Stop Illinois Health Care Frau v. Asif Sayeed

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-2635
STOP ILLINOIS HEALTH CARE FRAUD, LLC,
Plaintiff-Appellant,
v.
ASIF SAYEED, et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:12-cv-9306 — Sharon Johnson Coleman, Judge.
____________________
ARGUED APRIL 8, 2020 — DECIDED APRIL 29, 2020
____________________
Before RIPPLE, BRENNAN, and SCUDDER, Circuit Judges.
SCUDDER, Circuit Judge. Stop Illinois Health Care Fraud,
LLC brought a qui tam lawsuit against Management Princi-
ples, Inc. and some of its associates as well as the Healthcare
Consortium of Illinois, alleging that they had an illegal refer-
ral practice that violated the Anti-Kickback Statute and, by ex-
tension, the federal and state False Claims Acts. The MPI de-
fendants proceeded to a bench trial. At the close of the plain-
tiff’s case, the district court entered judgment for the
2 No. 19-2635
defendants, concluding that there was no evidence that MPI
paid any renumeration with the intent to induce referrals.
Stop Illinois Health Care Fraud appeals that judgment.
The trial evidence plainly showed that MPI made monthly
payments to HCI in return for access to the non-profit’s client
records and then used that information to solicit clients. The
defendants contend that the arrangement constitutes a kick-
back offered in exchange for a referral, and that the district
court came to the contrary conclusion because it employed
too narrow an understanding of a referral. Review of the dis-
trict court’s reasoning leaves us concerned that the court did
not account for the evidence regarding MPI’s solicitation of
HCI clients, and we are unable to confirm that the court em-
ployed the proper definition of a proscribed referral. We
therefore reverse and remand for further proceedings.
I
A
The Healthcare Consortium of Illinois, or HCI, was an or-
ganization that contracted with the Illinois Department of Ag-
ing to coordinate services for low-income seniors in an effort
to keep them at home and out of nursing homes. HCI some-
times referred clients who needed in-home healthcare ser-
vices to Vital Home & Healthcare, Inc. and Physician Care
Services, S.C., two companies housed under the same um-
brella entity, Management Principles, Inc. Also known by its
acronym, MPI is owned and managed by Asif Sayeed. Stop
Illinois Health Care Fraud, LLC—an entity whose name
leaves few doubts about its mission—sued MPI, its two home
healthcare companies, Sayeed, and HCI, alleging that they or-
chestrated an illegal patient referral scheme.
No. 19-2635 3
The plaintiff brought its claims under the federal False
Claims Act and its Illinois analogue. In recognition of the lim-
ited resources available for the government to police viola-
tions on its own, both statutes allow enforcement to be out-
sourced to private parties, known as relators, who sue alleged
wrongdoers on the government’s behalf in exchange for a cut
of the recovery. See 31 U.S.C. § 3730(b)(1), (d); 740 ILCS
175/4(b)(1), (d). We call this a qui tam action, which comes
from an abbreviation of a Latin phrase meaning “who [qui]
sues in this matter for the king as well as [tam] for himself.”
See U.S. ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 368
(7th Cir. 2016). Stop Illinois Health Care Fraud sued in this
matter for the United States and the State of Illinois. Though
both governments had the ability to intervene and take the
matter over for themselves, they declined to do so.
The operative complaint alleged that MPI and HCI had a
contract and that MPI paid HCI gift cards in substantial
amounts in return for the ability to access the detailed infor-
mation that HCI employees gathered about clients during in-
home assessments. Using that information, MPI called Medi-
care-eligible seniors and offered them the services of its two
home healthcare companies. MPI’s payments to HCI, the
complaint alleged, ran afoul of the Anti-Kickback Statute, 42
U.S.C. § 1320a-7b(b)(2), which makes it illegal to pay someone
to induce them to refer a patient for services that will be paid
for by a federal healthcare program. The plaintiff sued under
the federal and state False Claims Acts, which prohibit claims
for payment on services resulting from violations of the Anti-
Kickback Statute.
HCI settled the claims against it, but Sayeed and his com-
panies proceeded to a bench trial. Ella Grays, who used to be
4 No. 19-2635
a supervisor at HCI, testified about her former employer’s
usual referral practices. She explained that the organization
dispatched caseworkers to seniors’ homes to assess whether
they could safely remain living on their own and, if so,
whether they needed additional services like meal deliveries
or aides to assist with daily living. When a client needed in-
home healthcare, the HCI caseworker would make a referral
from a prepared list of providers. To ensure a fair distribution,
HCI caseworkers rotated the referrals by methodically going
down the list. MPI’s companies received referrals in this man-
ner, and Grays did not believe that any of the referrals were
given in exchange for something of value.
The parties expended little trial time on the topic of gift
cards. Grays testified she did not know of caseworkers ever
receiving gift cards from anyone at MPI. The plaintiff pre-
sented the video testimony of Alice Piwowarski, a former MPI
employee who said that she gave HCI caseworkers Dunkin’
Donuts gift cards on special occasions like birthdays and
charged them to her expense account. Sayeed confirmed that
his employee handed out the small gift cards—in $5 or $10
amounts—as friendly birthday gifts but denied that the pur-
pose was to receive referrals.
Most of the trial testimony focused instead on a 2010 Man-
agement Services Agreement under which MPI paid HCI
$5,000 a month. What HCI was paying MPI to do was the
topic of much discussion, since the contract itself was vague.
HCI’s only stated obligations were to “assist MPI in the man-
agement of the case management Program and appoint per-
sonnel as Associate Managers.” For their part, HCI’s associate
managers had to “[d]evote sufficient time for the performance
of all assigned duties” and “[p]rovide periodic written reports
No. 19-2635 5
of activities.” The plaintiff’s theory, as laid out in its opening
statement, was that the ambiguous Management Services
Agreement was a sham contract meant to disguise a kickback
offered for patient referrals.
Sayeed testified that the idea for the agreement came
about because HCI was in need of financial help and MPI was
looking to become an Accountable Care Organization, which
required enrolling 5,000 Medicare recipients as patients. Be-
lieving that MPI could not acquire that many patients on its
own, Sayeed thought the company could rely on HCI records
to find them—a process he referred to as “data mining.”
Sayeed explained that the executed agreement fulfilled this
purpose by requiring HCI to do two things—give MPI access
to the comprehensive forms that caseworkers filled out when
they assessed clients and teach MPI about how it coordinated
care. He also said that HCI’s attorney not only had contrib-
uted to drafting the agreement but also approved of it.
MPI’s acquiring access to HCI’s caseworker paperwork
was important because those documents included infor-
mation about the clients’ medical diagnoses, healthcare
needs, and living situations. Sayeed clarified that before the
Management Services Agreement took effect, MPI had access
only to the assessment forms of clients who HCI had referred
to its providers, but the agreement opened the door to those
of all HCI’s patients.
The trial testimony also shed light on how MPI acquired
access and what its employees then did with the information
gleaned from HCI’s files. Sayeed testified that MPI employees
would go to HCI’s office and copy the information from case-
workers’ forms to an intake tracking log and a client referral
log. He explained that the data was helpful because MPI
6 No. 19-2635
could extract patterns from it to forecast future events, allow-
ing for earlier intervention that was cheaper and more effi-
cient. The purpose of collecting HCI clients’ information, he
said, was not to solicit them for home health services but ra-
ther to help HCI and to mine data.
But Sayeed’s testimony showed that his companies did
use the information obtained from HCI’s files to solicit and
acquire new patients. MPI would call individuals from the
logs and, if the person did not have a doctor and was unable
to travel to one, it would send a doctor from MPI’s sister com-
pany Physicians Care Services to the client’s house. Some-
thing similar occurred for seniors in need of in-home nursing.
MPI used the HCI data to forecast when a client would need
help and then call the person’s doctor. If the doctor prescribed
home assistance, MPI would send a nurse to evaluate the pa-
tient.
Rosetta Cutright Woods, a former MPI employee whose
job it had been to go to HCI and retrieve their clients’ infor-
mation from the forms, confirmed that the solicitation process
worked just this way. She testified that, upon arriving at HCI,
she would access the caseworkers’ files and then write down
the clients’ diagnoses and contact information. After return-
ing to MPI, she would speak with the doctor who ran Physi-
cians Care Services, and the doctor would review the list of
HCI clients and instruct Woods who to call. Woods would
then make the calls and asked the prospective clients if they
needed additional medical assistance. If the person re-
sponded in the affirmative, Woods recorded the information
and later relayed it to Physicians Care Services.
According to Sayeed, the Management Services Agree-
ment also required HCI to teach MPI about the care
No. 19-2635 7
coordination work that it did, and HCI provided an employee
who was available to MPI for questions. But Sayeed could not
name the HCI liaison, and he admitted to never having seen
a written report of the person’s activities as was contemplated
by the agreement. Ella Grays—the former HCI supervisor—
testified that she could not think of a time any HCI employee
ever did work for MPI under the agreement.
Indeed, Grays offered a different understanding of the
Management Services Agreement. She testified that its pur-
pose was for MPI to collect and analyze HCI’s data in an effort
to help HCI better understand their clients’ needs and in do-
ing so facilitate the organization’s grant-writing process. She
recalled that as part of the agreement, MPI would call HCI’s
clients to see if they needed additional services and, if so, they
would make a referral that had to be approved by HCI’s di-
rector.
The agreement remained in effect for 18 months, and
MPI’s payments to HCI totaled $90,000. Sayeed testified that
MPI then ceased the payments, but HCI nevertheless contin-
ued to give the company access to its clients’ information,
which he attributed to the mutually beneficial nature of the
arrangement.
Finally, John Mininno, the head of Stop Illinois Health
Care Fraud, offered testimony about his company’s relator
practices and how the defendants and their practices came to
his attention. But, unsurprisingly given his role in the litiga-
tion, Mininno had little firsthand information to offer on the
topic of the Management Services Agreement’s purpose and
operation.
8 No. 19-2635
B
After the plaintiff’s case concluded, the defendants moved
for a directed verdict. They argued that the plaintiff had
shown no impropriety in the HCI referrals as needed to meet
its prima facie burden, both failing to substantiate the com-
plaint’s allegations about using gift cards as bribes and pre-
senting no evidence that the parties intended the Manage-
ment Services Agreement to enable and facilitate referrals
from HCI to MPI and its sister companies. The district court
held oral argument on the motion, where the plaintiff put
forth a different view of the evidence. Pointing to Woods’s
testimony about collecting client information from HCI’s files
and then using it to place solicitation calls, the plaintiff ex-
plained that the defendants used the agreement “to get refer-
rals for essentially any patients that they wanted by having
HCI open their files and allowing them, rather than getting a
referral from an HCI case manager directly, to call those indi-
viduals up.”
The following day the district court issued a brief written
order finding that the plaintiff had fallen short of its burden.
Because the trial had been before a judge and not a jury, the
court construed the defendants’ motion for a directed verdict
as one for judgment on partial findings under Federal Rule of
Civil Procedure 52(c). The court’s factual findings touched
lightly on the topic of the Management Services Agreement,
noting that it provided for MPI to pay HCI $5,000 per month
in exchange for “administrative advice and counsel”; that
Sayeed discussed his “data mining” objectives with HCI’s
lawyer, who gave his blessing; and that, even though John
Mininno testified that the payments under the agreement con-
stituted a kickback, he had not specifically explained why.
No. 19-2635 9
The district court’s legal conclusions were succinct. While
acknowledging the undisputed evidence that an MPI em-
ployee gave low-value gift cards to a few HCI caseworkers
and that the Management Services Agreement existed, the
court found no evidence that either was intended to induce
patient referrals. The evidence, the court continued, com-
pelled the contrary conclusion. Sayeed testified that the pay-
ments his company made under the agreement were unac-
companied by any expectation of referrals, HCI’s lawyer had
signed off on the contract, and other witnesses denied
knowledge that the defendants had given anything of value
in return for referrals. On that basis, the district court granted
the defendants’ motion and entered judgment in their favor
on all counts. The plaintiff now appeals.
II
Rule 52(c) provides for judgment based on partial find-
ings, the bench trial equivalent of its more well-known cousin,
a motion for judgment as a matter of law (or a directed ver-
dict) under Rule 50(a). Both rules allow the trial court to re-
solve an issue after a party has been fully heard but before the
trial has concluded. See FED. R. CIV. P. 50(a), 52(c). But Rule
50(a) applies to jury trials, and Rule 52(c) applies to bench tri-
als. The other crucial difference between the two is that a dis-
trict court resolving a Rule 50(a) motion must consider the ev-
idence in the light most favorable to the non-moving party to
avoid usurping the jury’s role as factfinder, but there is no
such concern in a bench trial, so under Rule 52(c) the court can
weigh evidence, determine witness credibility, and make fac-
tual findings on the way to its legal conclusions. See Wilborn
v. Ealey, 881 F.3d 998, 1008 (7th Cir. 2018). The court’s findings
of fact and conclusions of law must comply with Rule 52(a)’s
10 No. 19-2635
requirement that the court “find the facts specially and state
its conclusions of law separately.” See FED. R. CIV. P. 52(c).
Recognizing that the district court is in the better position
to determine facts, we defer to its factual findings unless there
is a clear error. See Fillmore v. Page, 358 F.3d 496, 503 (7th Cir.
2004). But the court’s legal conclusions are not entitled to that
deference and we review them de novo. See id.; 9A C. WRIGHT
& A. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2573.1 (3d
ed.) (explaining that a Rule 52(c) judgment “is reversible only
if the appellate court finds it to be clearly erroneous, even
though the underlying conclusions of law are reviewed de
novo”).
A
The plaintiff’s claims arose under the False Claims Act, but
they hinged on whether the defendants violated the Anti-
Kickback Statute. See 42 U.S.C. § 1320a-7b(g) (“[A] claim that
includes items or services resulting from a violation of [the
Anti-Kickback Statute] constitutes a false or fraudulent claim
for purposes of [the False Claims Act].”); see also New York v.
Amgen Inc., 652 F.3d 103, 113 (1st Cir. 2011) (concluding the
same is true of the Illinois False Claims Act). Section 1320a-
7b(b)(2)(A) of the Anti-Kickback Statute makes it unlawful
(indeed a felony) to knowingly and willfully offer or pay a
renumeration to someone in order to induce that person to
“refer” an individual for a service for which payment may be
made under a federal healthcare program.
The district court broadly concluded that the plaintiff of-
fered “no evidence” that the gift cards or Management Ser-
vices Agreement were intended to induce referrals. That is
certainly true as to the gift cards. The agreement, however,
No. 19-2635 11
presents a more difficult issue. No doubt nothing linked the
monthly payments to HCI caseworkers telling their clients
that they should use MPI’s services. But the plaintiff put for-
ward another, less direct theory—that MPI’s payments under
the agreement were intended to secure access to the client in-
formation in the HCI files that it then used to place solicitation
calls. The question is whether this arrangement could consti-
tute a prohibited referral under the Anti-Kickback Statute.
We expounded on what it means to “refer” a patient in
United States v. Patel, 778 F.3d 607 (7th Cir. 2015). Dr. Kamal
Patel prescribed home healthcare for some of his patients, and
he was convicted of violating the Anti-Kickback Statute for
accepting undisclosed payments from Grand Home Health
Care. See id. at 609, 611. The evidence showed that Dr. Patel
did not expressly direct his patients to Grand but instead al-
lowed them to choose from among a stack of brochures for an
assortment of home healthcare options. See id. at 610–11. To
receive Medicare reimbursement for a patient who had se-
lected Grand, the provider had to submit certification and
recertification forms signed by a doctor to demonstrate that
home care was medically necessary. See id. at 610. The gov-
ernment presented evidence that Grand and Dr. Patel had
monthly meetings at which he signed certification forms and
accepted cash payments. See id. at 611.
On appeal Dr. Patel argued that since his patients selected
Grand on their own initiative, he could not be said to have
referred them at all, let alone in exchange for payment. He
urged us to construe Congress’s use of “refer” in the Anti-
Kickback Statute in a limited way—as meaning “to personally
recommend to a patient that he seek care from a particular
entity.” Id. at 612.
12 No. 19-2635
We rejected that narrow definition of a referral in favor of
a “more expansive” one that includes “a doctor’s authoriza-
tion to receive medical care.” Id. at 613. Under that definition,
Dr. Patel had referred patients to the healthcare provider that
paid him, Grand Home Health Care, because he signed the
mandatory certification forms necessary for the patients to re-
ceive Medicare-reimbursed home care. See id. at 614. The cen-
tral characteristic of the referral, we explained, was that the
doctor “facilitate[d] or authorize[d]” the patient’s choice of
provider. Id. A doctor stands between the patient and his cho-
sen provider because his approval is necessary to obtain the
services, and “[e]xercising this gatekeeping role is one way
that doctors refer their patients to a specific provider.” Id. In
so concluding, we observed that our holding was consistent
with Congress’s broad objectives in the Anti-Kickback Statute
of preventing Medicare and Medicaid fraud and protecting
patient choice. See id. at 615.
Patel’s holding that a physician “refers” patients to a home
healthcare provider when he approves them for services does
not directly control this case, which concerns not a gatekeep-
ing doctor but an organization (here, HCI) with no certifica-
tion authority. The applicable lesson is instead that the defi-
nition of a referral under the Anti-Kickback Statute is broad,
encapsulating both direct and indirect means of connecting a
patient with a provider. It goes beyond explicit recommenda-
tions to include more subtle arrangements. And the inquiry is
a practical one that focuses on substance, not form.
B
The district court was required to employ this inclusive
understanding of a referral when evaluating whether the
plaintiff had proven an illegal kickback scheme. The breadth
No. 19-2635 13
of the definition was particularly vital to the plaintiff’s theory
that MPI’s payments to HCI under the Management Services
Agreement constituted kickbacks intended to obtain referrals
in the form of receiving access to the HCI files that the defend-
ants then exploited to solicit clients. A factfinder applying an
erroneously narrow understanding of a referral might find
those facts, devoid of an explicit direction of a patient to a pro-
vider, to fall outside its scope. But application of the proper
standard—the more inclusive, practical approach illustrated
in Patel—presents a much closer question.
We cannot tell with any certainty which route the district
court took. The opinion contains no express articulation of
what constitutes a referral for the purposes of the Anti-Kick-
back Statute. And the fact that some material evidence makes
no appearance in the factual findings causes us to question
whether the court applied the broader definition intended by
Congress and underscored in our prior opinion in Patel. We
have observed before that although “the district court cannot
be expected to explain the significance of every bit of evidence
in the record,” the failure to address material and potentially
dispositive evidence “violates the command of Rule 52(a) to
‘find the facts specially’ and precludes effective appellate re-
view.” Mozee v. Jeffboat, Inc., 746 F.2d 365, 370 (7th Cir. 1984);
see also Schneiderman v. United States, 320 U.S. 118, 129–30
(1943) (“The pertinent findings of fact on these points . . . are
but the most general conclusions of ultimate fact. It is impos-
sible to tell from them upon what underlying facts the court
relied, and whether proper statutory standards were ob-
served.”).
The district court’s opinion contains no mention of the ev-
idence showing that MPI used its access to HCI’s files to solicit
14 No. 19-2635
and obtain patients, though the testimony on that point was
considerable and unambiguous. Rosetta Cutright Woods ex-
plained with specificity how she was employed by MPI to go
to HCI, copy down the medical and contact information from
client files, and then contact those people to see if they needed
medical care. If someone said they did, then Woods relayed
the information to Physicians Care Services. Sayeed con-
firmed that his companies used the information in that man-
ner. A practical analysis of this arrangement would allow, but
perhaps not compel, a finding that it qualifies as a referral.
Though no evidence suggested that HCI directed its clients to
MPI or its home healthcare companies, one could conclude
that the effect of the file access was the same. Instead of giving
its clients MPI’s name, the reasoning would go, HCI simply
gave MPI its clients’ names and the information needed to
contact them.
But it seems the district court rejected this file-access the-
ory of referral. We come to that view from the court’s state-
ment that the plaintiff presented “no evidence” that the Man-
agement Services Agreement was intended to induce refer-
rals. The broad statement could mean one of two things with
respect to the file access—either the court concluded that the
so-called “data mining” did not constitute a referral under the
Anti-Kickback Statute or that it was not the intent of the agree-
ment. The court must have meant the former, because the
plaintiff did present some evidence that the agreement was
intended to give MPI access to HCI’s files so that it could place
solicitation calls. For example, Sayeed testified that the agree-
ment’s purpose was to mine data, and Woods’s testimony
about her collection of HCI’s “data” and what she did with it
(solicit clients) allowed a finding that MPI’s intent to mine
No. 19-2635 15
data was synonymous with an intent to use the information
to reach HCI’s clients.
In the end, we are left with uncertainty. The district court
did not acknowledge any of the evidence supporting the file-
access theory of referral, and we cannot discern why it was
rejected. The court may have applied the correct definition of
“refer” but found that the proof fell short of it, or it may have
instead committed a legal error by adopting an unduly nar-
row understanding of the term. In the absence of more expla-
nation of the court’s reasoning, we are unable to tell. The
proper course in these circumstances—where the district
court “made the necessary ultimate finding” that the Manage-
ment Services Agreement was not intended to induce refer-
rals but “failed to make the subsidiary findings necessary for
us to follow its chain of reasoning”—is to remand for addi-
tional proceedings. Mozee, 746 F.2d at 370.
* * *
We VACATE the judgment and remand the case for fur-
ther proceedings. We leave it to the district court to decide
whether to reach new findings of fact and conclusions of law
on the existing record or to reopen the record and receive ad-
ditional evidence.