On November 8, 2017, the US District Court for the Middle District of Florida dismissed a relator’s non-intervened claims in United States ex rel. Stepe v. RS Compounding LLC for failure to satisfy the particularity requirement of Federal Rule of Civil Procedure 9(b). Relator originally filed her complaint under seal on December 16, 2013, under the federal False Claims Act (FCA) and Florida’s analogous statute. Over three years after the complaint was filed, the government elected to partially intervene as to fraudulent pricing allegations relating to TRICARE. Relator amended her complaint in July 2017 and added state false claims counts under the laws of 16 additional states. All 17 states declined to intervene in the case in September 2017.
The complaint alleges that Relator, through her work as a sales representative for defendant RS Compounding, became aware of Defendants’ purported schemes to defraud the government on prescription compound and gel products. The relator alleged that prescription pads were prepopulated for physicians, with RS Compounding’s most expensive compounds pre-checked on the pads and six refills listed by default. Relator further alleged that this scheme involved sales representatives “coaching” physicians to number three different products on the pads, with priority given to products containing ketamine because those products had a higher reimbursement rate from the government.
The court dismissed the allegations that Defendants submitted false claims, on the grounds that for the relator failed to present sufficient indicia of reliability to satisfy Rule 9(b). Critically, while the relator was an “insider” sales representative, she presented no first-hand knowledge or evidence of defendants actually billing false claims to the government. The court reiterated the often-cited proposition that “the FCA does not allow a plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for [her] belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.”
Furthermore, the relator had presented no evidence to demonstrate that physicians actually prescribed unnecessary products or refills as a result of the defendants’ schemes, or even if they did, that any claims for such prescriptions were submitted to the government. The court noted that it “cannot draw inferences in favor of relators concerning the submission of fraudulent claims because doing so would strip all meaning from Rule 9(b)’s requirements of specificity.”
Defendants further argued that under Universal Health Servs., Inc. v. United States ex rel. Escobar the allegations regarding the fraudulent scheme failed to allege that the alleged practices were material to the government’s decision to pay any claims. While the court did not substantively address the materiality argument (as the relator had already failure to meet the Rule 9(b) standard), the court did advise the relator that in amending her complaint she “should consider the importance of alleging facts supporting materiality—i.e., why the ‘1, 2, 3 strategy,’ pre-printed script pads with high refill numbers, and inadequate training regarding drug warnings would influence the government’s decision to pay such claims.
This decision highlights the shortcomings of FCA claims premised on the allegations of relators who have no involvement in, or knowledge about, a defendant’s billing processes or practices, because such relators often cannot allege an essential feature of an FCA case: a false or fraudulent claim for payment. Allegations of mere “schemes” do not suffice.