Category: Rule 9(b)

Courts Return to Real Particularity to Meet Rule 9(b)’s “Fraud with Particularity” Requirement

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The courts appear to be walking back their trend toward loosening False Claims Act (“FCA”) pleading requirements.

The FCA is a fraud statute, and lawsuits alleging FCA violations must be pled under Rule 9(b) of the Federal Rules of Civil Procedure:

Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge and other conditions of a person’s mind may be alleged generally.[1]

For a long time, the prevailing rule was found in the Eleventh Circuit Court of Appeals’ decision in United States ex rel. Clausen v. Laboratory Corp. of America, Inc.[2] The court in Clausen said:

the submission of a claim is … the sine qua non of a False Claims Act violation…. and therefore a False Claims Act plaintiff may not “merely describe a private scheme in detail but then … allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.[3]

The Clausen court concluded that a qui tam relator in an FCA case must, at a minimum, provide at least one specific example of a false claim submitted to the government.[4] Other courts soon followed suit, including the Sixth Circuit Court of Appeals, which stated the identification of at least one actual false claim was “an indispensable element of a claim that alleges a [False Claims Act] violation in compliance with Rule 9(b).”[5]

In 2003, the Eleventh Circuit Court created confusion with its unpublished opinion in United States ex rel. Hill v. Morehouse Medical Associates, Inc.[6] In Hill, the court allowed a relaxed pleading standard where the whistleblower was a corporate insider without access to detailed information. It ruled that a qui tam whistleblower who showed sufficient indicia of reliability, even in the absence of specific claims, could meet the Rule 9(b) fraud with particularity standard. The Court retreated from Hill relatively quickly, in United States ex rel. Atkins v. McInteer,[7] and again in United States ex rel. Sanchez v. Lymphatx Inc.,[8] when the Court of Appeals stated that Clausenwas the controlling opinion. Unpublished opinions, like Hill, could not control if contrary to controlling opinions.

Unfortunately, the Hill decision took on a life of its own. It formed the basis for conflicting rulings in both the Eleventh Circuit and the Sixth Circuit.

In 2014, in United States ex rel. Mastej v. Health Management Associates, Inc., et al.,[9] the Eleventh Circuit Court of Appeals appeared to flip-flop, ruling a relator:

with direct, first-hand knowledge of the defendant’s submission of false claims gained through her employment with the defendants may have a sufficient basis for asserting that the defendants actually submitted false claims.[10]

In 2016, the Sixth Circuit Court of Appeals also backed away from the strict standard, finding that a False Claims Act complaint met the Rule 9(b) standard where the relator “alleges specific personal knowledge that relates directly to billing practices.”[11]

But, first, in 2016, and then in 2017, the courts returned to the strict standard.

In 2016, the Eleventh Circuit Court of Appeals issued its ruling in United States ex rel. Jallali v. Sun Healthcare Group, et al.[12] In Jallali, the qui tam relator asked the Court of Appeals to evaluate its pleading based upon the Mastej standard for Rule 9(b), rather than the standard found in Clausen. The court affirmed quite clearly that its rules state “(u)npublished opinions are not considered binding precedent, but they may be cited as persuasive authority.”[13] Clausen was the standard to be followed, not Mastej. The court stated:

Absent an allegation, stated with particularity, that the Defendants presented a false claim for payment to the Government, Jallali has failed to state claim for relief under the FCA.[14]

In January 2017, the Sixth Circuit Court of Appeals followed suit. In United States ex rel. Hirt v. Walgreen Co.,[15] the court issued its own mea culpa for lowering the standard. It began its analysis by noting that it had raised the theoretical possibility of a lower standard in Bledsoe, based upon Hill.[16] That ultimately led to the decision in the Prather decision.[17] The court very carefully distinguished Prather, noting in very close detail exactly how much personal knowledge and involvement she had in the claims submission and billing process. It then offered the core of its decision:

The Eleventh Circuit’s use of the word “relax,” and our repetition of it in later cases, runs the risk of misleading lawyers and their clients. We have no more authority to “relax” the pleading standard established by Civil Rule 9(b) than we do to increase it. Only by following the highly reticulated procedures laid out in the Rules Enabling Act can anyone modify the Civil Rules, whether in the direction of relaxing them or tightening them.[18]

While the Six Circuit Court of Appeals did not explicitly abrogate Prather, it appeared to retreat from any “relaxation” of Rule 9(b) and to draw a very tight circle around the particular facts that allowed the whistleblower in that case to proceed. The decisions in both Hirt and Jallali seem to signal an impatience with qui tam relators coming to court with descriptions of schemes, high hopes they will find something in discovery and a claim of enough personal knowledge to circumvent Rule 9(b). This would be a welcome respite for health care providers and other government contractors and a challenge to potential whistleblowers to only come to court with fully developed FCA lawsuits.

If you have any questions, please contact:

[1] Fed.R.Civ.P. 9(b).

[2] 290 F.3d 1301, 1311 (11th Cir. 2002).

[3] Id. at 1311 (citation omitted).

[4] Id. at 1315.

[5] United States ex rel. Bledsoe v. Community Health Systems, In., 501 F.3d 493, 504 (6th Cir. 2007).

[6] No. 02-14429, 2003 WL 22019936 (11th Cir. 2003).

[7] 470 F.3d 1350, 1358 (11th Cir. 2006).

[8] 596 F.3d 1300, 1303 (11th Cir. 2010).

[9] 591 Fed.Appx. 693 (11th Cir. 2014).

[10] Id. at 704.

[11] United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., et al., 838 F.3 750, 769 (6th Cir. 2016).

[12] 2016 WL 3564248, (11th Cir. July 1, 2016).

[13] Id.

[14] Id. at *2.

[15] No. 16-6232, 2017 WL 359661 (6th Cir. January 25, 2017).

[16] Bledsoe, 501 F.3d at 504 n. 12.

[17] Hirt at *2.

[18] Id.


Statistical Evidence and the False Claims Act

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The False Claims Act[1] is a fraud statute; therefore, False Claims Act complaints must be pled with particularity,[2] identifying “the who, what, when, where, and how of an actual false claim” submitted to the government.[3] Whistleblowers without evidence of specific claims have tried to circumvent the rule with statistics, showing a likelihood that false claims were submitted to the government. The courts have repeatedly rejected these attempts, saying, e.g.:

Rule 9(b) does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply … that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted.”[4]

In 2013, it appeared the First Circuit Court of Appeals might have cracked opened the door to the use of statistical evidence in False Claims Act cases. In In re Neurontin Marketing and Sales Practices Litigation,[5] the court allowed a statistical expert to testify on the issue of causation, to offer his opinion that Pfizer’s marketing of Neurontin for off-label uses led to increased improper use of the drug.[6]

In 2017, the First Circuit Court of Appeals slammed the door on a whistleblower who tried to sneak through the crack left by the Neurontin cases.

In United States ex rel. Booker et al. v. Pfizer, Inc.,[7] the whistleblowers had no evidence of actual false claims submitted to the government, but they argued that they could prove the case statistically, citing the Neurontin cases for support. The court rejected the comparison. It said the Neurontin cases did not stand for the proposition that the existence of false claims could be proven through statistics. Rather:

In those cases, we held that plaintiffs could use aggregate data together with strong circumstantial evidence to overcome summary judgment on the distinct issue of whether there was a causal link between fraudulent marketing and demonstrated off-label prescriptions in the distinct context of a civil RICO case — not that such proof could be used to demonstrate the existence of false claims in an FCA case.[8]

The court’s clarification and limitation of the statistical discussion in the Neurontin cases should come as a welcome relief to government contractors, including health care providers, who face under-informed bounty hunters[9] hoping to strike it rich with the False Claims Act.

If you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447 or your regular Hall Render attorney.

[1] 31 U.S.C. § 3729-3733.

[2] Fed.R.Civ.P. 9(b).

[3] United States ex rel. Lawton v. Takeda Pharm. Co., 842 F.3d 125, 130 (1st Cir. 2016)(citations omitted).

[4] Sanderson v. HCA–The Healthcare Co., 447 F.3d 873, 877 (6th Cir.2006).

[5] 712 F.3d 21 (1st Cir. 2013), 712 F.3d 51 (1st Cir. 2013), and 712 F.3d 0 (1st Cir. 2013).

[6] Id. at 44-45.

[7] Case No. 16-1805, 2017 WL 395094 (1st Cir. January 30, 2017).

[8] Id. (emphasis in original).

[9] United States ex rel. Bogina III v. Medline Industries, Inc. et al., 809 F.3d 365, 367 (7th Cir. 2016).


Trial Court Pushes Back on “Fraud with Particularity” Requirement

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The Federal District Court for the Middle District of Florida appears  to have rejected recent direction from the Eleventh Circuit Court of Appeal to deny a motion to dismiss in a False Claims Act case.

In United States ex rel. Napoli et al. v. Premier Hospitalists PL, et al. the whistle-blowers alleged a hospitalist company and its owner violated the False Claims Act through the submission of fraudulent claims to government payers. The qui tam relators described the scheme in great detail, but failed to identify with particularity any claims submitted to the government. The trial court denied the defendants’ motion to dismiss for failure to plead fraud with particularity, ruling the relator’s allegation that she personally observed coding, as well as submission of false claims to Medicare, was sufficient to meet the requirements of Rule 9(b). The court ruled that “there was no per se rule that an FCA complaint must provide exact billing data or attach a representative sample claim,”[1] relying upon an unpublished Eleventh Circuit Court of Appeals case, United States ex rel. Mastej v. Health Mgmt Assocs., Inc.[2] The trial court’s reliance upon Mastej appears to conflict with a recent decision of the Eleventh Circuit clearly stating that Mastej misstated the standard for pleading in False Claims Act cases.

In 2002 the Eleventh Circuit Court of Appeals ruled that False Claims Act cases must be plead with specificity pursuant to Rule 9(b),[3] saying that in a FCA complaint, ” some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.”[4] The court went on to say that a False Claims Act complaint must support the allegation of “an actual false claim for payment being made to the Government.”[5]

The next year, the Eleventh Circuit Court of Appeals issued its unpublished opinion in United States ex rel. Hill v. Morehouse Medical Associates, Inc.[6] In Hill the court allowed a relaxed pleading standard where the whistle-blower was a corporate insider without access to detailed information. It ruled that a qui tam whistleblower who showed sufficient indicia of reliability, even in the absence of specific claims, could meet the Rule 9(b) fraud with particularity standard.

In 2006, in United States ex rel. Atkins v. McInteer,[7] and again in 2010 in United States ex rel. Sanchez v. Lymphatx Inc.,[8] the Court of Appeals stated that Clausen, a published opinion, supersede Hill, and that the Clausen specificity requirements must be followed.

In 2012, in a reported case, United States ex rel. Matheny v. Medco Health Solutions Inc.,[9] the same court said:

In order to plead the submission of a false claim with particularity, a relator must identify the particular document and statement alleged to be false, who made or used it, when the statement was made, how the statement was false, and what the defendants obtained as a result.[10]

This seemed to be a clear return to the Clausen standard, requiring pleading of a specific false claim submitted to a government payer.

In 2014, in United States ex rel. Mastej v. Health Management Associates, Inc., et al.,[11] the court appeared to flip-flop, ruling a relator:

with direct, first-hand knowledge of the defendant’s submission of false claims gained through her employment with the defendants may have a sufficient basis for asserting that the defendants actually submitted false claims.[12]

Then, in 2016, the Eleventh Circuit Court of Appeals issued its ruling in United States ex rel. Jallali v. Sun Healthcare Group, et al.[13] In Jallali, the qui tam relator asked the Court of Appeals to evaluate its pleading based upon the Mastej standard for Rule 9(b), rather than the standard found in Clausen. The court affirmed quite clearly that its rules state “(u)npublished opinions are not considered binding precedent, but they may be cited as persuasive authority.”[14] Clausen was the standard to be followed, not Mastej. The court stated:

Absent an allegation, stated with particularity, that the Defendants presented a false claim for payment to the Government, Jallali has failed to state claim for relief under the FCA.[15]

The court in Napoli attempted to thread the needle between Clausen  and Hill  by stating it did not find them  to be inconsistent. Unfortunately, it relied upon the unpublished Mastej opinion to support that conclusion. Defendants’ counsel did provide a copy of the Jallali decision in a supplemental filing.

There seems little doubt that the Eleventh Circuit Court of Appeals will continue to hew to its rule that unpublished opinion do not supersede the pleading standard it enunciated in Clausen. It remains to be seen what will ultimately happen in the Napoli case.

 

[1] Id. @ 6.

[2] 591 Fed.Appx. 693, 704 (11th Cir. 2014).

[3] Fed.R.Civ.P. 9(b).

[4] United States ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1311 (11th Cir. 2002).

[5] Id.

[6] No. 02-14429, 2003 WL 22019936 (11th Cir. 2003).

[7] 470 F.3d 1350, 1358 (11th Cir. 2006).

[8] 596 F.3d 1300, 1303 (11th Cir. 2010).

[9]  671 F.3d 1217 (11th Cir.2012).

[10] Id. at 1225.

[11] 591 Fed.Appx. 693 (11th Cir. 2014).

[12] Id. at 704.

[13] 2016 WL 3564248, (11th Cir. July 1, 2016).

[14] Id.

[15] Id. at *2.


Seventh Circuit Says “Medical Necessity” FCA Claims Require Specifics

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Last week, the Seventh Circuit Court of Appeals handed down its decision in  US ex rel. Presser v. Acacia Mental Health Clinic, LLC. [1] The FCA case was brought by a nurse practitioner whistleblower who alleged that services being provided were not medically necessary. The court affirmed dismissal under Rule 9(b) for failure to plead fraud with particularity, stating that it took more than the mere statement that services were not medically necessary to adequately plead a False Claims Act (“FCA”) case.

The whistleblower, who worked as an independent contractor nurse practitioner, alleged different fraudulent schemes. First, she alleged that, while she was directed not to perform a full psychological assessment and did not perform one, the clinic billed using the code for one. Second, she alleged that several different services provided to patients were not medically necessary, including multiple assessments for the same patients, repeated urine tests and complete reassessments for patients not seen for 30 days.

The court found that the first allegation was pleaded with sufficient particularity to meet Rule 9(b)’s standard. It identified a code used that did not describe the services provided, and the general pleading that the vast majority of patients were Medicaid recipients, along with the allegation that every single patient was improperly billed using that code, was sufficient to state a claim for a whistleblower without access to billing records.

The allegations related to medical necessity suffered a different fate. The whistleblower identified the different schemes, and she specifically related them to 42 U.S.C. § 1395y(a)(1)(A), which states that the Medicare program will not provide reimbursement for services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury.” However, she did not state a basis for her conclusion that the services were not medically necessary. As the court stated, she “provides no medical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care forbidden by the statute.” [2] She also failed “to demonstrate how Acacia’s policies compare to other clinics or could otherwise be understood as ‘unusual.'”[3]

 The court, considering the whistleblower’s statement that the services were not medically necessary, concluded:

“Many potential relators could claim that ‘in my experience, this is not the way things are done.’ However, relators may not be in a position to see the entire picture or may simply have a subjective disagreement with the other party on the most prudent course of action. Further, their perspective may be colored by considerable bias or self‐interest, such as in the case of a disgruntled employee. The heightened possibility of mistake or bias supports the need for a higher standard of specificity for fraud compared to other civil litigation.”[4]

The hesitation of the court to accept, even at the early pleading stages, a whistleblower’s allegations related to medical necessity are a small but welcome shift away from presuming that anything written by a whistleblower should be taken at face value at the pleading stages of a suit and puts whistleblowers on notice that FCA cases require particularity supporting the underlying theories of their cases.

Practical Takeaway

The FCA is the government’s primary tool in policing health care fraud. Whistleblowers are an integral part of the process. The Seventh Circuit, in requiring more particularity in “medical necessity” cases, is holding whistleblowers to a minimum standard to make public accusations of fraud before allowing them to use discovery to search for a lawsuit.

If you have any questions, please contact:


9th Circuit Issues Blockbuster Medicare Advantage FCA Decision

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The 9th Circuit Court of Appeals just issued a blockbuster ruling in U.S. ex rel. Swoben v United Healthcare et al., ruling that United Healthcare, WellPoint, Aetna and other major health insurance providers must answer to a whistleblower’s complaint that they defrauded the Medicare Advantage program.

The Medicare Advantage Program, also known as Medicare Part C, is a capitated health insurance program offered through private insurance companies. Rather than paying fees for individual services, the Medicare program makes monthly payments based upon the health status of participants. The health status is based upon diagnosis codes for services to individual patients, as selected by physicians and other health care providers. The insurers, who receive the capitated payments, are required to certify the accuracy of the diagnosis codes.

The whistleblower alleged that the health insurance companies performed one-sided retrospective reviews that were structured to identify services that were under-coded, allowing the insurer to increase their payments but not to identify over-coded services. As a result, the whistleblower alleged, the insurers’ certification of the risk adjustment data was false and caused the government to over-pay the capitation rate.

The defendants argued that they could not be held accountable for the accuracy of codes submitted by health care providers and that there was no duty to affirmatively act to identify unsupported codes.

The court rejected both of the arguments. First, it stated that it was not suggesting that the insurance company could be held responsible for incorrect coding by providers but for falsely certifying that the coding was correct. And second, it stated that the insurers had an affirmative duty to have effective compliance programs in place and that they could be liable under the FCA for submitting certifications with reckless disregard for, or deliberate ignorance of, their accuracy, if the whistleblower’s allegations were true.

The insurance companies’ errors were in creating one-sided reviews calculated to identify under-coding and conceal over-coding. By creating such a review, the court ruled, the companies could be acting in deliberate ignorance of the truth or falsity of their certifications or were acting in reckless disregard for the truth or falsity of their certifications.

The court ruled that the whistleblower’s fourth amended complaint stated a claim and was sufficiently pled, and it reversed the trial court’s dismissal with prejudice. The insurance companies will now have to answer and defend against the whistleblower’s allegations.

 If you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447 or your regular Hall Render attorney.


New 7th Circuit FCA Case Is a Primer in Whistleblower Cases

The Seventh Circuit Court of Appeals just issued its decision in US ex rel. Nelson v. Sanford-Brown, Ltd.. This decision is sure to find its way into briefs and arguments for years to come in False Claims Act (“FCA”) cases. It touched upon many of the different ways a qui tam relator can fail to bring an adequate FCA claim.

Public Disclosure Bar

First, the court noted that the actions alleged to be false began in 2006 and ran through 2012. During that time, the FCA was amended. The court ruled that, for the purpose of the “public disclosure bar,” the 2010 version of the statute controlled. Of particular interest, the court also stated the “public disclosure bar” was a jurisdictional bar. In 2010, the statute was amended to change the language from “No court shall have jurisdiction over an action under this section …” to “The court shall dismiss an action or claim under this section, unless opposed by the Government ….” Nonetheless, the Seventh Circuit applied the “public disclosure bar” as a jurisdictional bar rather than merely a discretionary basis for dismissal.

Many of the problems with Nelson’s case were of his own making. In responses to the Defendants’ motions, Nelson conceded “that his allegations have been ‘publicly disclosed'” and “he does not have direct and independent knowledge of the allegations pled upon information and belief.” The court, relying upon “the well-settled rule that a party is bound by what it states in its pleadings,”¹ rejected his attempts to retreat from those admissions in his briefs.

The court found that jurisdiction existed only for claims based upon events occurring during the few months of his employment, as that would be the only opportunity for him to be an original source of information.

Fraud with Particularity

Nelson’s next failure was his attempt to lump all Defendants together in his Complaint, rather than to provide specific allegations against each. The court affirmed dismissal for failure to plead fraud with particularity.² It also affirmed the trial court’s denial of his motion to file a second amended complaint based upon his 42-day delay in requesting such relief.

Conditions of Participation or Payment

It is well established that regulatory violations only constitute FCA violations of they are conditions of payment, not merely conditions of participation. Nelson, and the Government in an amicus brief, invited the court to do away with this distinction, arguing “under the FCA, payment as participation are one and the same, as a claimant is not entitled to payment unless eligible to participate.” The court flatly rejected the invitation: “Distilled to its core, Nelson and the government’s theory of liability lacks a discerning limiting principle.” Referencing an earlier case in which the Court described such an argument as “absurd,”³ the court said “we conclude that it would be equally unreasonable for us to hold that an institution’s continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the PPA are conditions of payment for purposes of liability under the FCA.”

The court again reiterated its rejection of the “so-called doctrine of implied false certification,” stating “The FCA is simply not the proper mechanism for government to enforce violations of conditions of participation” and “evidence that an entity has violated conditions of participation after good‐faith entry into its agreement with the agency is for the agency—not a court—to evaluate and adjudicate.”

Practical  Takeaway

The Seventh Circuit Court of Appeals will continue to enforce the public disclosure bar as a jurisdictional bar unless the whistle blower is also an original source of the information. Government contractors who identify errors should take advantage of self-reporting opportunities and should also consider additional steps to make sure that such disclosure trigger the self-disclosure bar. For more on this issue, please read  Self-Disclosure, the Public Disclosure Bar and the FCA – Uncertainty, Circuit by Circuit.

The Seventh Circuit continues to reject the “implied false certification” theory of falsity for FCA cases. Government contractors operating in the Seventh (and Fifth) Circuit may continue to expect the protection offered by Courts that require actual falsity or knowing violations of conditions of payment to state a False Claims Act violation.

¹ Soo Line R. Co. v. St. Louis Southwestern Ry Co., 125 F.3d 481, 483 (7th Cir. 1997)

² Fed.R.Civ.P. 9(b)

³ 9. U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 706 (7th Cir. 2014)


N.D. Ill.: Upcoding Allegations Against Hospitalist Group Survive Motion to Dismiss

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A recent case out of the Northern District of Illinois Federal Court, US ex rel. Oughatiyan v. IPC the Hospitalist Company, Inc., demonstrates the high risk inherent in evaluation and management (E&M) coding for health care providers…. Continue Reading →


Seventh Circuit: “Information and Belief” Insufficient under 9(b)

In U.S. ex rel. Grenadyor v. Ukranian Village Pharmacy, Inc. et al., the Seventh Circuit affirmed a trial court’s dismissal  of a whistleblower’s complaint for its failure to provide sufficient specificity regarding the alleged fraud. In the opinion, Judge Posner drives a stake through the heart of a common boilerplate phrase  with clarity and precision that makes a refreshing read for legal and non-legal readers alike.

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