On February 27, 2017, the US District Court for the Southern District of Mississippi granted a defense motion to dismiss False Claims Act (FCA) claims in United States ex rel. Dale v. Lincare Holdings, Inc., on the grounds that the claims were precluded by the FCA’s first-to-file bar.
The defendant, Lincare Holdings, Inc., is a national respiratory care provider that serves Medicare Part B patients via the sale and rental of medical oxygen supplies. The relator, a former salesperson for a Lincare subsidiary, filed his complaint on February 23, 2015, under seal, alleging that Lincare implemented a scheme to falsify and manipulate medical necessity testing in order to generate false reports that would allow it to sell oxygen and other Medicare-covered services to patients who were not medically qualified for coverage. The relator alleged that an office manager and nurse instructed employees to direct patients to take a variety of steps, such as raising their arms while attached to an oxygen sensor, in order to generate falsely low arterial oxygen saturation levels. The relator further claimed retaliatory discharge under the FCA. The United States declined to intervene on August 17, 2015, and the complaint was unsealed on August 24, 2015.
Granting a nearly year-old motion to dismiss, the court held that the relator’s FCA claims were precluded by the FCA’s first-to-file bar, finding that the “fraudulent scheme depicted in Relator’s complaint is largely based on the same underlying facts as the [United States ex rel. Robins v. Lincare, Inc.] scheme.” The first-to-file bar prohibits plaintiffs from being a “related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5). The Robins suit was filed first in the US District Court for the District of Massachusetts and the court found that there was a “substantial overlap in material facts” underlying the schemes alleged in each case such that the complaints are sufficiently related for purposes of the first-to-file bar.
Despite the relator’s argument that he provided additional facts about the manner in which the scheme was implemented, the court noted that “[b]oth complaints essentially allege that Lincare violated the FCA by generating false reports and performing unauthorized assessments in an effort to improperly qualify patients for Medicare-covered oxygen. . . . Robins provided sufficient information to put the government on notice of the related fraud described here, as it is likely that an investigation into the Robins allegations would reveal the fraudulent conduct alleged in Relator’s complaint.” The court noted that the allegations of fraud need not be identical, and that the “essential focus” is on whether an investigation into the first claim would uncover the same fraudulent activity alleged in the second claim.
The court went on to hold that, even absent the first-to-file preclusion, the relator had failed to state a FCA claim with the required particularity under Federal Rule of Civil Procedure 9(b) due to relator’s failure to sufficiently allege a false claim. Indeed, the complaint contained “no reference to financial statements evidencing any claim, nor . . . any identifying information about the amount of specific claims or the dates on which they were submitted.” The court further found that the relator had failed to present the requisite indicia of the specific scheme, such as information about the billing system or claim submission system, stating that the “Relator assumes that Lincare submitted false claims at some point in time simply because delivery personnel were instructed to administer oximetry tests incorrectly.” As to the relator’s reverse false claims allegation, the court found it deficient because the complaint “failed to mention any financial obligation Lincare may have owed to the government.”
This case underscores the fact that the first-to-file provision is, at its core, about whether the government had sufficient notice of alleged fraud; allegations in the two actions need not be identical. Here, while the relator presented information regarding the alleged fraud that had not been contained in the first-filed case, the court found that the first-filed case had nevertheless presented information sufficient for the government to eventually uncover the conduct alleged in the second-filed suit. And, of course, the Rule 9(b) particularity requirement remains a potent tool in eliminating meritless claims.