On January 19, 2011, in United States ex rel. Blundell v. Dialysis Clinic, Inc., No. 5:09-cv-710-NAM-DEP, the District Court for the Northern District of New York dismissed with prejudice a Complaint by a whistleblower and former staff nurse against Dialysis Clinic, Inc., alleging that the company submitted false claims by billing for dialysis services rendered at times when the company failed to comply with federal regulations set forth in 42 C.F.R. § 494 (“Conditions for Coverage for End-Stage Renal Disease Facilities”), resulting in what the Relator described as “compromised care.” Id. at 4-5. The Court rejected theories of both express and implied false certification and found the Relator could not plead details of any alleged false billing to survive Federal Rule of Civil Procedure 9(b)’s specificity requirement.

The False Claims Act generally requires the submission or use of a “false claim.” A claim may either be factually false (e.g. a claim for a service never provided) or legally false (e.g. a claim either expressly or by implication states that certain legal prerequisites to payment have been complied with in submitting the claim). In this case, Relator claimed that the services failed to comply with regulatory requirements—and thus were legally false claims. The Court rejected these arguments, making two important rulings.

First, the Court rejected the Relator’s claim that the Defendant’s certification in its Medicare Enrollment Form CMS 855A that it would comply with Medicare laws, regulations, and instructions constituted an express certification such that later failures to comply with Medicare regulations constituted false certifications. Form CMS 855A includes the following certification:

I agree to abide by the Medicare laws, regulations and program instructions that apply to this provider. The Medicare laws, regulations, and program instructions are available through the Medicare contractor. I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal anti-kickback statute and the Stark law), and on the provider’s compliance with all application conditions of participation in Medicare.

Id. at 25. The Court adopted the reasoning of another district court, finding that “‘there is no reason why such an explicit certification of future compliance cannot be the basis of False Claims Act liability if the provider makes such a certification knowing it will violate the statute, and later submits claims which are not in compliance with the statute.’” Id. at 26 (citation omitted) (emphasis added). Nevertheless, in this case, the Relator failed to allege that when the Defendant signed the enrollment form it knew it would be submitting false claims. Id. at 27.

Second, the Court rejected Relator’s claims based on implied certification and highlighted the long-standing line of FCA case law distinguishing between conditions of participation and conditions of payment. The Court explained, “[c]onditions of participation, as well as a provider’s certification that it has complied with those conditions, are enforced through administrative mechanisms, and the ultimate sanction for violation of such conditions is removal from the government program. Conditions of payment are those which, if the government knew they were not being followed, might cause it to actually refuse payment.” Id. (citations and quotation marks omitted). In this case, the Court found that operative provisions of the regulation at issue applied to “‘conditions’ relating to, inter alia: infection control, . . . quality assessment, physical environment, patients rights, patient assessment, personnel qualifications and medical records.” Id. at 34. Related regulations provide for the ultimate sanction of termination from the Medicare program if a provider is non-compliant with these conditions of participation. Nevertheless, a provider may continue to receive Medicare payments during periods of non-compliance. Id. Accordingly, the Court found that the regulations at issue imposed conditions of participation, but not conditions of payment that triggered FCA liability. Id. at 36.

In addition to the rulings on express and implied false certification, the Court addressed Defendant’s public disclosure bar challenge under Federal Rule of Civil Procedure 12(b)(1) and a motion to dismiss based upon the failure to plead fraud with particularity under Federal Rule of Civil Procedure 9(b). As to the first, the Court found the Relator’s operative complaint was not “based upon” a public disclosure and survived operation of the FCA’s public discourse bar. Id. at 16. On the other hand, the Court found that Defendant’s 9(b) motion provided an alternative ground to dismiss the complaint. It held that Relator “has not identified a single bill submitted in relation to any of the examples [of compromised patient care] outlined in the second amended complaint.” Id. at 21. The Court went on to state that “Plaintiff summarily asserts that, ‘any bill submitted to the government is . . . a fraudulent claim.’ This is exactly the type of vague and generalized allegation that is impermissible under Rule 9(b).” Id. at 22.

The Court’s decision is available by clicking here.