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Smith v. LHC Group, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

June 30, 2017

SUE SMITH, Plaintiff,
LHC GROUP, INC., and KENTUCKY LV, LLC, Defendants.



         Defendants LHC Group, Inc. and Kentucky LV, LLC provide home healthcare services to referred-patients in exchange for payments from Medicare, Medicaid, and other private payors. How they go about obtaining those payments-at least according to former Director of Nursing Sue Smith-is less than scrupulous. Smith alleges that during her employ Defendants doctored patient orders and enrolled patients for services without proper documentation or regard for whether the patient even needed certain services-all in an effort to fill corporate coffers. Smith quit her job after Defendants persisted in the alleged fraud scheme despite her protestations. She brings this action alleging retaliation in violation of the False Claims Act, 31 U.S.C. § 3730(h), and wrongful discharge under Kentucky law. Defendants move to dismiss Smith's complaint in its entirety. DE 4. For the reasons that follow, Defendants' motion will be granted.


         Defendants LHC Group, Inc. and Kentucky LV, LLC are home healthcare providers who obtain patients by way of referrals from physicians, hospitals, assisted-care living centers, nursing homes, and other providers. Compl. ¶ 13. Defendants provide services and are paid through Medicare, Medicaid, and other private insurers. In normal course, referrals are submitted to Defendants with a physician's order specifying the type of healthcare services the patient needs. Compl. ¶ 14. Defendants then analyze the physician orders and determine if the provider “ha[s] available staff and if available clinical staff possesse[] the skill and expertise necessary to provide the care needed for the referred and potential patient.” Compl. ¶ 15. Depending on the provider's availability, staff members of Defendants either authorize the referral or recommend to the “final decision-making authority” that the referral be declined. If Defendants authorize the referral, their healthcare providers then visit with and examine the patient. The examinations often resulted in the determination that the patient needed more care than the physician's order initially sought, but sometimes healthcare staff discovered that the physician orders “did not appear to be necessary, were not feasible to provide given the patient's living condition, had been rejected by the patient, ” or for some other reason could not be provided. Compl. ¶ 19. Such determinations were reported to the patient's doctor for further orders. If clinical staff determined that it not provide the care needed for the referral, the “final decision-making authority” decided whether to on-board the patient despite the clinical staff's recommendation to decline the referral. Compl. ¶ 21.

         Smith worked for Defendants as a Registered Nurse and the Director of Nursing for Home Health, beginning in 2010 up until October 26, 2016. Compl. ¶¶ 7-8. Smith knew the ends and outs of Defendants' referral process. She supervised the assessment and implementation of patient care, which included making determinations as to clinical staff availability and recommending to her superiors whether or not Defendants could or should take on a referral. As part of her job, Smith also completed the forms necessary to secure funding under Medicare, Medicaid, and other private insurers.

         At some point in her tenure as the Director of Nursing, Smith caught on to Defendants alleged fraud scheme, both through her own observations and other members' experiences of similar malfeasance. Compl. ¶ 23. The alleged scheme was simple and two-pronged. Defendants allegedly changed and altered patient orders so “the services and care needed for the patient would be consistent with [D]efendants' available clinical staff.” Compl. ¶¶ 22, 26, 27, 28. Smith also determined that other employees for Defendants “admitt[ed] patients without adequately documenting either the patient's need for home healthcare services or the type of home healthcare services that the patient needed.” Compl. ¶ 29. In essence, Smith discovered that Defendants allegedly cooked the books to allow Defendants to take on patients it otherwise could not accommodate to generate income.

         Weary of potential illegality, Smith declined to participate in the scheme and decided to inform her superiors of what she discovered through “reports to [D]efendants' senior management personnel.” Compl. ¶¶ 31, 39. Management ignored Smith and her whistleblowing efforts. On one occasion, certain personnel told her that the scheme brought in “$6 million annually.” Compl. ¶ 39. Unwilling to work amongst such allegedly unethical business practices, Smith decided to quit her job. Compl. ¶ 41.


         Smith now brings this lawsuit seeking compensation and damages for her time working for Defendants. She alleges three claims: (1) that she was constructively discharged in violation of the anti-retaliation provision of the federal False Claims Act; (2) that she was wrongfully discharged under Kentucky law for her refusal to violate “Title 31, Chapter 37, Subchapter III of the United States Code”; and (3) that she was wrongfully discharged under Kentucky law for her refusal to violate KRS 314.091(1)(d) and/or (h).

         Defendants' present motion is governed by Federal Rule of Civil Procedure 12(b)(6). That rule provides courts with a mechanism to enforce Rule of Civil Procedure 8, which governs the sufficiency of a complaint. In determining whether a plaintiff's complaint can withstand a motion to dismiss, the Court will assume the veracity of well-pleaded factual allegations and then determine whether they plausibly give rise to an entitlement to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The plausibility standard is met when the facts in the complaint allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. A complaint need not contain “detailed factual allegations, ” but must contain more than mere “labels and conclusions.” Id. Put another way, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         Because the facts in Smith complaint do not state a claim upon which relief can be granted on any of the three counts, Defendants' motion to dismiss, DE 4, will be granted in full.


         Smith argues that the termination of her employment violated the anti-retaliation provision of the FCA. See 31 U.S.C. § 3730(h). To establish a prima facie case under § 3730(h), Smith must prove that she engaged in a protected activity[1], that her employer knew she engaged in protected activity, and that her employer discharged or otherwise discriminated against her as a result of the protected activity. Miller v. Abbott Laboratories, 648 F. App'x. 555, 559 (6th Cir. 2016) (citing McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508, 514 (6th Cir. 2000)). This case focuses on the third consideration-whether Defendants “discharged or otherwise discriminated against” Smith.

         Defendants did not fire Smith. She resigned her post, in her view, because “[n]o reasonable person would or could be expected to continue [his or her] employment” in the circumstances she faced. DE 11, at 8. In seeking to hold Defendants liable, Smith proceeds under a constructive-discharge theory.

         “A constructive discharge occurs when the employer, rather than acting directly, deliberately makes an employee's working conditions so intolerable that the employee is forced into an involuntary resignation.” Laster v. City of Kalamazoo, 756 F.3d 714, 727 (6th Cir. 2014) (internal quotations and citations omitted); Green v. Brennan, ___ U.S. ___, 136 S.Ct. 1769, 1776 (2016) (“The constructive-discharge doctrine contemplates a situation in which an employer discriminates against an employee to the point such that his ‘working conditions become so intolerable that a reasonable person in the employee's position would have felt compelled to resign.'”)(quoting Pennsylvania State Police v. Suders, 542 U.S. 129, 141 (2004))).

         To demonstrate a constructive discharge, Smith must adduce evidence to show that (1) the employer deliberately created intolerable working conditions, as perceived by a reasonable person, and (2) the employer did so with the intention of forcing the employee to quit. Laster, 756 F.3d at 727-28 (citing Saroli v. Automation & Modular Components, Inc., 405 F.3d 446 (6th Cir. 2005)). The test “deliberately sets a high bar, as the law generally expects employees to remain on the job while pursing relief . . . .” McKelvey v. Sec. of theArmy, 540 F. App'x 532, 535 (6th Cir. 2011) (internal citations and ...

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