The Seventh Circuit recently added an arrow to a False Claims Act (FCA) defendant's quiver by requiring relators to plead fraud allegations based on objective criteria pursuant to Fed. R. Civ. P. 9(b). This ruling will significantly affect FCA suits in the health care space that are premised on whether the services rendered were medically necessary.
On September 1, 2016, the Court affirmed dismissal of the majority of an FCA suit, holding that relators must comply with the particularity requirements of Rule 9(b) when making allegations regarding fraud under the FCA. United States ex rel. Presser v. Acacia Mental Health Clinic, No. 14-2804, 2016 U.S. App. LEXIS 16224 (7th Cir. Sep. 1, 2016). The Court affirmed dismissal of most counts because the relator based her allegations that the defendant mental health clinic’s practices were not medically necessary on the relator’s subjective experience and judgment as opposed to objective criteria.
The relator, an independent contractor nurse practitioner, alleged that her employer, Acacia Mental Health Clinic, and its principal owner violated the FCA by engaging in “upcharging” by providing unnecessary medical procedures and billing the government for such unnecessary procedures. The Seventh Circuit upheld dismissal of three of the relator’s four false claims: Acacia required that every patient be assessed by four different individuals, each one submitting a charge; every patient was required to undergo urine testing during every visit; and patients were required to visit the clinic in person for each prescription refill or to speak with a physician.1
On appeal, the Seventh Circuit quickly rejected the lower court’s analysis that the relator did not comply with Rule 9(b)’s pleading requirements because she did not identify to whom the claims by the clinic were submitted.2 However, the Seventh Circuit took a decidedly less generous approach to the complaint’s description of the alleged fraudulent activity at the clinic. In dismissing the majority of the relator’s complaint, the Seventh Circuit engaged in a robust discussion of the importance of Rule 9(b) in screening out baseless FCA claims. The Court then affirmed dismissal of the three above categories of allegations and held that the relator’s allegations invoking the relator’s own “experience and training” of 20 years as the basis for fraudulent activity were not sufficient to survive the heightened pleading standards for pleading fraud under Rule 9(b). The Court explained that the relator failed to provide any objective criteria, like “medical, technical, or scientific context which would enable a reader of the complaint to understand why [defendant’s] alleged actions amount to unnecessary care.” In essence, the relator failed to offer any context for her “personal view” that the clinic’s practices were improper, such as comparison of defendant’s practices to other clinics in the industry. The Court concluded that the relator’s subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.
The holding is consistent with the district court’s opinion in United States v. AseraCare, Inc, No. 2:12-cv-245-KOB, 2016 U.S. Dist. LEXIS 42986 (N.D. Ala. Mar. 31, 2016), in which the district court granted summary judgment for AseraCare and emphasized that contradicting expert opinions over medical necessity, alone, cannot constitute falsity under the FCA.
Under the Seventh Circuit’s decision, relators now cannot simply plead that care was not medically necessary and hope to fill in the blanks with discovery. Instead, relators must adhere to Rule 9(b)’s particularity requirements, especially in the health care arena. Allegations that do not offer context to explain why particular billing or care practices are inappropriate or fraudulent will likely not survive a Rule 9(b) motion to dismiss. Perhaps even more significantly, the proscription against pleading based solely on an individual’s “personal estimation” or “subjective evaluation” of the alleged wrongdoing of a provider or contractor will present a significant hurdle to many relators bringing claims under the FCA.
This decision places weighty burdens in front of potential FCA relators, particularly those bringing claims based on violations of various health care statutes and regulations (including the Stark Law and the Anti-Kickback Statute). The decision provides ammunition for FCA defendants at the pleading stage, invigorates the heightened pleading requirements of Rule 9(b), and—particularly if it gains traction with other circuits—may ultimately help health care providers and other Government contractors reduce the number of suits, or narrow the scope of the claims, they may face under the FCA.