On July 18, 2016, the United States District Court for the Northern District of California issued one of the first post-Escobar decisions addressing a motion to dismiss FCA allegations on grounds that the complaint did not satisfy Rule 9(b)’s pleading standard. In the intervened case, the United States alleged that diagnostic sleep studies were performed in locations that violated federal law and/or were performed by technicians who were not licensed or certified. The United States proceeded on multiple FCA theories (including factual falsity, express false certification, fraud in the inducement, and implied false certification).

The district court granted the motion to dismiss on the implied certification theory, explaining that although the complaint alleged that the government would not have paid Defendants’ claims had they known of the alleged misconduct, the complaint failed to “explain why” that was the case. The district court held that the complaint’s bare allegations did not “meet Universal Health Services’ heightened materiality standard[.]” To the extent the United States wanted to continue to pursue that theory, because it did not have the benefit of the Escobar opinion when it drafted its complaint, the district court granted the United States leave to amend its complaint.

The paragraphs of the complaint that the court specifically deemed insufficient are set forth below.

  • This action alleges that from April 4, 2002 to present, Defendants knowingly submitted, or caused to be submitted, false claims to Medicare for diagnostic sleep studies performed in locations that violated federal law and/or performed by technologists who were not licensed or certified, in violation of federal law. Defendants also knowingly submitted, or caused to be submitted, false claims to Medicare for durable medical equipment (“DME”) based on those studies, and supplied such DME in violation of federal law. As a result of this fraudulent conduct, Defendants received millions of dollars from the Medicare program. The United States would not have paid Defendants’ claims had it known of Defendants’ fraudulent conduct. (See ¶ 2.)
  • Defendants billed Medicare for tests performed by employees who had no license or certification by any State entity or national credentialing body. National Government Services, Palmetto, and Noridian would not have paid the claims for sleep and titration tests submitted by Defendants if they had been aware that the tests were not performed by licensed or registered personnel, as required. (See ¶ 73.)
  • Despite the fact that Defendants were knowingly providing false NPI numbers and addresses for sleep and titration tests on the Form CMS-1500s (or their electronic equivalent), Defendants expressly certified, by signing and submitting the Form CMS-1500s (or their electronic equivalent), that their claims for payment were true, accurate, and complete, and that the claims complied with all applicable Medicare laws, regulations, and program instructions. The United States would not have paid for Defendants’ claims had it known of Defendants’ fraudulent conduct. (See ¶ 97.)
  • Claims submitted to Medicare for DME dispensed by Amerimed are false. Defendants wrongfully submitted, or caused the submission of, claims for this DME to Medicare, and Defendants wrongfully received money from Medicare for such DME. Medicare would not have paid for the DME had it known it was dispensed by Amerimed, an unapproved supplier. (See ¶ 126.)