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.

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 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.

On May 23, 2016, the US District Court for the District of Massachusetts dismissed several of the claims in a False Claims Act (FCA) whistleblower suit against Medtronic, Inc. and its wholly-owned subsidiary Medtronic MiniMed, Inc. (Medtronic) related to its insulin pumps and integrated diabetes management systems.

In United States ex rel. Witkin v. Medtronic, Inc., the relator, Witkin (a former employee of Medtronic) alleged that certain of Medtronic’s promotional activities related to its insulin pumps and the pediatric use of its integrated diabetes management systems designed for adult use were false or misleading, resulting in false claims for reimbursement.  The district court held that Witkin failed to plead his claims with sufficient particularity pursuant to Fed. R. Civ. P. 9(b).  The district court emphasized the particularity requirement in this case, observing that “the alleged fraudulent promotional activity permits only a weak inference of resulting false claims.”  Specifically, the district court held that, with respect to allegations that Medtronic promoted its insulin pumps for use with a type of insulin that is not approved for administration with a pump, Witkin failed to connect allegations of fraudulent promotion to any false claims for reimbursement of either the pumps or the insulin. In addition, with respect to the pediatric use of adult integrated diabetes management systems, the District Court invoked the often-cited principle that “Witkin had alleged an elaborate fraudulent scheme with some detail, but without particularity as to the ‘who, what, where, and when’ of the underlying fraudulent promotion or eventual false claims.”

Accordingly, the district court dismissed the claims that relied on a theory of off-label promotion on Rule 9(b) grounds.  Notably, the district court distinguished the alleged off-label promotion at issue in this case from claims in other cases that premise FCA liability on truthful off-label promotion, noting that there is a question about whether imposing liability in such circumstances would run afoul of the First Amendment (citing the Second Circuit’s 2012 holding in United States v. Caronia, which we discussed in our post on May 26).

The particularity of the pleading was also an issue in a claim unrelated to off-label promotion.  The district court also dismissed, on Rule 9(b) grounds, Witkin’s claims that Medtronic assisted patients in fabricating eligibility criteria for pump therapy because Witkin failed to include particularized allegations of patient targets or when or what information was falsified “let alone allegations of doctors who endorsed the fabricated certifications of medical necessity and thereafter made false claims to the government health care programs.”

The decision was not a total loss for Witkin, however, as the district court permitted certain FCA claims to continue, based on payments to physicians allegedly in violation of the Anti-Kickback Statute (AKS).  In addition, the district court allowed Witkin’s retaliatory discharge claims to continue.  As to the dismissed claims, however, the district court indicated that it was not inclined to allow Witkin to amend.  The district court warned that, as Witkin had already been allowed two amended complaints, the court was unlikely to grant any additional requests to amend the complaint, stating that, absent unforeseen circumstances, Witkin would not be allowed to “try to reformulate his allegations, yet again, to avoid their legal deficiencies.”

On February 2, 2016, U.S. District Court for the District of Massachusetts dismissed a complaint alleging sweeping allegations of purported fraud under the False Claims Act (FCA) relating to hip replacement devices, and in doing so reaffirmed the principle that where an FCA complaint fails to plead the specifics of actual false claims, it cannot survive. The case is United States ex rel. Nargol v. DePuy Orthapaedics, Inc., in which, at the end of a 57-page opinion, U.S. District Judge Dennis Saylor denied the relators’ request for leave to amend, observing that “[d]espite full awareness of Rule 9(b)’s pleading standards, the relators—who are expert witnesses in related products-liability lawsuits against DePuy—have failed to plead with requisite particularity even a single false claim for the Pinnacle [metal-on-metal] [] device in their 168-page second amended complaint.”

The relators alleged a variety of conduct, but most of it boiled down to variations on the same theme: alleged concealment of product defects from the U.S. Food and Drug Administration (FDA) and doctors, resulting in the submission of false claims. The relators asserted that all claims for payment submitted to the government for costs of the device between the application for FDA approval and the device’s withdrawal from the market were false. The district court roundly rejected this, holding that despite the litany of allegations, the complaint’s specificity regarding the submission of actual false claims submitted to the government was woefully deficient:

In sum, the [second amended complaint] [] spends more than two hundred paragraphs detailing misrepresentations and false statements that DePuy allegedly made to the FDA and surgeons, including the relators themselves. It alleges in general terms that “the government directly purchased . . . hundreds of thousands of Pinnacle products.” But ten of the twelve allegedly false claims do not even refer to the only product relevant to this suit: the Pinnacle metal-on-metal device. For the two remaining “orders,” the SAC fails to plead with sufficient particularity the who, what, when, where, and how of a single false claim that DePuy presented to the [Veterans’ Administration].

The district court more generally observed that the FCA incentivizes bounty-hunting relators to attempt to turn product defect allegations into allegations of fraud:

The statute provides large awards to qui tam relators as an incentive to bring such cases. The prospect of such an award may also, however, provide an incentive for individuals to try to convert virtually any set of allegations arising out of a defective product or faulty service into an FCA case. That is particularly true in the medical field, where the government purchases medical supplies and services on a large scale through Medicare, Medicaid, the VA, and other health-care programs…

The district court’s detailed opinion demonstrates that, in many courts, a relator’s attempt to convert a products liability theory (or other tort theory) into a claim for fraud on the government under the FCA will be met with a high degree of skepticism.

The United States District Court for the Middle District of Florida recently dismissed the government’s False Claims Act case against Liberty Ambulance Service, Inc. for failure to plead its claims with sufficient particularity.  The court in United States ex rel. Pelletier, No. 3:11-cv-00587 (M.D. Fla. Jan. 7, 2016), held that while the government’s allegations plausibly gave rise to relief on its claim that the defendant defrauded the government by falsifying reports of ambulance services provided, the government nonetheless failed to meet the particularity requirement of Rule 9(b).

The crux of the court’s decision was that the government failed to sufficiently allege that Liberty had actually submitted a false claim to the government.  The court reiterated the often-invoked standard that liability under the FCA attached “not to the underlying fraudulent activity or to the government’s wrongful payment but to the “claim for payment.’”  Thus, the court stated, “a False Claims Act plaintiff may not describe an improper scheme in detail and assume that a claim for payment must have been or likely was submitted based on the scheme.”

The court observed that the government had alleged in detail the fraudulent scheme to falsify records:  “the government’s complaint and supporting materials go into great detail regarding a scheme whose purpose may well have been to secure payment from the government based on false claims.”  Yet the government’s allegations failed to allege with sufficient particularity that Liberty has actually submitted false claims. Despite presumably having access to the submitted claims, the government could not identify a single false claim submitted by the defendant.  Nor were any of the government’s witnesses “involved with the actual submission of claims to the government or the receipt of payment from the government.”  Unable to cite specific false claims and without “first-hand knowledge of Liberty’s internal billing practices,” the government could not meet Rule 9(b)’s particularity requirement.

The court distinguished the U.S. Court of Appeals for the Eleventh Circuit’s decision in United States ex rel. Walker v. R&F Prop. of Lake County, Inc., 433 F.3d 1349 (11th Cir. 2005), where that court had affirmed the denial of a motion to dismiss an FCA claim despite the plaintiff’s failure to specifically identify any false claim.  In Walker, the plaintiff had some knowledge of the defendants’ billing practices and had spoken to an office administrator who confirmed how the government was billed.  Here, by contrast, the court held, the statements of the defendant’s employees that the government offered did “not demonstrate the same degree of familiarity with the billing process as would provide the indicia of reliability necessary to meet the Rule 9(b) standard.”

The court’s decision confirms the importance of holding an FCA plaintiff—whether a relator or the government—to its burden of pleading its claims with particularity.  Even where the plaintiff can allege a plausible scheme to defraud the government, without a particularized accusation that false claims were submitted, the FCA case cannot proceed.

In a decision released yesterday in U.S. ex rel. Bogina v. Medline Industries, Inc., the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a relator’s False Claims Act (FCA) complaint, holding that the complaint’s allegations had been publicly disclosed in a prior, settled lawsuit and the relator was not an original source. The opinion, authored by Judge Richard Posner, described FCA relators as “bounty hunters” and observed that the FCA imposes obstacles on parasitic bounty-hunting relators who seek to “be handsomely compensated if the[ir] suit succeeds.” Among those obstacles is the FCA’s public disclosure bar, which Judge Posner’s opinion ensures has sharp teeth in the Seventh Circuit.

First, the court held that the 2010 amendments to the original source exception the public disclosure bar, requiring a relator to “materially add” to publicly disclosed allegations in order to surmount the bar, could be applied retroactively because the amendments merely clarified the prior version of the exception. Accordingly, parties litigating in courts within the Seventh Circuit can expect that the current version of the public disclosure bar’s original source requirement will apply, regardless of when the relator acquired his or her knowledge.

Second, the court rejected the argument of the relator, August Bogina, that he had materially added to the allegations made by a prior relator, Sean Mason, in a prior FCA case that the government had settled. Both suits alleged that defendant Medline had made kickbacks to induce purchases of medical equipment. Bogina’s subsequent suit before the Seventh Circuit added a defendant (the Tutera Group, a nursing home chain that allegedly accepted kickbacks) that had not been mentioned in Mason’s prior, settled suit. Bogina also argued that the release provided by the government in the prior suit only concerned false claims submitted to Medicare Part A and Medicaid, but not to other government healthcare programs such as Medicare Part B and Tricare. The Seventh Circuit held that these differences were “unimpressive” from an original source standpoint, observing:

The government was thus on notice of the possibility of a broader bribe-kickback scheme before Bogina sued. Had it wanted to broaden the case against Medline beyond the Mason settlement, it could have gone after, among other Medline customers, nursing home companies such as the Tutera Group that received (if Bogina is correct) Medline kickbacks. …. Moreover, a settlement is a compromise; and it is notable that among the claims the government released as part of the Mason settlement were some of the very claims alleged in Bogina’s complaint.

The Seventh Circuit’s focus on the extent to which the prior suit put the government on notice of the alleged fraud is of crucial importance for defendants faced with copycat claims based on allegations that are similar to allegations they previously settled. Adding defendants or payors not involved in the prior suit is not a material addition sufficient to survive the public disclosure bar, where the prior suit put the government on notice of the allegations. Future defendants should thus focus their public disclosure and original source arguments on the concept of government notice; under the reasoning of the Seventh Circuit, the overlap between the two suits need not be even close to identical.

The Seventh Circuit also rejected Bogina’s assertion that his allegation that the fraud was continuing to the present (versus through 2009 as alleged in the prior suit) was sufficient to give him original source status, because Bogina made such allegation merely on “information and belief.”  Such allegations do not satisfy Rule 9(b), and the court observed that “a public accusation of fraud can do great damage to a firm before the firm is exonerated in litigation.”

The moral of the story is that relators seeking to establish original source status in the Seventh Circuit must truly be original.

Defending False Claims Act litigation is often a costly budget item. The disposal of weak cases by the government through the intervention decision making process has always been a critical safety valve for non-culpable defendants. Two of the more concerning trends in False Claims Act litigation, however, are (1) the increasing likelihood of relators pursuing factually and legally weak allegations after the government declines to intervene, and (2) courts allowing such cases to survive a Rule 9(b) motion to dismiss. A recent case in the Middle District of Florida involving the unintended consequences of a health system’s adherence to a local zoning obligation serves as a prime example of these troubling trends.

On August 14, 2015, in U.S. ex rel. Bingham v. BayCare Health System, the court denied the defendants’ motion to dismiss relator’s claim that BayCare Health System (BayCare) and an independent third party real estate developer, St. Pete MOB, LLC (St. Pete’s)—referred to by relator as BayCare’s “proxy”—entered into a “scheme” to enable BayCare to pass remuneration to physicians in violation of the Stark Law and Anti-Kickback Statute (AKS). According to the relator, the heart of this “scheme” is BayCare’s ground lease to St. Pete’s on a BayCare hospital’s campus to build a medical office building (MOB).

In this ground lease, BayCare provided a non-exclusive easement for MOB tenants to use the hospital’s parking facilities.  As pleaded by the relator, and acknowledged by the court, this easement was included in the lease “to satisfy zoning and other governmental requirements.”  Despite this salient fact, relator turns this legally-required easement into illegal remuneration under the Stark Law and AKS simply by alleging that one of BayCare’s purposes in providing the easement was for St. Pete to avoid incurring the costs to lease additional land and to build a parking garage, and then for St. Pete to “pass some or all of the millions of dollars in savings to physician tenants to encourage them to make or increase referrals.” However, the relator does not appear to have mustered support for this bald conclusion. The relator does not appear to allege that the terms of the physicians’ leases with St. Pete’s are problematic, other than suggesting that amending the leases in 2013 to allow the physicians, staff and patients to use the parking facilities to access the MOB at no charge is another sign of improper remuneration.  The relator also asserts that BayCare provided a “rent concession” to the tenant physicians (even though BayCare is not the landlord) by claiming a tax exemption for what is alleged to be non-exempt property, which saved St. Pete’s about $140,000 in real property taxes. The relator alleges, with little support, that this tax exemption resulted in lower rent charged to the physician tenants and that BayCare is culpable for this alleged remuneration even though St. Pete’s was the lessor.

The legal theory and factual problems with this case are multifold. BayCare’s legal obligation to meet the local zoning requirement for the easement should raise significant challenges for the relator in proving the intent necessary for a criminal AKS violation. Nonetheless, the district court’s unwillingness to dismiss the AKS count demonstrates significant deference to the relator and forces the defendants to continue to expend costs litigating the matter. As for Stark, the relator’s complaint also appears to enjoy the broad benefit of the doubt from the court even though serious questions are presented as to whether the allegations could establish whether either direct or indirect compensation was paid to the physicians.

Notably, Thomas Bingham, the relator, is a serial whistleblower who has been previously successful at extracting settlements in prior FCA matters. Mr. Bingham is a certified real estate appraiser based in Nashville and admits to developing his qui tam allegations, not from insider knowledge, but rather from working with another client in the area, reviewing publically available information, and using “his skills and experience as a commercial real estate appraiser in uncovering the schemes.” He has brought at least two other FCA cases alleging AKS and Stark violations in hospital real estate transactions involving physicians. In 2008, he filed an FCA case against the Healthcare Corporation of America (HCA) and its Chattanooga hospital, Parkridge Medical Center, claiming that Parkridge made rental payments for office space to a physician group in excess of fair market value. This case settled in 2014 with HCA paying $16.5 million to the Government, of which Mr. Bingham received a $2.9 million relator share. Mr. Bingham has filed another FCA case against HCA, this time in Florida, alleging conduct similar to his Tennessee case. His complaint was unsealed on February 23, 2015, after the government declined to intervene. At minimum in his case against BayCare, Mr. Bingham’s admission about having no insider knowledge calls into question his ability to properly qualify as a relator under the FCA’s public disclosure bar.

Unfortunately, in at least some jurisdictions, it seems to be becoming easier for relators to pursue highly questionable fraud claims, after the government declines to intervene. While appellate courts are increasingly being called upon to reverse this trend (the Seventh Circuit’s recent rejection of implied certification claims is an apt example), hospitals and other providers are forced to assume the costly defense of meritless claims and weigh whether to take cases to trial to discourage whistle-blowers or settle matters to mitigate the often outsized risk of a “runaway” jury verdict.

In U.S. ex rel Gage v. Davis S.R. Aviation, LLC, the U.S. Court of Appeals for the Fifth Circuit confirmed the high degree of specificity needed to successfully plead a claim under the False Claims Act (FCA). Affirming the lower court’s dismissal on Rule 9(b) grounds, the court held that a plaintiff who alleged that certain government contractors defrauded the government by improperly reselling salvaged aircraft parts failed to plead the “who, what, when, where and how” of the alleged scheme. Specifically, the court held that plaintiffs who assert a false claim based on a failure to meet a contractual provision must allege the exact contractual provision that was breached and set forth the exact nature of that breach.

The plaintiff claimed that the defendants had salvaged certain aircraft parts from a crashed civilian aircraft and resold the allegedly defective parts to the U.S. government for use in military aircraft. As the plaintiff had not alleged that the defendants had expressly certified that the parts sold to the government complied with any statute, regulation or contractual provision, the Fifth Circuit assumed, without deciding, that implied certification is a valid theory of FCA liability. Even under that relaxed standard, however, the court found the plaintiff’s allegations lacking.

The court held that the plaintiff had failed to allege that any implied false certification was material because the plaintiff had not identified any specific contractual provision that the parts sale had violated. The plaintiff alleged that the re-use of salvaged parts violated several provisions of the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). While some courts have held that a violation of federal regulations can form the basis of an FCA claim, here, the Fifth Circuit held that the plaintiff had not sufficiently alleged that these regulations were applicable or that they had been incorporated into the contract under which the government purchased the parts.

The plaintiff argued that, while he had not seen the contract because it was classified, the contract must contain the FAR and DFARS provisions, because such inclusion was mandatory in government contracts. But the court rejected that contention, noting regulatory provisions stating that the inclusion of FAR and DFARS provisions may be waived. Thus, because the plaintiff had no basis to allege with certainty that these provisions were included in the contract, he could not allege that the contract had been breached. Therefore, the court held, the plaintiff had no basis to claim that the alleged violation of the FAR and DFARS provisions were material to the government’s decision to pay. According to the court, the plaintiff’s claim was “necessarily speculative” without “particularized and plausible identification” of the contractual provision allegedly violated.

The court’s holding re-affirms the high level of pleading detail needed to pursue a claim under the implied certification theory of FCA liability.

In an opinion last week in U.S. ex rel. Hagerty v. Cybertronics, Inc., No. 13–10214–FDS, 2015 WL 1442497 (D. Mass. Mar. 31, 2015), the U.S. District Court for the District of Massachusetts addressed the status of the False Claims Act’s public disclosure bar after the Patient Protection and Affordable Care Act (PPACA).  Specifically, the district court examined whether the bar continues to be jurisdictional, holding that while the prior version of the bar clearly presented a question of subject matter jurisdiction (“[n]o court shall have jurisdiction over an action” based on publicly disclosed allegations), the post-PPACA version “appears to be non-jurisdictional.”

The district court first determined that the First Circuit Court of Appeals has not directly addressed the issue, notwithstanding the First Circuit’s explicit reference to the post-PPACA public disclosure provision as a “jurisdictional bar.”  See U.S. ex rel. Estate of Cunningham v. Millenium Labs. of Cal., Inc., 713 F.3d 662, 669, n.5 (1st Cir. 2013).  The district court was dismissive of the First Circuit’s statement in Cunningham, finding that it was made in a footnote and was “not part of the holding of that case.”

The district court then concluded that the bar is no longer jurisdictional, citing decisions in the Fourth and Eleventh Circuits.  The district court reasoned that the reference to “jurisdiction” has been removed from the statute, which now states that a court “shall dismiss” an action based on publicly-disclosed allegations.  The district court also pointed out that the government can now elect to allow an action to proceed even if it would otherwise be barred.

For FCA defendants, whether or not the current version of the public disclosure bar is jurisdictional shapes the framework for seeking dismissal.  The Hagerty court held that dismissal on public disclosure grounds in the post-PPACA world should be sought based on failure to state a claim under Fed. R. Civ. P. 12(b)(6), which, among other things, generally precludes reliance on matters outside the complaint in a motion to dismiss.  Historically, public disclosure-based dismissals have been sought pursuant to Fed. R. Civ. P. 12(b)(1) (lack of subject matter jurisdiction), which is not similarly limited.

However, even the Hagerty court recognized that items such as news articles that are susceptible to judicial notice can properly be considered in the context of a Rule 12(b)(6) motion to dismiss.  Given that courts are often willing to take judicial notice of matters that are public in nature, the procedural vehicle for seeking dismissal ultimately may not matter all that much.  Indeed, while the Hagerty court concluded that the public disclosure bar did not bar the relator’s FCA claims, the jurisdictional issue had no real bearing on that outcome, which was driven by the court’s comparison of the substantive content of the prior disclosure to the allegations in the complaint before the court.

Despite holding that the relator’s claims were not precluded by the public disclosure bar, the district court nonetheless dismissed the relator’s FCA claims for failure to plead fraud with particularity in a discussion that is worth a read for any defendant accused not of actually submitting false claims, but of causing someone else to do so.  The court held that while it had “some pause” about Rule 9(b) dismissal, the relator’s allegations regarding specific, false claims were simply inadequate:

It is certainly true that the complaint alleges a widespread scheme that, among other things, subjected vulnerable patients to unnecessary surgical operations.  And it certainly seems likely – as a matter of logic – that if the scheme was as widespread as relator alleges, some false claims must have been submitted somewhere, by someone, to the federal government.  The question, however, is not whether the scheme should be redressed; indeed, the government had an opportunity to intervene if it chose, and presumably has other weapons in its arsenal for dealing with the issue.  Instead it is whether the complaint here meets the relatively exacting standard for FCA claims required by [First Circuit FCA precedent construing Rule 9(b)] (emphasis added).

The italicized language is important against a landscape where FCA relators increasingly pursue complaints that are heavy on allegations of a broad “scheme,” but light on allegations regarding actual, false claims submitted to the government — the only wrong the FCA is intended to redress.