to residents. (Id. at 55–
56.) Finally, Mr. Gutman continued to insist at trial that the only possible cause of
the CMI rate drop was insufficient staffing by HealthPRO despite his knowledge
of the problems with MDS assessments by the Ridgeview RNAC. (Id. at 63–70.)
CONCLUSIONS OF LAW
Both parties assert a breach of the Agreement. Under Pennsylvania law,7 a
breach of contract is established by proving: (1) the existence of a contract,
including its essential terms; (2) a breach of a duty imposed by the contract; and
(3) resultant damages. See Key Consol. 2000, Inc. v. Troost, 432 F. Supp. 2d 484,
487 (M.D. Pa. 2006) (citing Corestates Bank N.A. v. Cutillo, 723 A.2d 1053, 1058
(Pa. Super. Ct. 1999)); see also Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C
v. Law Firm of Malone Middleman, P.C., 137 A.3d 1247, 1258 (Pa. 2016). The
court concludes as follows with respect to each party’s breach of contract claim.
A. HealthPRO Proved That Ridgeview Breached the Agreement by
Failing to Compensate HealthPRO for Therapy Services Invoiced
The existence of a contract has never been disputed in this case. The
Agreement is the contract, and its essential terms are clear and unambiguous.
Pursuant to Paragraph 4(a) of the Agreement, Ridgeview had a duty to compensate
7 When a federal district court sits in diversity, as it does here, it applies the substantive law of
the forum state to resolve the merits of the controversy. See Erie R.R. Co. v. Tompkins, 304 U.S.
64, 58 (1938). In this diversity case, the forum state is Pennsylvania, and so Pennsylvania law
applies. The parties’ Agreement also specifies that the Agreement shall be construed and
enforced pursuant to the laws of the state where the skilled nursing facility is located, which is
Pennsylvania. (P. Ex. 1, ¶ 15(f).)
HealthPRO for the provision of therapy services rendered each month in
accordance with invoices submitted by HealthPRO. HealthPRO timely submitted
invoices for the months of November 2016 through March 2017 pursuant to
Paragraph 4(c) of the Agreement. Ridgeview did not notify HealthPRO of any
dispute of any portion of any of the invoices at issue as permitted in Paragraph
4(c). Ridgeview’s failure to notify HealthPRO of a dispute regarding the invoices
is deemed to be a confirmation of its obligation to pay the full amount invoiced
pursuant to Paragraph 4(c). Ridgeview breached this duty by failing to remit
payment in full within thirty days from the date of each invoice, as required by
Paragraph 4(c) of the Agreement.
As a result of Ridgeview’s breach of the Agreement by failing to pay the
invoiced amounts, HealthPRO suffered damages in the principal sum of
$212,910.50. In addition, pursuant to Paragraph 4(d) of the Agreement, Ridgeview
must pay a service fee on the outstanding amount. As of this date, the total service
fee owed by Ridgeview is $155,109.80. In addition, Ridgeview must reimburse
HealthPRO for all costs of collection of the invoices, including attorney’s fees and
costs and court costs pursuant to Paragraphs 4(e) and 15(h) of the Agreement.
Because the court finds in favor of HealthPRO on its breach of contract
claim, the court need not address HealthPRO’s unjust enrichment claim, which was
pleaded in the alternative.
B. Ridgeview Failed to Prove that HealthPRO Breached the
Agreement
Ridgeview argues that HealthPRO breached the Agreement by failing to
provide “adequate” or “sufficient” therapy services to Ridgeview residents. Once
again, the parties do not dispute the existence of the contract. However, the duty
that Ridgeview alleges was breached is not found in the Agreement.
With respect to the duty at issue, the therapy services that HealthPRO was
obligated to provide at Ridgeview are set forth in Paragraph 2(a) of the Agreement.
HealthPRO was obligated to arrange for the provision of services to Ridgeview
residents who requested services from HealthPRO in accordance with the
Agreement, all applicable laws and regulations, and the plan of care established by
the physician responsible for the resident’s care. HealthPRO was required to
provide therapy services through qualified therapy personnel who were employed
by or under contract with HealthPRO and who held all required therapy licenses to
provide the services. The words “sufficient” and “adequate” do not appear in
Paragraph 2(a) of the Agreement. Moreover, the Agreement does not specify that
the therapy services must be “sufficient” or “adequate” by any measure other than
what is specified in Paragraphs 2(a) and (b) – the provision of services required by
the plan of care for each resident by qualified therapy personnel.
Ridgeview has failed to prove that HealthPRO breached its duty to provide
services required by the plan of care for each resident by qualified therapy
personnel. Ridgeview did not present evidence of a single instance when a
Ridgeview resident did not receive an evaluation or a physician-ordered therapy
service. Ridgeview never notified HealthPRO of any Ridgeview resident’s therapy
needs not being met. And, although Ridgeview expressed dissatisfaction with the
temporary staff covering the full-time speech and physical therapist positions that
were vacant, Ridgeview never notified HealthPRO that the temporary staff were
not qualified or failed to deliver physician-ordered evaluations or therapy services.
To be sure, Ridgeview was increasingly dissatisfied with the changes in
staffing and lack of full-time therapists from January to March 2017. Ridgeview
complained to HealthPRO about the temporary staffing during this time period.
However, Ridgeview has not proven that the temporary staff was in any objective,
measurable way “insufficient” or “inadequate” to fulfill HealthPRO’s contractual
duty to provide therapy services. Indeed, the data presented at trial demonstrated
an increase in on-site hours worked by therapy staff at Ridgeview during the
November 2016 to March 2017 time period. Although Ridgeview was clearly
displeased with the changes in HealthPRO staffing, Ridgeview has failed to
demonstrate that the temporary staffing resulted in a breach of HealthPRO’s duty
under the Agreement.
Finally, even assuming that the changes in HealthPRO’s therapy staff
constitute a breach of the Agreement, Ridgeview failed to prove that such breach
caused Ridgeview to suffer damages. Ridgeview claims to have suffered a loss of
$120,000, which was the amount Ridgeview had to pay to the Commonwealth of
Pennsylvania as recoupment when its CMI rate dropped in February 2017.8 The
rate drop and subsequent recoupment amount were proven. However, Ridgeview
argues that the sole and exclusive cause of this loss was the insufficient staffing by
HealthPRO, alleging that nothing else changed at Ridgeview during the time
period at issue.
The court concludes that Ridgeview also failed to prove causation. The only
evidence that Ridgeview presented in support of its theory of causation was
opinion testimony from Mr. Gutman. For the reasons explained above, the court
did not find Mr. Gutman’s testimony to be credible. Moreover, the court has
found, based on the credible evidence presented, that there were other factors that
8 In Ridgeview’s post-trial submissions, Ridgeview contends that HealthPRO’s staffing issues
also negatively impacted patient care. Ridgeview does not cite any portion of the record in
support of this serious assertion. The court concludes that there is no record evidence that could
be cited in support of this assertion. Moreover, Mr. Gutman expressly admitted at trial that he
does not allege any instance of “therapy negligence” by HealthPRO. (Tr. II at 53.) The court is
astonished that Ridgeview persists in this argument at this point in the litigation despite the
complete absence of evidentiary support.
In addition, at pages 5 to 6 of its post-trial brief, Doc. 93, Ridgeview asserts that HealthPRO
employee Rob Oulette “questioned whether the drop was caused by HealthPRO’s turnover in
leadership at the Ridgeview facility. Indeed, HealthPRO was aware that its mismanagement of
the Ridgeview facility caused the drop in RUG Rate.” Ridgeview does not – and cannot – cite
the transcript in support of this assertion. This statement does not appear anywhere in the record
before the court. This appears to be a complete fabrication by Ridgeview.
may have contributed to the CMI rate drop that are not attributable to HealthPRO,
while staffing levels by HealthPRO was not proven to be a contributing factor.9
Ridgeview has not proven that HealthPRO’s staffing issues amount to a
breach of contract. However, the court concludes that it was a driving factor in
Ridgeview’s decision to terminate the Agreement, and that Ridgeview’s
dissatisfaction with the working relationship with HealthPRO was genuine.
However, there is no claim in this case arising from the termination of the
Agreement. HealthPRO only asserts a breach of Ridgeview’s duty to pay for the
services invoiced. The court concludes that Ridgeview’s March 15, 2017 letter
invoked the “immediate termination” clause of the Agreement in Paragraph 6(c).
Under the plain, unambiguous language of Paragraph 6(c), the Agreement should
have been terminated as of March 15, 2017. However, Ridgeview insisted that
HealthPRO continue to provide therapy services through the end of the month, and
HealthPRO obliged that request. Pursuant to Paragraph 6(e) of the Agreement, the
termination did not relieve Ridgeview of the obligation to pay the fees invoiced by
HealthPRO. To the contrary, under this provision of the Agreement, Ridgeview
9 Ridgeview also has not presented any argument to explain why it is entitled to seek relief from
HealthPRO arising from the Commonwealth of Pennsylvania Medicaid recoupment in the face
of Paragraphs 5(c) and (e) of the Agreement. According to these provisions, Ridgeview agreed
that it could not make any demand of HealthPRO related to any third-party disallowance of a
claim or offset any amount owed. The court construes the recoupment to be a retroactive
disallowance of a portion of Ridgeview’s Medicaid claim, and concludes that Ridgeview is
precluded from demanding damages from HealthPRO relating to this disallowance.
was obligated to be current with all payments to HealthPRO when it terminated the
Agreement.
In order to avoid the consequences of its breach of its duty to pay
HealthPRO, Ridgeview contends that HealthPRO’s “material breach” of its duty to
provide “sufficient” or “adequate” staffing absolved Ridgeview of its duty to pay
for the services rendered. This argument fails, because Ridgeview has not proven
a duty or a breach – material or otherwise.10
C. The Court Will Defer Ruling on the Amount of Damages
The court will defer ruling on the total amount of damages owed by
Ridgeview pending review of HealthPRO’s documentation concerning attorney’s
fees and costs as well as court costs. The order accompanying this Memorandum
will set forth a schedule for submissions on this component of damages. Finally,
after the court computes the attorney’s fees owed by Ridgeview, the court will
account for the attorney’s fees owed by HealthPRO as an offset. (See Tr. III at 77–
78.)
10 Because the court has concluded that Ridgeview failed to prove any breach of duty by
HealthPRO, the court need not address HealthPRO’s argument that Ridgeview elected against
the right to rescind or retroactively terminate the contract by continuing to benefit from
HealthPRO rendering therapy services.
CONCLUSION
For the foregoing reasons, the court finds in favor of HealthPRO on its
breach of contract claim and on Ridgeview’s counterclaim and will enter judgment
accordingly. The court defers ruling on the total amount of damages owed by
Ridgeview pending review of the parties’ submissions on HealthPRO’s attorneys’
fees and costs. An accompanying order will follow.
s/Jennifer P. Wilson
JENNIFER P. WILSON
United States District Court Judge
Middle District of Pennsylvania
Dated: March 15, 2021