On August 29, 2014, the U.S. Court of Appeals for the Eighth Circuit issued an opinion in Thayer v. Planned Parenthood of the Heartland, 2014 WL 4251603 (8th Cir. Aug. 29, 2014) that could have a significant impact on health care providers defending against qui tamactions alleging violations of the False Claims Act (FCA). The most common first-line defense in such actions is a motion challenging the sufficiency of the complaint under Fed. R. Civ. P. 9(b), which requires that allegations of fraud be pled with specificity. And one of the most common bases to challenge allegations of sweeping and widespread fraud is the complaint’s failure to identify, at a minimum, specific representative examples of fraudulent claims. The holding in Thayer eases the threshold requirement for a plaintiff to plead FCA claims by, under certain circumstances, eliminating the need to plead specific or representative examples of the fraudulent submissions to the government that form the basis of a fraudulent scheme in violation of the FCA.
Susan Thayer, a former manager of two Planned Parenthood clinics in Iowa, brought a qui tam action in the Southern District of Iowa against Planned Parenthood, alleging that it had violated the federal FCA, 31 U.S.C. §§ 3729–3733, and the Iowa False Claims Act (IFCA), Iowa Code Ann. §§ 685.1–.7, by submitting fraudulent claims for Medicaid reimbursement. Specifically, Thayer alleged that Planned Parenthood: (1) filed claims for unnecessary quantities of birth control pills that often were prescribed without examinations; (2) sought reimbursement for abortion-related services in violation of federal law; (3) instructed patients who experienced abortion-related complications to provide false information to medical professionals at other hospitals, causing those medical professionals to unknowingly file claims for services performed in connection with abortions; (4) filed claims for services that had already been paid by “donations” that Planned Parenthood coerced from patients; and (5) filed claims for more expensive services than were actually performed (upcoding). Thayer, who had been employed by Planned Parenthood from 1991 through 2008, alleged that these schemes took place over a two-year period from December 2006 through December 2008, and that while employed as a center manager, she had direct access to, and oversaw the operation of, the clinic’s billing and claims systems.
Planned Parenthood moved to dismiss Thayer’s complaint, arguing that she failed to allege fraud with the particularity required by Rule 9(b). The district court granted Planned Parenthood’s motion, concluding that Thayer failed to meet the pleading requirements of Rule 9(b) as articulated in United States ex rel. Joshi v. St. Luke's Hospital, Inc., 441 F.3d 552 (8th Cir. 2006), because she failed “to provide a single specific example of a particular fraudulent claim Planned Parenthood submitted to the government, let alone any representative examples.” Similar requirements have been adopted by other circuits as well. See United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493 (6th Cir. 2007); United States ex rel. Karvelas v. Melrose– Wakefield Hosp., 360 F.3d 220 (1st Cir. 2004), abrogated on other grounds, Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301 (11th Cir. 2002).
In affirming in part and reversing in part the district court’s decision, the Eighth Circuit first observed that because the FCA is a statute grounded in fraud, a complaint alleging violations of the FCA must meet the Rule 9(b) requirement that fraud claims be pled with particularity. The court equated that requirement with the obligation to state the “who, what, where, when, and how” of the alleged fraud.
The court then considered its holding in Joshi, which applied the Rule 9(b) standard in the context of an FCA case and upon which the district court based its decision. In Joshi, the Eighth Circuit held that a plaintiff alleging systematic violations of the FCA was required to “provide some representative examples of [the defendant’s] alleged fraudulent conduct, specifying the time, place, and content of [the defendant’s] acts and the identity of the actors.” However, the Eighth Circuit clarified that Joshi does not hold that representative examples must be pled in every FCA complaint alleging a systematic fraudulent scheme; rather, specific examples must be pled only where the allegations otherwise lack sufficient indicia of reliability. In Joshi, the relator was an anesthesiologist who was not a part of the billing or claims processes and did not have personal knowledge of the submission of false claims; thus, he could only speculate that false claims were actually submitted. For that reason, he was required to plead specific representative examples to support his complaint. But unlike the anesthesiologist, Thayer was an employee who directly oversaw the billing and claims processes and had personal knowledge of the false claims; thus, the holding in Joshi did not require that she plead specific representative examples (or “state the contents of the bill”) for each allegation of fraud.
The Eighth Circuit cited the general principle adopted by several other circuits that a plaintiff asserting an FCA claim can satisfy Rule 9(b) by “alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” See United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009); Chesbrough v. VPA, P.C., 655 F.3d 461, 471 (6th Cir. 2011); Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998–99 (9th Cir. 2010); United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010). It found that under this principle, a relator need not always plead specific examples of fraudulent claims, noting in particular the Fourth Circuit’s 2013 ruling in U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., 707 F.3d 451, 457 (4th Cir. 2013) (relator need not identify individual false claims if the “specific allegations of the defendant’s fraudulent conduct necessarily led to the plausible inference that false claims were presented to the government[,]” but representative examples are required if a defendant’s actions “could have led, but need not necessarily have led, to the submission of false claims”). In other words, a relator can satisfy Rule 9(b) without providing specific examples of false claims as long as the relator can offer evidence that “strengthen[s] the inference of fraud beyond possibility.” The court reasoned that adopting this standard aligns with the “context specific and flexible” nature of Rule 9(b) and protects defendants from baseless claims without obstructing legitimate efforts to expose fraud. However, the court cautioned that to satisfy the “particular details” requirement, the relator must provide sufficient information “to enable the defendant to respond specifically and quickly to the potentially damaging allegations.”
Applying that standard to the facts before it, the Eighth Circuit held that Thayer had pled sufficiently particularized facts to support most, but not all, of her allegations. Because she had included such details as the names of the individuals who instructed her to carry out the fraudulent schemes, the specific time period in which the schemes took place, the clinics that participated in the schemes, the methods by which the schemes were perpetrated, and specific details about the clinics’ billing systems and practices, and because she alleged that she had personal knowledge of the submission of false claims, Thayer’s complaint satisfied Rule 9(b) in regard to Planned Parenthood’s filing claims for: (1) unnecessary quantities of birth control pills, (2) birth control dispensed without examinations or a physician’s order, (3) abortion-related services, and (4) services that had already been paid by “donations” coerced from patients. Accordingly, the court reversed the district court’s dismissal of these four allegations.
On the other hand, Thayer could offer neither firsthand knowledge of, nor sufficient detail regarding, the allegations of: (1) Planned Parenthood’s causing other hospitals to unknowingly submit false claims; or (2) upcoding. Not having access to other hospitals’ billing or claims systems, Thayer could only speculate that other healthcare facilities actually submitted any improper claims, and she could not offer details of upcoding at Planned Parenthood such as “when or how often upcoding took place at the various clinics, who or how many physicians engaged in upcoding, or what types of services were involved in the upcoding scheme.” Under the standard the court had just adopted, Thayer was required to provide specific examples of these two allegations, which she had not done. Accordingly, the Eighth Circuit affirmed the lower court’s dismissal of these allegations.
The Eighth Circuit’s holding in Thayer, combined with last year’s ruling in Nathan, may ease the pleading standards for FCA cases by eliminating the need to plead specific examples of false claims as long as plaintiffs can provide some detail of the scheme along with reliable indicia that claims were actually submitted. What courts will hold to constitute “reliable indicia” that the claims were submitted is yet to be determined.