Rule 9(b) Particularity

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. Continue Reading Dismissed in Florida: Former Compounding Pharmacy Sales Representative’s FCA Whistleblower Suit

On April 28, 2017, the United States District Court for the District of Massachusetts dismissed a relator’s qui tam complaint in United States ex rel. Leysock v. Forest Laboratories, Inc. after concluding that the complaint relied on information obtained resulting from deceptive conduct by the relator’s counsel.

In Leysock, the relator alleged that the defendant caused the submission of false claims to Medicare by promoting Forest’s dementia drug, Namenda, for off-label label use. After the United States declined to intervene, Forest filed a motion to dismiss, which the Court denied, largely based upon detailed allegations about eight prescribing physicians who prescribed Namenda for off-label use by Medicare beneficiaries. These allegations, the Court reasoned, were sufficient to satisfy Federal Rule of Civil Procedure 9(b), which in False Claims Act cases typically requires plaintiffs to plead specific allegations regarding the alleged fraud, tying alleged misconduct to the submission of false claims to a government payor.

Through discovery, Forest subsequently learned that relators’ counsel had obtained the information underlying these detailed allegations from a survey conducted by an individual whom relators’ counsel had contracted. This contractor misled the physicians about why he was conducting the survey (not disclosing that he had been retained by the relators in a False Claims Act action) and coaxed the physicians into turning over detailed patient information to the contractor.

In response, the Court concluded that this deception violated Massachusetts Rules of Professional Conduct Rule 4.1(a), which prohibits a lawyer or his agent from knowingly making a false statement of material fact or law to a third person. Consequently, the court concluded, this conduct violated Local Rule 83.6.1 of the United States District Court. As a remedy, the Court struck these allegations, noting that “[the contractor’s] study was conducted solely for the purpose of ensuring that the complaint survived a motion to dismiss,” i.e., to ensure that the complaint satisfied Rule 9(b)’s particularity requirement.

Although the relators’ conduct in this case is unlikely to be repeated in future cases, this case underscores the challenges relators can face in meeting Rule 9(b)’s particularity requirement. These challenges are particularly acute in non-intervened qui tam cases, where the government fails to provide the relator with information about specific false claims that the defendant allegedly submitted or caused to be submitted. Imposing these challenges will continue to chill would-be relators, without firsthand knowledge of wrongdoing, from bringing meritless qui tam cases.

This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.

Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system. Continue Reading A Hospital’s Deserving Stark and AKS Victory—But At What Cost?

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. Continue Reading Medicare Part B Provider Secures Dismissal of FCA Claims Under First-to-File Bar

On January 19, 2017, another district court ruled that a mere difference of opinion between physicians is not enough to establish falsity under the False Claims Act.  In US ex rel. Polukoff v. St. Mark’s et al., No. 16-cv-00304 (Jan. 17, 2017 D. Utah), the district court dismissed relator’s non-intervened qui tam complaint with prejudice based on a combination of Rule 9(b) and 12(b)(6) deficiencies.  In so doing, the Polukoff court joined US v. AseraCare, Inc., 176 F. Supp. 3d 1282, 1283 (N.D. Ala. 2016) and a variety of other courts in rejecting False Claims Act claims premised on lack of medical necessity or other matters of scientific judgment.  This decision came just days before statements by Tom Price, President Trump’s pick for Secretary of Health and Human Services (HHS), before the Senate Finance Committee in which he suggested that CMS should focus less on reviewing questions medical necessity and more on ferreting out true fraud.  Price’s statements, as well as decisions like Polukoff, are welcome developments for providers, who often confront both audits and FCA actions premised on alleged lack of medical necessity, even in situations where physicians vigorously disagree about the appropriate course of treatment.

In Polukoff, the relator alleged that the defendant physician, Dr. Sorensen, performed and billed the government for unnecessary medical procedures (patent formen ovale (PFO) closures). The relator also alleged that two defendant hospitals had billed the government for associated costs.  Specifically, the relator alleged that PFO closures were reasonable and medically necessary only in highly limited circumstances, such as where there was a history of stroke.  Medicare had not issued a National Coverage Determination (NCD) for PFO closures or otherwise indicated circumstances under which it would pay for such procedures.  However, the relator held up medical guidelines issued by the American Heart Association/American Stroke Association (AHA), which, essentially, stated that PFO closures could be considered for patients with “recurring cryptogenic stroke despite taking optimal medical therapy” or other particularized conditions. Continue Reading The FCA and Medical Necessity: An Increasingly Tenuous Relationship

On December 23, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. D’Agostino v. ev3, Inc. (Case No. 16-1126), affirming the US District Court for the District of Massachusetts’s denial of a relator’s motion for leave to file a fourth amended complaint under the False Claims Act (FCA).

The relator, a former sales representative at ev3, a medical device developer and manufacturer, alleged that his former employer and its subsidiary, Micro Therapeutics, Inc., violated provisions of the FCA by selling two products, the Onyx Liquid Embolic System (Onyx) and the Axium Detachable Coil System (Axium), to hospitals seeking reimbursements by the government through the Centers for Medicare & Medicaid Services (CMS).

Continue Reading First Circuit Deems Request for Leave to File Fourth Amended Complaint Futile

On December 16, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. Hagerty v. Cyberonics, Inc. (Case No. 16-1304) affirming the US District Court for the District of Massachusetts’ dismissal of a relator’s False Claims Act (FCA) claims for failure to plead the alleged fraudulent scheme with the level of particularity required by Federal Rule of Civil Procedure 9(b).

The relator, a former sales representative of medical device manufacturer Cyberonics, Inc., alleged that his former employer had engaged in a scheme to overbill the government by encouraging unnecessary, untimely surgical procedures to prematurely replace batteries in patients’ Vagus Nerve Stimulator (VNS) devices. The relator alleged that while VNS devices, implanted to treat patients with refractory epilepsy, have battery lives of eight to nine years, Cyberonics adopted a sales strategy designed to result in battery replacements after four to five years.

Continue Reading First Circuit Affirms Dismissal of Former Sales Representative’s False Claims Act Claims Against Medical Device Manufacturer

On September 30, the US Court of Appeals for the Sixth Circuit reversed dismissal of a relator’s False Claims Act (FCA) claims against providers of home health services in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc. et al. The relator was a utilization review nurse who alleged that physician certifications of patient need for home health care were not signed until well after the care had been provided, in violation of 42 C.F.R. § 424.22(a)(2), which requires that such certifications be completed at the time a plan of care is established or “as soon thereafter as possible.” While the regulation does not define “as soon thereafter as possible,” the Sixth Circuit held that the relator’s allegations that the requisite certifications were not completed for several months were sufficient to allege violations of both the regulation and the FCA.

The Sixth Circuit reasoned that the phrase “as soon thereafter as possible” “suggests plainly that the analysis of whether a certification complies requires that the reason for any delay be examined.” The court went on to announce the following rule: “Certification of need may be completed after the plan of care is established, but only if an analysis of the length of delay, the reasons for it, and the home health agency’s efforts to overcome whatever obstacles arose suggests that the home health agency obtained the certification ‘as soon thereafter as possible.’” The Sixth Circuit held that the relator’s complaint satisfied this standard, because she alleged that the certifications were not completed for months due solely to a backlog of Medicare claims that arose because of the defendants’ allegedly aggressive solicitation of residents for treatment. Continue Reading Sixth Circuit Revives Home Health Qui Tam Based on Pre-Escobar Standards; Dissent Criticizes Majority for Engaging in Rulemaking

A district court in the Middle District of Florida issued a new decision that will continue to make it challenging for corporate outsiders to successfully pursue a declined qui tam complaint – at least in the Eleventh Circuit. In U.S. ex rel. Chase v. Lifepath Hospice, Inc., et al., No. 10-cv-1061, 2016 WL 5239863 (M.D. Fla. Sept. 22, 2016), the court dismissed a False Claims Act (FCA) complaint based on the heightened pleading requirement of Federal Rule of Civil Procedure 9(b). The complaint, which alleged that defendants billed Medicare for hospice care that was either never provided or provided to ineligible patients, was dismissed primarily because the plaintiff did not adequately allege that false claims were actually submitted to the government. While the court held that the plaintiff had described a “private scheme in detail, to include facts as to some disturbing medical practices, she has not alleged ‘facts as to time, place, and substance of the defendant’s alleged fraud’ —that is, a fraudulent claim.” Id. at *7.

Continue Reading Corporate Outsiders – on the Wrong Side of the Circuit Split on Rule 9(b)

On September 1, 2016, the US Court of Appeals for the Seventh Circuit largely affirmed dismissal of a relator’s amended complaint pursuant to the particularity requirement of Fed. R. Civ. P. 9(b). In US ex rel. Presser v. Acacia Mental Health Clinic, LLC, the relator, a nurse, alleged that a number of practices at a clinic where she worked were not medically necessary. These were: requiring patients to see multiple practitioners before receiving medication; requiring patients to undergo mandatory drug screenings at each visit; and requiring patients to come to the clinic in-person in order to receive a prescription or speak to a doctor. (The relator also alleged that clinic misused a billing code. This was the only claim the Seventh Circuit permitted to go forward.) In dismissing the majority of the relator’s complaint, the Seventh Circuit began with a robust discussion of the importance of Rule 9(b) in screening out baseless False Claims Act (FCA) claims:

Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. We have observed, moreover, that fraud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims. (Citations and quotations omitted).

The Seventh Circuit held that the relator fell far short of Rule 9(b), because she provided “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.” The court further observed that the relator did not offer any reasons why the practices were unnecessary other than her “personal view” — the complaint was devoid of any context, such as a comparison of relator’s clinic’s practices to others in the industry. And while the relator attempted to rely on her 20 years of “experience and training,” this was simply not enough. The court concluded by holding that a relator’s subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.

The lesson of this case is clear: where an FCA complaint alleges that care was medically unnecessary (as many FCA complaints do), the relator must provide sufficient reasons, other than relying on his or her personal opinion, experience and training, as to why. A relator cannot simply assert that care was unnecessary and hope to fill in the blanks with discovery.